<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1999
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
METRETEK TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
DELAWARE 84-1169358
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 BROADWAY, SUITE 2150, DENVER, CO 80202
(Address of principal executive offices, including 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, par value $.01 per share
Common Stock Purchase Warrants
(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 disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not 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, 1999
were $19,365,196.
As of March 15, 2000, the aggregate market value of the shares of the issuer's
Common Stock, the only class of voting or non-voting common equity of the
registrant, held by non-affiliates was $54,042,975, based upon $15.75, the last
sale price of the Common Stock on such date as reported on the Nasdaq National
Market.
As of March 15, 2000, 5,003,678 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format (check one): Yes / / No /X/
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
METRETEK TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I ITEM 1. DESCRIPTION OF BUSINESS......................................... 2
ITEM 2. DESCRIPTION OF PROPERTY......................................... 31
ITEM 3. LEGAL PROCEEDINGS............................................... 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 32
PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................... 34
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 36
ITEM 7. FINANCIAL STATEMENTS............................................ 43
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE........................ 43
PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT..................................... 44
ITEM 10. EXECUTIVE COMPENSATION.......................................... 46
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................ 50
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 53
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K................................ 54
SIGNATURES................................................................................ 58
INDEX TO FINANCIAL STATEMENTS............................................................. F-1
EXHIBIT INDEX............................................................................. X-1
</TABLE>
<PAGE> 3
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains "forward-looking statements"
within the meaning of and made under the safe harbor provisions of Section 27A
of the Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"). From time to time, we may
publish or otherwise make available forward-looking statements of this nature.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance, and underlying assumptions and
other statements, which are not historical facts. The words "may", "could",
"should", "will", "project", "intend", "continue", "believe", "anticipate",
"estimate", "expect", "plan", "intend" and similar expressions are intended to
identify forward-looking statements. Examples of forward-looking statements
include statements regarding, among other matters, our plans, intentions,
beliefs and expectations about the following:
- Our future prospects, including our revenues, income, margins,
profitability, cash flow, liquidity, financial condition and
results of operations;
- Our business plans and strategies;
- The risks and uncertainties related to our business;
- Our products and services, market position, market share,
business, growth strategies and strategic relationships;
- Industry trends, competitive conditions and market conditions,
segments and trends;
- Our capital requirements and capital resources;
- The sufficiency of funds from operations and available
borrowings to meet our future working capital and capital
expenditure needs;
- The development of a market for the products and services of
our Internet-based energy information business;
- Our ability to successfully develop and operate an
Internet-based business, to successfully design, create and
sell our products and services over the Internet and to
successfully meet our Internet strategy objectives; and
- Our ability to finance our Internet-based business.
These forward-looking statements are based on the current plans,
intentions, beliefs and expectations of management as well as assumptions made
by and information currently available to management. You are cautioned not to
place undue reliance on these forward-looking statements. Forward-looking
statements are not guarantees of future performance or events. Forward-looking
statements are subject to substantial risks and uncertainties. Any or all of
these forward-looking statements could turn out to be wrong. Forward-looking
statements will be affected by inaccurate assumptions we might make or by known
or unknown risks and uncertainties that could cause actual results to differ
materially from those expressed or implied by the forward-looking statements.
These risks and uncertainties include, but are not limited to, the factors
described under "Additional Factors That May Affect Our Business and Future
Results" in Item 1 below, as well as other risks and uncertainties discussed
elsewhere in this Report, in documents incorporated by reference in this Report
and in our other reports and filings with the Securities and Exchange Commission
("SEC"). We undertake no duty or obligation to update or revise any
forward-looking statements for any reason, whether as a result of new
information, future events or otherwise.
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Metretek Technologies, Inc. and its subsidiaries ("Metretek" or "we")
is a diversified provider of energy measurement products, services and systems
to the energy industry. Metretek was incorporated in Delaware on April 5, 1991.
In June 1999, Metretek changed its name from "Marcum Natural Gas Services, Inc."
to Metretek Technologies, Inc. Metretek currently conducts its operations
through three subsidiaries:
- PowerSpring, Inc. ("PowerSpring"), based in Denver, Colorado,
which operates Metretek's Internet-based business to business
energy services hub.
- Metretek, Incorporated ("Metretek Florida"), based in
Melbourne, Florida, which designs, manufactures and sells
electronic devices and systems, commonly referred to as
automatic meter reading systems ("AMRs"), that automatically
monitor, record and transmit data from natural gas custody
transfer meters, electronic flow correctors and computers, and
other energy measurement products and services.
- Southern Flow Companies, Inc. ("Southern Flow"), based in
Lafayette, Louisiana, which provides a wide variety of natural
gas measurement services principally to producers and
operators of natural gas production facilities.
Until 1997, we had also operated in the compressed natural gas ("CNG")
industry through Marcum Denver, Inc. (formerly named Marcum Fuel Systems, Inc.)
("Marcum Denver"). Marcum Denver was our wholly-owned subsidiary which engaged
in the design, manufacture and sale of CNG refueling station equipment. In June
1997, Marcum Denver discontinued its operations by selling substantially all of
its assets, because growth in the CNG industry was not meeting management's
expectations.
During 1998, we decided to discontinue the operations of Marcum Gas
Transmission, Inc. ("MGT"). We formed MGT as a wholly-owned subsidiary to
acquire or finance the acquisition of natural gas assets through private
programs, and then to manage and maintain a small ownership interest in those
programs. Our decision to discontinue MGT's operations was based on the
declining prospects of the markets for these types of programs and in order to
enable us to focus on operations with better potential. In December 1997, MGT
sold one-third of its interests in two of the three programs it then managed,
and in March 1998, MGT liquidated the third program. We do not intend to form or
manage any new programs, although MGT will continue to manage the remaining two
programs that operate natural gas related assets until we sell MGT's interest in
those programs or liquidate the programs.
BUSINESS STRATEGY
Our business strategy is to position ourself as an integrated provider
of data management products and services which enhance the flow of information
to the energy industry. To date, our products and services have been aimed
primarily at the natural gas industry. 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. We intend to provide our products and services to
other segments of the energy industry. The energy industry generally is
undergoing fundamental regulatory and structural changes and trends. Our
strategy is to acquire, develop and operate businesses that are positioned to
take advantage of these trends.
2
<PAGE> 5
In implementing our business strategy, we have made several important
acquisitions:
- In 1993, we acquired substantially all of the assets of the
Southern Flow Companies division of Weatherford International
Incorporated ("Weatherford").
- In 1994, we acquired Metretek Florida.
- In 1998, we acquired the electronic corrector business from
American Meter Company ("American Meter").
- In March 2000, we acquired Mercator Energy Incorporated
("Mercator").
While we regularly engage in discussions relating to potential acquisitions and
dispositions, we have no present agreements or commitments with respect to any
material acquisition or disposition.
We have recently focused a major part of our business strategy upon the
development of our Internet-based business, PowerSpring. In furtherance of this
Internet-based business strategy, we have entered into a strategic relationship
with Scient Corporation ("Scient"), a leading eBusiness systems and strategy
advisor, and we have acquired Mercator. The goal of PowerSpring is to provide
comprehensive energy consumption data and a broad array of additional
information designed to facilitate the purchase and management of natural gas by
commercial users of natural gas. PowerSpring also intends to provide commercial
electricity users with a mechanism to manage their energy needs and reduce their
electricity costs. Our initial focus is the development of a website to provide
a single source of information and services for commercial energy users.
RECENT DEVELOPMENTS
On February 4, 2000, we completed a $14,000,000 private placement (the
"Units Private Placement") of 7,000 units ("Units"), including 1,450 Units we
issued on December 9, 1999. Each Unit consisted of 200 shares of Common Stock, 1
share of Series B Preferred Stock and warrants ("Unit Warrants") to purchase 100
shares of Common Stock. For a description of the material terms of these
securities, see "Item 5. Market for Common Equity and Related Stockholder
Matters - Recent Sales of Unregistered Securities." In the Units Private
Placement, we issued 1,400,000 shares of Common Stock, 7,000 shares of Series B
Preferred Stock and Unit Warrants to purchase 700,000 shares of Common Stock.
The Units Private Placement was approved and ratified by our stockholders at a
special meeting of stockholders held on February 3, 2000. The Units were issued
to institutional investors and other "accredited investors" (as defined under
Regulation D under the Securities Act).
The primary purpose of the Units Private Placement was to raise capital
to enable us to develop the Internet-based business of PowerSpring. A portion of
the proceeds was also used to repay outstanding indebtedness, and the remaining
proceeds will be used for general corporate and working capital purposes,
including potentially providing the funds to finance an acquisition opportunity,
if one were to arise.
On March 17, 2000, we acquired Mercator through a merger with a
wholly-owned subsidiary of PowerSpring. Mercator is a Denver-based natural gas
services and brokerage company that acts as an independent broker-agent for both
producers and users. This acquisition will provide PowerSpring with Mercator's
expertise in the area of energy procurement, which is an important element in
our Internet business strategy.
In consideration for the acquisition of Mercator, we delivered to John
A. Harpole, the President and sole shareholder of Mercator prior to the
acquisition, $408,334 in cash, a $741,666 non-negotiable promissory note payable
by PowerSpring over two years and secured by a general security interest in the
assets of PowerSpring, and 2,500,000 shares of common stock of PowerSpring.
Subsequent to the acquisition of Mercator, we own 87.5% of the outstanding
shares of PowerSpring common stock, Mr. Harpole owns 12.5% of the outstanding
shares of PowerSpring common stock, and Mercator has become a wholly-owned
subsidiary of PowerSpring. We, PowerSpring and Mr. Harpole entered into a
stockholders agreement that addresses certain rights related to Mr. Harpole's
PowerSpring common stock, including a right of first refusal held by us for any
sale of PowerSpring
3
<PAGE> 6
common stock by Mr. Harpole, co-sale rights and similar rights upon PowerSpring
transactions, registration rights, and a right for Mr. Harpole to put his shares
of PowerSpring common stock back to PowerSpring at an appraised value for cash
payable over three years if PowerSpring has not completed an initial public
offering and has not sold its business within two years.
PowerSpring also entered into a two-year employment agreement with Mr.
Harpole. Mr. Harpole will serve as the Executive Vice President, Chief Operating
Officer and a director of PowerSpring. Under the employment agreement, Mr.
Harpole received an option to purchase 60,000 shares of our Common Stock,
exercisable at $17.88 per share, and an option to purchase 200,000 shares of
PowerSpring common stock, exercisable at $.30 per share. Mr. Harpole agreed not
to compete with the business of PowerSpring for one year after the termination
of his employment.
In September 1999, we had entered into a consulting and joint venture
agreement with Mercator, under which Mercator provided energy procurement
services to us on a consulting basis. In connection with the acquisition of
Mercator, the consulting and joint venture agreement, and a related stock option
agreement, were terminated.
POWERSPRING, INC.
PowerSpring is our Internet-based business to business subsidiary. We
formed PowerSpring as a wholly-owned subsidiary incorporated in Delaware in
August 1999 under the name "Metretek Internet Services, Inc." In March, 2000, we
reorganized and expanded our Internet business by merging our wholly-owned
subsidiary TotalPlan, Inc. ("TotalPlan") into PowerSpring and by acquiring
Mercator. We currently conduct all our Internet-based business through
PowerSpring. As of the date of this Report, we own 87.5% of the capital stock of
PowerSpring, and PowerSpring owns all of the outstanding capital stock of
Mercator.
Our Internet-based business objective is to be the leading Internet
provider of energy information products and services. We are developing our
Internet-based business to enable us to take our measurement information
products, services and data management technologies to a broader market of end
users of natural gas and electricity by creating a comprehensive market place on
the Internet for energy consumers and suppliers to take advantage of deregulated
energy markets. The initial focus of our Internet-based business strategy is to
develop and launch an Internet-based transactional website. After we implement
our Internet-based business strategy, we will continue to operate our Southern
Flow and Metretek Florida businesses. The technology requirements of our
Internet-based business will include automatic meter reading devices that will
be manufactured by Metretek Florida, and thus may enhance our revenues from our
Metretek Florida operations, depending on how we fix our revenue and pricing
models for our PowerSpring products and services.
In September 1999, in furtherance of our Internet-based business
strategy, we entered into an agreement with Scient. Under the Scient agreement,
Scient is assisting and advising us in designing, developing and implementing a
viable Internet-based business strategy. Scient is a leading consultant and
advisor to businesses exploring their Internet business capabilities. We
estimate that our total costs associated with the services contemplated by the
Scient agreement will be between $6,000,000 and $8,000,000. Under the Scient
agreement, Scient is assisting us in:
- the conception of a viable Internet-based business strategy;
- the architecture of a functional and scalable transactional
based website;
- the design, engineering and development of the website;
- the development, selection and procurement of all applicable
operating software and hardware;
- the branding and marketing strategy for the Internet-based
business; and
- the operational structure, management and staffing of the
Internet-based business.
4
<PAGE> 7
Background of our Internet-based business strategy. Historically, the
primary segment of Metretek Florida's business has been the sale of AMR
equipment and related software to its customers, primarily natural gas utilities
or combined natural gas/electric utilities. Typically, these customers would
purchase Metretek Florida's AMR equipment and software for installation on the
meters of their large, industrial natural gas customers.
In 1985, the Federal Energy Regulatory Commission ("FERC") issued its
Order No. 436 that initiated deregulation of the interstate natural gas
transportation markets. This order was followed by other FERC orders, including
FERC Order No. 636, that substantially completed deregulation of the interstate
gas markets. As a result of the FERC rulings and various state level rulings and
legislation, most United States industrial and commercial natural gas customers
have, for some time, been legally able to choose a supplier of natural gas other
than their local natural gas utility. A customer that chooses to purchase
natural gas from a source other than its local utility is characterized by the
local utility as a "transportation" customer, or a customer engaged in
"deregulation purchases" of natural gas. A "transportation" customer
periodically contracts with one or more suppliers of natural gas to provide its
supply of natural gas and pays the local utility a transportation fee to
transport the natural gas from the "city gate" across the utilities distribution
system to the customer's facility. Often, the key benefit to the transportation
customer is a lower net cost of natural gas.
A substantial percentage of industrial natural gas users in the United
States are "transportation" customers that are currently participating in the
benefits of a deregulated natural gas market, while only a very small percentage
of commercial gas users are transportation customers. We believe this largely
explains why the average natural gas prices paid by commercial customers are
higher than those paid by industrial customers, as discussed below. We also
believe that commercial natural gas customers have been precluded from
participating in the deregulated market primarily as a result of both economic
and expertise barriers to market entry. The primary goal of our eBusiness is to
remove these barriers to provide a large percentage of the commercial customer
market access to the deregulated natural gas market, as well as the commercial
electricity market.
Deregulation of natural gas provides us with a market opportunity. A
1998 study published by the Energy Information Administration discloses that the
average natural gas burner tip cost paid by industrial users in 1997 was $3.14
per MMBTU, compared to the average cost paid by commercial natural gas customers
of $5.48 per MMBTU. Our Internet-based business strategy includes the concept of
introducing a product to the commercial natural gas market that will allow
commercial natural gas customers to substantially narrow the margin between
average commercial natural gas costs versus average industrial natural gas
costs.
Our Internet-based business solution is to eliminate the primary
barriers to entry for commercial natural gas customers. While industrial natural
gas customers have been benefiting from deregulating natural gas markets,
commercial users of natural gas have not been. We believe commercial customers
of natural gas have been unable to benefit from deregulated markets largely as a
result of economic and expertise barriers.
Our primary Internet-based business product is being designed to
provide a complete turn-key solution for the commercial natural gas customer and
to reduce or eliminate many of the market entry barriers. We anticipate that
this Internet-based business product will not require any up-front capital
investment by the customer, will be seamless in its application to the customer,
and will be perceived by the customer as having a small overall cost compared to
the potential savings in energy costs. We expect customers to realize a savings
in energy costs. In addition, customers will receive access to current and
historical value added consumption reports through a content and function
enriched website.
Application of our Internet-based business strategy to the electricity
markets.The initial focus of PowerSpring will be the natural gas market, which
has been almost fully deregulated. However, the historical structure and
operating mechanics of the electricity markets are very similar to the natural
gas markets. Our AMR devices and software management programs are ideal for
application in the electricity markets. In addition, the domestic electricity
markets are about three times the size of the domestic natural gas markets.
Deregulation of the electricity markets, while lagging behind the
deregulation of natural gas markets, but is progressing. We are aware of at
least 29 states that have either already deregulated their electricity markets,
have passed legislation to implement deregulation, or have active pilot
deregulation programs in place. We believe all of the remaining states are
currently considering some form of deregulation of electricity markets.
5
<PAGE> 8
We believe that the opportunities to create savings for customers are
potentially larger in the electricity markets than in the natural gas markets.
We also expect that many of our natural gas customers will add their electricity
needs to our PowerSpring program as their electricity markets become
deregulated.
Timing and funding of Internet-based business project. Based on our
current schedule, we anticipate launching an operable, transaction-based
Internet-based business website in June, 2000.
We estimate that this initial development phase of PowerSpring will
require aggregate expenditures of between $6,000,000 and $8,000,000, consisting
of consulting fees and expenses payable to Scient and costs of acquiring the
requisite technology, including hardware and software, as well as research and
development costs. Through December 31, 1999, these costs were approximately
$1.5 million. We expect that after this initial development stage is completed
and our website is launched, the further development and growth of PowerSpring,
including staffing, organizational and start-up expenses, marketing costs and
additional capital expenditures, will require significant additional funds. To
develop and expand PowerSpring, we will need to raise significant additional
funds beyond the proceeds of the Units Private Placement, from the proceeds of
public or private equity financing, debt financing or from other sources.
We intend to raise any needed additional capital to fund the
development and operations of PowerSpring primarily through financing at the
PowerSpring level. However, depending upon the availability of capital, market
conditions, our consolidated operations and the operations of PowerSpring, we
may also or instead raise additional capital at the Metretek level. For example,
depending on market conditions and other factors we deem appropriate, we may
call our outstanding publicly trading warrants ("Dividend Warrants") for
redemption. Due to the trading price of our Common Stock, as of the date of this
Report we have the right, upon 30 days notice, to call the Dividend Warrants for
redemption at a redemption price of $.01 per Dividend Warrant, and we will
continue to have this redemption right as long as the closing sale price of the
Common Stock as reported on the Nasdaq National Market equals or exceeds $6.50
per share. We expect that, subject to market conditions, most or all Dividend
Warrants will be exercised if we call them for redemption, resulting in gross
proceeds of up to $3.5 million to us.
Our capital raising will be subject to the consent of our lender on our
credit facility, if our credit facility is then in effect. In addition,
depending on how it is structured, our capital raising could require the consent
of the holders of our Series B Preferred Stock. We cannot assure you that
additional funds will be available to us in the future or that, if available,
additional funds can be obtained on terms favorable to us, and on terms
acceptable to our lender, if its consent is required, and on terms acceptable to
the holders of our Series B Preferred Stock, if their consent is required. In
addition, we can not assure you that any capital which is available to us will
be sufficient to facilitate this successful operation of PowerSpring. Our
inability to raise sufficient additional funds, beyond the proceeds of the Units
Private Placement, to meet the capital requirements of PowerSpring could have a
material adverse effect on our business, financial condition and results of
operations.
METRETEK, INCORPORATED
We acquired Metretek Florida in 1994. Metretek Florida was founded in
1977 in Melbourne, Florida as a developer, manufacturer and marketer of
automated systems for monitoring and recording energy consumption. Metretek
Florida's primary focus at present is in the natural gas metering industry.
Products. Metretek Florida's manufactured products fall into three
categories: remote data collection products; electronic corrector products; and
application-specific products. Within these categories, Metretek Florida's
products are often customized to fit the needs of its customers.
Remote data collection products, also referred to as AMRs, attach to
existing natural gas meters and correctors. These devices are designed to
automatically collect and transmit metering data according to a schedule preset
by the customer. The AMR is an electronic printed circuit board assembly
designed and programmed to interface with an energy meter at the point of energy
consumption. The electronic board is enclosed in an assembly that attaches to
the energy meter. The energy consumption data collected by the AMR is then sent
to a Metretek Florida proprietary database consisting of a software system
running on a centrally located personal computer or
6
<PAGE> 9
computer network maintained at the customer's central operations center for
further processing. Communications from the AMR to the database are generally
achieved through an existing voice grade telephone line, although cellular
telephone and radio are used when telephone lines are either not available or
are not cost-effective. Depending upon the particular features of the AMR, the
data collection may be time stamped with sufficient frequency to allow the
customer to perform critical aspects of gas flow management such as nomination,
delivery, balancing, meter indexing and billing.
As a result of the strategic acquisition of assets from American Meter
in May 1998, Metretek Florida offers a complete line of natural gas volume
electronic corrector products. These corrector products include all or some of
the following functions:
- Pressure and temperature transducers to accomplish real time
correction of meter volumes for variations in ambient
temperature and pipeline pressure;
- Microprocessor and memory for calculation of final gas volumes
based upon AGA specified formulas, and for data storage;
- Full remote data collection capabilities;
- Users definable alarm detection and fault limits;
- User definable control features such as flow control, pipeline
pressure monitoring and shutdown, odorant injection;
- Automatic self-calibration features;
- Compatibility with numerous volumetric meters; and
- Capability of providing corrector features for multiple meters
simultaneously.
In addition to the two primary product lines referred to above,
Metretek Florida also manufactures "application-specific" products designed for
certain market niches. These include cathodic protection monitors, used to
monitor rectifier and cathodic protection system failure, and gas pipeline
pressure monitors.
Services. In addition to its manufactured product lines, Metretek
Florida also provides certain services to its customers. Metretek Florida offers
post-sale support services which help create and maintain customer satisfaction
and loyalty. Metretek Florida has recently commenced offering "energy data
collection and management services" under the trade name "TotalPlan(TM)" for
customers who are unable or unwilling to make the investment required to own a
Metretek Florida system. In this turn-key service, Metretek Florida provides and
installs the required remote data collection hardware, collects and formats the
remote data in Melbourne, Florida, and then sends the data electronically to the
customer for a per month or per communication fee. Management believes this
service will help Metretek Florida penetrate the commercial account AMR markets.
In 1997, Metretek Florida commenced offering contract manufacturing of
electronic circuit boards by acquiring Sigma VI, Inc. ("Sigma VI"). Metretek
Florida expanded this business in June 1998 by acquiring the business and assets
of Quality Contract Manufacturing, Inc. ("QCMI"). Sigma VI and QCMI were two
small contract manufacturers of electronic circuit board and cable assemblies
located in Melbourne, Florida. Metretek Florida made these acquisitions to gain
control of the quality and timeliness of Metretek Florida's manufactured circuit
boards and subassemblies and to diversify and expand the business of Metretek
Florida. With the automated equipment and experienced personnel acquired,
Metretek Florida is able to offer contract manufacturing to local electronics
manufacturers who have high quality, short run, quick turnaround requirements.
A critical element of Metretek Florida's product line is its data
collection and management capability. With the exception of the Sigma VI
products, virtually all of Metretek Florida's products are integrated with
Metretek Florida's database software package, the DC 2000 system. This system
provides substantial flexibility for
7
<PAGE> 10
the generation of reports in formats useful for Metretek's customers to perform
data management functions. As a result of the acquisition of the American Meter
electronic corrector product line, Metretek Florida and American Meter are
working towards the cross-functionality of certain of their products in an
effort to enhance data management by Metretek Florida's customers.
Markets. Historically, Metretek Florida's AMR products have been
marketed principally to natural gas local distribution companies ("LDCs").
Typically, LDCs install these devices in conjunction with custody transfer
meters on their larger customers for the purpose of meeting deregulation
requirements. Sixty of the largest one hundred LDCs in North America currently
utilize Metretek Florida systems to monitor and record the natural gas
consumption of their industrial and commercial accounts. The timely and accurate
information provided by the Metretek Florida system is used by the operations,
engineering, natural gas supply, marketing, customer service and billing
departments of the LDC. In the future, Metretek Florida intends to focus its
marketing efforts directly toward the commercial and industrial users of natural
gas and electricity. Markets for the electronic corrector products are much
broader and include not only LDCs and their commercial and industrial customers,
but also natural gas transportation and distribution companies, natural gas
gatherers and processors, natural gas producers and operators, and natural gas
brokers.
The U.S. market for remote data collection products for natural gas
meters consists of three classes of natural gas users:
- Industrial users, consisting of the largest 250,000 domestic
users of natural gas, such as steel mills, glass manufacturing
plants, and natural gas fired power generator plants;
- Commercial users, consisting of approximately 4,000,000
natural gas customers, such as multi-family apartment
complexes, restaurants, factories and other customers with
multiple locations within a relatively confined area; and
- Residential users, which are the smallest users and include
primarily residential single family houses.
Historically, Metretek Florida has been the leading provider of AMRs to
the industrial natural gas market, which is becoming saturated. The primary
target for Metretek Florida's AMR products is the recently developing commercial
natural gas user market, Metretek Florida does not consider the residential
natural gas user sector of the market to be a viable target market for its
products, primarily due to the low margins inherent in that market.
Marketing and Customer Service. Metretek Florida distributes its
products by a direct sales force in the United States, and uses contract
representatives and distributors to distribute its products outside the United
States. Metretek Florida also provides implementation services for its customers
designed to meet its customer's specific needs. Metretek Florida offers a
maintenance and support team in Melbourne, Florida that offers 24-hour,
toll-free hotline support, customer service representatives, consulting
services, equipment repair and preventative maintenance, software support and
maintenance, system troubleshooting and network management services. Metretek
Florida's marketing strategy includes utilizing its close contacts with the
utility industry through its sales representatives. Metretek Florida also
participates in trade shows, symposiums and conferences designed to expand
industry awareness of its products. Metretek Florida also utilizes direct
mailing of brochures and newsletters, and has a home page on the Internet.
International. Outside of North America, Metretek Florida has sold 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 11% to 21% of Metretek Florida'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 Florida systems. Metretek Europe
Limited, a wholly-owned subsidiary of Metretek Florida located in Camberley,
England, sells Metretek Florida products primarily in Western Europe.
Acquisitions. Metretek Florida's business strategy includes the
acquisition of, and strategic alliances with, measurement equipment providers
and software application developers that can utilize or enhance Metretek
Florida's offering of products and services.
8
<PAGE> 11
On May 4, 1998, Metretek Florida acquired substantially all of the
assets and business of American Meter pertaining to electronic correctors and
non-radio-frequency meter reading devices in the natural gas and electric
utility industry. American Meter is ultimately controlled by Ruhrgas AG, a
German corporation. The assets acquired by Metretek Florida include certain
inventory, equipment, trademarks and technology of American Meter used in the
design, manufacture and sales of electronic measurement process control and
telemetry systems to utility companies in the natural gas and petroleum
industries. In connection with the acquisition, Metretek Florida assumed certain
transitional employee costs and product warranty obligations of American Meter.
The assets and business operations acquired have been relocated to Metretek
Florida's existing facility in Melbourne, Florida.
In consideration for the purchase of the assets and business, we paid
and delivered to American Meter at the closing an aggregate purchase price
consisting of $1,300,000 in cash, 439,560 unregistered shares of Common Stock,
and a $1,200,000 convertible subordinated promissory note, $600,000 of the
principal of which was contingent upon Metretek Florida exceeding certain sales
targets, during an adjustment period, which targets were not met. Subsequent to
the closing, the purchase price was adjusted down by $85,000 to reflect a
decrease in American Meter's inventory between December 31, 1997 and May 4,
1998, partially offset by transitional costs assumed by Metretek Florida. After
the adjustment period, the final principal amount of the convertible note was
fixed at $600,000.
American Meter has given notice that it desires to convert the note,
under its terms, into 105,495 shares of Common Stock at the rate of $5.6875 of
principal per share, plus 26,373 Dividend Warrants. The American Meter note bore
interest on the unpaid principal balance at a fixed rate equal to 7.5% per
annum, payable quarterly in arrears, and was due and payable May 4, 2002.
American Meter has the one-time demand right to cause the shares of Common Stock
issued to American Meter at the closing or issuable upon conversion of the
American Meter note to be registered under the Securities Act and applicable
state securities laws, and also has certain piggy-back registration rights to
include such shares in any registration statement filed by us, subject to
customary underwriter cutbacks.
Metretek Florida also entered into a license agreement with American
Meter, providing for the license by American Meter to Metretek Florida of
certain operating software, and the development, manufacture and sale by
Metretek Florida to American Meter of certain electronic components and related
equipment pertaining to electronic temperature and pressure correction to be
imbedded within certain new rotary and turbine meters of American Meter. The
American Meter license agreement also grants to American Meter and its
affiliates the right to sell Metretek Florida products in the United States and
Canada at certain agreed-upon prices. American Meter has also entered into a
non-competition agreement with Metretek Florida, under which American Meter
agreed not to compete with Metretek Florida in the acquired business for five
years from the closing date. In 1998, in connection with this acquisition, Harry
I. Skilton, President of American Meter, became a member of our Board of
Directors.
SOUTHERN FLOW COMPANIES, INC.
Southern Flow provides a variety of natural gas measurement services
principally to customers involved in natural gas production, gathering,
transportation and processing. We commenced our operations in this line of
business in 1991 by acquiring an existing business. This business was expanded
significantly in 1993 when we acquired substantially all of the assets of the
Southern Flow Companies 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. Southern
Flow's field services including 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 also
provides laboratory analysis of natural gas and natural gas liquids chemical and
energy content. As part of its services to its customers, Southern Flow
maintains a proprietary database software system which calculates and summarizes
energy measurement data for its customers and allows for easy transfer and
integration of such data into customer's accounting systems. As an integral part
of these services, Southern Flow maintains a comprehensive inventory of natural
gas meters and metering parts, and derives approximately 25% of its annual
revenues from its "parts resale"
9
<PAGE> 12
business. Southern Flow provides its services through 9 division offices located
throughout the Gulf of Mexico, Southwest, Mid-Continent and Rocky Mountain
regions.
Natural gas measurement services are used by producers of natural gas
and pipeline companies to verify volumes of natural gas custody transfers. To
ensure that such data is accurate, on-site field services and data collection
must be coordinated with chart integration and data development and management
to produce timely and accurate reports.
The market for independent natural gas measurement services is
fragmented, with no single company having the ability to exercise control. Many
natural gas producers and operators, and most natural gas pipeline and
transportation companies, internally perform some or all of their natural gas
measurement services. In addition to price, the primary consideration for
natural gas measurement customers is the quality of services and the ability to
maintain data integrity, because natural gas measurement has a direct effect on
the natural gas producer's revenue and royalty and working interest owner
obligations. We believe that we are able to effectively compete by:
- providing dependable integrated measurement services;
- maintaining local offices in proximity to our customer base;
and
- retaining experienced and competent personnel.
COMPETITION
The markets for energy products, services, technology and information
are highly competitive and subject to rapidly changing technology, new and
emerging products, services and technologies, frequent product and service
performance improvements and evolving industry standards. In addition, we
anticipate facing intense competition in our new online business, especially as
the use of the Internet for energy products and services grows. The growth
potential and deregulatory environment of the energy market have attracted and
are anticipated to continue to attract many new start-ups as well as established
businesses from different industries. Competition may also increase as a result
of industry consolidation. Increased competition could result in price
reductions, reduced gross margins, loss of market share, inability to penetrate
new markets or to develop new markets, any of which could have a material and
adverse effect on our business.
Our current and prospective competitors fall into the following
categories:
- large and well established distributors of energy measurement,
monitoring and information products and services, such as
Cellnet Data Systems, Inc., Itron Corp. and Whisper
Communications;
- large, well established and diversified companies like
Schlumberger, General Electric and Asea Brown Boveri that have
divisions or subsidiaries devoted to our markets;
- in-house services provided by utilities and major oil and gas
companies;
- large, well established and diversified oil and gas companies
like Enron Corp. and Duke Energy Corp.; and
- numerous prospective competitors that may offer energy
information.
We believe that our ability to compete successfully will depend upon
many factors, many of which are outside of our control. These factors include:
- our responsiveness to customers needs;
- functionality of our and our competitors' products and
services;
10
<PAGE> 13
- speed of implementation of new products and services and
enhancement to existing products and services;
- price of competitors' products and services;
- ease of use of products and services;
- performance and features of products and services;
- quality and reliability;
- reputation;
- quality of customer service and support;
- sales and marketing efforts;
- our ability to sustain our strategic relationships; and
- the timing and market acceptance of new products and services
and enhancements to existing products and services developed
by us and our competitors.
We believe that we compete favorably with respect to the above factors,
although with respect to products and services that we do not believe price is a
principal competitive factor, we do not compete on the basis of price. In order
to be successful in the future, we must continue to respond promptly and
effectively to the challenges of technological change and its competitors'
innovations. We cannot guarantee that our products and services will continue to
compete favorably or that we will be successful in facing the increasing
competition for new products and enhancements introduced by its existing
competitors or new competition entering the market.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical, marketing,
manufacturing and other resources than we do. This may enable our competitors to
respond more quickly to new or emerging technologies and changes in customer
requirements or preferences and to devote greater resources to the development,
promotion and sale of their products and services than we can. Our competitors
may be able to undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to potential
employees, customers, strategic partners and suppliers and vendors than we can.
Our competitors may develop products and services that are equal or superior to
the products and services offered by us or that achieve greater market
acceptance than our products do. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to improve their ability to address the needs of our existing
and prospective customers. As a result, it is possible that new competitors may
emerge and rapidly acquire significant market share or impede our ability to
acquire market share in new markets. Increased competition is likely to result
in price reductions, reduced gross margins and loss of market share, and the
inability to develop new businesses, which could materially and adversely affect
our business. We cannot assure that we will have the financial resources,
technical expertise, portfolio of market or services or marketing and support
capabilities to successfully compete.
The market for Metretek Florida's products and services is very
competitive. Although Metretek Florida'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. We believe that several
large suppliers of equipment, services or technology to the utility industry
have developed or are currently developing products or services for the market
in which Metretek Florida is currently or is intending to compete. Most of
Metretek Florida's present and potential competitors have substantially greater
financial, marketing, technical and manufacturing resources, as well as greater
name recognition and experience, than Metretek Florida. Metretek Florida
competes with a large number of existing and potential competitors in these
11
<PAGE> 14
markets, some of which do not compete in all of the same markets as Metretek
Florida. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties that increase their ability to address the needs of Metretek
Florida's prospective customers. Metretek Florida competes primarily on the
basis of product quality and reliability, applications expertise, and the
quality of its service and support.
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 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.
PowerSpring will be competing in the Internet energy products, services
and information markets. These markets are evolving rapidly, are highly
competitive and are likely to be characterized by an increasing number of market
entrants and by industry consolidation. Because there are no substantial
barriers to entry, we expect that PowerSpring will face competition from both
existing competitors and new market entrants in the future. We believe that
participants in this market must grow rapidly and achieve a significant presence
to compete effectively. We believe that the primary competitive factors facing
PowerSpring are:
- a state-of-the-art infrastructure providing availability,
speed, scalability and security;
- site and Internet application hosting and management
expertise;
- fast and reliable Internet connectivity;
- a reputation for high-quality service and superior customer
service and support;
- numerous and diverse service offerings and timely addition of
value-added services;
- brand recognition;
- competitive pricing; and
- adequate capital to permit continued investment in
infrastructure, customer service and support and sales and
marketing.
We expect our Internet competitors to come from three different areas:
energy service providers, online exchanges and measurement companies. We expect
our competitors will range from purely online energy offerings such as
Enermetrix to large off-line competitors such as Enron. Energy service providers
will be significant competitors of ours because they target the same commercial
and industrial market that we will target. Examples of competitive energy
service providers include Enron, Duke Energy, PG&E Energy Services, New
Energy/Power Direct, Energy.com and Utility.com. Companies that provide the
wholesale online exchanges, such Altra and Houston Street.com, enable customers
to trade energy in an on-line environment. Companies offering retail on-line
exchanges include Enermetrix.com.
REGULATION
Regulation of Natural Gas. Our 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. Natural gas sales have been
deregulated at the wholesale, or pipeline, level since
12
<PAGE> 15
Federal Energy Regulatory Commission 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, we believe 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. We believe that
PowerSpring and Metretek Florida will benefit from such a regulatory
environment.
Regulation of Electricity. The electric utility industry is undergoing
fundamental structure changes due to deregulation. The traditional utility
structure, consisting of a vertically integrated system operating as a natural
monopoly with rates set in relation to cost, has historically presented
utilities with little incentive to improve service quality or operating
efficiency. Customer demands and regulatory mandates by federal and state
governments are opening the electric utility market to competition, forcing
electric utilities to transform themselves from regulated monopolies into
competitive enterprises. While regulatory initiatives vary from state to state,
many involve a shift from rate-of-return rate making, in which an electric
utility's rates are determined by its return on assets, to performance-based
rate making, in which an electric utility's rates and profitability are based
upon its cost, efficiency, and service quality. This deregulatory movement in
the electricity industry follows a similar deregulatory movement in the natural
gas utility industry. Today, commercial and industrial natural gas customers can
purchase natural gas directly from producers or brokers, while utilities are
required to provide transportation of such natural gas to customers' facilities.
We expect a similar result from electricity deregulation.
Several major electric utilities have recently entered into merger
agreements and other consolidation transactions and bought and sold generation
assets. The restructuring has also focused on opening the electric power
production industry, in certain markets, to full competition in the next few
years and ultimately providing customers access to multiple suppliers. Federal
legislation, such as the National Energy Policy Act of 1992 (the "Energy Policy
Act"), has opened utility transmission lines to independent power producers in
an effort to increase competition in the wholesale electric power generation
market. Under the Energy Policy Act, individual states have the sole authority
to mandate the transport and delivery or "wheeling" of electric power to retail
customers. As a result, at least 18 states now have legislation or final
commission orders to mandate retail wheeling and nearly all of the other states
are in various stages of considering the implementation of retail wheeling and
unbundling, both at legislative and regulatory levels. Meanwhile, a number of
other states are also requiring utilities to "unbundle," or offer as separate
services, metering, billing and collection, and more states are formally
investigating such unbundling. Unbundling implies that a third party, such as a
new power market participant, would be free to own the electric meter that
measures usage and attaches to a commercial, industrial or residential
customer's premises. Traditionally, the owner of the meter has been the electric
utility which has also had a monopoly in providing metering, billing, and
collection services. In California, the state which has to date advanced the
furthest in the deregulation process, the California Public Utility Commission
mandated competitive retail wheeling and unbundling effective April 1, 1998 for
large commercial and industrial customers and January 1, 1999 for all remaining
customers. By mandating retail wheeling the California PUC allows the customer
to choose among energy service providers. The California PUC has also mandated
hourly metering capability for commercial and industrial customers choosing
direct access and which require more than 50 kW of power, which will be
decreased to 20kW in the year 2002.
The changing regulatory environment means that new power market
participants will be entering into a market traditionally dominated by
established utilities. To date, more than 33 parties have registered with the
California PUC as Registered Energy Service Providers to provide electric
services in California. The established utilities are focused on retaining and
increasing their market share as a result of competition. Both new power market
participants and established utilities will be striving to optimize their
offerings and to distinguish themselves in the market. The same capabilities
will enable energy service providers to meet regulatory metering and forecasting
requirements, offer superior, competitively-priced services, collect customer
information and diversify by adding additional applications as available.
We believe that competition will require recordation of electric power
consumption data more frequently than is presently customary through a much
wider use of daily, hourly and possibly even more frequent meter readings. In
fact, hourly meter reading has already been mandated for commercial and
industrial customers in
13
<PAGE> 16
California. Other deregulating states which require hourly metering for
commercial and industrial customers include Michigan and Arizona. It is possible
that other states will follow. We believe that our AMR technology, or meter
reading technology similar to it, will be needed to do such hourly meter
reading.
We believe that regulatory reform will result in new opportunities for
us to provide our products and services, such as AMR and other functions
typically performed by utilities, directly to end-user customers. In addition,
we believe there are a number of new business opportunities that will be able to
develop for capitalizing on the value of the information that can be derived
from our products and services.
Regulation of Internet Activities. At present, there are few laws or
regulations directed specifically at Internet commerce. However, because of the
Internet's popularity and increasing use, laws and regulations directly
applicable to e-commerce or Internet communications are becoming more prevalent.
These laws and regulations may cover issues such as the collection and use of
data from web site visitors and related privacy issues, pricing, content,
copyrights, distribution and the quality of goods and services. The enactment of
any additional laws or regulations may impede the growth of the Internet and
Internet commerce which could decrease the revenue potential or increase the
costs of PowerSpring. Specific areas of legislative activity regulating Internet
commerce including the following:
- Taxes. Congress enacted a three-year moratorium, ending on
October 27, 2001, on the application of "discriminatory" or
"special" taxes by the states on Internet access or on
products and services delivered over the Internet. Congress
further declared that there will be no federal taxes on
e-commerce until the end of the moratorium. However, this
moratorium does not prevent states from taxing activities or
goods and services that the states would otherwise have the
power to tax. Furthermore, the moratorium does not apply to
certain state taxes that were in place before the moratorium
was enacted.
- Online Privacy. Both Congress and the Federal Trade Commission
are considering regulating the extent to which companies
should be able to use and disclose information they obtain
online from consumers. If any regulations are enacted, we may
find certain of our contemplated marketing activities
restricted. Also, the European Union has directed its member
nations to enact much more stringent privacy protection laws
than are generally found in the United States, and has
threatened to prohibit the export of certain personal data to
United States companies if similar measures are not adopted.
Such a prohibition could limit our growth in foreign markets.
The Department of Commerce is negotiating with the Federal
Trade Commission to provide exemptions from the European Union
regulations, but the outcome of these negotiations is
uncertain.
- Regulation of Commerce Facilities. To some extent, the rapid
growth of the Internet in the United States has been due to
the relative lack of government intervention in the
marketplace for Internet access. Lack of intervention may not
continue in the future. For example, several
telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal
Communications Commission in the same manner as other
telecommunications services. Additionally, local telephone
carriers have petitioned the Federal Communications Commission
to regulate Internet service providers in a manner similar to
long distance telephone carriers and to impose access fees on
these providers. Some Internet service providers are seeking
to have broadband Internet access over cable systems regulated
in much the same manner as telephone services, which could
slow the development of broadband Internet access services.
Because of these proceedings or others, new laws or
regulations could be enacted which could burden the companies
that provide the infrastructure on which the Internet is
based, thereby slowing the rapid expansion of the medium and
its availability to new users.
Moreover, the applicability to the Internet of existing laws governing
such issues as intellectual property ownership and infringement, copyright,
patent, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing.
Regulation of International Operations. Our international operations
are also subject to the political, economic and other uncertainties of doing
business abroad including, among others, risks of war, cancellation,
14
<PAGE> 17
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 we
conduct, plan to conduct or in the future may conduct operations.
Regulation of Environment. 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 our
operations as a result of their effect on natural gas development, exploration,
production, transportation and dispensing operations, our operations are not
currently subject to substantial environmental laws and regulations. We believe
we are in material compliance with those environmental laws and regulations to
which we are subject. It is not anticipated that we will be required in the near
future to expend amounts that are material in relation to our total capital
expenditures program by reason of environmental laws and regulations. However,
inasmuch as such laws and regulations are frequently changed, we are unable to
predict the ultimate effect on us and on the cost of compliance.
EMPLOYEES
At February 29, 2000, we had 228 full-time employees. None of our
employees are covered by a collective bargaining agreement. We believe that our
relations with our employees are good.
RESEARCH AND DEVELOPMENT
Our basic research and development activities have been historically
conducted by Metretek Florida. Metretek Florida 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 Metretek Florida'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).
Recently, we commenced an extensive research and development program
for the business of PowerSpring. We incurred $961,383 and $2,225,758 for
research and development expenses during the years ended December 31, 1998 and
1999 respectively. We intend to continue to allocate resources to the research
and development of new Metretek Florida products and services in the future, but
our highest research and development priority currently is PowerSpring's
Internet-based business. Our future services will depend, in part, on our
services in these development projects which will require continual substantial
investments.
RAW MATERIALS
Our 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 our business or operations, shortages in
certain components such as memory chips, supply problems from our suppliers or
our inability to develop alternative sources of supply quickly or
cost-effectively could materially impact our ability to manufacture our products
and therefore could adversely affect our business and operations. We attempt to
mitigate this risk by maintaining an inventory of such materials.
PROPRIETARY RIGHTS
Our success and ability to compete are dependent in part upon our
proprietary rights and technology. We rely on a combination of patents,
copyrights, trademarks and trade secret laws to establish and protect our rights
in its products and proprietary technology. Although we maintain certain patents
related to our business, we do not believe that our competitive position is
dependent upon patent protection or that our operations are dependent upon any
individual patent. Nevertheless, we believe that the following factors are more
essential to protecting our technology leadership position:
15
<PAGE> 18
- the technological and creative skills of our personnel;
- new products and service development;
- frequent product and service enhancements;
- name recognition;
- customer training and support; and
- reliable product support.
We generally require our 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 our
means of protecting our proprietary rights in the United States or abroad will
be adequate. In addition, the laws of some foreign countries may not protect our
proprietary rights as fully or in the same manner as do the laws in the United
States. Despite our efforts to protect our proprietary rights, it may be
possible for unauthorized third parties to copy, reverse engineer or otherwise
obtain, use or exploit aspects of our products, develop similar technology
independently or otherwise obtain and use information that we regard as
proprietary. Our actual and potential competitors may independently develop
technologies similar or superior to our technology or design around the
proprietary rights owned by us. Although we are not aware that our products
infringe on the proprietary rights of third parties, we cannot assure you that
others will not assert claims of infringement against us in the future or that,
if made, such claims will not be successful.
ADDITIONAL FACTORS THAT MAY AFFECT OUR BUSINESS AND FUTURE RESULTS
Our business and future operating results may be affected by many
factors, risks and uncertainties, including those set forth below and those
contained else where in this report. In addition, the risks described below are
not the only risks facing us. There may be additional risks and uncertainties
that we do not currently consider material or that are not presently known to
us. If any of the following risks were to occur, our business, prospects,
assets, financial condition, results of operations and cash flows could be
materially and adversely affected. When we say that something could or will have
a material adverse effect on us or our business, we mean that it could or will
have one or more of these effects.
WE HAVE A HISTORY OF LOSSES, AND WE MAY NEVER BECOME PROFITABLE
We have incurred net losses on an annual basis during each year since
our incorporation. We incurred net losses of approximately $0.3 million and $3.7
million for the years ended December 31, 1998 and 1999. At December 31, 1999, we
had an accumulated deficit of approximately $25.2 million. Due to the design,
creation and implementation of PowerSpring, our Internet-based business, which
will require us to make significant expenditures, we expect operating losses to
continue for the foreseeable future. We also anticipate increased expenses as we
support, expand and improve PowerSpring and its infrastructure, invest in new
Internet applications, enhance our management expertise, expand our sales
efforts and pursue strategic Internet relationships. In addition, our
Internet-based business strategy is unproven. We may never generate sufficient
revenues to achieve profitability. Even if we do achieve profitability, we may
not be able to sustain or increase that profitability on a quarterly or annual
basis in the future.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECT
THE TRADING PRICE OF OUR COMMON STOCK
Our quarterly revenues, expenses, margins and results of operations
have fluctuated significantly in the past and are expected to continue to
fluctuate significantly in the future due to a variety of factors, many of which
are outside of our control and any of which may cause the trading price of our
Common Stock to fluctuate. These factors include:
16
<PAGE> 19
- the size, timing and terms of sales and orders;
- the amount and timing of expenditures on PowerSpring;
- our ability to implement our business plan and strategy with
respect to PowerSpring and the timing of its implementation;
- the timing, pricing and market acceptance of our new products
and services, especially those related to PowerSpring, and
those of our competitors;
- the pace of development of PowerSpring;
- the success of our brand building and marketing campaigns for
our PowerSpring products and services;
- the growth of the market for online energy products, services
and information;
- our ability to effectively manage our growth during the
anticipated rapid expansion of PowerSpring;
- changes in our pricing policies and those of our competitors;
- variations in the length of our product and service
implementation process;
- the mix of products and services sold;
- the mix of international and domestic revenues;
- the life cycles of our products and services;
- budgeting cycles of utilities;
- general economic and political conditions;
- economic conditions in the energy industry in general and the
natural gas and electricity industries in particular;
- the effects of governmental regulations and regulatory changes
in our current and new markets;
- prices charged by our suppliers;
- our ability to make successful acquisitions of technology or
businesses, and the costs related to such acquisitions;
- changes in our operating expenses; and
- the maintenance and development of business relationships with
strategic partners.
Because many of our operating expenses, other than those related to
PowerSpring, are relatively fixed, a shortfall in anticipated revenue or delay
in recognizing revenue could cause our operating results to vary significantly
from quarter-to-quarter and could result in significant operating losses in any
particular quarter. The timing of large individual sales is also difficult for
us to predict. In addition, expenditures on PowerSpring will be significant and
will vary in the forseeable future. If our revenues fall below our expectations
in any particular quarter, our business could be materially adversely affected.
If our revenues fall below our expectations, we will not be able to reduce our
expenses rapidly in response to the short-fall and could suffer significant
operating losses.
Due to all of these factors and the other risks discussed in this Item,
you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of our future performance. It is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. As a result, the trading price of our
Common Stock may fall.
BECAUSE POWERSPRING, OUR INTERNET-BASED BUSINESS, HAS VIRTUALLY NO
OPERATING HISTORY AND OUR INTERNET-BASED BUSINESS STRATEGY IS STILL
BEING DEVELOPED AND IS UNPROVEN, LIMITED INFORMATION IS AVAILABLE UPON
WHICH YOU CAN EVALUATE POWERSPRING
17
<PAGE> 20
Our business strategy and future success is highly dependent upon our
ability to develop PowerSpring. Our Internet-based business strategy is based on
an unproven business model, and our operating, sales and other strategies are
still being developed. Our Internet-based business strategy depends on the
willingness of commercial users of natural gas and electricity to purchase, at a
price profitable to us, a package consisting of energy data management equipment
and energy purchasing resources. It also depends on our ability to develop a
business that will generate significant revenues, profits and cash flow through
the offering of energy products, services and information over the Internet.
PowerSpring will not be launched until June 2000. Accordingly, we have virtually
no operating history to provide you upon which you can evaluate PowerSpring.
As a company developing a new business in the new and rapidly evolving
markets for Internet products and services generally, and Internet energy
products, services and information specifically, we face numerous risks and
uncertainties which are described in this Item as well as other parts of this
Report. Some of these risks relate to our ability to:
- anticipate and adapt to the changing regulatory climate for
energy products and services;
- anticipate and adapt to the changing Internet market;
- attract customers to our new Internet-based business;
- collect energy research and other energy information adequate
to support a market for Internet services;
- implement our sales and marketing initiatives, both
domestically and internationally;
- attract, retain and motivate qualified personnel;
- respond to actions taken by our competitors;
- integrate acquired businesses, technologies, products and
services;
- generate revenues and sales of new products and services;
- implement an effective marketing strategy to promote awareness
of our new businesses; and
- develop and deploy successful versions of the software
necessary for our services.
Our business and financial results in the future will depend heavily on
market acceptance and profitability of PowerSpring. If we are unsuccessful in
addressing these risks or in executing our business strategies, our business
would be materially and adversely affected.
IF THE INTERNET IS NOT WIDELY ACCEPTED BY COMMERCIAL USERS OF ENERGY AS
A MEDIUM FOR COMMERCE, OUR BUSINESS WOULD BE MATERIALLY AND ADVERSELY
AFFECTED
In the future, we expect to derive a significant amount of our
revenues, income and cash flow from PowerSpring, which is our Internet business
to business services hub subsidiary. We cannot assure you that Internet-based
commerce for energy products and services, especially by commercial users of
energy, will ever grow to account for substantial revenues, income and cash
flow, or when this growth might occur. Our business would suffer if the market
for Internet-based commerce for energy products and services fails to develop or
develops more slowly than expected. Our business would also suffer if we are
unable to adapt to new forms of, or new pricing models for, Internet-based
commerce for energy products and services.
The viability and future growth of the Internet as a means of commerce
depends on several factors, including:
- the Internet's ability to handle increased activity;
- the Internet's ability to operate as a fast, reliable and
secure network;
- potential changes in governmental regulation of the Internet;
- the ability of the Internet infrastructure to support the
growing demands placed on it;
18
<PAGE> 21
- Internet access costs;
- the performance and reliability of products and services
offered on the Internet as the number of users and amount of
traffic increases;
- the ability of businesses to adequately address security and
privacy concerns; and
- the nature and pace of technological changes relating to the
Internet.
Moreover, critical issues concerning the commercial use of the
Internet, including data corruption, cost, ease of use, accessibility and
quality of service, remain unresolved and may negatively affect commerce on the
Internet. These issues will need to be addressed in order for the market for
on-line energy products and services to grow. It is difficult to predict when
Internet-based commerce for energy products and services will emerge and obtain
market acceptance and be profitable. This makes it difficult to project our
future revenues, results of operations and cash flows. We cannot assure you that
we will be successful in selling energy products and services over the Internet
or in capturing a significant share of the market for Internet-based energy
products and services.
CONCERNS ABOUT SECURITY OF ELECTRONIC COMMERCE TRANSACTIONS AND
CONFIDENTIALITY OF INFORMATION ON THE INTERNET MAY IMPEDE THE GROWTH OF
POWERSPRING
A significant barrier to electronic commerce has been the need for
security. Internet usage could decline if any well-publicized compromise of
security occurs. We may incur significant costs to protect against the threat of
security breaches or to alleviate problems caused by these breaches.
Unauthorized persons could attempt to penetrate our network security. If
successful, they could misappropriate proprietary information or cause
interruptions in our services. As a result, we may be required to expend capital
and resources to protect against or to alleviate these problems. Security
breaches could have a material and adverse effect on our business.
OUR NEW INTERNET-BASED BUSINESS STRATEGY WILL BE DEPENDENT UPON THE
DEVELOPMENT AND MAINTENANCE OF THE INTERNET INFRASTRUCTURE
The success of our new Internet-based business strategy will depend
largely on the development and maintenance of the Internet infrastructure. This
includes maintenance of a reliable network backbone with the necessary speed,
data capacity and security, as well as timely development of complimentary
products such as high-speed modems, for providing reliable Internet access and
services. Because on-line commerce is new and evolving, we cannot predict
whether the Internet will prove to be a viable commercial marketplace in the
long term. The Internet has experienced, and is likely to continue to
experience, significant growth in the number of users and the amount of traffic.
If the Internet continues to experience increased numbers of users increased
frequency of use, or more complex requirement, the Internet infrastructure may
be unable to support the demands placed on it. In addition, the performance of
the Internet may be harmed by increased users or more complex requirements.
The Internet has experienced a variety of outages and other delays as a
result of damages to portions of its infrastructure, and it could face outages
and delays in the future. These outages and delays could reduce the level of
Internet usage as well as the level of traffic in the processing of commerce on
our website. In addition, the Internet could lose its viability due to delays in
the development or adoption of new standards and protocols to handle increased
levels of activity or due to increased governmental regulation. The
infrastructure and complimentary products or services necessary to make the
Internet a viable commercial marketplace for the long-term may not be developed
successfully or in a timely manner. Even if these products or services are
developed, the Internet may not become a viable commercial marketplace for
services such as those that we intend to offer.
WE MAY BE UNABLE TO SUCCESSFULLY MANAGE THE EXPECTED EXPANSION OF
POWERSPRING
Our anticipated future growth as a result of PowerSpring may place a
significant strain on our management, operating systems and resources. We cannot
successfully implement our Internet-based business strategy if we fail to manage
our growth. We expect that we will need to attract and retain competent
personnel and to continue to improve our financial managerial controls and
reporting systems and procedures. We will also need to continue to expand and
maintain close coordination among our technical, accounting, finance and sales
and marketing
19
<PAGE> 22
organizations. In addition, our systems, procedures or controls may be
inadequate to support our operations, in which case management may be unable to
exploit opportunities for our products and services. Failure to manage our
growth effectively and successfully integrate any acquisition or strategic
relationships could materially and adversely affect our business.
BECAUSE OUR FUTURE GROWTH, IN OUR TRADITIONAL BUSINESSES AND IN
POWERSPRING, IS DEPENDENT IN LARGE PART UPON THE DEREGULATION OF THE
ELECTRICITY INDUSTRY, DELAYS IN THE DEREGULATION OF THE ELECTRICITY
MARKETS, OR IN THE ELECTRICITY INDUSTRY'S COMPETITIVE RESPONSE TO
DEREGULATION, MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS
The electricity industry is currently undergoing fundamental structural
changes due to deregulation, similar to what the natural gas utility industry
has undergone. A key component of our business strategies, in both our
traditional businesses, especially Metretek Florida, and our new Internet-based
business, PowerSpring, is to take advantage of opportunities created by the
deregulation of the electricity industry as the result of the need for more and
more frequent electricity consumption information. A principal expected benefit
to us of electricity deregulation is the ability of commercial and industrial
electricity customers to purchase electricity directly from multiple suppliers,
rather than solely from the local utility. This will require these electricity
customers to obtain timely electricity consumption data. If the deregulatory
environment does not continue or slows down, or if the market is slow to respond
to the opportunities made available by the changes in the deregulation of the
electricity industry, then commercial electricity customers may not purchase our
products, may purchase less of our products or may not purchase our products
until later than we anticipate. Failure of electricity industry deregulation to
result in a significant increase in the purchases of our products and services
would materially and adversely affect our business.
BECAUSE WE ARE DEPENDENT UPON THE UTILITY INDUSTRY FOR A SIGNIFICANT
PORTION OF OUR REVENUE, CONTINUED REDUCTIONS OF PURCHASES OF OUR
PRODUCTS AND SERVICES BY UTILITIES CAUSED BY REGULATORY REFORM MAY
MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS
We currently derive a significant portion of our revenue from sales of
our products and services to the utility industry, and particularly the natural
gas utility industry. We have experienced variability of operating results on
both an annual and quarterly basis due primarily to utility purchasing patterns,
and delays of purchasing decisions by utilities, as the result of mergers and
acquisitions in the utility industry or potential changes to the federal and
state regulatory framework within which the utility industry operates. The
utility industry is generally characterized by long budgeting, purchasing and
regulatory process cycles that can take up to several years to complete. Our
utility customers typically issue requests for quotes and proposals, establish
committees to evaluate the purchase proposals, review different technical
options with vendors, analyze performance and cost/benefit justifications and
perform a regulatory review, in addition to applying a normal budget approval
process within the utility. In addition, utilities may defer purchases of our
products and services if the utilities reduce capital expenditures as the result
of mergers and acquisitions, pending or unfavorable regulatory decisions, poor
revenues due to weather conditions, rising interest rates or general economic
downturns, among other factors. The natural gas utility industry has been
virtually the sole customer for our automatic meter reading systems. However,
over the last few years, the uncertainty in the utility industry that has
resulted from the regulatory uncertainty in the current era of deregulation, has
caused utilities to defer even further purchases of our products and services.
The continuation of this uncertain regulatory climate will materially and
adversely affect our revenues from sales of meter reading devices.
The domestic utility industry is currently the focus of regulatory
reform initiatives in virtually every state. These initiatives have resulted in
significant uncertainty for industry participants and raise concerns regarding
assets that would not be considered for recovery through rate payer charges.
This regulatory climate has caused most utilities to delay purchasing decisions
that involve significant capital commitments. As a result of these purchasing
decision delays, utilities have reduced their purchases of our products and
services. While we expect some states will act on these regulatory reform
initiatives in the near future, we cannot assure you that the current regulatory
uncertainty will be resolved in the short term. In addition, new regulatory
initiatives could have a material and adverse effect on our business. Moreover,
in part as a result of the competitive pressures in the utility industry arising
from the regulatory reform process, many utilities are pursuing merger and
acquisition strategies. We have experienced considerable delays in purchase
decisions by utilities that have become parties to merger or acquisition
transactions. Typically, capital expenditure purchase decisions are put on hold
indefinitely when merger
20
<PAGE> 23
negotiations begin. If this pattern of merger and acquisition activity among
utilities continues, our business may be materially and adversely affected.
In addition, if any of the utilities that account for a significant
portion of our revenues decide to significantly reduce their purchases of our
products and services, our business may be materially and adversely affected.
WE WILL REQUIRE A SUBSTANTIAL AMOUNT OF ADDITIONAL CAPITAL TO FINANCE
OUR BUSINESS, ESPECIALLY POWERSPRING, BUT WE MAY NOT BE ABLE TO OBTAIN
A SUFFICIENT AMOUNT OF FUNDS TO DO SO
We will require substantial additional funds to design, create,
develop, implement, market and operate PowerSpring, our new Internet-based
business. If we cannot raise sufficient funds on a timely basis, we will not be
able to complete the development, implementation and successful operations of
PowerSpring, and our business will be materially and adversely affected.
We estimate that the initial development phase to launch PowerSpring
will require estimated expenditures of between $6,000,000 and $8,000,000,
consisting of consulting fees and expenses payable to Scient and costs of
acquiring the requisite technology, including hardware and software, as well as
research and development costs. We expect that after this initial development
stage is completed and its web site is launched, the further development and
growth of PowerSpring, including staffing, organizational and start-up expenses,
marketing costs and additional capital expenditures, will require significant
additional funds. In order to so develop and expand PowerSpring, we will need to
raise the significant additional funds, beyond the proceeds of the Units Private
Placement, from the proceeds of public or private equity financing, debt
financing or from other sources. We intend to raise any needed additional
capital to fund the development and operations of PowerSpring primarily through
financing at the PowerSpring level. However, depending upon the availability of
capital, market conditions, our consolidation operations and the operations of
PowerSpring, we may also or instead raise additional capital at the Metretek
Technologies level. For example, depending on market conditions and other
factors we deem appropriate, we may call the outstanding Dividend Warrants for
redemption.
Virtually any such capital raising will be subject to the consent of
our lender on our credit facility, if the credit facility is then in effect. In
addition, depending on how it is structured, this capital raising could require
the consent of the holders of our Series B Preferred Stock. We cannot assure you
that any additional funds will be available to us in the future or that, if
available, funds can be obtained on terms favorable to us, and on terms
acceptable to our lender, if its consent is required, and on terms acceptable to
the holders of the Series B Preferred Stock, if their consent is required. In
addition, we cannot assure you that available capital will be sufficient for the
successful operation of PowerSpring. Our inability to raise sufficient
additional funds, beyond the proceeds of the Units Private Placement, to meet
the capital requirements of PowerSpring could have a material adverse effect on
our business, financial condition and results of operations.
In addition to our need to raise capital to fund PowerSpring, we will
need to raise additional capital in the future to either repay or refinance any
indebtedness we incur in the future to finance our operations, the growth of our
current business or acquisition opportunities. The Series B Preferred Stock
bears a cumulative dividend at the rate of 8% per year and, if not earlier
converted into Common Stock, is subject to mandatory redemption on December 9,
2004 at a redemption price equal to the liquidation preference, currently
$7,000,000. In addition, unanticipated events, over which we may have no
control, could also increase our operating costs or decrease our ability to
generate revenues from product and service sales. We will also require
additional capital in the future to make any significant acquisitions of
businesses or technologies. We have a $5 million revolving line of credit with
our current lender which expires in March 2001. Our ability to borrow funds
under this credit facility is limited to our loan availability based upon our
assets, primarily our accounts receivable and inventory, and is limited to $3
million by the terms of the Series B Preferred Stock. As of December 31, 1999,
we had a total loan availability of approximately $3.6 million, and of that we
had borrowed approximately $0.3 million. The amount of our loan availability, as
well as the amount we borrow, will change in the future depending on our asset
base and our capital requirements. Any amount outstanding under our credit
facility in March 2001 will need to either be repaid by us, refinanced by a new
lender or investor, or extended by our current lender. We cannot estimate the
amount that we will have borrowed under the credit facility when it expires, and
we cannot assure you that we will be able to repay, refinance or extend that
indebtedness at that time.
21
<PAGE> 24
To finance PowerSpring and the growth of our other businesses, and to
repay or refinance any indebtedness we might incur, we will need to raise a
substantial amount of additional capital from the public or private sales of
equity securities, debt financing, sales of assets, calling the Dividend
Warrants for redemption, or from other sources. Additional financing may not be
available to us when we need it or, if available, it may not be on terms
satisfactory to us, or we may not be able to obtain the required consents to
complete the financing. Obtaining additional financing will depend on many
factors, including market conditions, our operating performance and investor
sentiment. Terms of debt financing could restrict our ability to operate our
business, or to expand our operations. In addition, if we raise capital by
issuing capital stock or securities convertible into capital stock, our
stockholders could suffer a significant dilution of their percentage ownership
interests, and the new capital stock or other new securities could have rights,
preferences or privileges senior to those of our current stockholders. If we are
unable to raise sufficient additional financing on terms satisfactory to us,
then our business will be materially and adversely affected.
RESTRICTIONS IMPOSED ON US AS A RESULT OF THE TERMS OF OUR CURRENT
INDEBTEDNESS AND OUR SERIES B PREFERRED STOCK COULD LIMIT HOW WE
CONDUCT OUR BUSINESS AND OUR ABILITY TO RAISE ADDITIONAL CAPITAL
The terms of our current credit facility and of our Series B Preferred
Stock contain financial and operating covenants that limit the discretion of our
management. These covenants place significant restrictions on our ability to:
- incur additional indebtedness;
- create liens or other encumbrances;
- issue or redeem securities;
- make dividend payments and investments;
- amend our charter documents;
- sell or otherwise dispose of our assets;
- liquidate or dissolve;
- merge or consolidate with other companies; or
- reorganize, recapitalize or engage in a similar business
transaction.
Any future financing arrangements will likely contain similar or more
restrictive covenants. As a result of these restrictions, we may be:
- limited in how we conduct our business;
- unable to raise additional debt or equity financing to operate
during general economic or business downturns; and
- unable to compete effectively or to take advantage of new
business opportunities.
DIVIDENDS ON THE SERIES B PREFERRED STOCK WILL INCREASE OUR FUTURE NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS AND OUR NET LOSS PER COMMON SHARE
After issuing the Series B Preferred Stock, we will recognize the 8%
coupon rate and certain "deemed distributions" as dividends on the Series B
Preferred Stock. The proceeds from the sale of the Units were allocated to the
Common Stock, the Unit Warrants and the Series B Preferred Stock based on the
relative fair value of each. This allocation process resulted in the Series B
Preferred Stock that we sold on February 4, 2000 being initially recorded at a
discount from its $1,000 per share liquidation value. This discount will be
recorded as a distribution over the term of the Series B Preferred Stock.
Another discount resulted from the increase in the fair market value of a share
of our Common Stock from the date we offered to sell 5,550 Units to February 4,
2000, the date we actually issued the Units. This increase caused the conversion
feature of the Series B Preferred Stock to be "in the money" on February 4,
2000. The discount related to the "in the money" conversion feature will be
recorded as a distribution
22
<PAGE> 25
between the February 4, 2000 and June 9, 2000, after which date the Series B
Preferred Stock can first be converted into our Common Stock. The Series B
Preferred Stock dividends will increase our future net loss available to common
shareholders and net loss per common share, which could adversely affect the
trading price of our Common Stock.
RAPID TECHNOLOGICAL CHANGES MAY PREVENT US FROM REMAINING CURRENT WITH
OUR TECHNOLOGICAL RESOURCES AND MAINTAINING COMPETITIVE PRODUCT AND
SERVICE OFFERINGS
The markets in which our businesses currently operate and PowerSpring
will operate are characterized by rapid technological change, frequent new and
enhanced product and service introductions, evolving industry standards and
changes in customer needs. Significant technological changes could render our
existing products, services and technology, including our planned PowerSpring
products and services, obsolete. The Internet market's growth and intense
competition exacerbate these conditions. Our future success will depend, in
part, on our ability to:
- effectively use and develop leading technologies;
- continue to develop our technical expertise;
- enhance our current products and services;
- develop new products and services that meet changing customer
needs; and
- respond to emerging industry standards and technological
changes in a cost-effective manner.
If we are unable to successfully respond to these developments or do
not respond to them in a cost-effective manner, then our business will be
materially and adversely affected. We cannot assure you that we will be
successful in responding to changing technology or market needs. In addition,
products, services and technologies developed by others may render our products,
services and technologies uncompetitive or obsolete.
Even if we do successfully respond to technological advances and
emerging industry standards, the integration of new technology may require
substantial time and expense, and we cannot assure you that we will succeed in
adapting our products, services and technology in a timely and cost-effective
manner. We may experience financial or technical difficulties that could prevent
us from introducing new or enhanced products or services. Furthermore, these new
or enhanced products and services may contain problems that are discovered after
they are introduced. We may need to significantly modify the design of these
products and services to correct problems. Rapidly changing Internet technology
and operating systems may impede market acceptance of our PowerSpring products
and services. Our business could be materially and adversely affected if we
experience difficulties in introducing new or enhanced services and products or
if these products and services are not received favorably by our customers.
Development and enhancement of our products and services will require
significant additional expenses and could strain our management, financial and
operational resources. The lack of market acceptance of our products or services
or our inability to generate sufficient revenues from this development or
enhancements to offset their costs could have a material adverse effect on our
business. We have experienced delays in releasing new products and product
enhancements and may experience similar delays in the future. These delays or
problems in the installation of implementation of our new products and services
and enhancements may cause customers to forego purchases of our products and
services to purchase those of our competitors.
CHANGES IN OUR PRODUCT MIX COULD MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS
The margins on our revenues from some of our product and service
offerings is higher than the margins on our other product and service offerings.
For example, revenues from some of Metretek Florida's AMR devices have
significantly higher margins than Metretek Florida's contract manufacturing
revenues. In addition, we do not know what the prices and costs, and therefore
we cannot estimate the margins, of our future PowerSpring products and services
will be. These new products and services may have lower margins than our current
products and
23
<PAGE> 26
services. If in the future we derive a proportionately greater percentage of our
revenues from lower margin products and services, then our overall margins on
our total revenues will decrease and, accordingly, will result in lower net
income, or higher net losses, and less cash flow on the same amount of revenues.
OUR MANAGEMENT OF PRIVATE ENERGY PROGRAMS PRESENTS RISKS TO US
MGT is our subsidiary that manages and holds a small ownership interest
in two private energy programs that own natural gas assets. The operations of
MGT have been discontinued and MGT does not intend to form any new private
programs. MGT is pursuing the sale of the existing energy programs but will
continue managing the two business trusts that operate these energy programs
only until those programs are sold or liquidated or until MGT's interests and
management obligations in those programs are sold. These private programs were
financed by private placements of equity interest raising capital to acquire the
assets and business operated by the programs. Our management of these energy
programs presents risks to us, including:
- material and adverse changes in the business, results of
operations and financial conditions of the programs due to
events, conditions and factors outside the control of MGT,
such as general and local conditions affecting the energy
market generally and the revenues of the programs
specifically;
- lawsuits by investors in these programs who become
dissatisfied with the result of these programs;
- changes in the regulatory environment relating to these
programs;
- reliance upon significant suppliers and customers by these
programs;
- hazards of energy facilities; and
- changes in technology.
If any of these risks materialize and we are unsuccessful in addressing
these risks, our business could be materially and adversely affected.
OUR INTERNATIONAL OPERATIONS ARE SUBJECT TO MANY RISKS AND
UNCERTAINTIES
We market and sell some of our products and services in international
markets. Our revenues from sales into international markets were approximately
8% and 5% of our consolidated revenues in fiscal years 1998 and 1999. One
component of our strategy for future growth involves the expansion of our
products and services into new international markets and the expansion of our
marketing efforts in our current international markets. This expansion will
require significant management attention and financial resources to establish
additional offices, hire additional personnel, localize and market products and
services in foreign markets and to develop relationships with international
service providers. However, we have only limited experience in developing
localized versions of our products and services and in developing relationships
with international service providers. We cannot assure you that we will be
successful in expanding our international operations, or that revenues from
international operations will be sufficient to offset these additional costs. If
revenues from international operations are not adequate to offset the additional
expense from expanding these international operations, our business could be
materially and adversely affected.
In addition to the uncertainty regarding our ability to generate
sufficient revenues from foreign operations and to expand our international
presence, there are risks inherent in doing business on an international level,
including:
- adverse changes in applicable laws and regulatory
requirements;
- import and export restrictions;
- export controls relating to technology;
- tariffs and other trade barriers;
- less favorable intellectual property laws;
- difficulties in staffing and managing foreign operations;
24
<PAGE> 27
- political instability;
- fluctuations in currency exchange rates;
- potential adverse tax consequences;
- cultural and language difficulties;
- the impact of adverse economic and market conditions in
foreign countries;
- the potential exchange and repatriation of foreign earnings;
- localization and translation of products and services;
- difficulties in collecting accounts receivable and longer
collection periods; and
- the impact of local economic conditions and practices.
Our success in expanding our international operations will depend in
large part of our ability to anticipate and effectively manage these and other
risks. We have limited experience in conducting our business outside the United
States and may encounter unforeseen difficulties in conducting operations in
foreign countries. In addition, while our current products are designed to meet
relevant regulatory requirements of foreign markets in which they are sold, any
inability to obtain any required foreign regulatory approval and any changes in
foreign regulatory requirements could have a material adverse effect on our
ability to conduct business in these markets. In addition, we may confront
significant challenges in developing and implementing localized versions of our
systems due to many factors including the different standards among utilities on
a country by country basis. We cannot assure you that we will be able to
successfully market, sell and deliver our products and services in these foreign
markets.
OUR MARKETS ARE HIGHLY COMPETITIVE, AND THE COMPETITION WE FACE COULD
MATERIALLY AND ADVERSELY AFFECT OUR ABILITY TO SELL OUR CURRENT
PRODUCTS AND SERVICES, EXPAND OUR CURRENT BUSINESSES AND DEVELOP OUR
NEW BUSINESSES
The markets for energy products, services, technology and information
are highly competitive and subject to rapidly changing technology, new and
converging products, services and technologies, frequent product and service
performance improvements and evolving industry standards. In addition, we
anticipate facing intense competition in our Internet business, especially as
the use of the Internet for energy products and services grows. The growth
potential and deregulatory environment of the energy market have attracted and
are anticipated to continue to attract many new start-ups as well as established
businesses from different industries. Competition may also increase as a result
of industry consolidation. Increased competition could result in price
reductions, reduced gross margins, loss of market share, inability to penetrate
new markets or to develop new markets, any of which could have a material and
adverse effect on our business.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical, marketing,
manufacturing and other resources than we do. This may enable our competitors to
respond more quickly to new or emerging technologies and changes in customer
requirements or preferences and to devote greater resources to the development,
promotion and sale of their products and services than we can. Our competitors
may be able to undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to potential
employees, customers, strategic partners and suppliers and vendors than we can.
Our competitors may develop products and services that are equal or superior to
the products and services offered by us or that achieve greater market
acceptance than our products do. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
with third parties to improve their ability to address the needs of our existing
and prospective customers. As a result, it is possible that new competitors may
emerge and rapidly acquire significant market share or impede our ability to
acquire market share in new markets. Increased competition is likely to result
in price reductions, reduced gross margins and loss of market share, and the
inability to develop new businesses, which could materially and adversely affect
our business. We cannot assure you that we will have the financial resources,
technical expertise, portfolio of market or services or marketing and support
capabilities to successfully compete.
25
<PAGE> 28
WE MAY BE UNABLE TO SUCCESSFULLY ACQUIRE OTHER COMPANIES, FORM
STRATEGIC ALLIANCES OR SUCCESSFULLY INTEGRATE ANY ACQUISITION OR
ALLIANCE
In the past, we have grown by acquiring complimentary businesses,
technologies, services and products and entering into strategic alliances with
complimentary businesses. We evaluate potential acquisition opportunities from
time to time, including those that could be material in size and scope. As part
of our growth strategy, we intend to continue to evaluate potential
acquisitions, investment opportunities and strategic alliances on an on-going
basis as they present themselves to facilitate our ability to enhance our
existing products and services and introduce new products and services on a
timely basis. However, we do not know if we will be able to identify any future
opportunities that we believe will be beneficial for us. Even if we are able to
identify an appropriate acquisition opportunity, we may not be able to
successfully finance the acquisition. A failure to identify or finance future
acquisitions may impair our growth and adversely affect our business.
Any future acquisition involves risks commonly encountered in business
relationships, including:
- difficulties in assimilating and integrating the operations,
technologies, products and services of the acquired
businesses;
- difficulties in retaining key personnel;
- diversion of management's time and resources away from our
normal daily operations;
- difficulties in successfully incorporating licensed or
acquired technology and rights into our product and service
offerings;
- difficulties in maintaining uniform standards, controls,
procedures and policies within the two organizations;
- changes in management resulting from an alliance or
acquisition could impair relationships with employees and
customers of the acquired company's risks of entering markets
in which we have no or limited direct prior experience;
- potential disruptions of our ongoing business;
- unexpected costs associated with the acquisition; and
- potential additional expenses associated with amortization of
acquired intangible assets, integration costs and
unanticipated liabilities or contingencies.
We cannot assure you that any acquisition of new businesses or
technology will lead to the successful development of new or enhanced products
and services, or that any new or enhanced products and services, if developed,
will achieve market acceptance or prove to be profitable.
For these reasons, future acquisitions could materially and adversely
affect our existing businesses. Moreover, we cannot predict the accounting
treatment of any acquisition, in part because we cannot be certain whether
current accounting regulations, conventions or interpretations will prevail in
the future.
In addition, to finance any future acquisitions, it may be necessary
for us to incur additional indebtedness or raise additional funds to public or
private financings. This financing may not be available to us or may be
available on terms satisfactory to us or to those whose consents are required
for our financing. Available equity or debt financing available may materially
and adversely affect our business and operations and, in the case of equity
financings, may significantly dilute the percentage ownership interests of our
stockholders.
We currently have no agreements, commitments or obligations with
respect to any material acquisition. We cannot assure you that we will make any
additional acquisitions or that any acquisitions, if made, will be successful,
will assist us in the accomplishment of our business strategy, or will generate
sufficient revenues to offset the associated costs and other adverse effects or
will otherwise result in us receiving the intended benefits of the acquisition.
26
<PAGE> 29
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR IF
WE FACE A CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY,
WE COULD LOSE IMPORTANT INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR
SIGNIFICANT DAMAGES AND OUR BUSINESS COULD BE MATERIALLY AND ADVERSELY
AFFECTED
Our success and ability to compete depends, in substantial part, upon
our intellectual property rights and technology. We rely primarily on patent,
copyright, trademark and trade secret laws, along with confidentiality
procedures, contractual provisions and licensing arrangements, to establish and
protect our proprietary rights. Although we hold patents and trademarks in our
business, we believe that the success of our business depends more upon our
proprietary technology, information, processes and know-how than on patents or
trademarks. Much of our proprietary information and technology is not patented
and may not be patentable. Moreover, we have applied for registration of a
number of key trademarks and service marks and intend to introduce new
trademarks and service marks. We may not be successful in obtaining registration
for one or more of these marks.
Despite our efforts to protect our intellectual property rights, our
actions may be inadequate to protect these rights or to prevent others from
claiming violations of their proprietary rights. It may be possible for
unauthorized third parties to copy, reverse engineer or otherwise obtain, use or
exploit aspects of our products and services, develop similar technology
independently, or otherwise obtain and use information that we regard as
proprietary. We cannot assure you that our competitors will not independently
develop technology similar or superior to our technology or design around our
proprietary rights. We generally require our employees, consultants and
strategic partners to enter into confidentiality and proprietary invention
agreements with us to limit use of, access to, and distribution of our
proprietary technology. Our intellectual property rights with respect to
PowerSpring may not be viable or of value in the future because of validity,
enforceability and scope or protection of proprietary rights in Internet-related
industries is uncertain and still evolving. In addition, the laws of some
foreign countries may not protect our proprietary rights as fully or in the same
manner as the laws of the United States.
We may need to resort to litigation to enforce our intellectual
property rights, to protect our trade secrets, and to determine the validity and
scope of other companies' proprietary rights, or to defend against claims of
infringement or validity in the future. However, litigation could result in
significant costs or the diversion of management and financial resources. We
cannot assure you that any litigation will be successful or will prevail over
counterclaims against us. As a result, any litigation could materially and
adversely affect our business.
Although we are not aware that any of our products, services or
technologies infringe on the proprietary rights of third parties, we cannot be
certain that our products, services and technologies do not or will not infringe
valid intellectual property rights held by third parties. In addition, we cannot
assure you that third parties will not claim that we have infringed their
intellectual property rights. We may be subject to legal proceedings and claims
from time to time relating to the intellectual property of third parties in the
ordinary course of our business. We may incur substantial expenses in defending
against these third party infringement claims, regardless of their merit.
Successful infringement claims against us could result in substantial monetary
liability or may materially disrupt the conduct of our business. In addition,
even if we prevail on these claims, this litigation could be time-consuming and
expensive to defend, and could result in the diversion of our time and
attention, which could materially and adversely affect our business.
POTENTIAL PROBLEMS RESULTING FROM THE YEAR 2000 ISSUE COULD CAUSE US TO
INCUR UNANTICIPATED EXPENSE, DIVERT MANAGEMENT'S TIME AND ATTENTION AND
DECREASE USE OF INTERNET SERVICES, ALL OF WHICH COULD MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS
The "Year 2000 issue," which was anticipated to present potential risks
and uncertainties to virtually all businesses, is the result of computer
programs and systems that use two digits, rather than four digits, to define the
applicable year. As a result of the Year 2000 issue, these programs and systems
could have failed or malfunctioned because they could not distinguish between
twentieth century and twenty-first century dates. This, in turn, could have
resulted in a major system failure or miscalculations, including an inability to
process transactions, send invoices or engage in normal business activities. In
addition, Year 2000 problems could subject us to liability claims and adversely
affect PowerSpring because Internet industries are susceptible to Year 2000
problems due to their reliance on computer hardware and software. Our potential
areas of exposure to Year 2000 issues include products purchased from third
parties, computers, software, telephone systems and other equipment used
internally. These Year 2000 problems could materially and adversely affect our
business.
27
<PAGE> 30
To date, we have not experienced any known material adverse effects on
our current products and services or internal systems or of the products,
services or systems or our suppliers, customers and third parties with whom we
do significant business as a result of the Year 2000 issue. In addition, the
total cost of our Year 2000 compliance activities has not been material to our
results of operations. However, some Year 2000 problems could arise later in
2000 or not be currently detectable. We cannot assure you that the Year 2000
issue will not have a material adverse effect on our business.
FROM TIME TO TIME, WE ARE SUBJECT TO LAWSUITS THAT, IF THEY ARE
SUCCESSFULLY PROSECUTED AGAINST US, COULD MATERIALLY AND ADVERSELY
AFFECT OUR BUSINESS
We are defendants to a pending action filed in 1993 in Denver District
Court in which the plaintiff is seeking $420,000 in damages plus punitive
damages. We believe the allegations against us are without merit. We have
vigorously contested these allegations, and we have asserted counterclaims
against the plaintiff. In 1997, the Denver District Court entered a summary
judgment in favor of us, but the summary judgment was reversed in February 1999
by the Colorado Court of Appeals. This action is currently scheduled for trial
in the third quarter of 2000. We are also from time to time involved in routine
litigation incidental to our business, although currently there is no other
pending, or to our knowledge threatened, material legal proceedings. Although we
do not currently expect any legal proceedings to have a material and adverse
affect on us, we recognize that the outcome of litigation is inherently
uncertain. Therefore, we cannot assure you that present or future litigation
could not materially and adversely affect our business.
WE FACE SOME RISKS THAT ARE INHERENT IN NATURAL GAS OPERATIONS
Some of our operations are subject to the hazards and risks inherent of
the servicing and operation of natural gas assets, including encountering
unexpected pressures, explosions, fire, natural disasters, blowouts, cratering
and pipeline ruptures, which could result in personal injuries, loss of life,
environmental damage and other damage to our properties and the properties of
others. These operations involve numerous financial, business, regulatory,
environmental, operating and legal risks. Damages occurring as a result of these
risks may give rise to product liability claims against us. We have product
liability insurance generally providing up to $6 million coverage per occurrence
and $7 million annual aggregate coverage. Although we believe that our insurance
is adequate and customary for companies of our size that are engaged in
operations similar to ours, losses due to risks and uncertainties could occur
for uninsurable or uninsured risks or could exceed our insurance coverage.
Therefore, the occurrence of a significant adverse effect that is not fully
covered by insurance could have a material and adverse effect on our business.
In addition, we cannot assure you that we will be able to maintain adequate
insurance in the future at reasonable rates.
WE COULD BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION WHICH
AFFECTS OUR ABILITY TO OFFER OUR PRODUCTS AND SERVICES WHICH AFFECTS
DEMAND FOR OUR PRODUCTS AND SERVICES
Our business operations are subject to varying degrees of federal,
state, local and foreign laws and regulations. The modification or adoption of
future laws and regulations could adversely affect our business and our ability
to continually modify or alter our methods of operations at reasonable costs. We
cannot assure that we will be able, for financial or other reasons, to comply
with all applicable laws and regulations. If we fail to comply with these laws
and regulations, we could become subject to substantial penalties which could
materially and adversely affect our business.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO CONTINUE TO ATTRACT AND
RETAIN KEY MANAGEMENT AND TECHNICAL PERSONNEL
We believe our future success will depend in large part upon our
ability to attract and retain highly qualified technical, managerial, sales and
marketing, finance and operation personnel. In particular, we will need to hire
highly qualified personnel for PowerSpring, including a chief executive officer,
a chief financial officer and an information technology officer. Competition for
qualified personnel is intense, and we cannot assure you that we will be able to
attract and retain these key employment in the future. We do not maintain key
person life insurance policies for any key members of our management team. The
loss of the services of one or more of our key
28
<PAGE> 31
personnel could have a material adverse effect on our business. We cannot assure
you that we will be able to retain our current key personnel or that we will be
able attract or retain other highly qualified personnel in the future. We have
from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. A shortage in the number of trained
technical and marketing personnel could limit our ability to increase sales of
our existing products and services and launch new product and service offerings,
including in our PowerSpring business. We do not have long-term employment
agreements with any of our key personnel, other than with W. Phillip Marcum, our
President and Chief Executive Officer, A. Bradley Gabbard, our Executive Vice
President and Chief Financial Officer, and John A. Harpole, PowerSpring's
Executive Vice President and Chief Operating Officer.
OUR BUSINESS COULD SUFFER IF WE CANNOT MAINTAIN AND EXPAND OUR CURRENT
STRATEGIC ALLIANCES AND DEVELOP NEW ALLIANCES
A key element of our business strategy is the formation of corporate
relationships such as strategic alliances with other companies to provide
products and services to existing and new markets and to develop new products
and services and enhancements to existing products and services. We believe that
our success in the future in penetrating new markets will depend in large part
on our ability to maintain these relationships and to cultivate additional or
alternative relationships. However, we cannot assure you that we will be able to
develop new corporate relationships, or that these relationships will be
successful in achieving their purposes. Our failure to continue our existing
corporate relationships and develop new relationships could materially and
adversely affect our business.
AS A RESULT OF THEIR BENEFICIAL OWNERSHIP OF A LARGE PERCENTAGE OF OUR
COMMON STOCK, OUR DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT
STOCKHOLDERS COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING
STOCKHOLDER VOTES
As of March 15, 2000, our executive officers, directors and 5% or
greater stockholders beneficially owned, in the aggregate, approximately 54.7%
of our outstanding Common Stock, assuming they exercise or convert all stock
options, warrants and other rights exercisable within 60 days of that date. As a
result, these stockholders could, as a practical matter, be able to exercise
significant control over matters requiring approval by our stockholders,
including the election of directors and the approval of mergers, sales of
substantially all of our assets and other significant corporate transactions.
The interests of these stockholders may differ from the interests of other
stockholders. In addition, this concentration of stock ownership may have the
effect of delaying or preventing a change in control of us.
VIRTUALLY ALL OF OUR SHARES ARE ELIGIBLE FOR FUTURE SALE BY OUR CURRENT
STOCKHOLDERS, AND SIGNIFICANT SALES OF THESE SHARES COULD RESULT IN A
DECLINE IN OUR STOCK PRICE
If our stockholders sell a significant number of shares of our Common
Stock in the public market, including shares issuable upon the exercise of
outstanding options, warrants and other rights, or if there is a perception that
these sales could occur, then the market price of our Common Stock could fall.
These sales also might make it more difficult for us to sell equity securities
in the future at a time and price that we deem appropriate.
On March 15, 2000, 5,003,678 shares of Common Stock were outstanding.
On the same date, options to purchase 472,397 shares of Common Stock were
outstanding, and shares acquired upon exercise of these stock options are
eligible for sale on the public market from time to time subject to vesting.
These stock options generally have exercise prices significantly below the last
reported sale price of the Common Stock as reported on the cover of this
prospectus. On the same date, 7,000 shares of Series B Preferred Stock
convertible into 1,179,762 shares of Common Stock, and warrants and other rights
to purchase 1,946,990 shares of Common Stock, were outstanding. Virtually all
shares underlying these warrants and other rights are covered by registration
rights. The possible sale of a significant number of these shares issuable upon
the exercise of options and warrants could cause the price of the Common Stock
to decline.
PROVISIONS OF OUR SECOND RESTATED CERTIFICATE OF INCORPORATION, BY-LAWS
AND STOCKHOLDER RIGHTS PLAN, AND OF DELAWARE LAW, CONTAIN ANTI-TAKEOVER
MEASURES THAT COULD DISCOURAGE A THIRD-PARTY ACQUISITION OF OUR COMMON
STOCK AT A PREMIUM TO THE MARKET PRICE
29
<PAGE> 32
Some provisions in our Second Restated Certificate of Incorporation
("Second Restated Certificate"), our Amended and Restated By-Laws ("By-Laws"),
and our stockholder rights plan, as well as some provisions of Delaware law,
could make it more difficult for a third party to acquire us or discourage a
third party from attempting to acquire us, even if doing so would be beneficial
to stockholders. These provisions could also limit the price that investors
might be willing to pay in the future for shares of our Common Stock. These
provisions include:
- a classified Board of Directors in which only approximately
1/3 of the total board members are elected at each annual
meeting;
- authority for our Board of Directors to issue Common Stock and
Preferred Stock, and to determine the price, voting and other
rights, preferences, privileges and restrictions of
undesignated shares of Preferred Stock, without any vote by or
approval of our stockholders (other than the consent of
holders of Series B Preferred Stock relating to any senior or
equal ranking securities);
- the existence of large amounts of authorized but unissued
shares of Common Stock and Preferred Stock;
- super-majority voting requirements to effect material
amendments to our Second Restated Certificate and By-Laws;
- limitations on the persons who may call special meetings of
stockholders;
- prohibiting stockholder action by written consent;
- our stockholders rights plan;
- a fair price provision that sets minimum price requirements
for potential acquirers;
- anti-greenmail provisions which limit our ability to
repurchase shares of Common Stock from significant
stockholders;
- restrictions under Delaware law on mergers and other business
combinations between us and any 15% stockholders; and
- advance notice requirements for director nominations and for
stockholder proposals.
WE DO NOT INTEND TO PAY DIVIDENDS ON THE COMMON STOCK, AND OUR ABILITY
TO PAY DIVIDENDS ON THE COMMON STOCK IS LIMITED
We have never declared or paid any cash dividends on our Common Stock.
Therefore, a stockholder will not experience a return on its investment in our
Common Stock without selling its shares, because we currently intend on
retaining any future earnings to fund our growth and do not expect to pay
dividends in the foreseeable future on the Common Stock.
Under Delaware law, we are not permitted to make a distribution to our
stockholders, including dividends on our capital stock, if, after giving effect
to the payment, we would not be able to pay our debts as they become due in the
usual course of business or if our total assets would be less than the sum of
our total liabilities plus the amount which would be needed if we were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights are superior to those
receiving the distribution. Consequently, if we fail to meet these criteria, we
will be unable to pay dividends on the Series B Preferred Stock.
Our ability to pay dividends on our Common Stock is restricted by our
current credit facility. If we fail to pay dividends on the Series B Preferred
Stock, we will be prohibited from paying dividends on the Common Stock until all
unpaid dividends on the Series B Preferred Stock have been paid in full. In the
future, our Board of Directors will determine whether we pay dividends on the
Series B Preferred Stock or on our Common Stock. We cannot assure you that we
will pay dividends on the Series B Preferred Stock or on our Common Stock.
30
<PAGE> 33
OUR STOCK PRICE IS SUBJECT TO EXTREME PRICE AND VOLUME FLUCTUATIONS
The market price and volume of the Common Stock has in the past been,
and in the future is likely to continue to be, highly volatile. The stock market
in general has been experiencing extreme price and volume fluctuations for
years. The market prices of securities of technology companies and
Internet-related companies in particular have been especially volatile. We
cannot assure you that our Common Stock will continue to trade at recent price
and volume levels. The following factors could cause wide fluctuations in the
market price and trading volume of our Common Stock in the future:
- actual or anticipated variations in our results of operations;
- announcements of technological innovations;
- changes in, or the failure by us to meet, securities analysts'
estimates and expectations;
- introduction of new products and services by us or our
competitors;
- conditions or trends in the energy services and information
industries in general and in the Internet and other technology
industries in particular;
- announcements by us or our competitors of significant
technical innovations, contracts, acquisitions, strategic
relationships, joint ventures or capital commitments;
- announcements by us or our competition of the success or
status of our business;
- general market conditions;
- additions or departures of our key personnel;
- sales of our Common Stock by directors, executive officers and
significant stockholders; and
- the gain or loss of significant customer orders.
Many of these factors are beyond our control. These factors may
decrease the market price of our Common Stock, regardless of our operating
performance.
In addition, broad fluctuations in price and volume have been unrelated
or disproportionate to operating performance, both of the market in general and
of us in particular. Any significant fluctuations in the future might result in
a material decline in the market price of our Common Stock. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been brought against that company.
We may become involved in this type of litigation in the future. Litigation is
often expensive and diverts management's attention and resources, which could
have a material adverse effect on our business, even if we ultimately prevail in
the litigation.
WE MAY ISSUE ADDITIONAL PREFERRED STOCK RANKING JUNIOR TO THE SERIES B
PREFERRED STOCK, WHICH COULD DILUTE THE INTERESTS OF HOLDERS OF COMMON
STOCK
The terms of the Series B Preferred Stock do not limit the issuance of
additional series of Preferred Stock ranking junior to the Series B Preferred
Stock, but do require the approval of the holders of a majority of the
outstanding shares of Series B Preferred Stock to issue any stock senior to or
on a parity with the Series B Preferred Stock. The issuance of additional shares
of Preferred Stock ranking junior to the Series B Preferred Stock could dilute
the interest of holders of our Common Stock.
ITEM 2. DESCRIPTION OF PROPERTY
We lease our principal executive offices located in downtown Denver,
Colorado. The leased space contains 3,443 square feet. The lease currently has a
monthly rental obligation of $4,906, including operating costs, expires July 31,
2001, and contains a market-rate renewable lease provision.
Metretek Florida leases its principal business offices, located in
Melbourne, Florida, for its executive, manufacturing, engineering, warehouse and
marketing operations. This facility has 50,000 square feet and a current
31
<PAGE> 34
monthly rental obligation of $29,856, including operating costs. The lease
expires July 30, 2005. Metretek Florida has sub-leased 2,380 square feet of its
space for $1,896 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 66,000 square feet, total monthly rental
obligations of approximately $31,000 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.
PowerSpring leases its principal business office located in downtown
Denver, Colorado. The leased space contains 2,902 square feet. The lease
currently has a monthly rental obligation of $4,540 and expires January 31,
2004. PowerSpring intends to lease additional office space during 2000 to
accommodate its anticipated growth needs, although we cannot assure you that any
new leases will be on terms favorable to us.
ITEM 3. LEGAL PROCEEDINGS
In 1993, a former employee filed a lawsuit in Denver District Court
against us and DVCO Fuel Systems, Inc. ("DVCO"), one of our former subsidiaries,
alleging that we conspired with third parties to defraud him and that we
intentionally interfered with contracts in which he had an interest. The former
employee is seeking damages in the amount of approximately $420,000 plus
punitive damages. We have denied the former employee's claims and have asserted
counterclaims against the former employee, alleging that (1) he breached an
agreement with us which included a legal release, (2) he made intentional and/or
negligent misrepresentations regarding his qualification and reputation in the
compressed natural gas industry, (3) he breached his fiduciary duty to us, and
(4) he disparaged us. On September 18, 1997, the Denver District Court granted
our motion for summary judgment in our favor as to all claims of the former
employee. On February 18, 1999, the Colorado Court of Appeals reversed the
summary judgment decision and remanded the lawsuit for trial as to the
conspiracy claim only. The Colorado Supreme Court has upheld the Colorado Court
of Appeals' ruling. As a result, the lawsuit is scheduled for trial in August
2000. We believe the allegations against us are without merit and intend to
vigorously defend the claims made against us in the lawsuit. Although the
ultimate outcome of litigation is inherently uncertain, in the opinion of
management, this lawsuit is not expected to have a material adverse effect on
our business, financial condition or results of operations.
From time to time, we are involved in routine litigation incidental to
our business. However, other than as set forth above, no legal proceedings are
currently pending or have been overtly threatened against us that we expect,
based upon current information, to have a material adverse effect on our
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of stockholders held on February 3, 2000, in
connection with the Units Private Placement, the following proposals were
submitted to and approved by our stockholders:
Proposal 1: To approve and ratify:
- the issuance and sale in a private placement of (a)
up to 1,400,000 shares of Common Stock, (b) up to
7,000 shares of Series B Preferred Stock, and (c)
Unit Warrants to purchase up to 700,000 shares of
Common Stock;
- the issuance of shares of Common Stock upon
conversion of the Series B Preferred Stock, in
accordance with the terms of the Series B Preferred
Stock; and
- the issuance of shares of Common Stock upon exercise
of the Warrants, in accordance with the terms of the
Unit Warrants.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
2,136,412 51,250 3,788
</TABLE>
32
<PAGE> 35
Proposal 2: To approve an amendment to Article Fourth of the Restated
Certificate of Incorporation, as amended to that date, to:
- increase the authorized number of shares of our
Preferred Stock, par value $.01 per share, by
1,000,000 shares to an aggregate of 3,500,000 shares;
- eliminate the then authorized Series A Preferred
Stock, of which no shares were outstanding;
- amend the terms of the Series B Preferred stock to
provide the holders of Series B Preferred Stock with
majority Board representation upon the occurrence of
a redemption default; and
- eliminate references to prior reverse stock splits.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
2,088,804 388,683 3,963
</TABLE>
Proposal 3: To approve an amendment to our 1998 Stock Incentive Plan
to:
- increase the number of shares of Common Stock
authorized for issuance thereunder by 500,000 shares
to an aggregate of 750,000 shares; and
- increase the limit on the maximum number of shares
with respect to which awards may be granted during
any calendar year to any individual participant from
25,000 shares to 100,000 shares.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
2,394,232 78,311 8,907
</TABLE>
33
<PAGE> 36
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the Nasdaq National Market under the
symbol "MTEK." Our Dividend Warrants, which were issued as a dividend to
stockholders on September 18, 1998, have been traded on the Nasdaq SmallCap
Market since such date under the symbol "MTEKW". The following table sets forth,
for the periods indicated, the range of the high and low closing sale prices, of
the Common Stock as reported on the Nasdaq National Market, adjusted to reflect
the 1-for-4 reverse split of the Common Stock effected on July 6, 1998, and of
the Dividend Warrants as reported on the Nasdaq SmallCap Market.
<TABLE>
<CAPTION>
COMMON STOCK DIVIDEND WARRANTS
--------------------------- ----------------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
First Quarter ............... $5.50 $4.13
Second Quarter .............. 5.25 3.12
Third Quarter ............... 3.25 1.78 $0.44 $0.31
Fourth Quarter .............. 2.56 1.41 0.75 0.20
YEAR ENDED DECEMBER 31, 1999:
First Quarter ............... 2.31 1.56 0.63 0.31
Second Quarter .............. 2.25 1.44 0.56 0.25
Third Quarter ............... 7.56 2.16 3.81 0.41
Fourth Quarter .............. 6.75 4.44 3.38 1.75
</TABLE>
HOLDERS
As of March 15, 2000, there were 281 holders of record of the Common
Stock and 278 holders of record of the Dividend Warrants. Because many of the
shares of Common Stock are held by brokers and other institutions on behalf of
stockholders, we are unable to determine precisely the total number of
stockholders represented by these record holders but estimates, based upon
available information, that there are at least 3,000 beneficial owners of its
Common Stock.
DIVIDENDS
We have never declared or paid cash dividends on our Common Stock, and
do not anticipate declaring or paying any cash dividends on the Common Stock in
the foreseeable future. We currently intend to retain all future earnings, if
any, for use in the operation of our business. In addition, the terms of our
credit facility prohibit the payment of dividends (other than on the Series B
Preferred Stock) without the consent of our lender, and the terms of our Series
B Preferred Stock contain certain restrictions on our ability to pay dividends
on our Common Stock. Future dividends, if any, will be determined by our Board
of Directors, based upon our earnings, financial condition, capital
requirements, charter restrictions, contractual restrictions and such other
factors as our Board of Directors deems relevant.
Holders of Series B Preferred Stock are entitled to receive dividends
in cash at the rate of 8% per annum, which dividends may be paid or accrued,
plus any additional dividends declared by the Board of Directors, and are
entitled, under specified circumstances, to participate in dividends declared or
paid on the Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES
On February 4, 2000, we completed the Units Private Placement,
consisting of 7,000 Units (including 1,450 Units issued December 9, 1999) issued
to institutional investors and other "accredited investors" (as such term is
defined Rule 501 of Regulation D under the Securities Act) for total gross
proceeds of $14 million. Each Unit consisted of 200 shares of Common Stock, one
share of Series B Preferred Stock and Unit Warrants to purchase 100 shares of
Common Stock.
Each share of Series B Preferred Stock will be convertible, in whole or
in part, at any time after June 9, 2000 at the option of the holder, into that
number of shares of Common Stock equal to the "conversion value" of
34
<PAGE> 37
such share of Series B Preferred Stock, which is $1,000 per share, plus
accumulated and unpaid dividends on such share, divided by the then applicable
"conversion price" of the Series B Preferred Stock. The initial conversion price
of the Series B Preferred Stock is $5.9334 per share of Common Stock. Based upon
an initial conversion value of $1,000, each share of Series B Preferred Stock is
initially convertible into 168.5374 shares of Common Stock. The conversion price
is subject to adjustment upon the following events:
- If, on December 9, 2000, the "reset price", computed by
multiplying 110% by the sum of (1) the average closing bid
price of the Common Stock for the 30 trading days immediately
preceding this date, plus (2) the fair market value of any
securities, cash or assets (other than any dividend or
distribution paid exclusively in cash or in Common Stock)
distributed or made payable to the holders of Series B
Preferred Stock on an as-converted per share basis, is less
than the then applicable conversion price, then the conversion
price of the Series B Preferred Stock will be reduced to the
reset price, provided that the conversion price cannot be
reduced by more than 50%;
- Issuances, sales or exchanges of shares of Common Stock at a
price per share of Common Stock, or issuances of option,
warrants or rights to subscribe for shares of Common Stock or
securities convertible into exchangeable shares of Common
Stock, at a purchase price less than the greater of the
"market price" of the Common Stock or the conversion price of
the Series B Preferred Stock in effect immediately before such
issuance, sale or exchange, which specified exceptions for
employee stock option programs and outstanding warrants;
- Subdivision, combination, split-ups, reverse splits,
reclassifications or similar corporate transactions;
- Any dividend payable in shares of Common Stock; or
- Any merger, consolidation or sale of all or substantially all
of our properties and assets;
Each Unit Warrant entitles the holder to purchase one share of Common
Stock at an initial exercise price of $6.7425 per share. The initial exercise
price of the Unit Warrants will be reset on December 9, 2000 to 125% of the
average closing bid price of the Common Stock for the 30 trading days
immediately preceding such date, if the computed average closing bid price is
less than the exercise price of the Unit Warrants then in effect. The exercise
price is subject to further adjustment under the anti-dilution provisions of the
Unit Warrants, which are substantially the same as the anti-dilution provisions
of the Series B Preferred Stock described above. The Unit Warrants can be
exercised at any time until December 9, 2004. Instead of paying the exercise
price in cash, holders of Units Warrants may exercise their Unit Warrants by
delivering to us shares of Common Stock with the fair market value equal to the
exercise price. Alternatively, holders of Units Warrants may make a "cashless"
exercise of the Unit Warrants and receive, upon exercise without making any
payment of cash, Common Stock or any other asset, a "net" number of shares of
Common Stock determined by formula based on the amount that the trading price of
the Common Stock exceeds the exercise price then in effect.
In connection with the Units Private Placement, we engaged First Albany
Corporation ("First Albany") to serve as our exclusive placement agent. We paid
First Albany a fee equal to 2% of the gross proceeds, plus customary fees and
expenses, and issued to First Albany and its affiliates warrants to purchase
30,000 shares of Common Stock at an exercise price of $14.50 per share,
exercisable from date of grant for four years.
On November 10, 1999, as a royalty payment to a licensor under a
license agreement, we issued 9,127 shares of Common Stock to the licensor.
Each of the issuances of securities described above was made in
reliance upon an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) of the Securities Act as a transaction not
involving a public offering. We reasonably believe that each recipient of such
securities had such knowledge and experience in financial and business matters
to be capable of evaluating the risks and merits of the investment, and each
recipient represented its intention to acquire the securities for investment
purposes only and not with a view to or for the sale in connection with any
unregistered distribution thereof. All recipients had adequate access, through
contractual provisions and/or their relationships with us, to information about
us, our business and operations, and
35
<PAGE> 38
the securities. In connection with those issuances of securities, appropriate
legends were affixed to the certificates issued in such transactions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and analysis of our results of operations for
the years ended December 31, 1999 and 1998 and of our consolidated financial
condition as of December 31, 1999 should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
Report.
We recently formed two subsidiaries to develop and operate our
Internet-based energy information and services business, PowerSpring and
TotalPlan. TotalPlan was merged into PowerSpring in March 2000. Neither
PowerSpring nor TotalPlan had any revenues during the year ended December 31,
1999.
This discussion contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. We may
identify these statements by the use of words such as "may", "could", "should",
"will", "project", "continue", "estimate", "believe", "expect", "anticipate",
"intend", "plan" and similar expressions. These forward-looking statements
involve several risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those we discuss in "Item I. Description of
Business -- Additional Factors That Could Affect Our Business and Future
Results", and elsewhere in this Report. These forward-looking statements speak
only as of the date of this Report, and we caution you not to rely on these
statements without also considering the risks and uncertainties associated with
these statements and our business that are addressed in this Report.
RESULTS OF OPERATIONS
The following table sets forth information related to our current
primary business segments and is intended to assist you in understanding our
results of operations for the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1999 1998
------- --------
(dollar amounts in thousands)
<S> <C> <C>
REVENUES:
Southern Flow ................... $ 11,112 $ 11,106
Metretek ........................ 8,234 8,774
PowerSpring ..................... -- --
Other ........................... 19 42
-------- --------
Total ........................... $ 19,365 $ 19,922
======== ========
GROSS PROFIT:
Southern Flow ................... $ 2,656 $ 2,448
Metretek ........................ 2,929 4,568
PowerSpring ..................... -- --
-------- --------
Total ........................... $ 5,585 $ 7,016
======== ========
</TABLE>
36
<PAGE> 39
<TABLE>
<S> <C> <C>
SEGMENT PROFIT (LOSS):
Southern Flow ................... $ 977 $ 747
Metretek ........................ (1,715) 434
PowerSpring ..................... (1,506) --
Other ........................... (1,432) (1,486)
-------- --------
Loss from continuing operations . (3,676) (305)
Loss from discontinued operations -- (34)
-------- --------
Total ........................... $ (3,676) $ (339)
======== ========
</TABLE>
We currently have three reportable business segments: automated energy
data management; natural gas measurement services; and Internet-based energy
information and services. The operations of our automated energy data management
segment are conducted by Metretek Florida. Metretek Florida's manufactured
products fall into three categories: remote data collection products; electronic
corrector products; and application-specific products. Metretek Florida also
provides energy data collection and management services and post-sale support
services for its manufactured products.
The operations of our natural gas measurement services segment are
conducted by Southern Flow. Southern Flow's services include on-site field
services, chart processing and analysis, laboratory analysis, and data
management and reporting. These services are provided principally to customers
involved in natural gas production, gathering, transportation and processing.
The operations of our Internet-based energy information and services
segment are conducted by PowerSpring. PowerSpring has incurred operating costs
to date and does not expect to commence revenue generating operations until the
second quarter of 2000.
We evaluate the performance of our operating segments based on income
(loss) before taxes, nonrecurring items and interest income and expense. Other
profit (loss) amounts in the table above include corporate related items,
results of insignificant operations, and income and expense not allocated to its
operating segments.
During 1998, we decided to discontinue our business segment engaged in
acquiring or financing the acquisition of natural gas assets through private
programs. The financial statements as of and for the year ended December 31,
1998 have been reclassified to exclude the operating results of this segment
from continuing operations and to account for this segment as discontinued
operations. The following discussion relates only to our continuing operations.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Our consolidated revenues for the year ended December 31,
1999 decreased $556,914, or 3%, compared to the same period in 1998, due to a
decrease in revenues by Metretek Florida. Metretek Florida's revenues for the
year ended December 31, 1999 decreased $540,767, or 6%, compared to the same
period in 1998. A decrease in Metretek Florida's international sales by $726,782
was partially offset by an increase in Metretek Florida's domestic sales by
$186,015. International sales, which are subject to fluctuation because Metretek
Florida does not currently have a steady base of international customers,
decreased because Metretek Florida did not capture as many new international
projects during 1999 as compared to 1998. The increase in Metretek Florida's
domestic sales was primarily the result of the inclusion in its 1999 revenues of
sales of its electronic corrector product line, which it acquired from American
Meter in May 1998 but did not fully market until the mid-third quarter of 1998.
Domestic sales of Metretek Florida's traditional line of remote data collection
products and systems also increased slightly during 1999 due primarily to
increased demand for Year 2000 compliant systems, but this was more than offset
by a decrease in circuit board assembly sales resulting partially from reduced
industry demand and partially from a loss of circuit board assembly business by
Metretek Florida due to sales personnel changes. A comparison of Metretek
Florida's current domestic and international product mix is as follows:
37
<PAGE> 40
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998
---- ----
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Remote data collection
products and systems $4,861 59% $5,595 64%
Electronic corrector products 2,370 29% 1,706 19%
Circuit board assembly sales 1,003 12% 1,473 17%
------ ------
Total $8,234 $8,774
====== ======
</TABLE>
Southern Flow's revenues increased $6,526, or less than 1%, for the year ended
December 31, 1999, compared to the same period in 1998.
Costs and Expenses. Costs of measurement sales and services include
materials, labor, personnel and related overhead costs incurred to manufacture
products and provide services. Cost of sales and services for the year ended
December 31, 1999 increased $895,946, or 7%, compared to the same period in
1998. Metretek Florida's cost of sales and services for the year ended December
31, 1999 increased $1,098,406, or 26%, compared to the same period in 1998. This
increase was due primarily to higher personnel and related overhead costs
associated with the integration and manufacturing of the electronic corrector
product line which was acquired by Metretek Florida in May 1998. As a result,
Metretek Florida's overall gross profit margin decreased from 52.1% to 35.6%
compared to the same period in 1998. Southern Flow's cost of sales and services
for the year ended December 31, 1999 decreased $202,460, or 2%, compared to the
same period in 1998. Southern Flow's gross profit margin for the year ended
December 31, 1999 increased slightly from 22.0% to 23.9% compared to the same
period in 1998, which is within the range of normal fluctuations.
General and administrative expenses include personnel and related
overhead costs for support and administration functions. General and
administrative expenses for the year ended December 31, 1999 decreased $139,785
or 4%, compared to the same period in 1998, due principally to the effect of the
following factors: (1) a decrease in expenses of Metretek Florida of
approximately $51,000 attributable to overall cost savings at Metretek Florida
and Sigma VI resulting from combining certain administrative functions; (2)
decreases in general and corporate expenses of approximately $184,000 primarily
due to the elimination of compensation costs associated with our 1998 Employee
Stock Purchase Plan, which was terminated in July 1998; and (3) a decrease in
expenses of Southern Flow of approximately $32,000 primarily attributable to
reduced state and franchise taxes in 1999 compared to 1998. These decreases in
general and administrative expenses were partially offset by approximately
$127,000 of personnel and related overhead costs incurred by PowerSpring, for
which there were no comparable costs during the same period in 1998.
Selling, marketing and service expenses consist of personnel and
related overhead costs, including commissions for the sale and marketing
activities, together with advertising and promotion costs. Selling, marketing
and service expenses for the year ended December 31, 1999 increased $532,396, or
35%, compared to the same period in 1998, approximately $349,000 of which
related to activities at Metretek Florida. The increase in Metretek Florida's
expenses was due principally to an increase in the number of sales and customer
service personnel in 1999 compared to the same period in 1998 primarily
associated with the integration of the electronic corrector product line. The
remaining increase in selling, marketing and service expense of approximately
$183,000 in 1989 was incurred by PowerSpring, for which there were no comparable
costs during the same period in 1998.
Depreciation and amortization expenses include the depreciation and
amortization of real property, customer list, goodwill and capitalized software
development costs. Depreciation and amortization expenses for the year ended
December 31, 1999 increased $159,433, or 14%, compared to the same period in
1998. This increase was due to additional goodwill amortization costs related to
Metretek Florida's acquisitions in the second quarter of 1998 as well as
increased depreciation expenses at both Metretek Florida and Southern Flow.
38
<PAGE> 41
Research and development expenses include payments to third parties,
personnel and related overhead costs for product and service development,
enhancements, and upgrades. Research and development expenses for the year ended
December 31, 1999 increased $1,264,375, or 132%, compared to the same period in
1998. The increase is due primarily to PowerSpring development expenditures in
1999 of approximately $1,196,000, for which there were no comparable costs
during the same period in 1998.
Interest, finance charges and other expenses include interest and
finance charges on our credit facility as well as other non-operating expenses.
Interest, finance charges and other expenses for the year ended December 31,
1999 increased $101,331, or 55%, compared to the same period in 1998. The
increase reflects interest expense on additional borrowings during much of 1999
compared to 1998 in order to fund Metretek Florida's growth and development of
the businesses acquired by Metretek Florida in 1998, borrowings to finance
increases in Metretek Florida's inventory and accounts receivable, borrowings to
finance the initial development efforts of PowerSpring, and the amortized
portion of capitalized finance charges incurred in 1998 to obtain our current
credit facility.
SEASONALITY AND CYCLICALITY
Metretek Florida historically derives substantially all of its revenues
from sales of its products and services to the utility industry. Metretek
Florida has experienced variability of operating results on both an annual and a
quarterly basis due primarily to utility purchasing patterns and delays of
purchasing decisions as a result of mergers and acquisitions in the utility
industry and changes or potential changes to the federal and state regulatory
frameworks within which the utility industry operates. The utility industry,
both domestic and foreign, is generally characterized by long budgeting,
purchasing and regulatory process cycles that can take up to several years to
complete. Metretek Florida's utility customers typically issue requests for
quotes and proposals, establish committees to evaluate the purchase, review
different technical options with vendors, analyze performance and cost/benefit
justifications and perform a regulatory review, in addition to applying the
normal budget approval process within a utility. Purchases of Metretek Florida's
products are, to a substantial extent, deferrable in the event that utilities
reduce capital expenditures as a result of mergers and acquisitions, pending or
unfavorable regulatory decisions, poor revenues due to weather conditions,
rising interest rates or general economic downturns, among other factors.
Based upon the discussion and analysis in this Item and in "Item 1.
Description of Business -- Additional Factors That Could Affect Our Business and
Future Results," we believe that our future revenues, expenses and results of
operations are likely to vary significantly from quarter to quarter. As a
result, quarterly comparisons of operating results are not necessarily
meaningful or indicative of future performance.
FINANCIAL CONDITION AND LIQUIDITY
We require capital principally for (1) the financing of inventory and
accounts receivable, (2) research and development expenses, including the
development of PowerSpring, (3) capital expenditures for property and equipment
and software development, and (4) the funding of possible future acquisitions.
Net cash used by operating activities was approximately $396,000 for
the year ended December 31, 1999, which was the net result of the following: (1)
approximately $2,281,000 of cash used to fund continuing operations, before
changes in assets and liabilities; (2) approximately $1,891,000 of cash provided
by changes in working capital and other asset and liability accounts; and (3)
approximately $6,000 of cash used by discontinued operations.
We plan to continue and expand our research and development efforts to
enhance our existing products and services, and to develop new products,
especially in the business of PowerSpring. We anticipate that our research and
development costs in 2000 will be approximately $4,700,000 of which $1,200,000
will relate to Metretek's business and $3,500,000 is expected to be incurred in
connection with further developing PowerSpring. Research and development
expenses in the amount of $2,225,758 were incurred in the year ended December
31, 1999.
39
<PAGE> 42
We anticipate capital expenditures in 2000 of approximately $8,100,000,
primarily for computer software and hardware production and laboratory
equipment. Capital expenditures for the year ended December 31, 1999 totaled
$300,298.
On April 14, 1998, we entered into a loan and security agreement (the
"Loan Agreement") with a commercial bank (the "Lender") providing for a combined
$5,000,000 credit facility consisting of loans (the "Loans") and letters of
credit subject to limitations described below. The Loan Agreement provides for
daily advances in the form of Loans to fund capital requirements, and daily
paydowns on outstanding balances of the Loans from collection of customer
accounts receivable. We make monthly interest payments computed at prime plus 1%
(9.5% at December 31, 1999) on outstanding balances of the Loans. The Loans
mature on March 14, 2001.
The Loans are secured by our tangible and intangible assets, including
the equipment, inventory, receivables and cash deposits, and the pledge of the
shares of our subsidiaries. The Loan Agreement requires us to maintain a minimum
tangible net worth, a maximum debt to tangible net worth ratio, minimum annual
net income (or maximum annual net loss in 1999), a minimum debt service coverage
ratio, and contains other standard covenants related to our operations,
including prohibitions on the payment of dividends and the issuance or
repurchase of securities (with certain exceptions) without the Lender's consent.
Borrowings on the Loans are limited to the sum of 80% of eligible
accounts receivable of Southern Flow and Metretek Florida and 50% of raw
materials and finished goods inventory (up to a combined maximum of
$1,500,000) of Southern Flow and Metretek Florida. At December 31, 1999, we had
a combined $3,587,864 Loan availability, of which $269,968 had been borrowed by
Southern Flow and Metretek Florida, leaving $3,317,896 in unused Loan
availability.
On May 4, 1998, we acquired substantially all of the assets and
business of a subsidiary of American Meter Company pertaining to electronic
correctors and non-radio-frequency meter reading devices in the natural gas and
electric utility industry. In consideration for this purchase, we delivered to
American Meter an aggregate purchase price consisting of $1,300,000 in cash,
439,560 unregistered shares of Common Stock, and a $600,000 convertible
subordinated promissory note. In March 2000, American Meter converted the note
into 105,495 shares of Common Stock under the terms of the note. Until it was
converted, the note bore interest on the unpaid principal balance at a fixed
rate equal to 7.5% per annum, payable quarterly in arrears, and was due and
payable on May 4, 2002.
On September 13, 1999, we entered into a strategic relationship with
Scient to assist us in designing and creating an Internet-based business to
enable us to take its measurement information products, services, and data
measurement technologies to the market of end-users of natural gas and
electricity. The Internet project is being developed and operated through
PowerSpring. In connection with the development of PowerSpring, we issued to
Scient a warrant to purchase 125,000 shares of Common Stock. The Scient Warrant
becomes exercisable in September 2000, at exercise prices split between $5.00
and $10.00 per share, and expires in September 2002. Scient has registration
rights with respect to the Common Stock issuable upon the exercise of the Scient
warrant.
In order to fund the initial development of PowerSpring, we entered
into an amendment with the Lender (the "Loan Amendment") to the terms of the
Loan Agreement. The Loan Amendment amended certain covenants of the Loan
Agreement, including our minimum annual net income (or maximum annual net loss
in 1999), minimum tangible net worth and minimum debt service coverage ratio.
The Loan Amendment also permitted us to utilize up to $700,000 of the credit
facility to finance expenditures on the first phase of PowerSpring's
development. In connection with the Loan Amendment, we paid customary fees to
the Lender and issued a warrant to purchase 20,000 shares of Common Stock. The
Lender warrant is exercisable for three years at an exercise price of $5.00 per
share. The Lender has registration rights with respect to the Common Stock
issuable upon the exercise of the Lender warrant.
40
<PAGE> 43
We estimate that this initial development phase and launch of
PowerSpring will require aggregate expenditures of between $6,000,000 and
$8,000,000, consisting of consulting fees and expenses payable to Scient and
costs of acquiring the requisite technology, including hardware and software, as
well as research and development costs. Through December 31, 1999, these costs
were approximately $1.5 million.
On February 4, 2000, we completed the $14,000,000 Units Private
Placement by issuing 7,000 Units, including 1,450 Units we issued on December 9,
1999. Each Unit consisted of 200 shares of Common Stock, 1 share of Series B
Preferred Stock and Unit Warrants to purchase 100 shares of Common Stock. For a
description of the material terms of these securities, see "Item 5. Market for
Common Equity and Related Stockholder Matters - Recent Sales of Unregistered
Securities." In the Units Private Placement, we issued 1,400,000 shares of
Common Stock, 7,000 shares of Series B Preferred Stock and Unit Warrants to
purchase 700,000 shares of Common Stock. The Units Private Placement was
approved and ratified by our stockholders at a special meeting of stockholders
held on February 3, 2000. The Units were issued to institutional investors and
other "accredited investors" (as defined under Regulation D under the Securities
Act). The primary purpose of the Units Private Placement was to raise capital to
enable us to develop the Internet-based business of PowerSpring. A portion of
the proceeds was also used to repay outstanding indebtedness, and the remaining
proceeds will be used for general corporate and working capital purposes,
including potentially providing the funds to finance an acquisition opportunity,
if one were to arise.
On March 17, 2000, we acquired Mercator Energy Incorporated through a
merger of Mercator with a wholly-owned subsidiary of PowerSpring. Mercator is a
Denver-based natural gas services and brokerage company that acts as an
independent broker-agent for both producers and consumers of natural gas. In
consideration for the acquisition of Mercator, we delivered to John A. Harpole,
the President and sole shareholder of Mercator prior to the acquisition,
$408,334 in cash, a $741,666 non-negotiable promissory note payable by
PowerSpring over two years and secured by a general security interest in the
assets of PowerSpring, and 2,500,000 shares of common stock of PowerSpring.
Subsequent to the acquisition of Mercator, we own 87.5% of the outstanding
shares of PowerSpring common stock, Mr. Harpole owns 12.5% of the outstanding
shares of PowerSpring common stock, and Mercator has become a wholly-owned
subsidiary of PowerSpring. We, PowerSpring and Mr. Harpole entered into a
stockholders agreement that addresses certain rights related to Mr. Harpole's
PowerSpring common stock, including a right for Mr. Harpole to put his shares of
PowerSpring common stock back to PowerSpring at an appraised value for each
payable over three years if PowerSpring has not completed an initial public
offering or has not sold its business within two years. PowerSpring also entered
into a two-year employment agreement with Mr. Harpole, who will serve as the
Executive Vice President, Chief Operating Officer and a director of PowerSpring.
Under the employment agreement, Mr. Harpole received an option to purchase
60,000 shares of our Common Stock, exercisable at $17.88 per share, and an
option to purchase 200,000 shares of PowerSpring common stock, exercisable at
$.30 per share.
On September 13, 1999, we entered into a consulting and joint venture
agreement with Mercator, under which Mercator provided its energy procurement
services to us on a consulting basis. In connection with our acquisition of
Mercator, we issued to Mercator a warrant to purchase 60,000 shares of Common
Stock. The Mercator warrant vests in three tranches from the date of issuance
through March 2001, with exercise prices ranging between $4.50 and $5.50 per
share, and expires in September 2002. Mercator has registration rights with
respect to the Common Stock issuable upon the exercise of the Mercator warrant.
In connection with our acquisition of Mercator, the consulting agreement, and a
related stock option agreement between TotalPlan and Mercator, were terminated,
and Mercator transferred the Mercator warrant to Mr. Harpole.
Compensation expense for the fair value of the Scient, Mercator and
Lender warrants is being recognized in accordance with the provisions of
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," over the period in which the services are being performed or the
remaining term of the Loan Agreement. Compensation expense associated with the
warrants in the amount of $70,029 has been recognized in the consolidated
statement of operations during the year ended December 31, 1999.
In September 1998, our Board of Directors adopted a stock repurchase
plan that authorized us to purchase up to approximately 7% of our outstanding
Common Stock in open market transactions, from time to time as management deemed
appropriate, based on the market price of the Common Stock. During 1998 and
41
<PAGE> 44
1999, we repurchased 96,116 shares of its Common Stock at an average price of
$2.22 per share. The stock repurchase plan was discontinued on October 6, 1999.
All of the repurchased shares have been retired.
Based on our current plans and assumptions, management believes that
our capital resources, including cash and cash equivalents, amounts available
under existing credit facilities and funds generated from continuing operations,
and additional proceeds from the disposition of the remaining assets of its
discontinued operations, will be sufficient to meet our currently anticipated
cash needs, including our working capital needs, capital commitments and debt
service requirements, including those pertaining to the launch of the business
of PowerSpring. However, we will also have a continuing need for additional
capital to accomplish our business strategy with respect to our existing
businesses. The continued development of the business of PowerSpring will also
require substantial capital after launch. In addition, unanticipated events,
over which we may have no control, could increase our operating costs or
decrease our ability to generate revenues from product and service sales. We
will also require additional capital in the future in order to make any
significant acquisition of businesses or technologies.
We expect that after the initial development stage of PowerSpring is
completed and our website is launched, the further development and growth of
PowerSpring, including staff, organizational and start up expenses, marketing
costs and additional capital expenditures, will require significant additional
funds, beyond the proceeds of the Units Private Placement, from the proceeds of
public or private equity financing, debt financing or from other sources. We
intend to raise any needed additional capital to fund the development and
operations of PowerSpring primarily through financing at the PowerSpring level.
However, depending upon the availability of capital, market conditions, our
consolidated operations and the operations of PowerSpring, we may also or
instead raise additional capital at the Metretek level. For example, depending
on market conditions and other factors we deem appropriate, we may call our
Dividend Warrants for redemption. Due to the trading price of our Common Stock,
as of the date of this Report we have the right, upon 30 days notice, to call
the Dividend Warrants for redemption, and we will continue to have this
redemption right as long as the closing sale price of the Common Stock as
reported on the Nasdaq National Market equals or exceeds $6.50 per share. We
expect that, subject to market conditions, most or all Dividend Warrants will be
exercised after we call them for redemption, resulting in gross proceeds of up
to $3.5 million to us.
Obtaining additional financing will depend on many factors, including
market conditions, our operating performance and investor sentiment. Terms of
debt financing could restrict our ability to operate our business, or to expand
our operations. In addition, if we raise additional capital by issuing capital
stock or securities convertible into capital stock, stockholders could suffer a
significant dilution of their percentage ownership interests, and the new
capital stock or other new securities could have rights, preferences or
privileges senior to those of our current stockholders.
Our capital raising will be subject to the consent of the Lender, if
our credit facility is then in effect. In addition, depending on how it is
structured, our capital raising could require the consent of the holders of our
Series B Preferred Stock. We cannot assure you that sufficient additional funds
will be available to us on a timely basis or that, if available on a timely
basis, such funds can be obtained on terms satisfactory to us, to our lender and
to the holders of our Series B Preferred Stock, if their consents are required.
Our inability to obtain sufficient additional capital on a timely basis on terms
that are acceptable could have a material adverse effect on our business,
financial condition and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 establishes methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. We will be required to adopt
FAS 133 for our fiscal year ending December 31, 2001. However, because we do not
utilize derivative financial instruments, we do not believe the impact of FAS
133 will be material to our financial position or results of operations.
42
<PAGE> 45
In December 1998, the AICPA issued Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" ("SOP 98-9"). SOP 98-9 requires use of the "residual method" for
recognition of revenue when vendor-specific objective evidence exists for
undelivered elements but does not exist for delivered elements of a software
arrangement. We will be required to comply with the provisions of SOP 98-9 for
transactions entered into beginning January 1, 2000. The adoption of SOP 98-9 is
not expected to have a material effect on our financial position or results of
operations. However, SOP 98-9 may require more revenue to be deferred for
certain types of transactions.
YEAR 2000 COMPLIANCE
The "Year 2000 issue," which presented potential risks and
uncertainties to virtually all businesses, was to have resulted from computer
programs that used two digits rather than four to define the applicable year.
Any computer programs that had time-sensitive software could have recognized a
date using "00" as the year 1900 rather than the year 2000. This situation could
have resulted in system failures or miscalculations causing disruptions to
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar or normal business activities.
As of the date of this Report, we have not experienced any known
material adverse impacts on our current products and services, internal
information systems or other internal operating systems as a result of the Year
2000 issue, and we have not received notice of any material Year 2000 compliance
issues from our suppliers or customers. Based on the work done to date, costs
directly associated with our Year 2000 compliance efforts were approximately
$200,000. We do not expect that any future expenditures to address the Year 2000
issues will be material. However, it remains possible that Year 2000 issues
associated with our products or systems may still arise or that we could receive
notice of Year 2000 issues that have arisen with our products and services. We
plan to continue to monitor the Year 2000 issues closely. Therefore, we cannot
assure you that Year 2000 issues will not have a material adverse effect on our
results of operations or financial condition.
ITEM 7. FINANCIAL STATEMENTS
The information required by this Item is set forth on pages F-1 through
F-24 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
43
<PAGE> 46
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors, and their ages and positions, are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
W. Phillip Marcum 56 President, Chief Executive Officer, Chairman of
the Board and Director
A. Bradley Gabbard 45 Executive Vice President, Chief Financial
Officer, Treasurer and Director
Ronald W. McKee 52 President of Metretek Florida and Director
Basil M. Briggs (1) 64 Director
Kevin P. Collins 49 Director
Robert Lloyd (2) 61 Director
Anthony D. Pell (1)(2) 61 Director
Harry I. Skilton (1) 61 Director
Albert F. Thomasson (2) 58 Director
</TABLE>
- ----------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
W. PHILLIP MARCUM, a co-founder of Metretek, has served as our
President, Chief Executive Officer, Chairman of the Board and a director since
our incorporation in April 1991. He also serves as the Chairman and Chief
Executive Officer of each of our direct wholly-owned subsidiaries. Since March
1996, Mr. Marcum has been a director of Key Energy Services, Inc., East
Brunswick, New Jersey ("Key"), an oilfield service provider. He was a director
of WellTech, Inc. ("WellTech") from January 1994 until March 1996 when WellTech
was merged into Key. He also serves as a director of one privately-held
corporation, Test America, Inc., Asheville, North Carolina, a water analysis
company.
A. BRADLEY GABBARD, a co-founder of Metretek, has served as a director
of Metretek since our incorporation in April 1991. He has served as our
Executive Vice President since July 1993, and as our Chief Financial Officer and
Treasurer from April 1991 through July 1993 and since August 1996. He also
served as our Vice President and Secretary of Metretek from April 1991 through
July 1993. Mr. Gabbard also serves as the Chief Financial Officer of each of our
direct wholly-owned subsidiaries. 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. 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, principally serving clients in the
oil and gas industry. Mr. Gabbard is a certified public accountant.
RONALD W. MCKEE has served as a director of Metretek since August 1997
and has served as the President and Chief Operating Officer of Metretek Florida
since September 1995. Mr. McKee had previously served as the Vice President of
Marketing of Metretek Florida since he joined Metretek Florida in 1989. From
1970 to 1989, Mr. McKee held various sales and marketing management positions
with Rockwell International, Pittsburgh,
44
<PAGE> 47
Pennsylvania, and became the general sales and marketing manager for Rockwell
International's plug valve business in 1987.
BASIL M. BRIGGS has served as a director of Metretek since June 1991.
He has been a practicing attorney in Detroit, Michigan since 1961, practicing
law with Cox, Hodgman & Giarmarco, P.C., Troy, Michigan, since January 1997. He
was of counsel with Miro, Weiner & Kramer, P.C., Bloomfield Hills, Michigan,
from 1987 through 1996. Mr. Briggs was the President of Briggs & Williams, P.C.,
Attorneys at Law, from its formation in 1977 through 1986. Mr. Briggs was the
Secretary of Patrick Petroleum Company from 1984, and a director of Patrick
Petroleum Company from 1970 until Patrick Petroleum Company was acquired by
Goodrich Petroleum Company in August 1995. Since August 1995, he has been a
director of Goodrich Petroleum Company.
KEVIN P. COLLINS has served as a director of Metretek since March 2000.
Mr. Collins has been a Managing Member of The Old Hill Company LLC, Westport,
Connecticut, which provides corporate financial and advisory services, since
1997. From 1992 to 1997, he served as a principal of JHP Enterprises, Ltd., and
from 1985 to 1992, as Senior Vice President of DG Investment Bank, Ltd., both of
which were engaged in providing corporate finance and advisory services. Mr.
Collins has served as a director of Key since March 1996; a director of The Penn
Traffic Company, Syracuse, New York, a food retailer, since June 1999; and a
director of London Fog Industries, Inc, Eldesburg, Maryland, an outerwear
designer and distributor, since 1999. Mr. Collins also serves as the director of
one privately-held company, Avanti Petroleum, Inc., a convenience chain store.
ROBERT LLOYD has served as a director of Metretek 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.
ANTHONY D. PELL has served as a director of Metretek since June 1994.
Mr. Pell is a director of Rochdale Investment Management, Inc., New York, New
York. He was the President and a co-owner of Pell, Rudman & Co., Boston,
Massachusetts, an investment advisory firm, from 1981 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 Florida from 1985 until Metretek
was acquired by us in March 1994. Mr. Pell 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.
HARRY I. SKILTON has served as a director of Metretek since May 1998.
Since 1994, Mr. Skilton has been the President, Chief Executive Officer and a
director of American Meter Company, Horsham, Pennsylvania, a worldwide supplier
of meters and electronic instruments to the natural gas industry, and an officer
and director of various American Meter subsidiaries. American Meter is
ultimately controlled by Ruhrgas, a German corporation. From 1992 through 1994,
Mr. Skilton was a principal of D/R Consultants, which engaged in general
industry marketing and consulting. From 1990 through 1992, Mr. Skilton was the
President, Chief Operating Officer and a director of Lukens Inc., Coatsville,
Pennsylvania, a diversified steel company engaged in a manufacture of carbon and
alloy steels and related products. From 1986 through 1990, Mr. Skilton was the
Executive Vice President and Group President of the Air Distribution Group of
Phillips Industries, Inc., Dayton, Ohio, which produces building components, air
distribution, transportation materials handling systems. From 1965 through 1984,
Mr. Skilton served in various executive capacities with Illinois Tool Works,
Inc., General Instrument Corporation and Celanese Corporation.
ALBERT F. THOMASSON has served as a director of Metretek since March
1994. Mr. Thomasson was a director of Metretek Florida from 1981 until it was
acquired by us 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; Managing General Partner
of Opto Oil and Gas Company, which owns working interests in oil and gas fields;
45
<PAGE> 48
and Chairman of the Board of Daily Access Concepts, Inc., Mobile, Alabama, which
provides fully automated recordkeeping and trading services for qualified
retirement plans.
Our Board of Directors currently consists of nine members divided into
three classes, with members of each class holding office for staggered
three-year terms. The Class I Directors, whose terms expire at the 2001 Annual
Meeting of Stockholders, are Messrs. Marcum, Briggs, and Lloyd. The Class II
Directors, whose terms expire at the 2002 Annual Meeting of Stockholders, are
Messrs. Gabbard, McKee and Thomasson. The Class III Directors, whose terms
expire at the 2000 Annual Meeting of Stockholders, are Messrs. Collins, Pell and
Skilton. So long as at least 2,000 shares of Series B Preferred Stock remain
outstanding, the holders of Series B Preferred Stock, voting as a single class,
have the right to elect one member of the Board of Directors. In March 2000, Mr.
Collins was elected to the Board of Directors by the holders of the Series B
Preferred Stock. All other directors are elected by the holders of the Common
Stock. Each director serves in office until his successor is duly elected and
qualified. Any additional members added to the Board of Directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of an equal number of directors. Our officers are appointed by our
Board of Directors and serve at its discretion, subject to their employment
agreements, as described in "Item 10. Executive Compensation."
OTHER KEY EMPLOYEES
Information concerning other key employees of Metretek is set forth
below:
WOOD A. BREAZEALE, JR., 70, has served as the President, Chief
Operating Officer and a director of Southern Flow since May 1993. Mr. Breazeale
was the President and Chief Operating Officer of Southern Flow Companies, a
division of Homco International, Inc., and a Vice President of Homco
International, Inc., from 1979 until we 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, 41, has served as our Controller since May 1994 and
as our Secretary and Principal Accounting Officer 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.
JOHN A. HARPOLE, 40, has served as the Executive Vice President, Chief
Operating Officer and a director of PowerSpring since March 2000. From May,1994
until March 2000, when PowerSpring acquired Mercator, Mr. Harpole was the
President, sole director and sole shareholder of Mercator. From 1991 until May
1994, Mr. Harpole was a Vice President of Alta Energy Corporation. From 1982 to
1991, Mr. Harpole held various positions with Ladd Petroleum Corporation, a
subsidiary of General Electric Corporation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)") requires our
directors and executive officers, and beneficial owners of more than 10% of our
outstanding Common Stock, to file initial reports of ownership on Form 3 and
reports of changes in ownership on Form 4 or Form 5 with the SEC, and to furnish
us with copies of all such reports that they file. Based solely upon our review
of the copies of such forms we have received, and written representations from
certain directors and executive officers that no Form 5s were required to be
filed, we believe that, during 1999, all reports required by Section 16(a) to be
filed by such persons were timely filed, except for one report regarding a stock
option exercise filed late by Mr. Briggs.
SECTION 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the total compensation that we paid or
accrued for services rendered to us in all capacities during the last three
fiscal years by our Chief Executive Officer and by our two other executive
46
<PAGE> 49
officers (the "Named Executive Officers") whose total salary and bonus exceeded
$100,000 in the fiscal year ended December 31, 1999 ("fiscal 1999"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION(1) SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(2) COMPENSATION($)(3)
- --------------------------- ---- --------- -------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
W. Phillip Marcum ......... 1999 $210,000 $ 0 0 $6,400
President and Chief 1998 200,000 0 120,000(4) 6,436
Executive Officer 1997 175,250 31,395 50,000 6,127
A. Bradley Gabbard ........ 1999 $152,500 $ 0 12,500(5) $5,826
Executive Vice 1998 145,000 0 44,500(4) 6,249
President and Chief 1997 127,292 24,225 25,000 5,877
Financial Officer
Ronald W. McKee ........... 1999 $121,010 $ 0 12,500(5) $4,318
President of Metretek 1998 130,000 0 25,000(4) 4,102
1997 100,000 19,380 12,250 3,829
</TABLE>
- ----------
(1) Excludes perquisites and other personal benefits, if any, which were
less than the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer.
(2) The number of securities underlying options has been adjusted to
reflect the one-to-four reverse split of the Common Stock effected on
July 6, 1998.
(3) Includes amounts paid or accrued on behalf of the Named Executive
Officers in 1999 for (i) matching contributions under our 401(k) plan
of $5,000 for Mr. Marcum, $4,567 for Mr. Gabbard, and $3,630 for Mr.
McKee; (ii) premiums for group term life insurance of $936 for Mr.
Marcum, $795 for Mr. Gabbard, and $346 for Mr. McKee; and (iii)
premiums for long-term disability insurance of $464 for Mr. Marcum,
$464 for Mr. Gabbard, and $342 for Mr. McKee.
(4) Includes options originally granted prior to 1998 (120,000 to Mr.
Marcum, 44,500 to Mr. Gabbard and 12,500 to Mr. McKee) that were
cancelled and regranted pursuant to a stock option repricing in 1998.
(5) These options vest in three equal annual installments: one-third on
date of grant, one-third on the first anniversary of the grant and
one-third on second anniversary of the grant.
47
<PAGE> 50
EMPLOYMENT AGREEMENTS, CHANGE IN CONTROL ARRANGEMENTS AND OTHER COMPENSATION
ARRANGEMENTS
In December 1991, we entered into employment agreements, which have
been amended several times, with W. Phillip Marcum, our President, Chief
Executive Officer and Chairman of the Board, and A. Bradley Gabbard, our
Executive Vice President and Chief Financial Officer. These employment
agreements were most recently amended effective January 1, 2000 to provide for
an extension of the employment term until December 31, 2003 for Mr. Marcum and
until December 31, 2001 for Mr. Gabbard, with automatic additional one-year
renewal periods when the term expires, unless either party gives six months
prior written 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 $295,000 for Mr. Marcum and
$175,000 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 us to establish an incentive compensation fund, to be administered
by our Compensation Committee, 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 us in the
event of a change of control of Metretek or of the sale of substantially all of
our assets 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 $10.08, multiplied by a factor ranging from 10-20% depending upon the
ratio of the fair market value to $10.08. In the case of the sale of a
significant subsidiary or substantially all of the assets of a significant
subsidiary, a similar pro rata distribution is required. As amended, the
employment agreements with Messrs. Marcum and Gabbard provide that if the
employment period expires without being renewed, then the executive is entitled
to receive a lump-sum severance payment equal to 12 months, for Mr. Marcum, and
six months, for Mr. Gabbard, of his then base salary, and continued
participation in all our insurance plans for such additional period. The
employment agreements also contain certain restrictions on each executive's
ability to compete, use of confidential information and use of inventions and
other intellectual property.
As amended, the employment agreements with Messrs. Marcum and Gabbard
also include "change in control" provisions designed to provide for continuity
of management in the event we undergo a change in control. The agreements
provide that if within three years after a change in control, the executive is
terminated by us for any reason other than for "cause", or if the executive
terminates his employment for "good reason" (as such terms are defined in the
employment agreements), then the executive is entitled to receive a lump-sum
severance payment equal to two times, for Mr. Marcum, and one times, for Mr.
Gabbard, the amount of his then base salary, together with certain other
payments and benefits, including continued participation in all our insurance
plans for a period of two years for Mr. Marcum and one year for Mr. Gabbard.
Under these employment agreements, a "change in control" will be deemed to have
occurred only if: (1) any person or group becomes the beneficial owner of 50% or
more of our Common Stock; (2) a majority of our present directors are replaced,
unless the election of any new director is approved by a two-thirds vote of the
current (or properly approved successor) directors; (3) we approve a merger,
consolidation, reorganization or combination, other than one in which our voting
securities outstanding immediately prior thereto continue to represent more than
50% of our total voting power or of the surviving corporation following such a
transaction and our directors continue to represent a majority of our directors
or of the surviving corporation following such transaction; or (4) we approve a
sale of all or substantially all of its assets.
STOCK OPTION GRANTS
The following table sets forth certain information with respect to
stock options granted during fiscal 1999 to the Named Executive Officers. We did
not grant any stock appreciation rights, alone or in tandem with stock options,
in fiscal 1999.
48
<PAGE> 51
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
% OF TOTAL
OPTIONS
NUMBER OF SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS GRANTED (#)(1) FISCAL YEAR (2) PRICE ($)(3) DATE (4)
- ---- ---------------------- --------------- ------------ --------
<S> <C> <C> <C> <C>
W. Phillip Marcum ... 0 0% N/A N/A
A. Bradley Gabbard .. 12,500 8.9% $4.63 September 7, 2009
Ronald W. McKee ..... 12,500 8.9% $4.63 September 7, 2009
</TABLE>
- ----------
(1) The options in this table are incentive stock options granted under our
1998 Stock Incentive Plan. All options have ten year terms from the
date of initial grant and vest in three equal installments: one-third
upon grant, one-third after 1 year and one-third after two years.
(2) Based upon 141,000 options granted during 1999 to employees.
(3) The exercise price of the option is the fair market value of the Common
Stock on the date of grant, based upon the last sale price of the
Common Stock on such date as reported on the Nasdaq National Market.
(4) These options may terminate before their terms expire due to the
termination of the optionee's employment or the optionee's disability
or death.
STOCK OPTION EXERCISES AND VALUES
The following table sets forth information with respect to stock
options held by the Named Executive Officers on December 31, 1999. The Named
Executive Officers did not exercise any stock options during 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT FISCAL YEAR-END(#) FISCAL YEAR-END ($)(1)
------------------------------ ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Phillip Marcum ... 120,000 0 $330,000 $ 0
A. Bradley Gabbard .. 48,667 8,333 122,875 1,000
Ronald W. McKee ..... 29,167 8,333 69,750 1,000
</TABLE>
49
<PAGE> 52
- ----------
(1) For purposes of this table, the value of unexercised in-the-money
options is calculated based upon the difference between $4.75, the
closing sale price of the Common Stock on December 31, 1999 as reported
on the Nasdaq National Market, and the option exercise price.
DIRECTOR COMPENSATION
Directors who are also our officers or employees do not receive any
additional compensation for serving on the Board of Directors. All directors are
reimbursed for out-of-pocket costs of attending meetings of the Board of
Directors and its committees. Directors who are not our officers or employees
("Non-Employee Directors") currently receive a fee of $1,000 for attendance at
each meeting of the Board of Directors. Non-Employee Directors also receive
stock options. Until June 1998, these options were granted under our Directors'
Stock Option Plan (the "Directors' Plan"). Since June 1998, these options have
been granted under our 1998 Stock Incentive Plan (the "1998 Plan"). Under the
formula for these stock option grants, each person who is first elected or
appointed to serve as a Non-Employee Director is automatically granted an option
to purchase 5,000 shares of Common Stock. On the date of the Annual Meeting of
Stockholders each year, each Non-Employee Director (who has been such for at
least six months) is automatically granted an option to purchase 2,500 shares of
Common Stock. All options vest and become exercisable immediately upon grant.
Additional non-formula options can be granted to Non-Employee Directors under
the 1998 Plan in the discretion of the Board of Directors.
Each Non-Employee Director has the right to irrevocably elect on an
annual basis in advance to receive additional stock options under the 1998 Plan
("Meeting Options") in lieu of cash fees for attending meetings of the Board of
Directors. The Meeting Options are granted on the date of each Annual Meeting of
Stockholders and vest in 25% increments on the date of each of the subsequent
four regular quarterly meetings of the Board of Directors attended by such
Non-Employee Director. The number of shares of Common Stock exercisable upon the
exercise of Meeting Options are such that the value of the stock options granted
is equal to the amount of fees waived.
All options granted to Non-Employee Directors are nonqualified stock
options exercisable at a price equal to the fair market value of the Common
Stock on the date of grant and have ten year terms, subject to earlier
termination in the event of the termination of the optionee's status as a
director or the optionee's death. Options typically remain exercisable for one
year after a Non-Employee Director dies and for that number of years after a
Non-Employee Director leaves the Board of Directors (for any reason other than
death or removal for cause) equal to the number of full or partial years that
the Non-Employee Director served as a director, but not beyond the ten year term
of the option. On October 6, 1998, the exercise price of all options then
outstanding to Non-Employee Directors under the Directors' Plan and under the
1998 Plan was reduced to $2.00 per share, the closing sale price of the Common
Stock as reported on the Nasdaq National Market on such date. As of December 31,
1999, options to purchase 92,500 shares of Common Stock were outstanding to
Non-Employee Directors under the Directors' Plan and options to purchase 34,209
shares of Common Stock were outstanding to Non-Employee Directors under the 1998
Plan, at exercise prices ranging from $1.75 to $2.00 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our Common Stock as of March 15, 2000 by:
- each person who is known by us to beneficially own 5% or more
of the outstanding shares of our Common Stock;
- each of our directors;
- each of the Named Executive Officers; and
50
<PAGE> 53
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Unless otherwise indicated below, to our
knowledge, each stockholder named in the table below has sole voting and
investment power with respect to the shares of Common Stock beneficially owned,
subject to applicable community property laws. In computing the number of shares
beneficially owned by a person and the percentage of beneficial ownership of
that person, beneficial ownership includes any shares of Common Stock subject to
options, warrants and other rights that are currently exercisable or exercisable
within 60 days of March 15, 2000. Such shares, however, are not included for
purposes of computing the beneficial ownership of any other person. The
percentage of beneficial ownership is based upon 5,003,678 shares of Common
Stock outstanding on March 15, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF
COMMON STOCK COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
- ------------------------ ------------------ -----------
<S> <C> <C>
DDJ Capital Management, LLC(1) ............ 900,000 17.0
141 Linden Street, Suite 4
Wellesley, Massachusetts 02482
Special Situations Funds (2) .............. 692,900 13.3
153 East 53rd Street
New York, New York 10022
Kenneth B. Funsten (3) .................... 502,212 9.8
121 Outrigger Mall
Marina del Ray, California 90292
American Meter Company (4) ................ 461,319 8.8
300 Welsh Road
Horsham, Pennsylvania 19044
Credit Suisse Asset Management, LLC (5) ... 300,000 5.9
153 East 53rd Street, 57th Floor
New York, New York, 10022
Famco Value Income Partners, L.P. (6) ..... 275,300 5.5
121 Outrigger Mall
Marina del Ray, California 90292
W. Phillip Marcum (7) ..................... 224,823 4.4
Albert F. Thomasson (8) ................... 135,384 2.7
Robert Lloyd (9) .......................... 61,915 1.2
A. Bradley Gabbard (10) ................... 55,106 1.1
Ronald W. McKee (11) ...................... 41,358 0.8
Anthony D. Pell (12) ...................... 37,762 0.8
Basil M. Briggs (13) ...................... 23,633 0.5
Harry I. Skilton (14) ..................... 15,338 0.3
Kevin P. Collins (15) ..................... 7,250 0.1
All directors and executive officers
as a group (9 persons)(16) ........... 602,569 11.3
</TABLE>
- ----------
(1) Information based, in part, on Schedule 13D filed with the SEC on
December 21, 1999, Amendment No. 1 to Schedule 13D filed with the SEC
on January 19, 2000, and Amendment No. 2 to Schedule 13D filed with the
SEC on February 14, 2000 by DDJ Capital Management, LLC ("DDJ"), B
III-A Capital Partners, L.P. ("B III-A") and GP III-A, LLC ("GP
III-A"). The shares are owned by B III-A, the DDJ Canadian High Yield
Fund ("DDJ Canadian Fund") and an account established for an
institutional investor (the
51
<PAGE> 54
"Account"). GP III-A is the general partner of, and DDJ is the
investment manager for, B III-A. DDJ is also the investment manager to
the Account and an investment advisor to the DDJ Canadian Fund.
Includes 300,000 shares that may be acquired upon the exercise of
currently exercisable warrants, but does not include 505,612 shares of
Common Stock that may be acquired after June 9, 2000 upon conversion of
3,000 shares of Series B Preferred Stock.
(2) Information based upon Schedule 13D filed with the SEC on March 8, 2000
by Special Situations Fund III, L.P., Special Situations Cayman Fund,
L.P., Special Situations Private Equity Fund, L.P., Special Situations
Technology Fund, L.P., MGP Advisors Limited Partnership, AWM
Investments Company, Inc., MG Advisors, L.C., SST Advisors, L.L.C.,
Austin W. Marxe and David M. Greenhouse. MGP Advisors Limited
Partnership is the general partner of and the investment advisor to the
Special Situations Fund III. AWM Investment Company is the general
partner of MGP Advisors and the general partner of and investment
adviser to the Special Situations Cayman Fund. MG Advisers is the
general partner of the Special Situations Private Equity Fund. SST
Advisors is the general partner of the Special Situations Technology
Fund. Austin W. Marxe and David M. Greenhouse are the officers,
directors and members or principal shareholders of MG Advisors, MGP
Advisors, AWM Investment Company and SST Advisors. Includes 200,000
shares that may be acquired upon the exercise of currently exercisable
warrants, but does not include 337,075 shares of Common Stock that may
be acquired after June 9, 2000 upon conversion of 2,000 shares of
Series B Preferred Stock.
(3) Information based upon Amendment No. 5 to Schedule 13D filed by Kenneth
B. Funsten and by FamCo Value Income Partners, L.P. ("FamCo VIP") with
the SEC on February 9, 2000, and Form 4 filed by Mr. Funsten with the
SEC on February 10, 2000. Includes shares owned by FamCo VIP and by
FamCo Offshore, Ltd. Funsten Asset Management Company and Mr. Funsten,
who is the president and portfolio manager of Funsten Asset Management
Company, are the general partners of FamCo VIP and FamCo Offshore. Mr.
Funsten holds sole voting and investment power over the securities
owned by Famco VIP and Famco Offshore. In this table, the shares
beneficially owned by Mr. Funsten include the shares owned by FamCo
VIP. See note (6) below. Includes 136,687 shares that may be acquired
upon the exercise of currently exercisable warrants, but does not
include 84,269 shares of Common Stock that may be acquired after June
9, 2000 upon the conversion of 500 shares of Series B Preferred Stock.
Also does not include 4,100 shares owned by an employee of Funsten
Asset Management Company which cannot be sold or further added to
without permission by Mr. Funsten by virtue of restrictions that are
placed on securities transactions by employees of Funsten Asset
Management Company, because Mr. Funsten has no investment or voting
authority over the shares of such employee and Mr. Funsten expressly
disclaims beneficial ownership of such shares.
(4) Information based upon Amendment No. 1 to Schedule 13D filed by
American Meter Company, as successor in interest to its former
subsidiary Eagle Research Corporation, with the SEC on February 29,
2000. Includes 105,495 shares, and warrants currently exercisable for
26,374 shares, that may be acquired by American Meter upon the
conversion of a convertible note, and 109,891 shares that may be
American Meter upon the exercise of currently exercisable warrants.
(5) Credit Suisse Asset Management, L.P. is the investment advisor for SEI
Institutional Management Trust, Ameritech Pension Trust (A-K-A-VAIL),
Warburg Pincus High Yield Fund, The Common Fund, CSAM Investment Trust
- U.S. HYLD Series and SEI Global - High Yield Fixed Income Fund, which
funds and trusts are the owners of the shares. Includes 100,000 shares
that may be acquired upon the exercise of currently exercisable
warrants, but does not include 168,537 shares of Common Stock that may
be acquired after June 9, 2000 upon the conversion of 1,000 shares of
Series B Preferred Stock.
(6) Information based upon Amendment No. 5 to Schedule 13D filed by Famco
VIP with the SEC on February 9, 2000. According to the information
contained therein, includes 136,687 shares that may be acquired by
Famco VIP upon the exercise of currently exercisable warrants. Kenneth
B. Funsten and Funsten Asset Management Company are the general
partners of Famco VIP. In this table, the shares owned by Famco VIP are
also included in the shares beneficially owned by Mr. Funsten. See note
(3) above. Includes 85,050 shares that may be acquired upon the
exercise of currently exercisable warrants.
52
<PAGE> 55
Does not include 4,100 shares owned by an employee of Funsten Asset
Management Company which cannot be sold or further added to without
permission by Mr. Funsten by virtue of restrictions that are placed on
securities transactions by employees of Funsten Asset Management
Company, because Famco VIP has no investment or voting authority over
the shares of such employee and Famco VIP expressly disclaims
beneficial ownership of such shares.
(7) Includes 18,965 shares that may be acquired by Mr. Marcum upon the
exercise of currently exercisable warrants, and 120,000 shares that may
be acquired by Mr. Marcum upon the exercise of currently exercisable
stock options.
(8) Includes 2,338 shares held of record by Mr. Thomasson's wife and 32,858
shares held in family trusts. Also includes 22,213 shares that may be
acquired by Mr. Thomasson upon the exercise of currently exercisable
stock options and 33,199 shares that may be acquired by Mr. Thomasson
or his wife or their family trusts upon the exercise of currently
exercisable warrants.
(9) Includes 18,165 shares that may be acquired by Mr. Lloyd upon the
exercise of currently exercisable stock options and 5,000 shares that
may be acquired by Mr. Lloyd upon the exercise of currently exercisable
warrants.
(10) Includes 439 shares that may be acquired by Mr. Gabbard upon the
exercise of currently exercisable warrants, and 48,667 shares that may
be acquired by Mr. Gabbard upon the exercise of currently exercisable
stock options.
(11) Includes 29,167 shares that may be acquired by Mr. McKee upon the
exercise of currently exercisable stock options and 2,638 shares that
may be acquired by Mr. McKee upon the exercise of currently exercisable
warrants.
(12) Includes 2,600 shares held by Mr. Pell's wife. Also includes 17,500
shares that may be acquired by Mr. Pell upon the exercise of currently
exercisable stock options and 4,052 shares that may be acquired by Mr.
Pell or his wife upon the exercise of currently exercisable warrants.
(13) Includes 18,826 shares owned by Mr. Briggs' wife. Also includes 4,714
shares that may be acquired by Mr. Briggs' wife upon the exercise of
currently exercisable stock options and 93 shares that may be acquired
by Mr. Briggs' wife upon the exercise of currently exercisable
warrants.
(14) Includes 12,213 shares that may be acquired by Mr. Skilton upon the
exercise of currently exercisable stock options and 625 shares that may
be acquired by Mr. Skilton upon the exercise of currently exercisable
warrants. Although Mr. Skilton is the President, Chief Executive
Officer and a director of American Meter, no shares owned of record by
American Meter have been attributed to Mr. Skilton's beneficial
ownership.
(15) Includes 5,000 shares that may be acquired by Mr. Collins upon the
exercise of currently exercisable stock options.
(16) See notes (7) through (15).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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
("Odessa"), a subsidiary of Key. Odessa paid MGT $700,000 for its interest, a
mutually agreed reduction from an initial purchase price amount of $1,000,000.
W. Phillip Marcum, our Chairman of the Board, President and Chief Executive
Officer, and Kevin P. Collins, are directors of both Metretek and Key, although
Mr. Collins was not a director of Metretek at the time of the transaction.
53
<PAGE> 56
On May 4, 1998, in connection with our acquisition, through Metretek
Florida, of certain assets of a subsidiary of American Meter, Metretek Florida
entered into a license agreement with American Meter, for the license by
American Meter and American Meter Software to Metretek of certain operating
software, and the development, manufacture and sale by Metretek Florida to
American Meter 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. The license agreement also
grants to American Meter and its affiliates the right to sell Metretek Florida
products in the United States and Canada at certain agreed-upon prices.
Subsequent to the acquisition, Metretek Florida and American Meter entered into
an international sales agreement, pursuant to which American Meter and its
affiliates have the non-exclusive right to sell Metretek Florida products
internationally. Harry I. Skilton, the President, Chief Executive Officer and a
director of American Meter, became a member of our Board of Directors in May
1998 in connection with this acquisition. During fiscal 1998 and 1999, we
recorded revenues of approximately $522,000 and $593,000 with respect to sales
to American Meter under the license agreement and the international sales
agreement. The terms of the license agreement and the international sales
agreement were the result of arms-length negotiations between the parties.
Each material transaction between us and any related party is approved
by a majority of the members of our Board of Directors who are disinterested in
the transaction.
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 as of March 23, 1998,
by and among Eagle Research Corporation, American
Meter Company, Metretek, Incorporated and Marcum
Natural Gas Services, Inc. (Incorporated by reference
to Exhibit 2.4 to Metretek's Annual Report on Form
10-KSB for the year ended December 31, 1997.)
(2.2) Agreement and Plan of Merger, dated as of March 16,
2000, by and between TotalPlan, Inc. and PowerSpring,
Inc.
(2.3) Agreement and Plan of Merger, dated as of March 17,
2000, by and among PowerSpring, Inc., MERC
Acquisition Corp., Mercator Energy Incorporated and
John A. Harpole.
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
(3.1) Second Restated Certificate of Incorporation, as
amended, of Marcum Natural Gas Services, Inc.
(Incorporated by reference to Exhibit 4.1 to
Metretek's Registration Statement on Form S-3,
Registration No. 333-96369.)
(3.2) Amended and Restated By-Laws of Metretek
Technologies, Inc. (Incorporated by reference to
Exhibit 3.3 to Metretek's Annual Report on Form
10-KSB for the year ended December 31, 1998.)
(4) INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
(4.1) Specimen Common Stock Certificate. (Incorporated by
reference to Exhibit 4.1 to Metretek's Registration
Statement on Form S-18, Registration No. 33-44558.)
(4.2) Form of Common Stock Purchase Warrant. (Incorporated
by reference to Exhibit 4.4 to Metretek's
Registration Statement on Form S-3, Registration No.
333-60925.)
54
<PAGE> 57
(4.3) Form of Warrant Agency Agreement between Marcum
Natural Gas Services, Inc. and American Securities
Transfer & Trust, Inc. (Incorporated by reference to
Exhibit 4.4 to Metretek's Registration Statement on
Form S-3, Registration No. 333-60925).
(4.4) 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 Metretek's Registration Statement
on Form S-4, Registration No. 33-73874.)
(4.5) 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 Metretek's Registration
Statement on Form S-18, Registration No. 33-44558.)
(4.6) Amendment No. 1 to Rights Agreement, dated as of
March 23, 1998, between Marcum Natural Gas Services,
Inc. and American Securities Transfer & Trust, Inc.
(Incorporated by reference to Exhibit 2 to Metretek's
Registration Statement on Form 8-A/A, Amendment No. 1
filed April 3, 1998.)
(4.7) Amendment No. 2 to Rights Agreement, dated as of
December 9, 1999, between Metretek Technology, Inc.
and American Securities Transfer & Trust, Inc.
(Incorporated by reference to Exhibit 1 to Metretek's
Registration Statement on Form 8-A/A, Amendment No. 4
filed December 23, 1999.)
(4.8) 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 Metretek's Registration
Statement on Form S-4, Registration No. 33-73874.)
(4.9) Securities Purchase Agreement, dated as of December
9, 1999, by and among Metretek Technologies, Inc. and
certain purchases of securities of Metretek
Technologies, Inc. (collectively, the "Unit
Purchasers"). (Incorporated by reference to Exhibit
4.1 to Metretek's Current Report on Form 8-K filed
December 22, 1999).
(4.10) Form of Common Stock Purchase Warrant issued by
Metretek Technology, Inc. to the Unit Purchasers.
(Incorporated by reference to Exhibit 4.3 to
Metretek's Current Report on Form 8-K filed December
22, 1999).
(4.11) Registration Rights Agreement, dated December 9,
1999, by and among Metretek Technologies, Inc. and
the Unit Purchasers. (Incorporated by reference to
Exhibit 4.4 to Metretek's Current Report on Form 8-K
filed December 22, 1999).
(10) MATERIAL CONTRACTS:
(10.1) Marcum Natural Gas Services, Inc. 1991 Stock Option
Plan, as amended and restated December 5, 1996.
(Incorporated by reference to Exhibit 10.2 to
Metretek's Annual Report on Form 10-KSB for the year
ended December 31, 1996.)*
(10.2) Marcum Natural Gas Services, Inc. Directors' Stock
Option Plan, as amended and restated December 2,
1996. (Incorporated by reference to Exhibit 10.3 to
Metretek's Annual Report on Form 10-KSB for the year
ended December 31, 1996.)*
(10.3) Employment Agreement, dated as of June 11, 1991, by
and between Marcum Natural Gas Services, Inc. and W.
Phillip Marcum. (Incorporated by reference to Exhibit
10.4 to Metretek's Registration Statement on Form
S-18, Registration No. 33-44558.)*
55
<PAGE> 58
(10.4) Amendment No. 1 to Employment Agreement, dated June
27, 1997, by and between Marcum Natural Gas Services,
Inc. and W. Phillip Marcum. (Incorporated by
reference to Exhibit 10.1 to Metretek's Quarterly
Report on Form 10-QSB for the quarterly period ended
September 30, 1997.)*
(10.5) Amendment No. 2 to Employment Agreement, dated
December 3, 1998, by and between Marcum Natural Gas
Services, Inc. and W. Phillip Marcum. (Incorporated
by reference to Exhibit 10.5 to Metretek's Annual
Report on Form 10-KSB for the year ended December 31,
1998.)*
(10.6) Amendment No. 3 to Employment Agreement, dated as of
January 1, 2000, by and between Metretek
Technologies, Inc. and W. Phillip Marcum.*
(10.7) Employment Agreement, dated as of June 11, 1991, by
and between Marcum Natural Gas Services, Inc. and A.
Bradley Gabbard. (Incorporated by reference to
Exhibit 10.4 to Metretek's Registration Statement on
Form S-18, Registration No. 33-44558.)*
(10.8) Amendment No. 1 to Employment Agreement, dated June
27, 1997, by and between Marcum Natural Gas Services,
Inc. and A. Bradley Gabbard. (Incorporated by
reference to Exhibit 10.2 to Metretek's Quarterly
Report on Form 10-QSB for the quarterly period ended
September 30, 1997.)*
(10.9) Amendment No. 2 to Employment Agreement, dated
December 3, 1998, by and between Marcum Natural Gas
Services, Inc. and A. Bradley Gabbard. (Incorporated
by reference to Exhibit 10.8 to Metretek's Annual
Report on Form 10-KSB for the year ended December 31,
1998.)*
(10.10) Amendment No. 3 to Employment Agreement, dated as of
January 1, 2000, by and between Metretek
Technologies, Inc. and A. Bradley Gabbard.*
(10.11) Loan and Security Agreement, dated April 14, 1998, by
and between National Bank of Canada, Marcum Natural
Gas Services, Inc., Metretek, Incorporated and
Southern Flow Companies, Inc. (Incorporated by
reference to Exhibit 10.1 to Metretek's Quarterly
Report on Form 10-QSB for the quarterly period ended
March 31, 1998.)
(10.12) Amendment No. 1 to Loan and Security Agreement, dated
as of November 10, 1998, by and among National Bank
of Canada, Marcum Natural Gas Services, Inc.,
Metretek, Incorporated and Southern Flow Companies,
Inc. (Incorporated by reference to Exhibit 10.12 to
Metretek's Annual Report on Form 10-KSB for the year
ended December 31, 1998).
(10.13) Second Amendment to Loan and Security Agreement and
Loan Documents, dated as of September 13, 1999, by
and among National Bank of Canada, Metretek
Technologies, Inc., Metretek, Incorporated and
Southern Flow Companies, Inc. (Incorporated by
reference to Exhibit 10.1 to Metretek's Current
Report on Form 8-K filed September 14, 1999).
(10.14) Third Amendment to Loan and Security Agreement and
Loan Documents, dated as of December 9, 1999, by and
among National Bank of Canada, Metretek Technologies,
Inc., Metretek, Incorporated and Southern Flow
Companies, Inc. (Incorporated by reference to Exhibit
10.1 to Metretek's Current Report on Form 8-K filed
December 22, 1999).
(10.15) Marcum Natural Gas Services, Inc. 1998 Employee Stock
Purchase Plan. (Incorporated by reference to Exhibit
4.3 to Metretek's Registration Statement on Form S-8,
Registration No. 333-43547.)*
56
<PAGE> 59
(10.16) Metretek Technologies, Inc. 1998 Stock Incentive
Plan, amended and restated as of February 3, 2000
(Incorporated by reference to Exhibit 10.2 to
Metretek's Current Report on Form 8-K filed on
February 22, 2000).*
(10.17) Employment Agreement, dated as of March 17, 2000,
between PowerSpring, Inc. and John A. Harpole.
(10.18) Stockholders Agreement, dated as of March 17, 2000,
among Metretek Technologies, Inc., PowerSpring, Inc.
and John A. Harpole.
(10.19) Promissory Note, dated March 17, 2000, made by
PowerSpring, Inc. to John A. Harpole.
(10.20) Security Agreement, dated March 17, 2000, between
PowerSpring, Inc. and John A. Harpole.
(10.21) Form of Indemnification Agreement between Metretek
Technologies, Inc. and each of its directors.
(21) SUBSIDIARIES OF THE SMALL BUSINESS ISSUER:
(21.1) Subsidiaries of Metretek Technologies, Inc.
(23) CONSENT OF DELOITTE & TOUCHE LLP:
(23.1) Deloitte & Touche LLP
(24) POWER OF ATTORNEY:
(24.1) Power of Attorney of the executive officers and
directors of Metretek Technologies, Inc. (Included on
signature page.)
(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
During the quarter ended December 31, 1999, Metretek filed the
following report on Form 8-K:
<TABLE>
<CAPTION>
Filing Date Item No. Description
----------- -------- -----------
<S> <C> <C>
December 22, 1999 5,7 Description of $14 million Units Private
Placement of Common Stock, Series B
Preferred Stock and warrants to purchase
Common Stock
</TABLE>
57
<PAGE> 60
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.
METRETEK TECHNOLOGIES INC.
By: /s/ W. Phillip Marcum
---------------------------------
W. Phillip Marcum, President and
Chief Executive Officer
Date: March 27, 2000
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 27, 2000
- ----------------------------- Chief Executive Officer and Director
W. Phillip Marcum (Principal executive officer)
/s/ A. Bradley Gabbard Executive Vice President, Chief Financial March 27, 2000
- ----------------------------- Officer, Treasurer and Director (Principal
A. Bradley Gabbard financial officer)
/s/ Gary J. Zuiderveen Secretary, Controller and Principal March 27, 2000
- ----------------------------- Accounting Officer (Principal
Gary J. Zuiderveen accounting officer)
/s/ Basil M. Briggs Director March 27, 2000
- -----------------------------
Basil M. Briggs
/s/ Robert Lloyd Director March 27, 2000
- -----------------------------
Robert Lloyd
/s/ Ronald W. McKee Director March 27, 2000
- -----------------------------
Ronald W. McKee
/s/ Harry I. Skilton Director March 27, 2000
- -----------------------------
Harry I. Skilton
</TABLE>
58
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998 F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1999 and 1998 F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999 and 1998 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Metretek Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Metretek
Technologies, Inc. and subsidiaries (the "Company") as of December 31, 1999 and
1998, 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 these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Metretek Technologies, Inc. and
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 17, 2000
F-2
<PAGE> 63
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------
DECEMBER 31,
-----------------------------
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 361,658 $ 639,448
Trade receivables, less allowance for doubtful accounts
of $125,573 and $117,469, respectively 3,802,818 5,006,914
Other receivables 2,818 152,084
Inventories 4,155,429 4,412,100
Net assets of discontinued operations (Note 4) 338,455 319,393
Prepaid expenses and other current assets 435,734 275,782
----------- -----------
Total current assets 9,096,912 10,805,721
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Equipment 2,453,492 2,282,406
Vehicles 52,277 24,733
Furniture and fixtures 508,490 486,857
Land, building and improvements 718,604 714,423
----------- -----------
Total 3,732,863 3,508,419
Less accumulated depreciation 2,179,015 1,719,603
----------- -----------
Property, plant and equipment, net 1,553,848 1,788,816
----------- -----------
OTHER ASSETS:
Customer list (net of accumulated amortization of $2,955,939 and
$2,510,694, respectively) 5,936,948 6,382,193
Goodwill and other intangibles (net of accumulated amortization
of $1,048,676 and $734,365, respectively) 2,842,036 3,204,606
Other assets 180,690 204,947
----------- -----------
Total other assets 8,959,674 9,791,746
----------- -----------
TOTAL $19,610,434 $22,386,283
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 64
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,073,900 $ 720,459
Accrued and other liabilities 951,963 1,055,372
Deposits and capital lease obligations 5,587 9,849
------------ ------------
Total current liabilities 2,031,450 1,785,680
------------ ------------
LONG-TERM NOTES PAYABLE (Note 5) 869,968 3,161,702
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
REDEEMABLE PREFERRED STOCK - SERIES B,
$.01 PAR VALUE; AUTHORIZED, 1,000,000 SHARES;
1,450 ISSUED AND OUTSTANDING; REDEMPTION
VALUE $1,000 PER SHARE (Note 10) 1,450,000 --
------------ ------------
STOCKHOLDERS' EQUITY (Note 8):
Redeemable preferred stock - Series A, $.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, 3,784,045 and 3,489,181 shares,
respectively 37,840 34,892
Additional paid-in-capital 40,434,688 38,930,724
Accumulated other comprehensive income (loss) (4,098) 6,657
Accumulated deficit (25,209,414) (21,533,372)
------------ ------------
Total stockholders' equity 15,259,016 17,438,901
------------ ------------
TOTAL $ 19,610,434 $ 22,386,283
============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 65
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
--------------------------------
1999 1998
<S> <C> <C>
REVENUES:
Natural gas measurement sales and services $ 19,345,771 $ 19,880,012
Other 19,425 42,098
------------ ------------
Total revenues 19,365,196 19,922,110
------------ ------------
COSTS AND EXPENSES:
Cost of measurement sales and services 13,760,360 12,864,414
General and administrative 3,442,126 3,581,911
Selling, marketing and service 2,057,355 1,524,959
Depreciation and amortization 1,268,835 1,109,402
Research and development 2,225,758 961,383
Interest, finance charges and other 286,804 185,473
------------ ------------
Total costs and expenses 23,041,238 20,227,542
------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES (3,676,042) (305,432)
INCOME TAXES (Note 7) -- --
------------ ------------
LOSS FROM CONTINUING OPERATIONS (3,676,042) (305,432)
LOSS FROM DISCONTINUED OPERATIONS (Note 4) -- (33,884)
------------ ------------
NET LOSS (3,676,042) (339,316)
PREFERRED STOCK DISTRIBUTION (7,310) --
------------ ------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (3,683,352) $ (339,316)
============ ============
NET LOSS PER BASIC AND DILUTED COMMON SHARE:
Continuing operations $ (1.06) $ (0.09)
Discontinued operations .00 (0.01)
------------ ------------
NET LOSS PER BASIC AND DILUTED COMMON SHARE $ (1.06) $ (0.10)
============ ============
WEIGHTED AVERAGE BASIC AND DILUTED COMMON
SHARES OUTSTANDING 3,487,915 3,385,699
============ ============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE> 66
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
- ----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------------ PAID-IN COMPREHENSIVE ACCUMULATED
SHARES VALUE CAPITAL INCOME (LOSS) DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1998 3,077,822 $ 30,778 $ 37,005,983 $ 6,657 $(21,194,056) $ 15,849,362
Net loss and
comprehensive loss (339,316) (339,316)
Stock issued in acquisition 439,560 4,396 1,995,604 2,000,000
Stock issued under
Employee Stock
Purchase Plan 47,244 472 176,785 177,257
Repurchases of common
stock (75,445) (754) (247,648) (248,402)
--------- ----------- ------------ -------- ------------ ------------
BALANCE,
DECEMBER 31, 1998 3,489,181 34,892 38,930,724 6,657 (21,533,372) 17,438,901
Comprehensive loss:
Foreign currency
translation adjustments (10,755) (10,755)
Net loss (3,676,042) (3,676,042)
------------
Total comprehensive loss (3,686,797)
Exercises of stock
options and warrants 34,765 347 68,519 68,866
Warrant compensation 203,228 203,228
Repurchases of
common stock (39,028) (390) (85,146) (85,536)
Stock issued for royalty
payments 9,127 91 49,909 50,000
Stock issued in private
placement, net of offering
costs 290,000 2,900 1,274,764 1,277,664
Preferred stock distribution (7,310) (7,310)
--------- ----------- ------------ -------- ------------ ------------
BALANCE,
DECEMBER 31, 1999 3,784,045 $ 37,840 $ 40,434,688 $ (4,098) $(25,209,414) $ 15,259,016
========= =========== ============ ======== ============ ============
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE> 67
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
----------------------------
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,676,042) $ (339,316)
Adjustments to reconcile net loss to net cash used by
continuing operations:
Loss from discontinued operations 33,884
Depreciation and amortization 1,268,835 1,109,402
Stock based compensation expense 70,029 88,629
Royalty payments made with restricted stock 50,000
Loss on disposal of property, plant and equipment 5,784 7,066
Changes in other assets and liabilities, net of effect of acquisitions:
Trade receivables 1,204,096 (1,540,632)
Inventories 256,671 (398,707)
Other current assets 172,615 (112,206)
Other noncurrent assets 10,541 (24,439)
Accounts payable 353,441 108,366
Accrued and other liabilities (106,513) (388,401)
----------- -----------
Net cash used by continuing operations (390,543) (1,456,354)
Net cash used by discontinued operations (5,541) (3,375)
----------- -----------
Net cash used by operating activities (396,084) (1,459,729)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (300,298) (608,950)
Acquisitions (1,579,624)
Proceeds from sale of property, plant and equipment 7,800 19,197
----------- -----------
Net cash used in investing activities (292,498) (2,169,377)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from private placement 2,727,664
Borrowings on notes payable to bank 2,561,702
Payments on notes payable to bank (2,291,734) (49,545)
Exercise of stock options and warrants 68,866
Employee stock purchase plan 88,629
Repurchase of common stock (85,536) (248,402)
Preferred stock distribution (7,310)
Payments on capital lease obligations (1,158) (22,384)
----------- -----------
Net cash provided by financing activities 410,792 2,330,000
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (277,790) (1,299,106)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 639,448 1,938,554
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 361,658 $ 639,448
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 7
<PAGE> 68
METRETEK TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NAME CHANGE - The accompanying consolidated financial
statements include the accounts of Metretek Technologies, Inc. ("MTEK")
(formerly known as Marcum Natural Gas Services, Inc.) and its
subsidiaries, PowerSpring, Inc. ("PowerSpring"), TotalPlan, Inc.
("TotalPlan"), Southern Flow Companies, Inc. ("Southern Flow"), 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.
MTEK 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) Internet based business to business energy information
and services. Metretek designs, manufactures and sells automated systems
to monitor and record natural gas consumption of commercial and industrial
customers of natural gas utility companies. Southern Flow provides natural
gas measurement services. PowerSpring provides Internet based business to
business energy information and services. Each area of business operation
is considered to be a reportable segment - see Note 9.
In June 1999, the stockholders of the Company formally approved a change
in name of the Company from Marcum Natural Gas Services, Inc. to Metretek
Technologies, Inc.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of MTEK and its subsidiaries after elimination of
intercompany accounts and transactions.
REVERSE STOCK SPLIT - On July 6, 1998, the Company effected a 1-for-4
reverse split of the Company's Common Stock. Accordingly, all historical
amounts contained in the consolidated financial statements, including
weighted average share and per share amounts in the consolidated
statements of operations, as well as common stock and additional paid-in
capital amounts in the consolidated balance sheets and consolidated
statements of stockholders' equity, have been adjusted to reflect the
reverse stock split on a retroactive basis. In addition, all historical
common stock, common stock option, and common stock warrant amounts in the
notes to the consolidated financial statements have been adjusted to
reflect the reverse stock split on a retroactive basis.
REVENUE RECOGNITION - Equipment and supply sales are recognized when
delivered, and natural gas measurement revenues are recognized as services
are provided.
F - 8
<PAGE> 69
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. Supplemental statement of cash flows information is as
follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash paid for interest $249,036 $106,691
Cash paid for income taxes $ 24,596 $ 23,911
Noncash financing and investing activities:
Common stock and debt issued in acquisition $ $2,600,000
</TABLE>
INVENTORIES - Inventories are stated at the lower of first-in, first-out
cost or market. Inventories at December 31, 1999 and 1998 are summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Raw materials and supplies $1,274,424 $1,469,097
Work in process 1,878,522 1,868,144
Finished goods and merchandise 1,002,483 1,074,859
---------- ----------
Total $4,155,429 $4,412,100
========== ==========
</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 $0
and $1,481 at December 31, 1999 and 1998, respectively.
INTANGIBLE ASSETS - Southern Flow 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 five
years, using the straight-line method. Unamortized software development
costs at December 31, 1999 and 1998 are $283,618 and $420,165,
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, generally 10 to 17 years. When events and
circumstances so indicate, the Company assesses the recoverability of
goodwill and other intangible assets based on undiscounted cash flows. If
an impairment is indicated, assets are written down to estimated fair
value. No impairment losses have been recognized in either of the periods
presented.
F - 9
<PAGE> 70
ACCRUED AND OTHER LIABILITIES - Accrued and other liabilities at December
31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Payroll, employee benefits and related liabilities $490,723 $ 562,468
Deferred revenue 159,300 119,445
Sales, property and other taxes payable 85,878 124,998
Insurance premiums and reserves 103,202 79,200
Interest payable 5,160 30,000
Preferred stock distribution 7,310
Other 100,390 139,261
-------- ----------
Total $951,963 $1,055,372
======== ==========
</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.
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 translation adjustments are shown in the accompanying financial
statements as a component of other comprehensive income. During 1998, the
assets and liabilities and foreign currency sales and expenses were not
significant. Accordingly, there were no translation adjustments in 1998.
COMPREHENSIVE INCOME (LOSS) - The Company's other comprehensive income
(loss) consists of foreign currency translation adjustments and is
presented in the Consolidated Statement of Stockholders' Equity.
INCOME (LOSS) PER SHARE - The Company's net loss from continuing
operations, loss from discontinued operations and net loss, per share is
based on the weighted average shares of common stock outstanding during
the periods presented. The assumed conversion of stock options and
warrants is excluded because their effect is antidilutive.
STOCK BASED COMPENSATION - The Company utilizes the intrinsic value method
to account for employee stock options as well as stock options issued to
independent members of the board of directors. The Company utilizes the
fair value method to account for employee stock based compensation under
its 1998 Employee Stock Purchase Plan and for stock based compensation to
non-employees.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - In June 1998, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) 133, "Accounting for Derivative Instruments and
Hedging Activities," which, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or
losses be reported either in the statement of operations or as a component
of comprehensive income, depending on the type of hedging relationship
that exists. The Company is currently evaluating the impact SFAS 133 will
have on its financial statements, if any.
F - 10
<PAGE> 71
COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE - In
March 1998, the Accounting Standards Executive Committee issued Statement
of Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which the Company adopted January
1, 1999. The adoption of SOP No. 98-1 did not have a material effect on
the financial position or results of operations of the Company.
RECLASSIFICATION - Certain 1998 amounts have been reclassified to conform
to current year presentation.
2. NEW BUSINESS VENTURE
On September 13, 1999, the Company entered into a strategic relationship
with Scient Corporation ("Scient") to assist the Company in designing and
creating an Internet-based business to enable the Company to take its
measurement information products, services, and data measurement
technologies to the market of end-users of natural gas and electricity
(the "Internet Project"). The Internet Project is being developed and will
be operated through PowerSpring. Simultaneously, the Company entered into
a joint venture agreement with Mercator Energy Incorporated ("Mercator")
whereby Mercator provided consulting services (the "Mercator Consulting
Agreement") to TotalPlan. TotalPlan was organized to develop and market
the Company's proprietary turnkey data collection and software management
system that enables commercial users of natural gas and electricity to
monitor and better manage their energy purchases and consumption, which is
designed to capitalize on a continuing trend toward deregulation within
the industry.
In order to finance the initial phase of its Internet Project, the
Company, together with Metretek and Southern Flow, entered into an
amendment (the "Loan Amendment") to the terms of its $5,000,000 credit
facility with its commercial lender. The Loan Amendment amends certain
covenants of the loan agreement, including the Company's minimum annual
net income (or maximum annual net loss in 1999), minimum tangible net
worth and minimum debt service coverage ratio.
The Company anticipates that the costs of launching the Internet Project,
which involves several phases, will require estimated expenditures of
between approximately $6,000,000 and $8,000,000. The Company has the right
to terminate the Internet Project on 30 days notice, with maximum
additional expenditures of $100,000.
In connection with the Internet Project, the Company issued to Scient a
warrant (the "Scient Warrant") to purchase 125,000 shares of common stock
of the Company. The Scient Warrant becomes exercisable in September 2000,
at exercise prices split between $5.00 and $10.00 per share, and expires
in September 2002. Scient has registration rights with respect to the
common stock issuable upon the exercise of the Scient Warrant.
Pursuant to the Mercator Consulting Agreement, Mercator provided
broker-agent natural gas consulting services to TotalPlan for a fee of
$7,500 per month. The term of the Mercator Consulting Agreement was six
months, renewable by mutual consent for six additional months. In
connection with the Mercator Consulting Agreement, the Company issued to
Mercator an option to purchase up to 25% of the capital stock of TotalPlan
for a purchase price equal to 25% of TotalPlan's cumulative net loss,
which was exercisable only during the term of the Consulting Agreement.
The Company also issued to Mercator a warrant (the "Mercator Warrant") to
purchase 60,000 shares of common stock of the Company. The Mercator
Warrant vests in three tranches from the date of issuance through March
2000, with exercise prices ranging between $4.50 and $5.50 per share, and
expires in September 2002. Mercator has registration rights with respect
to the common stock issuable upon the
F - 11
<PAGE> 72
exercise of the Mercator Warrant. As discussed further in Note 10, the
Company subsequently acquired Mercator and merged the operations of
Mercator and TotalPlan into PowerSpring.
In connection with the Loan Amendment, the Company paid customary fees to
the commercial lender and issued a warrant (the "Lender Warrant") to
purchase 20,000 shares of common stock of the Company. The Lender Warrant
is exercisable for three years at an exercise price of $5.00 per share.
The commercial lender has registration rights with respect to the common
stock issuable upon the exercise of the Lender Warrant.
Compensation expense for the fair value of the Scient, Mercator and Lender
Warrants is being recognized over the period in which the services are
being performed or the remaining term of the Loan Agreement. Compensation
expense associated with the warrants in the amount of $70,029 has been
recognized in the consolidated statement of operations during the year
ended December 31, 1999.
3. ACQUISITIONS
On May 4, 1998, the Company, through its wholly owned subsidiary,
Metretek, purchased substantially all of the assets and business of
American Meter Software Corporation (formerly known as Eagle Research
Corporation) ("American Meter Software"), pertaining to electronic
correctors and non-radio-frequency meter reading devices for the natural
gas and electric utility industry. American Meter Software was a wholly
owned subsidiary of American Meter Company ("American Meter"), which is
ultimately controlled by Ruhrgas AG, a German corporation. American Meter
Software subsequently merged into American Meter. The assets acquired by
Metretek include certain inventory, equipment, trademarks and technology
of American Meter Software and American Meter used in the design,
manufacture and sales of electronic measurement process control and
telemetry systems to utility companies in the natural gas and petroleum
industries. In connection with the acquisition, Metretek assumed certain
transitional employee costs and product warranty obligations of American
Meter Software. The assets and business operations acquired have been
relocated to Metretek's existing facility in Melbourne, Florida.
In consideration for the purchase of the assets and business, the Company
and Metretek paid and delivered to American Meter Software at the closing
an aggregate purchase price consisting of $1,300,000 in cash, 439,560
unregistered shares of Common Stock of the Company valued at their fair
value of $2,000,000, and a $600,000 convertible subordinated promissory
note (the "American Meter Note"). Subsequent to closing, the purchase
price was adjusted down by $85,000 to reflect a decrease in American Meter
Software's inventory between December 31, 1997 and May 4, 1998, partially
offset by transitional costs assumed by Metretek.
The American Meter Note was convertible at any time at the option of
American Meter Software, into 105,495 shares of Common Stock of the
Company at the rate of approximately $5.69 of principal per share, which
conversion option was exercised by American Meter on March 16, 2000. Prior
to its conversion, the American Meter Note bore interest on the unpaid
principal balance at a fixed rate equal to 7.5% per annum and was due and
payable May 4, 2002. The Company granted to American Meter Software the
one-time option to cause the shares of Common Stock issued at the closing
and issuable upon the conversion of the American Meter Note to be
registered under the Securities Act of 1993, as amended, and applicable
state securities laws, and has also granted American Meter Software
certain piggy-back registration rights to include such shares in any
registration statement filed by the Company, subject to customary
underwriter cutbacks.
F - 12
<PAGE> 73
Metretek also entered into a license agreement ("License Agreement") with
American Meter and American Meter Software, providing for the license by
American Meter and American Meter Software to Metretek of certain
operating software, and the development, manufacture and sale by Metretek
to American Meter and American Meter Software 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 also grants American Meter
and its affiliates the right to sell Metretek products in the United
States and Canada at certain agreed-upon prices. American Meter and
American Meter Software also entered into a Non-Competition Agreement with
the Company and Metretek, pursuant to which American Meter and American
Meter Software have agreed not to compete with Metretek in the acquired
business for five years from the closing date.
The acquisition was accounted for as a purchase, and therefore the results
of operations of the American Meter Software business acquired have been
combined with those of the Company effective May 4, 1998.
On June 15, 1998, Metretek, through its wholly owned subsidiary, Sigma VI,
acquired substantially all of the assets of Quality Contract
Manufacturing, Inc. ("QCMI") in exchange for $150,000 in cash. QCMI is a
contract manufacturer of electronic circuit boards, sub-assemblies, and
cable assemblies serving customers primarily in Melbourne, Florida and the
immediately surrounding area. The acquisition was accounted for as a
purchase and therefore the results of operations of QCMI have been
combined with those of the Company effective June 15, 1998.
The purchase prices of the foregoing acquisitions (including transaction
costs) were allocated as follows:
<TABLE>
<CAPTION>
AMERICAN METER
SOFTWARE QCMI
<S> <C> <C>
Inventories $1,265,000
Property, plant and equipment 228,000 $ 75,000
Goodwill and other intangibles 2,532,000 80,000
---------- --------
$4,025,000 $155,000
========== ========
</TABLE>
The following summary unaudited pro forma results of operations for the
years ended December 31, 1998 assumes that the American Meter Software and
QCMI acquisitions occurred on January 1, 1998. These pro forma results
have been prepared for comparative purposes and do not purport to be
indicative of results of operations which actually would have resulted had
the combinations been in effect on the date indicated, or which may result
in the future.
<TABLE>
<CAPTION>
1998
<S> <C>
Total revenues $ 21,272,000
Income (loss) from continuing operations $ (234,000)
Income (loss) per share from continuing operations - assuming dilution $ (0.07)
</TABLE>
As discussed in Note 10, on March 17, 2000, the Company acquired the
assets of Mercator and merged the operations of Mercator and TotalPlan
into PowerSpring.
F - 13
<PAGE> 74
4. DISCONTINUED OPERATIONS
During 1998, the Company decided to discontinue the operations of MGT, a
directly owned subsidiary of the Company that was formed to acquire or
finance the acquisition of natural gas assets through privately financed
programs, and then to manage and maintain a small ownership interest in
those programs. This decision was based on the declining prospects of the
markets and in order to enable the Company to focus on its other
operations. In December 1997, MGT sold one-third of its interests in two
of the three programs it then managed, and in March 1998, MGT liquidated
the third program. MGT does not intend to form or manage any new programs,
although it will continue to manage the remaining two programs that
operate natural gas related assets until MGT's interest in these programs
are sold.
Net assets of the discontinued operations at December 31, 1999 and 1998
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current assets $ 23,816 $ 72,311
Other assets, net 321,949 275,484
Accounts payable, accrued expenses and other disposal costs (7,310) (28,402)
--------- ---------
Net assets of discontinued operations $ 338,455 $ 319,393
========= =========
</TABLE>
5. DEBT
The balance of notes payable at December 31, 1999 and 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Term loans $ 600,000 $ 600,000
Lines of credit 269,968 2,561,702
---------- ----------
869,968 3,161,702
Less current maturities -- --
---------- ----------
Long-term notes payable $ 869,968 $3,161,702
========== ==========
</TABLE>
On April 14, 1998, the Company and its wholly owned subsidiaries, Southern
Flow and Metretek, entered into a loan and security agreement (the "Loan
Agreement") with a commercial bank (the "Lender") providing for a combined
$5,000,000 credit facility consisting of loans (the "Loans") and letters
of credit to Southern Flow and Metretek, subject to limitations described
below. The Loan Agreement provides for daily advances to Southern Flow and
Metretek in the form of Loans to fund capital requirements, and daily
paydowns on outstanding balances of the Loans from collection of customer
accounts receivable. The Company makes monthly interest payments computed
at prime plus 1% (9.5% at December 31, 1999) on outstanding balances of
the Loans. The Loans mature on March 14, 2001. The Loans are secured by
the tangible and intangible assets of the Company, Southern Flow, and
Metretek, including equipment, inventories, receivables, and cash
deposits, and the pledge of the shares of the Company's subsidiaries. The
Loan Agreement requires the Company to maintain a minimum tangible net
worth, a maximum debt to tangible net worth ratio, minimum annual net
income (maximum loss), a minimum debt service coverage ratio, and contains
other standard covenants related to operations of the Company, including
prohibitions on the payment of dividends and the issuance or repurchase of
securities (with certain exceptions) without the Lender's consent.
Borrowings on the
F - 14
<PAGE> 75
Loans are limited to the sum of 80% of eligible accounts receivable of
Southern Flow and Metretek and 50% of raw materials and finished goods
inventories (up to a combined maximum of $1,500,000) of Southern Flow and
Metretek.
At December 31, 1999, the Company had a combined $3,587,864 Loan
availability, of which $269,968 had been borrowed by Southern Flow and
Metretek, leaving $3,317,896 in unused Loan availability. Proceeds from
initial advances under the Loan Agreement were used to extinguish the
Company's existing loans, lines of credit, and accrued interest with two
commercial bank lenders in the aggregate amount of $468,993, including
$279,021 of a term loan and accrued interest owed by the Company's
discontinued MGT segment to a commercial bank lender.
The balance of the term loan at December 31, 1999 and 1998 consists of the
7.5% American Meter convertible note incurred in connection with the
acquisition discussed in Note 3.
6. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS - In 1993, a former employee filed an action in Denver
District Court against DVCO Fuel Systems, Inc. ("DVCO"), a former
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 September 18, 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. On February 18, 1999, the Colorado Court of
Appeals reversed the summary judgment decision and remanded the case for
trial as to the conspiracy claim only. The action is currently scheduled
for trial in the third quarter of 2000. The Company believes the
allegations against it and DVCO are without merit and intends to defend
the action vigorously. 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, 1999 and 1998 totaled $1,155,305 and $1,119,290,
respectively.
F - 15
<PAGE> 76
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>
2000 $ 732,233
2001 627,259
2002 466,533
2003 450,876
2004 377,163
----------
Total $2,654,064
==========
</TABLE>
EMPLOYEE BENEFIT PLANS - The Company has a defined contribution savings
and investment plan (the "401(k) Plan") under Section 401(k) of the
Internal Revenue Code. All employees age 21 or older with at least one
year of service are eligible to participate in the 401(k) Plan. The 401(k)
Plan provides 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 participant's eligible compensation. The Company's 401(k)
Plan expense for the years ended December 31, 1999 and 1998 was $148,934
and $146,161, respectively.
LICENSE AGREEMENT - Metretek has a commitment to pay in cash or restricted
shares of common stock of the Company a 5% royalty on sales of certain
royalty-bearing products of Metretek with a minimum annual royalty of
$50,000 through the year 2002. In September 1998, the Company repurchased
18,181 shares of its common stock that had been issued to the licensor in
prior years in order to satisfy certain obligations of Metretek under the
license agreement. Royalty expense of $50,000 has been recognized in both
1999 and 1998 under the license agreement.
7. INCOME TAXES
No tax expense or benefit has been recognized during the years ended
December 31, 1999 and 1998 because of net operating losses incurred and
because a valuation allowance has been provided for 100% of the net
deferred tax assets at December 31, 1999 and 1998.
F - 16
<PAGE> 77
The components of the Company's deferred tax assets and liabilities at
December 31, 1999 and 1998 are shown below:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Assets:
Net operating loss carryforwards $ 7,914,000 $ 7,074,000
Tax credit carryforwards 128,000 151,000
Allowance for bad debts 38,000 40,000
Other 129,000 9,000
----------- -----------
8,209,000 7,274,000
----------- -----------
Liabilities:
Excess of income tax depreciation and amortization
over financial statement amounts 460,000 650,000
Other 47,000 34,000
----------- -----------
507,000 684,000
----------- -----------
Net deferred tax asset 7,702,000 6,590,000
Valuation allowance (7,702,000) (6,590,000)
----------- -----------
Total $ 0 $ 0
=========== ===========
</TABLE>
At December 31, 1999, the Company had unused net operating losses to carry
forward against future years' taxable income of approximately $23,276,000
expiring in various amounts from 2000 to 2014. At December 31, 1999, the
Company had unused investment tax credits, general business tax credits,
and research and development tax credit carryforwards aggregating
approximately $128,000 expiring in various amounts from 2000 to 2008.
As a result of its acquisition of Metretek in 1994, the Company acquired a
remaining net operating loss carryforwards for tax purposes of $3,428,000
expiring between 2000 and 2002. As a result of the change in ownership
upon acquisition, 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 a remaining
net operating loss carryforwards for tax purposes of approximately
$873,000 ($231,000, net of current limitation). Such carryforwards expire
in 2000 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. If the benefits related to the
net operating loss carryforwards that were not recognized at the
acquisition date are recognized in a subsequent period, they 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.
8. CAPITAL STOCK
WARRANT DIVIDEND - On September 18, 1998, the Company distributed 886,442
common stock Purchase Warrants (the "Warrants") as a dividend to
stockholders of the Company on the basis of one Warrant for each four
shares of common stock outstanding on September 10, 1998, the record date
for the Warrant dividend. Each Warrant is exercisable, for a five-year
period, for one share of common stock at an exercise price of $4.00. The
Warrants are subject to redemption by the Company, at $.01 per Warrant,
in the event the Common Stock trades at or above $6.50 per share for 20
consecutive trading days. The registration statement and prospectus
covering the common stock issuable upon exercise of the Warrants also
covers the resale of up to 155,081 Warrants by a selling security holder.
F - 17
<PAGE> 78
No accounting recognition was given to warrant dividend. A total of 412
Warrants have been exercised through December 31, 1999.
STOCK COMPENSATION - In January 1998, the Company adopted a non-qualified,
compensatory Employee Stock Purchase Plan (the "1998 Stock Purchase
Plan"), which allowed eligible employees to purchase shares of the
Company's Common Stock through payroll deductions. Under the 1998 Stock
Purchase Plan, employees purchased shares at a price equal to 100% of the
lower of the beginning or ending fair market value of the shares during
each one-month offering period. The Company matched the employees'
purchase on a share-for-share basis. The maximum payroll deduction was 15%
of an employee's eligible compensation. The Company reserved and
registered a total of 50,000 shares of Common Stock for offer and issuance
under the 1998 Stock Purchase Plan. The Company issued 47,244 shares under
the 1998 Stock Purchase Plan, which has been discontinued. Stock
compensation expense in the amount of $88,629 was recognized during the
year ended December 31, 1998 representing the market value of the shares
of common stock matched by the Company under the 1998 Stock Purchase Plan.
STOCK INCENTIVE PLAN - In March 1998, the Board of Directors of the
Company adopted the Metretek Technologies, Inc. 1998 Stock Incentive Plan
(the "1998 Stock Incentive Plan"), which was approved by the Company's
stockholders at the Annual Meeting of Stockholders held on June 12, 1998.
The 1998 Stock Incentive Plan authorizes the Board of Directors to grant
non-qualified stock options, incentive stock options, stock appreciation
rights, restricted stock, performance awards and other stock-based awards
to officers, directors, employees, consultants and advisors of the Company
and its subsidiaries for up to 250,000 shares of the Company's common
stock. The 1998 Stock Incentive Plan replaced the Company's existing 1991
Stock Option Plan and the Company's Directors' Stock Option Plan (the
"Prior Plans"), and no new awards will be made under the Prior Plans,
although options outstanding under the Company's Prior Plans were not
affected by the adoption of the 1998 Stock Incentive Plan. On February 3,
2000, the stockholders of the Company, at a special meeting, adopted a
proposal by the Board of Directors to increase the number of shares
available under the 1998 Stock Incentive Plan to a total of 750,000 shares
of common stock of the Company.
STOCK REPURCHASE PLAN - In September 1998, the Board of Directors of the
Company adopted a stock repurchase plan (the "Stock Repurchase Plan")
pursuant to which the Company was authorized to purchase up to
approximately 7% of its outstanding common stock in open market
transactions, from time to time as management deems appropriate, based on
the market price of the Company's stock. The Stock Repurchase Plan was
discontinued on September 20, 1999. Under the Stock Repurchase Plan during
1998 and 1999, the Company repurchased 96,116 shares of its common stock
at an average price of $2.22 per share. The repurchased shares have been
retired.
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 350,000 shares of common stock. Under the
1991 SOP, options granted must be at exercise prices not less than the
fair market value of the Company's 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 162,500 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 the
Company's 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.
F - 18
<PAGE> 79
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.
Options to purchase shares of common stock are summarized as follows:
<TABLE>
<CAPTION>
1998 STOCK DIRECTORS STOCK 1991 STOCK
INCENTIVE PLAN OPTION PLAN OPTION PLAN 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, 1998 -- 105,000 $ 5.54 260,250 $ 5.30 38,758 $ 6.38
Granted 53,606 $ 2.65 115,000 2.12 304,750 2.29 1,559 2.00
Forfeited (17,428) 3.52 (110,000) 5.50 (289,438) 5.28 (1,559) 6.36
Expired (37,200) 6.38
------- ------- -------- -------
Outstanding at
December 31, 1998 36,178 2.23 110,000 2.00 275,562 2.00 1,558 2.00
Granted 168,732 3.76
Forfeited (2,000) 4.63 (1,250) 2.00
Expired (1,468) 2.00
Exercised (10,951) 1.86 (17,500) 2.00 (5,812) 2.00 (90) 2.00
------- ------- -------- -------
Outstanding at
December 31, 1999 191,959 $ 3.57 92,500 $ 2.00 268,500 $ 2.00 -- $ --
======= ======= ======= ======
Exercisable at
December 31:
1999 88,929 $ 3.13 92,500 $ 2.00 251,985 $ 2.00 -- $ --
======= ======= ======= ======
1998 36,178 $ 2.23 110,000 $ 2.00 -- $ -- 1,558 $ 2.00
======= ======= ======= ======
</TABLE>
On October 6, 1998, the Board of Directors approved the repricing of all
outstanding stock options held by officers, directors and employees of the
Company to an exercise price of $2.00 per share, the last sale price of
the common stock as reported on the Nasdaq National Market on such date.
No repriced officer or employee options (whether or not vested) were
exercisable prior to October 6, 1999. The other terms of the outstanding
stock options generally remained unchanged. The repriced options are
reflected as forfeitures and new grants during the year ended December 31,
1998 in the summary above.
F - 19
<PAGE> 80
The weighted average grant date fair values of options granted (including
repriced options in 1998), during the years ended December 31, 1999 and
1998 were $1.60 and $.77 per option, respectively. During the year ended
December 31, 1999, 141,000 of the grants were incentive stock options
granted to employees and 27,732 of the grants were nonqualified stock
options granted to nonemployee directors of the Company. During the year
ended December 31, 1998, 325,059 of the grants (including repriced
options) were incentive stock options granted to employees and 149,856 of
the grants (including repriced options) were nonqualified stock options
granted to nonemployee directors of the Company. The range of exercise
price for options outstanding as of December 31, 1999 was $1.75 to $5.63.
The weighted average remaining contractual life of all options outstanding
at December 31, 1999 was approximately 6.9 years. If the fair value based
method of accounting for stock options had been applied, the Company's net
loss and net loss per share would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
<S> <C> <C>
Net loss - as reported $ (3,676,042) $ (339,316)
Net loss - pro forma $ (3,959,885) $ (563,789)
Loss per basic and diluted Common Share - as reported $ (1.06) $ (0.10)
Loss per basic and diluted Common Share - pro forma $ (1.14) $ (0.17)
</TABLE>
The fair values of stock options were calculated using the Black-Scholes
stock option valuation model with the following weighted average
assumptions for grants in 1999 and 1998: stock price volatility at 43% and
40%, respectively; risk-free rate of return of 5.6% and 5%, respectively;
dividend rate of $0.00 per year; and an expected term of 4 years for
options granted to employees and 10 years for options granted to
directors.
STOCKHOLDER RIGHTS PLAN - On December 12, 1991, the stockholders 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 stockholders of record on December 2, 1991.
Each Right represents the right to purchase four one-hundredths 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 any person or group
(with certain exceptions) acquires 15% or more of the Company's
outstanding Common Stock, 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 $.04 per Right.
STOCK WARRANTS - On March 13, 1998, the Company issued 50,000 stock
purchase warrants to a consultant for financial advisory services. At
December 31, 1999, 12,500 of the warrants were vested and exercisable at
$4.43 per share. The remaining 37,500 stock purchase warrants expired in
1999 without vesting.
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, 1998, stock warrants
outstanding allow the holders to purchase a total of 36,620 shares of
Common Stock at prices ranging from $44.48 to $88.96 per share. The
Metretek stock warrants are exercisable over periods expiring at various
dates through 2004. No accounting recognition was given
F - 20
<PAGE> 81
to the Metretek stock warrants, all of which were granted prior to
guidance set forth in Emerging Issues Task Force Issue No. 96-13,
"Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock."
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.
9. SEGMENT AND RELATED INFORMATION
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
The Company has three reportable business segments: automated energy data
management; natural gas measurement services; and Internet-based energy
information and services. The operations of the Company's automated energy
data management segment are conducted by Metretek. Metretek's manufactured
products fall into three categories: remote data collection products;
electronic corrector products; and application-specific products. Metretek
also provides energy data collection and management services and post-sale
support services for its manufactured products. Historically, Metretek's
products and services have been provided principally to natural gas local
distribution companies ("LDCs"). Typically LDCs install Metretek products
in conjunction with custody transfer meters on their larger customers for
the purpose of meeting deregulation requirements.
The operations of the Company's natural gas measurement services segment
are conducted by Southern Flow. Southern Flow's services include on-site
field services, chart processing and analysis, laboratory analysis, and
data management and reporting. These services are provided principally to
customers involved in natural gas production, gathering, transportation
and processing.
The operations of the Company's Internet-based energy information and
services segment are conducted by PowerSpring. PowerSpring has incurred
operating costs to date and does not expect to commence revenue generating
operations until the second quarter of 2000.
The accounting policies of the reportable segments are the same as those
described in Note 1 of the Notes to Consolidated Financial Statements. The
Company evaluates the performance of its operating segments based on
income (loss) before income taxes, nonrecurring items and interest income
and expense. Intersegment sales are not significant.
F - 21
<PAGE> 82
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other" column includes
corporate related items, results of insignificant operations and, as it
relates to segment profit, income and expense not allocated to reportable
segments.
<TABLE>
<CAPTION>
INTERNET-BASED
AUTOMATED NATURAL GAS ENERGY
ENERGY DATA MEASUREMENT INFORMATION
MANAGEMENT SERVICES AND SERVICES OTHER TOTAL
1999
<S> <C> <C> <C> <C> <C>
Revenues $ 8,233,628 $ 11,112,143 $ 19,425 $ 19,365,196
Segment profit (loss) (1,714,941) 976,561 $ (1,505,981) (1,431,681) (3,676,042)
Total assets 8,752,459 10,040,015 94,682 723,278 19,610,434
Capital expenditures 167,895 87,973 44,430 300,298
Depreciation and amortization 641,447 612,388 15,000 1,268,835
1998
Revenues $ 8,774,395 $ 11,105,617 $ $ 42,098 $ 19,922,110
Segment profit (loss) 433,563 746,828 (1,485,823) (305,432)
Total assets 11,054,992 10,685,373 645,918 22,386,283
Capital expenditures 416,025 189,739 3,186 608,950
Depreciation and amortization 497,922 601,911 9,569 1,109,402
</TABLE>
The following table presents revenues by geographic area based on the
location of the use of the product or service:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
United States $18,455,954 $18,294,312
United Kingdom 366,211 904,581
Canada 466,030 596,777
Australia 44,062 74,601
Argentina 31,227 42,296
Other 1,712 9,543
----------- -----------
Total $19,365,196 $19,922,110
=========== ===========
</TABLE>
10. SUBSEQUENT EVENTS
On February 4, 2000, the Company completed a $14,000,000 private placement
(the "Units Private Placement") of 7,000 ("Units"), including 1,450 Units
the Company issued on December 9, 1999. Each Unit consisted of 200 shares
of common stock, 1 share of Series B Preferred Stock and warrants ("Unit
Warrants") to purchase 100 shares of common stock. In the Units Private
Placement, the Company issued 1,400,000 shares of common stock, 7,000
shares of Series B Preferred Stock and Unit Warrants to purchase 700,000
shares of common stock. The Units Private Placement was approved and
ratified by the stockholders of the Company at a special meeting held on
February 3, 2000.
Each share of Series B Preferred Stock is mandatorily redeemable on
December 9, 2004 at a liquidation preference of $1,000 per share plus
accrued and unpaid dividends, accrues dividends at 8% annually payable
quarterly in arrears, and is convertible at any time after June 9, 2000 at
the option of the holder into 168.5374 shares of common stock of the
Company. In addition, the Company has the right to redeem the Series B
Preferred Stock on or after December 9, 2000, if the Company's common
stock is trading at 200% of the conversion price of the Series B Preferred
Stock. The conversion rate of the
F - 22
<PAGE> 83
Series B Preferred Stock may be subject to downward adjustment on December
9, 2000 if the average closing bid price of the Company's common stock for
the 30 trading days immediately preceding that date is less than the
conversion price then in effect, provided that the conversion price cannot
be reduced by more than 50%. The Series B Preferred Stock is also subject
to certain anti-dilution provisions.
Each Unit Warrant entitles the holder to purchase one share of the
Company's common stock at an initial exercise price of $6.7425 per share.
The initial exercise price of the Unit Warrants may also be subject to
downward adjustment on December 9, 2000 if the average closing bid price
of the Company's common stock for the 30 trading days immediately
preceding that date is less than the exercise price of the Unit Warrants
then in effect.
The proceeds from the sale of the Units, including the 1,450 Units issued
on December 9, 1999, have been allocated to common stock, the Unit
Warrants, and the Series B Preferred Stock based on the relative fair
value of each on the date of issuance. This allocation process resulted in
the Series B Preferred Stock issued on February 4, 2000 being initially
recorded at a discount of $141 per share from its $1,000 per share
liquidation value. This discount will be recorded as a distribution over
the term of the Series B Preferred Stock. Another discount resulted from
the increase in the fair market value of a share of the Company's common
stock from the date the Company offered to sell 5,550 Units to February 4,
2000, the date the Units were issued. This increase caused the conversion
feature of the Series B Preferred Stock to be "in the money" on February
4, 2000. The discount of $859 per share related to the "in the money"
conversion feature will also be recorded as a distribution between
February 4 and June 9, 2000, the date the Series B Preferred Stock can
first be converted into common stock of the Company.
The primary purpose of the Units Private Placement was to raise capital to
enable the Company to develop the Internet-based business of PowerSpring.
A portion of the proceeds was also used to repay outstanding indebtedness,
and the remaining proceeds will be used for general corporate and working
capital purposes, including potentially providing the funds to finance an
acquisition opportunity, if one were to arise.
On March 17, 2000, the Company acquired Mercator Energy Incorporated
("Mercator") through a merger with a wholly-owned subsidiary of
PowerSpring. Mercator is a Denver-based natural gas services and brokerage
company that acts as an independent broker-agent for both producers and
users. This acquisition will provide PowerSpring with Mercator's expertise
in the area of energy procurement, which is an important element in the
Company's Internet business strategy.
In consideration for the acquisition of Mercator, the Company delivered to
the sole shareholder of Mercator prior to the acquisition, $408,334 in
cash, a $741,666 non-negotiable promissory note payable by PowerSpring
over two years and secured by a general security interest in the assets of
PowerSpring, and 2,500,000 shares of common stock of PowerSpring.
Subsequent to the acquisition of Mercator, the Company owns 87.5% of the
outstanding shares of PowerSpring common stock, and Mercator has become a
wholly-owned subsidiary of PowerSpring. PowerSpring and Metretek entered
into a stockholder's agreement with the former owner of Mercator that
addresses certain rights related to PowerSpring common stock, including a
right for the former owner of Mercator to put his shares of PowerSpring
common stock back to PowerSpring at an appraised value over three years if
PowerSpring has not completed an initial public offering or has not sold
its business within two years.
PowerSpring also entered into a two-year employment agreement with the
former owner of Mercator which included an option to purchase 60,000
shares of common stock of the Company exercisable, at
F - 23
<PAGE> 84
$17.88 per share, and an option to purchase 200,000 shares of PowerSpring
common stock, exercisable at $.30 per share.
In September 1999, the Company had entered into a consulting and joint
venture agreement with Mercator, under which Mercator provided energy
procurement consulting services to the Company. In connection with the
acquisition of Mercator, the consulting and joint venture agreement and a
related stock option agreement were terminated.
* * * * *
F - 24
<PAGE> 85
METRETEK TECHNOLOGIES, INC.
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
EXHIBIT LIST
------------
(2) PLAN OF PURCHASE, SALE, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR
SUCCESSION:
(2.1) Asset Purchase Agreement, dated as of March 23, 1998, by and
among Eagle Research Corporation, American Meter Company,
Metretek, Incorporated and Marcum Natural Gas Services, Inc.
(Incorporated by reference to Exhibit 2.4 to Metretek's Annual
Report on Form 10-KSB for the year ended December 31, 1997.)
(2.2) Agreement and Plan of Merger, dated as of March 16, 2000, by
and between TotalPlan, Inc. and PowerSpring, Inc.
(2.3) Agreement and Plan of Merger, dated as of March 17, 2000, by
and among PowerSpring, Inc., MERC Acquisition Corp., Mercator
Energy Incorporated and John A. Harpole.
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
(3.1) Second Restated Certificate of Incorporation, as amended, of
Marcum Natural Gas Services, Inc. (Incorporated by reference
to Exhibit 4.1 to Metretek's Registration Statement on Form
S-3, Registration No. 333-96369.)
(3.2) Amended and Restated By-Laws of Metretek Technologies, Inc.
(Incorporated by reference to Exhibit 3.3 to Metretek's Annual
Report on Form 10-KSB for the year ended December 31, 1998.)
(4) INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
(4.1) Specimen Common Stock Certificate. (Incorporated by reference
to Exhibit 4.1 to Metretek's Registration Statement on Form
S-18, Registration No. 33-44558.)
(4.2) Form of Common Stock Purchase Warrant. (Incorporated by
reference to Exhibit 4.4 to Metretek's Registration Statement
on Form S-3, Registration No. 333-60925.)
<PAGE> 86
(4.3) Form of Warrant Agency Agreement between Marcum Natural Gas
Services, Inc. and American Securities Transfer & Trust, Inc.
(Incorporated by reference to Exhibit 4.4 to Metretek's
Registration Statement on Form S-3, Registration No.
333-60925).
(4.4) 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 Metretek's
Registration Statement on Form S-4, Registration No.
33-73874.)
(4.5) 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 Metretek's
Registration Statement on Form S-18, Registration No.
33-44558.)
(4.6) Amendment No. 1 to Rights Agreement, dated as of March 23,
1998, between Marcum Natural Gas Services, Inc. and American
Securities Transfer & Trust, Inc. (Incorporated by reference
to Exhibit 2 to Metretek's Registration Statement on Form
8-A/A, Amendment No. 1 filed April 3, 1998.)
(4.7) Amendment No. 2 to Rights Agreement, dated as of December 9,
1999, between Metretek Technology, Inc. and American
Securities Transfer & Trust, Inc. (Incorporated by reference
to Exhibit 1 to Metretek's Registration Statement on Form
8-A/A, Amendment No. 4 filed December 23, 1999.)
(4.8) 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
Metretek's Registration Statement on Form S-4, Registration
No. 33-73874.)
(4.9) Securities Purchase Agreement, dated as of December 9, 1999,
by and among Metretek Technologies, Inc. and certain purchases
of securities of Metretek Technologies, Inc. (collectively,
the "Unit Purchasers"). (Incorporated by reference to Exhibit
4.1 to Metretek's Current Report on Form 8-K filed December
22, 1999).
(4.10) Form of Common Stock Purchase Warrant issued by Metretek
Technology, Inc. to the Unit Purchasers. (Incorporated by
reference to Exhibit 4.3 to Metretek's Current Report on Form
8-K filed December 22, 1999).
(4.11) Registration Rights Agreement, dated December 9, 1999, by and
among Metretek Technologies, Inc. and the Unit Purchasers.
(Incorporated by reference to Exhibit 4.4 to Metretek's
Current Report on Form 8-K filed December 22, 1999).
<PAGE> 87
(10) MATERIAL CONTRACTS:
(10.1) Marcum Natural Gas Services, Inc. 1991 Stock Option Plan, as
amended and restated December 5, 1996. (Incorporated by
reference to Exhibit 10.2 to Metretek's Annual Report on Form
10-KSB for the year ended December 31, 1996.)*
(10.2) Marcum Natural Gas Services, Inc. Directors' Stock Option
Plan, as amended and restated December 2, 1996. (Incorporated
by reference to Exhibit 10.3 to Metretek's Annual Report on
Form 10-KSB for the year ended December 31, 1996.)*
(10.3) Employment Agreement, dated as of June 11, 1991, by and
between Marcum Natural Gas Services, Inc. and W. Phillip
Marcum. (Incorporated by reference to Exhibit 10.4 to
Metretek's Registration Statement on Form S-18, Registration
No. 33-44558.)*
(10.4) Amendment No. 1 to Employment Agreement, dated June 27, 1997,
by and between Marcum Natural Gas Services, Inc. and W.
Phillip Marcum. (Incorporated by reference to Exhibit 10.1 to
Metretek's Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1997.)*
(10.5) Amendment No. 2 to Employment Agreement, dated December 3,
1998, by and between Marcum Natural Gas Services, Inc. and W.
Phillip Marcum. (Incorporated by reference to Exhibit 10.5 to
Metretek's Annual Report on Form 10-KSB for the year ended
December 31, 1998.)*
(10.6) Amendment No. 3 to Employment Agreement, dated as of January
1, 2000, by and between Metretek Technologies, Inc. and W.
Phillip Marcum.*
(10.7) Employment Agreement, dated as of June 11, 1991, by and
between Marcum Natural Gas Services, Inc. and A. Bradley
Gabbard. (Incorporated by reference to Exhibit 10.4 to
Metretek's Registration Statement on Form S-18, Registration
No. 33-44558.)*
(10.8) Amendment No. 1 to Employment Agreement, dated June 27, 1997,
by and between Marcum Natural Gas Services, Inc. and A.
Bradley Gabbard. (Incorporated by reference to Exhibit 10.2 to
Metretek's Quarterly Report on Form 10-QSB for the quarterly
period ended September 30, 1997.)*
(10.9) Amendment No. 2 to Employment Agreement, dated December 3,
1998, by and between Marcum Natural Gas Services, Inc. and A.
Bradley Gabbard. (Incorporated by reference to Exhibit 10.8 to
Metretek's Annual Report on Form 10-KSB for the year ended
December 31, 1998.)*
<PAGE> 88
(10.10) Amendment No. 3 to Employment Agreement, dated as of January
1, 2000, by and between Metretek Technologies, Inc. and A.
Bradley Gabbard.*
(10.11) Loan and Security Agreement, dated April 14, 1998, by and
between National Bank of Canada, Marcum Natural Gas Services,
Inc., Metretek, Incorporated and Southern Flow Companies, Inc.
(Incorporated by reference to Exhibit 10.1 to Metretek's
Quarterly Report on Form 10-QSB for the quarterly period ended
March 31, 1998.)
(10.12) Amendment No. 1 to Loan and Security Agreement, dated as of
November 10, 1998, by and among National Bank of Canada,
Marcum Natural Gas Services, Inc., Metretek, Incorporated and
Southern Flow Companies, Inc. (Incorporated by reference to
Exhibit 10.12 to Metretek's Annual Report on Form 10-KSB for
the year ended December 31, 1998).
(10.13) Second Amendment to Loan and Security Agreement and Loan
Documents, dated as of September 13, 1999, by and among
National Bank of Canada, Metretek Technologies, Inc.,
Metretek, Incorporated and Southern Flow Companies, Inc.
(Incorporated by reference to Exhibit 10.1 to Metretek's
Current Report on Form 8-K filed September 14, 1999).
(10.14) Third Amendment to Loan and Security Agreement and Loan
Documents, dated as of December 9, 1999, by and among National
Bank of Canada, Metretek Technologies, Inc., Metretek,
Incorporated and Southern Flow Companies, Inc. (Incorporated
by reference to Exhibit 10.1 to Metretek's Current Report on
Form 8-K filed December 22, 1999).
(10.15) Marcum Natural Gas Services, Inc. 1998 Employee Stock Purchase
Plan. (Incorporated by reference to Exhibit 4.3 to Metretek's
Registration Statement on Form S-8, Registration No.
333-43547.)*
(10.16) Metretek Technologies, Inc. 1998 Stock Incentive Plan, amended
and restated as of February 3, 2000 (Incorporated by reference
to Exhibit 10.2 to Metretek's Current Report on Form 8-K filed
on February 22, 2000).*
(10.17) Employment Agreement, dated as of March 17, 2000, between
PowerSpring, Inc. and John A. Harpole.
(10.18) Stockholders Agreement, dated as of March 17, 2000, among
Metretek Technologies, Inc., PowerSpring, Inc. and John A.
Harpole.
(10.19) Promissory Note, dated March 17, 2000, made by PowerSpring,
Inc. to John A. Harpole.
(10.20) Security Agreement, dated March 17, 2000, between PowerSpring,
Inc. and John A. Harpole.
<PAGE> 89
(10.21) Form of Indemnification Agreement between Metretek
Technologies, Inc. and each of its directors.
(21) SUBSIDIARIES OF THE SMALL BUSINESS ISSUER:
(21.1) Subsidiaries of Metretek Technologies, Inc.
(23) CONSENTS OF EXPERTS AND COUNSEL:
(23.1) Deloitte & Touche LLP
(24) POWER OF ATTORNEY:
(24.1) Power of Attorney of the executive officers and directors of
Metretek Technologies, Inc. (Included on signature page.)
(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.
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of March 16, 2000, by and between TotalPlan, Inc. (formerly
known as "TotalEnergy Plan, Inc."), a Delaware corporation ("TotalPlan"), and
PowerSpring, Inc., a Delaware corporation ("PowerSpring"). TotalPlan and
PowerSpring are sometimes hereinafter collectively referred to as the
"Constituent Corporations."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, TotalPlan is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on August 5, 1999;
and
WHEREAS, PowerSpring is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on September 24,
1999; and
WHEREAS, the respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interests of each and of its
respective stockholders that TotalPlan merge with and into PowerSpring upon the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the respective Boards of Directors of the Constituent
Corporations have adopted and approved this 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 are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE 1. THE MERGER.
----------
Section 1.1 The Merger. At the Effective Time (as defined in Section
1.2), upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the provisions of the General Corporation Law of the
State of Delaware ("Delaware Law"), TotalPlan shall be merged with and into
PowerSpring (the "Merger"), and the separate corporate existence of TotalPlan
(except insofar as it may be continued by applicable law) shall cease. TotalPlan
shall continue as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation") of the Merger and shall continue its corporate
existence under the laws of the State of Delaware.
Section 1.2 Effective Time. As soon as practicable after this Agreement
shall have been duly adopted and approved by the sole stockholder of each of the
Constituent Corporations, the Constituent Corporations shall cause the Merger to
be consummated by executing and filing with the Secretary of State of the State
of Delaware a Certificate of Merger
<PAGE> 2
in the form required by and otherwise in accordance with the provisions of
Section 251 of the DGCL (the "Certificate of Merger"). The Merger shall become
effective on the date and at the time when the Certificate of Merger is filed
with the Secretary of State of the State of Delaware, or at such later date
and/or time specified in the Certificate of Merger (as mutually agreed to by the
Constituent Corporations). The date and time when the Merger becomes effective
is herein referred to as the "Effective Time."
Section 1.3 Effects of Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the foregoing, and subject
thereto, and without further act, deed, transfer or conveyance, from and after
the Effective Time the Surviving Corporation shall succeed to, possess and be
vested in all of the assets, properties, rights, privileges, powers and
franchises of the Constituent Corporations, including, without limitation, all
property of every description, real, personal and mixed, wherever located, and
each and every other interest of every kind and nature, and shall be subject to
all other debts, liabilities, restrictions, disabilities and duties of the
Constituent Corporations.
Section 1.4 Name of Surviving Corporation. The name of the Surviving
Corporation shall be "PowerSpring, Inc.", unless later changed in accordance
with the provisions of the Certificate of Incorporation of the Surviving
Corporation and of applicable law.
Section 1.5 Certificate of Incorporation of the Surviving Corporation.
The Certificate of Incorporation of the Surviving Corporation shall be amended
to read in its entirety as set forth on Exhibit A, which is attached hereto and
incorporated herein by this reference, until amended in accordance with the
provisions thereof and of applicable law.
Section 1.6 By-Laws of the Surviving Corporation. The By-Laws of
PowerSpring, as in effect immediately prior to the Effective Time, shall be the
By-Laws of the Surviving Corporation, until amended in accordance with the
provisions thereof and of the Certificate of Incorporation of the Surviving
Corporation and of applicable law.
Section 1.7 Officers and Directors of the Surviving Corporation. The
officers and directors of PowerSpring immediately prior to the Effective Time
shall be the initial officers and directors of the Surviving Corporation
(holding the same titles and positions), each to hold his respective office or
offices until his respective successor is duly elected or appointed and
qualified in accordance with the provisions of the Certificate of Incorporation
and By-Laws of the Surviving Corporation and of applicable law, or until his
earlier death, resignation or removal.
Section 1.8 Further Assurances. If, at any time after the Effective
Time, any further action is necessary, convenient or desirable in order to carry
out the purposes of this Agreement or to vest, perfect or confirm, of record or
otherwise, in the surviving corporation the full right, title, interest and
possession of all assets, properties, rights, privileges, immunities, powers,
franchises and authority of the Constituent Corporations, or to otherwise carry
out the provisions of this Agreement, the officers of each of the Constituent
Corporations are fully authorized in the names and on behalf of their respective
entities or otherwise to take such lawful actions including, without limitation,
the execution, delivery, filing and acknowledgment of all deeds,
2
<PAGE> 3
bills of sales, assignments, assurances and other documents, instruments and
agreements as may be necessary, convenient or desirable, in the discretion of
the Surviving Corporation, to effect the same.
Section 1.9 Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of either Constituent
Corporation or the holder of any of the following securities or of any other
Person:
(a) TotalPlan Common Stock. All of the shares of Common Stock,
par value $.01 per share, of TotalPlan ("TotalPlan Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
cancelled and retired without payment of any consideration therefore
and shall cease to exist.
(b) PowerSpring Common Stock. Each shares of Common Stock, par
value $.01 per share, of PowerSpring ("PowerSpring Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into 17,500 shares, par value $.01 per share, of Common Stock
of the Surviving Corporation ("Surviving Corporation Common Stock").
Section 1.10 Stock Certificates. At and after the Effective Time, all
of the outstanding certificates that, immediately prior to the Effective Time,
represented shares of PowerSpring Common Stock shall be deemed for all purposes
to evidence ownership of and to represent the number of shares of Surviving
Corporation Common Stock into which such shares of PowerSpring Common Stock are
converted as provided herein. The registered owner on the books and records of
PowerSpring of any such outstanding stock certificates for PowerSpring Common
Stock shall, until such certificate shall have been surrendered for transfer or
otherwise accounted for to the Surviving Corporation or its transfer agent, be
entitled to exercise any voting and other rights with respect to, and to receive
any dividend and other distributions upon, the shares of the Surviving
Corporation Common Stock evidenced by such outstanding certificate as provided
above.
ARTICLE 2. CONDITION.
---------
Section 2.1 Stockholder Approval. The consummation of the Merger is
subject to the approval of this Agreement and the Merger contemplated hereby by
the sole stockholder of TotalPlan and by the sole stockholder of PowerSpring, at
or prior to the Effective Time.
ARTICLE 3. TERMINATION AND ABANDONMENT; AMENDMENT
--------------------------------------
Section 3.1 Termination and Abandonment. At any time prior to the
Effective Time, this Merger Agreement may be terminated and the Merger may be
abandoned by the Board of Directors of either Constituent Corporation,
notwithstanding the adoption and approval of the Merger and of this Agreement by
the sole stockholder of either Constituent Corporation, for any reason, without
notice, without any liabilities on the part of either of the Constituent
Corporations.
3
<PAGE> 4
Section 3.2 Amendment. At any time prior to the Effective Time, this
Agreement may be amended, modified or supplemented by the Boards of Directors of
the Constituent Corporations, notwithstanding approval of the Merger and this
Agreement by the sole stockholder of either or both of the Constituent
Corporations; provided, however, that any amendment made subsequent to the
adoption of this Agreement by the sole stockholder of either of the Constituent
Corporations shall not:
(i) Alter or change the amount or kind of shares, securities,
cash, property and/or rights to be received and exchanged for or
conversion of any shares of any class or series of either Constituent
Corporations;
(ii) Alter or change any of the terms of the Certificate of
Incorporation of the surviving corporation to be effected by the
Merger; or
(iii) Alter or change any of the terms or conditions of this
Agreement if such alteration or change would adversely affect the
holders of any shares of any class or series of either Constituent
Corporation.
ARTICLE 4. GENERAL PROVISIONS.
------------------
Section 4.1 Governing Law. This Agreement shall in all respects be
governed by, and construed in accordance with, the internal substantive laws of
the State of Colorado, without giving effect to any conflict or choice of law
principles or rules.
Section 4.2 Amendment. This Agreement may not be amended or modified in
whole or in part in any manner except in a writing which makes reference to this
Agreement executed by both parties hereto.
Section 4.3 Assignment. Neither this Agreement, nor any rights,
obligations or duties hereunder, may be assigned or delegated by any party
hereto without the prior written consent of the other party hereto.
Section 4.4 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
Section 4.5 Entire Agreement.This Agreement, including the Exhibit
hereto, sets forth the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof and supersedes in their entirety all
prior and contemporaneous written and oral agreements, arrangements,
understandings, negotiations, communications, covenants, representations and
warranties among the parties hereto relating to the subject matter hereof.
Section 4.6 Notices. Any and all notices, demands, requests, elections
and other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given (i) upon personal delivery;
(ii) upon confirmation of receipt when sent by facsimile transmission; (iii) one
business day after deposit during normal business hours with a nationally
recognized overnight courier, specifying next day delivery, with written
4
<PAGE> 5
verification of receipt; (iv) five business days after being sent by first class
(certified or registered) mail, postage prepaid, return receipt requested, in
each case to the following addresses:
If to PowerSpring: PowerSpring, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: W. Phillip Marcum
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
With a copy to: Paul R. Hess, Esq.
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 E. State Street, Suite 1800
Columbus, Ohio 43215
Telephone: (614) 462-5441
Facsimile: (614) 464-2634
If to TotalPlan: TotalPlan, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: W. Phillip Marcum
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
With a copy to: Paul R. Hess, Esq.
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 E. State Street, Suite 1800
Columbus, Ohio 43215
Telephone: (614) 462-5441
Facsimile: (614) 464-2634
Any party hereto may send any notice, demand, request, election or other
communication to the intended recipient at its address set forth above using any
other means (such as expedited courier, messenger service, telecopy, telex,
ordinary mail or electronic mail), but no such notice, demand, request or other
communication shall be deemed to have been given until it is actually received
by the recipient. Any party hereto may change its designated address by giving
written notice to all other parties.
(g) Waiver. The obligations of any party hereunder may be
waived only with the written consent of the party or parties entitled
to the benefits the obligations so involved. Any waiver of a breach or
violation of or default under any provision of this Agreement shall not
be construed or operate as, or constitute, a waiver of any other or
subsequent breach or violation of or default under that provision or
any other provision of this Agreement. The failure of any party to
insist upon strict compliance with any provision of this Agreement on
any one or more occasions shall not be construed or operate as, or
constitute, a continuing waiver of, or an
5
<PAGE> 6
estoppel of that party's right to insist upon strict compliance with,
that provision or any other provision of this Agreement.
(h) Severability. The provisions of this Agreement shall be
deemed severable. If any provision of this Agreement is determined to
be illegal, invalid or unenforceable in any situation: (i) the parties
hereto shall agree to a suitable and equitable provision to be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable
provision; and (ii) the remainder of this Agreement shall remain in
full force and effect, and the application of such provision in any
other situation shall not be affected.
(i) Counterparts. This Agreement may be executed in any number
of counterparts (including counterparts executed by less than all
parties hereto), each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
(j) Headings. The headings used herein are solely for
convenience of reference and shall not be given any effect in the
construction or interpretation of this Agreement.
(k) No Third Party Beneficiaries. Nothing in this Agreement,
express or implied, in intended to create or confer and shall not be
construed or operate as creating or conferring, any rights or remedies
under or by reason of this Agreement, upon any Person other than the
parties hereto and their respective successors and permitted assigns.
(l) Further Assurances. The parties hereto agree to take or
cause to be taken all actions, which are necessary, convenient or
desirable in order to effect the transactions contemplated by this
Agreement.
(m) Best Efforts. Each of the parties hereto shall act in good
faith and use its best efforts to bring about the transactions
contemplated by this Agreement.
(n) Expenses. Except as otherwise expressly provided herein,
each of the parties to this Agreement shall pay its own costs and
expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby.
(o) Construction. In the event an ambiguity or question or
intent or interpretation arises, this Agreement shall be construed as
if drafted jointly by the parties hereto and no presumption or burden
of proof shall arise favoring or disfavoring any party hereto by virtue
of the authorship of any of the provisions of this Agreement.
(p) Specific Performance. Each of the parties hereto
acknowledges and agrees that the other parties hereto would suffer
irreparable damage for which an adequate remedy at law would not be
available in the event any of the provisions of this Agreement is not
performed in accordance with its specific terms or otherwise is
breached. Accordingly, each of the parties hereto agrees that the
non-breaching parties shall be entitled to an injunction,
6
<PAGE> 7
restraining order or other form of equitable relief from any court of
competent jurisdiction to prevent breaches of, and to specifically
enforce, the provisions of this Agreement.
(q) Publicity. No party hereto shall, directly or through its
affiliates, make any public statement, announcement, press release or
other disclosure regarding this Agreement, the other party or its
relationship under this Agreement or with the other party without the
prior consent of the other party (which consent shall not be
unreasonably withheld or delayed), except (i) to the extent such
disclosure is required by law, judicial process or rule, regulation or
requirement of the Nasdaq Stock Market, or (ii) to the Bank.
(r) Interpretation of Certain Provisions. Except as otherwise
expressly provided herein, as used in this Agreement:
(i) Any reference to any federal, state, local or
foreign statute or law shall be deemed also to include a
reference to all rules and regulations promulgated thereunder.
(ii) The term "including" means "including, without
limitation".
(iii) The term "Person" means and includes an
individual, corporation, partnership, limited liability
company, joint venture, trust, association, unincorporated
organization, governmental or regulating body or authority, or
any other form of business or entity.
(iv) The number and gender of each noun and pronoun
and the terms "Person" and "Persons" and the like shall be
construed to mean such number and gender as the context, the
circumstances or its antecedent may require.
(v) The terms "hereof", "herein", "hereunder" and
words of similar import refer to this Agreement as a whole,
and not to any Section, subsection or clause of this
Agreement.
(vi) Each reference to a Section means such Section
of this Agreement.
* * * * *
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused their respective
duly authorized officers to execute and deliver this Agreement and Plan of
Merger, effective as of the date first above written.
TOTALPLAN, INC.
By: /s/ W. Phillip Marcum
--------------------------------
W. Phillip Marcum, President
ATTEST:
/s/ Gary J. Zuiderveen
- --------------------------------
Gary J. Zuiderveen, Secretary
POWERSPRING, INC.
By: /s/ W. Phillip Marcum
--------------------------------
W. Phillip Marcum, President
ATTEST:
/s/ Gary J. Zuiderveen
- --------------------------------
Gary J. Zuiderveen, Secretary
8
<PAGE> 1
EXHIBIT 2.3
-----------
EXECUTION
COPY
-----------
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
POWERSPRING, INC.,
MERC ACQUISITION CORP.,
MERCATOR ENERGY INCORPORATED
AND
JOHN A. HARPOLE
DATED AS OF MARCH 17, 2000
================================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. THE MERGER........................................................................1
Section 1.1. The Merger.....................................................................1
Section 1.2. Effective Time.................................................................1
Section 1.3. Effects of Merger..............................................................2
Section 1.4. Name of Surviving Corporation..................................................2
Section 1.5. Articles of Incorporation of the Surviving Corporation.........................2
Section 1.6. Bylaws of the Surviving Corporation............................................2
Section 1.7. Officers and Directors of the Surviving Corporation............................2
Section 1.8. Service of Process.............................................................2
Section 1.9. Conversion of Securities.......................................................3
Section 1.10. Merger Consolidation...........................................................3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER............................................4
Section 2.1. Organization...................................................................4
Section 2.2. Subsidiaries...................................................................4
Section 2.3. Capitalization.................................................................4
Section 2.4. Status of Shares...............................................................5
Section 2.5. Power and Authority............................................................5
Section 2.6. Enforceability.................................................................5
Section 2.7. No Conflicts...................................................................5
Section 2.8. Defaults.......................................................................6
Section 2.9. Consents.......................................................................6
Section 2.10. Corporate Documents............................................................6
Section 2.11. Proceedings....................................................................7
Section 2.12. Brokers' Fees..................................................................7
Section 2.13. Financial Statements...........................................................7
Section 2.14. Absence of Undisclosed Liabilities.............................................7
Section 2.15. Absence of Adverse Changes.....................................................8
Section 2.16. Taxes.........................................................................10
Section 2.17. Title to and Condition of Assets..............................................11
Section 2.18. Real Property.................................................................11
Section 2.19. Personal Property Leases......................................................12
Section 2.20. Accounts and Notes Receivable.................................................12
Section 2.21. Inventory.....................................................................12
Section 2.22. Intellectual Property.........................................................12
Section 2.23. Dividends.....................................................................13
Section 2.24. Relationships with Suppliers and Customers....................................14
Section 2.25. Labor Relations and Employment Matters........................................14
Section 2.26. Employee Benefits Plans.......................................................15
Section 2.27. Compliance with Laws..........................................................16
Section 2.28. Licenses......................................................................16
Section 2.29. Absence of Certain Commercial Practices.......................................17
Section 2.30. Environmental Laws............................................................17
Section 2.31. Insurance.....................................................................17
Section 2.32. Contracts.....................................................................18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 2.33. Bank Accounts.................................................................18
Section 2.34. Affiliated Party Transactions.................................................18
Section 2.35. No Loss of Rights or Legal Obstacles..........................................19
Section 2.36. Securities Representations as to the Acquisition of the Purchaser Shares......19
Section 2.37. Disclosure....................................................................20
Section 2.38. Knowledge.....................................................................21
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................21
Section 3.1. Organization..................................................................21
Section 3.2. Power and Authority...........................................................21
Section 3.3. Enforceability................................................................21
Section 3.4. No Conflicts..................................................................21
Section 3.5. Consents......................................................................22
Section 3.6. Proceedings...................................................................22
Section 3.7. Brokers' Fees.................................................................22
Section 3.8. Capitalization................................................................22
Section 3.9. Title to and Condition of Assets..............................................23
Section 3.10. Real Property.................................................................23
Section 3.11. Personal Property Leases......................................................24
Section 3.12. Accounts and Notes Receivable.................................................24
Section 3.13. Inventory.....................................................................24
Section 3.14. Intellectual Property.........................................................24
Section 3.15. Dividends.....................................................................25
Section 3.16. Relationships with Customers and Suppliers....................................25
Section 3.17. Labor Relations and Employment Matters........................................25
Section 3.18. Employee Benefit Plans........................................................26
Section 3.19. Compliance with Laws..........................................................27
Section 3.20. Licenses......................................................................27
Section 3.21. Absence of Certain Commercial Practices.......................................27
Section 3.22. Environmental Laws............................................................27
Section 3.23. Insurance.....................................................................28
Section 3.24. Contracts.....................................................................28
Section 3.25. Financial Statements..........................................................28
ARTICLE 4. PRE-CLOSING AND CLOSING COVENANTS.................................................28
Section 4.1. Conduct of Business of the Company............................................28
Section 4.2. Access........................................................................29
Section 4.3. Consummation of Transactions..................................................29
Section 4.4. Public Announcements..........................................................29
Section 4.5. Notification of Certain Matters...............................................30
Section 4.6. No Shopping...................................................................30
Section 4.7. Resignations..................................................................30
Section 4.8. Employment and Non-Competition Agreement......................................30
Section 4.9. Stockholders Agreement........................................................30
Section 4.10. TotalPlan Merger..............................................................30
Section 4.11. Termination of Previous Agreements............................................30
Section 4.12. Company Liabilities...........................................................31
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 5. CONDITIONS PRECEDENT TO PURCHASER'S AND MERGER SUB'S
CLOSING OBLIGATIONS...............................................................31
Section 5.1. Accuracy of Representations and Warranties................................. ..31
Section 5.2. Performance of Covenants......................................................31
Section 5.3. Proceedings and Documents Satisfactory........................................31
Section 5.4. No Proceedings................................................................31
Section 5.5. No Claims for Shares..........................................................31
Section 5.6. Deliveries at Closing.........................................................32
Section 5.7. Consents......................................................................32
Section 5.8. Securities Laws...............................................................32
Section 5.9. Employment Agreement..........................................................32
Section 5.10. Stockholders Agreement........................................................32
Section 5.11. Resignations..................................................................32
Section 5.12. Company Terminations..........................................................32
Section 5.13. Metretek Board Approval.......................................................32
Section 5.14. Affiliate Debt................................................................32
ARTICLE 6. CONDITIONS PRECEDENT TO SELLER'S CLOSING
OBLIGATIONS.......................................................................32
Section 6.1. Accuracy of Representations and Warranties....................................32
Section 6.2. Performance of Covenants......................................................33
Section 6.3. Proceedings and Documents Satisfactory........................................33
Section 6.4. No Proceedings................................................................33
Section 6.5. Deliveries at Closing.........................................................33
Section 6.6. Consents......................................................................33
Section 6.7. Employment Agreement..........................................................33
Section 6.8. Stockholder Agreement.........................................................33
Section 6.9. TotalPlan Merger..............................................................33
Section 6.10. Funding of Purchaser..........................................................33
ARTICLE 7. THE CLOSING.......................................................................33
Section 7.1. Date and Place................................................................33
Section 7.2. Deliveries by Seller..........................................................34
Section 7.3. Deliveries by Purchaser.......................................................34
Section 7.4. Effectiveness of Closing......................................................35
ARTICLE 8. INDEMNIFICATION...................................................................36
Section 8.1. Indemnification by Seller.....................................................36
Section 8.2. Indemnification by Purchaser..................................................36
Section 8.3. Claims for Indemnification....................................................36
Section 8.4. Limitation on Liability.......................................................37
Section 8.5. Survival......................................................................37
Section 8.6. Effect of Knowledge...........................................................37
Section 8.7. Contribution..................................................................38
ARTICLE 9. POST-CLOSING AND OTHER COVENANTS..................................................38
Section 9.1. Further Assurances............................................................38
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Section 9.2. Mutual Cooperation............................................................38
Section 9.3. Taxes.........................................................................38
Section 9.4. Right of Appraisal............................................................39
ARTICLE 10. TERMINATION AND CONFIDENTIALITY..................................................39
Section 10.1. Events of Termination.........................................................39
Section 10.2. Effect of Termination.........................................................40
Section 10.3. Confidentiality...............................................................40
ARTICLE 11. ARBITRATION......................................................................40
ARTICLE 12. GENERAL PROVISIONS...............................................................40
Section 12.1. Governing Law.................................................................40
Section 12.2. Amendment.....................................................................40
Section 12.3. Assignment....................................................................41
Section 12.4. Successors and Assigns........................................................41
Section 12.5. Entire Agreement..............................................................41
Section 12.6. Notices.......................................................................41
Section 12.7. Waiver........................................................................42
Section 12.8. Severability..................................................................42
Section 12.9. Counterparts..................................................................42
Section 12.10. Headings......................................................................42
Section 12.11. No Third Party Beneficiaries..................................................43
Section 12.12. Best Efforts..................................................................43
Section 12.13. Expenses......................................................................43
Section 12.14. Construction..................................................................43
Section 12.15. Specific Performance..........................................................43
Section 12.16. Publicity.....................................................................43
Section 12.17. Interpretation of Certain Provisions..........................................43
</TABLE>
SCHEDULES
- ---------
2.1 - Foreign Qualification
2.3 - Shareholders and Option Holders
2.9 - Consents
2.14 - Undisclosed Liabilities
2.15 - Adverse Changes
2.18 - Real Property Leases
2.19 - Personal Property Leases
2.22 - Registered Intellectual Property
2.24 - Customers and Suppliers
2.25 - Employment Agreements
2.26 - Employee Benefit Plans
2.31 - Insurance
2.32 - Contracts
2.33 - Bank Accounts
2.34 - Affiliate Party Transactions
<PAGE> 6
EXHIBITS
- --------
A - Promissory Note
B - Employment and Non-Competition Agreement
C - Stockholders Agreement
D - Legal Opinion of Seller's Counsel
E - Legal Opinion of Purchaser's Counsel
<PAGE> 7
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of the 17th day of March, 2000, by and among PowerSpring, Inc.,
a Delaware corporation ("Purchaser"), MERC Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Purchaser ("Merger Sub"), Mercator
Energy Incorporated, a Colorado corporation (the "Company"), and John A.
Harpole, a Colorado resident ("Seller"). Merger Sub and the Company are
sometimes referred to herein, each individually, as a "Constituent Party", and
both collectively, as the "Constituent Parties."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller is the sole record and beneficial owner of all the
outstanding shares of capital stock of the Company; and
WHEREAS, Seller has approved the merger of Merger Sub with and into the
Company, with the Company being the surviving corporation in the Merger (the
"Merger"), in accordance with the terms hereof; and
WHEREAS, the Board of Directors of each of the constituent corporations
deem advisable and in the best interests of each and of its respective
stockholders, and have adopted and approved, the Merger of Merger Sub with and
into the Company, in accordance with the terms hereof; and
WHEREAS, the parties hereto intend to effect the Merger in accordance
with the provisions of the General Corporation Law of the State of Delaware (the
"DGCL") and the Colorado Business Corporation Act (the "CBCA");
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 are
hereby acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. THE MERGER. At the Effective Time (as defined in Section
1.2), upon the terms and subject to the conditions set forth in this Agreement,
in accordance with the provisions of the DGCL and the CBCA, Merger Sub shall be
merged with and into the Company and the separate corporate existence of Merger
Sub (except insofar as it may be continued by applicable law) shall cease. The
Company shall continue as the surviving corporation (sometimes referred to
herein as the "Surviving Corporation") in the Merger, and as of the Effective
Time shall be a wholly-owned subsidiary of Purchaser and shall continue to be
governed by the laws of the State of Colorado.
SECTION 1.2. EFFECTIVE TIME. As soon as practicable after the Closing
(as defined in Section 7.1), the parties hereto shall cause the Merger to be
consummated by executing and delivering for filing with the Secretary of State
of the State of Colorado Articles of Merger in accordance with the provisions of
Section 7-111-105 of the CBCA (the "Colorado Articles of Merger") and executing,
<PAGE> 8
acknowledging and filing with the Secretary of State of the State of Delaware a
Certificate of Merger in accordance with the provisions of Section 252(c) of the
DCGL (the "Delaware Certificate of Merger"). The Merger shall become effective
on the actual date and at the actual time when both the Delaware Certificate of
Merger has been filed with the Secretary of State of the State of Delaware and
the Colorado Articles of Merger have been filed with the Secretary of State of
the State of Colorado, or such later date and time specified in the Colorado
Articles of Merger and the Delaware Certificate of Merger as agreed to by the
parties hereto, in accordance with the provisions of the CBCA and the DGCL. The
date and time at which the merger becomes effective is referred to herein as the
"Effective Time."
SECTION 1.3. EFFECTS OF MERGER. The Merger shall have the effects set
forth in Section 7-111-106 of the CBCA and Section 259 of the DGCL. Without
limiting the foregoing, and subject thereto, and without further act, deed,
transfer or conveyance, from and after the Effective Time the Surviving
Corporation shall succeed to, possess and be vested in all of the assets,
properties, rights, privileges, powers and franchises of the Constituent
Corporations, including, without limitation, all property of every description,
real, personal and mixed, wherever located, and each and every other interest of
every kind and nature, and shall be subject to all of the debts, liabilities,
restrictions, disabilities and duties of the Constituent Corporations.
SECTION 1.4. NAME OF SURVIVING CORPORATION. The name of the Surviving
Corporation shall be "Mercator Energy Incorporated", unless later changed in
accordance with the provisions of the Articles of Incorporation of the Surviving
Corporation and of applicable law.
SECTION 1.5. ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION.
The Articles of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation, until amended in accordance with the provisions thereof and of
applicable law.
SECTION 1.6. BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of the
Company, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation, until amended in accordance with the
provisions thereof and of the Articles of Incorporation of the Surviving
Corporation and of applicable law.
SECTION 1.7. OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION. The
officers and directors of Merger Sub immediately prior to the Effective Time
shall be the initial officers and directors of the Surviving Corporation
(holding the same respective offices), each to hold such office or offices until
his respective successor is duly elected or appointed and qualified in
accordance with the provisions of the Articles of Incorporation and Bylaws of
the Surviving Corporation and applicable law, or until his earlier death,
resignation or removal.
SECTION 1.8. SERVICE OF PROCESS. The Surviving Corporation hereby
consents to and agrees that it may be served with process in the State of
Delaware in any proceeding for enforcement of any obligation of any Constituent
Corporation in the State of Delaware as well as for enforcement of any
obligation of the Surviving Corporation arising from the Merger, including any
suit or other proceeding to enforce the right of any stockholder as determined
in appraisal proceedings pursuant to Section 262 of the DGCL, and hereby
irrevocably appoints the Secretary of State of the State of Delaware as its
agent to accept service of process in any such suit or other proceedings in the
State of Delaware. The address to which a copy of such process shall be mailed
by the Secretary of State of the State of Delaware shall be as follows:
1675 Broadway, Suite 2150
Denver, Colorado 80202
2
<PAGE> 9
SECTION 1.9. CONVERSION OF SECURITIES. At the Effective Time, by virtue
of the Merger and without any action on the part of either Constituent
Corporation or of the holder of any of the following securities or of any other
Person:
(a) COMPANY COMMON STOCK. Each share of common stock, no par
value, of the Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time shall be cancelled and retired
and cease to exist and shall be converted into the right to receive the
Merger Consideration Per Share (as defined in Section 1.10) in
accordance with, and subject to, the terms and conditions of this
Agreement.
(b) COMPANY TREASURY STOCK. Each share of Company Common Stock
held in the Company's treasury immediately prior to the Effective Time
shall be cancelled and retired without payment of any consideration
therefor and shall cease to exist.
(c) OPTIONS AND WARRANTS. Any option, warrant or other right
to purchase shares of Company Common Stock outstanding immediately
prior to the Effective Time shall be cancelled and retired without
payment of any consideration therefor and shall cease to exist.
(d) MERGER SUB COMMON STOCK. Each share of common stock, par
value $.01 per share, of Merger Sub ("Merger Sub Common Stock") issued
and outstanding immediately prior to the Effective Time shall be
converted into and become one duly authorized, validly issued, fully
paid and non-assessable share of common stock, no par value, of the
Surviving Corporation ("Surviving Corporation Common Stock"). Each
stock certificate of Merger Sub evidencing ownership of any shares of
Merger Sub Common Stock shall continue from and after the Effective
Time to evidence ownership of a like number of shares of Surviving
Corporation Common Stock.
(e) PURCHASER COMMON STOCK. Each share of Common Stock, par
value $.01 per share, of Purchaser (the "Purchaser Shares") issued and
outstanding immediately prior to the Effective Time shall remain issued
and outstanding and shall be unimpaired by the Merger.
SECTION 1.10. MERGER CONSIDERATION. As used herein, the term "Merger
Consideration Per Share" means the "Merger Consideration" (as defined below)
divided by the total number of shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time. As used herein, the term
"Merger Consideration" means the aggregate of 2,500,000 Purchaser Shares, which
shall represent 12.5% of all Purchaser Shares outstanding at the Effective Time,
plus $1,150,000 payable as follows:
(i) Purchaser shall pay to Seller the amount of $408,334
by check made payable to the order of Seller or by
wire transfer of immediately available funds to an
account designated by Seller (the "Cash Portion");
and
(ii) Purchaser shall issue, execute and deliver to Seller
a Non-Negotiable Promissory Note in the principal
amount of $741,666, substantially in the form
attached hereto as Exhibit A (the "Promissory Note").
3
<PAGE> 10
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
In order to induce Purchaser and Merger Sub to enter into this
Agreement and to perform their obligations hereunder, Seller hereby represents
and warrants to and for the benefit of Purchaser and Merger Sub as follows:
SECTION 2.1. ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Colorado.
The Company is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction listed in Schedule 2.1 hereto, which is
each jurisdiction in which either the conduct of its business or activities or
the ownership, lease or operation of its properties or assets requires such
qualification. Except for the jurisdictions in which the Company is incorporated
or is qualified as a foreign corporation, (i) no other jurisdiction has claimed,
in writing or otherwise, that the Company is required to be licensed or
qualified as a foreign corporation therein, (ii) the Company has never filed
franchise, income or other tax returns in any other jurisdiction, and (iii) the
Company does not own, lease or operate any property in any other jurisdiction.
SECTION 2.2. SUBSIDIARIES. The Company has no direct or indirect
subsidiaries and does not own, hold or control, directly or indirectly, any
shares of capital stock or any other equity, voting, ownership or management
interest in any Entity.
SECTION 2.3. CAPITALIZATION. The authorized capital stock of the
Company consists solely of 40,000 shares of Company Common Stock, no par value,
of which 10,000 shares are issued and outstanding and owned by Seller. The
Company never issued any shares of Company Common Stock or of any other class of
capital stock to any Person other than Seller. No shares of Company Common Stock
are reserved for issuance upon the exercise of outstanding options, warrants or
other rights. The Company has no other equity or voting securities of any class
or series authorized, issued, reserved for issuance or outstanding, and has no
outstanding securities, bonds, debentures, notes or other rights, instruments or
obligations the holders of which have the right to vote with the holders of
Company Common Stock or which are convertible into or exchangeable or
exercisable for Company Common Stock or any other class or series of capital
stock or equity or voting interests in the Company. All of the issued and
outstanding shares of capital stock of the Company have been duly authorized and
validly issued, are fully paid and nonassessable, were not issued in violation
of any, and are free from any, preemptive rights, have no personal liability
attached to the ownership thereof, and were offered, sold and issued in full
compliance with all applicable federal and state securities laws. There are no
outstanding options, warrants or other rights (contingent or otherwise) to
subscribe for or to purchase from the Company, or obligations, agreements,
arrangements, understandings or commitments of any nature (contingent or
otherwise) by the Company to issue, sell, transfer, repurchase, redeem or
retire, any shares of Company Common Stock or any other class or series of
capital stock or other equity securities of the Company, or securities which are
convertible into or exchangeable or exercisable for Company Common Stock or any
other class or series of capital stock or other equity or voting interests in
the Company. Neither the Company nor its sole shareholder is a party to any
voting trust, voting agreement, proxy or other agreement or arrangement with
respect to the voting, transferability, purchase or redemption of any capital
stock of the Company. No Person has any preemptive right, right of first
refusal, subscription right or similar right with respect to the issuance or
sale of any of the Company's capital stock. No Person has any right of
rescission or claim for damages under Federal
4
<PAGE> 11
or state securities laws with regard to the offer, sale or issuance for, capital
shares of the Company previously issued. The Company has not agreed, and has no
obligation (contingent, absolute or otherwise), to register the offer or sale of
any of its securities owned by any Person under the Securities Act of 1933, as
amended ("Securities Act"), or the securities laws of any state. Seller has not
granted to any Person any options or other rights to purchase any capital shares
of the Company from Seller. Schedule 2.3 hereto sets forth a true and complete
list of the names, addresses and holdings of all shareholders and option holders
of the Company as of the date hereof.
SECTION 2.4. STATUS OF SHARES.Seller is the legal, beneficial and
record owner of, and has good, valid and marketable title to, all of the shares
of Company Common Stock, free and clear of any and all restrictions on transfer
(other than any restrictions under the Securities Act, or applicable state
securities laws), mortgages, pledges, security interests, liens, charges,
equities, claims, trusts, encumbrances, agreements (other than this Agreement or
the Related Seller Agreements, (as defined below)), rights of first refusal,
preemptive rights, limitations on voting rights, sale obligations (such as
pursuant to a "co-sale", "take-along," or "bring-along" agreement or the like),
or warrants, options or other rights, restrictions or limitations of any kind or
nature whatsoever ("Liens"). Upon consummation of the transactions contemplated
hereby, Purchaser will acquire good, valid and marketable title to the shares of
Surviving Corporation Common Stock, free and clear of any and all Liens. Neither
the Company nor Seller is a party to any voting trust, voting agreement, proxy
or other agreement, instrument or understanding with respect to the voting,
transferability, purchase, sale or redemption of the shares of Company Common
Stock.
SECTION 2.5. POWER AND AUTHORITY. The Company has all requisite right,
capacity, power and authority, corporate or otherwise, to conduct its business
and affairs as presently conducted, own, lease and operate its assets and
properties as currently owned, leased and operated, to execute and deliver this
Agreement and the other agreements and instruments to be executed and delivered
by the Company hereunder (the "Related Company Agreements"), and to perform its
obligations hereunder and thereunder. The Company's execution and delivery of
this Agreement and the Related Seller Agreements, and its performance of its
obligations hereunder and thereunder, have been duly and validly authorized by
all requisite corporate actions. Seller has all requisite right, capacity, power
and authority to execute and deliver this Agreement and the other agreements and
instruments to be executed and delivered by Seller hereunder (the "Related
Seller Agreements") and to perform his obligations hereunder and thereunder.
SECTION 2.6. ENFORCEABILITY. This Agreement, the Related Company
Agreements and the Related Seller Agreements have been duly and validly executed
and delivered by the Company and Seller, as applicable, and constitute the
legal, valid and binding obligations of Seller and the Company, enforceable
against Seller and the Company in accordance with their respective terms, except
as such enforcement may be limited by any applicable bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws now or hereafter
in effect relating to or affecting generally the enforcement of creditors'
rights and remedies, and by general principles of equity, whether applied in a
proceeding in equity or at law.
SECTION 2.7. NO CONFLICTS. Subject to the receipt of the Consents
described in Schedule 2.9, the execution and delivery by Seller and the Company
of this Agreement, the Related Company Agreements and the Related Seller
Agreements, as applicable, and the consummation of the transactions 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
5
<PAGE> 12
lapse of time or both, would constitute a default) under any provision of (i)
the articles of incorporation, bylaws or other charter or organizational
documents of the Company, (ii) any resolution adopted by the board of directors
(or any committee thereof) or the sole shareholder of the Company, (iii) any
agreement between the Company and its sole shareholder, (iv) any contract,
obligation, promise, understanding, arrangement, note, security agreement,
mortgage, lease, license, bond, indenture, loan or credit agreement or other
instrument, commitment or agreement ("Contract") to which either Seller or the
Company is a party or by which either Seller or the Company or any of their
assets are or may be bound, (v) any license, franchise, approval, certificate,
permit or authorization ("License") held by or applicable to Seller or the
Company, or (vi) any federal, state, local or foreign law, statute, rule or
regulation, or any order, injunction, writ, judgment, decree or ruling of any
court, arbitrator or Governmental Authority applicable to Seller, the Company,
or any assets or properties of the Company; (b) result in the creation or
imposition of any mortgage, lien, pledge, security interest or any other
encumbrance, claim or restriction of any kind or description against the shares
of Company Common Stock or any of the properties or assets of the Company; (c)
constitute an event which would (i) permit any Person to revoke, withdraw,
suspend, terminate or modify any Company Contract (as defined in Section 2.32)
or License of or relating to the Company or to accelerate the maturity or
performance by the Company of any debt, liability or other obligation of the
Company, (ii) give any Person the right to challenge any of the transactions
contemplated hereby, or (iii) cause the Company or Purchaser to become subject
to or liable for the payment of any tax, assessment or similar fee, or (d)
otherwise adversely affect the assets, properties, rights, privileges, Licenses,
Contracts, business, affairs, condition (formal or otherwise) or prospects of
the Company.
SECTION 2.8. DEFAULTS. Neither the Company nor Seller is presently in
breach or violation of, default under or in conflict with any item set forth in
Section 2.7, and, to the best knowledge of Seller, 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 2.9. CONSENTS. Except as set forth in Schedule 2.9, no consent,
authorization, permit or approval of, notice or report to, filing or
registration with, or waiver, review or any other action ("Consent") by, from or
with respect to, any Person is necessary for Seller or the Company to execute
and deliver this Agreement, the Related Seller Agreements and the Related
Company Agreements, as applicable, for Seller and the Company to perform his and
its obligations hereunder and thereunder, or for the Company, as the Surviving
Corporation of the Merger, to be entitled to all the rights, privileges,
franchises and benefits currently enjoyed by the Company or by Seller (with
respect to the Company).
SECTION 2.10. CORPORATE DOCUMENTS. Seller has delivered to Purchaser
true and complete copies (or originals, as the case may be) of the following
documents: (i) the articles of incorporation and bylaws of the Company, each as
in effect on the date hereof; (ii) the minute books of the Company containing
true and complete records of all proceedings, consents, actions and meetings of
the shareholders, the board of directors and all committees of the board of
directors of the Company; (iii) all permits, orders, authorizations, exemptions,
registrations and consents issued by any Governmental Authority with respect to
the issuance and sale of securities of the Company, and all applications
therefor; and (iv) the stock transfer books of the Company setting forth a true
and complete record of all issuances and transfers of capital stock of the
Company and the ownership of all outstanding capital stock as of the date
hereof.
6
<PAGE> 13
SECTION 2.11. PROCEEDINGS. There is no action, suit, claim,
investigation, arbitration, hearing or other proceeding (whether civil,
criminal, administrative, investigative or informal) ("Proceeding") pending or
overtly threatened by, before or involving any court, arbitrator or Governmental
Authority against, affecting or otherwise relating to (i) Seller, (ii) the
Company or its assets, business, affairs, condition (financial or otherwise),
operations or prospects, or (iii) the Company's officers, directors,
shareholders, employees or agents relating to the Company or its business or
assets. To the best knowledge of Seller, no event has occurred and no
circumstance or facts exist that may be reasonably likely to give rise to or
serve as the basis for any such Proceeding. Neither Seller nor the Company nor
any of its properties or assets is subject to any outstanding judgment, order,
writ, injunction, decree, determination, verdict, award or ruling by any court,
arbitrator or Governmental Authority. Neither Seller nor the Company is
presently engaged in or commenced, or has threatened to engage in or commence,
any Proceeding against or affecting any other Person.
SECTION 2.12. BROKERS' FEES. No broker, finder, investment banker or
similar agent or any other Person (i) has been engaged, employed or retained by
or on behalf of Seller or the Company, (ii) is a party to any agreement,
arrangement or understanding with Seller or the Company or on their behalf, or
(iii) is or may be entitled to receive any fee, commission or other compensation
or payment due to any action, agreement, arrangement or understanding of or by
Seller or the Company, in connection with this Agreement, the Related Seller
Agreements or the Related Company Agreements, or the transactions contemplated
hereby or thereby.
SECTION 2.13. FINANCIAL STATEMENTS. Seller has delivered to Purchaser
true and complete copies of the Company's unaudited balance sheets as of
December 31, 1999 (the "Latest Balance Sheet") and for the four (4) prior fiscal
years, and the related unaudited statements of operations and changes in
shareholders' equity for the fiscal years then ended (collectively, the
"Financial Statements"). All such Financial Statements (i) have been prepared on
an accrual basis consistently applied throughout the periods indicated and with
prior periods; (ii) present fairly the financial condition, results of
operations, cash flows and changes in shareholders' equity of the Company as of
the respective dates thereof and for the respective periods covered thereby;
(iii) have been prepared in accordance and consistent with the books and records
of the Company, which have been maintained in accordance with sound business
practices; and (iv) reflect reserves which are reasonably adequate for all known
or reasonably contemplated 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. Since January 1, 1996, there has not
been any material change in the Company's accounting methods, principles or
practices.
SECTION 2.14. ABSENCE OF UNDISCLOSED LIABILITIES. As of the date
hereof, except as set forth on Schedule 2.14 or as set forth or reserved against
in the Latest Balance Sheet (or in the notes thereto), the Company does not have
any debts, liabilities or obligations of any kind or nature whatsoever, whether
known or unknown, whether accrued, absolute, contingent or otherwise, and
whether due or to become due ("Company Liabilities"), other than Company
Liabilities which (i) are not required by generally accepted accounting
principles consistently applied to be included in the Latest Balance Sheet, (ii)
have been incurred after the date of the Latest Balance Sheet in the ordinary
course of business and are usual and ordinary in amount, both individually and
in the aggregate. Seller has no knowledge of any circumstance, condition, event
or arrangement that could be reasonably expected to give rise to any additional
debts, liabilities or obligations of the Company or its business or assets.
7
<PAGE> 14
SECTION 2.15. ABSENCE OF ADVERSE CHANGES.
(a) Since January 1, 1999, except for the transactions
contemplated by this Agreement or as set forth on Schedule 2.15, (i)
the business of the Company has been conducted only in its historic,
ordinary course, (ii) there has been no material adverse change in the
assets, liabilities, business, operations, affairs, condition
(financial or otherwise) or prospects of the Company; and (iii) there
has been no damage, destruction, loss, occurrence or event (whether or
not insured against) which, either singly or in the aggregate, has had,
or might reasonably be expected to have, a material adverse effect on
the assets, liabilities, business, operations, affairs, condition or
prospects (financial or otherwise) of the Company.
(b) Without limiting the generality of the foregoing, since
January 1, 1999, except for the transactions contemplated by this
Agreement or as set forth on Schedule 2.15, the Company has not:
(i) Sold, assigned, transferred, leased or otherwise
disposed of any assets, except to customers in the ordinary
course of business for fair consideration;
(ii) Created or incurred any pledge, lien, claim or
other encumbrance on or against the Company or any of its
assets;
(iii) Made any capital expenditure (or series of
related capital expenditures) in excess of $50,000;
(iv) Incurred any material destruction, damage or
loss (whether or not insured against) of or to any of its
assets;
(v) Incurred any labor trouble, dispute, strike, work
stoppage, or other event or condition of any character, actual
or threatened;
(vi) Declared, set aside, made or paid any dividend
or other distribution in respect of its capital stock, or made
any direct or indirect redemption, purchase, or other
acquisition of any of its shares of capital stock or other
securities;
(vii) Reclassified, combined, split, subdivided any
of its capital stock;
(viii) Made or entered into any Contract (or series
of related Contracts) either (A) involving more than $50,000,
or (B) involving more than $5,000 and outside the ordinary
course of business;
(ix) Made or entered into any modification,
amendment, cancellation or termination of any Contract or
License to which it is a party, except in the ordinary course
of business;
(x) Commenced or gave or received any notice or
threat of commencement, or incurred the commencement, or
settled or compromised, of any Proceeding against or affecting
the Company or its assets, business or affairs;
8
<PAGE> 15
(xi) Amended its articles of incorporation or bylaws
(and neither the Board of Directors nor the stockholders of
the Company have authorized the same);
(xii) Made any capital investment in, loan to or
acquisition of the securities or assets, of any Entity;
(xiii) Granted any license or sublicense of any
assets or any rights under or with respect to any Intellectual
Property;
(xiv) Entered into any transaction with any of its
officers, directors, shareholders or employees, or their
affiliates or relatives, other than (A) payment of
compensation for services rendered by employees, and (B)
transactions that, in the aggregate, amount to less than
$5,000 per Person;
(xv) Made or given any waiver, cancellation,
compromise or release of any material right or claim, or
forgiveness or cancellation of any material debt or claim;
(xvi) Made any loan, advance, capital contribution to
or investment in any Person, or any guaranty of any loan, debt
or other obligation of any other Person;
(xvii) Increased the salary, bonus benefits or other
compensation payable or to become payable to any of its
officers, directors, shareholders, employees or consultants,
or declared, paid, or entered into any commitment or
obligation of any kind for the payment of a bonus or other
additional salary or compensation to any such Person;
(xviii) Entered into or modified any Contract, plan,
policy or arrangement relating to severance or termination
benefits of any employee, officer, shareholder, director or
agent;
(xix) Offered, issued, sold, pledged or otherwise
disposed of any shares of capital stock or other securities,
obligations or instruments convertible into or exchangeable or
exercisable for any shares of capital stock;
(xx) Issued or granted any option, warrant or right
to acquire shares of capital stock or securities convertible
into or exchangeable for capital stock;
(xxi) Altered the terms of any of its authorized or
outstanding securities or adjusted split, subdivided, combined
or reclassified any of its capital stock;
(xxii) Other than accounts payable in the ordinary
course of business, (A) incurred, or otherwise become liable
for, any indebtedness for borrowed money or other debts,
liabilities or obligations (absolute, contingent, accrued or
otherwise); (B) issued any debt securities; (C) assumed,
guaranteed, endorsed or otherwise become responsible for any
debts, liabilities or obligations of any other Person; or (D)
made any loans or advances;
(xxiii) Acquired, merged or consolidated with, or
entered into any similar business transaction with, any Entity
or any division thereof, or acquired any assets thereof
(except in the ordinary course of business);
9
<PAGE> 16
(xxiv) Incurred or suffered any other events or
conditions of any character that, individually or in the
aggregate, (A) have or might reasonably have a material
adverse effect on its assets, business, affairs, operations,
condition (financial or otherwise), liabilities or prospects,
or (B) cause or might reasonably be expected to cause the
Company to be in breach of any of its representations,
warranties or covenants hereunder; or
(xxv) Entered into any agreement, commitment,
arrangement or understanding to do any of the actions
described in the preceding clauses (i) through (xxiv).
SECTION 2.16. TAXES.
(a) Within the times (or if later all penalties and interest
related thereto having been paid in full) and in the manner prescribed,
the Company 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 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 January 1, 1996. All tax
returns, reports and forms filed by the Company accurately set forth
all items (to the extent required to be included or reflected in such
returns) relevant to their future tax liabilities, including the tax
bases of their assets and properties. The Company has fully paid or has
made adequate provision in the Latest Balance Sheet for all federal,
state, local and foreign taxes for the period ending on the date of the
Latest Balance Sheet. The Company has timely collected, withheld and
paid over all taxes required to be withheld by any federal, state,
local or foreign taxing authority 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 the Company. No
examinations or audits of the federal, state, local or foreign tax
returns of the Company are currently in progress or, to the best
knowledge of Seller, threatened or proposed. No deficiency or
adjustment for any tax has been claimed, proposed or assessed against
the Company by any taxing authority. The Company has not waived or
extended any applicable statute of limitations relating to the
assessment of federal, state, local or foreign taxes. The Company is
not a party to any tax indemnity, tax sharing, or tax allocation
agreement. There are no tax liens upon any property or assets of the
Company except for taxes not yet due and payable.
(c) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), apply to any
disposition of subsection (f) assets (as such term is defined in
Section 341(f)(4) of the Code) owned by the Company. The acquisition of
the Company by Purchaser will not result in the payment of any "excess
parachute payment" within the meaning of Section 280G of the Code, and
the Company is not a party to any agreement, plan or arrangement that
could give rise to any payment that would not be deductible pursuant to
Section 280G or Section 162 of the Code. No outstanding debt
obligations of the Company are "corporate acquisition indebtedness"
within the meaning of Section 279(b) of the Code. The Company is not a
"United States real property holding company" as defined in Section
897(c)(2) of the Code. The Company has not filed an election under
Section 338(g) or Section 338(h)(10) of the Code or caused or been the
subject of a deemed election under Section 338(e) of the Code. The
Company has not made any payments, and is not obligated to make any
payment, and is not a party to any agreement, plan or arrangement that
under
10
<PAGE> 17
any circumstances could obligate it to make any payments that will not
be deductible under Section 162(m) of the Code.
(d) As used in this Section 2.16, 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 2.17. TITLE TO AND CONDITION OF ASSETS. The Company has good,
valid and marketable title in fee simple to (or a valid leasehold interest in)
and peaceful and rightful possession of all of its assets and properties, and
all of the rights and interests therein, whether real, personal or mixed and
whether tangible or intangible, including but not limited to all of the property
and assets reflected in the Company's Latest Balance Sheet and all of the assets
acquired after the date thereof (other than inventory disposed of in the
ordinary course of business since the date thereof), which constitute all of the
assets, properties, rights and interests of every kind and description that are
used in or required for the conduct of the business of the Company in compliance
with all legal requirements. All tangible assets and properties are physically
located at the Company's principal offices in Denver, Colorado. The Company owns
all of its assets, properties, rights and interests free and clear of any and
all mortgages, liens, security interests, pledges, charges, claims, assessments,
easements, rights-of-way, community property interests, trusts, equitable
interests, rights of first refusal, options to purchase, deeds of trust and
other restrictions and encumbrances of any kind or nature whatsoever, except for
(i) those disclosed in the Financial Statements; and (ii) liens for current
taxes not yet due and payable. All real property, equipment and other tangible
personal property owned or leased by the Company is in good operating condition
and repair, ordinary wear and tear excepted and is adequate and suitable for its
actual and intended uses.
SECTION 2.18. REAL PROPERTY. The Company does not own, has not at any
time owned, and has no obligation to purchase, any real property. Schedule 2.18
sets forth a true and complete list of all leases and subleases pursuant to
which the Company is the lessor or the lessee of any real property (the "Real
Property Leases"), complete and accurate copies of which have been previously
furnished to Purchaser. The Company has a valid leasehold interest in and enjoys
peaceful and quiet possession of all property leased under the Real Property
Leases. Each Real Property Lease is in full force and effect and is a valid and
binding obligation of the Company and, to the best knowledge of Seller, of each
of the other parties thereto, enforceable against each party to each Real
Property Lease in accordance with its terms. The Company is not, and Seller does
not have any knowledge that any other party to any Real Property Lease is, in
breach, violation or default (including an event or condition that, with notice
or the passage of time or both, could constitute a default) under any term or
condition of any Real Property Lease. Except as set forth on Schedule 2.9, no
Real Property Lease will require the Consent of any Person to consummate the
transactions contemplated hereby and entitle the Company, as the Surviving
Corporation of the Merger, to continue to have the same rights and privileges,
and no modified or additional duties or obligations, as the Company is currently
entitled thereunder.
11
<PAGE> 18
SECTION 2.19. PERSONAL PROPERTY LEASES. Schedule 2.19 sets forth a true
and complete list of all leases and subleases pursuant to which the Company is
the lessor or the lessee of any personal property (the "Personal Property
Leases"), complete and accurate copies of which have been previously furnished
to Purchaser. The Company has a valid leasehold interest in and enjoys peaceful
and quiet possession of all property leased under the Personal Property Leases.
Each Personal Property Lease is in full force and effect and is a valid and
binding obligation of the Company and, to the best knowledge of Seller, of each
of the other parties thereto, enforceable against each party to each Personal
Property Lease in accordance with its terms. The Company is not, and Seller does
not have any knowledge that at any other party to any Personal Property Lease
is, in breach, violation or default (including an event or condition that, with
notice or the passage of time or both, could constitute a default) under any
term or condition of any Personal Property Lease. No Personal Property Lease
will require the Consent by any Person to consummate the transactions
contemplated hereby, and entitle the Company, as the Surviving Corporation of
the Merger, to continue to have the same rights and privileges, and no modified
or additional duties or obligations, as the Company is currently entitled
thereunder.
SECTION 2.20. ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes
receivable reflected on the Latest Balance Sheet and that have arisen since the
date thereof, other than accounts and notes receivable collected since that
date, (i) represent valid and enforceable claims for bona fide amounts due for
goods delivered and sold or services performed in the ordinary course of
business and in accordance with the applicable warranties, purchase orders,
contracts and specifications, (ii) are not and will not be subject to any valid
defenses, counterclaims or rights of set-off, and (iii) will be collected in
full in the ordinary course of business, subject to any reserves set forth in
the Latest Balance Sheet.
SECTION 2.21. INVENTORY. All of the Company's inventory of raw
materials, work in process and finished goods, parts and supplies consists of
items of a quantity and quality usable and saleable in the ordinary course of
business, except for obsolete, defective, slow-moving or damaged items and items
of below standard quality, all of which have been written off or written down on
the books of the Company to net realizable market value or provided for by
adequate reserves in the Latest Balance Sheet. All of the Company's inventory of
raw materials, work in process and finished goods, parts and supplies (including
inventory on consignment) consists of items of a quantity and quality usable and
saleable in the ordinary course of business by the Company (net of any reserve
reflected in the Latest 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 the Company to net realizable market value or have
been provided for by adequate reserves in the Latest 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 Latest 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 is adjusted for
excess and obsolescence in compliance with the Company's accounting policies
which have been delivered in writing to Purchaser.
SECTION 2.22. INTELLECTUAL PROPERTY.
(a) Schedule 2.22 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
12
<PAGE> 19
and copyrights, and each application therefor ("Registered Intellectual
Property"), which are either owned by the Company or Seller or which
are used by the Company or by Seller in the business of the Company
and, in each case where the Company or Seller is not the owner thereof,
the name of the owner thereof. Except as set forth in Schedule 2.22,
the Company is the exclusive owner of or possesses adequate and valid
licenses and other rights to use all of the items set forth in Schedule
2.22 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 (collectively
with the intellectual property required to be set forth on Schedule
2.22, the "Intellectual Property") necessary or desirable for the
operation of the Company's business and affairs. Seller has assigned to
the Company any rights to Intellectual Property that he owns that are
related to the business of, or otherwise belong to, the Company.
(b) To the best knowledge of Seller, (i) the Company has taken
all necessary and desirable action to maintain and protect each item of
Intellectual Property that the Company owns or uses; (ii) neither
Seller nor the Company has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property rights of any third parties; (iii) neither Seller nor the
Company has received any charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappropriation or
conflict (including any claim that the Company must license or refrain
from using any Intellectual Property rights of any third party); and
(iv) no third party has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property rights of Seller or the Company. No claim, demand, assertion,
action, suit, arbitration, hearing, investigation or proceeding is
pending or, to the best knowledge of Seller, threatened that pertains
to or challenges the validity, ownership or enforceability of any right
of Seller or the Company in respect to of Intellectual Property. To the
best knowledge of Seller, the continued operation of the business and
affiliates of the Company as currently conducted will not interfere
with, infringe upon, misappropriate or otherwise come into conflict
with any Intellectual Property rights of any third parties.
(c) Neither Seller nor the Company is a party to any
agreement, document, arrangement or understanding pursuant to which
Seller or the Company has licensed or granted any right or interest in,
to or under any of his or its Intellectual Property. Neither Seller nor
the Company is 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.
Neither Seller nor the Company has disclosed any trade secrets or other
proprietary or confidential information to any Person, except pursuant
to a loan or other agreement obligating the recipient to maintain the
confidentiality thereof. To the best of Seller's knowledge, no employee
of the Company 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 the Company. Neither Seller
nor the Company has ever 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 2.23. DIVIDENDS. Other than or set forth in Schedule 2.15, the
Company has no liability or indebtedness for dividends or other distributions
declared, set aside or accumulated but unpaid with respect to any of its
outstanding shares of capital stock or other securities. The
13
<PAGE> 20
Company has not declared, set aside or paid any dividends or other distributions
to the shareholders of the Company since January 1, 1996.
SECTION 2.24. RELATIONSHIPS WITH SUPPLIERS AND CUSTOMERS. Schedule 2.24
sets forth a true and complete list of the names and addresses and dollar
amounts of business of (i) each customer that purchased in excess of 10% of the
Company's goods or services during each of 1998 and 1999, and (ii) each supplier
from whom the Company purchased in excess of 10% of its purchases of goods or
services in each of 1998 and 1999. Since January 1, 1999, no supplier or
customer of the Company has canceled any material contract or order, terminated
or materially altered its existing business relationship with the Company or
indicated any intention to do so, whether as a result of the transactions
contemplated hereby or otherwise. The Company is not involved, and Seller has no
knowledge of any facts or circumstances which could be reasonably expected to
result, in any claim, dispute or controversy with any of its material suppliers
or customers.
SECTION 2.25. LABOR RELATIONS AND EMPLOYMENT MATTERS.
(a) The Company is not a party to any contract, collective
bargaining agreement or other agreement with any labor union including
any collective bargaining agreement. There has never been an actual or
threatened labor dispute, strike, picket, work slowdown, work stoppage
or any other job action at any business location of the Company.
(b) The Company 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. The Company 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 the Company, threatened
against the Company.
(c) No proceedings or claims are pending or, to the best
knowledge of Seller, threatened against the Company with respect to any
violation or alleged violation of any applicable federal, state or
local laws, rules and regulations relating to the employment of labor,
including, without limitation, those related to wages and hours,
collective bargaining, discrimination on any basis, including without
limitation, on the basis of race, color, religion, sex, national origin
or age, and the Company has complied in all material respects with all
applicable laws and regulations relating to employment of labor.
(d) Except as set forth in Schedule 2.25, the Company is not a
party to, nor is it 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 the Company; or (ii)
pension, profit sharing, deferred compensation, bonus, stock option,
stock purchase or incentive plans or agreements providing for
remuneration or benefits to the Company's employees.
(e) The Company has not entered into any severance,
termination or similar arrangement in respect of any present or former
officer, director, shareholder, employee or consultant that will result
in any obligation, absolute or contingent, of Purchaser or the Company
to make any payment to any present or former officer, director,
employee or consultant following his or her termination of employment
by the Company.
14
<PAGE> 21
(f) The Company has made, will prior to the Closing make, or
at the Closing will have sufficient cash reserves to make, payment in
full through the Closing Date 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.
SECTION 2.26. EMPLOYEE BENEFIT PLANS
(a) LIST OF PLANS. Except for the plans set forth on Schedule
2.26, the Company does not now nor has it ever established, maintained,
sponsored or contributed 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 the Company, and neither the Company, nor any of its
officers, directors or affiliates, has taken any action that would
directly or indirectly obligate the Company to establish, maintain,
sponsor or contribute to any Employee Plan.
(b) COPIES OF PLANS. Schedule 2.26 contains a complete and
accurate list of all Employee Plans. Seller has delivered to Purchaser
true and complete copies of: the following: (i) each Employee Plan
(including all amendments thereto); (ii) the annual report (if required
under ERISA) with respect to each Employee Plan for the past two years;
(iii) the most recent summary plan description, together with the
summary of material modifications, if required under ERISA, with
respect to each Employee Plan; (iv) if such Employee Plan is funded
through a trust or any third-party funding vehicle, a copy of the trust
or other funding agreements (including all amendments thereto) and the
latest financial statements thereof; and (v) the most recent
determination letter received from the IRS with respect to each
Employee Plan that is intended to be qualified under Section 401 of the
Code.
(c) COMPLIANCE. Each Employee Plan has been maintained,
operated, and administered in compliance in all material respects with
its terms and with all applicable filing, reporting, disclosure and
other requirements of ERISA, the Code and all other applicable laws,
rules and regulations. All material obligations required to be
performed by the Company and any other Persons under the terms of each
Employee Plan and applicable legal requirements have been performed.
(d) CONTRIBUTIONS. All contributions, transfers, payments,
insurance premiums, benefits, expenses and other amounts due and
payable under, or required to be made to, any Employee Plan through or
before the Closing Date have or will have been paid, made or accrued as
liabilities on or before the Closing Date.
(e) TERMINATION BENEFITS. No Employee Plan provides benefits,
including, without limitation, death or medial benefits, beyond
termination of service or retirement other than coverage mandated by
law, group term life insurance proceeds, group long term disability
benefits, death or retirement benefits under any pension profit sharing
plan, or any deferred compensation benefits.
15
<PAGE> 22
(f) CLAIMS. No Proceeding with respect to any Employee Plan
(other than routine claims for benefits) is pending or, to the best
knowledge of Seller, threatened, and Seller has no knowledge of any
facts that could be reasonably likely to form the basis for any such
Proceeding.
(g) SEVERANCE OBLIGATIONS. The Company has not entered into
any severance or similar arrangement in respect to any present or
former employee that would result in the obligation, absolute or
contingent, of the Company or the Purchaser to make any payment to any
present or former employee following termination of employment.
(h) LIABILITIES DUE TO AGREEMENT. The consummation of the
transactions contemplated hereby will not (i) modify or accelerate any
benefits or the vesting of benefits under any Employee Plan or
constitute an event entitling any Person to any additional or other
benefits, or (ii) result in any liability to the Company or the
Purchaser for taxes, penalties, interests or other claims resulting
from any Employee Plan.
(i) RIGHTS TO TERMINATE PLANS. The Company has reserved all
rights necessary to amend, suspend or terminate each Employee Plan at
any time, without the consent of the employees or participants covered
by such Employee Plans.
SECTION 2.27. COMPLIANCE WITH LAWS. The Company, its business and its
assets are and have at all times been in compliance in all material respects
with all applicable federal, state, local and foreign laws, statutes,
ordinances, rules, regulations, codes, licenses, permits, orders, writs,
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)
(collectively, "Legal Requirements"). To the best of Seller's knowledge, no
event has occurred or circumstance exists that (with or without the lapse of
time or notice or both) may constitute or result in a violation of, or a failure
by the Company to comply with, any applicable Legal Requirement. The Company has
not received any oral or written notice or other communication from any Person
regarding any actual, alleged or potential violation of, or failure to comply
with, any Legal Requirement.
SECTION 2.28. LICENSES. The Company possesses all Licenses necessary
for the Company to lawfully conduct its business and affairs and to own, lease,
and operate its assets and properties, including all applicable zoning,
environmental, health, safety and other permits. All such Licenses have been
timely obtained by the Company and are currently valid and in full force and
effect, and the Company has not violated, and is not operating in violation of,
any such Licenses. No event has occurred or circumstance exists that may (with
or without notice or the lapse of time or both) constitute or result in a
violation of any term or provision of any License or result in the revocation,
withdrawal, suspension, termination or modification of any License. The
consummation of the transactions contemplated hereby will not result in the
revocation, suspension or termination of any License, and no License will
require the Consent of the issuing authority to permit the Company, as the
Surviving Corporation of the Merger, to continue to lawfully conduct the
business and affairs, and to lawfully own, lease and operate the assets and
properties, of the Company after the Closing.
16
<PAGE> 23
SECTION 2.29. ABSENCE OF CERTAIN COMMERCIAL PRACTICES. To the best of
Seller's knowledge, neither Seller nor the Company nor any officer, director,
employee or agent of the Company (or any Person associated with or acting on
behalf of any of the foregoing) has directly or indirectly (i) given or agreed
to give any gift, contribution, bribe, rebate, payoff, influence payment,
kickback or other payment or benefit on behalf of the Company to any customer,
supplier, employee or official of any Governmental Authority (domestic or
foreign) to induce the recipient or his employer to do business with, grant
favorable treatment or special considerations to, or compromise or forego any
claim against, the Company, (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) established or maintained any
unrecorded or illegal corporate fund or asset, (v) made any false or fictitious
entries on the books or records of the Company, (vi) engaged in any practice
violating any law or permitting compliance with an unsanctioned foreign boycott
or (vii) failed to perform its obligations in any material respect under any
Contract with, or violated in any material respect any law known to the Company
in its dealings with, any Governmental Authority, 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 2.30. ENVIRONMENTAL LAWS. The Company is and has been in
compliance in all material respects with all federal, state and local laws
(whether common or statutory), statutes, codes, rules, regulations, orders,
injunctions, decrees, judgments, compacts, treaties, conventions, legal
doctrines, plans, demand letters, agreements with any governmental or regulatory
authorities and all other requirements relating to pollution or the protection
of health, safety or the environment ("Environmental Laws"), including without
limitation the release, discharge or emission of any Hazardous Substances (as
defined below) into the environment (including, without limitation ambient air,
surface water, ground water, land surface, or subsurface strata) and the
manufacture, generation, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances, resulting from the
operation of the Company's business or the ownership, lease or use of the
Company's properties or assets, or relating to any real estate currently or
previously owned or leased by the Company. As used herein, the term "Hazardous
Substance" means any substances, materials or wastes which are designated,
defined, classified or considered to be hazardous or toxic under any
Environmental Law.
SECTION 2.31. INSURANCE. Schedule 2.31 sets forth a true and complete
list and brief description of all policies, binders and bonds of fire,
liability, product liability, workers compensation, health and other forms of
insurance and fidelity bonds currently in force and maintained by or on behalf
of the Company, or which provide for bonding and surety arrangements in
connection with the Company's assets and business. All premiums due thereon have
been duly and timely paid and all other material terms and conditions have been
complied with. All such policies, binders and bonds are in full force and
effect, are valid and enforceable in accordance with their terms, provide
adequate coverage against such risks of loss and in such amounts for its
properties and business as are customarily insured against by similarly-situated
businesses, and were issued by reputable, financially sound insurers, and will
survive the Closing. No claims are presently pending, outstanding, disputed or
otherwise unresolved under any such insurance policies.
17
<PAGE> 24
SECTION 2.32. CONTRACTS.
(a) Schedule 2.32 sets forth a complete and accurate list of
each of the following Contracts to which the Company is a party or by
which it or its assets or business are or may be bound, exclusive of
Contracts that are terminable at will by the Company ("Company
Contracts"): (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 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 that is materially
adverse to the business, properties, assets, liabilities, condition
(financial or otherwise) operations or prospects of the Company; (vii)
any Contract for the lease of real or personal property to or from any
person providing for lease payments in excess of $10,000 per annum;
(viii) 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; (ix) any Contract involving the
Company's interests in another Entity; (x) 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; (xi) any Contract concerning
confidentiality or non-competition; (xii) any Contract involving any
director, officer, shareholder or other affiliate of the Company;
(xiii) any Contract for the employment of any individual on a
full-time, part-time, consulting, independent contractor or other basis
or providing severance benefits; (xiv) any profit-sharing, deferred
compensation, severance, termination or other plan or arrangement for
the benefit of current or former directors, officers, shareholder,
employees or others; (xv) any Contract under which it has advanced or
loaned any amount to any of its directors, officers, shareholders or
employees; or (xvi) any other Contract material to the Company or its
assets or business.
(b) Each Company Contract is in full force and effect and is a
valid and binding obligation of the Company and of the other parties
thereto, enforceable by the Company in accordance with its terms, and
neither the Company nor, to the best knowledge of Seller, any other
party to any Company Contract is in any material respect in breach of
or in default under any such Company Contract, nor has any event or
circumstance occurred which, with notice or lapse of time or both,
would, to the best knowledge of Seller, constitute a material breach or
default such Company Contract. Neither the Company nor Seller has
received any notice, and Seller has no reason to believe, that any
party to any Company Contract intends to cancel or terminate such
Company Contract or to exercise or not exercise any option thereunder.
SECTION 2.33. BANK ACCOUNTS. Schedule 2.33 sets forth the name and
location of each bank, savings and loan or other financial institution at which
the Company has any depository or other account or safe deposit box, together
with all account numbers and names of all persons authorized to draw thereon or
to have access thereto.
SECTION 2.34. AFFILIATED PARTY TRANSACTIONS. Except (i) as otherwise
provided in Schedule 2.34, (ii) for the payment of compensation for services
rendered by employees in the ordinary course of business, or (iii) for payments
aggregating less than $5,000 per Person, the Company is not presently engaged,
and in the past three years has not engaged, in any transaction of any type
whatsoever with any shareholder, officer, director or employee of the Company,
or with
18
<PAGE> 25
any member of the immediate family or affiliate of any of such Persons, or with
any Entity in which any such Person owns any equity, ownership or voting
interest ("Affiliated Person"). The Company has no outstanding loans or other
advances to, and is not a party to any lease, license or other contract
agreement, understanding or arrangement with, any Affiliated Person other than
out-of-pocket expenses incurred in the ordinary course of business. No
shareholder, officer, director or employee of the Company owns or has any
interest in any of the assets of the Company, provided that the parties hereto
acknowledge and agree that the maps and other art work decorating the Company's
premises are the property of Seller.
SECTION 2.35. NO LOSS OF RIGHTS OR LEGAL OBSTACLES. Except as set forth
on Schedule 2.15, the execution and delivery of this Agreement and the Related
Seller Agreements by Seller and its performance of the transactions and its
obligations contemplated hereby and thereby do not and will not (a) result in
any loss or dimunition to the Company of any material legal right, asset,
property, or transaction currently held by the Company; (b) result in any
termination, modification or cancellation of any Contract; (c) result in the
termination, modification or cancellation of, or give rise to any right of
termination, modification or cancellation with respect to, or 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 material contract, or modify any material
contract, or result in, or require, the creation or imposition of any material
lien, charge, or encumbrance upon the Company or its business or assets, or
result in the termination or impairment of any material permit, license,
franchise, or authorization pertaining to the assets; or (d) adversely affect
the Company, its assets or business in any material respect.
SECTION 2.36. SECURITIES REPRESENTATIONS AS TO THE ACQUISITION OF THE
PURCHASER SHARES.
(a) INVESTMENT INTENT. Seller is acquiring the Purchaser
Shares solely for his own account, and not as nominee or agent for any
other Person, for investment purposes only, and not with a view to any
subsequent offering, resale or distribution of the Purchaser 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
Purchaser Shares. Seller has independently evaluated the risks and
merits of acquiring the Purchaser Shares and has independently
determined that the Purchaser 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 Purchaser Shares.
(c) ACCESS TO INFORMATION. Seller and his representatives have
made an independent investigation of Purchaser and its assets,
properties, business, liabilities, financial condition, results of
operations and prospects. Seller and his representative have had an
opportunity to ask questions of and to receive answers from
representatives of Purchaser to the full satisfaction, and have been
given access to all of the agreements, instruments, financial
statements and other information concerning the business, assets,
properties, liabilities, financial condition, results of operations and
prospects of the Purchaser, and all questions have been answered and
all information has been provided to the full satisfaction of Seller
and his representatives, and has had access to all of the information
they consider necessary or appropriate, in order to evaluate the risks
and merits of acquiring the Purchaser Shares, and have received all
information requested to their satisfaction.
19
<PAGE> 26
(d) NO RELIANCE. In making his investment decision, Seller has
not relied upon any representations made by Purchaser with respect to
Purchaser or the Purchaser Shares (except as set forth in this
Agreement) or any projections or other estimates or forecasts of future
performance provided by Purchaser.
(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 Purchaser Shares to be acquired by him hereunder have not been
registered for offer or sale to Seller under the Securities Act or
under the securities laws of any state, but are being offered and sold
by Purchaser to Seller pursuant to and in reliance upon exemptions from
the registration requirements of such securities laws, and that
Purchaser is relying upon the truth and accuracy of the
representations, warranties, covenants and agreements of Seller set
forth herein in order to determine the availability of such exemptions
and the suitability of Seller to acquire the Purchaser 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
Section 2.36(f) above, the Purchaser 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 Purchaser 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 Purchaser 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 THE COMPANY RECEIVES EVIDENCE OF SUCH
EXEMPTION REASONABLY SATISFACTORY TO IT (SUCH AS AN OPINION OF
COUNSEL).
SECTION 2.37. DISCLOSURE. Neither this Agreement (including the
schedules and exhibits hereto), and the Related Seller Agreements and the
Related Company Agreements, nor any other written or oral certificates,
statements or other documents or information delivered or to be delivered to
Purchaser by Seller or on behalf of the Company in connection with the
transactions contemplated hereby or thereby contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances in which they were or are made, not false or misleading.
Seller has delivered or disclosed to Purchaser all material information
(financial or otherwise) in the possession of the Seller or the Company
regarding the assets, properties, business, affairs, condition (financial or
otherwise), results of operations or prospects of the Company or which Seller
believes is otherwise material to Purchaser's decision to purchase the Shares.
There is no information known to Seller which has had, or insofar as Seller can
now reasonably foresee, in the future will be
20
<PAGE> 27
reasonably likely to have, a material adverse effect on the Company which is not
set forth in this Agreement or has not been otherwise disclosed in writing to
Purchaser.
SECTION 2.38. KNOWLEDGE. To the extent that any representation or
warranty in this Article 2 is qualified to Seller's knowledge or awareness,
Seller represents and warrants that he has made a diligent investigation
sufficient to express an informed view concerning the matters to which such
representation or warranty relates, including diligent inquiries of the
Company's directors, officers, employees, consultants and other representatives.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
In order to induce Seller and the Company to enter into this Agreement
to perform their obligations hereunder, Purchaser hereby represents and warrants
to and for the benefit of Seller as follows:
SECTION 3.1. ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
SECTION 3.2. POWER AND AUTHORITY. Purchaser has all requisite right,
power and authority, corporate or otherwise, to execute and deliver this
Agreement and the other agreements to be executed and delivered by Purchaser
hereto (the "Related Purchaser Agreements") and to perform its obligations
hereunder and thereunder. Purchaser's execution and delivery of this Agreement
and the Related Purchaser Agreements, and its performance of its obligations
hereunder and thereunder, have been duly and validly authorized by all requisite
corporate action.
SECTION 3.3. ENFORCEABILITY. This Agreement and the Related Purchaser
Agreements have been duly and validly executed and delivered on behalf of
Purchaser and, assuming the due authorization, execution and delivery of this
Agreement by Seller, constitute the legal, valid and binding obligations of
Purchaser, enforceable against Purchaser in accordance with their respective
terms, except as such enforcement may be limited by any applicable bankruptcy,
insolvency, reorganization, receivership, moratorium and other similar laws
generally relating to or affecting the enforcement of creditors' rights and
remedies and by general privileges of equity, whether applied in a proceeding in
equity or at law.
SECTION 3.4. NO CONFLICTS. The execution and delivery by Purchaser of
this Agreement and the Related Purchaser Agreements and the performance by
Purchaser of its obligations hereunder and thereunder, do not and will not,
directly or indirectly, violate, conflict with, or constitute a breach of or a
default (or an event that, after the giving of notice or the lapse of time or
both, would constitute a default) under any provision of (a) the Certificate of
Incorporation or By-laws of Purchaser, (b) any resolution adopted by the board
of directors (or any committee thereof) or the shareholders of Purchaser, (c)
any Contract to which Purchaser is a party or by which it or any of its assets
is or may be bound, (d) any License held by Purchaser, or (e) any federal, state
or local law, statute, rule or regulation, or any order, injunction, writ,
judgment, decree or ruling of any court, arbitrator or any Governmental
Authority applicable to the Purchaser or any of its properties.
21
<PAGE> 28
SECTION 3.5. CONSENTS. Except as set forth on Schedule 3.5 hereto, no
Consent by or with respect to any Person is necessary for Purchaser to execute
and deliver this Agreement and the Related Purchaser Agreements or to perform
its obligations hereunder or thereunder.
SECTION 3.6. PROCEEDINGS. There are no Proceedings pending or, to the
best knowledge of Purchaser, threatened by, before or involving any court,
arbitrator or Governmental Authority, against or affecting Purchaser or its
assets, (a) in which any Person is seeking to restrain or prohibit, or to obtain
damages or other relief in connection with, or to challenge the validity or
legality of, this Agreement or the transactions contemplated hereby, or (b)
which, if determined adversely to Purchaser, would be reasonably likely to have
a material adverse effect on the ability of Purchaser to perform its obligations
hereunder or to consummate the transactions contemplated hereby.
SECTION 3.7. BROKERS' FEES. No broker, finder, investment banker or
similar agent or any other Person (i) has been engaged, employed or retained by
or on behalf of Purchaser, (ii) is a party to any agreement, arrangement, or
understanding with or on behalf of Purchaser, or (iii) is or may be entitled to
receive any fee, commission or other compensation or payment due to any action,
arrangement, agreement or understanding with Purchaser, in connection with this
Agreement or the Related Purchaser Agreements, or the transactions contemplated
hereby or thereby.
SECTION 3.8. CAPITALIZATION AND STATUS OF PURCHASER SHARES.
(a) As of the date hereof, the authorized capital stock of
Purchaser consists of, and subsequent to the TotalPlan Merger (as
defined below) and immediately prior to the Merger the authorized
capital stock of the Company will consist of, 60,000,000 shares of
common stock, par value $.01 per share ("Purchaser Shares"), of which
17,500,000 shares are and will be issued and outstanding and owned by
Purchaser, and 1,000,000 shares of preferred stock, par value $.01 per
share, none of which are or will be outstanding. The Purchaser has
never issued any Purchaser shares to any Person other than Purchaser.
No Purchaser Shares are reserved for issuance upon the exercise of
outstanding options, warrants or other rights. Purchaser has no other
equity or voting securities of any class or series authorized, issued,
reserved for issuance or outstanding, and has no outstanding
securities, bonds, debentures, notes or other rights, instruments or
obligations the holders of which have the right to vote with the
holders of Purchaser Shares or which are convertible into or
exchangeable or exercisable for Purchaser Shares or any other class or
series of capital stock or equity or voting interests in the Purchaser.
All of the issued and outstanding shares of capital stock of the
Purchaser have been duly authorized and validly issued, are fully paid
and nonassessable, were not issued in violation of any, and are free
from any, preemptive rights, have no personal liability attached to the
ownership thereof, and were offered, sold and issued in full compliance
with all applicable federal and state securities laws. There are no
outstanding options, warrants or other rights (contingent or otherwise)
to subscribe for or to purchase from the Purchaser, or obligations,
agreements, arrangements, understandings or commitments of any nature
(contingent or otherwise) by the Purchaser to issue, sell, transfer,
repurchase, redeem or retire, any Purchaser Shares or any other class
or series of capital stock or other equity securities of the Purchaser,
or securities which are convertible into or exchangeable or exercisable
for Purchaser Shares or any other class or series of capital stock or
other equity or voting interests in the Purchaser. Neither the
Purchaser nor its sole shareholder is a party to any voting trust,
voting agreement, proxy or other agreement or arrangement with respect
to the voting, transferability, purchase or redemption of any capital
stock of the Purchaser. No Person has any preemptive right, right of
first refusal, subscription right or similar right with respect to the
issuance or sale of any of the Purchaser Shares.
22
<PAGE> 29
No Person has any right of rescission or claim for damages under
Federal or state securities laws with regard to the offer, sale or
issuance for, capital shares of the Purchaser previously issued. The
Purchaser has not agreed, and has no obligation (contingent, absolute
or otherwise), to register the offer or sale of any of its securities
owned by any Person under the Securities Act of 1933, as amended
("Securities Act"), or the securities laws of any state. Metretek has
not granted to any Person any options or other rights to purchase any
capital shares of the Company from Metretek. The representations and
warranties in this Section 3.8(a) are qualified in their entirety by
the following:
(i) the obligations of Purchaser in connection with
this Agreement and the related Purchaser Agreements; and
(ii) the adoption by the Purchaser of a 2000 Stock
Incentive Plan (the "Purchaser Stock Plan"), authorizing the
issuance of 6,000,000 Purchaser Shares, under which options to
purchase 1,693,000 Purchaser Shares have been issued through
the date hereof, including options to purchase 200,000
Purchaser Shares to be granted to Seller on the Closing Date.
(b) After the Closing, assuming Seller's compliance with the
terms of this Agreement and the Related Seller Agreements, Seller will
acquire good, valid and marketable title to, 2,500,000 Purchaser
Shares, free and clear of any and all Liens, other than any
restrictions under (i) the Securities Act, or applicable state
securities laws, and (ii) this Agreement or the Related Seller
Agreements.
SECTION 3.9. TITLE TO AND CONDITION OF ASSETS. Purchaser has good,
valid and marketable title in fee simple to (or a valid leasehold interest in)
and peaceful and rightful possession of all of its assets and properties, and
all of the rights and interests therein, whether real, personal or mixed and
whether tangible or intangible, including but not limited to all of the property
and assets reflected in the Purchaser's Latest Balance Sheet and all of the
assets acquired after the date thereof (other than inventory disposed of in the
ordinary course of business since the date thereof), which constitute all of the
assets, properties, rights and interests of every kind and description that are
used in or required for the conduct of the business of the Purchaser in
compliance with all legal requirements. All tangible assets and properties are
physically located at the Purchaser's principal offices in Denver, Colorado.
Purchaser owns all of its assets, properties, rights and interests free and
clear of any and all mortgages, liens, security interests, pledges, charges,
claims, assessments, easements, rights-of-way, community property interests,
trusts, equitable interests, rights of first refusal, options to purchase, deeds
of trust and other restrictions and encumbrances of any kind or nature
whatsoever, except for (i) those disclosed in the Financial Statements; (ii)
liens for current taxes not yet due and payable; and (iii) Liens held by
National Bank of Canada. All real property, equipment and other tangible
personal property owned or leased by the Company is in good operating condition
and repair, ordinary wear and tear excepted and is adequate and suitable for its
actual and intended uses.
SECTION 3.10. REAL PROPERTY. Purchaser does not own, has not at any
time owned, and has no obligation to purchase, any real property. Purchaser has
a valid leasehold interest in and enjoys peaceful and quiet possession of all
property leased under the Real Property Leases. Each Real Property Lease is in
full force and effect and is a valid and binding obligation of the Purchaser
and, to the best knowledge of Purchaser, of each of the other parties thereto,
enforceable against each party to each Real Property Lease in accordance with
its terms. Purchaser is not, and does not
23
<PAGE> 30
have any knowledge that at any other party to any Real Property Lease is, in
breach, violation or default (including an event or condition that, with notice
or the passage of time or both, could constitute a default) under any term or
condition of any Real Property Lease.
SECTION 3.11. PERSONAL PROPERTY LEASES. The Purchaser has a valid
leasehold interest in and enjoys peaceful and quiet possession of all property
leased under the Personal Property Leases. Each Personal Property Lease is in
full force and effect and is a valid and binding obligation of Purchaser and, to
the best knowledge of Purchaser, of each of the other parties thereto,
enforceable against each party to each Personal Property Lease in accordance
with its terms. Purchaser is not, and does not have any knowledge that at any
other party to any Personal Property Lease is, in breach, violation or default
(including an event or condition that, with notice or the passage of time or
both, could constitute a default) under any term or condition of any Personal
Property Lease.
SECTION 3.12. ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes
receivable reflected on the latest balance sheet of Purchaser and that have
arisen since the date thereof, other than accounts and notes receivable
collected since that date, (i) represent valid and enforceable claims for bona
fide amounts due for goods delivered and sold or services performed in the
ordinary course of business and in accordance with the applicable warranties,
purchase orders, contracts and specifications, (ii) are not and will not be
subject to any valid defenses, counterclaims or rights of set-off, and (iii)
will be collected in full in the ordinary course of business, subject to any
reserves set forth in such latest balance sheet.
SECTION 3.13. INVENTORY. All of Purchaser's inventory of raw materials,
work in process and finished goods, parts and supplies consists of items of a
quantity and quality usable and saleable in the ordinary course of business,
except for obsolete, defective, slow-moving or damaged items and items of below
standard quality, all of which have been written off or written down on the
books of Purchaser to net realizable market value or provided for by adequate
reserves in the latest balance sheet. All of Purchaser's inventory of raw
materials, work in process and finished goods, parts and supplies (including
inventory on consignment) consists of items of a quantity and quality usable and
saleable in the ordinary course of business by the Purchaser (net of any reserve
reflected in the latest 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 Purchaser to net realizable market value or have
been provided for by adequate reserves in the latest 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 latest 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 is adjusted for
excess and obsolescence in compliance with Purchaser's accounting policies which
have been delivered in writing to Purchaser.
SECTION 3.14. INTELLECTUAL PROPERTY.
(a) Purchaser is the exclusive owner of, or possesses adequate
and valid licenses and other rights to use, all of its Intellectual
Property hereto and all trade secrets, licenses, inventions and
processes.
(b) To the best knowledge of Purchaser, (i) Purchaser has
taken all necessary and desirable action to maintain and protect each
item of Intellectual Property that the Company owns or
24
<PAGE> 31
uses; (ii) Purchaser has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual
Property rights of any third parties; (iii) Purchaser has not received
any charge, complaint, claim, demand or notice alleging any such
interference, infringement, misappropriation or conflict (including any
claim that the Company must license or refrain from using any
Intellectual Property rights of any third party); and (iv) no third
party has interfered with, infringed upon, misappropriated or otherwise
come into conflict with any Intellectual Property rights of Purchaser.
No claim, demand, assertion, action, suit, arbitration, hearing,
investigation or proceeding is pending or, to the best knowledge of
Purchaser, threatened that pertains to or challenges the validity,
ownership or enforceability of any right of Purchaser in respect of its
Intellectual Property. To the best knowledge of Purchaser, the
continued operation of the business and affiliates of Purchaser as
currently conducted will not interfere with, infringe upon,
misappropriate or otherwise come into conflict with any Intellectual
Property rights of any third parties.
SECTION 3.15. DIVIDENDS. Purchaser has no liability or indebtedness for
dividends or other distributions declared, set aside or accumulated but unpaid
with respect to any of its outstanding shares of capital stock or other
securities. Purchaser has not declared, set aside or paid any dividends or other
distributions to the shareholders of Purchaser.
SECTION 3.16. RELATIONSHIPS WITH SUPPLIERS AND CUSTOMERS. No supplier
or customer of Purchaser has canceled any material contract or order, terminated
or materially altered its existing business relationship with Purchaser or
indicated any intention to do so, whether as a result of the transactions
contemplated hereby or otherwise. Purchaser is not involved, and Seller has no
knowledge of any facts or circumstances which could be reasonably expected to
result, in any claim, dispute or controversy with any of its material suppliers
or customers.
SECTION 3.17. LABOR RELATIONS AND EMPLOYMENT MATTERS.
(a) Purchaser is not a party to any contract, collective
bargaining agreement or other agreement with any labor union including
any collective bargaining agreement. There has never been an actual or
threatened labor dispute, strike, picket, work slowdown, work stoppage
or any other job action at any business location of Purchaser.
(b) Purchaser 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. Purchaser 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 Purchaser, threatened
against Purchaser.
(c) No proceedings or claims are pending or, to the best
knowledge of Purchaser, threatened against Purchaser with respect to
any violation or alleged violation of any applicable federal, state or
local laws, rules and regulations relating to the employment of labor,
including, without limitation, those related to wages and hours,
collective bargaining, discrimination on any basis, including without
limitation, on the basis of race, color, religion, sex, national origin
or age, and Purchaser has complied in all material respects with all
applicable laws and regulations relating to employment of labor.
(d) Except for the Employment Agreement and the Purchaser
Stock Plan, and except for plans generally available to employees of
Metretek Technologies, Inc., Purchaser is not a
25
<PAGE> 32
party to, nor is it 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 Purchaser; or (ii)
pension, profit sharing, deferred compensation, bonus, stock option,
stock purchase or incentive plans or agreements providing for
remuneration or benefits to Purchaser's employees.
(e) Except for the Employment Agreement, Purchaser has not
entered into any severance, termination or similar arrangement in
respect of any present or former officer, director, shareholder,
employee or consultant that will result in any obligation, absolute or
contingent, of Purchaser to make any payment to any present or former
officer, director, employee or consultant following his or her
termination of employment by Purchaser.
SECTION 3.18. EMPLOYEE BENEFIT PLANS
(a) COMPLIANCE. Each Employee Plan of Purchaser has been
maintained, operated, and administered in compliance in all material
respects with its terms and with all applicable filing, reporting,
disclosure and other requirements of ERISA, the Code and all other
applicable laws, rules and regulations. All material obligations
required to be performed by Purchaser and any other Persons under the
terms of each Employee Plan and applicable legal requirements have been
performed.
(b) CONTRIBUTIONS. All contributions, transfers, payments,
insurance premiums, benefits, expenses and other amounts due and
payable under, or required to be made to, any Employee Plan of
Purchaser through or before the Closing Date have or will have been
paid, made or accrued as liabilities on or before the Closing Date.
(c) TERMINATION BENEFITS. No Employee Plan of Purchaser
provides benefits, including, without limitation, death or medial
benefits, beyond termination of service or retirement other than
coverage mandated by law, group term life insurance proceeds, group
long term disability benefits, death or retirement benefits under any
pension profit sharing plan, or any deferred compensation benefits.
(d) CLAIMS. No Proceeding with respect to any Employee Plan of
Purchaser (other than routine claims for benefits) is pending or, to
the best knowledge of Purchaser, threatened, and Seller has no
knowledge of any facts that could be reasonably likely to form the
basis for any such Proceeding.
(e) SEVERANCE OBLIGATIONS. Except for the Employment Agreement
and under the Purchaser Stock Plan, Purchaser has not entered into any
severance or similar arrangement in respect to any present or former
employee that would result in the obligation, absolute or contingent,
of Purchaser to make any payment to any present or former employee
following termination of employment.
(f) LIABILITIES DUE TO AGREEMENT. The consummation of the
transactions contemplated hereby will not (i) modify or accelerate any
benefits or the vesting of benefits under any Employee Plan or
constitute an event entitling any Person to any additional or other
benefits, or (ii) result in any liability to Purchaser or the Company
for taxes, penalties, interests or other claims resulting from any
Employee Plan.
26
<PAGE> 33
(g) RIGHTS TO TERMINATE PLANS. Purchaser has reserved all
rights necessary to amend, suspend or terminate each Employee Plan at
any time, without the consent of the employees or participants covered
by such Employee Plans.
SECTION 3.19. COMPLIANCE WITH LAWS. Purchaser, its business and its
assets are and have at all times been in compliance in all material respects
with all applicable Legal Requirements. To the best of Purchaser's knowledge, no
event has occurred or circumstance exists that (with or without the lapse of
time or notice or both) may constitute or result in a violation of, or a failure
by Purchaser to comply with, any applicable Legal Requirement. Purchaser has not
received any oral or written notice or other communication from any Person
regarding any actual, alleged or potential violation of, or failure to comply
with, any Legal Requirement.
SECTION 3.20. LICENSES. Purchaser possesses all Licenses necessary for
Purchaser to lawfully conduct its business and affairs and to own, lease, and
operate its assets and properties, including all applicable zoning,
environmental, health, safety and other permits. All such Licenses have been
timely obtained by Purchaser and are currently valid and in full force and
effect, and Purchaser has not violated, and is not operating in violation of,
any such Licenses. No event has occurred or circumstance exists that may (with
or without notice or the lapse of time or both) constitute or result in a
violation of any term or provision of any License or result in the revocation,
withdrawal, suspension, termination or modification of any License. The
consummation of the transactions contemplated hereby will not result in the
revocation, suspension or termination of any License, and no License will
require the Consent of the issuing authority to permit the Purchaser to lawfully
conduct the business and affairs, and to lawfully own, lease and operate the
assets and properties, of Purchaser after the Closing.
SECTION 3.21. ABSENCE OF CERTAIN COMMERCIAL PRACTICES. To the best of
Purchaser's knowledge, neither Purchaser nor any officer, director, employee or
agent of Purchaser (or any Person associated with or acting on behalf of any of
the foregoing) has directly or indirectly (i) given or agreed to give any gift,
contribution, bribe, rebate, payoff, influence payment, kickback or other
payment or benefit on behalf of Purchaser to any customer, supplier, employee or
official of any Governmental Authority (domestic or foreign) to induce the
recipient or his employer to do business with, grant favorable treatment or
special considerations to, or compromise or forego any claim against, Purchaser,
(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) established or maintained any unrecorded or illegal
corporate fund or asset, (v) made any false or fictitious entries on the books
or records of Purchaser, (vi) engaged in any practice violating any law or
permitting compliance with an unsanctioned foreign boycott or (vii) failed to
perform its obligations in any material respect under any Contract with, or
violated in any material respect any law known to Purchaser in its dealings
with, any Governmental Authority, 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 3.22. ENVIRONMENTAL LAWS. Purchaser is and has been in
compliance in all material respects with all Environmental Laws.
27
<PAGE> 34
SECTION 3.23. INSURANCE. All premiums due on all insurance policies of
Purchaser have been duly and timely paid and all other material terms and
conditions have been complied with. All such policies, binders and bonds are in
full force and effect, are valid and enforceable in accordance with their terms,
provide adequate coverage against such risks of loss and in such amounts for its
properties and business as are customarily insured against by similarly-situated
businesses, and were issued by reputable, financially sound insurers, and will
survive the Closing. No claims are presently pending, outstanding, disputed or
otherwise unresolved under any such insurance policies.
SECTION 3.24. CONTRACTS. Each Contract to which Purchaser is a party
("Purchaser Contract") is in full force and effect and is a valid and binding
obligation of Purchaser and of the other parties thereto, enforceable by
Purchaser in accordance with its terms, and neither Purchaser nor, to the best
knowledge of Seller, any other party to any Purchaser Contract in any material
respect in breach of or in default under any such Purchaser Contract, nor has
any event or circumstance occurred which, with notice or lapse of time or both,
would constitute a material breach or default such Purchaser Contract. Purchaser
has not received any notice, and has no reason to believe, that any party to any
Purchaser Contract intends to cancel or terminate such Purchaser Contract or to
exercise or not exercise any option thereunder.
SECTION 3.25. FINANCIAL STATEMENTS. Seller has delivered to Purchaser
true and complete copies of the Company's unaudited balance sheets as of
December 31, 1999 (the "Latest Balance Sheet") and for the four (4) prior fiscal
years, and the related unaudited statements of operations and changes in
shareholders' equity for the fiscal years then ended, (collectively, the
"Financial Statements"). All such Financial Statements (i) have been prepared on
an accrual basis consistently applied throughout the periods indicated and with
prior periods; (ii) present fairly the financial condition, results of
operations, cash flows and changes in shareholders' equity of the Company as of
the respective dates thereof and for the respective periods covered thereby;
(iii) have been prepared in accordance and consistent with the books and records
of the Company, which have been maintained in accordance with sound business
practices; and (iv) reflect reserves which are reasonably adequate for all known
or reasonably contemplated 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. Since January 1, 1996, there has not
been any material change in the Company's accounting methods, principles or
practices.
ARTICLE 4
PRE-CLOSING AND CLOSING COVENANTS
SECTION 4.1. CONDUCT OF BUSINESS OF THE COMPANY.
(a) From the date of this Agreement until the Closing, Seller
shall cause the Company to conduct its business only in the ordinary course
consistent with past practices, including but not limited to using its best
efforts to (i) preserve intact its business organization and its good will,
including its relationships with its suppliers, customers, distributors,
creditors, lessors, employees, lenders and others having business relationships
with it, (ii) perform all its obligations in accordance with their terms, (iii)
maintain its 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.
28
<PAGE> 35
(b) Without limiting the generality of the foregoing, from the
date of this Agreement until the Closing, Seller shall not permit the
Company, without the prior written consent of Purchaser to:
(i) Except as provided on Schedule 2.15, take any
action referred to in Section 2.15(b);
(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 untrue or
inaccurate in any material respect.
SECTION 4.2. ACCESS. From the date of this Agreement through the
Closing Date, Seller shall cause the Company and its officers, directors,
employees, consultants, agents and advisors to provide Purchaser and Purchaser's
officers, employees, agents and representatives full access during normal
business hours to the officers, employees, agents, properties, offices,
contracts, accounts, commitments, tax returns, books, records and other data and
documents of the Company and shall furnish to Purchaser and its agents and
representatives copies of all contracts, documents, instruments, books, records,
and other data and information concerning the business and affairs of the
Company as Purchaser and its agents and representatives may from time to time
reasonably request. If for any reason the transactions contemplated by this
Agreement are not consummated, Purchaser shall promptly return to the Company
all documents, records, data and other information furnished to it without
retaining copies thereof and shall keep all such data and information
confidential. No investigation pursuant to this Section 4.2 shall affect, reduce
or mitigate any representation or warranty in this Agreement by Seller or any
condition to the obligations of Purchaser.
SECTION 4.3. CONSUMMATION OF TRANSACTIONS. Upon the terms and subject
to the conditions of this Agreement, each of the parties hereto shall use its
best efforts to cause all conditions to its and each other party's obligations
hereunder to be satisfied and to consummate 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
but not limited to obtaining all Consents, making all filings and giving all
notices necessary for the parties hereto to consummate the transactions
contemplated hereby and thereby.
SECTION 4.4. PUBLIC ANNOUNCEMENTS. From the date of this Agreement
until the Closing Date, Purchaser and Seller shall consult with each other,
directly or indirectly through affiliates, 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 statement or disclosures without the prior
consent of the other party, which consent shall not be unreasonably withheld or
delayed, except that (i) either party may make all reasonably necessary
disclosure required to obtain any Consent, and (ii) Purchaser and its affiliates
may make such public statements and disclosures without Seller's consent to the
extent the same shall be required by applicable law, any Governmental Authority
or the rules or regulations of the Nasdaq Stock Market.
29
<PAGE> 36
SECTION 4.5. NOTIFICATION OF CERTAIN MATTERS. From the date of this
Agreement until 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 4.6. NO SHOPPING. From the date of this Agreement until the
Closing Date, neither the Seller nor the Company shall, and neither shall permit
or authorize any officer, director, shareholder, employee or agent of the
Company to, directly or indirectly, solicit, initiate, encourage, or take any
other action to facilitate any inquiries, proposals or offers from, provide any
information to, enter into any agreement or arrangement with, or participate in
any discussions or negotiations with, any Person (other than Purchaser) relating
to any merger, acquisition, consolidation, combination, reorganization,
recapitalization, sale of any securities or interest in the Company or any of
the assets (except sales of goods and services in the ordinary course of
business) or similar business transaction, and Seller shall immediately notify
Purchaser of, and communicate to Purchaser the terms of, any such inquiry,
proposal or offer that Seller or the Company may receive.
SECTION 4.7. RESIGNATIONS. At the Closing, Seller shall deliver to
Purchaser the resignations of all officers and directors of the Company in such
capacities, which shall be effective upon the Closing Date (the "Resignations").
SECTION 4.8. EMPLOYMENT AND NON-COMPETITION AGREEMENT . At the Closing,
Purchaser and Seller shall execute and deliver to each other an Employment and
Non-Competition Agreement, in substantially the form of Exhibit B (the
"Employment Agreement"), providing for (i) the employment by Purchaser of Seller
as its Executive Vice President and Chief Operating Officer, for a two year
term, (ii) Seller's agreement not to compete with the business of Purchaser and
its affiliates, (iii) the grant of 60,000 stock options by Metretek
Technologies, Inc., a Delaware corporation and the sole stockholder of Purchaser
immediately prior to the Closing ("Metretek"); and (iv) Seller's right to
participate in stock option plans and programs of Purchaser.
SECTION 4.9. STOCKHOLDERS AGREEMENT. At the Closing, Purchaser and
Seller shall execute and deliver to each other a Stockholders Agreement, in
substantially the form of Exhibit C (the "Stockholders Agreement"), providing
for certain restrictions on the transferability of the Purchaser Shares to be
issued at the Closing by Purchaser to Seller.
SECTION 4.10. TOTALPLAN MERGER.Purchaser shall merge with TotalPlan,
Inc., a Delaware corporation and wholly-owned subsidiary of Metretek
Technologies, Inc. ("TotalPlan"), and Purchaser shall survive such merger, so
that immediately thereafter, Metretek shall be the sole stockholder of Purchaser
(the "TotalPlan Merger").
SECTION 4.11. TERMINATION OF PREVIOUS AGREEMENTS. At or prior to the
Closing, Seller shall cause the Company to execute and deliver to Purchaser
valid, binding and enforceable terminations of (i) the Consulting and Joint
Venture Agreement, dated as of September 14, 1999, by and between TotalPlan and
the Company, and (ii) the Stock Option Agreement, dated as of September 14,
1999, issued by TotalPlan to the Company (the "Company Terminations"). In
30
<PAGE> 37
addition, Seller shall prevent the Company from exercising, in whole or in part,
the foregoing Stock Option Agreement.
SECTION 4.12. COMPANY LIABILITIES. Prior to the Closing, Seller shall
cause the Company to fully pay, satisfy and discharge all of its Company
Liabilities accruing as of or arising prior to the Closing Date ("Closing Date
Obligations") and/or to maintain sufficient cash reserves on the Closing Date to
pay, satisfy and discharge any remaining Closing Date Obligations.
ARTICLE 5
CONDITIONS PRECEDENT TO PURCHASER'S AND MERGER SUB'S
CLOSING OBLIGATIONS
The obligations of Purchaser and Merger Sub to consummate the Merger,
to pay the Merger Consideration and to take the other actions required to be
taken by Purchaser and Merger Sub under this Agreement are subject to the
satisfaction (unless waived in writing by Purchaser), at or prior to the
Closing, of each of the following conditions:
SECTION 5.1. ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each and every
representation and warranty of Seller set forth in this Agreement shall be true
and correct in all material aspects as of the date of this Agreement and as of
the Closing Date with the same effect as if they had been made on the Closing
Date.
SECTION 5.2. PERFORMANCE OF COVENANTS. Seller shall have performed,
satisfied and complied in all material respects with all covenants, agreements,
obligations and conditions set forth in this Agreement which are to be
performed, satisfied or complied with by Seller or the Company at or prior to
the Closing.
SECTION 5.3. PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings,
corporate or otherwise, to be taken by Seller or the Company in connection with
the transactions contemplated hereby, and all documents incident thereto, shall
be reasonably satisfactory in form and substance to Purchaser and its counsel.
SECTION 5.4. NO PROCEEDINGS. No Proceeding shall be pending or overtly
threatened by, before or involving any court, arbitrator or Governmental
Authority (a) against or affecting the Company or its assets, business, affairs
or operations; (b) against or affecting the Seller that directly or indirectly
affects or involves the Company or its assets, business, affairs or operations
or (c) which seeks the restraint, prohibition or obtaining of damages or other
relief in connection with, or which questions or challenges the legality,
validity or enforceability of, or which may have the effect of preventing,
delaying, or otherwise interfering with the consummation of the transactions
contemplated hereby.
SECTION 5.5. NO CLAIMS FOR SHARES. No Person (other than the Seller)
shall have made or overtly threatened to make any claim that such Person (a) is
the holder or the beneficial owner of, or has the right to acquire or to obtain
beneficial ownership of, any shares of capital stock or any voting, equity or
ownership interest in, or any other security of, or any option, warrant or right
to acquire any securities of, the Company, or (b) is entitled to all or any
portion of the Purchase Price.
31
<PAGE> 38
SECTION 5.6. DELIVERIES AT CLOSING. Seller shall have delivered to
Purchaser at the Closing certificates representing the Shares, duly indorsed in
blank for transfer to Purchaser, or accompanied by duly executed stock powers
indorsed in blank for the transfer to Purchaser, and all other certificates,
instruments, documents and writings required to be delivered to Purchaser
pursuant to Section 7.2 or otherwise hereunder.
SECTION 5.7. CONSENTS. All Consents of any Person necessary to permit
the consummation of the transactions contemplated hereby shall have been duly
obtained, made or taken prior to the Closing and be in full force and effect on
the Closing Date.
SECTION 5.8. SECURITIES LAWS. All pre-issuance registrations,
qualifications, notifications, permits and approvals, if any, required under
applicable state securities laws for the lawful execution, delivery and
performance of this Agreement and the offer, sale, and delivery of the Shares to
Purchaser shall have been obtained prior to the Closing and in full force and
effect on the Closing Date.
SECTION 5.9. EMPLOYMENT AGREEMENT. Seller shall have executed and
delivered to Purchaser the Employment Agreement.
SECTION 5.10. STOCKHOLDERS AGREEMENT. Seller shall have executed and
delivered to Purchaser the Stockholders Agreement.
SECTION 5.11. RESIGNATIONS. All directors and officers of the Company
shall have executed and delivered to Purchaser their Resignations.
SECTION 5.12. COMPANY TERMINATIONS. Seller shall have delivered to
Purchaser the Company Terminations, duly executed by the Company.
SECTION 5.13. METRETEK BOARD APPROVAL. The Board of Directors of
Metretek shall have duly authorized and approved this Agreement and the Related
Purchaser Agreements and the transactions contemplated hereby and thereby.
SECTION 5.14. AFFILIATE DEBT. Prior to the Closing, any debt, liability
or other obligation of Seller, or of any other director, officer, shareholder,
employee or agent of the Company, to the Company shall have been repaid or
otherwise discharged in full.
ARTICLE 6
CONDITIONS PRECEDENT TO SELLER'S CLOSING OBLIGATIONS
The obligation of Seller to cause the Company to consummate the Merger
and to deliver the Shares to Purchaser hereunder and to take the other actions
required to be taken by Seller or the Company under this Agreement 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 of the
representations and warranties of Purchaser 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 they had been made on the Closing Date.
32
<PAGE> 39
SECTION 6.2. PERFORMANCE OF COVENANTS. Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements,
obligations and conditions set forth in this Agreement which are to be
performed, satisfied or complied with by Purchaser at or prior to the Closing.
SECTION 6.3. PROCEEDINGS AND DOCUMENTS SATISFACTORY. All proceedings,
corporate or otherwise, to be taken by Purchaser in connection with the
transactions contemplated hereby, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to Seller and its counsel.
SECTION 6.4. NO PROCEEDINGS. No Proceeding shall be pending or overtly
threatened by, before or involving any court, arbitrator or Governmental
Authority in which any Person is seeking the restraint, prohibition or obtaining
of damages or other relief in connection with, or which questions or challenges
the validity, legality or enforceability of, or which may have the effect of
preventing, delaying, making illegal or otherwise interfering with, the
consummation of the transactions contemplated hereby.
SECTION 6.5. DELIVERIES AT CLOSING. Purchaser shall have delivered to
Seller at the Closing the Merger Consideration as set forth in Sections 1.9 and
7.3 and all other certificates, instruments, documents and writings required to
be delivered to the Company pursuant to Section 7.3 or otherwise hereunder.
SECTION 6.6. CONSENTS. All Consents of any Person necessary to permit
the consummation of the transactions contemplated hereby shall have been duly
obtained, made or taken prior to the Closing and shall be in full force and
effect on the Closing Date.
SECTION 6.7. EMPLOYMENT AGREEMENT. Purchaser shall have duly executed
and delivered to Seller the Employment Agreement.
SECTION 6.8. STOCKHOLDER AGREEMENT. Purchaser shall have executed and
delivered to Seller the Stockholders Agreement.
SECTION 6.9. TOTALPLAN MERGER.Purchaser shall have consummated the
TotalPlan Merger.
SECTION 6.10. FUNDING OF PURCHASER. Metretek shall have provided
additional equity capital to Purchaser so that the total equity investments by
Metretek into Purchaser and TotalPlan, on an aggregate basis since inception,
through the Closing Date is $6,000,000.
ARTICLE 7
THE CLOSING
SECTION 7.1. DATE AND PLACE. The consummation of the Merger (the
"Closing") shall take place at the principal executive offices of Metretek
Technologies, Inc. at 1675 Broadway, Suite 2150, Denver, Colorado, at 10:00 a.m.
(local time), on March 17, 2000, or such other time, date and/or place as Seller
and Purchaser shall mutually agree (the date of the Closing is referred to
herein as the "Closing Date").
33
<PAGE> 40
SECTION 7.2. DELIVERIES BY SELLER. At the Closing, Seller shall deliver
or cause to be delivered to Purchaser, in form reasonably acceptable to
Purchaser's counsel:
(a) Certificates representing the Shares, duly indorsed in blank
for transfer to Purchaser or accompanied by stock powers duly
indorsed in blank for transfer to Purchaser;
(b) All Consents relating to Seller or the Company necessary to
permit the consummation of the transactions contemplated by
this Agreement;
(c) The Colorado Articles of Merger and the Delaware Certificate
of Merger, each duly executed by the Company as required by
applicable law;
(d) All records, documents and files of the Company, including
within limitation all minute books, stock records, financial
statements, tax returns and accounting records;
(e) The Company's Articles of Incorporation and Bylaws, as in
effect on the Closing Date, certified by the Secretary of the
Company;
(f) Certificates of Good Standing of the Company, dated within
twenty (20) business days of the Closing Date, issued by the
Secretary of State of each state in which the Company is
incorporated or licensed or qualified to do business as a
foreign corporation;
(g) True and complete copies of corporate resolutions, certified
as of the Closing Date by the Secretary of Company as having
been duly adopted by the Board of Directors and the sole
stockholder of the Company and in effect on the Closing Date,
authorizing Company's execution and delivery of this Agreement
and the Related Company Agreements and consummation of the
transactions contemplated hereby;
(h) A certificate duly executed by Seller, dated as of the Closing
Date, certifying that, (i) Seller has fully performed,
satisfied and complied with all agreements, obligations,
covenants and conditions required by this Agreement for Seller
to perform, satisfy or comply with at or prior to the Closing,
and (ii) all of the representations and warranties of Seller
set forth in this Agreement are true and correct as of the
Closing Date;
(i) An opinion of counsel for Seller and the Company, dated as of
the Closing Date, substantially in the form attached hereto as
Exhibit D;
(j) The Employment Agreement, duly executed by Seller;
(k) The Stockholders Agreement, duly executed by Seller;
(l) The Company Terminations, duly executed by a duly authorized
officer of the Company;
34
<PAGE> 41
(m) The Resignations, duly executed by the officers and directors
of the Company;
(n) All other items required to be delivered by Seller or the
Company hereunder; and
(o) Such other documents, instruments and certificates relating to
the transactions contemplated hereby as the Purchaser may
reasonably request.
SECTION 7.3. DELIVERIES BY PURCHASER. At the Closing, Purchaser shall
deliver or cause to be delivered to Seller, in form reasonably acceptable to
Seller's counsel:
(a) The Cash Portion of the Merger Consolidation as set forth in
Section 1.10(i), by check made payable to Seller or by wire
transfer of immediately available funds to an account
designated by Seller;
(b) The Promissory Note, duly executed and issued by Purchaser to
Seller;
(c) One or more certificates representing the Purchaser Shares,
duly registered on the books of Purchaser in the name of
Seller;
(d) True and complete copies of corporate resolutions, certified
as of the Closing Date by the Secretary of Purchaser as having
been duly adopted by the Board of Directors of Purchaser and
in effect on the Closing Date, authorizing Purchaser's
execution and delivery of this Agreement and consummation of
the transactions contemplated hereby;
(e) A certificate duly executed by the President or the Executive
Vice 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 this Agreement are true and correct as of the
Closing Date;
(f) An opinion of counsel for Purchaser, dated as of the Closing
Date, substantially in the form attached hereto as Exhibit E;
(g) The Employment Agreement, duly executed by Purchaser;
(h) The Stockholders Agreement, duly executed by Purchaser;
(i) All other items required to be delivered by Purchaser
hereunder; and
(j) Such other documents, instruments and certificates relating to
the transactions contemplated hereby as Seller shall
reasonably request.
SECTION 7.4. EFFECTIVENESS OF CLOSING. No action to be taken or
delivery to be made at the Closing shall be effective until all the actions to
be taken and deliveries to be made at the Closing are complete.
35
<PAGE> 42
ARTICLE 8
INDEMNIFICATION
SECTION 8.1. INDEMNIFICATION BY SELLER. Seller shall indemnify, defend
and hold harmless Purchaser, its affiliates, successors and assigns, and the
officers, directors, shareholders, partners, employees, agents and
representatives of any of them, from and against, and shall reimburse them for,
any and all claims, actions, suits, proceedings, demands, losses (including
diminutions in value), expenses, obligations, taxes, liabilities, damages,
recoveries and deficiencies whatsoever (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") incurred or suffered by Purchaser arising out of,
based upon or resulting from (a) any breach or violation of, inaccuracy or
misrepresentation in, or failure by Seller to perform or to cause the Company to
perform, any of the representations, warranties, covenants, agreements or other
obligations of Seller made in this Agreement or in any schedule, certificate,
exhibit or other document or instrument furnished or to be furnished by Seller
to Purchaser pursuant to this Agreement; (b) any Company Liability or any other
debt, liability or obligation of the Company or of Seller relating to the
assets, business, affairs, operations or condition of the Company, for any
period prior to the Closing not included on the Latest Balance Sheet or
otherwise set forth on Schedule 2.14; (c) any claim by any Person to (i) own, or
to have the right to own or acquire, any shares of capital stock, or any
options, warrants or rights to acquire shares of capital stock of, or any other
securities of, or any other equity, ownership, voting, management or other
interest in, the Company, or (ii) all or any portion of the Merger Consideration
or (iii) any compensation, remuneration or other payment with respect to the
Merger or any of the foregoing rights or interests; or (d) Seller's failure to
obtain the Consent for the Real Estate Lease.
SECTION 8.2. INDEMNIFICATION BY PURCHASER. Purchaser shall indemnify,
defend and hold harmless Seller, his affiliates, successors and assigns, and the
officers, directors, shareholders, partners, employees, agents and
representatives of any of them, from and against, and shall reimburse them for,
any and all Damages incurred or suffered by Seller arising out of, based upon or
resulting from any breach or violation of, inaccuracy or misrepresentation in,
or failure by Purchaser to perform, any of the representations, warranties,
covenants, agreements or other obligations of the Purchaser made in this
Agreement or in any schedule, certificate, exhibit or other document or
instrument furnished or to be furnished by Purchaser to the Company pursuant to
this Agreement.
SECTION 8.3. 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 "Claim Notice") 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
36
<PAGE> 43
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 30
days after receipt of the Claim Notice to notify the Indemnified Party
that it has elected to assume and control the defense of any such Claim
at the Indemnifying Party's own expense and with counsel selected by
the Indemnifying Party and reasonably satisfactory to 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 (A) did not notify
the Indemnified Party within 30 days of receipt of the Claim Notice
that it elected to assume and control the defense of the Claim, or (B)
has not in fact thereafter reasonably diligently employed legal counsel
to assume the defense of and vigorously contest such 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 Indemnifying 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 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.
SECTION 8.4. LIMITATION ON LIABILITY. Notwithstanding the foregoing,
the Indemnifying Party shall not be required to indemnify the Indemnified Party
hereunder (i) unless and until the aggregate amount of all Damages exceeds
$25,000, and then only to the extent of the excess, and (ii) beyond an aggregate
of $1,000,000.
SECTION 8.5. SURVIVAL. The indemnification obligations set forth in
this Article 8, the representations and warranties set forth in this Agreement,
and, except to the extent otherwise expressly provided herein, the 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, regardless of any investigation made by any party hereto,
except (i) as to any Damages that are due to fraud, which shall expire only upon
the expiration of the applicable statute of limitations, or (ii) as to any
Claims relating to Sections 2.3, 2.4, 2.5, 2.6, 2.7, 2.9 and 2.16, which Claims
shall survive without limitation.
SECTION 8.6. EFFECT OF KNOWLEDGE. No disclosure to nor investigation by
or on behalf of any party hereto shall be deemed to affect its reliance on the
representations, warranties, covenants
37
<PAGE> 44
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 8.7. CONTRIBUTION. If the indemnification provided for in this
Article 8 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.
ARTICLE 9
POST-CLOSING AND OTHER COVENANTS
SECTION 9.1. FURTHER ASSURANCES. Each of the parties hereto shall use
all reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, convenient or desirable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. At any time and from time to time after the
Closing, each of the parties shall, at the request of any other party hereto (a
"Requesting Party"), without further consideration, execute, acknowledge and
deliver all further assignments, conveyances, deeds, and other documents and
instruments and take such further actions as a Requesting Party may reasonably
request in order to more fully and effectively consummate the Merger and the
other transactions contemplated hereby.
SECTION 9.2. MUTUAL COOPERATION. 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 Company and its business, affairs and operations for periods ending on or
prior to the Closing Date. 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,
matters relating to the transactions 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.
SECTION 9.3. 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 or the Company pertaining to the
Company for all taxable periods ending on or before the Closing Date,
and for the payment by the Company of all amounts due thereunder, or
the maintenance as of the Closing Date of adequate cash reserves
therefor.
(b) DUE TO TRANSACTIONS. Seller shall pay all federal, state
and local sales, use, income, stamp, registration and similar transfer
taxes and fees arising out of the Merger, whether imposed by law on
Seller or Purchaser. Seller shall indemnify, reimburse and hold
Purchaser
38
<PAGE> 45
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 9.4. RIGHT OF APPRAISAL. Seller shall be entitled, one time per
calendar year, to obtain an appraisal of Purchaser by a reputable, qualified
outside appraiser, at Seller's sole cost and expense. Such appraisal shall only
be conducted upon reasonable advance notice to Purchaser and subject to the
reasonable security and confidentiality measures required by Purchaser
(including, but not limited to, the requirement that individuals involved in
conducting the appraisal enter into a Confidentiality Agreement in form and
substance reasonably acceptable to Purchaser). Purchaser agrees to cooperate in
this appraisal (so long as such appraisal does not materially impair its
operations), furnishing the appraiser with reasonably requested information;
provided, however, that Purchaser shall charge Seller for its reasonable costs
for any technical resources or extraordinary personnel time spent by Purchaser
unnecessary for such appraisal. Such appraisal shall only be conducted during
normal business hours, and Seller agrees to provide Purchaser with a copy of any
such appraisal promptly after Seller's receipt thereof. Seller acknowledges and
agrees that its right to appraisal is personal to Seller and not transferable or
assignable in any respect to any Person for any reason. This right to appraisal
shall expire (i) on the date Purchaser, or any successor to its business, files
its first Form 10-K or Form 10-KSB, as applicable, or other similar or successor
annual report containing substantially similar information with the Securities
and Exchange Commission; (ii) on the date Seller, for any reason, becomes the
holder of less than 5% of the then outstanding Purchaser Shares; or (iii) one
year after the termination of Purchaser's employment with Purchaser under the
Employment Agreement or any successor employment agreement.
ARTICLE 10
TERMINATION AND CONFIDENTIALITY
SECTION 10.1. 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 either Seller or Purchaser by giving written notice to
the other that (i) the non-terminating party shall have failed to
perform, satisfy or comply with any of its obligations, agreements, or
covenants to be performed, satisfied, or complied with hereunder prior
to the Closing, or (ii) the non-terminating party breached in any
materially respect any of its representations, warranties or covenants
hereunder;
(c) By either Seller or Purchaser by giving written notice to
the other if the Closing Date has not occurred on or before March 31,
2000, 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 either Purchaser or Seller if any court, arbitration or
Governmental Authority of competent jurisdiction shall have issued an
order, judgment, decree, ruling or taken other action restraining,
enjoining or otherwise prohibiting the transaction contemplated hereby.
39
<PAGE> 46
SECTION 10.2. EFFECT OF TERMINATION. If either Purchaser or Seller
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
Articles 10, 11 and 12, which shall survive such termination.
SECTION 10.3. CONFIDENTIALITY. Notwithstanding the provisions of this
Article 10, 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.
ARTICLE 11
ARBITRATION
Any dispute, controversy or claim arises out of, under or in connection
with, or otherwise relating to, this Agreement (a "Dispute"), including but not
limited to the parties' rights and obligations hereunder, or any actual or
alleged breach hereof, shall be determined and settled by binding arbitration in
Denver, Colorado in accordance with the rules of the commercial rules and
procedures of the American Arbitration Association, as amended by this
Agreement. Promptly after a Dispute arises, the parties agree to make a good
faith effort to select one mutually agreeable arbitrator. If the parties are
unable to reach agreement on an arbitrator within thirty (30) days after the
Dispute is submitted to arbitration, one arbitrator shall be selected in
accordance with the commercial rules and procedures of the American Arbitration
Association. Any determination, resolution or award made by the arbitrators
shall specify the findings of fact of the arbitrators and the reasons for the
determination, resolution or award, and such determination, resolution or award
shall be final and binding. If the parties hereto mutually agree to a resolution
of any Dispute prior to the arbitrators' decision, the agreement of the parties
shall resolve the Dispute. The party prevailing in any arbitration, as
determined by the arbitrator, shall be entitled to an award of all of its
out-of-pocket costs and expenses incurred in connection with the Dispute,
including but not limited to reasonable attorneys' fees, court costs and expert
fees. An arbitration award or decision may be entered by any court of competent
jurisdiction, or application may be made to such a court for judicial acceptance
of the award or decision and any appropriate order, including enforcement. The
parties hereby consent to the submission of any Dispute for settlement by
binding arbitration in accordance with this Article 11 and agrees to carry out
without delay the provisions of any arbitration award, decision or resolution.
ARTICLE 12
GENERAL PROVISIONS
SECTION 12.1. GOVERNING LAW. This Agreement shall in all respects be
governed by, and construed in accordance with, the internal substantive laws of
the State of Colorado, without giving effect to any conflict or choice of law
principles or rules.
SECTION 12.2. AMENDMENT. This Agreement may not be amended or modified
in whole or in part in any manner except in a writing which makes reference to
this Agreement executed by both parties hereto.
40
<PAGE> 47
SECTION 12.3. ASSIGNMENT. Neither the Agreement, nor any rights,
obligations or duties hereunder, may be assigned or delegated by either party
hereto without the prior written consent of the other party hereto.
SECTION 12.4. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
SECTION 12.5. ENTIRE AGREEMENT.This Agreement, including the Exhibits
and Schedules hereto, and the Related Seller Agreements and Related Purchaser
Agreements, sets forth the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof and supersedes in their
entirety all prior and contemporaneous written and oral agreements,
arrangements, understandings, negotiations, communications, covenants,
representations and warranties among the parties hereto relating to the subject
matter hereof.
SECTION 12.6. NOTICES. Any and all notices, demands, requests,
elections and other communications required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given (i) upon
personal delivery; (ii) upon confirmation of receipt when sent by facsimile
transmission; (iii) one business day after deposit during normal business hours
with a nationally recognized overnight courier, specifying next business day
delivery, with written verification of receipt; (iv) five business days after
being sent by first class (certified or registered) mail, postage prepaid,
return receipt requested, in each case to the following addresses:
If to Purchaser or, after the
Closing, the Company, to:
PowerSpring, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: Chief Executive Officer
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
With copies to:
Metretek Technologies, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: Chief Executive Officer
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
Paul R. Hess, Esq.
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 E. State Street, Suite 1800
Columbus, Ohio 43215
Telephone: (614) 462-5441
Facsimile: (614) 464-2634
41
<PAGE> 48
If to Seller or, before the Closing,
the Company, to:
John A. Harpole
5865 S. Clayton Ct.
Greenwood Village, Colorado 80121
Telephone: (303) 713-0700
With a copy to:
Ducker, Montgomery & Lewis, P.C.
1560 Broadway, Suite 1500
Denver, Colorado 80202
Attn: Bruce Ducker, Esq.
Telephone: (303) 861-2828
Facsimile: (303) 861-4017
Any party hereto may send any notice, demand, request, election or other
communication to the intended recipient at its address set forth above using any
other means (such as expedited courier, messenger service, telecopy, telex,
ordinary mail or electronic mail), but no such notice, demand, request or other
communication shall be deemed to have been given until it is actually received
by the recipient. Any party hereto may change its designated address by giving
written notice to all other parties.
SECTION 12.7. WAIVER. The obligations of any party hereunder may be
waived only with the written consent of the party or parties entitled to the
benefits the obligations so involved. Any waiver of a breach or violation of or
default under any provision of this Agreement shall not be construed or operate
as, or constitute, a waiver of any other or subsequent breach or violation of or
default under that provision or any other provision of this Agreement. The
failure of any party to insist upon strict compliance with any provision of this
Agreement on any one or more occasions shall not be construed or operate as, or
constitute, a continuing waiver of, or an estoppel of that party's right to
insist upon strict compliance with, that provision or any other provision of
this Agreement.
SECTION 12.8. SEVERABILITY. The provisions of this Agreement shall be
deemed severable. If any provision of this Agreement is determined to be
illegal, invalid or unenforceable in any situation: (i) the parties hereto shall
agree to a suitable and equitable provision to be substituted therefor in order
to carry out, so far as may be valid and enforceable, the intent and purpose of
such invalid or unenforceable provision; and (ii) the remainder of this
Agreement shall remain in full force and effect, and the application of such
provision in any other situation shall not be affected.
SECTION 12.9. COUNTERPARTS. This Agreement may be executed in any
number of counterparts (including counterparts executed by less than all parties
hereto), each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
SECTION 12.10. HEADINGS. The headings used herein are solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
42
<PAGE> 49
SECTION 12.11. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
express or implied, in intended to create or confer and shall not be construed
or operate as creating or conferring, any rights or remedies under or by reason
of this Agreement, upon any Person other than the parties hereto and their
respective successors and permitted assigns.
SECTION 12.12. BEST EFFORTS. Each of the parties hereto shall act in
good faith and use its best efforts to bring about the transactions contemplated
by this Agreement.
SECTION 12.13. EXPENSES. Except as otherwise expressly provided herein,
each of the parties to this Agreement shall pay its own costs and expenses
incurred in connection with this Agreement and the consummation of the
transactions contemplated hereby.
SECTION 12.14. CONSTRUCTION. In the event an ambiguity or question or
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party hereto by virtue of the authorship of any of
the provisions of this Agreement.
SECTION 12.15. SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that the other parties hereto would suffer irreparable
damage for which an adequate remedy at law would not be available in the event
any of the provisions of this Agreement is not performed in accordance with its
specific terms or otherwise is breached. Accordingly, each of the parties hereto
agrees that the non-breaching parties shall be entitled to an injunction,
restraining order or other form of equitable relief from any court of competent
jurisdiction to prevent breaches of, and to specifically enforce, the provisions
of this Agreement.
SECTION 12.16. PUBLICITY. No party hereto shall, directly or through
its affiliates, make any public statement, announcement, press release or other
disclosure regarding this Agreement, the other party or its relationship under
this Agreement or with the other party without the prior consent of the other
party (which consent shall not be unreasonably withheld or delayed), except (i)
to the extent such disclosure is required (i) by law, judicial process or rule,
regulation or requirement of the Nasdaq Stock Market, or (ii) to obtain any
Consent from any Person.
SECTION 12.17. INTERPRETATION OF CERTAIN PROVISIONS. Except as
otherwise expressly provided herein, as used in this Agreement:
(i) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to include a reference to all rules
and regulations promulgated thereunder.
(ii) The term "including" means "including, without
limitation".
(iii) The term "Entity" means any corporation, partnership,
limited liability company, joint venture, association, trust,
unincorporated organization, estate, or any other form of business or
entity.
(iv) The term "Governmental Authority" means any federal,
state, local or foreign government, quasi-governmental administration
or regulatory body, agency or authority.
(v) The term "Person" means and includes any individual,
Entity or Governmental Authority.
43
<PAGE> 50
(vi) The number and gender of each noun and pronoun and the
terms "Person" and "Persons" and the like shall be construed to mean
such number and gender as the context, the circumstances or its
antecedent may require.
(vii) The terms "hereof", "herein", "hereunder" and words of
similar import refer to this Agreement as a whole, and not to any
Section, subsection or clause of this Agreement.
(viii) Each reference to an Article or a Section means such
Article or Section of this Agreement.
(ix) Each reference to a Schedule or Exhibit means such
Schedule or Exhibit to this Agreement.
********************************************
44
<PAGE> 51
IN WITNESS WHEREOF, this Agreement and Plan of Merger has been executed
and delivered by the parties hereto or their duly authorized officers as of the
date first above written.
PURCHASER:
POWERSPRING, INC.
By:/s/ W. Phillip Marcum
--------------------------------
W. Phillip Marcum, President
ATTEST:
/s/ Gary J. Zuiderveen
- --------------------------------
Gary J. Zuiderveen, Secretary
MERGER SUB:
MERC ACQUISITION CORP.
By:/s/ W. Phillip Marcum
--------------------------------
W. Phillip Marcum, President
ATTEST:
/s/ Gary J. Zuiderveen
- --------------------------------
Gary J. Zuiderveen, Secretary
THE COMPANY:
MERCATOR ENERGY INCORPORATED
By:/s/ John A. Harpole
--------------------------------
John A. Harpole, President
ATTEST:
/s/ Nancy Lane
- --------------------------------
Nancy Lane, Secretary
SELLER:
/s/ John A. Harpole
-----------------------------------
John A. Harpole
45
<PAGE> 52
SCHEDULE 2.1
FOREIGN QUALIFICATION
---------------------
46
<PAGE> 53
SCHEDULE 2.3
SHAREHOLDERS AND OPTION HOLDERS
-------------------------------
47
<PAGE> 54
SCHEDULE 2.9
CONSENTS
--------
48
<PAGE> 55
SCHEDULE 2.14
UNDISCLOSED LIABILITIES
-----------------------
49
<PAGE> 56
SCHEDULE 2.15
ADVERSE CHANGES
---------------
50
<PAGE> 57
SECTION 2.18
REAL PROPERTY LEASES
--------------------
51
<PAGE> 58
SECTION 2.19
PERSONAL PROPERTY LEASES
------------------------
52
<PAGE> 59
SECTION 2.22
REGISTERED INTELLECTUAL PROPERTY
--------------------------------
53
<PAGE> 60
SECTION 2.24
CUSTOMERS AND SUPPLIERS
-----------------------
54
<PAGE> 61
SECTION 2.25
EMPLOYMENT AGREEMENTS
---------------------
55
<PAGE> 62
SECTION 2.26
EMPLOYEE BENEFIT PLANS
----------------------
56
<PAGE> 63
SECTION 2.31
INSURANCE
---------
57
<PAGE> 64
SECTION 2.32
CONTRACTS
---------
58
<PAGE> 65
SECTION 2.33
BANK ACCOUNTS
-------------
59
<PAGE> 66
SECTION 2.34
AFFILIATE PARTY TRANSACTIONS
----------------------------
60
<PAGE> 67
EXHIBIT A
PROMISSORY NOTE
---------------
61
<PAGE> 68
EXHIBIT B
EMPLOYMENT AND NON-COMPETITION AGREEMENT
----------------------------------------
62
<PAGE> 69
EXHIBIT C
STOCKHOLDERS AGREEMENT
----------------------
63
<PAGE> 70
EXHIBIT D
LEGAL OPINION OF SELLER'S COUNSEL
---------------------------------
64
<PAGE> 71
EXHIBIT E
LEGAL OPINION OF PURCHASER'S COUNSEL
------------------------------------
65
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 3
TO
EMPLOYMENT AGREEMENT
--------------------
THIS AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT (this "Amendment") is made
and entered into as of January 1, 2000, by and between METRETEK TECHNOLOGIES,
INC., a Delaware corporation (the "Corporation"), and W. PHILLIP MARCUM
("Officer").
RECITALS
--------
WHEREAS, the Corporation and Officer have previously entered into that
certain Employment Agreement, dated as of June 11, 1991, as amended as of July
14, 1997 and December 3, 1998 (as so amended and as the same may hereafter be
amended or otherwise modified from time to time, the "Employment Agreement");
and
WHEREAS, the Corporation and Officer now desire to amend the Employment
Agreement in order to extend the period of Officer's employment with the
Corporation;
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises 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. AMENDMENT TO SECTION 2.1 OF EMPLOYMENT AGREEMENT. Effective
as of the date hereof, Section 2.1 of the Employment Agreement is hereby amended
to read in its entirety as follows:
"2.1 Basic Term. The term of Officer's employment under this
Agreement shall continue for a period of four years until December 31,
2003, unless terminated earlier pursuant to this Section 2 (the
"Employment Period"); provided, however, that unless the Corporation or
Officer gives to the other written notice at least six months prior to
the expiration of such four-year term or of any successive one-year
extension term as provided hereafter, the Employment Period shall be
automatically extended for successive one-year terms, unless and until
terminated pursuant to this Agreement."
SECTION 2. EFFECT OF AMENDMENT. From and after the date hereof, the
term "Employment Period" as used in the Employment Agreement shall be deemed to
refer to the Employment Period as such term is defined in this Amendment. Except
as and to the extent expressly modified by this Amendment, the Employment
Agreement shall remain in full force and effect in all respects in accordance
with its terms, and any reference to the Employment Agreement from and after the
date hereof shall be deemed to be a reference to the Employment Agreement as
modified by this Amendment.
<PAGE> 2
SECTION 3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Colorado.
SECTION 4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment No. 3 to Employment Agreement has
been duly executed and delivered by or on behalf of the undersigned as of the
date first written above.
CORPORATION:
METRETEK TECHNOLOGIES , INC.
By:/s/ A. Bradley Gabbard
--------------------------------------------
A. Bradley Gabbard, Executive Vice President
OFFICER:
By:/s/ W. Phillip Marcum
--------------------------------------------
W. Phillip Marcum
2
<PAGE> 1
EXHIBIT 10.10
AMENDMENT NO. 3
TO
EMPLOYMENT AGREEMENT
--------------------
THIS AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT (this "Amendment") is made
and entered into as of January 1, 2000, by and between METRETEK TECHNOLOGIES,
INC., a Delaware corporation (the "Corporation"), and A. BRADLEY GABBARD
("Officer").
RECITALS
--------
WHEREAS, the Corporation and Officer have previously entered into that
certain Employment Agreement, dated as of June 11, 1991, as amended as of July
14, 1997 and December 3, 1998 (as so amended and as the same may hereafter be
amended or otherwise modified from time to time, the "Employment Agreement");
and
WHEREAS, the Corporation and Officer now desire to amend the Employment
Agreement in order to extend the period of Officer's employment with the
Corporation; and
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises 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. AMENDMENTS TO EMPLOYMENT AGREEMENT. Effective as of the date
hereof, Section 2.1 of the Employment Agreement is hereby amended to read in its
entirety as follows:
"2.1 Basic Term. The term of Officer's employment under this
Agreement shall continue for a period of two years until
December 31, 2001, unless terminated earlier pursuant to this
Section 2 (the "Employment Period"); provided, however, that
unless the Corporation or Officer gives to the other written
notice at least six months prior to the expiration of such
two-year term or of any successive one-year extension term as
provided hereafter, the Employment Period shall be
automatically extended for successive one-year terms, unless
and until terminated pursuant to this Agreement."
SECTION 2. EFFECT OF AMENDMENT. From and after the date hereof, the
term "Employment Period" as used in the Employment Agreement shall be deemed to
refer to the Employment Period as such term is defined in this Amendment. Except
as and to the extent expressly modified by this Amendment, the Employment
Agreement shall remain in full force and effect in all respects in accordance
with its terms, and any reference to the Employment Agreement from and after the
date hereof shall be deemed to be a reference to the Employment Agreement as
modified by this Amendment.
<PAGE> 2
SECTION 3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Colorado.
SECTION 4. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Amendment No. 3 to Employment Agreement has
been duly executed and delivered by or on behalf of the undersigned as of the
date first written above.
CORPORATION:
METRETEK TECHNOLOGIES , INC.
By:/s/ W. Phillip Marcum
----------------------------------------
W. Phillip Marcum, President
OFFICER:
By:/s/ A. Bradley Gabbard
----------------------------------------
A. Bradley Gabbard
2
<PAGE> 1
---------
EXECUTION
COPY
---------
EXHIBIT 10.17
EMPLOYMENT AND NON-COMPETITION AGREEMENT
----------------------------------------
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (this "Agreement") is
made and entered into as of the 17th day of March, 2000 by and between
PowerSpring Inc., a Delaware corporation (the "Company"), and John A. Harpole,
an individual who resides in Colorado (the "Employee").
W I T N E S S E T H:
WHEREAS, Employee was the President, a director and the sole
shareholder of Mercator Energy Incorporated, a Colorado corporation
("Mercator"); and
WHEREAS, Employee and Mercator have entered into an Agreement and Plan
of Merger, of even date herewith (the "Merger Agreement"), with the Company and
a subsidiary of the Company, pursuant to which the Company has agreed to acquire
Mercator through a merger with a subsidiary of the Company (the "Merger"); and
WHEREAS, the Company desires to continue to utilize the skills and
expertise of Employee after the closing of the Merger Agreement; and
WHEREAS, the execution and delivery of this Agreement and the terms and
conditions hereof, including the restrictive covenants as to Employee, are a
condition to the closing of the Merger Agreement; and
WHEREAS, the Company desires to employ Employee, and Employee desires
to serve the Company, upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements set forth herein, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Employee, intending to be legally bound hereby, agree as follows:
SECTION 1. EMPLOYMENT. The Company hereby employs Employee, and
Employee hereby accepts such employment and agrees to serve the Company, upon
the terms and subject to the conditions set forth herein.
SECTION 2. TERM. The term of Employee's employment hereunder shall
commence on the date first above written and shall expire two years from such
date, unless earlier terminated in accordance with the provisions of Section 5.
In the event that this Agreement has not been earlier terminated in accordance
with the provisions of Section 5, the term of Employee's employment hereunder
shall be automatically extended without further action by the Company or
Employee for additional successive one-year periods unless either party, for any
reason or no reason, shall have given written notice of termination to the other
party no less than thirty (30) days prior to the commencement of any one-year
extension period. The term of Employee's employment hereunder is sometimes
hereinafter referred to as the "Employment Term."
<PAGE> 2
SECTION 3. DUTIES OF EMPLOYEE.
(a) GENERAL DUTIES AND RESPONSIBILITIES. During and throughout
the Employment Term, Employee shall faithfully and diligently, to the
best of his ability, serve as the Executive Vice President and Chief
Operating Officer and a member of the Board of Directors of the
Company, or in such other or additional offices or capacities and with
such other titles and duties as shall be designated by the Company's
Board of Directors (the "Board") during the Employment Term, shall have
the authority and perform the duties and responsibilities customary for
such office or offices, and shall have such other duties as may be
assigned to him from time to time by the Board, or by the Chairman of
the Board, the Chief Executive Officer or the President of the Company
(each, a "Senior Officer"). Employee shall perform his duties hereunder
in accordance with the policies from time to time established and
amended by the Company and in accordance with all applicable laws and
regulations. Employee shall use his best efforts to promote the best
interests of the Company. Employee shall have the specific right to
hire and fire Jason Spence and Nancy P. Lane and their respective
successors. Otherwise, Employee shall always be subject to the
direction, approval and control of the Board and the Senior Officers.
Employee acknowledges and agrees that he may be required by the
Company, without additional compensation, to perform services for any
other Entity controlling, controlled by, under common control with or
otherwise affiliated with, the Company (any such Entity hereinafter
referred to as an "Affiliate"), and to accept such office or position
with any Affiliate as the Board may reasonably require, including but
not limited to service as an officer and/or director of an Affiliate.
(b) PERFORMANCE OF SERVICES. During and throughout the
Employment Term, Employee shall devote his full time, attention, skill,
ability and energy during normal business hours (and outside such hours
when reasonably necessary to perform Employee's duties hereunder)
exclusively to the business and affairs of the Company and the
performance of his duties under this Agreement.
(c) PLACE OF EMPLOYMENT. Employee shall perform his services
hereunder at the Company's principal executive offices in Denver,
Colorado or at such other location as mutually agreed with the Board;
provided, however, that Employee agrees to undertake all reasonable
travel required by the Company to be conducted in connection with the
business of the Company and the performance of Employee's duties
hereunder.
SECTION 4. COMPENSATION. During and throughout the Employment Term, as
compensation for the services performed and other covenants made by Employee to
the Company hereunder, the Company shall pay and provide or cause to be provided
to Employee the following:
(a) SALARY. The Company shall pay Employee a base salary of
not less than $175,000 per year (the "Salary"), payable in
approximately equal installments in accordance with the Company's
customary payroll practices. Employee's Salary may be reviewed by or
under the authority of the Board and may be increased at the sole
discretion of the Board or its designee (although the Board has no
obligation to do so) based upon whatever factors the Board or its
designee deems appropriate including, but not limited to, Employee's
individual performance, the overall performance, profitability and
prospects of the Company and prevailing economic and industry factors.
(b) BONUS AND OPTION PROGRAMS. If the Company shall adopt a
bonus program, an option program or any other form of equity or
profit-sharing participation for senior executive officers of the
Company, Employee shall be eligible to participate in such program in a
manner and capacity commensurate with his position and duties. Subject
to Board approval, Employee shall be entitled to
2
<PAGE> 3
receive options to purchase 200,000 shares of Common Stock, par value
$.01 per share, of the Company, exercisable at the fair market value
thereof on the same date the grants of stock options are first made to
other executive officers of the Company, on the same terms and
conditions as such stock options are made to such other executive
officers, except that, at the direction of Employee, up to one-half of
such stock options shall be non-qualified stock option, transferable to
family members and Entities owned or controlled by family members.
(c) EMPLOYEE BENEFIT PLANS. Employee shall be entitled to
participate in all pension, 401(k), retirement, life, disability and
health insurance, hospitalization, major medical and other the employee
benefit plans and arrangements, if any (as in effect and as amended
from time to time), to the extent that his position, tenure, salary,
age, health and other qualifications make his eligible to participate,
generally made available by the Company to comparable level employees,
subject to and on a basis consistent with the terms, rules and
regulations, conditions and overall administration of such plans and
arrangements. Notwithstanding the foregoing sentence, the Company may
discontinue at any time any such the employee benefit plan or
arrangement, to the extent permitted by the terms of such plans or
arrangements, and shall not be required to compensate Employee for the
elimination of any such employee benefit plans or arrangements.
(d) EXPENSES. The Company shall, upon presentment by Employee
of appropriate receipts and vouchers therefor, reimburse Employee for
all reasonable, ordinary and necessary out-of-pocket business expenses
incurred by Employee in connection with the performance of his duties
under this Agreement, provided that such expenses are incurred and
accounted for in accordance with and subject to the normal policies and
procedures of the Company.
(e) VACATION. Employee shall be entitled to reasonable paid
vacation time in accordance with the policies of the Company applicable
to executive officers of the Company.
(f) METRETEK OPTIONS.Because the Company is a subsidiary of
Metretek Technologies, Inc., a Delaware corporation ("Metretek"),
employees of the Company are eligible to receive stock options under
the Metretek 1998 Stock Incentive Plan. In consideration in part for
inducing Employee to enter into this Agreement and for his services
hereunder, the Company shall cause Metretek to grant to Employee an
option (the "Metretek Option") to purchase 60,000 shares of Common
Stock, par value $.01 per share ("Metretek Common Stock"), of Metretek,
with an exercise price equal to 110% of the last sale price of the
Metretek Common Stock as reported on the Nasdaq National Market on the
date hereof. The Metretek Option shall vest in three equal
installments: one-third on the date hereof, one-third in six months and
one-third in eighteen months.
SECTION 5. TERMINATION OF EMPLOYMENT. Notwithstanding Section 2 hereof,
the Employment Term and Employee's employment hereunder shall terminate as
follows:
(a) DEATH. Employee's employment hereunder shall automatically
terminate upon his death, and the Company shall pay to his designated
beneficiary (or, if none, to his estate) the pro rata portion of his
Salary and all other accrued and vested but unpaid compensation through
the date of his death.
(b) DISABILITY. The Company shall have the right, in its sole
discretion, to terminate Employee's employment hereunder in the event
of Employee's "Disability" upon giving at least 30 days written notice
to Employee of its intention to terminate Employee's employment. For
purposes of this Agreement, "Disability" means the physical or mental
inability of Employee, due to illness, accident or
3
<PAGE> 4
other incapacity, to effectively perform the essential functions of his
duties hereunder for any period of 90 consecutive days, or 180 days
during any twelve-month period, or which results from an incapacity
determined to be total and permanent as determined by an independent
physician selected by the Company.
(c) BY THE COMPANY FOR CAUSE. The Company shall have the
right, in its sole discretion, to terminate Employee's employment
hereunder at any time for "Cause" immediately upon giving written
notice of termination to Employee. Upon termination for Cause, Employee
shall be entitled to receive only the accrued but unpaid portion of his
Salary through the date of termination, plus any accrued and vested but
unpaid compensation as of such date, but Employee shall not be entitled
to any bonus or incentive compensation for the year in which he was
terminated. Employee shall have no right to receive any other or
further compensation or benefits. For purposes of this Agreement,
"Cause" includes the following:
(i) The failure or refusal by Employee to perform any
of his duties hereunder, or the breach by Employee of any of
his obligations, covenants, representations, warranties or
acknowledgments hereunder, which failure, refusal or breach
remains unremedied or uncured for a period of 15 days after
specific written notice thereof is given to Employee by the
Board or any Senior Officer;
(ii) Any act of dishonesty, disloyalty,
insubordination, fraud, breach of fiduciary duty or bad faith
by Employee that is materially detrimental to the Company or
that results in substantial personal enrichment of Employee;
(iii) The conviction of Employee, or the entering of
a guilty plea or a plea of no contest by Employee with respect
to (A) a felony, or (B) a misdemeanor that involves theft,
fraud or dishonesty, results in Employee's imprisonment or
impairs Employee's ability to perform his duties hereunder or
damages the reputation or business of the Company;
(iv) Except as authorized by the Board or by any
Senior Officer, the failure of Employee to comply with any
applicable law, rule, regulation or any order, injunction,
ruling or similar decree of any court, arbitrator or
governmental authority which results in material injury to the
property, business, operations or reputation of the Company;
(v) The misappropriation (or attempted
misappropriation) or embezzlement by Employee of any funds,
property, business opportunity or rights of the Company,
including securing (or attempting to secure) any personal
profit in connection with any transaction entered into on
behalf of the Company without the prior consent of the Board;
(vi) The breach by Employee of, or failure or refusal
of Employee to adhere to, any written code of conduct, policy
or instructions of the Company applicable to executive
officers of the Company that is not remedied by Employee
within twenty (20) business days after receipt of notice
thereof given by the Company;
(vii) The use by Employee of drugs, alcohol or
narcotics which interferes with the performance of Employee's
duties and responsibilities under this Agreement;
(viii) The excessive absence by Employee unrelated to
illness or permitted leave time; or
4
<PAGE> 5
(ix) Gross dereliction, misconduct, neglect,
incompetence or insubordination of Employee or mismanagement
by Employee in connection with Employee's duties or
responsibilities hereunder.
(d) BY THE COMPANY WITHOUT CAUSE. The Company shall have the
right, in its sole discretion, to terminate Employee's employment
hereunder at any time effective upon the giving of written notice of
such termination to Employee (or at such later date as the notice
provides). In such event, Employee shall be entitled to receive (i) all
amounts of Salary and bonuses accrued but unpaid through the date of
termination, (ii) an amount equal to the Salary at the rate in effect
on the date of termination for a period the shorter of twelve months or
the remainder of the Employment Term, (iii) any rights and benefits of
any of the employee benefits accruing to him (including any plans in
which he was participating) as of the date of such termination, subject
to the terms and conditions of such plans and benefits, but Employee
shall not attain vested status in any plans or benefits in which he is
not vested on the date of termination (except as provided in clause
(iv) below), and (iv) the Metretek Option shall immediately vest and
become exercisable and remain exercisable for the periods set forth in
the Metretek Option. In the event of the termination of Employee's
employment hereunder by the Company without Cause, Employee shall use
his best efforts to mitigate the amounts payable under this Section
5(d) hereof by seeking other employment; provided, however, that
Employee shall not be required to accept a position: (i) of
substantially different character than the position held by Employee
with the Company during the Employment Term, or (ii) that might
reasonably be expected to by result in a violation by Employee of the
provisions of Section 6. To the extent that Employee shall receive
compensation and benefits from such other employment for services
rendered during the remainder of the Employment Term computed without
regard to the termination, the payments and benefits to be made or
provided by or at the direction of the Company under the provisions of
this Section 5(d) shall be correspondingly reduced.
(e) VOLUNTARY TERMINATION BY EMPLOYEE. Employee agrees not to
voluntarily terminate his employment hereunder except by giving at
least 60 days written notice to the Company. Upon such voluntary
termination by Employee, Employee shall be entitled to receive only the
accrued but unpaid portion of his Salary (but not any bonus) through
the date of termination and the accrued and vested rights and benefits
under any Employee benefits plan which he was entitled to receive at
the date of such termination, subject to the terms and conditions of
such plans.
(f) UPON MERGER, ACQUISITION OR CHANGE IN CONTROL OF THE
COMPANY. Neither this Agreement nor Employee's employment hereunder
shall terminate solely by reason of any sale of assets or capital stock
of the Company, or any merger or consolidation or change in control of
the Company, if Employee is offered employment with the resulting,
survivor or successor entity on terms and conditions, in the aggregate,
not materially less favorable to Employee than the terms of this
Agreement.
(g) NO FURTHER OBLIGATION TO EMPLOYEE. The payments and
benefits (if any) required to be made or provided to Employee pursuant
to this Section 5 shall be in full and complete satisfaction of, and
shall constitute the full settlement and release of the Company by
Employee with regard to all obligations of the Company owed to Employee
pursuant to this Agreement. After the date of termination of Employee's
employment hereunder, the Company shall have no further obligations to
Employee under this Agreement except as otherwise set forth herein.
(h) SURVIVAL OF EMPLOYEE'S OBLIGATIONS. Notwithstanding the
termination of this Agreement by either party hereto for any reason,
the obligations of Employee under Section 6 hereof and
5
<PAGE> 6
the other provisions thereof shall survive the termination or
expiration of this Agreement or Employee's employment hereunder and
shall remain in full force and effect for the period provided therein.
SECTION 6. COVENANTS. In consideration in part for the compensation to
be paid to Employee hereunder by the Company, and in order to induce the Company
to enter into this Agreement and the Stock Purchase Agreement, Employee hereby
makes the following covenants to the Company:
(a) COVENANT NOT TO COMPETE. During the Employment Term and
for a period of one year thereafter (the "Restricted Period"), Employee
shall not, directly or indirectly, alone or in association with others,
whether as owner, shareholder, employee, officer, director, partner,
manager, member, lender, investor, consultant, principal, agent,
independent contractor, co-venturer or in any other capacity, invest
in, engage in, have a financial interest in, be in any other way
connected or affiliated with, or render advice or service to, any
Person that is in competition with the Company in the United States or
in any other country in which the Company does a material amount of
business or otherwise has material operations.
(i) COMPETITION WITH THE COMPANY. For purposes of
this Agreement, (A) the phrase "in competition with the
Company" shall be deemed to include competition with the
Company and its subsidiaries and Affiliates, or their
respective successors or assigns, or the businesses of any of
them, and (B) a business shall be deemed to be in competition
with the Company if it is engaged in any business activity or
has products or services that are the same or similar to the
business activities, products or services of the Company
during the Employment Term. Notwithstanding the foregoing,
nothing herein contained shall prevent Employee from acquiring
and holding for investment up to two percent (2%) of any class
of securities of any corporation, if such securities are
listed or traded on a national securities exchange or the
Nasdaq Stock Market or in the over-the-counter market.
(ii) INTERPRETATION OF COVENANT. The parties hereto
acknowledge and agree that the duration and area for which the
covenant not to compete set forth in this Section 6(a) is to
be effective are fair and reasonable and are reasonably
necessary for the protection of the Company and its business
and good will, and Employee hereby waives any objections to or
defenses in respect thereof. In the event that any court
determines that any portion of the time period or the area, or
both of them, are unreasonable, arbitrary or against public
policy, and that such covenant is to such extent
unenforceable, illegal or invalid, the parties hereto agree
that this Section 6(a) shall be deemed amended to delete
therefrom such provisions or portions adjudicated to be
unenforceable, illegal or invalid so that the covenant shall
remain in full force and effect for the greatest time period
and in the greatest geographical area that would render it
enforceable, legal and valid. The parties intend that the
covenant set forth in the Section 6(a) shall be deemed to be a
series of separate covenants, one for each and every county of
each and every state of the United States of America and one
for each and every political subdivision of each and every
other country where the covenant is intended to be effective
and is not proscribed by law.
(b) COVENANT REGARDING DISCLOSURE OR USE OF CONFIDENTIAL
INFORMATION.
(i) Employee acknowledges that during the Employment
Term and as a result of his employment by the Company, he will
learn, obtain and have access to confidential and proprietary
information regarding the business and affairs of the Company
and its Affiliates. Employee hereby agrees that at all times
during and after the Employment Term he shall keep strictly
confidential and hold in confidence all Confidential
Information (as defined below), and shall not, directly or
indirectly, use any Confidential Information for Employee's
own benefit or for the benefit of any other Person or divulge,
disclose, communicate or otherwise reveal any Confidential
Information to any Person in any manner
6
<PAGE> 7
whatsoever, other than to the directors, employees and agents
of the Company, and then only in the course of the Company's
affairs to the extent necessary for them to perform services
to and responsibilities on behalf of the Company.
(ii) As used herein, "Confidential Information" means
any and all information, however documented, which is
confidential property or otherwise non-public, related to the
business and affairs of the Company and its Affiliates,
including, but not limited to, their assets, properties,
operations, finances, practices, procedures, policies,
methods, contracts, agreements and arrangements, lending
policies, pricing policies, price lists, financial plans,
business plans, financial information, financial projections,
budgets, marketing strategies and techniques; the identity and
location of all past, present and prospective customers,
suppliers, affiliates, debtors, creditors, lenders, employees,
consultants, advisors, agents, distributors, wholesalers,
clients and others who have dealings with the Company; trade
secrets, processes, photographs, graphics, product
specifications, formulas, compositions, samples, inventions,
ideas, research and development; patents, patent applications;
copyrights and copyright applications (in any such case,
whether registered or to be registered in the United States or
any foreign country) applied for, issued to or owned by the
Company; any and all processes, computer programs and software
(including object code and source codes, database,
technologies, engineering or technical data, drawings,
sketches or designs, manufacturing or distribution methods or
techniques; and any other information known to Employee to be
confidential, proprietary, secret or otherwise non-public
information.
(iii) Employee hereby acknowledges and agrees that,
as between the Company and Employee, all of the Confidential
Information, however documented, whether or not developed,
created or modified by Employee, is the exclusive property of
the Company.
(iv) Upon the termination or expiration of the
Employment Term, Employee shall leave with or return to the
Company, without making or retaining any copies, or other
records of, all Confidential Information including all copies,
summaries, abstracts thereof and all memoranda, notes,
records, reports, books, letters, customer lists, manuals and
other writings or documents whatsoever pertaining thereto.
Notwithstanding the foregoing, as used herein "Confidential
Information" does not mean or include any information that is
generally available to the public other than as a result of a
direct or indirect disclosure by Employee.
(c) COVENANTS REGARDING BUSINESS RELATIONSHIPS. Employee
agrees that during and throughout the Employment Term and the
Restricted Period, except when acting on behalf of the Company, he
shall not, directly or indirectly, (i) employ, solicit, induce, engage
or cause any director, officer, employee, independent contractor,
consultant, salesman or other agent of the Company (whether now or
hereafter engaged by the Company) to (A) terminate his employment or
engagement with the Company, (B) accept employment or engagement or
otherwise render services to any other Person or business (wherever
located, and regardless of type of business conducted), or (C)
interfere with the business of the Company; or (ii) solicit any clients
or customers of the Company or interfere in any business relationship
between the Company and any other person, firm or entity, including any
person who was at any time an employee, consultant, contractor,
advisor, supplier, lender or customer of the Company. Employee shall
not, at any time during or after the Employment Term, disparage the
business reputation of the Company or any of its shareholders,
directors, officers, employees or agents or take actions that are
harmful to the Company's good will with others.
(d) INTELLECTUAL PROPERTY. During and throughout the
Employment Term and the Restricted Period, Employee agrees to disclose
to the Company any and all ideas, improvements, techniques,
modifications, processes, inventions, developments, discoveries, trade
secrets, trademarks,
7
<PAGE> 8
service marks, copy rights, trade names, business plans and any work of
authorship ("Intellectual Property") developed, conceived, created,
made, devised, discovered, acquired or acquired knowledge of, by
Employee during the Employment Period, either by himself or in
conjunction with any other person, which relates in any way, directly
or indirectly, or may be useful in any manner in the business of the
Company or its Affiliates, and any such item that is based upon or
utilizes Confidential Information, whether or not the Company or its
Affiliates obtains a patent, trademark, service mark or copyright
thereon. Employee hereby agrees that the Intellectual Property shall
become and remain the sole and exclusive property of the Company.
Employee hereby acknowledges that all of Employee's writing, works of
authorship and other Intellectual Property are works made for hire and
the property of the Company, including patents, trademarks, service
marks, copyrights and other intellectual property rights pertaining
thereto. Employee shall, at the request and cost of the Company or any
of its Affiliates, render assistance as the Company deems necessary or
desirable to secure, prosecute and/or defend the rights thereto by
patent, trademark, service mark, copyright to otherwise to the Company
or its Affiliates, including without limitation the assignment,
transfer and conveyance to the Company or its Affiliates of all of
Employee's right, title and interest in and to the Intellectual
Property.
(e) EMPLOYEE'S ACKNOWLEDGMENT. The Company spends considerable
amounts of time, money and effort in developing and maintaining good
will in its industry. Employee agrees the covenants contained within
this Section 6 (i) are reasonable and necessary in all respects to
protect the goodwill, trade secrets, confidential information, and
business interests of the Company; (ii) are not oppressive to Employee;
(iii) do not impose any greater restraint on Employee than is
reasonably necessary to protect the goodwill, trade secrets,
confidential information and legitimate business interests of the
Company; and (iv) will not, upon the termination, of Employee's
employment with the Company for any reason whatsoever, cause Employee
to be unable to earn a living that is suitable and acceptable to
Employee.
(f) EQUITABLE RELIEF.Employee hereby acknowledges and agrees
that his services to be rendered to the Company hereunder and his
obligations contained in this Section 6 are of special, unique and
personal character which gives them a peculiar value to the Company,
that the Company cannot be reasonably or adequately compensated in
money damages in an action at law in the event Employee breaches any
obligations under this Section 6, and that the provisions of this
Section 6 are reasonable and necessary to protect the business of the
Company. Employee therefore expressly agrees that, in addition to any
other rights or remedies which the Company may have at law or in equity
or by reason of any other agreement, the Company shall be entitled to
injunctive and other equitable relief in the form of temporary,
preliminary and permanent injunctions without posting bond or other
security in the event of any actual or threatened breach of any such
obligation by Employee and without the necessity of proving actual
damages, and to discontinue any salary, bonus, benefits and/or
insurance continuation provided hereunder. Nothing in this Agreement
shall be construed to prohibit the Company from pursuing any other
remedy, and Employee agrees that all remedies of the Company are
cumulative.
(g) NATURE OF COVENANTS. Employee's covenants in Section 6
hereof are independent covenants, and the existence of any claim by
Employee against the Company under this Agreement or otherwise will not
excuse Employee's breach or waive Employee's obligation to perform, any
covenant in this Section 6. If Employee's employment hereunder
terminates for any reason, or the Employment Term expires, this Section
6, and the other terms and conditions of this Agreement necessary or
appropriate to enforce the covenants of Employee in Section 6, shall
survive and remain in full force and effect.
8
<PAGE> 9
SECTION 7. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. Employee
represents and warrants to the Company that (a) Employee is under no contractual
or other restriction, arrangement or obligation which is or will be breached by
or in conflict or inconsistent with his execution and delivery of this
Agreement, the performance of his duties hereunder, or the other rights of the
Company hereunder, and (b) Employee is under no physical or mental disability or
incapacity that would hinder the performance of his duties under this Agreement.
SECTION 8. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this
Agreement shall preclude the Company from consolidating with, merging into, or
transferring all or substantially all of its assets to another entity which
assumes all of the Company's obligations and undertakings hereunder. Upon such a
consolidation, merger or transfer of assets, the term "Company" as used herein
shall mean such other entity, and this Agreement shall continue in full force
and effect.
SECTION 9. EMPLOYEE ACKNOWLEDGMENT; COUNSEL. Employee acknowledges by
executing this Agreement and delivering it to the Company that (i) he has read
all of the terms and conditions hereof, including his obligations, covenants,
representations and warranties to the Company; (ii) the covenants of Employee in
Section 6 hereof are essential elements of this Agreement, and the Company would
not have entered into this Agreement or the Stock Purchase Agreement without
Employee's agreement to comply with such covenants; (iii) each and every term,
covenant and restriction is reasonable and necessary for the proper protection
of the Company's business; and (iv) he has been advised by the Company that he
should consult with independent counsel of his choice and have such counsel
review this Agreement and render advice thereon to Employee, and Employee has
either done so or voluntarily elected not to do so.
SECTION 10. TAXES. All payments required to be made by the Company
hereunder to Employee shall be subject to withholding of such amounts relating
to taxes as the Company may reasonably determine it should withhold pursuant to
any applicable federal, state or local law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company may, in its sole discretion,
accept other provision for payment of taxes, provided it is satisfied that all
requirements of law affecting its responsibilities to withhold such taxes have
been satisfied.
SECTION 11. NO ATTACHMENT. Except as required by law, no right to
receive payment under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy, or similar process of
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
SECTION 12. ARBITRATION. Any dispute, controversy or claim arises out
of, under or in connection with, or otherwise relating to, this Agreement (other
than the Company's rights under Section 6) (a "Dispute"), including but not
limited to the parties' rights and obligations hereunder, or any actual or
alleged breach hereof, shall be determined and settled by binding arbitration in
Denver, Colorado in accordance with the rules of the commercial rules and
procedures of the American Arbitration Association, as amended by this
Agreement. Promptly after a Dispute arises, the parties agree to make a good
faith effort to select one mutually agreeable arbitrator. If the parties are
unable to reach agreement on an arbitrator within thirty (30) days after the
Dispute is submitted to arbitration, one arbitrator shall be selected in
accordance with the commercial rules and procedures of the American Arbitration
Association. Any determination, resolution or award made by the arbitrators
shall specify the findings of fact of the arbitrators and the reasons for the
9
<PAGE> 10
determination, resolution or award, and such determination, resolution or award
shall be final and binding. If the parties hereto mutually agree to a resolution
of any Dispute prior to the arbitrators' decision, the agreement of the parties
shall resolve the Dispute. The party prevailing in any arbitration, as
determined by the arbitrator, shall be entitled to an award of all of its
out-of-pocket costs and expenses incurred in connection with the Dispute,
including but not limited to reasonable attorneys' fees, court costs and expert
fees. An arbitration award or decision may be entered by any court of competent
jurisdiction, or application may be made to such a court for judicial acceptance
of the award or decision and any appropriate order, including enforcement. The
parties hereby consent to the submission of any Dispute for settlement by
binding arbitration in accordance with this Section 14 and agrees to carry out
without delay the provisions of any arbitration award, decision or resolution.
SECTION 13. GENERAL PROVISIONS.
(a) GOVERNING LAW. This Agreement shall in all respects be
governed by, and construed in accordance with, the internal substantive
laws of the State of Colorado, without giving effect to any conflict or
choice of law principles or rules.
(b) AMENDMENT. This Agreement may not be amended or modified
in whole or in part in any manner except in a writing which makes
reference to this Agreement executed by both parties hereto.
(c) ASSIGNMENT. Neither the Agreement, nor any rights,
obligations or duties hereunder, may be assigned or delegated by any
party hereto without the prior written consent of the other party
hereto; provided, however, that this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the
Company upon any sale of all or substantially all of the Company's
stock or assets, or upon any merger, consolidation or reorganization of
the Company with or into any other Person, so long as such successors
or assigns assume all of the Company's obligations hereunder. As used
in this Agreement, the term "Company" shall be deemed to refer to any
such successor or assign of the Company referred to in the preceding
sentence.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
(e) ENTIRE AGREEMENT.
(i) This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the
subject matter hereof and supersedes in their entirety all
prior and contemporaneous written and oral agreements,
arrangements, understandings, negotiations, communications,
covenants, representations and warranties among the parties
hereto relating to the subject matter hereof.
(ii) Employee acknowledges that from time to time,
the Company may establish, maintain or distribute the employee
manuals or handbooks or personnel policy manuals, and officers
or other representatives of the Company may make written or
oral statements relating to personal policies and procedures.
Such manuals, handbooks and statements are intended only for
general guidance. No policies, procedures or statements of any
nature by or on behalf of the Company (whether written or
oral, and whether or not contained in any the employee manual
or handbook or personnel policy manual), and no acts or
practices of any nature, shall be construed to modify this
Agreement.
10
<PAGE> 11
(f) NOTICES. Any and all notices, demands, requests, elections
and other communications required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given (i)
upon personal delivery; (ii) upon confirmation of receipt when sent by
facsimile transmission; (iii) one business day after deposit during
normal business hours with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt;
(iv) five business days after being sent by first class (certified or
registered) mail, postage prepaid, return receipt requested, in each
case to the following addresses:
If to the Company:
PowerSpring, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: Chief Executive Officer
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
With copies to:
Metretek Technologies, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: W. Phillip Marcum, President
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
Paul R. Hess, Esq.
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 E. State Street, Suite 1800
Columbus, Ohio 43215
Telephone: (614) 462-5400
Facsimile: (614) 464-2634
If to Mercator:
John A. Harpole
[600 17th Street, Suite 600 South
Denver, Colorado 80202
Telephone: (303) 825-1100
Facsimile: (303) 825-2300]
11
<PAGE> 12
With a copy to:
Ducker, Montgomery & Lewis, P.C.
1560 Broadway, Suite 1500
Denver, Colorado 80202
Attn: Bruce Ducker, Esq.
Telephone: (303) 861-2828
Facsimile: (303) 861-4017
Any party hereto may send any notice, demand, request, election or
other communication to the intended recipient at its address set forth
above using any other means (such as expedited courier, messenger
service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, demand, request or other communication shall be deemed to
have been given until it is actually received by the recipient. Any
party hereto may change its designated address by giving written notice
to all other parties.
(g) WAIVER. The obligations of any party hereunder may be
waived only with the written consent of the party or parties entitled
to the benefits the obligations so involved. Any waiver of a breach or
violation of or default under any provision of this Agreement shall not
be construed or operate as, or constitute, a waiver of any other or
subsequent breach or violation of or default under that provision or
any other provision of this Agreement. The failure of any party to
insist upon strict compliance with any provision of this Agreement on
any one or more occasions shall not be construed or operate as, or
constitute, a continuing waiver of, or an estoppel of that party's
right to insist upon strict compliance with, that provision or any
other provision of this Agreement.
(h) SEVERABILITY. The provisions of this Agreement shall be
deemed severable. If any provision of this Agreement is determined to
be illegal, invalid or unenforceable in any situation: (i) the parties
hereto shall agree to a suitable and equitable provision to be
substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable
provision; and (ii) the remainder of this Agreement shall remain in
full force and effect, and the application of such provision in any
other situation shall not be affected.
(i) COUNTERPARTS. This Agreement may be executed in any number
of counterparts (including counterparts executed by less than all
parties hereto), each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument.
(j) HEADINGS. The headings used herein are solely for
convenience of reference and shall not be given any effect in the
construction or interpretation of this Agreement.
(k) NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement,
express or implied, in intended to create or confer and shall not be
construed or operate as creating or conferring, any rights or remedies
under or by reason of this Agreement, upon any Person other than the
parties hereto and their respective successors and permitted assigns.
(l) FURTHER ASSURANCES. The parties hereto agree to take or
cause to be taken all actions, which are necessary, convenient or
desirable in order to effect the transactions contemplated by this
Agreement.
12
<PAGE> 13
(m) BEST EFFORTS. Each of the parties hereto shall act in good
faith and use its best efforts to bring about the transactions
contemplated by this Agreement.
(n) EXPENSES. Except as otherwise expressly provided herein,
each of the parties to this Agreement shall pay its own costs and
expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby.
(o) CONSTRUCTION. In the event an ambiguity or question or
intent or interpretation arises, this Agreement shall be construed as
if drafted jointly by the parties hereto and no presumption or burden
of proof shall arise favoring or disfavoring any party hereto by virtue
of the authorship of any of the provisions of this Agreement.
(p) SPECIFIC PERFORMANCE. Each of the parties hereto
acknowledges and agrees that the other parties hereto would suffer
irreparable damage for which an adequate remedy at law would not be
available in the event any of the provisions of this Agreement is not
performed in accordance with its specific terms or otherwise is
breached. Accordingly, each of the parties hereto agrees that the
non-breaching parties shall be entitled to an injunction, restraining
order or other form of equitable relief from any court of competent
jurisdiction to prevent breaches of, and to specifically enforce, the
provisions of this Agreement.
(q) INTERPRETATION OF CERTAIN PROVISIONS. Except as otherwise
expressly provided herein, as used in this Agreement:
(i) Any reference to any federal, state, local or
foreign statute or law shall be deemed also to include a
reference to all rules and regulations promulgated thereunder.
(ii) The term "including" means "including, without
limitation".
(iii) The term "Entity" means and includes a
corporation, partnership, limited liability company, joint
venture, trust, association, unincorporated organization,
governmental or regulating body or authority, or any other
form of business or entity.
(iv) The term "Person" means and includes an
individual and an Entity.
(v) The number and gender of each noun and pronoun
and the terms "Person" and "Persons" and the like shall be
construed to mean such number and gender as the context, the
circumstances or its antecedent may require.
(vi) The terms "hereof", "herein", "hereunder" and
words of similar import refer to this Agreement as a whole,
and not to any Section, subsection or clause of this
Agreement.
(vii) Each reference to a Section means such Section
of this Agreement.
* * * * *
13
<PAGE> 14
IN WITNESS WHEREOF, this Employment and Non-Competition Agreement has
been executed and delivered by the parties hereto or their respective duly
authorized officers, effective as of the date first above written.
THE COMPANY:
POWERSPRING, INC.
By:/s/ W. Phillip Marcum
-----------------------------------
W. Phillip Marcum, President
EMPLOYEE:
/s/ John A. Harpole
-----------------------------------
John A. Harpole
14
<PAGE> 1
EXHIBIT 10.18
---------
EXECUTION
COPY
---------
================================================================================
STOCKHOLDERS AGREEMENT
AMONG
POWERSPRING, INC.,
METRETEK TECHNOLOGIES, INC.
AND
JOHN A. HARPOLE
DATED AS OF MARCH __, 2000
================================================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS.........................................................1
1.1. Certain Defined Terms.......................................1
1.2. Certain Other Defined Terms.................................3
1.3. Other Definitional Provisions...............................3
SECTION 2. RESTRICTIONS ON TRANSFERS OF HARPOLE SHARES.........................3
2.1. General Restrictions on Transfer............................3
2.2. Effect of Prohibited Transfer...............................3
SECTION 3. RIGHTS OF REFUSAL...................................................4
3.1. Right of First Refusal......................................4
3.2. Right of Second Refusal.....................................4
3.3. Purchase Price..............................................4
3.4. Closing of Rights of Refusal................................5
3.5. Sale to Prospective Purchaser...............................5
3.6. Permitted Transfers.........................................5
3.7. Securities Act Matters......................................6
SECTION 4. CO-SALE RIGHTS......................................................6
4.1. Co-Sale Rights..............................................6
4.2. Co-Sale Notice..............................................6
4.3. Exercise of Co-Sale Right...................................7
4.4. Exceptions..................................................7
SECTION 5. DRAG-ALONG RIGHT....................................................7
5.1. Drag-Along Right............................................7
5.2. Drag-Along Notice...........................................7
5.3. Agreement...................................................7
SECTION 6. REGISTRATION RIGHTS.................................................8
6.1. Piggy-Back Registration.....................................8
6.2. Demand Right................................................8
6.3. Information.................................................9
6.4. Market Stand-Off............................................9
6.5. Expenses....................................................9
6.6. Indemnification by Initial Stockholder.....................10
6.7. Indemnification by The Company.............................10
SECTION 7. PUT RIGHT..........................................................10
7.1. Put Right..................................................10
7.2. Put Exercise Period........................................11
7.3. Put Price..................................................11
7.4. Mechanics of Exercise......................................11
7.5. Closing of Put Right.......................................11
7.6. Payment of Purchase Price..................................11
7.7. Inability of Company.......................................12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
SECTION 8. DILUTION MATTERS...................................................12
8.1. Preemptive Rights..........................................12
8.2. Metretek Funding of Purchaser..............................12
SECTION 9. HARPOLE'S RIGHT AS A DIRECTOR......................................13
SECTION 10. EFFECTUATION PROVISIONS............................................13
10.1. Enabling Action............................................13
10.2. Legend.....................................................13
10.3. Acknowledgement of Necessity of Restrictions...............14
10.4. Record of Transfers........................................14
10.5. Voting of Shares ..........................................14
10.6. No Contrary Action.........................................14
10.7. Company Determinations.....................................15
SECTION 11. TERMINATION OF AGREEMENT...........................................15
11.1. Termination................................................15
11.2. Effect of Termination......................................15
SECTION 12. ARBITRATION........................................................15
SECTION 13. GENERAL PROVISIONS.................................................16
13.1. Governing Law..............................................16
13.2. Amendment..................................................16
13.3. Assignment.................................................16
13.4. Successors and Assigns.....................................16
13.5. Entire Agreement...........................................16
13.6. Notices....................................................16
13.7. Waiver.....................................................17
13.8. Severability...............................................18
13.9. Counterparts...............................................18
13.10. Headings...................................................18
13.11. No Third Party Beneficiaries...............................18
13.12. Further Assurances.........................................18
13.13. Best Efforts...............................................18
13.14. Expenses...................................................18
13.15. Construction...............................................18
13.16. Specific Performance.......................................18
13.17. No Agency or Partnership...................................19
</TABLE>
2
<PAGE> 4
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made and entered into
as of the 17th day of March, 2000, by and between PowerSpring, Inc., a Delaware
corporation (the "Company"), and Metretek Technologies, Inc., a Delaware
corporation ("Metretek"), and John A. Harpole ("Harpole" and, collectively with
Metretek, the "Initial Stockholders").
RECITALS
--------
WHEREAS, the Initial Stockholders are the holders of all (100%) of the
issued and outstanding shares of capital stock of the Company; and
WHEREAS, the Company and Harpole are parties to an Agreement and Plan
of Merger, of even date herewith ("Merger Agreement"), pursuant to which the
Company is issuing shares of its Common Stock, par value $.01 per share
("Shares"), to Harpole in exchange in part for all the outstanding shares of
capital stock of Mercator Energy Incorporation, a Colorado corporation; and
WHEREAS, it is a condition to the closing of the Merger Agreement that
Harpole and the Company enter into this Agreement on the terms and conditions
set forth herein; and
WHEREAS, the Company and the Initial Stockholders believe it is in the
best interests of the Company and its stockholders to provide for the stability
of the ownership of the Company and to provide for the orderly issuance,
ownership and transfer of the Company's securities;
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements 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. DEFINITIONS.
-----------
1.1 Certain Defined Terms. As used herein, the following terms shall
have the following respective meanings:
"Affiliate" means, with respect to any Person, any (i) officer,
director, general partner, trustee, manager, or record or beneficial holder of
more than 10% of the outstanding voting interests of, such Person, (ii) any
other Person which directly or indirectly controls, is controlled by, or is
under common control with such Person, or (iii) any Relation of any of the
foregoing Persons. For purposes of this definition, a Person shall be deemed to
"control" another Person if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of the
"controlled" Person, whether through ownership of voting securities, by
contract, or otherwise. For purposes of this Agreement, Persons are
"unaffiliated" with each other if neither is an Affiliate of the other.
<PAGE> 5
"Agreement" means this Stockholders Agreement, as from time to time
amended, supplemented or restated in accordance with the terms of this
Agreement.
"Board" means the Board of Directors of the Company.
"By-Laws" means the By-Laws of the Company, as from time-to-time
amended, supplemented or restated in accordance with the terms of the Articles,
the By-Laws and the DGCL.
"Certificate" means the Certificate of Incorporation of the Company, as
from time to time amended, supplemented or restated in accordance with the terms
of the Certificate and the DGCL.
"Closing" means a closing of the purchase and sale of Shares made
pursuant to this Agreement.
"DGCL" means the General Corporation Law of the State of Delaware, as
from time to time amended, and any successor statutes.
"Harpole Shares" means any Shares owned from time to time by Harpole or
any Affiliate of Harpole.
"IPO" means an underwritten initial public offering of Shares pursuant
to a registration statement which has become effective under the Securities Act.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust, association, unincorporated
organization, regulatory or governmental body or authority or any other form of
business, entity or organization.
"Purchase Price" means the purchase price to be paid for Shares
purchased and sold under this Agreement.
"Purchaser" means any Person purchasing Shares under this Agreement.
"Relation" means, with respect to any Person, such Person's
grandparents, parents, siblings, spouse, children, stepchildren or
grandchildren, whether by blood, marriage or adoption.
"Representative" means, with respect to a Shareholder, the Person who
is in legal control of the Shares owned by such Shareholder, including, but not
limited to, an executor, representative, guardian or trustee of the Shareholder
or the Shareholder's estate, as applicable.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller" means any Person selling Shares under this Agreement.
"Shares" means the shares of Common Stock, par value $.01 per share, of
the Company, and other securities into which the shares of Common Stock are
converted, reclassified, reorganized or exchanged.
2
<PAGE> 6
"Stockholder" means each of Harpole and Metretek, and any other Person
whom after the date hereof becomes bound by the terms of, and a party to, this
Agreement, as the result of or in connection with a Transfer of Shares to such
Person or otherwise.
"Subsidiary" means, with respect to any Person, another Person of which
at least a majority of the voting securities or voting interests of such Person
are owned, directly or indirectly, by such Person.
"Transfer" means any sale, issuance, grant, assignment, transfer,
conveyance, distribution, pledge, hypothecation, encumbrance, disposition,
transfer, gift of, or attempt to create or grant a security interest in the
shares, whether voluntary or involuntary, by operation of law or otherwise
(including, without limitation, by will or intestate distribution, or pursuant
to a merger, consolidation, sale of assets or other form of reorganization).
1.2 Certain Other Defined Terms. Capitalized terms used in this
Agreement that are not defined in Section 2.1 shall be used as defined in this
Agreement.
1.3 Other Definitional Provisions. Except as otherwise expressly
provided herein, as used in this Agreement:
(a) Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder.
(b) The term "including" means "including, without
limitation".
(c) The number and gender of each name and pronoun and the
term "Person" or "Persons" or the like shall be construed to mean such
number and gender as the context, circumstances or its antecedent may
require.
(d) The terms "hereof", "herein", "hereunder", and the like
refer to this Agreement as a whole, and not to any Section, subsection,
or clause of this Agreement.
(e) Each reference to a Section means such Section of this
Agreement.
SECTION 2. RESTRICTIONS ON TRANSFERS OF HARPOLE SHARES.
-------------------------------------------
2.1. General Restrictions on Transfer. Harpole shall not directly or
indirectly Transfer or agree to Transfer any Shares now owned or hereafter
acquired by Harpole, unless (i) such Transfer is made in compliance in all
respects with the provisions of this Agreement, and the transferee (if other
than the Company or Metretek) has agreed in writing to become a party to, and be
bound by the terms of, this Agreement as a holder of Harpole Shares and subject
to the same terms and conditions as Harpole, or (ii) the Transfer is a
"Permitted Transfer" (as defined in Section 3.6).
2.2. Effect of Prohibited Transfer. Any Transfer, or attempted or
purported Transfer, of Shares by Harpole which is not made in compliance in all
respects with, or which violates any of, the provisions of this Agreement shall
be null and void and be given no effect, and neither the Company nor any Person
acting as share transfer agent for the Company shall recognize the Transfer or
recognize the transferee as the holder of any Shares for any purpose.
3
<PAGE> 7
SECTION 3. RIGHTS OF REFUSAL.
-----------------
3.1 Right of First Refusal.
(a) Notice of Offer. If Harpole desires to Transfer any or all
of the Harpole Shares (the "Offer") at or above a particular purchase
price (the "Offer Price") (the Shares subject to the Offer hereinafter
referred to as the "Offered Shares"), then Harpole shall first offer
such Shares at the Offer Price (the "Offer") and give notice of the
Offer (the "Notice of Offer"), to the Company and to Metretek. The
Notice of Offer shall include the number of Offered Shares, the Offer
Price and, if any specific Transfer is then contemplated by Harpole,
the terms of the proposed Transfer in reasonable detail, including the
name and address of the prospective purchaser, and the other material
terms of the Offer. The Notice of Offer shall also contain an
irrevocable Offer to sell the Offered Shares to the Company and
Metretek upon the terms and conditions of the Rights of Refusal set
forth in this Agreement.
(b) Company's Right of First Refusal. The Company shall have
the irrevocable first right and option (the "Right of First Refusal")
to purchase any or all of the Offered Shares upon the terms and
conditions set forth in this Section 3.1(b); provided that the Company
may not purchase any of the Offered Shares unless the Company and
Metretek have, collectively, agreed to purchase all of the Offered
Shares. The Company may exercise its Right of First Refusal by giving
written notice of such exercise (the "Notice of Exercise") to Harpole
on or before the thirtieth (30th) day after the Company shall have
received the Notice of Offer from Harpole. The Notice of Exercise shall
specify the number of Offered Shares the Company desires to purchase.
(c) Notice of Re-Offer. If the Company declines to exercise
its Right of First Refusal with respect to all of the Offered Shares,
then the Company shall give notice of that effect (the "Re-Offer
Notice") to Metretek promptly after making such decision, but in no
event later than the thirtieth (30th) day after the Company shall have
received the Notice of Offer. The Re-Offer Notice shall specify the
number of Offered Shares which the Company shall have declined to
purchase (the "Remaining Available Shares") and shall be accompanied by
a copy of the Notice of Exercise, if any.
3.2 Right of Second Refusal.
(a) Metretek's Right of Second Refusal.Upon receipt of the
Re-Offer Notice, Metretek shall have the irrevocable right and option
(the "Right of Second Refusal") to purchase all, but not less than all,
of the Remaining Offered Shares which the Company shall have declined
to purchase.
(b) Exercise of Right of Second Refusal. Metretek may exercise
its Right of Second Refusal for all of the Remaining Offered Shares by
giving written notice of such exercise to Harpole on or before the
fifteenth (15th) day after Metretek shall have received the Re-Offer
Notice from the Company.
3.3 Purchase Price. The Purchase Price to be paid for each
Offered Share purchased by the Company or Metretek in accordance with
this Section 3 shall be the Offer Price for such Offered Share as set
forth in the Notice of Offer, and shall be paid on the same terms set
forth in the Offer or, at the option of the Purchaser, by check or wire
transfer of immediately
4
<PAGE> 8
available funds, at the Closing, or by any other means mutually
acceptable to the Purchaser and Harpole.
3.4 Closing of Rights of Refusal. The Closing of the purchase and sale
of the Offered Shares pursuant to this Section 3 shall take place at the
principal place of business of the Company on a date forty-five (45) business
days after the date the Company receives the Notice of Offer, unless the
Purchaser and Harpole mutually agree on a different place or time. At the
Closing, Harpole shall deliver to the Purchaser all certificates representing
the Offered Shares duly endorsed in blank, or with duly endorsed blank stock
powers attached, and otherwise in proper form for Transfer, against payment by
each Purchaser by bank cashiers or certified check, or by wire transfer of
immediately available funds to an account designated by Harpole, of the Purchase
Price for the Offered Shares such Purchaser is purchasing, pursuant to the terms
and conditions of the Offer, as modified as permitted by this Agreement or by
Harpole, in his sole discretion. Upon Transfer, Harpole shall conclusively be
deemed, unless the Purchaser, in his sole discretion, permitting otherwise in
writing, to have given the following representations and warranties to the
Purchasers, which shall survive the Closing: (A) Harpole is the legal,
beneficial and record owner of the Offered Shares being purchased and sold, has
good and marketable title thereto and the absolute right to Transfer the same to
the Purchaser, and such Offered Shares, upon Transfer to the Purchaser, will be
free and clear of all security interests, pledges, claims, liens, option, rights
of first refusal, limitations or voting rights and restrictions of any kind
whatsoever (other than restrictions imposed by this Agreement and by federal and
state securities laws); and (B) the Transfer of Offered Shares by Harpole as
contemplated by this Agreement does not require any consent or approval of any
governmental authority, court or other Person that has not already been
obtained.
3.5 Sale to Prospective Purchaser. If the Right of First Refusal and
the Right of Second Refusal (collectively, the "Rights of Refusal") shall not in
the aggregate have been timely exercised for the purchase of all (100%) of the
Offered Shares, then Harpole shall have the right, for a period ending 180 days
after the earlier of (i) the day the Second Right of Refusal expires, or (ii)
the day Harpole receives notice that the Company and Metretek will not exercise
their Rights of Refusal to purchase 100% of the Offered Shares, to Transfer all,
but not less than all, of the Offered Shares free of the Rights of Refusal to
any other Person (the "Offered Shares Purchaser") at the same price and
otherwise upon the same terms (or at a price that is greater than and/or upon
terms more favorable to Harpole than) described in the Offer. If Harpole does
not Transfer the Offered Shares to the Prospective Purchaser within such 180-day
period, then the Transfer by Harpole of the Offered Shares will be again subject
to the Rights of Refusal. It shall be a condition of the effectiveness of the
Transfer of the Offered Shares to an Offered Shares Purchaser that (i) at least
ten (10) business days prior to the Closing of the sale of the Offered Shares to
the Offered Shares Purchaser, Harpole shall give written notice to the Company
of the name, address, and reasonable background and identity of the Offered
Shares Purchaser and the date of the scheduled Closing, and the Company shall
not, within 10 business days after such notice, have given written notice to
Harpole that it is exercising its right, in its reasonable discretion, to reject
to the Offered Shares Purchaser for valid business reasons, in its reasonable
discretion, and (ii) the Offered Shares Purchaser shall have agreed in writing
with the Company and Metretek to become a party to this Agreement as a
Shareholder, and to be bound by and to comply with all the terms of this
Agreement applicable to Harpole, and that the Offered Shares so purchased shall
be subject to all of the restrictions applicable to the Harpole Shares set forth
in this Agreement.
5
<PAGE> 9
3.6 Permitted Transfers. Notwithstanding any other provision of this
Section 3 to the contrary, the following Transfers (collectively, the "Permitted
Transfers") of Shares by Harpole shall not be subject to the Rights of Refusal:
(a) any Transfer of Shares made by Harpole in connection with
an IPO;
(b) any Transfer of Shares made by Harpole to the Company;
(c) any Transfer of Shares made by Harpole to any Relation of
Harpole or an Entity owned or controlled by Harpole or any Relation of
Harpole, for no considerations (provided the transferee complies with
the provisions in clause (ii) of the last sentence of Section 3.5 as if
the transferee were an Offered Shares Purchaser);
(d) any Transfer of Shares by Harpole to Metretek;
(e) any Transfer of Shares made by Harpole pursuant to
Harpole's Co-Sale Right under Section 5; and
(f) any Transfer of Shares made by Harpole that has been
approved in writing by Metretek.
3.7 Securities Act Matters. Notwithstanding any other provision of this
Agreement to the contrary, but subject to express written waiver by the Company
in the exercise of its good faith and reasonable judgment, Harpole shall not
make any Transfer of Shares without the registration of the Transfer of such
Shares under the Securities Act and applicable state securities laws or until
the Company shall have received such legal opinions or other assurances that
such Transfer is exempt from the registration requirements under the Securities
Act and applicable state securities laws as the Company in its good faith and
reasonable discretion deems appropriate in light of the fact and circumstances
relating to such proposed Transfer, together with such representations,
warranties and indemnifications from the transferor and the transferee as the
Company in its good faith and reasonable discretion deems appropriate to confirm
the accuracy of the facts and circumstances that are the basis for any such
opinion or other assurances and to protect the Company and the other
Stockholders from any liability resulting from any such Transfer.
SECTION 4. CO-SALE RIGHTS.
--------------
4.1 Co-Sale Rights. In the event Metretek desires to Transfer all or
part of its Shares for value to an unaffiliated third party ("Co-Sale
Purchaser"), then Harpole shall have the right ("Co-Sale Right"), subject to
applicable law and compliance with any other restrictions applicable to such
Transfer, to participate in such Transfer in accordance with this Section 4.
4.2 Co-Sale Notice. Metretek may Transfer any Shares pursuant to
Section 4 only if (i) the Co-Sale Purchaser agrees to provide Harpole with the
right to participate in the Transfer of the Shares to such Co-Sale Purchaser
upon the same terms and conditions as Metretek, and (ii) Metretek first notifies
Harpole, in writing, of such intended Transfer at least fifteen days prior to
the proposed date of Transfer (the "Co-Sale Notice"). The Co-Sale Notice shall
set forth in reasonable detail the terms of the Transfer, the date on or about
which such Transfer is to be consummated, the number of Shares to the
Transferred, and the name and address of the Co-Sale Purchaser.
6
<PAGE> 10
4.3 Exercise of Co-Sale Right.If Harpole desires to exercise his
Co-Sale Right under this Section 5, then Harpole shall notify Metretek in
writing within ten (10) days after receipt of the Co-Sale Notice that he will
sell to either the Prospective Purchaser or to Metretek, at Metretek's option, a
number of Shares on the same terms and conditions as the Selling Stockholder set
forth in the Co-Sale Notice. If the Co-Sale Purchaser will not purchase all of
the Shares which Harpole wishes to sell pursuant to this Section 4, then the
number of Shares which Harpole may Transfer pursuant to this Section 4 shall be
equal to the product obtained by multiplying (x) the total number of Shares
being purchased by the Co-Sale Purchaser, by (y) a fraction, (i) the numerator
of which is the total number of Shares owned by Harpole, and (ii) the
denominator of which is the total number of shares owned by Harpole and
Metretek.
4.4 Exceptions. Notwithstanding any other provision of this Section 4
to the contrary, the Co-Sale Right of Harpole set forth in this Section 4 shall
not apply to the following Transfers:
(i) any Transfer of Shares made by Metretek in connection with
an IPO;
(ii) any Transfer of Shares by Metretek to Harpole;
(iii) any Transfer of Shares by Metretek to the Company;
(iv) any Trust of Shares by Metretek to an Affiliate of
Metretek or the Company; or
(v) any other Transfer of Shares that has been approved in
writing by Harpole
SECTION 5. DRAG-ALONG RIGHT.
----------------
5.1 Drag-Along Right. If Metretek desires to Transfer all of its Shares
in any transaction with an unaffiliated third party ("Drag-Along Purchaser"),
then Metretek shall have the right (the "Drag-Along Right"), subject to
applicable law and compliance with any other restrictions applicable to such
Transfer, to require Harpole to Transfer, and Harpole hereby agrees to Transfer,
all of the Shares then owned by Harpole to the Drag-Along Purchaser, upon the
same terms and conditions as applicable to Metretek.
5.2 Drag-Along Notice. In order to exercise its Drag-Along Right,
Metretek shall give written notice to Harpole at least 15 days prior to the
proposed date of Transfer (the "Drag-Along Notice"). The Drag-Along Notice shall
set forth in reasonable detail the terms and conditions of the Transfer, the
date on which such Transfer is to be consummated, and the name and address of
the Drag-Along Purchaser.
5.3 Agreement. If Metretek exercises its Drag-Along Right, then Harpole
shall agree to enter into a purchase agreement in form and substance approved by
Metretek to the extent such Agreement shall contain customary representations
from Harpole as to the ownership of the Shares to be purchased in the absence of
liens thereon and customary indemnification provisions solely with respect to
such representations from Harpole. Harpole shall not be required to participate
in a proposed Transfer pursuant to the exercise of the Drag-Along Right unless
his liability for breaches of representations and warranties made in connection
with the Transfer is limited to no more than the total sales price received by
Harpole in such sale.
7
<PAGE> 11
SECTION 6. REGISTRATION RIGHTS.
-------------------
6.1 Piggy-Back Registration.
(a) Right to Piggy-Back. If, at any time during the period
commencing on the date after an IPO and ending three years thereafter
(the "Registration Period"), the Company proposes to register with the
Securities and Exchange Commission (the "SEC") the sale for cash of any
of its Shares of common stock by filing a registration statement under
the Securities Act, for its own account or for the account of any of
its stockholders (except pursuant to registration statements filed on
Form S-4 or Form S-8 or any successor or similar forms or other
unsuitable forms), the Company shall promptly give written notice of
such proposed filing to each Initial Stockholder and offer each Initial
Stockholders the opportunity to register such number of Shares owned by
the Initial Stockholders (the "Registerable Shares") as it may request
in writing. Upon the written request of an Initial Stockholder received
by the Company within fifteen (15) days after the giving of the notice
by the Company, the Company shall use its best efforts to cause the
number of Registerable Shares that the Initial Stockholder requests to
be so registered to be included in such registration.
(b) Underwriting Procedures. If any registration pursuant to
this Section 12(a) shall be, in whole or in part, in connection with an
underwritten public offering of Common Stock of the Company, then the
Company shall not be required to include any Registerable Shares in the
registration unless such Initial Stockholder accepts the terms and
conditions of the underwriting as agreed upon between the Company and
the underwriters. If the managing underwriter determines and advises
the Company in writing (which shall promptly notify such Initial
Stockholder) that the inclusion in the underwriting of all or any of
the Registerable Shares proposed to be included by the Initial
Stockholder would be reasonably likely to jeopardize the successful
marketing of the securities proposed to be registered for the
underwriting by the Company or materially adversely affect the price,
time or distribution of the public offering, then the Company shall
only be required to include the number of the Registerable Shares of an
Initial Stockholder 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 Registerable Shares requested to be
included in the underwriting by the Initial Stockholders shall be
reduced, pro rata among such Initial Stockholders to the number
determined to be appropriate by the managing underwriter (which may
include a reduction to zero).
(c) No Company Obligation. Neither the giving of a notice by
the Company nor any request by an Initial Stockholder under this
Section 6(a) shall, in any way, obligate the Company to file any
registration statement at any time or within any specific time period
after receipt of an Initial Stockholder's written request and,
notwithstanding the filing of any registration statement, the Company
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 an Initial Stockholder, without any further
obligation to an Initial Stockholder in respect of such registration
statement.
6.2 Demand Right. If, at any time during the Registration Period, the
Company shall receive a written request ("Demand Request") from an Initial
Stockholder for the registration of any or all of the Registerable Shares of the
Initial Stockholder, then the Company, upon the terms and subject to the
conditions set forth in this Section 6.2, shall use its best efforts to cause
all such Registerable Shares to be registered in an appropriate registration
statement of the SEC
8
<PAGE> 12
as shall be selected by the Company, provided that if the Company 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 the
Company desires to use a different form. If an Initial Stockholder intends for
the public offering covered by its Demand Request to occur by means of an
underwriting, it shall so advise the Company as a part of its Demand Request,
and the managing underwriter of such underwritten public offering shall be
selected by such Initial Stockholder and shall be reasonably acceptable to the
Company. The Company shall be obligated to register the Registerable Shares of
any Initial Stockholder under this Section 6.2 after receipt of a Demand Request
on one occasion per Initial Stockholder only. The Company shall be entitled to
include in any registration statement filed pursuant to this Section 6.2
additional shares of capital stock for its own account and for the account of
its other security holders. If the managing underwriter advises the Company in
writing that the inclusion of any or all such additional shares of capital stock
would materially adversely affect the marketing of the public offering of the
Registerable Shares of any Initial Stockholder, then the Company shall not be
entitled to include such additional shares of capital stock in any such
registration statement to the extent the managing underwriter advises.
Notwithstanding the provisions of this Section 6.2, the Company shall have the
right to delay or suspend the filing of a registration statement for up to
ninety (90) days from the time the filing thereof would otherwise be required
under this Section 6.2 if, in the good faith determination of the Company's
board of directors, such registration would be seriously detrimental to the
Company and its stockholders or would materially adversely affect the business,
affairs, properties, financial condition, results of operations or prospects of
the Company or any pending or proposed acquisition, merger, reorganization,
recapitalization or other transaction or public offering of the Company's
securities, or would require premature disclosure thereof not in the best
interests of the Company; provided, however, that the Company shall not be
entitled to exercise this right more than once.
6.3 Information. It shall be condition precedent to the obligation of
the Company hereunder to register the Registerable Shares under this Section 6
that an Initial Stockholder furnish to the Company and the managing underwriters
such information regarding itself, the intended method of disposition of such
securities and such other information as the Company or the managing underwriter
shall from time to time reasonably request and that shall be reasonably required
to effect the registration of the Registerable Shares.
6.4 Market Stand-Off. Each Initial Stockholder agrees in connection
with any underwritten public offering of the Company's securities that, upon the
request of the managing underwriter, it shall commit itself in writing not to
sell or offer to sell any shares other than such shares included in the
underwritten public offering, during 30 days prior to, and for a period not to
exceed 180 days after, the date of the final prospectus used in such offering.
6.5 Expenses. Each Initial Stockholder shall pay all underwriting and
brokerage fees, discounts and commissions and other selling expenses related to
the sale of its Registerable Shares in a public offering registered pursuant to
the provisions of this Section 6, together with the fees and expenses of any
separate counsel, accountants and other advisors retained by an Initial
Stockholder 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 Request under Section 6.2, the
Company shall bear all reasonable costs, fees and expenses incurred by the
Company (provided the offering being registered is not pursuant to an
9
<PAGE> 13
underwriting), except if the public offering is underwritten at the request of
an Initial Stockholder, then the Company and such Initial Stockholder shall
share equally all such fees, and (ii) if pursuant to a piggy-back registration
under Section 6.1, by the Company.
6.6 Indemnification by Initial Stockholder. If any of the Registration
Shares of an Initial Stockholder are included in a registration, to the extent
permitted by law, Initial Stockholder shall indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
registration statement, each person, if any, who controls the Company within the
meaning of Section 15 of Securities Act or Section 20 of the Securities Exchange
Act of 1934, as amended (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 the
Company 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 the Company by the Initial Stockholder expressly for use in
connection with such registration; and Initial Stockholder shall pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this Section 6.6 in connection with the
investigation or defense of any such Damages.
6.7 Indemnification by the Company. If any of the Registerable Shares
of an Initial Stockholder are included in a registration, to the extent
permitted by law, the Company shall indemnify and hold harmless such Initial
Stockholder, each of its directors and officers from and against any and all
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 such
Initial Stockholder, to the extent that such Violation occurs in reliance upon
and in conformity with written information furnished to such Initial Stockholder
by the Company expressly for use in connection with such registration; and the
Company shall pay, as incurred, any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this Section 6.7 in
connection with the investigation or defense of any such Damages.
SECTION 7. PUT RIGHT.
---------
7.1 Put Right. Harpole shall have the right (the "Put Right") to
require the Company to repurchase all of the Shares he then owns (the "Put
Shares") on the terms and conditions set forth in this Section 8.
10
<PAGE> 14
7.2 Put Exercise Period. The Put Right shall be exercisable, on one
occasion only, at any time during the one-year period (the "Put Exercise
Period") commencing on the second anniversary of the date of this Agreement, if,
and only if, (i) prior to such exercise the Company shall not have consummated
any of the following: (A) an IPO; (B) a sale of all or substantially all of its
assets or business; (C) a merger, consolidation, reorganization or similar
transaction pursuant to which all or substantially all of its assets, business,
capital stock or voting power shall have been Transferred to one or more Persons
unaffiliated with the Company, Metretek or Harpole, or (D) the sale of all of
substantially all of its capital stock to an unaffiliated third party; and (ii)
Harpole shall not, at the time of exercise, be in material breach of any term or
condition of this Agreement.
7.3 Put Price. The Purchase Price to be paid for the Put Share
purchased in accordance with this Section 7 (the "Put Price") shall be equal to
the value of such Put Shares as determined in the written opinion of an
appraiser (the "Put Appraiser"). The Put Appraiser shall be The Wallach Company,
Inc., ("Wallach") or, if either the Company or Harpole reject, in its reasonable
discretion, Wallach within twenty (20) business days after Harpole gives the Put
Notice (as defined below) to the Company, then Harpole shall designate another
qualified appraiser that is unaffiliated with Harpole and that is an investment
banking firm or otherwise in the business of conducting, and is qualified to
conduct, an appraisal of businesses such as the business of the Company. The
designation of a Put Appraiser by Harpole shall be subject to the approval of
Metretek, which approval shall not be unreasonably withheld and will be deemed
to have given absent the Company delivering to Harpole written notice of
objection to such designation within ten (10) business days after receipt of
written notice of the name, address and other reasonable identification of the
Put Appraiser from Harpole. Harpole shall pay all costs and expenses of the Put
Appraiser. Harpole shall cause a signed copy of the appraisal conducted by the
Put Appraiser (the "Put Appraisal") to be delivered to the Company.
7.4 Mechanics of Exercise. Harpole shall exercise his Put Right at any
time during the Put Exercise Period by giving written notice thereof to the
Company (the "Put Notice").
7.5 Closing of Put Right. The Closing of the purchase and sale of the
Put Shares pursuant to this Section 8 shall take place at the principal place of
business of the Company no later than fifteen (15) business days after the date
the Company receives a copy of the Put Appraisal, unless the Company and Harpole
mutually agree on a different place or time. At the Closing, Harpole shall
deliver to the Company all certificates representing the Put Shares duly
endorsed in blank, or with duly endorsed blank stock powers attached, and
otherwise in proper form for Transfer, against payment by the Company of the Put
Price in the manner set forth in Section 8.6. At the Closing, Harpole shall
conclusively be deemed, unless the Company, in its sole discretion, permits
otherwise in writing, to have given the following representations and warranties
to the Company, which shall survive the Closing: (A) Harpole is the legal,
beneficial and record owner of the Put Shares, as good and marketable title
thereto and the absolute right to Transfer the same to the Company, and the Put
Shares, upon Transfer to the Company, will be free and clear of all security
interests, pledges, claims, liens, options, right to first refusal, limitations
on voting rights and restrictions of any kind whatsoever (other than
restrictions imposed by this Agreement and by federal and state securities
laws); and (B) the Transfer of the Put Shares by Harpole as contemplated by this
Agreement does not require any consent or approval of any governmental
authority, court or other Person that has not already been obtained.
7.6 Payment of Purchase Price.In the event that the Company shall
purchase the Put Shares at the Closing, then at the Closing the Company shall
pay to Harpole, out of funds
11
<PAGE> 15
legally available for repurchase of the Put Shares under Delaware law,
one-fourth of the Purchase Price by check or by wire transfer of immediately
available funds to an account designated by Harpole; and shall deliver to
Harpole a Promissory Note evidencing the Company's obligation to pay Harpole the
balance of the Put Price in three equal annual installments of principal, each
installment being due and payable on the anniversary date of the Closing (each,
a "Payment Date"), along with accrued and unpaid interest from the date of
Closing on the unpaid principal balance at a rate of interest equal to 8% per
annum. The Company shall have the right to prepay all or any part of the
indebtedness evidenced by the Promissory Note at any time or from time to time,
without premium, penalty or other charge, and the amount of any such prepayment
shall be applied first to interest accrued on the unpaid principal balance of
such indebtedness, and second to the unpaid balance of such indebtedness. Upon
default on the payment of any installment due on the Promissory Note, which
default is not cured within thirty (30) days after notice of such default is
given to the Company by Harpole, then the rate of interest on the unpaid
principal balance owed to Harpole under the Promissory Note shall be increased
to a rate equal to 12% per annum.
7.7 Inability of Company. If the Company is legally or otherwise unable
to pay the Put Price on the terms set forth in Section 7.5, then the Company
shall take all reasonable action to remove the impediments to the payment of the
Put Price, and the Company shall pay the Put Price at the earliest possible
time. Notwithstanding the foregoing, Metretek shall not be obligated to
contribute any additional capital to the Company.
SECTION 8. DILUTION MATTERS.
----------------
8.1 Preemptive Rights. Except as set forth in Section 8.2 below or as
otherwise mutually agreed in writing, neither Metretek nor Harpole shall have
any right, preemptive or otherwise, to subscribe for, purchase or otherwise
acquire any shares of capital stock or other equity securities of the Company,
or any securities convertible into or exercisable or exchangeable for any shares
of capital stock or other equity securities of the Company, or any options,
warrants or other rights to acquire any of the foregoing ("New Purchaser
Securities"), in connection with the offer, issuance, sale or exchange by the
Company of any New Purchaser Securities, regardless of whether such offer,
issuance, sale or exchange is made in connection with any investment by outside
investors, issuance in exchange for services, founders' stock issuances, stock
option plans and programs, warrant issuances or otherwise.
8.2 Metretek Funding of Purchaser. Prior to the date of this Agreement,
Metretek has provided substantial assets and funds to, and paid expenses for the
benefit of, the Company ("Capital Contributions") for the purpose of funding the
initial stages of its development and organization, including financing a
significant portion of the agreement between Metretek and Scient Corporation for
the benefit of the Company. Within 15 business days of the date of this
Agreement, Metretek agrees to make additional Capital Contributions to the
Company in an amount equal to (i) $6,000,000, less (ii) the cumulative amount of
Capital Contributions made by Metretek to or for the benefit of the Company
(including TotalPlan, Inc.) from inception through the date of this Agreement
(the "Required Capital Contributions"). In exchange for such $6,000,000 of
Required Capital Contributions, Metretek shall be entitled to receive a total of
17,500,000 Shares, such total number of Shares to include the number of Shares
issued to Metretek prior to the date hereof, the number of Shares received by
Metretek upon the merger of TotalPlan, Inc. and the Company, and the number of
Shares to be issued in consideration of the additional capital contributions
made after the date hereof (up to the amount of the Required Contributions).
Although the Company and Harpole acknowledge and agree that Metretek is
12
<PAGE> 16
under no obligation to provide any additional funds to or make any further
capital investments in the Company beyond the Required Capital Contributions,
the Company and Harpole acknowledge and agree that after Metretek has met the
Required Capital Contributions, then with respect to any and all additional
Capital Contributions, it makes in or provides to or for the benefit of the
Company, Metretek shall have the right to elect, in its sole discretion, either
(i) to receive additional Shares, at the rate of $0.30 per Share, or (ii) to
treat the excess funds as loans, repayble by the Company on terms reflecting
then current market prices rates.
SECTION 9. HARPOLE'S RIGHTS AS A DIRECTOR.
------------------------------
So long a Harpole shall continue to own at least 7% of the outstanding
Shares of the Company, (i) Harpole shall have the right to be a member of the
Board of Directors of the Company and (ii) Metretek agrees to vote all its
Shares, at any meeting of the stockholders for the purpose of electing
directors, or to execute a consent in writing in lieu thereof, in order to elect
Harpole as a director of the Company. This right of Harpole to be a director of
the Company (i) shall expire on the second anniversary of the date of this
Agreement, and (ii) shall be personal to Harpole and shall not be assignable or
transferable to any Person, whether or not an Affiliate or Relative of Harpole,
and whether or not Harpole Transfers any Harpole Shares to such Person.
SECTION 10. EFFECTUATION PROVISIONS
-----------------------
10.1 Enabling Action.
(a) If any amendment to the Certificate and/or of the By-Laws
of the Company, or any other action requiring the vote, consent or
approval of the Stockholders, is required in order to make permissible
or lawful any of the purchases of its own Shares which the Company may
be obligated or entitled to make in accordance with the terms of this
Agreement, then such Initial Stockholder shall vote all Shares of the
Company at the time held by him in favor of, or shall consent in
writing to, such amendment or action, whether such amendment or action
is voted upon or consented to at, prior to or after the time of such
purchase or purchases by the Company.
(b) Any agreement by such Initial Stockholder herein to vote
its Shares in a certain manner shall be deemed, in each instance, to
include an agreement by such Initial Stockholder to use its best
efforts to take all actions necessary to call, or cause the Company and
the appropriate officers and directors of the Company to call, as
promptly as practicable, a special meeting of Stockholders or to act by
written consent.
(c) When any action is required to be taken by such Initial
Stockholder pursuant to this Agreement, such Initial Stockholder shall
take all steps necessary to implement such action, including calling a
special meeting of Stockholders or executing or causing to be executed,
one or more consents in writing in lieu of a meeting of the
Stockholders pursuant to Section 228 of the DGCL, in each case as
promptly as practical.
10.2 Legend. The Company shall cause each certificate representing
Harpole Shares to bear, in bold, all-caps typeface, the following legends (or
legends to a similar effect):
13
<PAGE> 17
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, ACCORDINGLY, NEITHER THESE SHARES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES
LAWS OR UNLESS IN THE OPINION OF COUNSEL FOR THE COMPANY AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE AND THE COMPANY RECEIVES EVIDENCE
OF SUCH EXEMPTION REASONABLY SATISFACTORY TO IT (WHICH EVIDENCE MAY
INCLUDE AN OPINION OF COUNSEL).
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER CONTAINED IN THAT CERTAIN STOCKHOLDERS AGREEMENT DATED AS
OF MARCH 17, 2000 BETWEEN THE CORPORATION AND ITS STOCKHOLDERS. THE
COMPANY WILL MAIL A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE WITHIN FIVE (5) DAYS AFTER RECEIPT OF A
WRITTEN REQUEST THEREFOR.
10.3 Acknowledgement of Necessity of Restrictions. Such Initial
Stockholder and the Company agree and acknowledge that the restrictions on the
issuance, transfer and encumbrance of Shares of the Company imposed by this
Agreement are imposed to accomplish legitimate purposes of the Company, and that
such restrictions are not more restrictive than necessary to accomplish those
purposes.
10.4 Record of Transfers. The Company shall not make or record any
Transfer of its Shares which are subject to the provisions of this Agreement on
its books and records unless and until there shall have been full compliance
with the provisions of this Agreement and there shall have been furnished to the
Company such affidavits, certificate or other documents evidencing such
compliance as the Company may reasonably request.
10.5 Voting of Shares. Such Initial Stockholder shall vote any and all
Shares or other voting securities of the Company which he owns or has the right
or power to vote to cause the Company to provide the Stockholders with the
rights and benefits contemplated by this Agreement, and to comply with and
perform fully each of the obligations, commitments, covenants, and agreements of
the Company to and with the Stockholders contained in this Agreement and shall
take any and all action as a Shareholder of the Company as may be necessary to
cause the Company to provide such rights and benefits and to comply with such
obligations, commitments, covenants, and agreements.
10.6 No Contrary Action. No Shareholder shall take any action as an
officer, director or shareholder of the Company which would prevent such Initial
Stockholder or the Company from providing the Stockholders with the rights and
benefits contemplated by this Agreement, or which would otherwise cause such
Initial Stockholder or the Company to breach any of its
14
<PAGE> 18
obligations, commitments, covenants and agreement to and with the Stockholders
set forth in this Agreement.
10.7 Company Determinations. All determinations hereunder by the
Company to exercise any of its rights and obligations shall be made by the
Board, exclusive of the Shareholder who owns, controls or holds the Shares at
issue and his Affiliates.
SECTION 11. TERMINATION OF AGREEMENT
------------------------
11.1 Termination. This Agreement, and the rights and obligations of the
parties hereunder, shall remain in effect until terminated on the earlier of:
(a) The date this Agreement is terminated by unanimous written
consent of all Stockholders;
(b) The date on which only Metretek holds Shares;
(c) The date of the consummation of an IPO (except that in
such event the provisions of Sections 7, 10, 13 and 14 shall survive an
IPO);
(d) The date of the completion of the liquidation, dissolution
or winding-up of the affairs of the Company; or
(e) The date of the sale of all of the Shares of the Company
to a third party in compliance with this Agreement.
11.2 Effect of Termination. Termination of this Agreement for any
reason shall not affect any rights or obligations of such Initial Stockholder or
of the Company accrued hereunder prior to such termination, or any right or
remedy with respect to a breach or default hereunder.
SECTION 12. ARBITRATION.
-----------
Any dispute, controversy or claim arises out of, under or in connection
with, or otherwise relating to, this Agreement (a "Dispute"), including but not
limited to the parties' rights and obligations hereunder, or any actual or
alleged breach hereof, shall be determined and settled by binding arbitration in
Denver, Colorado in accordance with the rules of the commercial rules and
procedures of the American Arbitration Association, as amended by this
Agreement. Promptly after a Dispute arises, the parties agree to make a good
faith effort to select one mutually agreeable arbitrator. If the parties are
unable to reach agreement on an arbitrator within thirty (30) days after the
Dispute is submitted to arbitration, one arbitrator shall be selected in
accordance with the commercial rules and procedures of the American Arbitration
Association. Any determination, resolution or award made by the arbitrators
shall specify the findings of fact of the arbitrators and the reasons for the
determination, resolution or award, and such determination, resolution or award
shall be final and binding. If the parties hereto mutually agree to a resolution
of any Dispute prior to the arbitrators' decision, the agreement of the parties
shall resolve the Dispute. The party prevailing in any arbitration, as
determined by the arbitrator, shall be entitled to an award of all of its
out-of-pocket costs and expenses incurred in connection with the Dispute,
including but not limited to reasonable attorneys' fees, court costs and expert
fees. An arbitration award or decision may be entered by any court of competent
jurisdiction, or application may be made to such a court for judicial acceptance
of the award or decision and any
15
<PAGE> 19
appropriate order, including enforcement. The parties hereby consent to the
submission of any Dispute for settlement by binding arbitration in accordance
with this Section 12 and agrees to carry out without delay the provisions of any
arbitration award, decision or resolution.
SECTION 13. GENERAL PROVISIONS.
------------------
13.1 Governing Law. This Agreement shall in all respects be governed
by, and construed in accordance with, the internal substantive laws of the State
of Delaware, without giving effect to any conflict or choice of law principles
or rules.
13.2 Amendment. This Agreement may not be amended or modified in whole
or in part in any manner except in a writing which makes reference to this
Agreement executed by all parties hereto.
13.3 Assignment. Harpole may not assign any or all of his rights or
delegate any or all of his duties under this Agreement without the prior written
consent of each of the other parties hereto.
13.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, legatees,
personal representatives, devisees, executors, successors and permitted assigns.
13.5 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof and supersedes in their entirety all prior and contemporaneous written
and oral agreements, arrangements, understandings, negotiations, communications,
covenants, representations and warranties among the parties hereto relating to
the subject matter hereof.
13.6 Notices. Any and all notices, demands, requests, elections and
other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given (i) upon personal delivery;
(ii) upon confirmation of receipt when sent by facsimile transmission; (iii) one
business day after deposit during normal business hours with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt; (iv) five business days after being sent by first class
(certified or registered) mail, postage prepaid, return receipt requested, in
each case to the following addresses:
If to the Company, to:
PowerSpring, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: Chief Executive Officer
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
16
<PAGE> 20
With copies to:
Metretek Technologies, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: W. Phillip Marcum, President
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
Paul R. Hess, Esq.
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 E. State Street, Suite 1800
Columbus, Ohio 43215
Telephone: (614) 462-5400
Facsimile: (614) 464-2634
If to Harpole, to:
John A. Harpole
Mercator Energy Incorporated
600 17th Street, Suite 600 South
Denver, Colorado 80202
Telephone: (303) 825-1100
Facsimile: (303) 825-2300
With a copy to:
Ducker, Montgomery & Lewis, P.C.
1560 Broadway, Suite 1500
Denver, Colorado 80202
Attn: Bruce Ducker
Telephone: (303) 861-2828
Facsimile: (303) 861-4017
Any party hereto may send any notice, demand, request, election or
other communication to the intended recipient at its address set forth above
using any other means (such as expedited courier, messenger service, telecopy,
telex, ordinary mail or electronic mail), but no such notice, demand, request or
other communication shall be deemed to have been given until it is actually
received by the recipient. Any party hereto may change its designated address by
giving written notice to all other parties. Upon receipt of a request, the
Company shall provide such Initial Stockholder with a list of all such
addresses.
13.7 Waiver. The obligations of any party hereunder may be waived only
with the written consent of the party or parties entitled to the benefits the
obligations so involved. Any waiver of a breach or violation of or default under
any provision of this Agreement shall not be construed or operate as, or
constitute, a waiver of any other or subsequent breach or violation of or
default under that provision or any other provision of this Agreement. The
failure of any party to insist upon strict compliance with any provision of this
Agreement on any one or more occasions shall not be construed or operate as, or
constitute, a continuing waiver of, or an
17
<PAGE> 21
estoppel of that party's right to insist upon strict compliance with, that
provision or any other provision of this Agreement.
13.8 Severability. If any provision of this Agreement is determined by
any court of law to be illegal, invalid or unenforceable in any situation, such
illegality, invalidity or unenforceability shall not affect or impair the
legality, validity or enforceability of that provision in any other situation or
of any other provision of this Agreement in any situation which shall remain in
full force and effect and this Agreement shall be construed as if such illegal,
invalid or unenforceable provision were omitted. The provisions of this
Agreement shall be deemed severable and the invalidity or unenforceability of
any provision shall not affect the validity or enforceability of the other
provisions hereof or thereof. If any provision of this Agreement, or the
application thereof to any Person or any circumstance, is invalid or
unenforceable: (a) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision; and (b) the
remainder of this Agreement and the application of such provision to other
Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceabilty of such provision, or the application thereof, in any
other jurisdiction.
13.9 Counterparts. This Agreement may be executed in any number of
counterparts (including counterparts executed by less than all parties hereto),
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
13.10 Headings. The headings used herein are solely for convenience of
reference and shall not be given any effect in the construction or
interpretation of this Agreement.
13.11 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, in intended to create or confer and shall not be construed or
operate as creating or conferring, any rights or remedies under or by reason of
this Agreement, upon any Person other than the parties hereto and their
respective successors and permitted assigns.
13.12 Further Assurances. The parties hereto agree to take or cause to
be taken all actions, including without limitation, the execution and delivery
of documents and the voting of their Shares, which are necessary, convenient or
desirable in order to effect the transactions contemplated by this Agreement.
13.13 Best Efforts. Each of the parties hereto shall act in good faith
and use its best efforts to bring about the transactions contemplated by this
Agreement.
13.14 Expenses. Each of the parties to this Agreement shall pay its own
costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby.
13.15 Construction. In the event an ambiguity or question or intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party hereto by virtue of the authorship of any of the
provisions of this Agreement
13.16 Specific Performance. Each of the parties hereto acknowledges and
agrees that the other parties hereto would suffer irreparable damage for which
an adequate remedy at law
18
<PAGE> 22
would not be available in the event any of the provisions of this Agreement is
not performed in accordance with its specific terms or otherwise is breached.
Accordingly, each of the parties hereto agrees that the non-breaching parties
shall be entitled to an injunction, restraining order or other form of equitable
relief from any court of competent jurisdiction to prevent breaches of, and to
specifically enforce, the provisions of this Agreement.
13.17 No Agency or Partnership. Nothing contained in this Agreement
shall make or constitute any party to the representative, agent, principal or
partner of any other party and it is understood that no party has the capacity
to make commitments of any kind whatsoever or incur obligations or liabilities
binding upon any other party.
* * * * *
19
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have duly executed, or cause
their duly authorized representatives to duly execute, this Stockholders
Agreement to be effective as of the day first above written.
THE COMPANY:
POWERSPRING, INC.
By:/s/ W. Phillip Marcum
------------------------------------
W. Phillip Marcum, President
INITIAL STOCKHOLDERS:
/s/ John A. Harpole
---------------------------------------
John A. Harpole
METRETEK TECHNOLOGIES, INC.
By:/s/ W. Phillip Marcum
------------------------------------
W. Phillip Marcum, President
20
<PAGE> 1
EXHIBIT 10.19
NON-NEGOTIABLE PROMISSORY NOTE
------------------------------
Denver, Colorado
$741,666.00 March 17, 2000
FOR VALUE RECEIVED, the undersigned, PowerSpring, Inc., a Delaware
corporation (the "Maker"), hereby promises to pay to John A. Harpole (the
"Payee"), at 600 17th Street, Suite 600 South, Denver, Colorado 80202, or at
such other address as the Payee may from time to time designate in writing, in
lawful money of the United States of America, the principal sum of Seven Hundred
Forty-One Thousand, Six Hundred Sixty-Six Dollars and No Cents ($741,666.00),
together with interest on the unpaid principal balance of this Note at the rate
set forth below.
1. Principal. The unpaid principal balance of this Note and shall be
due and payable in two annual installments, as follows: the first installment
shall be in the amount of $408,333.00 and due and payable on the first
anniversary of the date of the Note; and the second installment shall be in the
amount of $333,333.00 and due and payable on the second anniversary of the date
of this Note.
2. Interest. The unpaid principal balance of this Note shall bear
interest from the date hereof at a rate per annum of 6.00%. Interest shall be
due and payable in arrears on the same dates as the principal is due as set
forth in Section 1, until the principal sum of this Note and all accrued and
unpaid interest thereon has been paid in full. Such interest shall be computed
on the basis of the actual number of days during which the unpaid principal
balance is outstanding, divided by a 365/366 day year, as applicable, including
the first day but excluding the last day.
3. Prepayments. The Maker shall have the right, at its option, to
prepay in whole at any time or in part from time to time the unpaid principal
balance of this Note and the interest due thereon accrued to the date of the
prepayment, without penalty or premium.
4. Application of Payments. All payments shall first be applied to
accrued and unpaid interest and the balance, if any, shall be applied to the
unpaid principal balance of this Note.
5. Default. If the Maker shall fail to timely make any payment due
hereunder within thirty (30) days after receipt of written notice of default
from the Payee, then at the option of the Payee, exercised by giving written
notice to the Maker, the entire unpaid principal balance of this Note, plus all
accrued and unpaid interest thereon, shall become immediately due and payable.
After the unpaid principal balance of this Note shall have become due and
payable, whether due to maturity, by acceleration or otherwise, then the unpaid
principal balance of this Note, plus all accrued and unpaid interest thereon,
shall bear interest at the rate per annum of the lesser of 12% or the maximum
amount permitted by law.
6. Waiver of Procedural Defenses. The Maker and all other persons now
or hereafter liable for the payment of all or any part of the principal or
interest due on this Note, including without limitation indorsers, sureties and
guarantors, whether bound by this or separate instrument or agreement, do hereby
expressly waive presentment for payment, demand, notice of non-payment, notice
of dishonor, protest and notice of protest, and any and all other notices and
demands whatsoever, and agree to remain bound hereunder until the principal and
interest on this Note are paid in full, notwithstanding any extensions of time
for payment which may be granted by the Payee, even though the period of
extension may be
<PAGE> 2
indefinite, and notwithstanding any inaction by or failure to assert any legal
right available to the Payee. No conduct of the Payee shall be deemed to be a
waiver or release of such liability, unless the Payee expressly releases such
person in writing.
7. Severability. If any term or provision of this Note or the
application thereof to any person, property or circumstance shall to any extent
be determined to be invalid or unenforceable, then all other terms and
provisions of this Note, and the application of such invalid or unenforceable
term or provision to persons, properties and circumstances other than those as
to which this Note is invalid or unenforceable, shall not be affected thereby,
and to that end the terms and provisions of this Note shall be severable, and
each term and provision of this Note shall be valid and enforceable to the
fullest extent permitted by law.
8. No Waiver. No delay or omission by the Payee in exercising any right
or power arising under this Note shall impair any such right or power or be
deemed to be a waiver of any such right or power, nor shall any single or
partial exercise of any right or power preclude other or further exercise
thereof, or the exercise of any other right or power hereunder or otherwise. No
waiver or modification of the terms of this Note shall be valid unless set forth
in writing executed by the Payee, and a waiver on one or more occasions will not
be construed as a consent to or a waiver of any of the Payee's rights or
remedies on any future occasions.
9. Governing Law. This Note shall be governed by and construed in
accordance with the internal substantive laws of the State of Colorado, without
giving effect to choice or conflicts of law.
10. Integration; Amendment. The terms and conditions of this Note
constitute the entire agreement among the Maker and the Payee with respect to
the subject matter hereof and supersede any prior representations, agreements or
understandings relating thereto by or between the Maker and the Payee, whether
written or oral. No amendment or modification of this Note or waiver of the
terms or conditions hereof shall be binding upon the Maker or the Payee, unless
approved in writing by such party.
11. No Assignment. Neither this Note nor the rights or obligations of
the Maker or the Payee hereunder may be assigned, whether by assignment,
transfer, merger, consolidation, sale, operation of law or otherwise, by either
the Maker or the Payee without the prior written consent of the other.
MAKER:
POWERSPRING, INC.
By:/s/ W. Phillip Marcum
----------------------------------------
W. Phillip Marcum, President
2
<PAGE> 1
EXHIBIT 10.20
SECURITY AGREEMENT
------------------
This SECURITY AGREEMENT (this "Agreement") is made and entered into as
of March 17, 2000, by and between PowerSpring, Inc., a Delaware corporation
("Debtor"), and John A. Harpole, a Colorado resident ("Secured Party").
Recitals
--------
WHEREAS, Secured Party and Debtor have entered into that certain
Agreement and Plan of Merger, of even date herewith (the "Merger Agreement"),
pursuant to which, among other things, Secured Party is exchanging his shares of
Mercator Energy Incorporated, a Colorado corporation ("Mercator"), in exchange
for certain consideration of the Debtor; and
WHEREAS, in connection with the Merger Agreement, Debtor is issuing a
promissory note (the "Note"), of even date herewith, to Secured Party; and
WHEREAS, in order to induce Secured Party to enter into the Merger
Agreement and accept the Note as consideration in part for his shares of
Mercator, Debtor has agreed to grant to Secured Party a security interest in
certain collateral described herein;
Agreement
---------
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements 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, agrees as follows:
1. Grant of Security Interest. As security for the prompt and full
payment when due of all of its Obligations (as defined in Section 2) and in
order to induce Secured Party to enter into the Merger Agreement and accept the
Note as consideration in part for his shares of Mercator, Debtor hereby grants
to Secured Party a security interest in all of the Debtor's properties and
assets of every kind, nature and description, real or personal or mixed,
tangible or intangible, wherever located, and whether now owned or hereafter
acquired, including without limitation:
(a) All of Debtor's inventory, meaning all goods, wares,
merchandise, raw materials, supplies, work in process, finished goods,
and other personal property of every description held for sale or lease
or furnished or to be furnished under any contract of service, and all
goods which are in transit, and all returned, repossessed and rejected
goods of the foregoing description, and any other tangible personal
property held by the Debtor for processing, sale or other business
purpose or to be used or consumed in the Debtor's business;
(b) All machinery, equipment, furniture, office equipment and
supplies, plan equipment, tools, dies, molds, fixtures and leasehold
improvements of Debtor, of every kind
<PAGE> 2
and description, wherever located and including all additions, improvements,
accessions and substitutions thereto;
(c) All accounts, accounts receivable and notes receivable of
the Debtor, whether now existing or hereafter arising, as well as all
right, title and interest of the Debtor in the goods which have given
rise thereto, including the rights or reclamation and of stoppage in
transit, all other rights to the payment of money (including without
limitation, tax refunds);
(d) All contracts and contract rights of the Debtor, now
existing or hereafter arising, under contracts to sell or lease goods
or render services;
(e) All insurance proceeds, whether arising out of any of the
foregoing or otherwise;
(f) All notes, bills, drafts, acceptances, chooses in action,
chattel paper, instruments, and any other forms of obligations and
receivables and right to payments for credit extended and for goods
sold or leased or services rendered, whether or not earned by
performance, documents, books and records and rights in and to the name
and all goodwill and all other general intangibles of the Debtor,
including all customer lists, causes of action, judgment, rights to
performance, licenses, permits, copyrights, trademarks, trade secrets,
patents, patent rights, proprietary processes, software and related
documentation, blueprints, drawings, designs, diagrams, plans, reports,
charts, catalogs, manuals, technical data and any and all concepts or
ideas in any manner related to the design, development, manufacture,
sale, marketing, lease or use of any or all goods produced or sold or
leased or services rendered by the Debtor in its business; and
(g) All collateral and all guaranties for, and all products,
proceeds, substitutions, and accessions of, any of the foregoing
property.
The property described above shall hereafter be collectively referred
to as the "Collateral."
2. Obligations. The security interest in the Collateral is granted
hereby in order to secure the payment and performance of the following
obligations of Debtor to Secured Party, whether now outstanding or incurred
after the date hereof (collectively the "Obligations"):
(a) Debtor's performance of its obligations under the Note (in
an amount equal to the lesser of $666,666.00 or the amount then
outstanding under the Note) and this Agreement;
(b) All interest, fees, expenses, obligations and liabilities
of Debtor arising pursuant to or represented by the Note;
(c) All taxes, assessments, insurance premiums, brokerage
fees, reasonable attorneys' fees and other expenses of sale of the
Collateral; and
2
<PAGE> 3
(d) All renewals, extensions and modifications of any of the
indebtedness and obligations referred to in the foregoing clauses, or
any part thereof.
3. Debtor's Representations, Warranties and Covenants. Debtor hereby
represents, warrants and covenants to and for the benefit of Secured Party, as
follows:
Debtor has all requisite right, power and authority to execute,
deliver, and perform its obligations under, this Agreement and the Note. The
execution, delivery and performance of this Agreement and the Note by Debtor
have been duly authorized by all requisite corporate action on the part of
Debtor and do not and will not violate or conflict with the articles of
incorporation or bylaws of Debtor or any law, rule or regulation applicable to
Debtor or any order, writ, injunction or decree of any court, government
authority or arbitrator, applicable to Debtor, and do not and will not conflict
with, result in a breach of or constitute a default under the provisions of any
material mortgage, deed of trust, indenture, security agreement, loan agreement,
credit agreement or other instrument, agreement or contract binding on Debtor or
any of its property. Debtor has the unrestricted right to grant the security
interest in the Collateral contemplated hereby.
4. Events of Default. Debtor shall be deemed to be in default
hereunder, and an Event of Default hereunder shall be deemed to have occurred,
upon the occurrence of any of the following events:
(a) Debtor's failure to pay when due, or duly and promptly to
observe or perform, any of the Obligations;
(b) Debtor otherwise breaches (whether or not such breaches
are within Debtor's control) any covenants, warranties or
representations in or regarding this Agreement or the Note, and fails
to remedy such breach within 20 business days of receiving written
notice of such breach from Secured Party; or
(c) Debtor becomes insolvent, terminates its existence,
dissolves or experiences business failure; a custodian, as that term is
defined in Title 11, U.S.C., as amended, of any of Debtor's property is
appointed or exists; or Debtor makes any assignment for the benefit of
creditors; or any proceeding under any bankruptcy or insolvency law is
commenced by or against Debtor.
5. Remedies.
(a) If an Event of Default occurs and is continuing hereunder,
Secured Party shall have full power and authority to sell, assign or
deliver the whole or any part of the Collateral at any broker's
exchange or elsewhere, at public or private sale, at the option of
Secured Party, in order to satisfy any part of the obligations of
Debtor now existing or hereinafter arising under the Note. On any such
sale, Secured Party or its assigns may purchase all or part of the
Collateral. In addition, at its sole option, Secured Party may elect to
retain all the Collateral in full satisfaction of Debtor's obligations
under the Note, in accordance with the provisions and procedures set
forth in the Colorado Uniform Commercial Code.
3
<PAGE> 4
(b) The rights and remedies granted to Secured Party herein
upon an Event of Default shall be in addition to all the rights, powers
and remedies of Secured Party under the Colorado Commercial Code and
applicable law and such rights, powers and remedies will be exercisable
by Secured Party with respect to all of the Collateral. Debtor agrees
that Secured Party's reasonable expenses of holding the Collateral,
preparing it for resale or other disposition, and selling or otherwise
disposing of the Collateral, including attorneys' fees and other legal
expenses, will be deducted from the proceeds of any sale or other
disposition and will be included in the amounts Debtor must tender to
redeem the Collateral. All rights, powers and remedies of Secured Party
shall be cumulative and not alternative. Any forbearance or failure or
delay by Secured Party in exercising any right, power or remedy
hereunder shall not be deemed to be a waiver of any such right, power
or remedy and any single or partial exercise of any such right, power
or remedy hereunder will not preclude the further exercise thereof.
6. Attorney-in-Fact. Debtor hereby appoints Secured Party as the
attorney-in-fact for Debtor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instrument which Secured
Party may deem necessary or advisable to accomplish the purposes hereof, which
appointment is irrevocable and coupled with an interest. Without limiting the
generality of the foregoing, Secured Party shall have the right and power to
receive, endorse and collect all checks and other orders for the payment of
money made payable to Debtor and included within the Collateral and to give full
discharge for the same. Neither Secured Party nor any director or officer of any
issuer of the Securities shall have any liability for the distribution to and
collection of the Proceeds by Secured Party, but shall be fully protected in
relying on the written statement of Secured Party as to its authorization
pursuant to this paragraph. Any and all amounts collected by Secured Party
pursuant hereto shall be applied against the Obligations in the manner that
Secured Party shall determine, in Secured Party's sole and absolute discretion.
7. Certain Other Rights of Secured Party.
(a) Duty of Care. Secured Party's only duty with respect to
the Collateral shall be to exercise reasonable care to secure the safe
custody thereof. Secured Party shall not have a duty to fix or preserve
rights against prior parties to the Collateral, and shall never be
liable for its failure to use diligence to collect any amount payable
with respect to the Collateral, but shall be liable only to the account
of Debtor for what Secured Party may actually collect or receive
thereon.
(b) Financing Statement. Secured Party shall have the right at
any time to execute and file this Agreement or a copy of this Agreement
as a financing statement, but the failure of Secured Party to do so
shall not impair the validity or enforceability of this Agreement.
(c) Payment of Expenses. At Secured Party's option, Secured
Party may discharge taxes, liens and interest, perform or cause to be
performed, for and on behalf of Debtor, any actions and conditions,
obligations or covenants which Debtor has failed or refused to perform
and may pay for the repair, maintenance or preservation of any of the
Collateral, and all sums so expended, including, but not limited to,
attorneys' fees, court costs, agents' fees or
4
<PAGE> 5
commissions, or any other costs or expenses, shall bear interest from
the date of payment at the highest legal rate and shall be deemed to
constitute part of the Obligations secured by this Agreement.
8. Cumulative Rights and Remedies. All rights and remedies of Secured
Party hereunder are cumulative of each other and of every other right or remedy
which Secured Party may otherwise have at law or in equity or under any other
contract or other writing for the enforcement of the security interest herein or
the collection of the Obligations, and the exercise by Secured Party of one or
more rights or remedies shall not prejudice or impair the concurrent or
subsequent exercise of other rights or remedies. Should Debtor have heretofore
executed or hereafter executed any other security agreement in favor of Secured
Party in which a security interest is created as security for the debts of
another or others, in respect of which Debtor may not be personally liable, the
security interest therein created and all other rights, powers and privileges
vested in Secured Party by the terms thereof shall exist concurrently with the
security interest created herein, and, in addition, all property in which
Secured Party holds a security interest under any such other security agreement
shall also be part of the Collateral hereunder, and all or any part of the
proceeds of the sale or disposition of such property may, in the discretion of
Secured Party, be applied by Secured Party in accordance with the terms hereof,
and of such other security agreement or agreements, or any of them.
9. Termination. Upon payment and performance in full by Debtor of all
Obligations in accordance with their terms, this Agreement and the security
interest granted hereunder shall terminate.
10. Further Assurances. Debtor agrees to execute and deliver such
further instruments and take such further actions as Secured Party may
reasonably request from time to time to preserve or give effect to its rights
under this Agreement.
11. Arbitration. In the event that any dispute, controversy or claim
arises out of, under or in connection with, or otherwise relates to, this
Agreement, including, but not limited to, the parties' rights and obligations
hereunder, or to the actual or alleged breach or termination hereof, then the
parties hereto agree that the same shall be resolved, determined and settled by
final and binding arbitration in Denver, Colorado utilizing the procedures set
forth in Section 11 of the Merger Agreement.
12. General Provisions.
12.1 Governing Law. This Agreement shall in all respects be governed
by, and construed in accordance with, the internal substantive laws of the State
of Colorado, without giving effect to any conflict or choice of law principles
or rules.
12.2 Amendment. This Agreement may not be amended or modified in whole
or in part in any manner except in a writing which makes reference to this
Agreement executed by both Debtor and Secured Party.
5
<PAGE> 6
12.3 Assignment. Neither the Agreement, nor any rights, obligations or
duties hereunder, may be assigned or delegated without the prior written consent
of the other parties hereto.
12.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, legatees,
personal representatives, devisees, executors, successors and permitted assigns.
12.5 Entire Agreement. This Agreement and the other documents,
instruments and agreements referred to herein, sets forth the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof and supersedes in their entirety all prior and contemporaneous written
and oral agreements, arrangements, understandings, negotiations, communications,
covenants, representations and warranties among the parties hereto relating to
the subject matter hereof.
12.6 Notices. Any and all notices, demands, requests, elections and
other communications required or permitted to be given hereunder shall be in
writing and shall be deemed to have been duly given (i) upon personal delivery;
(ii) upon confirmation of receipt when sent by facsimile transmission; (iii) one
business day after deposit during normal business hours with a nationally
recognized overnight courier, specifying next day delivery, with written
verification of receipt; (iv) five business days after being sent by first class
(certified or registered) mail, postage prepaid, return receipt requested, in
each case to the following addresses:
If to Debtor, to:
PowerSpring, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: Chief Executive Officer
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
With copies to:
Metretek Technologies, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attn: W. Phillip Marcum, President
Telephone: (303) 592-5555
Facsimile: (303) 592-5556
Paul R. Hess, Esq.
Kegler, Brown, Hill & Ritter Co., L.P.A.
65 E. State Street, Suite 1800
Columbus, Ohio 43215
Telephone: (614) 462-5400
Facsimile: (614) 464-2634
6
<PAGE> 7
If to Secured Party, to:
John A. Harpole
Mercator Energy Incorporated
600 17th Street, Suite 600 South
Denver, Colorado 80202
Telephone: (303) 825-1100
Facsimile: (303) 825-2300
With a copy to:
Ducker, Montgomery & Lewis, P.C.
1560 Broadway, Suite 1500
Denver, Colorado 80202
Attn: Bruce Ducker, Esq.
Telephone: (303) 861-2828
Facsimile: (303) 861-4017
Any party hereto may send any notice, demand, request, election or other
communication to the intended recipient at its address set forth above using any
other means (such as expedited courier, messenger service, telecopy, telex,
ordinary mail or electronic mail), but no such notice, demand, request or other
communication shall be deemed to have been given until it is actually received
by the recipient. Any party hereto may change its designated address by giving
written notice to all other parties.
12.7 Waiver. The obligations of any party hereunder may be waived only
with the written consent of the party or parties entitled to the benefits the
obligations so involved. Any waiver of a breach or violation of or default under
any provision of this Agreement shall not be construed or operate as, or
constitute, a waiver of any other or subsequent breach or violation of or
default under that provision or any other provision of this Agreement. The
failure of any party to insist upon strict compliance with any provision of this
Agreement on any one or more occasions shall not be construed or operate as, or
constitute, a continuing waiver of, or an estoppel of that party's right to
insist upon strict compliance with, that provision or any other provision of
this Agreement.
12.8 Severability. The provisions of this Agreement shall be deemed
severable. If any provision of this Agreement is determined to be illegal,
invalid or unenforceable in any situation: (a) the parties hereto shall agree to
a suitable and equitable provision to be substituted therefor in order to carry
out, so far as may be valid and enforceable, the intent and purpose of such
invalid or unenforceable provision; and (b) the remainder of this Agreement
shall remain in full force and effect, and the application of such provision in
any other situation shall not be affected.
7
<PAGE> 8
12.9 Counterparts. This Agreement may be executed in any number of
counterparts (including counterparts executed by less than all parties hereto),
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
12.10 Headings. The headings used herein are solely for convenience of
reference and shall not be given any effect in the construction or
interpretation of this Agreement.
12.11 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, in intended to create or confer and shall not be construed or
operate as creating or conferring, any rights or remedies under or by reason of
this Agreement, upon any person or entity other than the parties hereto and
their respective successors and permitted assigns.
12.12 Further Assurances. The parties hereto agree to take or cause to
be taken all actions, including without limitation, the execution and delivery
of documents and instruments, which are necessary, convenient or desirable in
order to effect the transactions contemplated by this Agreement.
12.13 Best Efforts. Each of the parties hereto shall act in good faith
and use its best efforts to bring about the transactions contemplated by this
Agreement.
12.14 Expenses. Each of the parties to this Agreement shall pay its own
costs and expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby.
12.15 Construction. In the event an ambiguity or question or intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party hereto by virtue of the authorship of any of the
provisions of this Agreement.
12.16 Specific Performance. Each of the parties hereto acknowledges and
agrees that the other parties hereto would suffer irreparable damage for which
an adequate remedy at law would not be available in the event any of the
provisions of this Agreement is not performed in accordance with its specific
terms or otherwise is breached. Accordingly, each of the parties hereto agrees
that the non-breaching parties shall be entitled to an injunction, restraining
order or other form of equitable relief from any court of competent jurisdiction
to prevent breaches of, and to specifically enforce, the provisions of this
Agreement.
* * * * *
8
<PAGE> 9
IN WITNESS WHEREOF, this Security Agreement has been executed and
delivered by or on behalf of the parties hereto, effective as of the date first
above written.
DEBTOR:
POWERSPRING, INC.
By /s/ W. Phillip Marcum
-------------------------------------
W. Phillip Marcum, President
SECURED PARTY:
/s/ John A. Harpole
---------------------------------------
John A. Harpole
9
<PAGE> 1
EXHIBIT 10.21
INDEMNIFICATION AGREEMENT
-------------------------
This Agreement is made as of this ___ day of _________ ("Agreement"),
by and between Metretek Technologies, Inc., a Delaware corporation (the
"Company," which term shall include, where appropriate, any Entity (as
hereinafter defined) controlled directly or indirectly by the Company), and
______________ ("Indemnitee").
WHEREAS, it is essential to the Company that it be able to retain and
attract as directors the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors to
litigation risks and expenses, and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's Restated Certificate of Incorporation and
Amended and Restated By-laws permit it to indemnify its directors to the fullest
extent permitted by law and permit it to make other indemnification arrangements
and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless of, among other things, any amendment
to or revocation of such Certificate of Incorporation or By-laws or any change
in the ownership of the Company or the composition of its Board of Directors);
and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in becoming a director of the Company.
NOW, THEREFORE, in consideration of the promises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions.
(a) "Corporate Status" describes the status of a person who is
serving or has served (i) as a director of the Company, (ii) in any
capacity with respect to any employee benefit plan of the Company, or
(iii) as a director, partner, trustee, officer, employee or agent of
any other Entity at the request of the Company. For purposes of
subsection (iii) of this Section l (a), an officer or director of the
Company who is serving or has served as a director, partner, trustee,
officer, employee or agent of a Subsidiary shall be deemed to be
serving at the request of the Company.
(b) "Entity" shall mean any corporation, partnership, Limited
Liability Company, joint venture, trust, foundation, association,
organization or other legal entity.
1
<PAGE> 2
(c) "Expenses" shall mean all fees, costs and expenses
incurred by Indemnitee in connection with any Proceeding (as defined
below), including, without limitation, attorneys' fees, disbursements
and retainers (including, without limitation, any such fees,
disbursements and retainers incurred by Indemnitee pursuant to Sections
10 and I l(c) of this Agreement), fees and disbursements of expert
witnesses, private investigators and professional advisors (including,
without limitation, accountants and investment bankers), court costs,
transcript costs, fees of experts, travel expenses, duplicating,
printing and binding costs, telephone and fax transmission charges,
postage, delivery services, secretarial services, and other
disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those terms
in Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities,
losses, penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or
completed claim, action, suit, arbitration, alternate dispute
resolution process, investigation, administrative hearing, appeal, or
any other proceeding, whether civil, criminal, administrative,
arbitrative or investigative, whether formal or informal, including a
proceeding initiated by Indemnitee pursuant to Section 10 of this
Agreement to enforce Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any corporation, partnership,
limited liability company, joint venture, trust or other Entity of
which the Company owns (either directly or through or together with
another Subsidiary of the Company) either (i) a general partner,
managing member or other similar interest or (ii) (A) 50% or more of
the voting power of the voting capital equity interests of such
corporation, partnership, limited liability company, joint venture or
other Entity, or (B) 50% or more of the outstanding voting capital
stock or other voting equity interests of such corporation,
partnership, limited liability company, joint venture or other Entity.
2. Services of Indemnitee. In consideration of the Company's covenants
and commitments hereunder, Indemnitee agrees to serve or continue to serve as a
director of the Company. However, this Agreement shall not impose any obligation
on Indemnitee or the Company to continue Indemnitee's service to the Company
beyond any period otherwise required by law or by other agreements or
commitments of the parties, if any.
3. Agreement to Indemnify. The Company agrees to indemnify Indemnitee
as follows:
(a) Subject to the exceptions contained in Section 4(a) below,
if Indemnitee was or is a party or is threatened to be made a party to
any Proceeding (other than an action by or in the right of the Company)
by reason of Indemnitee's Corporate Status, Indemnitee shall be
indemnified by the Company against all Expenses and Liabilities
incurred or paid by Indemnitee in connection with such Proceeding
(referred to herein as "Indemnifiable Expenses" and "Indemnifiable
Liabilities," respectively, and collectively as "Indemnifiable
Amounts").
2
<PAGE> 3
(b) Subject to the exceptions contained in Section 4(b) below,
if Indemnitee was or is a party or is threatened to be made a party to
any Proceeding by or in the right of the Company to procure a judgment
in its favor by reason of Indemnitee's Corporate Status, Indemnitee
shall be indemnified by the Company against all Indemnifiable Expenses.
(c) Notwithstanding the foregoing, the Company shall not be
obligated to pay the Indemnitee for Expenses or Liabilities to the
extent the Company's Officers' and Directors' Insurance Carrier has
already paid the Indemnitee such amounts pursuant to the Company's
Officers' and Directors' Liability Insurance Policy.
4. Exceptions to Indemnification. Indemnitee shall be entitled to
indemnification under Sections 3(a) and 3(b) above in all circumstances other
than the following:
(a) If indemnification is requested under Section 3(a) and it
has been adjudicated finally by a court of competent jurisdiction that,
in connection with the subject of the Proceeding out of which the claim
for indemnification has arisen, Indemnitee failed to act (i) in good
faith and (ii) in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, or, with respect to
any criminal action or proceeding, Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful, Indemnitee shall not be
entitled to payment of Indemnifiable Amounts hereunder.
(b) If indemnification is requested under Section 3(b) and
(i) it has been adjudicated finally by a court of
competent jurisdiction that, in connection with the subject of
the Proceeding out of which the claim for indemnification has
arisen, Indemnitee failed to act (A) in good faith and (B) in
a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, Indemnitee shall
not be entitled to payment of Indemnifiable Expenses
hereunder; or
(ii) it has been adjudicated finally by a court of
competent jurisdiction that Indemnitee is liable to the
Company with respect to any claim, issue or matter involved in
the Proceeding out of which the claim for indemnification has
arisen, including, without limitation, a claim that Indemnitee
received an improper personal benefit, no Indemnifiable
Expenses shall be paid with respect to such claim, issue or
matter unless the Court of Chancery or another court in which
such Proceeding was brought shall determine upon application
that, despite the adjudication of liability, but in view of
all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Indemnifiable
Expenses which such court shall deem proper.
(c) Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the
terms of this Agreement:
(i) To indemnify or advance Expenses to the
Indemnitee with respect to Proceedings initiated or brought
voluntarily by the Indemnitee and not by way of defense,
EXCEPT with respect to Proceedings specifically authorized by
the Board or brought to
3
<PAGE> 4
establish or enforce a right to indemnification and/or
advancement of Expenses arising under this Agreement, the
charter or bylaws of the Company or any subsidiary or any
statute or otherwise;
(ii) To indemnify the Indemnitee hereunder for any
amounts paid in settlement of a Proceeding unless the Company
consents in advance in writing to such settlement, which
consent shall not be unreasonably withheld; or
(iii) To indemnify the Indemnitee for Liabilities in
connection with a judgment against the Indemnitee on a claim
for an accounting of profits made from the purchase or sale by
the Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and the basis
for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee
within twenty (20) calendar days of receipt of the request. At the request of
the Company, Indemnitee shall furnish such documentation and information as are
reasonably available to Indemnitee and necessary to establish that Indemnitee is
entitled to indemnification hereunder.
6. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, and without
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement or termination
of any Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create an adverse presumption
that Indemnitee is not entitled to indemnification hereunder. In addition, the
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's action was unlawful.
8. Agreement to Advance Expenses; Conditions. The Company shall pay to
Indemnitee all Indemnifiable Expenses incurred by Indemnitee in connection with
any Proceeding, including a Proceeding by or in the right of the Company, in
advance of the final
4
<PAGE> 5
disposition of such Proceeding. To the extent required by Delaware law,
Indemnitee hereby undertakes to repay the amount of Indemnifiable Expenses paid
to Indemnitee if it is finally determined by a court of competent jurisdiction
that Indemnitee is not entitled under this Agreement to indemnification with
respect to such Expenses. This undertaking is an unlimited general obligation of
Indemnitee.
9. Procedure for Advance Payment of Expenses. Indemnitee shall submit
to the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no
later than twenty (20) calendar days after the Company's receipt of such
request.
10. Remedies of Indemnitee.
(a) Right to Petition Court. In the event that Indemnitee
makes a request for payment of Indemnifiable Amounts under Sections 3
and 5 above or a request for an advancement of Indemnifiable Expenses
under Sections 8 and 9 above and the Company fails to make such payment
or advancement in a timely manner pursuant to the terms of this
Agreement, Indemnitee may petition the Court of Chancery to enforce the
Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under
Section 10(a) above, the Company shall have the burden of proving that
Indemnitee is not entitled to payment of Indemnifiable Amounts
hereunder.
(c) Expenses. The Company agrees to reimburse Indemnitee in
full for any Expenses incurred by Indemnitee in connection with
investigating, preparing for, litigating, defending or settling any
action brought by Indemnitee under Section 10(a) above, or in
connection with any claim or counterclaim brought by the Company in
connection therewith.
(d) Validity of Agreement. The Company shall be precluded from
asserting in any Proceeding, including, without limitation, an action
under Section 10(a) above, that the provisions of this Agreement are
not valid, binding and enforceable or that there is insufficient
consideration for this Agreement and shall stipulate in court that the
Company is bound by all the provisions of this Agreement.
(e) Failure to Act Not a Defense. The failure of the Company
(including its Board of Directors or any committee thereof, independent
legal counsel or stockholders) to make a determination concerning the
permissibility of the payment of Indemnifiable Amounts or the
advancement of Indemnifiable Expenses under this Agreement shall not be
a defense in any action brought under Section 10(a) above, and shall
not create a presumption that such payment or advancement is not
permissible.
11. Defense of the Underlying Proceeding.
5
<PAGE> 6
(a) Notice by Indemnitee. Indemnitee agrees to notify the
Company promptly upon being served with any summons, citation,
subpoena, complaint, indictment, information, or other document
relating to any Proceeding which may result in the payment of
Indemnifiable Amounts or the advancement of Indemnifiable Expenses
hereunder; provide, however, that the failure to give any such notice
shall not disqualify Indemnitee from the right to receive payments of
Indemnifiable Amounts or advancements of Indemnifiable Expenses unless
the Company's ability to defend in such Proceeding is materially and
adversely prejudiced thereby.
(b) Defense by Company. Subject to the provisions of the last
sentence of this Section 11 (b) and of Section 11 (c) below, the
Company shall have the right to defend Indemnitee in any Proceeding
which may give rise to the payment of Indemnifiable Amounts hereunder;
provided, however that the Company shall notify Indemnitee of any such
decision to defend within ten (10) days of receipt of notice of any
such Proceeding under Section 11 (a) above. The Company shall not,
without the prior written consent of Indemnitee, consent to the entry
of any judgment against Indemnitee or enter into any settlement or
compromise which (i) includes an admission of fault of Indemnitee or
(ii) does not include, as an unconditional term thereof, the full
release of Indemnitee from all liability in respect of such Proceeding,
which release shall be in form and substance reasonably satisfactory to
Indemnitee. This Section 1l(b) shall not apply to a Proceeding brought
by Indemnitee under Section 10(a) above or pursuant to Section 19
below.
(c) Indemnitee's Right to Counsel. Notwithstanding the
provisions of Section 11 (b) above, if in a Proceeding to which
Indemnitee is a party by reason of Indemnitee's Corporate Status,
Indemnitee reasonably concludes that it may have separate defenses or
counterclaims to assert with respect to any issue which may not be
consistent with the position of other defendants in such Proceeding, or
if the Company fails to assume the defense of such proceeding in a
timely manner, Indemnitee shall be entitled to be represented by
separate legal counsel of Indemnitee's choice at the expense of the
Company. In addition, if the Company fails to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person takes any action to declare this Agreement void or
unenforceable, or institutes any action, suit or proceeding to deny or
to recover from Indemnitee the benefits intended to be provided to
Indemnitee hereunder, Indemnitee shall have the right to retain counsel
of Indemnitee's choice, at the expense of the Company, to represent
Indemnitee in connection with any such matter.
12. Representations and Warranties of the Company. The Company hereby
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and
authority to enter into, and be bound by the terms of, this Agreement,
and the execution, delivery and performance of the undertakings
contemplated by this Agreement have been duly authorized by the
Company.
(b) Enforceability. This Agreement, when executed and
delivered by the Company in accordance with the provisions hereof,
shall be a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
such
6
<PAGE> 7
enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally.
13. Insurance. The Company shall, from time to time, make the good
faith determination whether or not it is practicable for the Company to obtain
and maintain a policy or policies of insurance with a reputable insurance
company providing Indemnitee with coverage for losses from wrongful acts, and to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's officers and directors. Notwithstanding the foregoing,
the Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available, if the premium costs for such insurance are disproportionate to the
amount of coverage provided, or if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit. The Company
shall promptly notify Indemnitee of any good faith determination not to provide
such coverage.
14. Contract Rights Not Exclusive. The rights to payment of
Indemnifiable Amounts and advancement of Indemnifiable Expenses provided by this
Agreement shall be in addition to, but not exclusive of, any other rights which
Indemnitee may have at any time under applicable law, the Company's By-laws or
Certificate of Incorporation, or any other agreement, vote of stockholders or
directors (or a committee of directors), or otherwise, both as to action in
Indemnitee's official capacity and as to action in any other capacity as a
result of Indemnitee's serving as a director of the Company.
15. Successors. This Agreement shall be (a) binding upon all successors
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law)
and (b) binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee. This Agreement
shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
16. Subrogation. In the event of any payment of Indemnifiable Amounts
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
17. Change in Law. To the extent that a change in Delaware law (whether
by statute or judicial decision) shall permit broader indemnification or
advancement of expenses than is provided under the terms of the By-laws of the
Company and this Agreement, Indemnitee shall
7
<PAGE> 8
be entitled to such broader indemnification and advancements, and this Agreement
shall be deemed to be amended to such extent.
18. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
19. Indemnitee as Plaintiff. Except as provided in Section 10(c) of
this Agreement and in the next sentence, Indemnitee shall not be entitled to
payment of Indemnifiable Amounts or advancement of Indemnifiable Expenses with
respect to any Proceeding brought by Indemnitee against the Company, any Entity
which it controls, any director or officer thereof, or any third party, unless
such Company has consented to the initiation of such Proceeding. This Section
shall not apply to counterclaims or affirmative defenses asserted by Indemnitee
in an action brought against Indemnitee.
20. Modifications and Waiver. Except as provided in Section 17 above
with respect to changes in Delaware law which broaden the right of Indemnitee to
be indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.
21. General Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
(i) If to Indemnitee, to:
[ ]
(ii) If to the Company, to:
Metretek Technologies, Inc.
[Address]
or to such other address as may have been furnished in the same manner by any
party to the others.
8
<PAGE> 9
22. Governing Law. This Agreement shall be governed by and construed
and enforced under the laws of Delaware without giving effect to the provisions
thereof relating to conflicts of law.
23. Consent to Jurisdiction. The Company hereby irrevocably and
unconditionally consents to the jurisdiction of the courts of the State of
Delaware and the United States District Court for the District of Delaware. The
Company hereby irrevocably and unconditionally waives any objection to the
laying of venue of any Proceeding arising out of or relating to this Agreement
in the courts of the State of Delaware or the United States District Court for
the District of Delaware, and hereby irrevocably and unconditionally waives and
agrees not to plead or claim that any such Proceeding brought in any such court
has been brought in an inconvenient forum.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
METRETEK TECHNOLOGIES, INC.
By:
------------------------------------
Name and Title
INDEMNITEE:
---------------------------------------
[ ]
9
<PAGE> 1
EXHIBIT 21.1
METRETEK TECHNOLOGIES, INC.
SUBSIDIARIES
------------
SUBSIDIARIES OF METRETEK TECHNOLOGIES, INC.:
PowerSpring, Inc. a Delaware corporation (82.5%)
Southern Flow Companies, Inc., a Delaware corporation (100%)
Metretek, Incorporated, a Florida corporation (100%)
Marcum Gas Transmission, Inc., a Colorado corporation (100%)
Marcum Denver, Inc., a Colorado corporation (100%)
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
WHOLLY-OWNED SUBSIDIARY OF POWERSPRING, INC.:
Mercator Energy Incorporated, a Colorado corporation
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-54398, 33-78348, 333-07515, 333-43547, 333-56697 and 333-32118 on Form S-8
and Nos. 333-60925 and 333-96369 on Form S-3 of Metretek Technologies, Inc.
(f.k.a. Marcum Natural Gas Services, Inc.) of our report dated March 17, 2000
appearing in this Annual Report on Form 10-KSB of Metretek Technologies, Inc.
for the year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 361,658
<SECURITIES> 0
<RECEIVABLES> 3,928,391
<ALLOWANCES> 125,573
<INVENTORY> 4,155,429
<CURRENT-ASSETS> 9,096,912
<PP&E> 3,732,863
<DEPRECIATION> 2,179,015
<TOTAL-ASSETS> 19,610,434
<CURRENT-LIABILITIES> 2,031,450
<BONDS> 869,968
1,450,000
0
<COMMON> 37,840
<OTHER-SE> 15,221,176
<TOTAL-LIABILITY-AND-EQUITY> 19,610,434
<SALES> 19,345,771
<TOTAL-REVENUES> 19,365,196
<CGS> 13,760,360
<TOTAL-COSTS> 22,754,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286,804
<INCOME-PRETAX> (3,676,042)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,676,042)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,676,042)
<EPS-BASIC> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
