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As filed with the Securities and Exchange Commission on February 8, 2000 Registration No. 333-
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<S> <C> <C>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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METRETEK TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 84-1169358
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 BROADWAY, SUITE 2150
DENVER, COLORADO 80202
(303) 592-5555
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(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
A. BRADLEY GABBARD
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
METRETEK TECHNOLOGIES, INC.
1675 BROADWAY, SUITE 2150
DENVER, COLORADO 80202
(303) 592-5555
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
PAUL R. HESS, ESQ.
KEGLER, BROWN, HILL & RITTER CO., L.P.A.
65 EAST STATE STREET, SUITE 1800
COLUMBUS, OHIO 43215
(614) 462-5400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [__]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form if filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [__]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [__]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [__]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount Proposed Maximum Proposed Maximum
Securities to be To be Offering Price Aggregate Amount of Registration
Registered Registered Per Unit Offering Price Fee
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Common Stock, par value
$.01 per share(1) 3,512,262 shares (2) $9.875 (3) $34,683,587(3) $9,156.47
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Series B Preferred Stock, par
value $.01 per share 7,000 shares (4) (4) (4)
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(1) Includes the related Preferred Share Purchase Rights to purchase shares
of Series C Preferred Stock, par value $.01 per share, of Metretek
Technologies, Inc. No separate consideration will be received for the
Preferred Share Purchase Rights, which, prior to the occurrence of
certain prescribed events, are not exercisable, are evidenced by the
certificates for the Common Stock, and are transferable only with the
Common Stock. The value, if any, of the Preferred Share Purchase Rights
is reflected in the market price of the Common Stock.
(2) Consists of 932,500 shares of Common Stock issuable upon the exercise of
warrants held by the selling securityholders, 1,179,762 shares of Common
Stock issuable upon conversion of the Series B Preferred Stock held by
the selling securityholders, and 1,400,000 shares of Common Stock
currently held by the selling securityholders. The number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock
included in this table is based upon an initial conversion rate of
168.5374 shares of Common Stock for each share of Series B Preferred
Stock. The initial conversion rate, and therefore the number of shares of
Common Stock into which the Series B Preferred Stock is convertible, is
subject to adjustment for events specified in the terms of the Series B
Preferred Stock, and any adjustment could increase the number of shares
of Common Stock into which the Series B Preferred Stock is convertible.
This Registration Statement covers an indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the
Series B Preferred Stock, in the event of an adjustment to the initial
conversion rate of the Series B Preferred Stock. Pursuant to Rule 416,
this Registration Statement also covers an indeterminate number of shares
of Common Stock issuable pursuant to the anti-dilution provision of the
Series B Preferred Stock. The Common Stock issuable upon conversion of
the Series B Preferred Stock will be issued for no additional
consideration.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act, upon the basis of the
average of the high and low prices of the common stock as reported on the
Nasdaq National Market on February 2, 2000.
(4) The filing fee is being paid with respect to the underlying shares of
Common Stock. Pursuant to Rule 457(i) under the Securities Act, no
separate fee is required for registration of the shares of Series B
preferred stock which are convertible into shares of Common Stock being
registered hereby for no additional consideration.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION --
PRELIMINARY PROSPECTUS DATED FEBRUARY 8, 2000
PROSPECTUS
METRETEK TECHNOLOGIES, INC.
3,512,262 SHARES OF COMMON STOCK
7,000 SHARES OF SERIES B PREFERRED STOCK
This prospectus relates to the offer and sale from time to time of up
to 3,512,262 shares of our common stock and 7,000 shares of our Series B
preferred stock by the selling securityholders identified in this prospectus. Of
the shares being offered under this prospectus, 1,400,000 shares of common
shares and 7,000 shares of Series B preferred stock were previously issued to
the selling securityholders, 932,500 shares of common stock are issuable upon
the exercise of warrants previously issued to the selling securityholders, and
1,179,762 shares of common stock are issuable upon conversion of shares of our
Series B preferred stock previously issued to the selling securityholders. This
prospectus also covers the offer and sale by the selling securityholders of an
indeterminate number of additional shares of common stock as may become issuable
upon conversion of the Series B preferred stock offered under this prospectus,
if the initial conversion rate of 168.5374 shares of common stock per share of
Series B preferred stock is adjusted under the terms of the Series B preferred
stock, or if dividends on the Series B preferred stock are accrued and unpaid.
We refer to the Series B preferred stock and the common stock offered under this
prospectus as the shares.
The selling securityholders may from time to time offer and sell all or
a portion of the shares offered under this prospectus directly or through one or
more broker-dealers or underwriters in one or more transactions on the Nasdaq
National Market or on any other stock market or stock exchange on which the
common stock may from time to time be traded, in the over-the-counter market, in
negotiated transactions, in underwritten transactions or otherwise, at market
prices prevailing at the time of sale, at prices related to the then prevailing
market prices, at negotiated prices or at fixed prices.
We will not receive any proceeds from the sale of the shares by the
selling securityholders. We will pay all expenses of the registration of the
shares, and the selling securityholders will pay any broker-dealer or
underwriter fees, discounts or commissions and other selling expenses of the
shares.
Our common stock is traded on the Nasdaq National Market under the
symbol "MTEK". On February 4, 2000, the last sale price of our common stock as
reported on the Nasdaq National Market was $13.00 per share. Our Series B
preferred stock is not traded on any public market.
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INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is ____________, 2000
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TABLE OF CONTENTS
PAGE
Metretek Technologies, Inc...............................................3
Risk Factors.............................................................6
Special Note Regarding Forward-Looking Statements.......................21
Use of Proceeds.........................................................22
Description of Capital Stock............................................22
Description of the Series B Preferred Stock.............................28
Federal Income Tax Considerations.......................................33
Selling Securityholders.................................................39
Plan of Distribution....................................................44
Legal Matters...........................................................46
Experts.................................................................46
Where You Can Find More Information.....................................46
You should rely only on the information contained in or incorporated by
reference in this prospectus. Neither Metretek nor any selling securityholder
has authorized anyone to provide you with information different from that
contained in or incorporated by reference in this prospectus. This prospectus is
not an offer to sell and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted. The information in this
prospectus is compete and accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of these
securities.
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METRETEK TECHNOLOGIES, INC.
OUR BUSINESS
We are a diversified provider of energy measurement products, services
and data-management systems to industrial and commercial users and suppliers of
natural gas and electricity. In June 1999, we changed our name from "Marcum
Natural Gas Services, Inc." to "Metretek Technologies, Inc." Our current
operations are conducted primarily through two wholly-owned subsidiaries:
- Metretek, Incorporated, based in Melbourne, Florida, which we refer to
as "Metretek Florida". Metretek Florida designs, manufactures and
sells electronic devices and systems, commonly referred to as
automatic meter reading systems or "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., based in Lafayette, Louisiana, provides
a wide variety of natural gas measurement services principally to
producers and operators of natural gas production facilities.
We are a corporation organized under the laws of the state of Delaware.
Our principal executive offices are located at 1675 Broadway, Suite 2150,
Denver, Colorado 80202. Our telephone number is (303) 592-5555.
OUR BUSINESS STRATEGY
Our business strategy is to position ourselves as an integrated
provider of energy measurement products, services and systems. To date, our
products and services have been aimed primarily at the natural gas industry, but
we intend to provide our products and services to other segments of the energy
industry, particularly the electricity 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. 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.
OUR RECENT EBUSINESS STRATEGY
Development of our eBusiness. We have recently focused a major part of
our business strategy upon the development of an Internet-based business, which
we refer to as our eBusiness. We are currently developing and operating our
eBusiness through two recently formed wholly-owned subsidiaries, Metretek
Internet Services, Inc. and TotalPlan, Inc. In furtherance of this eBusiness
strategy, we have entered into a strategic relationship with Scient Corporation,
a leading Internet commerce consultant and advisor, to assist us in designing,
developing and implementing our eBusiness.
Our eBusiness objective is to be the leading Internet provider of
energy information products and services. We are developing our eBusiness 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 eBusiness strategy is to develop and launch an
Internet-based transactional website. After we implement our eBusiness strategy,
we will continue to operate our Southern Flow and Metretek Florida businesses.
The technology requirements of our eBusiness 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 eBusiness products and services.
As part of our eBusiness strategy, we have entered into a consulting
and joint venture agreement with Mercator Energy Incorporated. Mercator is a
Denver-based natural gas services and brokerage company that acts as
broker-agent for both producers and users. Through our TotalPlan subsidiary, we
operate our "TotalPlan(TM)" business, which is our proprietary turn-key data
collection and software management system that enables commercial users of
natural gas and electricity to monitor and manage energy purchases and
consumption. TotalPlan(TM) is expected to be a key component of our eBusiness.
Under the consulting agreement, Mercator is providing consulting services to
TotalPlan, allowing us to obtain, utilize and incorporate into our eBusiness
Mercator's expertise in the area of energy procurement, which is a key element
in our eBusiness strategy. Mercator
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is in the business of securing gas supplies for industrial customers of natural
gas on a fee basis. In this role, Mercator acts as an advocate for the
industrial customer, with the goal of obtaining the best sources of natural gas
at the best available price to its customers.
In September 1999, we entered into an agreement with Scient
Corporation. Under the Scient agreement, Scient is assisting and advising us in
designing, developing and implementing a viable eBusiness 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 $5,000,000 and $7,000,000.
Under the Scient agreement, Scient is assisting us in:
- the conception of a viable eBusiness 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 eBusiness; and
- the operational structure, management and staffing of the eBusiness.
Background of our eBusiness 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 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 eBusiness 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.
Metretek's eBusiness 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.
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Our primary eBusiness 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 eBusiness
product will require no 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. The customer is expected to realize a savings in energy costs and
will receive access to current and historical value added consumption reports
through a content and function enriched website.
Application of our eBusiness strategy to the electricity markets. The
initial focus of our eBusiness is 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 is lagging behind 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.
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 electrical
needs to our eBusiness program as their electricity markets become deregulated.
Timing and funding of eBusiness project. Based on our current schedule,
we anticipate launching an operable, transaction-based eBusiness website in the
second quarter of 2000.
We estimate that this initial development phase of our eBusiness will
require estimated expenditures of between $5,000,000 and $7,000,000, 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 our website is launched, the further development and growth of our
eBusiness, including staffing, organizational and start-up expenses, marketing
costs and additional capital expenditures, will require significant additional
funds. To develop and expand our eBusiness, 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. Any 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 be subject to the
required consent of the holders of Series B preferred stock. We cannot assure
you that additional funds will be available to us in the future or that, if
available, any 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. Our
inability to raise sufficient additional funds, beyond the proceeds of the units
private placement, to meet the capital requirements of our eBusiness could have
a material adverse effect on our business, financial condition and results of
operations.
RECENT DEVELOPMENT: UNITS PRIVATE PLACEMENT
On February 4, 2000, we completed a $14,000,000 private placement,
which we refer to in this prospectus as the "units private placement", of 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 warrants,
which we refer to in this prospectus as "unit warrants", to purchase 100 shares
of common stock. For a description of the material terms of these securities,
see "Description of Capital Stock" and "Description of the Series B Preferred
Stock". 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 held on February 3, 2000. The
units were issued to institutional investors and other "accredited investors"
under Regulation D under the Securities Act. In this prospectus, we refer to the
purchasers of units in the units private placement as "unit purchasers".
The primary purpose of the units private placement was to raise capital
to enable us to develop our eBusiness. A portion of the proceeds is being 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. We
presently have no agreement or arrangement for any acquisition opportunity.
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RISK FACTORS
An investment in our securities involves risk. You should carefully
consider the risks described below, along with the other information contained
or incorporated by reference in this prospectus, before making an investment
decision. 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 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.
If this occurs, the trading price of our common stock and the value of the other
securities offered under this prospectus could decline, and you could lose all
or part of your investment.
RISKS RELATED TO OUR BUSINESS
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 $1.5 million and $0.3
million for the years ended December 31, 1997 and 1998. We also incurred a net
loss of approximately $1.4 million for the nine months ended September 30, 1999.
At September 30, 1999, we had an accumulated deficit of approximately $23
million. Due to the design, creation and implementation of our eBusiness, 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 our eBusiness and its infrastructure, invest in new
Internet applications, enhance our management expertise, expand our sales
efforts and pursue strategic Internet relationships. In addition, our eBusiness
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:
- the demand for and market acceptance of our products and services,
especially those related to our new eBusiness;
- the size, timing and terms of sales and orders;
- the amount and timing of expenditures on our eBusiness;
- our ability to implement our business plan and strategy with respect
to our new eBusiness and the timing of this implementation;
- the timing, pricing and market acceptance of our new products and
services, especially those related to our eBusiness project, and those
of our competitors;
- the pace of development of our eBusiness;
- the success of our brand building and marketing campaigns for our
eBusiness products and services;
- the growth of the market for on-line energy products, services and
information;
- our ability to effectively manage our growth during the anticipated
rapid growth of our eBusiness;
- 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;
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- 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;
- costs related to future acquisitions of technology or businesses;
- the level of service and price competition;
- changes in our operating expenses;
- the success of our brand building and marketing campaigns for our
eBusiness products and services; and
- the maintenance and development of business relationships with
strategic partners.
Because many of our operating expenses, other than those related to our
eBusiness, 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 our eBusiness 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
section, 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 OUR EBUSINESS HAS VIRTUALLY NO OPERATING HISTORY AND OUR EBUSINESS
STRATEGY IS STILL BEING DEVELOPED AND IS UNPROVEN, LIMITED INFORMATION IS
AVAILABLE UPON WHICH YOU CAN EVALUATE OUR EBUSINESS
Our business strategy and future success is highly dependent upon our
ability to develop our eBusiness. Our eBusiness strategy is based on an unproven
business model, and our operating, sales and other strategies are still being
developed. Our eBusiness 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. Our TotalPlan
business was recently launched and is still in the very early stages, and our
eBusiness will not be launched until at least the second quarter of 2000.
Accordingly, we have virtually no operating history to provide you upon which
you can evaluate our new eBusiness.
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 "Risk Factors" section as well as
other parts of this prospectus, and in documents incorporated by reference in
this prospectus. 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 eBusiness;
- 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;
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- 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 TotalPlan software
necessary for our services.
Our business and financial results in the future will depend heavily on
market acceptance and profitability of our eBusiness. 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 our eBusiness. 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 government regulation;
- the ability of the Internet infrastructure to support the growing
demands placed on it;
- access costs;
- the performance and reliability of products and services 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 OUR NEW EBUSINESS
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 EBUSINESS STRATEGY WILL BE DEPENDENT UPON THE DEVELOPMENT AND
MAINTENANCE OF THE INTERNET INFRASTRUCTURE
The success of our new eBusiness 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
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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 OUR EBUSINESS
Our anticipated future growth as a result of our eBusiness may place a
significant strain on our management, operating systems and resources. We cannot
successfully implement our eBusiness 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
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 OUR EBUSINESS,
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 eBusiness 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 additional 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
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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 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
EBUSINESS, 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 our new eBusiness. If we cannot raise
sufficient funds on a timely basis, we will not be able to complete the
development, implementation and successful operations of our eBusiness, and our
business will be materially and adversely affected.
We estimate that the initial development phase of our eBusiness will
require estimated expenditures of between $5,000,000 and $7,000,000, 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 website is launched, the further development and growth of our
eBusiness, 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 our eBusiness, 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. Any 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, any capital raising will be subject to any required
consents from the holders of 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. Our
inability to raise sufficient additional funds, beyond the proceeds of the units
private placement, to meet the capital requirements of our eBusiness 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 our eBusiness project,
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 7% 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 September 30, 1999,
we had a total loan availability of approximately $3.3 million, and of that we
had borrowed approximately $1.3 million. The amount of
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our loan availability, as well as the amount we borrow under our loan
availability, 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.
To finance our eBusiness 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, from debt financing, from sales of assets 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 to our current lender.
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.
Our 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, unit warrants and Series B preferred stock based on the relative
fair value of each. This allocation process resulted in the Series B preferred
stock being initially recorded at a discount from its $1,000 per share
liquidation value. This discount will be recorded as dividends over the term of
the Series B preferred stock. Another discount results 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 issued those units. This
increased 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 dividends 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 current businesses operate and our eBusiness
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 TotalPlan offering and
our planned eBusiness 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:
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- 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 in a cost-effective way, 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 eBusiness 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, sales of some of our AMR devices have significantly higher margins
than other products. In addition, we do not know what the prices and costs, and
therefore we cannot estimate the margins, of our future TotalPlan and eBusiness
products and services will be. These new businesses may have lower margins than
our current businesses. 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
Marcum Gas Transmission, Inc. 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 the program;
- changes in the regulatory environment relating to these programs;
- reliance upon significant suppliers and customers by these programs;
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- 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
5% and 8% of our consolidated revenues in the nine months ended September 30,
1999 and in fiscal year 1998. One component of our strategy for future growth
involves the expansion of our products and services into new international
markets and 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;
- 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.
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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, frequent
product and service performance improvements and evolving industry standards. We
also anticipate that we will face intense competition in our new businesses,
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. We expect competition to
continue to increase because our market poses no substantial barriers to entry.
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 market;
- 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;
- 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 cannot assure you that we will be able to compete successfully or to
adequately address the above factors.
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
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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.
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 and
retaining key personnel;
- diversion of management's time and resources away from our day-to-day
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.
In addition, 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 currently do not know and cannot
predict the accounting treatment of any acquisition, in part because we cannot
be certain whether accounting regulations, conventions or interpretations may
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 or be available on terms
satisfactory to us. 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.
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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.
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
OUR INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR SIGNIFICANT DAMAGES AND OUR
BUSINESS COULD BE MATERIALLY AND ADVERSELY AFFECTED
Our success and ability to compete will depend, 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 trademarks.
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 our
eBusiness 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 presents 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. These
programs and systems could fail or malfunction because they cannot distinguish
between twentieth century and twenty-first century dates. This, in turn, could
result 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 our eBusiness 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.
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The total cost of our Year 2000 compliance activities has not been
material to our results of operations. Although we have used our best estimates
to project the time and expense associated with the completion of our Year 2000
modification and testing processes, we cannot assure you that we will identify
and address all significant Year 2000 problems in a prompt and cost-effective
manner. Any Year 2000 problems, if not fixed, could have a material and adverse
effect on our business.
We also face risks to the extent that suppliers of products, services
and systems purchased by us and others with whom we transact business did not
become Year 2000 compliant. Although we are not presently aware of any
significant vendor, supplier, service provider or customer that has had Year
2000 problems material to our operations, we have no control over Year 2000
compliance programs by third parties. Accordingly, we cannot assure you that the
systems of our essential vendors, suppliers, service providers and customers
were Year 2000 compliant. The failure of any third parties to have become Year
2000 compliant could have a material adverse impact on our business.
On the basis of information currently available to us, including the
initial after-effects of the Year 2000, we do not currently anticipate a
significant disruption of our business caused by Year 2000 problems or a
significant failure of our products, services or systems or of the products,
services or systems of our suppliers, customers and third parties with whom we
do significant business. However, some Year 2000 problems could arise later in
2000 or not be currently detectable.
FROM TIME TO TIME, WE ARE SUBJECT TO LAWSUITS THAT, IF THEY ARE SUCCESSFUL,
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.
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We also anticipate that, due to its increasing popularity in use, the
Internet will become subject to increased attention and regulation. While there
are currently few laws or regulations that apply directly to commerce on the
Internet, new laws and regulations with respect to the Internet are becoming
more prevalent. These laws and regulations may regulate issues such as user
privacy, pricing, intellectual property, federal, state and local taxation,
distribution, characteristics and quality of products and services, network
access, defamation and content. These laws and regulations could expose us to
liability, materially increase our costs of providing our products and services,
decrease the growth and acceptance of the Internet as a means of commerce, and
decrease demand for our products and services being sold over the Internet.
Changes in laws or regulations governing the Internet and Internet commerce
could have a material and adverse effect on 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 our eBusiness. 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 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 total
energy plan and Internet businesses. 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, and A. Bradley Gabbard, our Executive
Vice President and Chief Financial Officer.
OUR BUSINESS COULD SUFFER IF WE CANNOT MAINTAIN AND EXPAND OUR CURRENT STRATEGIC
ALLIANCES AND DEVELOP NEW ALLIANCES
A key element is 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. For example, we have entered into strategic
relationships with Mercator Energy Incorporated, a Denver-based energy marketer,
to assist us in developing our TotalPlan business. We have also entered into a
strategic relationship with Scient Corporation to facilitate the design,
development and marketing of our eBusiness. However, we cannot assure you that
we will be able to develop additional 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.
RISKS RELATED TO THE SECURITIES MARKETS AND THIS OFFERING
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 February 4, 2000, our executive officers, directors and 5% or
greater stockholders beneficially owned, in the aggregate, approximately 60.3%
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.
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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 February 4, 2000, 4,934,225 shares of common stock were outstanding.
On the same date, options to purchase 512,717 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 1,987,019 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.
OUR SECOND RESTATED CERTIFICATE, BY-LAWS AND STOCKHOLDER RIGHTS PLAN, AND
DELAWARE LAW, CONTAIN ANTI-TAKEOVER PROVISIONS THAT COULD DISCOURAGE A
THIRD-PARTY ACQUISITION OF YOUR SHARES AT A PREMIUM TO THE MARKET PRICE
Some provisions in our second restated certificate of incorporation,
by-laws and 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 you and our other 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;
- the existence of large amounts of authorized but unissued common stock
and preferred stock;
- super-majority voting requirements to effect material amendments to
our second restated certificate and by-laws;
- limiting 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 YOU MAY NOT
EXPERIENCE A RETURN ON YOUR INVESTMENT IN OUR SECURITIES WITHOUT SELLING YOUR
SHARES
We have never declared or paid any cash dividends on our common stock.
Therefore, you will not experience a return on your investment in our common
stock without selling your shares since we currently intend on retaining any
future earnings to fund our growth and do not expect to pay dividends in the
foreseeable future.
OUR STOCK PRICE IS SUBJECT TO EXTREME PRICE AND VOLUME FLUCTUATIONS
The market price and volume of our 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
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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 JUNIOR-RANKING PREFERRED STOCK, WHICH COULD DILUTE YOUR
INTERESTS.
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.
HOLDERS OF SERIES B PREFERRED STOCK HAVE LIMITED VOTING RIGHTS
Holders of Series B preferred stock do not have the right to vote
generally on matters submitted to our stockholders. Holders of Series B
preferred stock do have the right to vote on some material significant corporate
events that require the approval of the holders of the majority of the
outstanding shares of Series B preferred stock, voting separately as a class. In
addition, so long as at least 2,000 shares of Series B preferred stock remain
outstanding, holders of Series B preferred stock, voting as a separate class,
will have the right to elect one member of our board of directors. Also, holders
of Series B preferred stock will have the right to elect a majority of our board
of directors if we default on a required redemption.
OUR ABILITY TO PAY DIVIDENDS ON OUR CAPITAL STOCK IS LIMITED
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.
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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.
THERE IS NO CURRENT TRADING MARKET FOR THE SERIES B PREFERRED STOCK AND NONE IS
EXPECTED TO DEVELOP
There has been no trading market for the Series B preferred stock
before this offering. While the resale of the common stock underlying the Series
B preferred stock, and the resale of the Series B preferred stock, are covered
under this prospectus, we do not intend to list the Series B preferred stock on
any national securities exchange or on the Nasdaq Stock Market, or to seek its
admission for trading on any other automated quotation system. Accordingly, we
cannot assure you that any market for the Series B preferred stock will develop
or, if one does develop, that it will be liquid. Therefore, holders of Series B
preferred stock may be unable to sell their securities. Even if a market for the
Series B preferred stock develops, these securities may trade at a discount from
the price you purchase them depending on prevailing interest rates, the market
for similar securities, our performance and other factors.
WE MAY REDEEM THE SERIES B PREFERRED STOCK WITHOUT THE CONSENT OF THE HOLDERS
BEFORE ITS MANDATORY REDEMPTION DATE
We have the right to redeem the Series B preferred stock on or after
December 9, 2000, if our common stock is trading at 200% of the conversion price
of the Series B preferred stock then in effect. You should assume that we will
exercise our redemption option if it is in our interest to do so.
WE MAY BE UNABLE TO REDEEM THE SERIES B PREFERRED STOCK WHEN WE ARE REQUIRED TO
DO SO
We may not be able to pay in full the redemption price when the Series
B preferred stock becomes mandatorily redeemable or when we are required to
redeem the Series B preferred stock at the option of the holder upon an
extraordinary transaction. The terms of the Series B preferred stock require us
to redeem all shares that remain outstanding on December 9, 2004 at a redemption
price equal to the liquidation preference. In addition, in the event of an
"extraordinary transaction", as discussed in "Description of the Series B
Preferred Stock - Redemption", the holders of the Series B preferred stock, by
majority vote, have the option to require us to repurchase all of the
outstanding Series B preferred stock for a purchase price equal to the
liquidation preference. The exercise by the holder of the Series B preferred
stock of the right to require us to repurchase the Series B preferred stock upon
an extraordinary transaction could also cause us to default under other
indebtedness because of the financial effect of this repurchase, even if the
extraordinary transaction itself does not cause a default. Our ability to pay
cash to the holders of the Series B preferred stock upon this redemption
requirement may be limited by our then existing financial resources. We cannot
assure you that in the event of an extraordinary event we will have access to
sufficient funds to pay the required purchase redemption price for all
outstanding shares of Series B preferred stock.
THE SERIES B PREFERRED STOCK IS JUNIOR TO ALL OF OUR LIABILITIES
In the event of our bankruptcy, liquidation or winding-up, our assets
will be available to pay obligations on the Series B preferred stock only after
all indebtedness and other liabilities, including our existing credit facilities
have been paid. As a result, there may not be sufficient assets remaining to pay
amounts due on any or all of the Series B preferred stock then outstanding.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain "forward-looking statements" within the meaning of the safe
harbor provisions of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934. From time to time, we may publish or otherwise
make available forward-looking statements of this nature. Forward-looking
statements involve substantial risks and uncertainties. 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 regarding the following:
- our future prospects, including our revenues, income, margins,
profitability, cash flow, liquidity, financial condition and results
of operations;
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- our plans and strategies;
- the risks and uncertainties related to our business and our
securities;
- 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 expenditures needs;
- the development of a market for our eBusiness, including for online
energy information products and services;
- our ability to successfully develop, implement and operate our
eBusiness, including to design, develop and sell our products and
services over the Internet and achieve our eBusiness objectives; and
- our ability to finance our eBusiness.
These forward-looking statements are based largely 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. 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 "Risk Factors" in this prospectus, as well as other risks and
uncertainties discussed elsewhere in this prospectus, in documents incorporated
by reference in this prospectus and in our other reports and filings with the
SEC. Except as required by law, we do not intend to, and assume no
responsibility to, update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares offered
under this prospectus by the selling securityholders. However, because 932,500
shares of common stock offered under this prospectus are issuable upon the
exercise of warrants held by the selling securityholders, we will receive the
proceeds, if any, from any exercise of the warrants by the selling
securityholders, unless the warrants are exercised on a cashless basis. If all
the warrants are exercised and the exercise price is paid in cash, then we will
receive aggregate gross proceeds of approximately $6,160,000. Any proceeds from
the cash exercise of the warrants will be used for general corporate purposes,
which may include working capital, capital expenditures, repayment of
indebtedness, acquisitions and repurchases of securities. We cannot assure you
that any of the warrants will be exercised or, if any warrants are exercised,
how many, if any, will be exercised in cash, or when these exercises will occur.
Conversion of the Series B preferred stock into shares of common stock will not
result in any proceeds to us but will reduce the number of outstanding shares of
Series B preferred stock.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 25,000,000 shares of common
stock, par value $.01 per share, and 3,500,000 shares of preferred stock, par
value $.01 per share. Of our preferred stock, 1,000,000 shares are designated as
Series B preferred stock, 500,000 shares are designated as Series C preferred
stock, and the remaining 2,000,000 shares are undesignated.
As of February 4, 2000, the following were outstanding:
- 4,934,225 shares of common stock;
- 7,000 shares of Series B preferred stock, convertible into
approximately 1,179,762 shares of common stock;
- options to purchase an aggregate of 512,717 shares of common stock;
and
- warrants and other rights to purchase an aggregate of 1,987,019 shares
of common stock.
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The following summary of the material terms of our capital stock does
not purport to be complete and is subject to, and qualified in its entirety by,
our second restated certificate and by-laws and the provisions of Delaware law.
Our second restated certificate and our by-laws are exhibits to the registration
statement of which the prospectus is a part.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders, other than matters to be voted on
solely by one or more series of preferred stock, voting separately. The holders
of common stock are not entitled to cumulative voting rights in the election of
directors. Accordingly, the holders of a majority of the shares of the common
stock entitled to vote in any election of directors may elect all of the
directors standing for election, other than those directors who may be elected
only by a class of holders of preferred stock voting separately. Subject to any
preferential dividend rights that may be applicable to any outstanding preferred
stock, the holders of common stock are entitled to receive ratably these
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available therefor. In the event of our
liquidation, dissolution or winding up, the holders of common stock are entitled
to share ratably in all assets remaining after payment of all debts and other
liabilities, subject to the preferential distribution rights of preferred stock,
if any, then outstanding. The common stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable.
PREFERRED STOCK
Authorization. Under our second restated certificate, the board of
directors has the authority, without further action by the stockholders, to
issue shares of preferred stock in one or more series and to establish the
designations, powers, preferences and relative, participating, optional or
special rights, and any qualifications, limitations or restrictions, including
voting rights, dividend rates, conversion rights, terms of redemption and
liquidation preferences applicable to the shares of each series, any or all of
which may be greater than the rights of the common stock. The board of
directors, without stockholder approval, can issue preferred stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of common stock. The ability of the board of
directors to issue preferred stock without stockholder approval could have the
effect of delaying, deferring or preventing a change of control. Additionally,
the issuance of preferred stock may have the effect of decreasing the price of
the common stock and may adversely affect the voting and other rights of the
holders of common stock. Except for the issuance of the Series C preferred stock
as required by our rights agreement, we have no present plans to issue any
shares of preferred stock.
Series B preferred stock. The terms of the Series B preferred stock are
described below under "Description of the Series B Preferred Stock."
Series C preferred stock. The Series C preferred stock is to be issued
in connection with the rights agreement described below under "- -Rights
Agreement" and has the following material terms:
- cumulative quarterly dividends in preference to the holders of common
stock equal to the greater of $4.00 per share or 25 times the dividend
paid per share to holders of common stock;
- 25 votes per share; and
- a preference on liquidation equal to the greater of $16 per share or
25 times the amount payable per share to the holders of common stock.
WARRANTS AND OTHER RIGHTS
Unit warrants. In the units private placement we issued 700,000 unit
warrants. Each unit warrant entitles the holder to purchase one share of common
stock at an initial exercise price of $6.7425. 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 this
date, if this computed amount 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 in "Description of the Series B Preferred Stock - Conversion Rights".
The unit warrants can be exercised at any time after March 9, 2000 until
December 9, 2004. Instead of paying the exercise price in cash, holders may
exercise their unit warrants by delivering to us shares of common stock with a
fair market value equal to the exercise price. Alternatively, holders of unit
warrants may make a "cashless" exercise of the unit warrants and recover, upon
exercise and without making any payments of cash, common stock or any other
asset, a "net" number of shares of common stock determined by a formula based on
the amount the trading price of the common stock exceeds the exercise price then
in effect.
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Warrants issued in 1998 dividend distribution. On September 18, 1998,
we distributed 886,442 common stock purchase warrants as a dividend to our
stockholders on the basis of one warrant for each four shares of common stock
outstanding on September 10, 1998, the record date for the warrant distribution.
Each dividend warrant is exercisable, for a five year period, for one share of
common stock at an exercise price of $4.00. The dividend warrants trade on the
Nasdaq SmallCap Market under the symbol "MTEKW." The dividend warrants are
subject to redemption by us if the common stock trades at or above $6.50 per
share for 20 consecutive trading days. Our issuance of common stock upon
exercise of the dividend warrants is covered by an effective registration
statement filed with the SEC. As of February 4, 2000, 886,030 dividend warrants
remained outstanding.
Metretek Florida warrants. When we acquired Metretek Florida, we issued
warrants to purchase our common stock to the holders of then outstanding
warrants to purchase Metretek Florida capital stock. As of February 4, 2000,
warrants to purchase an aggregate of 36,620 shares of common stock were
outstanding, with expiration dates through 2004 and with exercise prices ranging
from $44.48 to $88.96 per share. The shares of common stock issuable upon
exercise of these warrants cannot be resold unless the resale is registered
under the Securities Act and under applicable state securities laws made under
available exemption therefrom. The holders of these warrants have the right,
under some circumstances, to require us to register the shares of common stock
issuable upon exercise of these warrants under the Securities Act and applicable
state securities laws.
Other warrants. As of February 4, 2000, in addition to the other
warrants described above, warrants to purchase 232,500 shares of common stock at
exercise prices ranging from $2.47 to $10.00 per share were outstanding.
Warrants exercisable for 67,500 shares of common stock are currently issuable,
and the remainder of the warrants become exercisable over the next twelve
months. These warrants expire between 2002 and 2004. These warrants were issued
in 1998 and 1999 for services rendered in connection with consulting and other
advisory services.
Convertible promissory note. In acquiring the assets of the Eagle
division of American Meter Company in 1998, we financed a portion of the
purchase price by issuing a convertible promissory note to American Meter. We
are obligated to repay the principal amount of that convertible note in May
2002, unless American Meter has before that time converted the note into shares
of our common stock. The principal amount of the American Meter note is
$600,000, and the note is convertible into 105,495 shares of common stock and
26,374 dividend warrants.
The shares of common stock issuable upon the exercise of these warrants
and rights cannot be resold unless the resale is registered under the Securities
Act and under applicable state securities laws or is made under available
exemptions from the registration requirements. The holders of these warrants and
other rights can require us to register their resale or the shares of common
stock that are subject to these warrants and other rights if we register other
securities. These registration rights are described below under "-- Registration
Rights."
REGISTRATION RIGHTS
Under the terms of the registration rights agreement among us and the
unit purchasers in the units private placement, holders of the Series B
preferred stock are entitled to register the resale of their shares of common
stock and their shares of Series B preferred stock under the Securities Act. See
"Selling Securityholders".
The holders of warrants issued when we acquired Metretek Florida have
registration rights with respect to the resale of the shares of common stock
issuable upon exercise of their warrants. These registration rights are
described above under "-- Warrants and Other Rights -- Metretek Florida
Warrants."
In connection with the acquisition of the Eagle division of American
Meter, we issued 439,560 shares of common stock and a convertible promissory
note, which is described above, to American Meter. American Meter has the right
to demand, on one occasion, beginning May 4, 2000, that we file a registration
statement for the registration of all or any portion of these shares under the
Securities Act. In addition, American Meter is entitled to piggy-back
registration rights in connection with any registration by us of securities for
any account or the account of other stockholders. If we propose to register any
shares of common stock under the Securities Act, we are required to give
American Meter notice of the registration and to include their shares in the
registration statement. American Meter's demand registration rights will
terminate at the earlier of May 4, 2006 or 90 days after American Meter's
ownership of these shares falls below 10% of all outstanding common stock.
The holders of the other warrants described above are entitled to
piggy-back registration rights in connection with any registration by us of
securities for our own account or for the account of our security holders.
Generally, if we propose to register any securities under the Securities Act, we
are required to give these securityholders notice of the registration and to
include their shares in the registration statement, subject to cut-back in
underwritten offerings. We are generally required to bear all expenses of all
demand and piggy-back registrations, except broker-dealer and underwriting
discounts and commissions and other selling expenses. We have also agreed to
indemnify some of these securityholders from liability involved in these
registrations.
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ANTI-TAKEOVER EFFECTS OF OUR SECOND RESTATED CERTIFICATE AND BY-LAW PROVISIONS
Provisions of our second restated certificate and our by-laws, which
are summarized below, may be deemed to have anti-takeover effects and may delay,
defer or prevent a tender offer or takeover attempt that a stockholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the shares held by stockholders.
Related business combinations. Under our second restated certificate,
"business combinations" with "related persons", which are persons who
beneficially own 20% or more of our voting power, and their affiliates and
associates, must be approved by the affirmative vote of the holders of not less
than 80% of our outstanding voting stock, and the affirmative vote of the
holders of not less than 67% of the outstanding voting stock held by
stockholders other than related persons. This super-majority voting requirement
does not apply to a business combination either in which the cash or the fair
market value of the other consideration to be received per share by stockholders
in the business combination is not less than the highest per share price paid by
the related person in acquiring any of its holdings of common stock, or which
has been approved in advance by two-thirds of our continuing directors.
Super-Majority voting provisions. Under our second restated
certificate, the affirmative vote of the holders of not less than 80% of our
outstanding voting shares is required to approve fundamental corporate actions
including mergers, consolidations, combinations, dissolutions, and sales of all
or substantially all our assets, unless these actions are approved by two-thirds
of our board of directors. Our second restated certificate also requires the
affirmative vote of the holders of not less than 80% of our outstanding voting
shares to amend or repeal any provision of our restated certificate or our
by-laws, if it is required or demanded that the stockholders vote on the
amendment or repeal, unless the amendment or repeal is approved by two-thirds of
our board of directors.
Classified board of directors. Our board of directors is divided into
three classes serving staggered three-year terms. Upon expiration of the term of
a class of directors, the directors in that class will be elected for three-year
terms at the annual meeting of stockholders in the year in which their term
expires. In addition, under Delaware law, our board of directors may be removed
only for cause. These provisions, when coupled with the provision of our second
restated certificate authorizing the board of directors to fill vacant
directorships, may delay a stockholder from removing incumbent directors and
simultaneously gaining control of the board of directors by filling vacancies
created by the removal with its own nominees.
Stockholder action; special meetings of stockholders. Our second
restated certificate eliminates the ability of stockholders to act by written
consent. Our by-laws further provide that special meetings of our stockholders
may be called only by the President or by our board of directors.
Advance notice requirements for stockholder proposals and directors
nominations. Our by-laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice in
writing. To be timely, a stockholder's notice must be received at our principal
executive offices not less than 45 days nor more than 120 days before the
anniversary date of the immediately preceding annual meeting of stockholders. If
the annual meeting is called for a date that is not within 30 days before or
after the anniversary date, to be timely, notice from the stockholder must be
received:
- not earlier than 180 days before to the annual meeting of
stockholders; and
- not later than 75 days before the annual meeting of stockholders or
the tenth day following the date on which notice of the annual meeting
was made public.
Our by-laws also specify the requirements of the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual meeting of stockholders.
Authorized but unissued shares of our capital stock. All authorized but
unissued shares of our common stock and preferred stock are available for future
issuance without stockholder approval, subject to stock exchange approval
requirements. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of authorized
but unissued shares of common stock and preferred stock could render more
difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date that the person
became an interested stockholder, unless:
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- before the person became an interested stockholder, the board of
directors approved either the business combination or the transaction
that resulted in the person becoming an interested stockholder;
- upon completion of the transaction that resulted in the person
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
- following the transaction in which the person became an interested
stockholder, the business combination is approved by the board of
directors and authorized at a meeting of the stockholders, by the
affirmative vote of the holders of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.
Section 203 defines a "business combination" to include:
- any merger or consolidation involving the corporation and the
interested stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder, subject to various exceptions;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder;
or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
In general, Section 203 defines an "interested stockholder" as any
entity or person beneficially owning 15% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
A Delaware corporation may "opt out" of Section 203 by including an
express provision in its original certificate of incorporation or by-laws
resulting from an amendment to prove by holders of at least a majority of the
outstanding voting stock. Neither our second restated certificate nor our
by-laws contain any exclusion. Section 203 makes it more difficult for an
"interested stockholder" to effect various business combinations with a
corporation for a three-year period.
RIGHTS AGREEMENT
We have entered into a stockholder rights agreement. As with most
rights agreements, the terms of our rights agreement are complex and not easily
summarized, particularly as they relate to the acquisition of our common stock
and to exercisability. This summary may not contain all of the information that
is important to you. The following summary should be read in conjunction with,
and is qualified in its entirety by reference to, our rights agreement, a copy
of which has been filed with the SEC.
Under our rights agreement, each outstanding share of common stock has
one right to purchase four one-hundredths of a share of series C preferred stock
attached to it. The purchase price per one one-hundredth of a share of series C
preferred stock under the stockholder rights agreement is $25.00.
Initially, the rights under our rights agreement are attached to the
outstanding certificates representing our common stock, and no separate
certificates representing the rights will be distributed. The rights will
separate from our common stock and be represented by separate certificates on
the distribution date, which will occur on the tenth day after public
announcement that any person or group has become an acquiring person, which
means the beneficial owner of at least 15% of our outstanding common stock, or
10 business days, or a later date as determined by the board of directors, after
the date a person or group commences a tender offer for 15% or more of our
outstanding stock. After the rights separate from our common stock, certificates
representing the rights will be mailed to record holders of the common stock.
Once distributed, the rights certificates alone will represent the rights.
All shares of our common stock issued before the date the rights
separate from the common stock will be issued with the rights attached. The
rights are not exercisable until the date the rights separate from the common
stock. The rights will expire on the December 1, 2001, unless the term of the
rights agreement is extended by us or the rights are earlier redeemed or
exchanged by us.
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After a distribution date occurs, then each right will entitle the
holder the purchase of four one-hundredths of a share of Series C preferred
stock, each one-hundredth having a market value of twice its purchase price. In
addition, after the distribution date, each right will entitle the holder to
purchase a number of shares of common stock of the acquiring person having a
then current market value of twice the purchase price if any of the following
occurs:
- we merge into another entity;
- an acquiring person which is an entity merges into us; or
- we sell more than 50% of our assets or earning power.
Under our rights agreement, any rights that are or were owned by an
acquiring person will be null and void. Our rights agreement contains exceptions
to the definition of "acquiring persons". American Meter and its affiliates and
associates will not be deemed to be an "acquiring person" so long as they own no
more than 25% of our outstanding common stock. In addition, no person or group
who becomes a beneficial owner of 15% or more of the outstanding shares of our
common stock, solely by virtue of acquiring the units, or exercising or
converting any securities included in the units, will be deemed to be an
acquiring person. Holders of the rights will have no rights as our stockholders,
including the right to vote or receive dividends, simply by virtue of holding
the rights.
Our rights agreement contains exchange provisions which provide that
after an acquiring person becomes a beneficial ownership owner of 15% or more,
but less than 50%, of our outstanding common stock, our board of directors may,
at its option, exchange all or part of the then outstanding and exercisable
rights for common stock at an exchange ratio of one one-fourth share of common
stock per right.
Our board of directors may, at its option, redeem all of the
outstanding rights under our Rights Agreement before any person or group
becoming an acquiring person. The redemption price under our Rights Agreement is
$0.04 per right, subject to adjustment. The right to exercise the rights will
terminate upon the action of our board of directors ordering the redemption of
the rights and the only right of the holders of the rights will be to receive
the redemption price.
Our rights agreement may be amended by our board of directors before
the date any person or group becomes an acquiring person, but the threshold of
"acquiring person" status cannot be reduced below the greater of 10% or .001%
above the highest percentage of common stock then beneficially owned by any
person or group, without reference to American Meter. However, after that date,
the rights agreement may not be amended in any manner which would adversely
affect the interests of the holders of the rights.
Our rights agreement contains rights that have anti-takeover effects.
The rights may cause substantial dilution to a person or group that attempts to
acquire us without conditioning the offer on the redemption of the rights of the
termination of the rights. Accordingly, the existence of the rights may deter
acquirors from making takeover proposals or tender offers for us. However, the
rights are not intended to prevent a takeover, but rather are designed to
enhance the ability of our board or directors to negotiate with an acquiror on
behalf of all the stockholders. In addition, the rights should not interfere
with a proxy contest or with any merger or business combination approved by our
board of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock and the dividend
warrants is American Securities Transfer & Trust Co. We are the transfer agent
and registrar for the Series B preferred stock.
LISTING
Our common stock is listed and traded on the Nasdaq National Market
under the trading symbol "MTEK". Our dividend warrants are listed and traded on
the Nasdaq SmallCap Market under the trading symbol "MTEKW." We do not intend to
list the Series B preferred stock on the Nasdaq Stock Market, any national
securities exchange or any other stock market, stock exchange or stock quotation
system.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 145 of the Delaware General Corporation Law provides for broad
indemnification of the directors, officers, employees and agents of a
corporation under specified conditions and limitations. As permitted by Section
145 of the DGCL, our second restated certificate permits us to indemnify any
person who was or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by us or in our right, by reason of the fact
the person is or was our officer of director, or is or was serving at our
request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees,
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judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with the action, suit or proceeding, provided that
the person acted in good faith and in a manner the person reasonably believed to
be in or not opposed to our best interests, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the person's conduct
was unlawful. We are also permitted to indemnify the same persons against
expenses, including attorneys' fees, actually and reasonably incurred by these
persons in connection with the defense or settlement of any threatened, pending
or completed action or suit by us or in our right under the same conditions,
except that no indemnification will be made in respect to any claim, issue or
matter as to which the person has been adjudged to be liable to us unless, and
only to the extent that, the adjudicating court determines that the
indemnification is proper under the circumstances. To the extent these persons
are successful on the merits or otherwise in defense of any action, suit or
proceeding, indemnification is mandatory. We may also pay the expenses incurred
in any action, suit or proceeding in advance of its final disposition, upon
receipt of an appropriate undertaking by the person. the rights are not
exclusive of any other right which any person may have or hereafter acquire
under any statute, or under any provision of our restated certificate, our
by-laws, or under any agreement, vote of stockholders or disinterested directors
or otherwise. No repeal or modification of these provisions of our restated
certificate will in any way diminish or adversely affect the rights of any
person to indemnification thereunder in respect of any occurrences or matters
arising before any repeal or modification.
Our by-laws provide that we shall indemnify our directors, officers,
employees and agents to the extent permitted by the DGCL.
Our second restated certificate also specifically authorizes us to
maintain insurance and to grant similar indemnification rights to our employees
or agents. We maintain an insurance policy indemnifying our directors and
officers against liabilities, including liabilities arising under the Securities
Act, which might be incurred by them in these capacities.
As permitted by Section 102(b)(7) of the DGCL, our second restated
certificate also eliminates the personal liability of our directors to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the DGCL, relating to unlawful payments of
dividends or unlawful stock purchases or redemptions; and
- for any transaction in which a director derived an improper personal
benefit.
These provisions do not limit or eliminate our rights or the rights of
any stockholder to seek non-monetary relief, such as an injunction or
rescission, in the event of a breach of a director's fiduciary duty. These
provisions will also not alter a director's liability under federal securities
laws.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions or otherwise, we have been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
DESCRIPTION OF THE SERIES B PREFERRED STOCK
The following is a summary of the material provisions of the Series B
preferred stock and of the applicable provisions of Article Fourth of our second
restated certificate. Copies of Article Fourth are available upon request at our
address shown under "Where You Can Find More Information." This summary is not
intended to be complete and is subject to, and is qualified in its entirety by
reference to, the provisions of Article Fourth relating to the Series B
preferred stock.
NUMBER AND DESIGNATION
There are 7,000 shares of our Series B preferred stock, par value $.01
per share, outstanding. The Series B preferred stock is validly issued, fully
paid and non-assessable. The holders of the Series B Preferred Stock have no
preemptive or preferential right to purchase or subscribe for stock,
obligations, warrants or any other of our securities of any class. The Series B
preferred stock is not listed, quoted or traded on any public market.
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RANKING
The Series B preferred stock, with respect to dividend rights and
rights on liquidation, dissolution or winding-up, ranks as follows:
- senior to our common stock and our Series C preferred stock;
- senior to each class of our capital stock or series of our preferred
stock established after the Series B preferred stock by our board of
directors that has terms which do not expressly provide that the class
or series will rank senior to, or on a parity with, the Series B
preferred stock;
- on a parity with each class of our capital stock or series of our
preferred stock established after the Series B preferred stock by our
board of directors that has terms which expressly provide that the
class or series will rank on a parity with the Series B preferred
stock;
- junior to each class of our capital stock or series of our preferred
stock established after the Series B preferred stock by our board of
directors that has terms which expressly provide that the class or
series will rank senior to the Series B preferred stock; and
- junior to all our existing and future debt obligations.
While any shares of Series B preferred stock are outstanding, we may
not issue any equity securities, or securities exchangeable for or convertible
into equity securities or measured by our earnings or profit, other than our
Series C preferred stock, that rank senior to or on a parity with the Series B
preferred stock as to liquidation, dividend and redemption rights without the
consent of the holders of at least a majority of the outstanding shares of
Series B preferred stock then outstanding, voting as a single class. We may,
however, without the consent of any holder of Series B preferred stock, create
or increase the amount of any class of capital stock that ranks junior to the
Series B preferred stock with respect to liquidation, dividend and redemption
rights.
DIVIDENDS
Holders of shares of Series B preferred stock are entitled to receive,
when, as and if declared by our board of directors out of our funds which are
legally available for payment, cumulative dividends in cash at the annual rate
of 8% of the initial liquidation preference of $1,000 per share of Series B
preferred stock. This is equivalent to $80.00 per share annually.
Dividends on the Series B preferred stock are payable quarterly on
March 31, June 30, September 30 and December 31 of each year, commencing March
31, 2000. These dividends are cumulative and accrue from the most recent date on
which the dividends have been paid or, if no dividends have been paid, from the
date of the original issuance of the Series B preferred stock. Dividends are
payable to holders of record as they appear on our stock records at the close of
business on the applicable record date. Dividends payable on our Series B
preferred stock for any period greater or less than a full quarterly period are
computed on the basis of a 365-day year. Accumulated dividends on shares of
Series B preferred stock will not bear interest.
As long as at least 1,000 shares of Series B preferred stock are
outstanding, we will not:
- pay or declare any dividend or make any distribution on any of our
common stock or any other of our capital stock ranking junior to or on
a parity with the Series B preferred stock as to dividend, liquidation
or redemption rights; or
- purchase, redeem or acquire, or pay, set aside or make available for a
sinking fund any monies to purchase, redeem or acquire, any shares of
our common stock or other capital stock ranking junior to or on a
parity with the Series B preferred stock as to dividend, liquidation
or redemption rights.
In addition to the 8% cumulative dividends discussed above, holders of
Series B preferred stock are entitled to receive dividends out of funds legally
available for payment of dividends at the times and in the amounts as our board
of directors, in its sole discretion, may determine.
We will not declare or pay any dividend in cash or common stock on any
shares of common stock unless at the same time we declare or pay the same
dividend on the Series B preferred stock on the basis of the number of shares of
common stock into the Series B preferred stock held is then convertible.
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REDEMPTION
Mandatory redemption. On December 9, 2004, subject to legal
availability of funds, we will be required to redeem all of the outstanding
shares of the Series B preferred stock at a redemption price, payable in cash,
equal to the liquidation preference plus accumulated and unpaid dividends, if
any, to the date of redemption. We will not be required to make sinking fund
payments with respect to the Series B preferred stock.
Redemption upon extraordinary transactions. The holders of not less
than a majority of the outstanding shares of Series B preferred stock may elect
to either have the Series B preferred stock redeemed in connection with, or to
participate in, any of the following "extraordinary transactions":
- a merger or consolidation of us with or into another corporation,
unless a majority of the outstanding voting power of the surviving or
consolidated corporation is held by our stockholders immediately
before that transaction;
- the sale or transfer of all or substantially all of our properties and
assets;
- any purchase by any party or group of affiliated parties of shares of
our capital stock, through a negotiated stock purchase or a tender for
our shares, resulting in a party or group of affiliated parties that
did not beneficially own a majority of our voting power immediately
before the purchase beneficially owning a majority of our voting power
immediately after the purchase; or
- our repurchase of shares representing a majority of our voting power
immediately before the redemption.
Unless the holders of Series B preferred stock have elected to convert
their shares of Series B preferred stock into common stock, then as a condition
to any extraordinary transaction we must either:
- redeem all outstanding shares of Series B preferred stock at a
redemption price equal to the liquidation preference plus accumulated
and unpaid dividends, if any, payable in cash or, at the election of
the holders of the Series B preferred stock, payable in the same form
of consideration as is paid to the holders of common stock in the
extraordinary transaction, if the holders of Series B preferred stock
elect to have their shares redeemed; or
- take those actions as are sufficient to facilitate the participation
of the holders of the Series B preferred stock in the extraordinary
transaction permitting them to receive, as a preferential amount, the
amount they would have received upon redemption either in cash, or at
the election of the holders of Series B preferred stock, in the same
form of consideration as is paid to the holders of common stock in the
extraordinary transaction, if the holders of Series B preferred stock
elect to participate in the extraordinary transaction.
A sale of substantially all of our assets means a sale or other
disposition other than in the ordinary course of business of more than 75% of
our assets, based upon the book value or fair market value of our assets,
determined on a consolidated basis under generally accepted accounting
principles.
Upon any redemption due to an extraordinary transaction, if the holders
of the Series B preferred stock, by converting their shares into common stock
before the extraordinary transaction, would receive an amount greater than the
redemption price payable to them if they do not convert their shares into common
stock, then they will be entitled, upon an election by holders of a majority of
the outstanding shares of the Series B preferred stock, to receive the greater
amount in the extraordinary transaction. We are not permitted to participate in
any extraordinary transaction or to make or agree to make any payments to
holders of common stock or any other shares of our capital stock ranking junior
to the Series B preferred stock unless the holders of the Series B preferred
stock have received the full preferential amount to which they are entitled in
the extraordinary transaction.
Optional redemption. On or after December 9, 2000, if the market price
of our common stock equals or exceeds 200% of the conversion price of the Series
B preferred stock then in effect for at least 20 trading days within any 30
trading day period, we will have the right to redeem the Series B preferred
stock. If we redeem the Series B preferred stock, the redemption price will be
equal to the liquidation preference, plus accumulated and unpaid dividends, if
any, to the redemption date. We will give at least 30 days written notice to the
holders of Series B preferred stock before we redeem the Series B preferred
stock, and the notice must be given within 30 days after the 30 trading day
period referred to above.
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We will not have the right to exercise this right to redeem the Series
B preferred stock if in the time between our giving of the notice of redemption
and the date on which redemption is to occur a registration statement is not in
effect covering the sale by the holders of Series B preferred stock of all
shares of common stock issuable upon conversion of the Series B preferred stock.
Other redemption provisions. If, on any date we are obligated to redeem
the Series B preferred stock, we are prohibited under Delaware law from
redeeming all outstanding shares of the Series B preferred stock, then we will
redeem as many shares as we are permitted under Delaware law on a pro rata basis
among the holders of the Series B preferred stock, and we will take any
necessary or appropriate action to remove any impediments on our ability to
redeem the remaining shares. If we are still unable to redeem all shares of
Series B preferred stock, then the dividend rate on the unredeemed shares will
increase to an annual rate of 10%, and will increase by an additional 0.5%
annual rate at the end of each six month period, up to a maximum annual rate of
15%, until all outstanding shares of Series B preferred stock have been redeemed
and the redemption price has been paid in full.
Our ability to redeem the Series B preferred stock is limited by the
terms of our current outstanding indebtedness. We will not be able to redeem the
Series B preferred stock when we are required to do so unless we either obtain
the consent of our current lender or unless we redeem or repay the indebtedness.
LIQUIDATION PREFERENCE
Upon our voluntary or involuntary liquidation, dissolution or
winding-up, each holder of Series B preferred stock is entitled to be paid, out
of our assets available for distribution to stockholders, an amount equal to the
liquidation preference of $1,000 per share of Series B preferred stock held by
the holder, plus accumulated and unpaid dividends to the date fixed for
liquidation, dissolution or winding up, before any distribution is made on our
common stock or any other class of our capital stock that is junior to the
Series B preferred stock as to liquidation rights. If, upon our voluntary or
involuntary liquidation, dissolution or winding-up, there are not sufficient
assets to pay all amounts payable with respect to the Series B preferred stock,
then the holders of the Series B preferred stock will share ratably in any
distribution of our assets in proportion to the respective preferential amount
to which they are entitled. In addition, if, upon our voluntary or involuntary
liquidation, dissolution or winding-up, the holders of Series B preferred stock
would have received more than the liquidation preference referred to above if
they had converted their shares into common stock immediately before the
liquidation, dissolution or winding up, then the holders of Series B preferred
stock will receive the greater amount.
VOTING RIGHTS
The holders of Series B preferred stock have no voting rights, except
as required under Delaware law or as provided in the provisions of Article
Fourth of our second restated certificate governing the Series B preferred
stock.
As long as at least 2,000 shares of Series B preferred stock are
outstanding, then the holders of the outstanding shares of Series B preferred
stock, voting together as a separate class, are entitled to elect one member of
our board of directors. As of the date of this prospectus, the holders of Series
B preferred stock have not exercised this right.
If we fail to redeem all of the Series B preferred stock when we are
required to do so by the terms of the Series B preferred stock, then the holders
of the outstanding shares of Series B preferred stock, voting together as a
separate class, will be entitled to elect to serve on our board of directors
that number of directors constituting a majority of the members of our board of
directors, and the number of members of our board of directors will be
automatically increased by that number. These special voting rights of the
Series B preferred stock will continue until we have paid the redemption price
of all outstanding shares of Series B preferred stock in full, including any
interest due as a result of our failure to pay the redemption price, at which
time the terms of any directors elected by the holders of Series B preferred
stock under these special voting rights will terminate and the number of members
of our board of directors will be immediately decreased by that number.
As long as at least 1,000 shares of Series B preferred stock remain
outstanding, we may not, without the consent of at least a majority of the then
outstanding shares of Series B preferred stock:
- merge, consolidate, recapitalize, reorganize or engage in any like
transaction;
- liquidate or dissolve;
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- sell or transfer all or substantially all of our consolidated
properties or assets;
- dispose of assets for consideration in excess of $1,000,000 without
the approval of our board of directors; or
- borrow money, except up to $3,000,000 under our primary credit
agreement.
In addition, as long as any shares of Series B preferred stock are
outstanding, we may not, without the consent of the holders of at least a
majority of the then outstanding shares of Series B preferred stock:
- issue any equity security, or any securities exchangeable for or
convertible into equity securities or measured by our earnings or
profit, other than the Series C preferred stock, that rank senior to
or parity with the Series B preferred stock as to liquidation,
dividend and redemption rights;
- redeem, repurchase or otherwise acquire for value any of our equity
securities other than the Series B preferred stock under its terms or
up to 250,000 shares of common stock under restriction agreements with
our employees, officers, directors, consultants or other persons
performing services for us; or
- amend our certificate of incorporation, by-laws or other charter
documents or those of any of our subsidiaries.
CONVERSION RIGHTS
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," which is
$1,000 plus accumulated and unpaid dividends on the 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. At 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 on the date 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%;
- any dividend or distribution payable in shares of the common stock;
- any subdivision or split-up of the common stock;
- any combination or reverse split of the common stock;
- any issuance, sale or exchange of shares of common stock at a price
per share of common stock less than the greater of the "market price"
of the common stock or the conversion price in effect immediately
before the issuance, sale or exchange of the shares, excluding the
following "excluded shares":
(1) 1,211,236 shares and options issued or issuable to our officers,
directors and employees or issuable upon the exercise of options
or other rights issued to them under our stock option, stock
purchase and related employee plans,
(2) up to 1,555,150 shares issuable upon the exercise of warrants or
other rights we issued before December 9, 1999, or
(3) any securities issuable upon conversion of the Series B preferred
stock or exercise of unit warrants.
- any issuance of options, warrants or rights to subscribe for shares of
common stock, or securities convertible into or exchangeable for
shares of common stock, at a purchase price less than the greater
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of the then current market price or the conversion price then in
effect, other than options or warrants for excluded shares;
- any distribution to all holders of our common stock of evidences of
indebtedness, shares of our capital stock other than common stock,
other securities, cash or assets, excluding any options, rights or
warrants for which an adjustment to the conversion price referred to
above is applicable and any distributions paid exclusively in cash or
in common stock;
- any reclassification or capital reorganization of the common stock;
and
- any merger, consolidation or sale of all or substantially all of our
properties and assets.
If the conversion price of the Series B preferred stock is adjusted to
the reset price on December 9, 2000, then the holders of Series B preferred
stock are not permitted, for a period of 90 days after that adjustment, to sell,
pledge or transfer, one capital share, or for a period of 30 days after the
adjustment, to purchase any of our common stock to cover any "short" purchases,
although during the post-adjustment period they can convert their Series B
preferred stock or exercise their warrants.
The "market price" of the common stock for any date means the last sale
price of the common stock on that date or, if there was no sale on that date,
the average of the closing bid and sale price of the common stock on that date,
as reported on the Nasdaq National Market as long as the common stock is traded
on the Nasdaq National Market.
No adjustment in the conversion price will be required to be made until
a cumulative adjustment amounting to 1% or more of the conversion price as last
adjusted is required.
Fractional shares of common stock will not be issued upon conversion
but, instead, we will round the applicable number of shares of common stock to
be issued upon conversion to the nearest whole number of shares.
Holders of shares of Series B preferred stock may convert their shares
by delivering certificates representing the shares being converted, duly
assigned or endorsed for transfer to us or accompanied by duly executed stock
powers, at our principal executive offices as the transfer agent for the Series
B preferred stock. Upon conversion, we will issue one or more certificates
representing the common stock without charge to the holders of the Series B
preferred stock.
TRANSFER AGENT
We will act as the transfer agent for the shares of Series B preferred
stock.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax
consequences relevant to the purchase, ownership and disposition of our Series B
preferred stock and common stock. This summary is based on the current
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations and judicial and administrative authority, all of which are subject
to change, possibly on a retroactive basis. This summary applies only to
investors who hold our Series B preferred stock or common stock as capital
assets, within the meaning of section 1221 of the Internal Revenue Code. This
summary does not discuss the tax consequences to special classes of investors,
including:
- brokers or dealers in securities or currencies;
- financial institutions;
- tax-exempt entities;
- life insurance companies;
- persons holding our Series B preferred stock or common stock as a part
of a hedging, short sale or conversion transaction or a straddle;
- investors whose functional currency is not the United States dollar;
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- persons who hold our Series B preferred stock or common stock through
partnerships or other pass-through entities; or
- except as specifically noted, foreign holders and U.S. expatriates.
State, local and foreign tax consequences of ownership of our Series B
preferred stock and common stock are not summarized.
We have not requested, and do not intend to request, any rulings from
the Internal Revenue Service concerning the federal tax consequences of an
investment in our Series B preferred stock or common stock. You are advised to
consult with your own tax advisor regarding the consequences of acquiring,
holding or disposing of our Series B preferred stock or common stock in light of
current tax laws, your particular investment circumstances, and the application
of state, local and foreign tax laws.
When we refer in this summary to a "United States Holder," we mean a
beneficial owner of Series B preferred stock or common stock that is:
- a citizen or resident of the United States for United States federal
income tax purposes;
- a corporation created or organized in the United States or under the
laws of the United States or of any political subdivision;
- an estate whose income is includible in gross income for United States
federal income tax purposes regardless of its source; or
- a trust if a court within the United States is able to exercise
primary supervision of the administration of the trust and one or more
United States persons have the authority to control all substantial
decisions of the trust.
When we refer in the summary to a "Non-United States Holder," we mean a
beneficial owner of Series B preferred stock or common stock that is not a
United States Holder.
UNITED STATES HOLDERS
Distributions. We are required to pay distributions on the Series B
preferred stock in cash. A cash distribution on the Series B preferred stock or
common stock will be treated as a dividend to the extent of our current or
accumulated earnings and profits allocable to the distribution as determined
under U.S. federal income tax principles. The amount of our earnings and profits
at any time will depend upon our future actions and financial performance. If
the amount of the distribution exceeds our current and accumulated earnings and
profits allocable to the distribution, the distribution will be treated as a
nontaxable return of capital and will be applied against and reduce your
adjusted tax basis in the stock, but not below zero. The reduction in tax basis
will increase the amount of any gain, or reduce the amount of any loss, which
you would otherwise realize on the sale or other taxable disposition of the
stock. If the distribution exceeds both our current and accumulated earnings and
profits allocable to the distribution and your adjusted tax basis in your stock,
the excess will be treated as capital gain and will be either long-term or
short-term capital gain depending on your holding period for the stock.
Corporate investors in our Series B preferred stock or common stock
generally should be eligible for the 70% dividends-received deduction with
respect to the portion of any distribution on the stock taxable as a dividend.
However, corporate investors should consider provisions that may limit the
availability of the dividends-received deduction, including:
- the 46-day holding period required by section 246(c) of the Internal
Revenue Code;
- the rules in section 246A of the Internal Revenue Code that reduce the
dividends-received deduction for dividends on debt-financed stock; and
- the rules in section 1059 of the Internal Revenue Code that reduce the
basis of stock in respect of extraordinary dividends.
Corporate investors should also consider the effect of the dividends-received
deduction on the determination of alternative minimum tax liability.
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Redemption. When we redeem our Series B preferred stock, it will be for
cash, and the redemption will be taxable to you. The redemption generally will
be treated as a sale or exchange if you do not own, actually or constructively
within the meaning of section 318 of the Internal Revenue Code, any of our stock
other than the redeemed Series B preferred stock. If you do own, actually or
constructively, other stock of ours, the redemption of your Series B preferred
stock may be taxable in accordance with the treatment described above for
distributions. The treatment as a distribution will not apply if the redemption:
- is "substantially disproportionate" with respect to you under section
302(b)(2) of the Internal Revenue Code; or
- is "not essentially equivalent to a dividend" under section 302(b)(1)
of the Internal Revenue Code.
A distribution to you will be "not essentially equivalent to a dividend" if it
results in a meaningful reduction in your stock interest in us, which should be
the case if:
- your proportionate ownership interest, taking into account any actual
ownership of stock and any stock constructively owned, is reduced;
- your relative stock interest in us is minimal; and
- you exercise no control over our business affairs.
If a redemption of your Series B preferred stock is treated as a sale
or exchange, it will result in capital gain or loss equal to the difference
between the amount of cash received and your adjusted tax basis in the Series B
preferred stock redeemed, except to the extent that the redemption price
includes unpaid dividends which we declare before the redemption. The capital
gain or loss will be long term if you have held the Series B preferred stock for
more than one year. Any cash you receive in discharge of dividend arrearages on
the Series B preferred stock will be treated as a distribution on the Series B
preferred stock to the extent of the dividends in arrears, taxable in accordance
with the treatment described above for distributions.
If the cash you receive on redemption of your Series B preferred stock
is taxed as a dividend, your tax basis (reduced for amounts, if any, treated as
return of capital) in the redeemed Series B preferred stock will be transferred
to any remaining other stock of ours you own, subject, in the case of a
corporate taxpayer, to reduction or possible gain recognition under section 1059
of the Internal Revenue Code in an amount equal to the nontaxed portion of the
dividend. If you do not actually own any other of our stock, having a remaining
stock interest only constructively, you may lose the benefit of your tax basis
in the Series B preferred stock but the tax basis may be shifted to the stock of
the related person whose stock you constructively own.
Under specified circumstances, section 305(c) of the Internal Revenue
Code requires that any excess of the redemption price of preferred stock over
its issue price be treated as constructively distributed on a periodic basis
before actual receipt. These rules will apply to the mandatory redemption if the
liquidation preference of the Series B preferred stock exceeds the issue price
by more than 25% of the liquidation preference multiplied by the number of
complete years to the mandatory redemption date. The constructive distribution
rules will not apply to our provisional redemption rights if:
- you are not "related" to us within the meaning of Treasury regulations
under section 305(c);
- there are no plans, arrangements or agreements that effectively
require or are intended to compel us to exercise our provisional
redemption rights; and
- our exercise of the right to redeem would not reduce the yield of the
Series B preferred stock, as determined under the regulations.
We intend to take the position that the existence of our provisional redemption
rights does not result in a constructive distribution under section 305(c).
Conversion. You generally will not recognize gain or loss on conversion
of shares of Series B preferred stock into our common stock, except with respect
to any cash paid for fractional shares of common stock. However, you may
recognize gain or dividend income to the extent there are dividends in arrears
on your stock at the time of conversion into common stock. Your tax basis in the
common stock received upon conversion of Series B preferred stock generally will
be equal to your tax basis in the Series B preferred stock converted and the
holding period of the common stock generally will include your holding period
for the Series B preferred stock. However,
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the tax basis of any common stock received on conversion which is treated as a
dividend will be equal to its fair market value on the date of the distribution
and the holding period of that common stock will commence on the day after its
receipt.
You may be deemed to have received a constructive distribution of stock
taxable as a dividend if the conversion ratio of the Series B preferred stock is
adjusted to reflect a cash or property distribution on our common stock or to
prevent dilution in the case of some issuances of rights or warrants to purchase
common stock at below market prices. Although an adjustment to the conversion
price made under a bona fide reasonable adjustment formula which has the effect
of preventing the dilution of your interest in us generally will not be
considered to result in a constructive distribution of stock, some of the
possible adjustments could trigger this rule. If a nonqualifying adjustment is
made, or if we fail to make an adjustment, you might be deemed to have received
a taxable stock dividend. If so, the amount of the dividend to be included in
income would be the fair market value of the additional common stock to which
you would be entitled by reason of the increase in your proportionate equity
interest in us.
Sale or other taxable disposition. If you sell or dispose of your
Series B preferred stock or common stock in a taxable transaction other than a
redemption or conversion by us, you will recognize capital gain or loss equal to
the difference between the amount of cash and the fair market value of property
received and your tax basis in the Series B preferred stock or common stock. The
gain or loss will be long-term capital gain or loss if your holding period for
the stock exceeds one year. For corporate taxpayers, long-term capital gains are
taxed at the same rate as ordinary income. For individual taxpayers, net capital
gains -- the excess of the taxpayer's net long-term capital gains over his net
short-term capital losses -- are subject to a maximum tax rate of 20% if the
stock is held for more than one year.
NON-UNITED STATES HOLDERS
Distributions. Distributions received by you as a Non-United States
Holder in respect of the Series B preferred stock, in cash, and distributions in
respect of common stock, to the extent considered dividends for U.S. federal
income tax purposes, generally will be subject to withholding of United States
federal income tax at a 30% rate or at a lower rate specified by an applicable
income tax treaty, unless the dividend is effectively connected with your
conduct of a trade or business within the United States or, where a tax treaty
applies, is attributable to a United States permanent establishment you
maintain. If the dividend is effectively connected with your conduct of a trade
or business within the United States or, where a tax treaty applies, is
attributable to your United States permanent establishment, the dividend will be
subject to federal income tax on a net income basis at applicable graduated
individual or corporate rates and will be exempt from the 30% withholding tax.
In addition to the graduated rate described above, dividends received
by a corporate Non-United States Holder that are effectively connected with a
United States trade or business or, where a tax treaty applies, are attributable
to your United States permanent establishment may, under some circumstances, be
subject to an additional "branch profits tax" at a 30% rate or at a lower rate
specified by an applicable income tax treaty.
For purposes of obtaining a reduced rate of withholding under an income
tax treaty, you will be required to provide information concerning your country
of residence and entitlement to tax treaty benefits. If you claim exemption from
withholding with respect to dividends effectively connected with your conduct of
a business within the United States, you must provide appropriate certification,
currently Internal Revenue Service Form 4224, to us or our paying agent. If you
are eligible for a reduced rate of U.S. federal withholding tax, you may obtain
a refund of any excess withheld amounts by timely filing an appropriate claim
for refund.
If a distribution exceeds our current and accumulated earnings and
profits allocable to the distribution, it will be treated first as a return of
your tax basis in the stock to the extent of your basis and then as gain from
the sale of a capital asset, which would be taxable as described below. Any
withholding tax on distributions in excess of our current and accumulated
earnings and profits is refundable to you upon the timely filing of an
appropriate claim for refund with the Internal Revenue Service.
Under currently applicable Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of that
country, unless the payor has knowledge to the contrary, for purposes of the
withholding discussed above, and, under the current interpretation of these
Treasury regulations, for purposes of determining the applicability of a tax
treaty rate. Under Treasury regulations currently scheduled to be effective with
respect to dividends paid after December 31, 2000, a Non-United States Holder of
our stock who wishes to
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claim the benefit of an applicable treaty rate, and to avoid backup withholding
as discussed below, will be required to satisfy applicable certification and
other requirements. However, under either set of regulations, some payments to
foreign partnerships and other fiscally transparent entities may not be eligible
for a reduced rate of withholding tax under an applicable income tax treaty.
Disposition of Series B preferred stock or common stock. Generally, you
will not be subject to United States federal income tax on any gain recognized
upon the sale or other disposition of Series B preferred stock or common stock.
However, you will be subject to federal income tax on the gain if:
- the gain is effectively connected with your United States trade or, if
a tax treaty applies, attributable to your United States permanent
establishment;
- you are an individual who is a former citizen of the United States who
lost United States citizenship within the preceding ten-year period,
or a former long-term resident of the United States who relinquished
United States residency on or after February 6, 1995, and the loss of
citizenship or permanent residency had as one of its principal
purposes the avoidance of United States tax; or
- you are a non-resident alien individual, you are present in the
United States for 183 or more days in the taxable year of disposition
and either (a) you have a "tax home" in the United States for United
States federal income tax purposes or (b) the gain is attributable to
an office or other fixed place of business you maintain in the United
States.
You will also be subject to federal income tax on any gain from the
sale of our Series B preferred stock or common stock if we are or have been a
"United States real property holding corporation" within the meaning of section
897(c)(2) of the Internal Revenue Code at any time you held the stock, or within
the 5-year period preceding the sale of the stock if you hold the stock for more
than five years. We believe:
- we are not now a "United States real property holding corporation";
- we have not been a "United States real property holding corporation"
at any time since we were formed; and
- it is unlikely we will become a "United States real property holding
corporation."
If we were a "United States real property holding corporation" or were to become
a "United States real property holding corporation," you would be subject to
U.S. income tax on any gain from your sale of Series B preferred stock or from
your sale of common stock if you beneficially own, or owned at any time during
the specified 5-year period, more than 5 percent of the total fair market value
of the class of stock you sold.
Redemption and conversion of Series B preferred stock. As a Non-United
States Holder, you generally will not recognize any gain or loss for United
States federal income tax purposes upon conversion of Series B preferred stock
into common stock, except with respect to any cash paid instead of fractional
shares of common stock, which would be subject to the rules described under
"Disposition of Series B preferred stock or common stock." However, you may
recognize gain or dividend income to the extent there are dividends in arrears
on the Series B preferred stock at the time of conversion into common stock.
A redemption of Series B preferred stock may result in a capital gain
or loss or dividend income. See "United States Holders -- Redemption for cash or
common stock." To the extent the redemption results in a dividend, the tax
consequences are described in "Non-United States Holders -- Distributions." To
the extent the redemption results in capital gain, the tax consequences are
described in "Non-United States Holders - Disposition of Series B preferred
stock or common stock."
Federal estate taxes. If you are an individual Non-United States
Holder, Series B preferred stock or common stock you hold or are treated as
owning at the time of your death will be included in your United States gross
estate for United States federal estate tax purposes and may be subject to
United States federal estate tax, unless an applicable estate tax treaty
provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We generally will be required to report to holders of our Series B
preferred stock or common stock and to the Internal Revenue Service the amount
of any dividends paid to the holder in each calendar year and the amounts of tax
withheld, if any, with respect to the dividend payments. Copies of the
information returns reporting the
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dividends and withholding may also be made available to the tax authorities in
the country in which a Non-United States Holder resides under the provisions of
an applicable income tax treaty.
Each holder of Series B preferred stock or common stock, other than an
exempt holder such as:
- a corporation, tax-exempt organization, qualified pension or
profit-sharing trust,
- an individual retirement account, or
- a nonresident alien individual who provides certification as to his or
her status as a nonresident,
will be required to provide, under penalties of perjury, a certification setting
forth:
- the holder's name, address, correct federal taxpayer identification
number, and
- a statement that the holder is not subject to backup withholding.
If a nonexempt holder fails to provide the required certification, we
will be required to withhold 31% of the amount otherwise payable to the holder,
and remit the withheld amount to the Internal Revenue Service as a credit
against the holder's federal income tax liability. However, no backup
withholding will be required with respect to any payment subject to the 30%
United States withholding tax discussed above. You should consult your own tax
advisor regarding your qualification for exemption from backup withholding and
the procedure for obtaining any applicable exemption.
The Internal Revenue Service has finalized Treasury regulations
regarding the backup withholding and information rules which are effective for
payments made after December 31, 2000, subject to transition rules. In general,
these regulations unify certification procedures and forms and clarify and
modify reliance standards. Among other provisions, these regulations also
include the new provisions discussed below regarding sales of stock outside the
United States by or for a broker. A Non-United States Holder should consult its
own tax advisor regarding the application of the new regulations.
Payment of the proceeds of a sale of Series B preferred stock or common
stock by or through a United States office of a broker is subject to both backup
withholding and information reporting unless the beneficial owner certifies
under penalties of perjury that it is a Non-United States Holder or otherwise
establishes an exemption. In general, backup withholding and information
reporting will not apply to a payment of the proceeds of a sale of Series B
preferred stock or common stock by or through a foreign office of a broker. If,
however, the broker is, for United States federal income tax purposes:
- a United States person,
- a "controlled foreign corporation,"
- a foreign person that derives 50% or more of its gross income for a
specified period from the conduct of a trade or business in the United
States, or
- for taxable years beginning after December 31, 2000, a foreign
partnership in which one or more United States persons, in the
aggregate, own more than 50% of the income or capital interests in the
partnership or if the partnership is engaged in a trade or business in
the United States.
then the payment of the proceeds will be subject to information reporting, but
not backup withholding, unless:
- the broker has documentary evidence in its records that the beneficial
owner is a Non-United States Holder and other conditions are met, or
- the beneficial owner otherwise establishes an exemption.
For payments after December 31, 2000, certification will be required in
the case of the disposition of shares of Series B preferred stock or common
stock held in an offshore account if the disposition is made through a foreign
broker described in the immediately preceding paragraph.
Any amounts withheld under the backup withholding rules may be allowed
as a refund or a credit against the holder's United States federal income tax
liability provided the required information is furnished to the Internal Revenue
Service.
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The foregoing discussion is for general information and is not tax
advice. Accordingly, each prospective holder of Series B preferred stock or
common stock should consult its tax advisor as to the particular tax
consequences to it of the Series B preferred stock and common stock, including
the applicability and effect of any state, local or foreign income tax laws, and
any recent or prospective changes in applicable tax laws.
SELLING SECURITYHOLDERS
All of the shares of common stock and all of the shares of Series B
preferred stock offered by the selling securityholders under this prospectus
were issued to, or are issuable upon the exercise of warrants or upon the
conversion of the shares of Series B preferred stock issued to, the selling
securityholders in private placement transactions, as described below.
We have registered the resale by the selling securityholders of the
shares offered under this prospectus under their registration rights. In
connection with the issuance in the units private placement of an aggregate of
1,400,000 shares of common stock, 7,000 shares of Series B preferred stock and
warrants to purchase 700,000 shares of common stock to the unit purchasers, we
entered into a registration rights agreement. Under the registration rights
agreement, we agreed to register the public resale of all shares of common stock
and all shares of Series B preferred stock issued or issuable to the unit
purchasers in connection with the units private placement by filing a
registration statement with the SEC and keeping the registration statement
effective until the later of December 9, 2002 or the date which is three months
after all selling securityholders have ceased to be our affiliates. Before the
units private placement, we had issued warrants to purchase 232,500 shares of
common stock in private placement transactions to the other selling
securityholders, in exchange for services. In connection with the issuance of
the warrants, we had granted the warrant holders piggy-back registration rights
to participate generally in registrations of our securities. These warrant
holders have exercised their piggy-back registration rights with respect to the
registration of the shares offered under this prospectus.
The following table sets forth, as of February 4, 2000, the name and
number of shares of common stock and of Series B preferred stock owned by each
selling securityholder, and the number of shares that may be offered for sale
from time to time by each selling securityholder under this prospectus. We
cannot estimate the number of shares that the selling securityholders will
beneficially own after completion of this offering, because the selling
securityholders may sell all, part or none of their shares of common stock or of
Series B preferred stock under this prospectus and because there are currently
no agreements, arrangements or understandings with respect to the sale of any of
the shares.
Beneficial ownership is determined in accordance with the rules of the
SEC. 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 shown in the table, subject to applicable community property laws. This
table has been prepared based upon the information furnished to us by the
selling securityholders. 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
February 4, 2000. These shares, however, are not included for purposes of
computing the beneficial ownership of any other person. The percentage of
beneficial ownership is based upon 4,934,225 shares of common stock outstanding
on February 4, 2000.
<TABLE>
<CAPTION>
Number of Shares Percent of Number of Shares Offered
Beneficially Owned Outstanding Shares under this Prospectus (1)
------------------ ------------------ -------------------------
Name of Selling Series B Series B Series B
Securityholder Common Preferred Common Preferred Common Preferred
- --------------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C>
DDJ Capital Management,
LLC (2)(3) 900,000 3,000 17.2 42.9 1,405,612 3,000
Special Situations Fund
III, L.P. (3)(4)(5) 256,500 825 5.1 11.8 386,543 825
Special Situations Private
Equity Fund, L.P. (3)(4)(6) 191,900 500 3.9 7.1 234,269 500
</TABLE>
39
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Special Situations Technology
Fund, L.P. (3)(4)(7) 162,000 400 3.3 5.7 187,415 400
Special Situations Cayman
Fund, L.P. (3)(4)(8) 82,500 275 1.7 3.9 128,848 275
SEI Institutional Management 90,000 300 1.8 4.3 140,561 300
Trust (3)(9)(10)
Ameritech Pension Trust 60,000 200 1.2 2.9 93,707 200
(A.K.A. VAIL) (3)(9)(11)
Warburg Pincus High Yield 45,000 150 0.9 2.1 70,281 150
Fund (3)(9)(12)
The Common Fund (3)(9)(13) 45,000 150 0.9 2.1 70,281 150
CSAM Investment Trust - U.S.
HYLD Series (3)(9)(14) 45,000 150 0.9 2.1 70,281 150
SEI Global - High Yield 15,000 50 0.3 0.7 23,427 50
Fixed Income Fund (3)(9)(15)
Kenneth B. Funsten (3)(16)(17) 170,750 181 3.4 2.6 84,805 181
Famco Value Income
Partners, L.P. (3)(16)(18) 271,050 270 5.4 3.9 126,505 270
Famco Offshore, Ltd.(3)(16)(19) 49,412 49 1.0 0.1 22,958 49
Leslie R. Schultz (3)(20) 178,188 250 3.6 3.6 117,134 250
Robert M. Freeman(3)(21) 75,000 250 1.5 3.6 117,134 250
Scient Corporation(22) 0 0 0 0 125,000 0
Mercator Energy 40,000 0 0.8 0 60,000 0
Incorporated(23)
National Bank 20,000 0 0.4 0 20,000 0
of Canada(24)
Silverman Heller 20,500 0 0.4 0 15,000 0
Associates(25)
National Securities 12,500 0 0.3 0 12,500 0
Corporation(26)
</TABLE>
- ------------------------
(1) This column includes shares of common stock issuable upon the exercise of
warrants or upon the conversion of Series B preferred stock that are not
deemed to be "beneficially owned" by the selling securityholder within the
SEC rules because they may not be acquired until more than 60 days after
February 4, 2000. However, because these underlying shares of common stock
may be offered for sale by the securityholder when they are acquired, the
number of shares offered by the selling securityholder under this
prospectus may exceed the number of shares deemed to be beneficially owned
by the selling securityholder as of February 4, 2000. See the notes below.
(2) Information based in part upon Schedule 13D filed with the SEC on December
21, 1999, and Amendment No. 1 to Schedule 13D filed with the SEC on January
19, 2000, by DDJ Capital Management, LLC ("DDJ"), B III-A Capital Partners,
L.P. and GP III-A, LLC. The shares are owned B III-A Capital Partners, the
DDJ Canadian High Yield Fund and an account established for an
institutional investor. GP III-A is the general partner of, and DDJ is the
40
<PAGE> 43
investment manager for, B III-A Capital Partners, L.P., the DDJ Canadian
fund. DDJ is also the investment manager for the account established for
the institutional investor and an investment advisor to the DDJ Canadian
High Yield Fund. The number of shares beneficially owned does not include,
but the number of shares offered under this prospectus does 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. The number of
shares beneficially owned and the number of shares offered under this
prospectus includes 300,000 shares of common stock that may be acquired
upon the exercise of warrants that become exercisable after March 9, 2000
at an initial exercise price of $6.7425 per share of common stock, subject
to adjustment.
(3) The shares of common stock offered under this prospectus include all shares
of common stock issuable upon conversion of the Series B preferred stock.
The number of shares of common stock issuable upon conversion of the Series
B preferred stock, as shown in this table, is based upon the initial
conversion rate of 168.5374 shares of common stock per share of Series B
preferred stock, and also assumes no accumulated and unpaid dividends. The
initial conversion rate is subject to adjustment upon events specified in
the terms of the Series B preferred stock. See "Description of the Series B
Preferred Stock". If any adjustment event occurs, or if there are any
accumulated and unpaid dividends on the Series B preferred stock, then the
number of shares of common stock issuable upon conversion of the Series B
preferred stock could be increased above the numbers shown on this table.
Because this prospectus covers all shares issuable upon conversion of
Series B preferred stock, the actual number of shares of common stock
offered under this prospectus may be greater than the number shown in the
table.
(4) MGP Advisors Limited Partnership ("MGP"), a Delaware limited partnership,
is the general partner of the Special Situations Fund III, L.P., a Delaware
limited partnership. AWM Investment Company, Inc. ("AWM"), a Delaware
corporation, is the general partner of MGP and the general partner of and
investment adviser to the Special Situations Cayman Fund, L.P. MG Advisers
L.L.C. ("MG"), a New York limited liability company, is the general partner
of the Special Situations Private Equity Fund, L.P., a Delaware limited
partnership. Austin W. Marxe and David M. Greenhouse are the principal
owners of MG, MGP and AWM and are principally responsible for the
selection, acquisition and disposition of the portfolios securities by the
investment advisers on behalf of their funds. As a group, these selling
securityholders beneficially own a total of 692,900 shares of common
stock, or 13.5% of outstanding common stock, and 2,000 shares of Series B
preferred stock, or 28.6% outstanding preferred stock, and are offering
937,075 shares of common stock and 2,000 shares of Series B preferred stock
under this prospectus.
(5) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 139,043 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 825 shares
of Series B preferred stock. The number of shares beneficially owned and
the number of shares offered under this prospectus includes 82,500 shares
of common stock that may be acquired upon the exercise of warrants that
become exercisable after March 9, 2000 at an initial exercise price of
$6.7425 per share of common stock, subject to adjustment.
(6) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 84,269 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 500 shares
of Series B preferred stock. The number of shares beneficially owned and
the number of shares offered under this prospectus includes 50,000 shares
of common stock that may be acquired upon the exercise of warrants that
become exercisable after March 9, 2000 at an initial exercise price of
$6.7425 per share of common stock, subject to adjustment.
(7) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 67,415 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 400 shares
of Series B preferred stock. The number of shares beneficially owned and
the number of shares offered under this prospectus includes 40,000 shares
of common stock that may be acquired upon the exercise of warrants that
become exercisable after March 9, 2000 at an initial exercise price of
$6.7425 per share of common stock, subject to adjustment.
(8) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 46,348 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 275 shares
of Series B preferred stock. The number of shares beneficially owned and
the number of shares offered under this prospectus includes 27,500 shares
of common stock that may be acquired upon the exercise of warrants that
become exercisable after March 9, 2000 at an initial exercise price of
$6.7425 per share of common stock, subject to adjustment.
(9) 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
41
<PAGE> 44
- U.S. HTLD Series and SEI Global - High Yield Fixed Income Fund. As a
group, these selling securityholders beneficially own 300,000 shares of
common stock, or 6.1% of outstanding common stock, and 1,000 shares of
Series B preferred stock or 14.3% of outstanding Series B preferred stock,
and are offering under this prospectus, 468,538 shares of common stock and
1,000 shares of Series B preferred stock.
(10) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 50,561 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 300 shares
of Series B preferred stock owned. The number of shares beneficially owned
and offered under this prospectus includes 30,000 shares of common stock
that may be acquired upon the exercise of warrants that become exercisable
after March 9, 2000 at an initial exercise price of $6.7425 per share of
common stock, subject to adjustment.
(11) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 33,707 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 200 shares
of Series B preferred stock owned. The number of shares beneficially owned
and offered under this prospectus includes 20,000 shares of common stock
that may be acquired upon the exercise of warrants that become exercisable
after March 9, 2000 at an initial exercise price of $6.7425 per share of
common stock, subject to adjustment.
(12) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 25,281 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 150 shares
of Series B preferred stock owned. The number of shares beneficially owned
and offered under this prospectus includes 15,000 shares of common stock
that may be acquired upon the exercise of warrants that become exercisable
after March 9, 2000 at an initial exercise price of $6.7425 per share of
common stock, subject to adjustment.
(13) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 25,281 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 150 shares
of Series B preferred stock owned. The number of shares beneficially owned
and offered under this prospectus includes 15,000 shares of common stock
that may be acquired upon the exercise of warrants that become exercisable
after March 9, 2000 at an initial exercise price of $6.7425 per share of
common stock, subject to adjustment.
(14) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 25,281 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 150 shares
of Series B preferred stock owned. The number of shares beneficially owned
and offered under this prospectus includes 15,000 shares of common stock
that may be acquired upon the exercise of warrants that become exercisable
after March 9, 2000 at an initial exercise price of $6.7425 per share of
common stock, subject to adjustment.
(15) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 8,427 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 50 shares
of Series B preferred stock owned. The number of shares beneficially owned
and offered under this prospectus includes 5,000 shares of common stock
that may be acquired upon the exercise of warrants that become exercisable
after March 9, 2000 at an initial exercise price of $6.7425 per share of
common stock, subject to adjustment.
(16) Kenneth B. Funsten is the president and the portfolio manager of Funsten
Asset Management Company. Funsten Asset Management Company and Mr. Funsten
are the general partners of Famco Value Income Partners, L.P., and Famco
Offshore, Ltd. Mr. Funsten holds sole voting and investment power over the
securities owned by Famco Value and Famco Offshore. This information is
based, in part, upon Amendment No. 4 to Schedule 13D filed by Mr. Funsten
and by Famco Value with the SEC on September 24, 1999, and Form 4 filed by
Mr. Funsten with the SEC on October 25, 1999. As a group, these selling
securityholders beneficially own 491,212 shares of common stock, or 9.7% of
outstanding common stock, and 500 shares of Series B preferred stock, or
7.1% of outstanding Series B preferred stock, and are offering under this
prospectus 234,268 shares of common stock and 500 shares of Series B
preferred stock. 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.
(17) Includes shares and warrants owned by Mr. Funsten and Stephanie N. DeQuis,
as joint tenants, over which Mr. Funsten has voting and investment control.
The number of shares beneficially owned includes, but the number of shares
offered under this prospectus does not include, 22,125 shares of common
stock that may be acquired upon the exercise of currently exercisable
warrants at an exercise price of $4.00 per share. The number of shares
beneficially owned does not include, but the number of shares offered under
this prospectus does include, 30,505 shares of common stock that may be
acquired after June 9, 2000 upon conversion of 181 shares of Series B
preferred stock owned. The number of shares offered and beneficially owned
under this prospectus includes
42
<PAGE> 45
18,100 shares of common stock that may be acquired upon the exercise of
warrants that become exercisable after March 9, 2000 at an initial exercise
price of $6.7425 per share of common stock, subject to adjustment.
(18) The number of shares beneficially owned includes, but the number
of shares offered under this prospectus does not include, 53,800 shares of
common stock that may be acquired upon the exercise of currently
exercisable warrants at an exercise price of $4.00 per share. The number of
shares beneficially owned does not include, but the number of shares
offered under this prospectus does include, 45,505 shares of common stock
that may be acquired after June 9, 2000 upon conversion of 270 shares of
Series B preferred stock owned. The number of shares beneficially owned and
offered under this prospectus includes 27,000 shares of common stock that
may be acquired upon the exercise of warrants that become exercisable after
March 9, 2000 at an initial exercise price of $6.7425 per share of common
stock, subject to adjustment.
(19) The number of shares beneficially owned includes, but the number
of shares offered under this prospectus does not include, 9,062 shares of
common stock that may be acquired upon the exercise of currently
exercisable warrants at an exercise price of $4.00 per share. The number of
shares beneficially owned does not include, but the number of shares
offered under this prospectus does include, 8,258 shares of common stock
that may be acquired after June 9, 2000 upon conversion of 49 shares of
Series B preferred stock owned. The number of shares beneficially owned and
offered under this prospectus includes 4,900 shares of common stock that
may be acquired upon the exercise of warrants that become exercisable after
March 9, 2000 at an initial exercise price of $6.7425 per share of common
stock, subject to adjustment.
(20) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 42,134 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 250 shares
of Series B preferred stock owned. The number of shares beneficially owned
and offered under this prospectus includes 25,000 shares of common stock
that may be acquired upon the exercise of warrants that become exercisable
after March 9, 2000 at an initial exercise price of $6.7425 per share of
common stock, subject to adjustment.
(21) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 42,134 shares of common
stock that may be acquired after June 9, 2000 upon conversion of 250 shares
of Series B preferred stock owned. The number of shares beneficially owned
and offered under this prospectus includes 25,000 shares of common stock
that may be acquired upon the exercise of warrants that become exercisable
after March 9, 2000 at an initial exercise price of $6.7425 per share of
common stock, subject to adjustment.
(22) The number of shares beneficially owned does not include, but the number of
shares offered under this prospectus does include, 125,000 shares of common
stock that may be acquired upon the exercise of a warrant held by the
selling securityholder. The warrant is exercisable from September 7, 2000
through September 7, 2003 at an exercise price of $5.00 per share for
62,500 shares of common stock and at $10.00 per share for an additional
62,500 shares of common stock.
(23) Represents shares of common stock that may be acquired upon the exercise of
a warrant held by the selling securityholder. The number of shares of
common stock beneficially owned includes 40,000 shares of common stock that
may be acquired within 60 days of February 4, 2000 upon the exercise of the
warrant. This warrant is currently exercisable for 20,000 shares of common
stock at an exercise price of $4.50 per share and commencing March 13, 2000
will become exercisable for 20,000 additional shares of common stock at an
exercise price of $5.00 per share. The number of shares beneficially owned
does not include, but the number of shares offered under this prospectus
does include, an additional 20,000 shares of common stock that may be
acquired upon the exercise of the warrant commencing March 13, 2001 at an
exercise price of $5.50 per share.
(24) Represents 20,000 shares of common stock that may be acquired upon the
exercise of a warrant held by the selling securityholder. The warrant is
exercisable until September 7, 2002 at an exercise price of $5.00 per
share.
(25) Represents 15,000 shares of common stock that may be acquired upon the
exercise of a warrant held by the selling securityholder. The warrant is
exercisable until July 19, 2004 at an exercise price of $2.47 per share for
7,500 shares of common stock and at an exercise price of $4.50 per share
for an additional 7,500 shares of common stock. The number of shares
beneficially owned includes, but the number of shares offered under the
prospectus does not include, 5,500 shares of common stock and owned by
Eugene Heller, the owner of the selling securityholder.
(26) Represents 12,500 shares of common stock that may be acquired upon the
exercise of a warrant held by the selling securityholder. The warrant is
exercisable until March, 2003 at an exercise price of $4.43 per share.
Except as described below, none of the selling securityholders has had
any position, office or other material relationship with us or any of our
affiliates within the past three years, other than as a result of the ownership
of our shares or other securities.
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<PAGE> 46
Each of the unit purchasers purchased from us, in the units private
placement, units consisting of shares of common stock, shares of Series B
preferred stock and warrants to purchase shares of common stock. In connection
with their purchase of the units, the unit purchasers entered into a securities
purchase agreement, a registration rights agreement and related agreements with
us, relating to the common stock, Series B preferred stock and unit warrants.
The terms of these securities are described below under "Description of Capital
Stock" and "Description of the Series B Preferred Stock".
PLAN OF DISTRIBUTION
The selling securityholders may from time to time offer and sell the
shares offered under this prospectus. References in this prospectus to the
selling securityholders include the persons listed as such in the table under
"Selling Securityholders" and any donees, pledgees, transferees or other
successors-in-interest selling shares received from a selling securityholder as
a gift, pledge, partnership distribution or other non-sale-related transfer
after the date of this prospectus. The selling securityholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale of the shares.
The selling securityholders may sell the shares offered under this
prospectus on the Nasdaq National Market, on any other stock exchange or stock
market on which the shares may from time to time be traded, in the
over-the-counter market, in negotiated transactions, in underwritten
transactions or otherwise, at market prices prevailing at the time of sale, at
prices related to the then prevailing market prices, at negotiated prices, or at
fixed prices, in one or more of the following transactions:
- a block trade in which the broker-dealer engaged will attempt to sell
the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
- a purchase by a broker-dealer as principal and resale by the
broker-dealer for its own account under this prospectus;
- an exchange distribution in accordance with the rules of the exchange;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- privately negotiated transactions;
- options;
- pledges to secure debts and other obligations;
- short sales;
- broker-dealers may agree with the selling securityholders to sell a
specified number of shares at a stipulated price per share; or
- any other method permitted by applicable law.
The selling securityholders may effect sales by selling the shares
directly to purchasers or to or through underwriters or broker-dealers, acting
as principal or agent. In effecting sales, underwriters or broker-dealers
engaged by the selling securityholders may arrange for other broker-dealers to
participate in the resales. The selling securityholders have advised us that, as
of the date of this prospectus, they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of the shares offered under this prospectus. There is no underwriter or
coordinating broker acting in connection with the proposed sale of shares by the
selling securityholders.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling securityholders.
Broker-dealers or agents may also receive compensation from the purchasers of
the shares for whom they act as agents or to whom they sell as principal, or
both. Compensation as to a particular broker-dealer might be in excess of
customary commissions and will be in amounts to be negotiated in connection with
the sale. The selling securityholders and any broker-dealers or agents that
participate in the distribution of the shares may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with these sales.
Accordingly, any commission, discount or concession received by them and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act. Because selling
securityholders may be deemed to be underwriters under the Securities Act, the
selling securityholders will be subject to the prospectus delivery requirements
of the Securities Act.
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<PAGE> 47
The selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions in connection with distributions
of the shares or otherwise. In connection with these transactions,
broker-dealers or other financial institutions may engage in short sales of the
shares offered under this prospectus in the course of hedging the positions they
assume with selling securityholders. The selling securityholders also may sell
shares short and redeliver the shares offered under this prospectus to close out
their short positions. The selling securityholders may also enter into options
or other transactions with broker-dealers or other financial institutions which
require the delivery to the broker-dealers or other financial institutions of
the shares offered under this prospectus. The broker-dealer may then resell or
otherwise transfer these shares under this prospectus as it may be amended or
supplemented to reflect this transaction. The selling securityholders also may
loan or pledge the shares offered under this prospectus to a broker-dealer or
other financial institution. The broker-dealer or other financial institution
may sell the shares so loaned, or upon a default the broker-dealer or other
financial institution may sell the pledged shares under this prospectus.
In addition, any shares offered under this prospectus that qualify for
sale under Rule 144 under the Securities Act may be sold by the selling
securityholders under Rule 144 rather than under this prospectus.
The shares will be sold only through registered or licensed brokers or
dealers if required by applicable state securities laws. In addition, in some
states the shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the shares offered under this prospectus may
be limited in its ability to engage in market activities with respect to these
shares. The selling securityholders will be subject to the applicable provisions
of the Exchange Act and the associated rules and regulations under the Exchange
Act, including the anti-manipulation provisions of Regulation M, which
provisions may restrict activities of the selling securityholders and limit the
timing of purchases and sales of shares by the selling securityholders.
Furthermore, under Regulation M under the Exchange Act, any person engaged in
the distribution of the shares may not simultaneously engage in market-making
activities with respect to the particular shares being distributed for specific
periods before the commencement of the distribution. All of the foregoing may
affect the marketability of the securities and the ability of any person to
engage in market-making activities with respect to the shares.
Upon being notified by a selling securityholder that any material
arrangement has been entered into with a broker-dealer for the sale of shares
through a block trade, special offering, underwritten offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, we
will file a supplement to this prospectus, if required, under Rule 424(b) under
the Securities Act, disclosing:
- the name of the selling securityholder and of the participating
broker-dealer(s);
- the number of shares involved;
- the price at which the shares were sold;
- the commissions paid or discounts or concessions allowed to the
broker-dealer(s), where applicable;
- that the broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus; and
- other facts material to the transaction.
In addition, upon being notified by a selling securityholder that a
donee, pledgee, transferee or other successor-in-interest intends to sell more
than 500 shares, we will file a supplement to this prospectus.
We will pay all expenses related to the registration of the sale of the
shares offered under this prospectus by the selling securityholders. The selling
securityholders will pay all commissions, discounts, concessions and other
compensation and selling expenses attributable to the sale of the shares. We
have agreed to indemnify the selling securityholders against liabilities related
to the registration of the shares, including liabilities arising under the
Securities Act, or to contribute to payments the selling securityholders may be
required to make in respect of these liabilities. The selling securityholders
may agree to indemnify any broker-dealer or agent that participates in
transactions involving sales of the shares against liabilities related to the
offer and sale of the shares, including liabilities arising under the Securities
Act, or to contribute to payments a broker-dealer or agent may be required to
make in respect of these liabilities.
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<PAGE> 48
We cannot assure you that the selling securityholders will sell all or
any of the shares offered under this prospectus.
LEGAL MATTERS
The validity of the shares offered under this prospectus will be passed
upon for us by Kegler, Brown, Hill & Ritter Co., L.P.A., Columbus, Ohio.
EXPERTS
The financial statements incorporated in this prospectus by reference
from Metretek's Annual Report on Form 10-KSB for the year ended December 31,
1998 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, proxy statements or other information we file with the SEC at
the SEC's public reference rooms at the following locations:
<TABLE>
<S> <C> <C>
Washington, D.C. Office New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
Please call the SEC at 1-800-SEC-0330 to obtain information on the
operation of its public reference rooms. Our SEC filings are also available on
the Internet on the SEC's web site at http://www.sec.gov.
Our common stock is listed on the Nasdaq National Market. Reports,
proxy statements and other information we file with the SEC can be inspected at
the offices of the Nasdaq Stock Market, Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
The SEC allows us to "incorporate by reference" in this prospectus the
information we file with the SEC. This means we can disclose important
information to you by referring you to the filed documents that contain the
information. The information incorporated by reference is considered to be part
of this prospectus, and documents that we file later with the SEC will
automatically update and supersede previously filed information. We incorporate
by reference the documents listed below, which we have already filed with the
SEC, and any future filings we make with the SEC under Sections 13(a), 13(c),
14, or 15(d) of the Securities Exchange Act of 1934, until the termination or
completion of the offering under this prospectus:
- our Annual Report on Form 10-KSB for the fiscal year ended December
31, 1998;
- our Quarterly Reports on Form 10-QSB for the quarterly periods ended
March 31, 1999, June 30, 1999 and September 30, 1999;
- our Current Reports on Form 8-K filed on April 14, 1999, June 8, 1999,
September 14, 1999 and December 22, 1999; and
- the description of our common stock, including the description of our
preferred share purchase rights, contained in our registration
statement on Form 8-A filed with the SEC on January 10, 1993, as
amended on Form 8-A/A Amendment No. 1 filed with the SEC on April 3,
1998, Form 8-A/A Amendment No. 3 filed with the SEC on July 7, 1998
and Form 8-A/A Amendment No. 4 filed with the SEC on December 27,
1999, including any amendments or reports filed with the SEC for the
purpose of updating such description.
46
<PAGE> 49
We will provide you with a copy of these filings, at no cost, if you
write or telephone us at the following address:
Metretek Technologies, Inc.
1675 Broadway, Suite 2150
Denver, Colorado 80202
Attention: Corporate Secretary
(303) 592-5555
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933, relating to the securities that may be offered by
this prospectus. This prospectus is a part of the registration statement, but
does not contain all of the information included or incorporated by reference in
the registration statement. The registration statement, including the exhibits
filed with it, can be obtained from the SEC or from us as indicated above.
You should rely only on the information provided or incorporated by
reference in this prospectus or in any supplement to this prospectus. We have
not authorized anyone to provide you with different information. Neither we nor
the selling securityholders are making an offer of these securities in any state
where the offer is not permitted. You should not assume that the information in
this prospectus or any prospectus supplement is accurate as of any date other
than the date on the front of the documents.
47
<PAGE> 50
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the costs and expenses, other than
underwriting discounts and commissions, payable by Metretek Technologies, Inc.
in connection with the offering of the shares being registered in this
registration statement. All amounts shown in the table below, other than the SEC
registration fee, are estimates:
SEC registration fee........................ $ 9,156.47
Nasdaq National Market listing fee.......... 17,500.00
Legal fees and expenses..................... 20,000.00
Accounting fees and expenses................ 5,000.00
Printing costs.............................. 1,000.00
Miscellaneous............................... 7,343.53
Total............................. $60,000.00
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides for indemnification of the directors, officers, employees and
agents of a corporation under certain conditions and subject to certain
limitations. As permitted by Section 145 of the DGCL, Metretek's Second Restated
Certificate of Incorporation ("Second Restated Certificate") permits Metretek to
indemnify any person who was or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, other than an action by or in the
right of Metretek, by reason of the fact such person is or was an officer of
director of Metretek, or is or was serving at Metretek's request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of Metretek, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. Metretek is also permitted to indemnify the same
persons against expenses, including attorneys' fees, actually and reasonably
incurred by such persons in connection with the defense or settlement of any
threatened, pending or completed action or suit by or in the right of Metretek
under the same conditions, except that no indemnification will be made in
respect to any claim, issue or matter as to which such person has been adjudged
to be liable to Metretek unless, and only to the extent that, the adjudicating
court determines that such indemnification is proper under the circumstances. To
the extent such persons are successful on the merits or otherwise in defense of
any such action, suit or proceeding, such indemnification is mandatory. Metretek
may also pay the expenses incurred in any such action, suit or proceeding in
advance of its final disposition, upon receipt of an appropriate undertaking by
such person. Such rights are not exclusive of any other right which any person
may have or hereafter acquire under any statute, or under any provision of the
Second Restated Certificate, Metretek's By-Laws, or under any agreement, vote of
stockholders or disinterested directors or otherwise. No repeal or modification
of these provisions of the Restated Certificate will in any way diminish or
adversely affect the rights of any person to indemnification thereunder in
respect of any occurrences or matters arising before any such repeal or
modification.
Metretek's Amended and Restated By-Laws provide that Metretek shall
indemnify its directors, officers, employees and agents to the extent permitted
by the DGCL.
As permitted by Section 102(b)(7) of the DGCL, Metretek's Second
Restated Certificate also eliminates the personal liability of Metretek's
directors to Metretek or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to us or out stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DCGL, relating to unlawful payments of
dividends or unlawful stock purchases or redemptions; and (iv) for any
transaction from which a director derived an improper personal benefit.
Metretek's Second Restated Certificate also specifically authorizes
Metretek to maintain insurance and to grant similar indemnification rights to
employees or agents of Metretek. The directors and officers of Metretek are
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<PAGE> 51
covered by an insurance policy indemnifying them against certain liabilities,
including certain liabilities arising under the Securities Act, which might be
incurred by them in such capacity.
ITEM 16. EXHIBITS
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES:
(4.1) Second Restated Certificate of Incorporation of Metretek
Technologies, Inc.
(4.2) Amended and Restated By-Laws of Metretek Technologies, Inc.
(Incorporated by reference to Exhibit 3.2 to Metretek's Form 8-K
filed on July 3, 1998).
(4.3) Specimen Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 to Metretek's Registration Statement on Form S-18,
Registration No. 33-44558.)
(4.4) Specimen Series B Preferred Stock Certificate.*
(4.5) Rights Agreement, dated as of December 2, 1991, between Metretek
Technologies, 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 Metretek Technologies, Inc. and American Securities
Transfer & Trust, Inc. (incorporated by reference to Exhibit 2 to
Metretek's Form 8-A/A Amendment No. 1 filed April 3, 1998).
(4.7) Amendment No. 2 to Rights Agreement, dated as of December 9, 2000,
between Metretek Technologies, Inc. and American Securities
Transfer & Trust, Inc. (incorporated by reference to Exhibit 1 to
Metretek's Form 8-A/A Amendment No. 4 filed December 22, 1999).
(4.8) Securities Purchase Agreement, dated as of December 9, 1999, by and
among Metretek Technologies, Inc. and certain purchases of
securities of Metretek Technology, Inc. (collectively, the "Unit
Purchasers"). (Incorporated by reference to Exhibit 4.3 to
Metretek's Form 8-K filed on December 21, 1999).
(4.9) Form of Common Stock Purchase Warrant issued to Unit Purchasers.
(Incorporated by reference to Exhibit 4.3 to Metretek's Form 8-K
filed on December 21, 1999).
(4.10) 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 Form 8-K filed on
December 21, 1999).
(4.11) Letter Agreement, dated as of December 22, 1999, between Metretek
Technologies, Inc. and DDJ Capital Management. (Incorporated by
reference to Exhibit 4.5 to Metretek's Form 8-K filed on December
21, 1999).
(4.12) Form of Common Stock Purchase Warrant issued to Scient Corporation.*
(4.13) Form of Common Stock Purchase Warrant issued to Mercator Energy
Incorporated.*
(4.14) Form of Common Stock Purchase Warrant issued to National Bank of
Canada.*
(4.15) Form of Common Stock Purchase Warrant issued to Silverman Heller
Associates.*
(4.16) Form of Common Stock Purchase Warrant issued to National Securities
Corporation. (Incorporated by reference to Exhibit 10.2 to
Metretek's Form 10-QSB filed on May 13, 1998).
(5) OPINION ON LEGALITY:
(5.1) Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A.*
II-2
<PAGE> 52
(8) OPINION ON TAX MATTERS:
(8.5) Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A. on tax matters*
(23) CONSENTS OF EXPERTS AND COUNSEL:
(23.1) Consent of Deloitte & Touche LLP
(23.2) Consent of Kegler, Brown, Hill & Ritter Co. L.P.A. (included in
Exhibit 5.1)*
(24) POWER OF ATTORNEY:
(24.1) Powers of Attorney of officers and directors of Metretek Technology,
Inc. (included on Signature Page).
- ------------------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(a) Metretek, the Small Business Issuer, will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this Registration
Statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information
on the plan of distribution;
provided, however, that paragraph (i) and (ii) above do not
apply if the information required in a post-effective
amendment is incorporated by reference from periodic reports
filed by Metretek under the Exchange Act.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities being registered that remain unsold at the
end of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Small Business Issuer pursuant to the foregoing provisions, or
otherwise, the Small Business Issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Small Business Issuer of expenses incurred or paid by a director, officer or
controlling person of the Small Business Issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities
II-3
<PAGE> 53
being registered, the Small Business Issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) Metretek, the Small Business Issuer, will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Small Business Issuer under Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared if
effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
(d) Metretek hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of Metretek's annual report
pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 54
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado on the 4th day of February,
2000.
METRETEK TECHNOLOGIES, INC.
By: /s/ W. Phillip
------------------------------
W. Phillip Marcum, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints W. Phillip Marcum, A. Bradley
Gabbard and Paul R. Hess, and each of them, with full power to act without the
joinder of others, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, or any registration
statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- -----
<S> <C> <C>
/s/ W. Phillip Marcum President, Chief Executive Officer February 4, 2000
- ------------------------------------ and Director (Principal Executive
W. Phillip Marcum Officer)
/s/ A. Bradley Gabbard Executive Vice President, Chief February 4, 2000
- ------------------------------------ Financial Officer,
A. Bradley Gabbard Treasurer and Director
(Principal Financial Officer)
/s/ Gary J. Zuiderveen Principal Accounting Officer, Controller February 4, 2000
- ------------------------------------ and Secretary (Principal Accounting
Gary J. Zuiderveen Officer)
/s/ Basil M. Briggs Director February 4, 2000
- ------------------------------------
Basil M. Briggs
/s/ Robert Lloyd Director February 4, 2000
- ------------------------------------
Robert Lloyd
/s/ Albert F. Thomasson Director February 4, 2000
- ------------------------------------
Albert F. Thomasson
/s/ Ronald W. McKee Director February 4, 2000
- ------------------------------------
Ronald W. McKee
/s/ Harry I. Skilton Director February 4, 2000
- ------------------------------------
Harry I. Skilton
</TABLE>
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<PAGE> 55
METRETEK TECHNOLOGIES, INC.
FORM S-3
EXHIBIT INDEX
-------------
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
(4.1) Second Restated Certificate of Incorporation of Metretek
Technologies, Inc.
(4.2) Amended and Restated By-Laws of Metretek Technologies, Inc.
(Incorporated by reference to Exhibit 3.2 to Metretek's Form
8-K filed on July 3, 1998).
(4.3) Specimen Common Stock Certificate. (Incorporated by
reference to Exhibit 4.1 to Metretek's Registration
Statement on Form S-18, Registration No. 33-44558.)
(4.4) Specimen Series B Preferred Sock Certificate.
(4.5) Rights Agreement, dated as of December 2, 1991, between
Metretek Technologies, 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 Metretek Technologies, Inc. and American
Securities Transfer & Trust, Inc. (incorporated by reference
to Exhibit 2 to Metretek's Form 8-A/A Amendment No. 1 filed
April 3, 1998).
(4.7) Amendment No. 2 to Rights Agreement, dated as of December 9,
2000, between Metretek Technologies, Inc. and American
Securities Transfer & Trust, Inc. (incorporated by reference
to Exhibit 1 to Metretek's Form 8-A/A Amendment No. 4 filed
December 22, 1999).
(4.8) 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 4.3 to Metretek's Form 8-K filed on
December 21, 1999).
(4.9) Form of Common Stock Purchase Warrant issued to Unit
Purchasers. (Incorporated by reference to Exhibit 4.3 to
Metretek's Form 8-K filed on December 21, 1999).
(4.10) 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 Form 8-K filed on December 21, 1999).
(4.11) Letter Agreement, dated as of December 22, 1999, between
Metretek Technologies, Inc. and DDJ Capital Management.
(Incorporated by reference to Exhibit 4.5 to Metretek's Form
8-K filed on December 21, 1999).
(4.12) Form of Common Stock Purchase Warrant issued to Scient
Corporation.*
(4.13) Form of Common Stock Purchase Warrant issued to Mercator
Energy Incorporated.*
(4.14) Form of Common Stock Purchase Warrant issued to National
Bank of Canada.*
(4.15) Form of Common Stock Purchase Warrant issued to Silverman
Heller Associates.*
(4.16) Form of Common Stock Purchase Warrant issued to National
Securities Corporation. (Incorporated by reference to
Exhibit 10.2 to Metretek's Form 10-QSB filed on May 13,
1998).
II-6
<PAGE> 56
(5) OPINION ON LEGALITY:
(5.1) Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A.*
(8) OPINION ON TAX MATTERS:
(8.5) Opinion of Kegler, Brown, Hill & Ritter Co., L.P.A. on tax
matters*
(23) CONSENTS OF EXPERTS AND COUNSEL:
(23.1) Consent of Deloitte & Touche LLP
(23.2) Consent of Kegler, Brown, Hill & Ritter Co. L.P.A. (included in
Exhibit 5.1)*
(24) POWER OF ATTORNEY:
(24.1) Powers of Attorney of officers and directors of Metretek
Technology, Inc. (included on Signature Page).
- ------------------------
* To be filed by amendment.
II-7
<PAGE> 1
EXHIBIT 4.1
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
METRETEK TECHNOLOGIES, INC.
PURSUANT TO SECTION 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Metretek Technologies, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify as follows:
1. The name of the Corporation is Metretek Technologies, Inc.
2. The Corporation was originally incorporated in the State
of Delaware under the name Marcum Natural Gas Services, Inc., and its original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on April 5, 1991.
3. This Second Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware and only restates and integrates and does not further amend the
provisions of the Restated Certificate of Incorporation of the Corporation, as
heretofore amended or supplemented, and there is no discrepancy between those
provisions and the provisions of this Second Restated Certificate of
Incorporation.
4. The text of the Restated Certificate of Incorporation of the
Corporation, as heretofore amended or supplemented, is hereby restated to read
in its entirety as follows:
FIRST: The name of the corporation is Metretek Technologies, Inc.
SECOND: The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Twenty-Eight Million Five Hundred
Thousand (28,500,000) shares, consisting of two classes: Twenty-Five Million
(25,000,000) shares of Common Stock, par value $.01 per share, and Three Million
Five Hundred Thousand (3,500,000) shares of Preferred Stock, par value $.01 per
share.
Subject to the provisions of applicable law, this Article FOURTH, and
the rights, if any, of the holders of the Preferred Stock, or any series
thereof, from time to time outstanding, the holders of the outstanding shares of
Common Stock shall have and possess exclusive voting power and right for the
election of directors and for all other purposes, with each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in such holder's name on the books of the Corporation in the election
of directors and on all other matters presented to the stockholders. Holders of
Common Stock shall not have cumulative voting rights in the election of
directors. Subject to the preferential dividend rights, if any, of the holders
of Preferred Stock, or any series thereof, from time to time outstanding, the
holders of Common Stock shall be entitled to receive such dividends as may be
declared by the Board of Directors of the Corporation from time to time. Subject
to the preferential liquidation rights, if any, of the holders of Preferred
Stock, or any series thereof, from time to time outstanding, in the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, the holders of shares of Common
Stock shall be entitled to receive all of the assets of the Corporation
available for distribution to its stockholders ratably in proportion to the
number of shares of Common Stock held by them.
<PAGE> 2
The shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby vested with authority, within the
limitations and restrictions set forth in this Article FOURTH, to determine or
alter by resolution or resolutions the powers, preferences, and relative,
participating, optional or other special rights, and any qualifications,
limitations or restrictions thereof, including, without limitation, the voting
rights, dividend rate, conversion or exchange rights, redemption rights and
price (including sinking fund provisions) and liquidation preference, of any
wholly issued series of shares of Preferred Stock, and to fix the number of
shares constituting any such series and the designation thereof, and to increase
or decrease the number of shares of any such series subsequent to the issuance
of shares of that series (but not below the number of shares of such series then
outstanding). In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series.
The respective designations, powers, preferences, rights,
qualifications, limitations and restrictions granted to and imposed on the two
currently authorized series of Preferred Stock, the Series B Preferred Stock and
the Series C Preferred Stock, are as follows:
A. SERIES B PREFERRED STOCK
1. DESIGNATION. A total of 1,000,000 shares of the Corporation's
Preferred Stock shall be designated as a class known as Series B Preferred
Stock, par value $0.01 per share (the "Convertible Preferred Stock"). All of the
preferential amounts to be paid to the holders of the Convertible Preferred
Stock as provided in this Section A shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any property of the Corporation to, the holders of any other
equity securities of the Corporation, whether now or hereafter authorized.
2. ELECTION OF DIRECTORS.
(a) So long as an aggregate of at least 2,000 shares of
Convertible Preferred Stock remain outstanding, the holders of outstanding
shares of Convertible Preferred Stock shall, voting together as a separate
class, be entitled to elect one (1) Director. Such Director shall be the
individual receiving the greatest number of affirmative votes of the outstanding
shares of Convertible Preferred Stock (the "Convertible Preferred Stock Director
Designee"), with each share of Convertible Preferred Stock entitled to one (1)
vote, and with votes cast against such person and votes withheld having no legal
effect. Each Director so elected shall hold office until a new Convertible
Preferred Stock Director Designee is elected Director as provided below,
provided that such Director shall in any event cease to hold office at such time
as the holders of Convertible Preferred Stock are no longer entitled to elect a
Director in accordance with this Section A.2. The election of the Convertible
Preferred Stock Director Designee by the holders of the Convertible Preferred
Stock shall occur (i) at the annual meeting of holders of Common Stock, (ii) if
there is then no Convertible Preferred Stock Director Designee serving as a
Director, at any special meeting of holders of capital stock, (iii) if there is
no Convertible Preferred Stock Director Designee serving as a Director, at any
special meeting of holders of Convertible Preferred Stock called by holders of a
majority of the outstanding shares of Convertible Preferred Stock (a "Majority
Interest") or (iv) in lieu of an election at a meeting, by the written consent
of holders of not less than sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of Convertible Preferred Stock (a "Two Thirds Interest"). If
at any time when any share of Convertible Preferred Stock is outstanding the
Convertible Preferred Stock Director Designee should cease to be a Director for
any reason, the vacancy shall only be filled by the vote or written consent of
holders of the outstanding shares of Convertible Preferred Stock, voting
together as a separate class, in the manner and on the basis specified above.
The holders of a majority of the outstanding shares of Convertible Preferred
Stock, may, in their sole discretion, determine to elect fewer than one (1)
Convertible Preferred Stock Director Designee from time to time, and during any
such period the Board of Directors nonetheless shall be deemed duly constituted.
The holders of Common Stock and the holders of any other class or series of
capital stock of the Corporation with the right to vote in the election of
directors shall be entitled to elect the remaining members of the Board of
Directors.
(b) Notwithstanding the provisions of paragraph 2(a) above, in the
event that the Corporation fails for any reason to redeem the Convertible
Preferred Stock in full in accordance with the terms of Section A.5(a) hereof,
then the number of Directors on the Corporation's Board of Directors shall
immediately and without any action taken by the Corporation or any of its
stockholders, be increased by the minimum such minimum number as is necessary to
ensure that the directors elected under this paragraph 2(b) (the "Default
Preferred Directors") will constitute a majority of the Corporation's Board of
Directors, and the holders of the Convertible Preferred Stock shall be entitled
to elect the Default Preferred Directors, with each share of Convertible
Preferred Stock entitled to one (1) vote. Each Default Preferred Director so
elected shall hold office in accordance with the terms for directors elected at
such meeting as provided by law, the Certificate of Incorporation, as amended,
or the by-laws of the
<PAGE> 3
Corporation in effect at the time, provided that such Director shall in any
event cease to hold office at such time as the holders of Convertible Preferred
Stock are no longer entitled to elect Default Preferred Directors in accordance
with this Section A.2(b). The election of the Default Preferred Directors by the
holders of the Convertible Preferred Stock shall occur (i) at the annual meeting
of holders of capital stock, (ii) at any special meeting of holders of Common
Stock, (ii) if there is then no Convertible Preferred Stock Director Designee
serving as a Director, at any special meeting of holders of capital stock, (iii)
if there is then no Convertible Preferred Stock Director Designee serving as a
Director, at any special meeting of holders of Convertible Preferred Stock
called by a Majority Interest, or (iv) in lieu of an election at a meeting, by
the written consent of holders of a Two Thirds Interest. If at any time when any
share of Convertible Preferred Stock is outstanding any Default Preferred
Director should cease to be a director for any reason, the vacancy shall only be
filled by the vote or written consent of holders of the outstanding shares of
Convertible Preferred Stock, voting together as a separate class, in the manner
and on the basis specified above. The holders of a majority of the outstanding
shares of Convertible Preferred Stock may, in their sole discretion, determine
to elect fewer than all of the Default Preferred Directors from time to time,
and during any such period the Board of Directors nonetheless shall be deemed
duly constituted. Upon full payment by the Corporation of all amounts payable to
the holders of the Convertible Preferred Stock pursuant to Section A.5(a)
hereof, including any interest thereon, which the Board of Directors shall cause
to be made by the Corporation as soon as is lawful and practical to be made, the
right of the holders of Convertible Preferred Stock to elect Default Preferred
Directors under this paragraph (2) shall terminate, the terms of all such
Default Preferred Directors shall forthwith cease, and the number of Directors
shall forthwith be reduced by an amount equal to the number of Default Preferred
Directors which the holders of Convertible Preferred Stock were previously
entitled to elect hereunder.
(c) Whenever the holders of Convertible Preferred Stock are entitled
to take any action under either paragraph (a) or (b) of this Section A.2(b), a
Majority Interest shall have the right to fix any record date and the date, time
and location, to the extent applicable, of any meeting or written consent
referred to therein and to send any required notices. If a Majority Interest
requests that the Corporation take any of such actions, it will do so
immediately. The Corporation will not take any action, including amending its
Certificate of Incorporation or bylaws, which is inconsistent with the intent or
purposes of Section A.2.
3. DIVIDENDS. The holders of shares of Convertible Preferred Stock
shall be entitled, in preference to the holders of any and all other classes of
capital stock of the Corporation, to receive, when, as and if declared by the
Board of Directors, out of funds legally available therefor, cumulative
dividends on the Convertible Preferred Stock in cash at the rate per annum of
eight percent (8%) (the "Dividend Rate") of the Initial Liquidation Preference
or $80.00 per share of Convertible Preferred Stock (adjusted appropriately for
stock splits, stock dividends, recapitalizations and the like with respect to
the Convertible Preferred Stock, and subject to adjustment pursuant to Section
A.5(e) hereof) as of the original issuance date of the Convertible Preferred
Stock (for any such issuance, the "Convertible Preferred Original Issuance
Date"), subject to proration for partial years on the basis of a 365-day year,
compounded quarterly on March 31, June 30, September 30 and December 31 of each
year (the "Convertible Cumulative Dividend"). Such dividends will accumulate
commencing as of the Convertible Preferred Original Issuance Date and shall be
cumulative, to the extent unpaid, whether or not they have been declared and
whether or not the Corporation may legally pay the dividends. Such dividends
shall become due and payable with respect to any shares of Convertible Preferred
Stock as provided in Sections A.4, A.5 and A.6. Dividends paid in an amount less
than the total amount of such dividends at the time accumulated and payable on
all outstanding shares of Convertible Preferred Stock shall be allocated pro
rata on a share-by-share basis among all such shares at the time outstanding. So
long as at least 1,000 shares of Convertible Preferred Stock are outstanding and
the Convertible Cumulative Dividends have not been paid in full: (a) no dividend
whatsoever (other than dividends paid in stock) shall be paid or declared, and
no distribution shall be made, on any Common Stock or other capital stock of the
Corporation ranking with regard to dividend rights, rights upon a Liquidation
Event (as defined in Section A.4 below) or an Extraordinary Transaction (as
defined in Section A.5(a)(ii) below) or redemption rights junior to or on a
parity with the Convertible Preferred Stock; and (b) except as provided in
Section A.8(c), no shares of Common Stock or other capital stock of the
Corporation ranking with regard to dividend rights, rights upon a Liquidation
Event or an Extraordinary Transaction or redemption rights junior to or on a
parity with the Convertible Preferred Stock shall be purchased, redeemed or
acquired by the Corporation and no monies shall be paid into or set aside or
made available for a sinking fund for the purchase, redemption or acquisition
thereof.
In addition to Convertible Cumulative Dividends, the holders of
Convertible Preferred Stock shall be entitled to receive dividends out of funds
legally available therefor at such times and in such amounts as the Board of
Directors may determine in its sole discretion; PROVIDED, HOWEVER, that no cash
or Common Stock dividend may be declared or paid on any shares of Common Stock
unless at the same time a dividend is declared or paid on all outstanding shares
of Convertible Preferred Stock, with holders of Convertible Preferred Stock and
Common Stock sharing in any such dividends as if they constituted a single class
of stock and with each holder of shares of
<PAGE> 4
Convertible Preferred Stock entitled to receive such dividends based on the
number of shares of Common Stock into which such shares of Convertible Preferred
Stock are then convertible in accordance with Section A.6 hereof.
4. LIQUIDATION.
(a) LIQUIDATION PREFERENCE. Upon any liquidation, dissolution
or winding up of the Corporation and its subsidiaries, whether voluntary or
involuntary (a "Liquidation Event"), each holder of outstanding shares of
Convertible Preferred Stock shall be entitled to be paid out of the assets of
the Corporation available for distribution to stockholders, whether such assets
are capital, surplus or earnings, and before any amount shall be paid or
distributed to the holders of Common Stock or of any other stock ranking on
liquidation junior to the Convertible Preferred Stock, an amount in cash, equal
to (i) $1,000 per share of Convertible Preferred Stock held by such holder
(adjusted appropriately for stock splits, stock dividends, recapitalizations and
the like with respect to the Convertible Preferred Stock) (the "Initial
Liquidation Preference"), plus (ii) any accumulated but unpaid dividends to
which such holder of outstanding shares of Convertible Preferred Stock is then
entitled, if any, pursuant to Sections A.3, A.5(e) and A.5(f) hereof (the sum of
clauses (i) and (ii) being referred to herein as the "Convertible Liquidation
Preference Amount"); PROVIDED, HOWEVER, that if upon any Liquidation Event, the
amounts payable with respect to the Convertible Liquidation Preference Amount
are not paid in full, the holders of the Convertible Preferred Stock shall share
ratably in any distribution of assets in proportion to the full respective
preferential amounts to which they are entitled; and provided further, however,
that if upon any Liquidation Event the holders of the outstanding shares of
Convertible Preferred Stock would have received more than the Convertible
Liquidation Preference Amount in the event their shares were converted into
Common Stock immediately prior to such Liquidation Event and such shares of
Common Stock pursuant to Section A.6(a) received a liquidating distribution or
distributions from the Corporation, then each holder of Convertible Preferred
Stock shall receive as a distribution from the Corporation in connection with
such Liquidation Event an amount equal to the amount that would be paid if such
holder's shares of Convertible Preferred Stock were converted into Common Stock
immediately prior to such Liquidation Event pursuant to A.6(a). The provisions
of this Section A.4 shall not in any way limit the right of the holders of
Convertible Preferred Stock to elect to convert their shares of Convertible
Preferred Stock into Common Stock pursuant to Section A.6 prior to or in
connection with any Liquidation Event. Upon any Liquidation Event, holders of
fractional shares of Convertible Preferred Stock shall receive proportionate
payments in respect thereof.
(b) NOTICE. Prior to the occurrence of any Liquidation Event,
the Corporation will furnish each holder of Convertible Preferred Stock notice
in accordance with Section A.9 hereof, together with a certificate prepared by
the chief financial officer of the Corporation describing in detail the facts of
such Liquidation Event, stating in detail the amount(s) per share of Convertible
Preferred Stock each holder of Convertible Preferred Stock would receive
pursuant to the provisions of Section A.4(a) hereof pursuant to clauses (i),
(ii) and (iii) of the proviso of Section A.4(a) and stating in detail the facts
upon which such amounts were determined.
5. REDEMPTION; PREFERENTIAL PAYMENT IN EXTRAORDINARY TRANSACTIONS.
(a) REDEMPTION.
(i) TIME BASED REDEMPTION. On December 9, 2004, the Corporation
shall redeem all of the outstanding shares of Convertible Preferred Stock held
by each holder of Convertible Preferred Stock. The redemption price for each
share of Convertible Preferred Stock redeemed pursuant to this Section A.5(a)(i)
shall be the per share Convertible Liquidation Preference Amount (as defined in
Section A.4(a) above) (the "Convertible Redemption Price").
(ii) REDEMPTION UPON EXTRAORDINARY TRANSACTIONS. Upon the
occurrence of an "Extraordinary Transaction," the holders of not less than a
Majority Interest may elect (i) to have the Convertible Preferred Stock redeemed
in connection with the Extraordinary Transaction or (ii) otherwise to
participate in the Extraordinary Transaction.
"Extraordinary Transaction" means any of the following: (A) a merger or
consolidation of the Corporation with or into another corporation (with respect
to which less than a majority of the outstanding voting power of the surviving
or consolidated corporation is held by stockholders of the Corporation
immediately prior to such event), (B) the sale or transfer of all or
substantially all of the properties and assets of the Corporation and its
subsidiaries, (C) any purchase by any party (or group of affiliated parties) of
shares of capital stock of the Corporation (either through a negotiated stock
purchase or a tender for such shares), the effect of which is that such party
(or group of affiliated parties) that did not beneficially own a majority of the
voting power of the outstanding shares of capital stock of the Corporation
immediately prior to such purchase beneficially owns at least a majority of such
voting
<PAGE> 5
power immediately after such purchase, or (D) the redemption or repurchase of
shares representing a majority of the voting power of the outstanding shares of
capital stock of the Corporation immediately prior to such redemption.
As a condition to the effectiveness of any Extraordinary Transaction,
unless the holders of Convertible Preferred Stock shall have elected to convert
their shares of Convertible Preferred Stock into Common Stock in accordance with
the provisions of Section A.6 prior to the effective date of such Extraordinary
Transaction, the Corporation shall either (1) if redemption is elected, on the
effective date of such Extraordinary Transaction, redeem all (but not less than
all) of the outstanding shares of Convertible Preferred Stock held by each
holder of Convertible Preferred Stock for an amount equal to the Convertible
Redemption Price, such amount to be payable in cash or, at the election of such
holder or holders, in the same form of consideration as is paid to the holders
of Common Stock in such Extraordinary Transaction, or (2) if the holders elect
to participate in the relevant transaction (such as a merger) on terms
acceptable to them, take such actions as shall be sufficient to facilitate such
participation (including executing a merger agreement including an exchange
ratio reflecting the provisions hereof) (on terms giving such holders the right
to the Convertible Redemption Price as a preferential amount, in which event
such amount shall be paid in cash or, at the election of such holders, in the
same form of consideration as is paid to the holders of Common Stock in such
Extraordinary Transaction, but in preference to and before any amount is paid or
otherwise distributed to the holders of the Common Stock or any other stock
ranking with regard to dividend rights, rights upon a Liquidation Event or an
Extraordinary Transaction, or redemption rights junior to the Convertible
Preferred Stock, in which event such preferential amount shall be deemed to have
been distributed to the holders of the Convertible Preferred Stock as if in a
Liquidation Event). For purposes of this Section A.5(a)(ii), a sale of
substantially all of the assets of the Corporation and its subsidiaries shall
mean the sale or other disposition other than in the ordinary course of business
of more than 75% of such assets, by reference to the book value or the fair
market value of such assets, determined on a consolidated basis under generally
accepted accounting principles.
Notwithstanding the foregoing, if upon any Extraordinary Transaction
the holders of the outstanding shares of Convertible Preferred Stock would
receive more than the Convertible Redemption Price in the event their shares
were converted into Common Stock immediately prior to such Extraordinary
Transaction and such shares of Common Stock were purchased or otherwise
participated in such Extraordinary Transaction, then each holder of Convertible
Preferred Stock shall receive from the Corporation or the relevant purchaser, as
applicable, upon the election by a Majority Interest to redeem or otherwise
participate in such Extraordinary Transaction, an amount equal to the amount per
share that would be paid if the shares of Common Stock receivable upon
conversion of the Convertible Preferred Stock were being acquired in the
Extraordinary Transaction at the same price per share as is paid for other
shares of Common Stock, which amount shall be paid in the same form of
consideration as is paid to holders of Common Stock, as if each share of
Convertible Preferred Stock had been converted into the number of shares of
Common Stock issuable upon the conversion of such share of Convertible Preferred
Stock immediately prior to such Extraordinary Transaction. Also, notwithstanding
the foregoing, in connection with the acquisition of the Convertible Preferred
Stock in an Extraordinary Transaction which is to be accounted for by the
acquiring entity as a pooling of interests, the holders of shares of Convertible
Preferred Stock shall receive upon such election to redeem or otherwise
participate, if so required for the application of such accounting treatment,
and in lieu of cash, the number of shares of common stock of such entity having
a value equal to the amount otherwise payable to the holders of Convertible
Preferred Stock in such Extraordinary Transaction pursuant to this Section
A.5(a)(ii) and having the same registered status or registration rights as any
other shares in such transaction. The Corporation shall not participate in any
Extraordinary Transaction or make or agree to have made any payments to the
holders of shares of Common Stock or any other stock ranking junior to the
Convertible Preferred Stock unless the holders of the Convertible Preferred
Stock shall have received the full preferential amount to which they are
entitled hereunder in an Extraordinary Transaction.
The foregoing election shall be made by such holders giving the
Corporation and each other holder of Convertible Preferred Stock not less than
five (5) business days prior written notice, which notice shall set forth the
date for such redemption or participation in an Extraordinary Transaction, as
applicable. The provisions of this Section A.5 shall not in any way limit the
right of the holders of Convertible Preferred Stock to elect to convert their
shares into shares of Common Stock pursuant to Section A.6 prior to or in
connection with any Extraordinary Transaction.
(iii) REDEMPTION AT THE OPTION OF THE CORPORATION. In the event
that, at any time commencing on the Anniversary Date (as defined in Section
A.7(a)), the market price of the Common Stock equals or exceeds 200% of the
Conversion Price then in effect for 20 out of a period of 30 consecutive trading
days (any period of 30 days where this condition has been met being referred to
herein as a "Redemption Period"), then the Corporation shall have the right, in
its discretion during any Redemption Period or within the 30 days immediately
following the Redemption Period, to send 30 days' prior written notice to each
holder of Convertible Preferred Stock and after such 30-day period, to redeem
all outstanding shares of Convertible Preferred Stock at a redemption
<PAGE> 6
price equal to the Convertible Redemption Price; provided, that no such
redemption may be effected if at any time between the giving of the notice of
redemption and the date on which redemption is to occur there is not in effect a
registration statement covering the sale by the holders thereof of all shares of
Common Stock issuable upon conversion of the Convertible Preferred Stock.
(b) VALUATION OF DISTRIBUTION SECURITIES. Any securities or
other consideration to be delivered to the holders of the Convertible Preferred
Stock, if so elected in connection with a redemption or upon any Extraordinary
Transaction in accordance with the terms hereof, shall be valued as follows:
(i) If traded on a nationally recognized securities exchange or
inter-dealer quotation system, the value shall be deemed to be the average of
the closing prices of the securities on such exchange or system over the 30-day
period ending three (3) business days prior to the closing of such Extraordinary
Transaction;
(ii) If traded over-the-counter, the value shall be deemed to be
the average of the closing bid prices over the 30-day period ending three (3)
business days prior to the closing of such Extraordinary Transaction; and
(iii) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of not less than a Two Thirds Interest, provided that if the Corporation
and the holders of not less than a Two Thirds Interest are unable to reach
agreement, then by independent appraisal by a mutually agreed to investment
banker, the fees of which shall be paid by the Corporation.
(c) NOTICE BY CORPORATION. Prior to the occurrence of any
Extraordinary Transaction, the Corporation will furnish each holder of
Convertible Preferred Stock notice in accordance with Section A.9 hereof,
together with a certificate prepared by the chief financial officer of the
Corporation describing in detail all material terms of such Extraordinary
Transaction, including without limitation the consideration to be delivered in
connection with such Extraordinary Transaction, the valuation of the Corporation
at the time of such Extraordinary Transaction and the identities of the parties
to the Extraordinary Transaction.
(d) PURCHASE DATE AND PRICE. Upon the election of the holders of not
less than a Majority Interest to cause the Corporation to redeem Convertible
Preferred Stock or otherwise to participate in an Extraordinary Transaction
pursuant to Section A.5(a)(ii), each holder of Convertible Preferred Stock shall
be deemed to have elected to cause the shares held by such holder to be so
redeemed or to so participate. Any date upon which a redemption or other
acquisition is to occur in accordance with Section A.5(a) shall be referred to
as a "Redemption Date." If at a Redemption Date shares of Convertible Preferred
Stock are unable to be redeemed (as contemplated by Section A.5(e) below), then
holders of Convertible Preferred Stock shall also be entitled to interest and
dividends pursuant to Sections A.5(e) and (f) below. The aggregate applicable
redemption price elected to be payable in cash pursuant to Section A.5(a) shall
be payable in cash in immediately available funds to the respective holders on
the Redemption Date (subject to Section A.5(e)), except as otherwise
contemplated by Section A.5(a)(ii). Upon any redemption as provided herein,
holders of fractional shares shall receive proportionate amounts in respect
thereof. Until the aggregate applicable redemption price has been paid for all
shares of Convertible Preferred Stock being redeemed or acquired: (A) no
dividend whatsoever shall be paid or declared, and no distribution shall be
made, on any capital stock of the Corporation; and (B) except as permitted by
Section A.8(c), no shares of capital stock of the Corporation (other than in
accordance with this Section A.5) shall be purchased, redeemed or acquired by
the Corporation and no monies shall be paid into or set aside or made available
for a sinking fund for the purchase, redemption or acquisition thereof.
(e) REDEMPTION PROHIBITED. If, at a Redemption Date, the Corporation
is prohibited under Section 160 of the General Corporation Law of the State of
Delaware from redeeming all shares of Convertible Preferred Stock for which
redemption is required hereunder, then it shall redeem such shares on a pro-rata
basis among the holders of Convertible Preferred Stock in proportion to the full
respective redemption amounts to which they are entitled hereunder to the extent
possible and shall redeem the remaining shares to be redeemed as soon as the
Corporation is not prohibited from redeeming some or all of such shares under
Section 160 of the General Corporation Law of the State of Delaware, subject to
the last paragraph of Section A.8. Any shares of Convertible Preferred Stock not
redeemed shall remain outstanding and entitled to all of the rights and
preferences provided in this Section A. The Corporation shall take such action
as shall be necessary or appropriate to review and promptly remove any
impediment to its ability to redeem Convertible Preferred Stock under the
circumstances contemplated by this Section A.5(e). In the event that the
Corporation fails for any reason to redeem shares for which redemption is
required pursuant to this Section A.5, including without limitation due to a
prohibition of such redemption under the General Corporation Law of the State of
Delaware, then during the period from the applicable Redemption Date
<PAGE> 7
through the date on which such shares are redeemed, the applicable Dividend Rate
shall increase by 2% per annum and shall increase by an additional .5% at the
end of each six (6) month period thereafter until the Redemption Price (as so
increased) is paid in full, subject to a maximum rate of 15% per annum.
(f) DIVIDEND AFTER REDEMPTION DATE. From and after a Redemption
Date, no shares of Convertible Preferred Stock subject to redemption shall be
entitled to dividends, if any, as contemplated by Section A.3; PROVIDED,
HOWEVER, that in the event that shares of Convertible Preferred Stock are unable
to be redeemed and continue to be outstanding in accordance with Section A.5(e),
such shares shall continue to be entitled to dividends and interest thereon as
provided in Sections A.3 and A.5(e) until the date on which such shares are
actually redeemed by the Corporation.
(g) SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Convertible Redemption Price by certified check or wire transfer (in the event
such price is to be paid in cash), each holder of shares of Convertible
Preferred Stock to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation, duly assigned or endorsed for
transfer (or accompanied by duly executed stock powers relating thereto), or, in
the event the certificate or certificates are lost, stolen or missing, shall
deliver an affidavit or agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith (an
"Affidavit of Loss") with respect to such certificates at the principal
executive office of the Corporation or the office of the transfer agent for the
Convertible Preferred Stock or such office or offices in the continental United
States of an agent for redemption as may from time to time be designated by
notice to the holders of Convertible Preferred Stock, and each surrendered
certificate shall be canceled and retired; PROVIDED, HOWEVER, that if the
Corporation is prohibited from redeeming all shares of Convertible Preferred
Stock as provided in Section A.5(e) or such redemption is a partial redemption
of the shares of Convertible Preferred Stock held by a holder, the holder shall
not be required to surrender said certificate(s) to the Corporation until said
holder has received a new stock certificate for those shares of Convertible
Preferred Stock not so redeemed.
(h) FURTHER RESTRICTIONS ON REDEMPTION. Notwithstanding anything
herein to the contrary, the Convertible Preferred Stock shall not be redeemed
hereunder unless (i) all obligations of the Corporation under the Loan and
Security Agreement dated April 14, 1998 among the Corporation, certain of its
subsidiaries, and National Bank of Canada, as agent and as a lender, and the
other lenders from time to time party thereto (collectively, the "Lender") shall
have been or is concurrently paid in full, or (ii) the Lenders shall have
consented to such redemption. If the Corporation is prohibited from redeeming
the Convertible Preferred Stock hereunder, the holders of Convertible Preferred
Stock shall be entitled to the provisions of Section A.5(e) and A.5(f) hereof.
6. CONVERSION. The holders of the Convertible Preferred Stock shall
have the following conversion rights:
(a) CONVERSION UPON ELECTION OF HOLDER. Any holder of shares of
Convertible Preferred Stock shall be entitled at any time after June 9, 2000,
upon written election and without the payment of any additional consideration,
to cause any or all of such holder's shares of Convertible Preferred Stock to be
converted into the number of shares of Common Stock resulting from dividing the
Conversion Value (as defined in this Section A.6(a)) per share in effect for the
Convertible Preferred Stock at the time of conversion, as the numerator, by the
per share Conversion Price (as defined in this Section A.6(a)) of the
Convertible Preferred Stock, as the denominator, with fractional shares treated
proportionately. The number of shares of Common Stock into which a share of a
Convertible Preferred Stock is convertible is hereinafter referred to as the
"Conversion Rate." Upon the filing of the Certificate of Designation of the
Series B Preferred Stock with the Secretary of State of Delaware the "Conversion
Price" per share of Convertible Preferred Stock shall be $5.9334, and the per
share "Conversion Value" of Convertible Preferred Stock shall be the sum of
$1,000 plus per share accumulated but unpaid dividends on the Convertible
Preferred Stock at the time of conversion. The Conversion Price per share of
Convertible Preferred Stock and the Conversion Rate shall be subject to
adjustment from time to time as provided in Section A.7 hereof.
(b) PROCEDURE FOR CONVERSION. Upon election to convert pursuant to
Section A.6(a), the relevant holder of Convertible Preferred Stock shall
surrender the certificate or certificates representing the Convertible Preferred
Stock being converted, duly assigned or endorsed for transfer to the Corporation
(or accompanied by duly executed stock powers relating thereto), at the
principal executive office of the Corporation or the offices of the transfer
agent for the Convertible Preferred Stock or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Convertible Preferred Stock by the
Corporation, or shall deliver an Affidavit of Loss with respect to such
certificates. The issuance by the Corporation of Common Stock upon a conversion
of Convertible Preferred Stock pursuant to Section A.6(a) hereof shall be
effective as of the surrender of the certificate or certificates for the
<PAGE> 8
Convertible Preferred Stock to be converted, duly assigned or endorsed for
transfer to the Corporation (or accompanied by duly executed stock powers
relating thereto), or as of the delivery of an Affidavit of Loss. Upon surrender
of a certificate representing Convertible Preferred Stock for conversion, or
delivery of an Affidavit of Loss, the Corporation shall issue and send by hand
delivery, by courier or by first class mail (postage prepaid) to the holder
thereof or to such holder's designee, at the address designated by such holder,
certificates for the number of shares of Common Stock to which such holder shall
be entitled upon conversion (rounded to the nearest whole share) plus, if
applicable, a cash payment in the amount of any accumulated but unpaid dividends
and other amounts as contemplated by Section A.6(a) in respect of the shares of
Convertible Preferred Stock. The issuance of certificates for Common Stock upon
conversion of Convertible Preferred Stock will be made without charge to the
holders of such shares for any issuance tax in respect thereof or other costs
incurred by the Corporation in connection with such conversion and the related
issuance of such stock. If a conversion of Convertible Preferred Stock upon a
Liquidation Event or an Extraordinary Transaction occurs and the holders of the
Common Stock issued on such conversion elect to participate, the Corporation
shall make appropriate provisions for the Common Stock issued upon such
conversion to be treated on the same basis as all other Common Stock in such
Liquidation Event or Extraordinary Transaction.
(c) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Convertible Preferred Stock such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Convertible Preferred Stock; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all of the then outstanding shares of Convertible
Preferred Stock, the Corporation will take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(d) NO CLOSING OF TRANSFER BOOKS. The Corporation shall not close
its books against the transfer of shares of Convertible Preferred Stock in any
manner which would interfere with the timely conversion of any shares of
Convertible Preferred Stock.
7. ADJUSTMENTS. The Conversion Price in effect from time to time shall
be subject to adjustment from and after the Convertible Preferred Original
Issuance Date and regardless of whether any shares of Convertible Preferred
Stock are then issued and outstanding as follows:
(a) ADJUSTMENT UPON CHANGE IN MARKET VALUE. If on December 9, 2000
(the "Anniversary Date") the product of (a) 1.10 multiplied by (b) the sum of
(i) the average closing bid price of the Common Stock for the 30 trading days
immediately preceding the Anniversary Date, plus (ii) on an as-converted, per
share basis, the fair market value on the Anniversary Date (as determined in
good faith by the Board of Directors and reasonably agreed to by a Two-Thirds
Interest, except that if the distribution includes any securities, the fair
market value of such securities shall be determined by reference to Section
A.5(b) hereof) of any securities, cash or assets (excluding any dividend or
distribution paid exclusively in cash or in Common Stock) which prior to the
Anniversary Date are distributed or made payable to the holders of Convertible
Preferred Stock (such product the "Reset Price"), is less than the Conversion
Price then in effect, then the Conversion Price shall be adjusted to equal the
Reset Price and shall be subject to further adjustment as provided herein;
provided, however, that in no event shall the Conversion Price be reduced by
more than 50% pursuant to this Section A.7(a). Any dispute as to fair market
value hereunder shall be resolved by independent appraisal by a mutually agreed
investment banker, the fees of which shall be paid by the Corporation.
(b) DIVIDENDS AND STOCK SPLITS. If the number of shares of Common
Stock (which term for purposes of this Section A.7 shall include all common
stock of the Corporation) outstanding at any time after the date hereof is
increased by a stock dividend or distribution payable in shares of Common Stock
or by a subdivision or split-up of shares of Common Stock, then, on the date
such payment is made or such change is effective, the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of any shares of Convertible Preferred Stock shall be increased in
proportion to such increase of outstanding shares of Common Stock.
(c) REVERSE STOCK SPLITS. If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination or
reverse split of the outstanding shares of Common Stock, then, on the effective
date of such combination or reverse split, the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of any shares of Convertible Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares of Common Stock.
<PAGE> 9
(d) SALE OF COMMON STOCK. In the event the Corporation shall at any
time, or from time to time, issue, sell or exchange any shares of Common Stock
(including shares held in the Corporation's treasury but excluding (I) up to
1,211,236 shares and options issued to officers, directors or employees of the
Corporation or upon the exercise of options or other rights issued to such
officers, directors or employees pursuant to the Corporation's stock option,
stock purchase and related employee plans (II) up to 1,555,150 shares issuable
upon exercise of warrants or other rights issued by the Corporation prior to the
first date any shares of Convertible Preferred Stock are issued or (III) any
securities issuable upon conversion of the Convertible Preferred Stock or
exercise of warrants issued pursuant to the Securities Purchase Agreement dated
December 9, 1999 (the "Purchase Agreement") (the "Excluded Shares")), for a
consideration per share (the "Purchase Price") less than the greater of (a) the
Market Price (as hereinafter defined) of the Common Stock in effect immediately
prior to the issuance, sale or exchange of such shares or (b) the Conversion
Price in effect immediately prior to the issuance, sale or exchange of such
shares, then, and thereafter successively upon each such issuance, sale or
exchange, the Conversion Price in effect immediately prior to the issuance, sale
or exchange of such shares shall be reduced to an amount determined by
multiplying such Conversion Price by a fraction:
(i) the numerator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance of
such additional shares of Common Stock (excluding treasury shares but including
all shares of Common Stock issuable upon conversion or exercise of any
outstanding Convertible Preferred Stock, options, warrants, rights or
convertible securities having an exercise or conversion price less than such
Purchase Price), plus (Y) the number of shares of Common Stock which the net
aggregate consideration received by the Corporation for the total number of such
additional shares of Common Stock so issued would purchase at the Conversion
Price (prior to adjustment), and
(ii) the denominator of which shall be (X) the number of shares
of Common Stock of all classes outstanding immediately prior to the issuance of
such additional shares of Common Stock (excluding treasury shares but including
all shares of Common Stock issuable upon conversion or exercise of any
outstanding Convertible Preferred Stock, options, warrants, rights or
convertible securities having an exercise or conversion price less than such
Purchase Price), plus (Y) the number of such additional shares of Common Stock
so issued.
The "Market Price" of the Common Stock on any date shall mean the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Common Stock is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Common Stock is listed or admitted to trading or, if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the last quoted price, or if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc.'s Automated Quotation System or, if such system is no longer in
use, the principal other automated quotation system that may then be in use, or
if the Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker making
a market in the Common Stock that is selected by the Board of Directors of the
Corporation, or, if there is no such professional market maker, such amount as
an independent investment banking firm selected by the Board of Directors of the
Corporation determines to be the value of a share of Common Stock.
(e) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE SECURITIES. In the event
the Corporation shall at any time or from time to time, issue options, warrants
or rights to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock (other than any
options or warrants for Excluded Shares), for a Purchase Price (determined by
dividing the Net Aggregate Consideration (as determined below) by the aggregate
number of shares of Common Stock that would be issued if all such options,
warrants, rights or convertible securities were exercised or converted to the
fullest extent permitted by their terms) less than the greater of (a) the Market
Price in effect immediately prior to the issuance, sale or exchange of such
shares or (b) the Conversion Price in effect immediately prior to the issuance
of such options or rights or convertible or exchangeable securities, then the
Conversion Price in effect immediately prior to the issuance of such options,
warrants or rights or securities shall be reduced to an amount determined by
multiplying such Conversion Price by a fraction:
(i) the numerator of which shall be (X) the number of shares of
Common Stock of all classes outstanding immediately prior to the issuance of
such options, rights or convertible securities (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or exercise of any
outstanding Convertible Preferred Stock, options, warrants, rights or
convertible securities having an exercise or conversion price less than such
Purchase Price), plus (Y) the number of shares of Common Stock which the total
amount of
<PAGE> 10
consideration received by the Corporation for the issuance of such options,
warrants, rights or convertible securities plus the minimum amount set forth in
the terms of such security as payable to the Corporation upon the exercise or
conversion thereof (the "Net Aggregate Consideration") would purchase at the
Conversion Price prior to adjustment, and
(ii) the denominator of which shall be (X) the number of shares
of Common Stock of all classes outstanding immediately prior to the issuance of
such options, warrants, rights or convertible securities (excluding treasury
shares but including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Convertible Preferred Stock, options, warrants,
rights or convertible securities having an exercise or conversion price less
than such Purchase Price), plus (Y) the aggregate number of shares of Common
Stock that would be issued if all such options, warrants, rights or convertible
securities were exercised or converted.
(f) EXPIRATION OR CHANGE IN PRICE. If the consideration per share
provided for in any options or rights to subscribe for shares of Common Stock or
any securities exchangeable for or convertible into shares of Common Stock,
changes at any time (other than as a result of the operation of the antidilution
provision of this Section A.7 or the antidilution provisions of certain Warrants
issued by the Corporation pursuant to the Purchase Agreement), the Conversion
Price in effect at the time of such change shall be readjusted to the Conversion
Price which would have been in effect at such time had such options or
convertible securities provided for such changed consideration per share
(determined as provided in Section A.7(d) hereof), at the time initially
granted, issued or sold; PROVIDED, that such adjustment of the Conversion Price
will be made only as and to the extent that the Conversion Price effective upon
such adjustment remains less than or equal to the Conversion Price that would be
in effect if such options, rights or securities had not been issued. No
adjustment of the Conversion Price shall be made under this Section A.7 upon the
issuance of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been made upon the
issuance of such warrants, options or other rights. Any adjustment of the
Conversion Price shall be disregarded if, as, and when the rights to acquire
shares of Common Stock upon exercise or conversion of the warrants, options,
rights or convertible securities which gave rise to such adjustment expire or
are canceled without having been exercised, so that the Conversion Price
effective immediately upon such cancellation or expiration shall be equal to the
Conversion Price in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities, with such
additional adjustments as would have been made to that Conversion Price had the
expired or canceled warrants, options, rights or convertible securities not been
issued.
(g) OTHER ADJUSTMENTS. In case the Corporation shall, by dividend,
distribution or otherwise, distribute to all holders of its Common Stock
evidences of its indebtedness, shares of any class or series of capital stock,
other securities, cash or assets (excluding (i) any options, rights or warrants
referred to in Section A.7(e), and (ii) any dividend or distribution paid
exclusively in cash or in Common Stock), then, at the election of a Majority
Interest, either (A) adequate provision shall be made so that holders of
Convertible Preferred Stock shall receive upon conversion thereof, in addition
to the number of shares of Common Stock receivable thereupon, the evidence of
indebtedness, shares of any class or series of capital stock, securities of any
issuer other than the Corporation, cash or assets which they would have received
had the Convertible Preferred Stock been converted into Common Stock as to the
date referenced for the payment of such distribution (the "Reference Date"), or
(B) the Conversion Price shall be reduced so that such price shall equal the
price determined by multiplying the Conversion Price in effect immediately prior
to the effectiveness of the Conversion Price reduction contemplated by this
Section A.7(g) by a fraction, the numerator of which shall be the Market Price
(determined as provided in Section A.7(d) per share of the Common Stock on the
Reference Date less the fair market value (as determined, subject to the last
sentence of this Section A.7(g), in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors), on the Reference Date, of such number or amount of the evidences of
indebtedness, shares of capital stock, securities, cash and assets that is so
distributed to a holder of one share of Common Stock, and the denominator shall
be such Market Price per share of the Common Stock, such reduction to become
effective immediately prior to the opening of business on the day following the
Reference Date. Notwithstanding any other provision of this Section A.7(g), if
any shares of capital stock distributed to a holder of Common Stock are listed
or admitted to trading on any national securities exchange or on the Nasdaq
Stock Market, or quoted on any other automated quotation system that may then be
in use, for the five consecutive trading days prior to and including the
Reference Date, or will be listed or admitted to trading or quoted thereon as of
(but not prior to) the Reference Date for the ten consecutive trading days
subsequent to and including the Reference Date, then, the Board of Directors, in
making its determination of the fair market value of such number of shares of
capital stock that are so distributed to a holder of one share of Common Stock,
shall make such determination by reference to the Market Price (as determined by
reference to Section 7(d)) of such shares of capital stock as of the Reference
Date.
<PAGE> 11
(h) REORGANIZATION, ETC. If the Common Stock issuable upon the
conversion of the Convertible Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock, whether by
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for above, or a reorganization, merger, consolidation
or sale of assets provided for elsewhere in this Section A.7), then and in each
such event the holder of each share of Convertible Preferred Stock shall have
the right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification or other change, by holders of the number of shares of Common
Stock into which such shares of Convertible Preferred Stock might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
(i) MERGERS AND OTHER REORGANIZATIONS. Unless such transaction is an
Extraordinary Transaction in which the holders of the Convertible Preferred
Stock elect redemption or otherwise participate (in which case Section
A.5(a)(ii) shall apply and this subsection shall not apply), if at any time or
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section A.7) or a merger or consolidation of the
Corporation with or into another corporation or the sale of all or substantially
all of the Corporation's properties and assets to any other person, then, to the
extent permitted by law, as part of and as a condition to the effectiveness of
such reorganization, merger, consolidation or sale, lawful and adequate
provision shall be made so that the holders of the Convertible Preferred Stock
shall thereafter be entitled to receive upon conversion of the Convertible
Preferred Stock the number of shares of stock or other securities or property of
the Corporation, or of the successor corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock would have been
entitled in connection with such capital reorganization, merger, consolidation,
or sale. In any such case, appropriate provisions shall be made with respect to
the rights of the holders of the Convertible Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section A.7 (including, without limitation, provisions for adjustment of
the applicable Conversion Price and the number of shares purchasable upon
conversion of the Convertible Preferred Stock) shall thereafter be applicable,
as nearly as may be, with respect to any shares of stock, securities or assets
to be deliverable thereafter upon the conversion of the Convertible Preferred
Stock.
(j) CALCULATIONS. All calculations under this Section A.7 shall be
made to the nearest cent or to the nearest one hundredth (1/100) of
a share, as the case may be.
(k) CERTIFICATE. Upon the occurrence of each adjustment or
readjustment pursuant to this Section A.7, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Convertible Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon written request at any time of any holder of Convertible Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
before and after such adjustment or readjustment, and (iii) the number of shares
of Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of such holder's shares of Convertible
Preferred Stock.
(l) DISPUTES. In the event of a dispute in connection with an
adjustment hereunder, the Corporation will cause independent certified public
accountants of recognized national standing (which may be the regular auditors
of the Corporation) selected by the Corporation to verify such computation
(other than any computation of the fair value of property as determined in good
faith by the Board of Directors of the Corporation) and prepare a report setting
forth such adjustment or readjustment and showing in reasonable detail the
method of calculation thereof and the facts upon which such adjustment or
re-adjustment is based. The Corporation will forthwith mail a copy of each such
report to the holders of Convertible Preferred Stock and will, upon the written
request at any time of any such holder, furnish to such holder a like report
setting forth the Conversion Price at the time in effect and showing in
reasonable detail how it was calculated. The Corporation will also keep copies
of all such reports at its principal office and will cause the same to be
available for inspection at such office during normal business hours by any
holder of Convertible Preferred Stock or any prospective purchaser of such stock
designated by the holder thereof.
(m) MULTIPLE ADJUSTMENTS. If any single transaction or event
would require adjustment of the Conversion Price pursuant to more than one of
the provisions described above, only one adjustment shall be made and such
adjustment shall be in the amount of the adjustment having the highest absolute
value to the holders of the Convertible Preferred Stock.
<PAGE> 12
(n) MINIMUM ADJUSTMENT. No adjustment in the Conversion Price
shall be required to be made unless and until such adjustment would require a
change of at least one percent (1%) of the Conversion Price then in effect;
provided, however, that any adjustment that would not be required to be made
shall be taken into account and in subsequent adjustment.
8. COVENANTS.
(a) So long as at least 1,000 shares of Convertible Preferred
Stock shall be outstanding, the Corporation shall not, without first having
provided written notice of such proposed action to each holder of outstanding
shares of Convertible Preferred Stock and having obtained the affirmative vote
or written consent of the holders of not less than a Majority Interest, voting
as a single class, with each share of Convertible Preferred Stock entitling the
holder thereof to one vote per share of Convertible Preferred Stock held by such
holder, directly or indirectly (which consent shall not be unreasonably
withheld), enter into an agreement with respect to, or effect, or permit, any:
(i) merger or consolidation of the Corporation or any of its
subsidiaries with any other person or entity, recapitalization,
reorganization or other like transaction involving the Corporation or
any of its subsidiaries, or liquidation or dissolution of the
Corporation or any of its subsidiaries;
(ii) sale or transfer of all or substantially all of the
Corporation's consolidated properties or assets;
(iii) disposition of assets in one or more transactions for
consideration in excess of $1,000,000 without the approval of the
Board of Directors of the Corporation; or
(iv) incurrence of indebtedness for money borrowed, except for
borrowings under the Corporation's primary credit agreement of up to
$3,000,000.
(b) So long as any shares of Convertible Preferred Stock shall
be outstanding, the Corporation shall not, without first having provided written
notice of such proposed action to each holder of outstanding shares of
Convertible Preferred Stock and having obtained the affirmative vote or written
consent of the holders of not less than a Majority Interest, voting as a single
class, with each share of Convertible Preferred Stock entitling the holder
thereof to one vote per share of Convertible Preferred Stock held by such
holder, directly or indirectly, enter into an agreement with respect to, or
effect, or permit, any:
(i) issuance of any equity securities (including Convertible
Preferred Stock, except as contemplated by the Purchase Agreement) or
any securities exchangeable or convertible into equity securities or
measured by earnings or profit of the Corporation or any of its
subsidiaries (other than Series C Preferred Stock); provided, that the
Corporation or any subsidiary permitted to do so under the Purchase
Agreement may issue securities that rank junior to the Convertible
Preferred Stock as to liquidation, dividend and redemption rights;
(ii) redemption, repurchase or other acquisition for value of
any equity security of the Corporation (other than redemption of the
Convertible Preferred Stock in accordance with the terms hereof); or
(iii) amendment of the Corporation's or any of its subsidiaries'
certificate of incorporation, bylaws or other charter documents as in
effect on December 9, 1999, the date of filing of the Certificate of
Designation of the Series B Preferred Stock.
(c) The prohibition on repurchases contained in Section A.8(b)(ii)
shall not apply to the repurchase by the Corporation of up to 250,000 shares of
Common Stock pursuant to the terms of restrictive agreements under which the
Corporation has the option to repurchase such shares from employees, officers,
directors, consultants, or other persons performing services for the Corporation
or any subsidiary upon the occurrence of certain events.
Further, the Corporation shall not, by amendment of its Certificate of
Incorporation or through any Extraordinary Transaction or other reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, agreement or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but shall at all times in good faith assist in
<PAGE> 13
the carrying out of all the provisions of this Section A and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holders of the Convertible Preferred Stock against impairment.
Without limitation of the foregoing, the Corporation shall take such action as
shall be necessary or appropriate, to the extent reasonably within its control,
to remove promptly any impediments to its ability to redeem Convertible
Preferred Stock under the circumstances contemplated by Section A.5(e). Any
successor to the Corporation shall agree, as a condition to such succession, to
carry out and observe the obligations of the Corporation hereunder with respect
to the Convertible Preferred Stock.
9. NOTICE.
(a) LIQUIDATION EVENTS, EXTRAORDINARY TRANSACTIONS, ETC. In
the event (i) the Corporation establishes a record date to determine the holders
of any class of securities who are entitled to receive any dividend or other
distribution or who are entitled to vote at a meeting (or by written consent) in
connection with any of the transactions identified in clause (ii) hereof, or
(ii) any Liquidation Event (as defined in Section A.4) or any Extraordinary
Transaction (as defined in Section A.5), becomes reasonably likely to occur, the
Corporation shall mail or cause to be mailed by first class mail (postage
prepaid) to each holder of Convertible Preferred Stock at least twenty (20) days
prior to such record date specified therein or the expected effective date of
any such transaction, whichever is earlier, a notice specifying (A) the date of
such record date for the purpose of such dividend or distribution or meeting or
consent and a description of such dividend or distribution or the action to be
taken at such meeting or by such consent, (B) the date on which any such
Liquidation Event, Extraordinary Transaction or public offering is expected to
become effective, and (C) the date on which the books of the Corporation shall
close or a record shall be taken with respect to any such event.
(b) WAIVER OF NOTICE. The holder or holders of not less than a
Two Thirds Interest of the outstanding shares of Convertible Preferred Stock
may, at any time upon written notice to the Corporation, waive any notice
provisions specified herein for the benefit of such holders, and any such waiver
shall be binding upon all holders of such securities.
(c) GENERAL. In the event that the Corporation provides any notice,
report or statement to any holder of Common Stock, the Corporation shall at the
same time provide a copy of any such notice, report or statement to each holder
of outstanding shares of Convertible Preferred Stock.
10. NO REISSUANCE OF CONVERTIBLE PREFERRED STOCK. No share or shares of
Convertible Preferred Stock acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Corporation shall
be authorized to issue.
11. CONTRACTUAL RIGHTS OF HOLDERS. The various provisions set forth
herein for the benefit of the holders of the Convertible Preferred Stock shall
be deemed contract rights enforceable by them, including without limitation, one
or more actions for specific performance.
12. NOTICES. Any notice required by any provision of this Section A to
be given to the holders of shares of Convertible Preferred Stock shall be deemed
given three (3) business days after being deposited in the United States mail,
postage pre-paid and registered or certified, and addressed to each holder of
record at such holder's address appearing on the stock records of the
Corporation.
B. SERIES C PREFERRED STOCK
SECTION 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series C Preferred Stock" and the number of shares constituting
such series shall be Five Hundred Thousand (500,000). Such number of shares may
be increased or decreased by resolution of the Board of Directors; provided,
that no decrease shall reduce the number of shares of Series C Preferred Stock
to a number less than that of the shares then outstanding.
SECTION 2. DIVIDENDS AND DISTRIBUTIONS.
A. The holders of shares of Series C Preferred Stock in preference to
the holders of Common Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series C Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (i) Four Dollars ($4.00) value or (ii) subject to the
<PAGE> 14
provision for adjustment hereinafter set forth, One Hundred (100) times the
aggregate per share amount of all cash dividends, and One Hundred (100) times
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series C Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a dividend in
shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series C
Preferred Stock were entitled immediately prior to such event under clause (ii)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event, and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
B. The Corporation shall declare a dividend or distribution on the
Series C Preferred Stock as provided in paragraph (a) of this section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of Four Dollars ($4.00)
per share on the Series C Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
C. Dividends shall begin to accrue and be cumulative on outstanding
shares of Series C Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series C Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series C Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series C Preferred Stock in
an amount not less than the total amount of such dividends at the time accrued
and payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series C Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than sixty (60) days prior to the
date fixed for the payment thereof.
SECTION 3. VOTING RIGHTS. The holders of Series C Preferred Stock shall
have the following voting rights:
A. Subject to the provision for adjustment hereinafter set forth, each
share of Series C Preferred Stock shall entitle the holder thereof to One
Hundred (100) votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time declare or pay
any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of shares of
Series C Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event, and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
B. Except as otherwise provided herein or by law, the holders of shares
of Series C Preferred Stock and the holders of shares of Common Stock shall vote
together as one (1) class on all matters submitted to a vote of stockholders of
the Corporation.
C. Except as set forth herein, holders of Series C Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
SECTION 4. CERTAIN RESTRICTIONS.
A. Whenever quarterly dividends or other dividends or distributions
payable on the Series C Preferred Stock as provided in section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions,
<PAGE> 15
whether or not declared, on shares of Series C Preferred Stock outstanding shall
have been paid in full, the corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series C Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series C Preferred Stock, except dividends paid ratably on the Series C
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled.
SECTION 5. REACQUIRED SHARES. Any shares of Series C Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein.
SECTION 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (i) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series C
Preferred Stock unless, prior thereto, the holders of shares of Series C
Preferred Stock shall have received the greater of (y) Sixteen Dollars ($16.00)
per share, plus an additional amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment, or
(z) an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to One Hundred (100) times the aggregate amount to
be distributed per share to holders of Common Stock, or (ii) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C Preferred Stock, except
distributions made ratably on the Series C Preferred Stock and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series C Preferred Stock were
entitled immediately prior to such event under the proviso in clause (i) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event, and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
SECTION 7. CONSOLIDATION. In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or other property, then in any such case the shares of Series C Preferred
Stock shall at the same time be similarly exchanged or changed in an amount per
share (subject to the provision for adjustment hereinafter set forth) equal to
One Hundred (100) times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for
which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise) into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series C Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
SECTION 8. AMENDMENT. The Restated Certificate of Incorporation shall
not be amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series C Preferred Stock, so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds (2/3) of the outstanding shares of Series C Preferred Stock, voting
together as a single series.
FIFTH: The corporation is to have perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or repeal
the by-laws of the corporation. In the event it is required or demanded that
<PAGE> 16
the stockholders of the corporation vote on any amendment or repeal of any
provisions of the bylaws, the affirmative vote of the holders of eighty percent
(80%) of the outstanding common stock of the corporation entitled to vote shall
be required in order to approve such amendment or repeal, except that such
eighty percent (80%) requirement shall not apply to any required or demanded
amendment or repeal if two-thirds (2/3) of the board of directors of the
corporation shall have approved such required or demanded amendment or repeal.
SEVENTH: The business and affairs of the corporation shall be managed
by the board of directors. The directors of the corporation shall be divided
into three classes as nearly equal in number as may be, with the term of office
of those of the first class to expire at the first annual meeting of the
stockholders of the corporation; of the second class, one year thereafter; and
of the third class, two years thereafter. At each annual meeting of stockholders
held after such classification and election, directors shall be chosen for a
full term, as the case may be, to succeed those whose terms expire. Each full
term shall be for a period of three years. Directors may be removed by the
holders of a majority of the shares entitled to vote at an election of directors
only for cause.
EIGHTH: A director or officer of the corporation shall not be
disqualified by his office from dealing or contracting with the corporation as a
vendor, purchaser, employee, agent, or otherwise. No transaction or contract or
act of the corporation shall be void or voidable or in any way affected or
invalidated by reason of the fact that any director or officer, or any firm of
which any director or officer is a member, or any corporation of which any
director or officer is a stockholder, director, or trustee, or any trust of
which any director or officer is a trustee or beneficiary, is in any way
interested in such transaction or contract or act. No director or officer shall
be accountable or responsible to the corporation for or in respect of any
transaction or contract or act of the corporation or for any gains or profits
directly or indirectly realized by him by reason of the fact that he or any firm
of which he is a member or any corporation of which he is a stockholder,
director, or trustee, or any trust of which he is a trustee or beneficiary, is
interested in said transaction, contract or act; provided the fact that such
director or officer or such firm or such corporation or such trust is so
interested shall have been disclosed or shall have been known to the board of
directors or such members thereof as shall be present at any meeting of the
board of directors at which action upon such contract or transaction or act
shall have been taken. Any director may be counted in determining the existence
of a quorum at any meeting of the board of directors which shall authorize or
take action in respect to any such contract or transaction or act, and may vote
thereat to authorize, ratify, or approve any such contract or transaction or
act, and any officer of the corporation may take any action within the scope of
his authority respecting such contract or transaction or act with like force and
effect as if he or any firm of which he is a member, or any corporation of which
he is a stockholder, director, or trustee, or any trust of which he is a trustee
or beneficiary, were not interested in such transaction or contract or act.
Without limiting or qualifying the foregoing, if in any judicial or other
inquiry, suit, cause, or proceeding, the question of whether a director or
officer of the corporation has acted in good faith is material, then
notwithstanding any statute or rule of law or of equity to the contrary (if any
there be), his good faith shall be presumed, in the absence of proof to the
contrary by clear and convincing evidence.
NINTH: A. The corporation may indemnify or agree to indemnify any
person who was or is a party or is threatened to be made a party, to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the corporation, by reason of the fact he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, or agent
of another corporation (including a subsidiary of this corporation), domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
B. The corporation may indemnify or agree to indemnify any person who
was or is a party, or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the corporation as a director, trustee, officer, employee, or
agent of another corporation (including a subsidiary of this corporation),
domestic or foreign, nonprofit or for profit, partnership, joint venture, trust,
or other enterprise against expenses, including attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the corporation, except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged
<PAGE> 17
to be liable to the corporation unless, and only to the extent that, the Court
of Chancery, or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the Court of Chancery or other such
court shall deem proper.
C. To the extent that a director, trustee, officer, employee, or agent
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in sections A. and B. of this Article, or in defense
of any claim, issue, or matter therein, he shall be indemnified against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection therewith.
D. Any indemnification under sections A. and B. of this Article, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
trustee, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in sections A. and B. of
this Article. Such determination shall be made (1) by a majority vote of a
quorum consisting of directors of the indemnifying corporation who were not and
are not parties to or threatened with any such action, suit, or proceeding, or
(2) if such a quorum is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by independent legal
counsel other than an attorney, or a firm having associated with it an attorney,
who has been retained by or who has performed services for the corporation or
any person to be indemnified within the past five (5) years, or (3) by the
stockholders, or (4) by the Court of Chancery or the court in which such action,
suit, or proceeding was brought. Any determination made by the disinterested
directors under section D.(1) or by independent legal counsel under section
D.(2) of this Article shall be promptly communicated to the person who
threatened or brought the action or suit by or in the right of the corporation
under section B. of this Article, and within ten (10) days after receipt of such
notification, such person shall have the right to petition the Court of Chancery
or the court in which such action or suit was brought to review the
reasonableness of such determination.
E. No director of the corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the corporation or its stockholders; (2) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law; (3) under Section 174 of the Delaware General Corporation Law;
or (4) for any transaction from which the director derived an improper personal
benefit.
F. Expenses, including attorneys' fees, incurred in any action, suit,
or proceeding referred to in sections A. and B. of this Article, may be paid by
the corporation in advance of the final disposition of such action, suit, or
proceedings upon receipt of a written undertaking by or on behalf of the
director, trustee, officer, employee, or agent to repay such amount, if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article. If a majority vote of a quorum of
disinterested directors so directs by resolution, said written undertaking need
not be submitted to the corporation. Such a determination that a written
undertaking need not be submitted to the corporation shall in no way affect the
entitlement of indemnification as authorized by this Article.
G. The indemnification and advancement of expenses provided in this
Article shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under the Restated
Certificate or the bylaws or any agreement, vote of stockholders or
disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
H. The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation,
or is or was serving at the request of the corporation as a director, trustee,
officer, employee, or agent of another corporation (including a subsidiary of
this corporation), domestic or foreign, nonprofit or for profit, partnership,
joint venture, trust, or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such whether or not the corporation would have the power to indemnify him
against such liability under this Article.
I. For purposes of this Article, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee, or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
<PAGE> 18
J. For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee, or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
Article.
K. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
TENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the corporation.
ELEVENTH: A. The affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding shares of the corporation entitled to
vote shall be required, except as otherwise expressly provided in this Article
Eleventh(A) or in Article Eleventh(B) in order for the corporation:
(i) to consolidate or merge with or into another
corporation;
(ii) to cause a combination or majority share
acquisition involving the issuance of shares
of the corporation; (ii) to sell, transfer,
exchange or otherwise dispose of all, or
substantially all, its assets; or
(iii) to dissolve;
to the extent such actions require stockholder approval.
The vote of stockholders specified in this Article Eleventh(A) shall
not apply to any action or transaction described in such paragraph if two-thirds
(2/3) of the Board of Directors of the corporation shall have approved the
action or transaction; in the event of a conflict between Article Eleventh(A)
and Article Eleventh(B), Article Eleventh(B) applies.
B. The provisions of this Article Eleventh(B) shall apply to all
"Business Combinations" (as hereafter defined).
1. The affirmative vote of the holders of not less eighty percent (80%)
of the outstanding shares of "Voting Stock" (as hereafter defined) of the
corporation and the affirmative vote of the holders of not less than sixty-seven
percent (67%) of the outstanding shares of Voting Stock held by stockholders
other than a "Related Person" (as hereafter defined) shall be required for the
approval or authorization of any Business Combination of the corporation with
any Related Person; provided, however, that the eighty percent (80%) and the
sixty-seven percent (67%) voting requirements shall not apply if either of the
following two exceptions are applicable:
a. The "Continuing Directors" of the corporation (as hereafter
defined) by a two-thirds (2/3) vote (i) have expressly approved in advance the
acquisition of outstanding shares of Voting Stock of the corporation that caused
the Related Person to become a Related Person; or (ii) have approved the
Business Combination prior to the Related Person involved in the Business
Combination having become a Related Person; or
b. The cash or fair market value of the property, securities or
other consideration to be received per share by stockholders of the corporation
in the Business Combination is not less than the highest per share price (with
appropriate adjustments for recapitalizations and for stock splits, stock
dividends and like distributions), paid by the Related Person in acquiring any
of its holdings in the corporation's Common Stock. For purposes of this Article
Eleventh(B), the term "other consideration to be received" shall include,
without limitation, the Common Stock of the corporation retained by its existing
stockholders in the event of any Business Combination in which the corporation
is the surviving corporation.
<PAGE> 19
2. For purposes of this Article Eleventh(B), the following terms shall
have the following definitions:
a. The term "Business Combination" shall mean (i) any merger or
consolidation of the corporation or a subsidiary with or into a Related Person,
(ii) any sale, lease, exchange, transfer or other disposition, including without
limitation a mortgage or any other security device, of all or any "Substantial
Part" (as hereafter defined) of the assets either of the corporation (including
without limitation any voting securities of a subsidiary) or of a subsidiary, to
a Related Person, (iii) any merger or consolidation of a Related Person with or
into the corporation or a subsidiary of the corporation, (iv) any sale, lease,
exchange, transfer or other disposition of all or any Substantial Part of the
assets of a Related Person to the corporation or a subsidiary of the
corporation, (v) the issuance of any securities of the corporation or a
subsidiary of the corporation to a Related Person, (vi) any recapitalization
that would have the effect of increasing the voting power of a Related Person,
and (vii) any agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Combination.
b. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"Affiliates" and "Associates" (as defined at Rule 12b-2 under the Securities
Exchange Act of 1934), "Beneficially Owns" (as defined at Rule 13d-3 under the
Securities Exchange Act of 1934) in the aggregate twenty percent (20%) or more
of the outstanding Voting Stock of the corporation, and any Affiliate or
Associate of any such individual, corporation, partnership or other person or
entity. Without limitation, any shares of Common Stock of the corporation that
any Related Person has the right to acquire pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise, shall be
deemed Beneficially Owned by the Related Person.
c. The term "Continuing Director" shall mean a director who was a
member of the board of directors of the corporation immediately prior to the
time that the Related Person involved in a Business Combination became a Related
Person.
d. The term "Substantial Part" shall mean more than thirty percent
(30%) of the fair market value of the total assets of the corporation, as of the
end of its most recent fiscal year ending prior to the time the determination is
being made.
e. The term "Voting Stock" shall mean all outstanding shares of
capital stock of the corporation or another corporation entitled to vote
generally in the election of directors and each reference to a proportion of
shares of Voting Stock shall refer to such proportion of the votes entitled to
be cast by such shares.
3. The provisions of this Article Eleventh(B) may not be repealed or
amended in any respect unless the action is approved by the affirmative vote of
the holders of not less than eighty percent (80%) of the outstanding shares of
Voting Stock of the corporation; provided, however, that if there is a Related
Person, such action must also be approved by the affirmative vote of holders of
not less than sixty-seven percent (67%) of the outstanding shares of Voting
Stock held by stockholders other than Related Persons. Further provided,
however, that this paragraph 3. shall not apply to, and such eighty percent
(80%) vote and sixty-seven percent (67%) vote shall not be required for any
amendment, repeal or adoption recommended by a majority of the board of
directors if all of such directors are Continuing Directors as defined in
paragraph 2(c) of this Article Eleventh(B).
TWELFTH: The corporation shall not purchase any shares of the
corporation's common voting stock from any stockholder or stockholders acting as
a group, who individually or collectively hold(s) five percent (5%) or more of
the corporation's outstanding common stock, not including any treasury stock
(individually or collectively referred to in this Article Twelfth as the 'Five
Percent Holder(s)') at a price higher than the then current fair market value of
the corporation's common voting stock, based on the average of the closing
prices of the preceding five (5) trading days, or on terms more favorable, when
considered as a whole, than those otherwise available, unless (a) the
corporation makes an offer to all of its other stockholders to purchase from
each stockholder the same percentage of that stockholder's common voting stock
in the corporation as the corporation intends to purchase from the Five Percent
Holder(s), at the same price and on the same terms as the Five Percent Holder(s)
will receive; or (b) the holders of a majority of the corporation's outstanding
common voting stock entitled to vote approve of the corporation's purchase of
its common voting stock from the Five Percent Holder(s), at the intended price
and upon the intended terms, with the Five Percent Holder(s) not voting on such
approval and the common voting stock in the corporation which is held by the
Five Percent Holder(s) not counted as outstanding in calculating the number of
votes required for approval.
THIRTEENTH: All actions which are required to be or may be taken by the
stockholders of the corporation shall be taken at a meeting of the stockholders,
duly held and upon proper notice, and may not be taken by written consent
without a meeting, and the power of stockholders to consent in writing to the
taking of any action is specifically denied.
<PAGE> 20
FOURTEENTH: A. The corporation reserves the right to amend, alter,
change or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation and subject to paragraph B.
B. The provisions set forth in this Restated Certificate may not be
repealed or amended in any respect, unless such action is approved by the
affirmative vote of the holders of not less than eighty percent (80%) of the
outstanding shares of the corporation entitled to vote, except that such eighty
percent (80%) requirement shall not apply if two-thirds (2/3) of the board of
directors of the corporation shall have approved such amendment or repeal.
FIFTEENTH: The corporation elects to be governed by the provisions of
Section 203 of the Delaware General Corporation Law; provided that this Article
Fifteenth shall not restrict a business combination between the corporation and
an interested stockholder of the corporation who became such prior to December
12, 1991, the date the Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Second Restated
Certificate of Incorporation to be signed and attested by its duly authorized
officers this 4th day of February, 2000.
METRETEK TECHNOLOGIES, INC.
By: /s/ W. Phillip Marcum
--------------------------------
W. Phillip Marcum, President and
Chief Executive Officer
ATTEST:
By: /s/ Gary J. Zuiderveen
-----------------------------
Gary J. Zuiderveen, Secretary
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Metretek Technologies, Inc. on Form S-3 of our report dated March 19, 1999,
appearing in the Annual Report on Form 10-KSB of Metretek Technologies, Inc. for
the year ended December 31, 1998 and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
February 4, 2000
