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Lawsuit Filed Against Retail Suppliers, Alleging Violation Of Acquisition Agreement

October 19,2017

A lawsuit has been filed in federal court against National Gas & Electric, LLC and Spark Energy, Inc. by Saul Horowitz, as the representative of former owners of the membership interest (the “Sellers”) in Major Energy Services, LLC, Major Energy Electric Services, LLC, and Respond Power, LLC

The lawsuit alleges that National Gas & Electric, LLC's operation of the Major companies after an acquisition violated terms of a Membership Interest Purchase Agreement and Earnout Agreement ("agreements"). Among other things, the suit alleges that the "drop down" of the Major companies by NGE to Spark was not authorized under the agreements

Spark Energy said in a statement to that: "We dispute these claims and intend to defend the matter vigorously. Major Energy’s employees and customers continue to benefit from the scale, expertise, and best practices that come with the Spark relationship."

The suit alleges that in or around April 2015, NGE acquired from the Sellers their 100% membership interest in Major Energy for $80 million -- $35 million of which was to be paid in the form of an Earnout and other installed payments over a few year period.

The suit alleges that, among other things, "NGE expressly agreed that it would operate Major Energy, in all material respects, consistently with how the Major Energy Senior Management Team operated Major Energy prior to the acquisition -- as a private company," and alleges that the drop-down to Spark, a public company, contravened this agreement.

The suit also alleges that, "NGE also contractually agreed in Section 11.7 of the MIPA that it would not engage in any direct or indirect assignment of the rights and obligation under the MIPA to a third party, including an affiliated entity, such as Spark, without the prior written consent and approval of the Sellers."

The suit is most notable for providing a glimpse at various M&A negotiations and operating and financial data for a private ESCO, such as Major Energy EBITDA and other information

The suit also alleges, "Sellers simply do not trust Spark’s accounting given some of Spark’s questionable accounting practices in other respects."

The suit alleges, "Indeed, the Sellers have uncovered several accounting issues that raise serious concerns regarding the credibility of Spark’s accounting practices in general, let alone with respect to Spark’s calculation of Major Energy’s adjusted EBITDA."

The suit alleges, "For example, for the second quarter of 2016, Spark has publicly reported margins of $4 per Dekatherm, which seems highly improbable. In fact, Major Energy has never reported margins close to that amount for a second quarter period, or even a third quarter period."

The suit alleges, "Moreover, Spark utilizes Retailco Services, LLC ('Retailco'), which is another [Keith] Maxwell wholly-owned entity, to provide several operational services to Spark and other affiliated entities owned by Maxwell. Upon information and belief, in order to offset costs to Spark and enable Spark to show less expenses and greater profitability, Maxwell personally subsidizes a significant portion of the services provided by Retailco to Spark. Moreover, upon information and belief, in or around June 2016, Spark customers did not get billed for certain services because of a technical glitch and, rather than incurring this loss on behalf of Spark, Maxwell charged the loss to Retailco, along with a penalty."

Civ. No. 17cv7742

See the suit below:

Litigation   Spark Energy   National Gas & Electric   Major Energy  

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