<PAGE>
As filed with the Securities and Exchange Commission on September 24, 1996
SEC Registration No.
U.S. SECURITIES AND EXCHANGE COMMISSION
FORM S-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
METEOR INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Colorado 5541 84-1236619
(State or Other Juris- (Primary Standard Industrial (IRS Employer Iden-
diction of Incorpora- Classification Code Number) tification Number)
tion)
216 Sixteenth Street, Suite 730, Denver, Colorado 80202
(303) 572-1135
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Edward J. Names, President
216 Sixteenth Street, Suite 730, Denver, Colorado 80202
(303) 572-1135
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jon D. Sawyer, Esq. William M. Prifti, Esq.
Jon D. Sawyer, P.C. Lynnfield Woods Office Park
1401 Seventeenth Street, Suite 460 220 Broadway, Suite 204
Denver, Colorado 80202 Lynnfield, Massachusetts 01940
(303) 295-2355 (617) 593-4525
_____________________________________________________________________________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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, check the following box. _X_
<TABLE>
_____________________________________________________________________________
CALCULATION OF REGISTRATION FEE
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM
CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF
SECURITIES TO TO BE PRICE PER OFFERING REGISTRA-
BE REGISTERED REGISTERED UNIT<FN1> PRICE TION FEE
<S> <C> <C> <C> <C>
Common Stock, 690,000<FN2> $4.625<FN3> $3,191,250 $1,100.43
$.001 Par Value Shares Per Share
Redeemable 690,000<FN4> $0.10 $ 69,000 $ 23.79
Warrants Warrants Per Warrant
<PAGE>
Common Stock, 690,000 $6.0125 $4,148,625 $1,430.56
$.001 Par Value Shares Per Share
<FN5>
Common Stock, 92,000 $4.625<FN3> $ 425,500 $ 146.72
$.001 Par Value Shares Per Share
<FN6>
Underwriter's -- -- $ 100 $ 0.03
Warrants<FN7>
Common Stock 60,000 $5.78125 $ 346,875 $ 119.61
$.001 Par Value Shares Per Share
<FN8>
Underwriter's 60,000 $0.125 $ 7,500 $ 2.59
Non-Callable Warrants Per Warrant
Warrants<FN8>
Common Stock 60,000 $6.0125 $ 365,500 $ 126.03
$.001 Par Value Shares Per Share
<FN9>
Total $8,554,350 $2,949.78
- -----------------------------------------------------------------------------
<FN>
<FN1>
Estimated solely for the purpose of calculating the registration fee.
<FN2>
Includes 90,000 Shares that may be purchased by Nutmeg Securities, Ltd. (the
"Underwriter"), in whole or in part, to cover overallotments, if any.
<FN3>
Estimated based on the average of the closing bid and ask quotations on the
OTC Bulletin Board on September 19, 1996.
<FN4>
Includes 90,000 Warrants that may be purchased by the Underwriter, in whole or
in part, to cover overallotments.
<FN5>
Issuable upon exercise of the Redeemable Warrants.
<FN6>
To be offered by Selling Shareholders.
<FN7>
To be issued to the Underwriter.
<FN8>
Issuable upon exercise of the Underwriter's Warrants.
<FN9>
Issuable upon exercise of Underwriter's Non-Callable Warrants.
</FN>
</TABLE>
Pursuant to Rule 416, there are also being registered such
additional
shares of Common Stock, $.001 par value, as may become issuable in accordance
with the anti-dilution provisions of the Underwriter's Warrants.
<PAGE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
METEOR INDUSTRIES, INC.
Cross-Reference Sheet pursuant to Item 501(b) of Regulation S-K between
Registration Statement (Form S-1) and Form of Prospectus.
Item Number and Caption Heading in Prospectus
1. Forepart of the Registration Outside Front Cover Page;
Statement and Outside Front Inside Front Cover Page
Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page;
Cover Pages of Prospectus Outside Back Cover Page
3. Summary Information, Risk Prospectus Summary; Risk
Factors and Ratio of Earnings Factors; The Company
to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Description of Securities;
Underwriting
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Outside Front Cover Page;
Underwriting
9. Description of the Securities to Description of Securities
be Registered
10. Interest of Named Experts and Legal Matters
Counsel
11. Information With Respect to
the Registrant:
(a) Description of Business The Company; Business
(b) Description of Properties Business -- Facilities
(c) Legal Proceedings Not Applicable
(d) Market Price; Dividends and Price Range of Common Stock;
Related Stockholder Matters Dividend Policy; Risk Factors;
Description of Securities
(e) Financial Statements Financial Statements
(f) Selected Financial Information Selected Financial Information
(g) Supplementary Financial Not Applicable
Information
<PAGE>
(h) Management's Discussion and Management's Discussion and
Analysis of Financial Condi- Analysis of Financial Condi-
tion and Results of Opera- tion and Results of Operations
tions
(i) Disagreements with Accountants Not Applicable
(j) Directors and Officers Management
(k) Executive Compensation Management
(l) Security Ownership Security Ownership of Management
and Principal Shareholders
(m) Certain Relationships and Management; Certain Transactions
Related Transactions
12. Disclosure of Commission Posi- Not Applicable
tion on Indemnification for
Securities Act Liabilities
<PAGE>
SUBJECT TO COMPLETION; DATED SEPTEMBER 24, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
METEOR INDUSTRIES, INC.
600,000 Shares of Common Stock and 600,000 Redeemable Warrants
92,000 Shares of Common Stock Offered by Selling Shareholders
Meteor Industries, Inc., a Colorado corporation (the "Company"), hereby
offers 600,000 shares of common stock, par value $.001 per share (the "Common
Stock"), and 600,000 redeemable common stock purchase warrants (the
"Redeemable Warrants"). The Common Stock and the Redeemable Warrants offered
hereby (sometimes hereinafter collectively referred to as the "Securities")
may be purchased in this offering only together on the basis of one share of
Common Stock and one Redeemable Warrant. Each Redeemable Warrant is
separately transferable immediately upon issuance. Each Redeemable Warrant
entitles the holder to purchase one share of Common Stock at a price of $___
per share (130% of the Common Stock Offering Price) commencing on the date of
this Prospectus until _______, 1998. The Redeemable Warrants are redeemable
by the Company at a redemption price of $.10 per Redeemable Warrant at any
time commencing 90 days from the date of this Prospectus on 30 days' prior
written notice, provided that the market price of the Common Stock equals or
exceeds $____ per share (150% of the Common Stock Offering Price) for 10
consecutive trading days ending within 20 days prior to the notice of
redemption. (See "DESCRIPTION OF SECURITIES.")
The Company's Common Stock currently trades on the OTC Bulletin Board
under the symbol "METE", and on September 19, 1996, the closing bid and ask
prices of the Common Stock were $4.25 and $5.00, respectively. (See "PRICE
RANGE OF COMMON STOCK.") The Company is applying for listing of the Common
Stock and Redeemable Warrants on the American Stock Exchange ("AMEX") under
the proposed symbols "_____" and "____", respectively. The final offering
price of the Shares will be determined by negotiations between the Company and
the Underwriter based upon the then current market price for the Common Stock,
the Company's financial condition, estimates of its business potential,
liquidity for the Common Stock, and general market conditions immediately
preceding the date of this Prospectus. (See "PRICE RANGE OF COMMON STOCK" and
"UNDERWRITING.")
Also included in the securities offered hereby are 92,000 shares of
Common Stock being offered by Selling Shareholders. None of the proceeds from
the sale of the Common Stock by the Selling Shareholders will be received by
the Company. (See "SELLING SHAREHOLDERS.")
__________________
THESE ARE SPECULATIVE SECURITIES. AN INVESTMENT IN THE SECURITIES
OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
___________________
1
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
___________________
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount<FN1> Company<FN2>
<S> <C> <C> <C>
Per Share . . . . . . . . . . . $ $ $
Per Warrant . . . . . . . . . . $0.10 $0.01 $0.09
Total<FN3>. . . . . . . . . . . $ $ $
<FN>
<FN1>
Does not include (i) a non-accountable expense allowance of 3% of the gross
proceeds from this offering amounting to $_______ ($_____ if the Over-allot-
ment Option is exercised in full) to the Underwriter, of which $15,000
has been paid as of the date of this Prospectus, and (ii) the sale to the
Underwriter by the Company of a warrant (the "Underwriter's Warrants") to
purchase 60,000 shares of Common Stock at $____ per share and 60,000 Non-
Callable Warrants to purchase 60,000 shares of Common Stock at an exercise
price of $______ at any time after twelve months from the date hereof and for
a period of four years thereafter. The Company has also agreed to indemnify
the Underwriter against certain liabilities, including liabilities arising
under the Securities Act of 1933. (See "UNDERWRITING.")
<FN2>
Before deducting expenses payable by the Company estimated at $214,000,
including the non-accountable expense allowance referred to in footnote 1.
<FN3>
The Company has granted to the Underwriter a 45-day option to purchase up to
90,000 additional Shares and/or 90,000 additional Redeemable Warrants on the
same terms and conditions as set forth above solely to cover over-allotments,
if any. If the over-allotment option is exercised in full, the total Price to
the Public, Underwriting Discount and Proceeds to the Company will be
$_______, $________ and $________, respectively.
</FN>
</TABLE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE AND, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
___________________
2
<PAGE>
The Securities are being offered on a "firm commitment" basis subject to
receipt and acceptance by the Underwriter, the approval of certain legal
matters by its counsel and prior sale. The Underwriter reserves the right to
withdraw, cancel or modify the offering and to reject any order in whole or in
part. It is expected that delivery of the certificates representing the
Securities will be made on or about three business days from the date of this
Prospectus, at the office of Nutmeg Securities, Ltd., in Westport,
Connecticut.
NUTMEG SECURITIES, LTD.
495 Post Road East
Westport, Connecticut 06880
The date of this Prospectus is _________, 1996.
3
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the securities offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the securities offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. However, all material elements of such contracts and
documents are disclosed in this Prospectus. A copy of the Registration
Statement may be inspected without charge at the Commission's principal
offices in Washington, D.C., and copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by
the Commission.
The Company is subject to the reporting requirements of Section 13(a)
and to the proxy requirements of Section 14 of the Securities Exchange Act of
1934, as amended, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities at the Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, New York, New York 10048,
and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such documents can be obtained at
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Electronic filings made through
the Electronic Data Gathering, Analysis and Retrieval system are publicly
available through the Commission's web site (http.//www.sec.gov).
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
Meteor Industries, Inc. ("Meteor" or "Company") was incorporated on
December 22, 1992, as a Colorado based holding company. Graves Oil & Butane
Co., Inc. ("Graves"), which was acquired effective September 1, 1993, is
engaged in the marketing and distribution of refined petroleum and related
products primarily in northern New Mexico, Colorado, Arizona and Utah. Graves
operates seven retail sites in northern New Mexico and Colorado. Hillger Oil
Company ("Hillger"), which was acquired effective April 1, 1995, is engaged in
the marketing and distribution of refined petroleum and related products
primarily in southern New Mexico and Arizona. Hillger operates eight
convenience stores in southern New Mexico.
In November 1995, the Company acquired all of the outstanding stock of
Capco Resources, Inc. ("CRI"), in exchange for shares of the Company's Common
Stock which represent approximately 53% of the shares now outstanding. CRI is
a holding company involved in the development of a power project in Pakistan.
The acquisition of CRI was accounted for as a reverse acquisition with CRI
treated as the acquirer. Capco Analytical Services, Inc. ("CAS"), a wholly-
owned subsidiary of CRI, is involved in providing environmental consulting
and laboratory analysis.
Approximately 98% of the Company's gross revenues are presently derived
from the Graves and Hillger subsidiaries.
The proceeds of this offering will be used to reduce accounts payable,
purchase equipment and inventory, the repayment of debt, and the acquisition
of petroleum marketing businesses.
THE OFFERING
<TABLE>
<S> <C>
Securities offered 600,000 Shares of Common Stock
600,000 Redeemable Warrants
Shares of Common Stock
Outstanding:
Prior to the offering<FN1> 3,294,903 Shares
After the offering<FN1><FN2> 3,894,903 Shares
Trading Symbol - OTC Bulletin
Board METE
Proposed AMEX Trading Symbols:
Common Stock _____
Redeemable Warrants _____
__________________
<FN>
5
Does not include (i) 17,000 shares of Common Stock issuable upon the exercise
of outstanding warrants to purchase Common Stock; (ii) up to 864,668 shares of
Common Stock of the Company issuable upon the exchange of Preferred Stock of a
subsidiary; (iii) 500,000 shares of Common Stock reserved for issuance
pursuant to stock options which may be granted under the Company's stock
option plan of which options to purchase 432,800 shares of Common Stock are
currently outstanding; or (iv) 100,000 shares of Common Stock issuable upon
the exercise of an option held by a consultant. (See "MANAGEMENT" and
"DESCRIPTION OF SECURITIES.")
<FN2>
Does not give effect to an aggregate of 900,000 shares of Common Stock
issuable upon exercise of: (i) the Redeemable Warrants; (ii) the over-
allotment option; (iii) the Underwriter's Warrants; and (iv) the Redeemable
Warrants subject to the over-allotment option. (See"UNDERWRITING.")
</FN>
</TABLE>
RISK FACTORS: The purchase of these securities involves a high degree
of risk. Prospective investors should review carefully and consider the
factors described under "RISK FACTORS."
USE OF PROCEEDS: The proceeds from the offering will be used to reduce
accounts payable, the repayment of debt, to purchase equipment and inventory,
and the acquisition of petroleum marketing businesses. (See "USE OF
PROCEEDS.")
SUMMARY FINANCIAL DATA: Effective November 2, 1995, Meteor Industries,
Inc., acquired 100% of the issued and outstanding common stock of Capco
Resources Inc. ("CRI") in exchange for 1,745,000 shares of Meteor common
stock. The acquisition was treated as a reverse acquisition of Meteor by CRI.
Accordingly, the results of operations of CRI are included in the following
financial information since inception of CRI. The results of operations of
Meteor are included in the following financial information since November 2,
1995, the effective date of the acquisition. The following table sets forth
certain selected financial data with respect to the Company and is qualified
in its entirety by reference to the financial statements and notes thereto
included in this Prospectus.
BALANCE SHEET DATA: (In Thousands)
At
June 30 At December 31
1996 1995 1994 1993
Current Assets $ 7,893 $ 6,660 $ 126 $-0-
Property and Equipment 8,816 8,568 250 -0-
Other Assets 3,671 3,273 164 -0-
Discontinued Operations -- -- 572 660
Total Assets 20,380 18,501 1,112 660
Current Liabilities 7,337 6,873 403 -0-
Long-term Debt 2,505 2,195 -0- -0-
Deferred Tax Liability 1,813 1,894 -0- -0-
Minority Interest 3,901 3,615 -0- -0-
Stockholders' Equity 4,824 3,924 709 660
6
<PAGE>
STATEMENT OF OPERATIONS DATA:
<TABLE>
(In Thousands, Except Per Share Data)
<CAPTION>
For the Six Months For the From
Ended June 30, Years Ended Inception
to
1996 1995 1995 December 31, December
31
(Proforma) 1995 1994 1993
1992
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 29,379 $ 434 $ 29,016 $ 9,828 $ 473 $ -0- $
- -0-
Cost of Sales 24,260 -0- 24,152 7,373 -0- -0-
- -0-
Operating
Expenses 4,432 497 5,216 2,395 602 2
- -0-
Other Income
(Expense) (32) -0- 138 (71) -0- -0-
- -0-
Income (Loss)
From Continu-
ing Operations 208 (63) (357) (74) (129) (2)
- -0-
Income from Dis-
continued
Operations -0- 233 -0- 1,289 179 690
765
Net Income 208 170 (357) 1,215 49 688
765
Net Income Per
Common Share $ 0.07 $ 0.10 $ (.20)$ 2.49 $489.95 $6,883.42
$7,652.20
Weighted Average
Shares
Outstanding 3,069,903 1,745,000 1,745,000 489,035 100 100
100
Cash Dividends $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $
- -0-
<FN>
<FN1>
The pro forma operations for the six months ended June 30, 1995 combines
the operations of Meteor for the six months ended May 31, 1995, the operations
of Hillger for the three months ended March 31, 1995, and the operations of
CRI and CAS for the six months ended June 30, 1995.
</FN>
</TABLE>
7
<PAGE>
RISK FACTORS
The securities offered hereby represent a speculative investment and
involve a high degree of risk of a loss of part or all of the investment.
Therefore, prospective investors should read this entire Prospectus and
carefully consider the following risk factors in addition to the other
information set forth elsewhere in this Prospectus prior to making an
investment.
1. SUBSTANTIAL DEBT SERVICE. The structure of Meteor's acquisitions
of Graves and Hillger have resulted in substantial debt service obligations to
be funded by operations. Because of the nature of these leveraged buyouts and
because of the Company's continued expansion and development plans, the
Company's liquidity requirements have increased and are expected to continue
to increase as a result of the need to reduce the Company's existing debt and
to finance capital expenditures and increased inventory requirements. In order
to pay its debt obligations, the interest on such obligations and other
expenses, the Company must generate cash flows from operations which exceed
that which were achieved in the past. In addition, even if previous cash flows
are exceeded throughout the terms of its obligations, the Company most likely
will be required to raise capital, refinance its existing debt or sell assets
in order to pay its obligations as they become due.
2. RISKS RELATED TO SABA POWER COMPANY LTD. The Company's investment
in Saba Power Company Ltd. is subject to a number of risks, including the
following:
FUNDING OF COMPANY'S INVESTMENTS. The Company is dependent on the
prepayment of a portion of long-term promissory note by either Saba Petroleum
Company or Capco Resources Ltd. to fund some of its investment in the project.
To the extent that it does not invest sufficient funds, the Company's
percentage interest will be reduced substantially. As a result, investors can
be given no assurances as to the final amount of the Company's interest in
this project.
DEPENDENCE ON OBTAINING SUBSTANTIAL DEBT FINANCING. The
construction of the power plant project will be dependent on the funding of
more than $100 million in construction debt from various sources. The Company
believes that such funds will be available from known sources, commitments
have been made but funding has not actually been secured.
CURRENCY CONVERTIBILITY. Despite the fact that the Government of
Pakistan will undertake to contractually commit to the convertibility of
Rupees in foreign exchange, this commitment entails a certain level of credit
risk in the event that the country suffers shortfall in availability of
foreign currency. However, despite some difficult economic times, to the best
of the Company's knowledge the Government of Pakistan has never defaulted on
or rescheduled any of its debts, foreign or local.
POLITICAL RISK. In the last 40 years, Pakistan has fought two wars
with India. In addition, in the early 1970's the Government of Pakistan
nationalized various industries, many of which were returned to the original
owners a few years later. There is an element of political risk involved in
investing in Pakistan, not unlike most other third world countries. The
Concession Agreements provide that if
8
<PAGE>
the government were to nationalize the project, or take over the plant after
termination of any of the base contracts, in all cases it must pay off at
least the outstanding debt amount, and in most cases certain discounted
amounts to the equity investors. Of course, this commitment is ultimately a
credit risk of the Government of Pakistan.
3. RELIANCE ON KEY EMPLOYEES. The Company is wholly dependent on the
personal efforts and abilities of its Officers and key employees. The loss of
or unavailability to the Company of the services of one or more of its key
employees would have a materially adverse effect on the Company's business
prospects and/or potential earning capacity. In particular, the Company's
President, Edward J. Names, who has an employment contract, is instrumental
for the overall planning and management of the Company, its financing and its
growth. There can be no assurance, if the services of any of these individuals
were unavailable to the Company, that the Company would be able to employ a
qualified replacement person or persons on terms suitable to the Company. The
Company presently does not maintain key person life insurance on any of its
key employees but has agreed to obtain a policy on the life of Edward J. Names
in the amount of $1,500,000 upon completion of this offering.
4. FRANCHISE AGREEMENTS. The Company's petroleum marketing is
dependent on franchise agreements with major producers of petroleum products.
The Company's existing contracts with Phillips Petroleum Company, Conoco,
Inc., Diamond Shamrock, Texaco, Inc., Fina Oil Company and Sun Oil Company
have been in place for many years, but each of these contracts is terminable
at the supplier's discretion on short notice. The loss of the Phillips 66 and
Conoco contracts in particular could have a material adverse effect on the
Company's revenues and profits.
5. COMPETITION. The Company's convenience store and gasoline
distribution businesses are highly competitive. The Company competes with
businesses similar in size to itself, with major oil companies with far
greater resources than it possesses, and also with weaker firms who cut prices
and engage in other efforts to remain in business. This competition, from time
to time, adversely impacts operations and earnings. The Company operates 15
convenience stores or retail outlets without convenience stores in connection
with its retail gasoline operations and leases one store to an independent
operator. The convenience store business has been extremely competitive
resulting in bankruptcies and reorganizations for a number of companies in the
industry.
6. NARROW MARGINS FOR REFINED PETROLEUM PRODUCTS AND MARKET SHARE
CONFLICTS. The distribution of refined petroleum products by the Company is
extremely competitive, with narrow margins, requiring constant, careful
attention, supervision and controls. Management has limited control over the
competitive pricing of petroleum products. Foreign producers and refiners of
petroleum products from time to time may affect materially the available
supply of petroleum products, which could affect pricing and margins. Also,
major oil companies, concerned with maintaining or increasing their respective
market shares, sometimes depress prices and margins to attain or sustain
product volume. These practices from time to time impact the earnings and
operations of independent distributors such as the Company.
7. POTENTIAL ACCIDENTS. The Company owns and operates gasoline
storage tanks, a fleet of 34 tank trucks, and wholesale and retail outlets for
refined petroleum products. The presence of flammable and combustible products
at these
9
<PAGE>
facilities provides the potential for fires and explosions which could destroy
both property and human life. These products, almost all liquids, also have
the potential to impose environmental damage if released. The Company has
general liability coverage and a commercial umbrella liability policy with
total coverage limits of $5 million as well as other insurance covering damage
to its properties. While management believes the Company's insurance coverage
is adequate for most foreseeable problems, and is comparable with the coverage
of other companies in the same business and of similar size, its coverage does
not necessarily protect the Company for ultimate liability for any damage to
the environment, especially if such environmental damage is caused by leaking
lines or tanks. Such environmental related coverage generally is unavailable
or available a prohibitive cost. See the heading "Environmental Risks" below.
8. CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS. Management and
principal shareholders will beneficially own 71.4% of the outstanding common
stock after this offering. Effective control of the Company will remain in
the hands of such persons.
9. LIMITED DIRECTOR LIABILITY. The liability of a Director to the
Company or any Shareholder for monetary damages for breach of his fiduciary
duties as a Director is limited by the Company's Articles of Incorporation
with certain exceptions. In addition, the Company will provide Officers and
Directors the maximum indemnification allowable from time to time under
Colorado law. These provisions limit the Company's and its Shareholders'
ability to obtain damages or other relief from its Officers and Directors in
the event of claimed wrongdoing.
10. GENERIC PREFERRED STOCK AUTHORIZED. The Company's Articles of
Incorporation authorize the issuance of up to 10,000,000 shares of Preferred
Stock, the terms, preferences, rights and restrictions of which may be
established by its Board of Directors. Other companies on occasion have issued
series of such preferred stock with terms, rights, preferences and
restrictions that could be considered to discourage other persons from
attempting to acquire control of such companies and thereby insulate incumbent
management. It is possible the Company could issue shares of its Preferred
Stock for such a purpose. In certain circumstances, the existence of corporate
devices which would inhibit or discourage takeover attempts could have a
depressive effect on the market value of the stock of a company. The Board of
Directors has no current plans to issue any shares of Preferred Stock.
11. NO DIVIDENDS. The Company has paid no dividends on its Common
Stock since incorporation. The Company does not anticipate paying dividends on
its Common Stock in the foreseeable future and intends to devote any earnings
to the development of the Company's business.
12. CONFLICTS OF INTEREST. Certain conflicts of interest may exist
between the Company and its officers and directors. Each of such individuals
has other business interests to which they devote their attention, and they
are expected to continue to do so. As a result, conflicts of interest may
arise that can be resolved only through their exercise of such judgment as is
consistent with their fiduciary duties to the Company. No officer or director
owes a fiduciary duty to another entity regarding business opportunities
related to lines of business similar to that of the Company.
10
<PAGE>
13. ENVIRONMENTAL RISKS. The Company's operations, which include
distribution and jobbing of refined petroleum products (collectively the above
operations are referred to as "Regulated Environmental Activities") are
subject to a variety of federal, state and local laws, rules and regulations
governing the storage, translation, manufacture, use, discharge, release and
disposal of products and contaminants into the environment or otherwise
relating to the protection of the environment. The Company's Regulated
Environmental Activities, by their very nature, give rise to the potential for
substantial environmental risks including:
RISK OF RELEASE OF PETROLEUM AND RELATED PRODUCTS AND WASTES. The
accidental or unintended release or discharge of petroleum and related
products and wastes which result from normal activities at tank farms and
service stations and during the transportation or manufacture of such products
and wastes, or the release or discharge of such products or waste in excess of
permitted levels, may occur despite the operational controls and procedures
established by the Company. Releases or discharge of such petroleum and
related products and associated wastes, could contaminate the environment.
Such releases or discharges may give rise to potential liability under the
environmental laws, rules and regulations of the United States, individual
states, and local jurisdictions relating to contamination or threat of
contamination of air, soil, groundwater and surface waters. Such liability
could expose the Company to fines or other penalties, both civil and criminal,
and could result in the Company being required to institute extensive cleanup
and remediation activities.
RISK OF VIOLATION OF ENVIRONMENTAL REGULATIONS. The Company is
subject to numerous environmental laws, rules and regulations covering its
Regulated Environmental Activities. The Company's failure to comply with any
applicable environmental regulation, whether or not intentional, can give rise
to fines, penalties and sanctions, including criminal charges against
employees and management, and may under certain circumstances require the
closure of such non-complying facilities.
RISK OF FUTURE ENVIRONMENTAL REGULATIONS. The environmental laws,
rules and regulations which cover the Company's Regulated Environmental
Activities continue to evolve. Stricter environmental regulations and controls
or modified environmental regulations and controls could impose added costs on
the operation of the Company, or cause the manufacture, storage,
transportation or sale of some of the Company's products to become either
unprofitable or illegal.
RISK TO THE ENVIRONMENTAL HEALTH AND SAFETY OF PERSONS. Exposure
of the Company's employees or the public to certain petroleum and related
products or waste could result in damage to human health and safety, and give
rise to liability to the Company, thereby impacting the economic value of the
Company.
RISKS RELATING TO ENVIRONMENTAL REIMBURSEMENT PROCEDURES. Certain
of the Company's Regulated Environmental Activities, such as leaking petroleum
storage tank remediation, give rise to a potential for reimbursement of all or
a portion of the amounts expended from applicable governmental reimbursement
programs. Such reimbursement programs are subject to changes in applicable
statutes or the interpretation of the law, which could alter the timing or
availability of reimbursement funds to the Company and its customers.
11
<PAGE>
14. OUTSTANDING OPTIONS AND WARRANTS. Currently, the Company has
outstanding options and warrants to purchase up to 549,800 shares of Common
Stock at prices ranging from $1.00 to $5.25 per share, and may grant options
to purchase 67,200 additional shares under its stock option plan.
Additionally, the Company has agreed to sell to the Underwriter and its
designees Underwriter's Warrants to purchase up to 60,000 shares of Common
Stock and 60,000 Non-Callable Warrants exercisable during the four year period
commencing one year from the date of this Prospectus at $_____ per share of
Common Stock and $____ per Non-Callable Warrant, subject to adjustment. The
Underwriter will have certain registration rights with respect to the
Underwriter's Warrants and the shares of Common Stock underlying such
warrants.
For the term of such options and warrants, the holders thereof will have
an opportunity to profit from the rise in the market price of the Company's
Common Stock without assuming the risks of ownership. This may have an
adverse effect on the terms upon which the Company could obtain additional
capital. Furthermore, it might be expected that the holders of such options
and warrants would exercise them at a time when the Company would be able to
obtain equity capital on terms more favorable than those provided for by the
options and warrants. (See "MANAGEMENT," "DESCRIPTION OF SECURITIES" and
"UNDERWRITING.")
15. PREFERRED STOCK OF SUBSIDIARY. Graves Oil & Butane Co., Inc., a
subsidiary of the Company has outstanding shares of preferred stock. held by
Theron J. Graves, which currently may be exchanged for shares of the Company's
Common Stock at the current bid price or up to 22.2% of the shares of the
Company's Common Stock outstanding after such exchange, whichever yields fewer
shares. As a result, after this offering Mr. Graves will have the right to
acquire a maximum of 864,668 shares of the Company's Common Stock assuming
that no options or warrants are exercised. Mr. Graves would have certain
piggy-back registration rights with respect to any shares which he receives
upon exchange. As a result, Mr. Graves has the right to acquire a substantial
number of shares of the Company's Common Stock in the future, and the resale
of such shares could adversely affect the market for the Company's Common
Stock. (See "SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS" and
"DESCRIPTION OF SECURITIES.")
16. COMMON STOCK ELIGIBLE FOR RESALE. Of the 3,294,903 shares of
Common Stock presently outstanding, approximately 2,862,463 shares are
"restricted securities" and under certain circumstances may be sold in
compliance with Rule 144 adopted under the Securities Act of 1933, as amended.
Of such shares, approximately 438,300 shares are presently eligible for resale
under Rule 144. The Company has obtained the agreement of its Officers,
Directors and record shareholders who own 5% or more of the Company's
outstanding common stock to not sell, publicly transfer or assign more than
25,000 of the 2,510,472 shares of Common Stock currently owned by them for a
period of one year from the date of this Prospectus without the prior written
consent of the Underwriter. The Company has agreed to register 270,000 shares
of restricted Common Stock for resale by the holders thereof, and the Company
intends to file such registration statement within three to nine months after
the date of this Prospectus. (See "DESCRIPTION OF SECURITIES -- Shares
Eligible for Future Sale.") Future sales of such shares will in all
likelihood depress the market price of the Company's Common Stock.
17. POSSIBLE VOLATILITY OF PRICE OF SHARES. The price of shares of
publicly-traded corporations tend to fluctuate over a wide range. It can be
12
<PAGE>
expected, therefore, that there may be wide fluctuations in the market price
for the Common Stock. There is no assurance that an active market will
develop in the Common Stock. The lack of a current market for the Common
Stock and fluctuations in trading interest and changes in the Company's
operating results, financial condition and prospects could have a significant
impact on the market price for the Common Stock.
13
<PAGE>
THE COMPANY
Meteor Industries, Inc. ("Meteor" or the "Company") was incorporated in
Colorado on December 22, 1992, to purchase all the outstanding common stock of
Graves Oil & Butane Co., Inc. ("Graves"). The two companies and Graves' then
sole shareholder ("Seller") entered into a Purchase Agreement on June 23, 1993
and finalized the purchase on September 28, 1993. The purchase price for the
common stock was $4,100,000. The Seller also retained preferred stock in
Graves with a redemption value of $3,543,500 plus accrued dividends to be
redeemed subsequent to September 15, 2000, if not earlier converted into
common stock.
In January 1994, the Company completed an initial public offering of
200,000 shares of its Common Stock pursuant to Regulation A under the
Securities Act of 1933. The net proceeds of this offering to the Company was
approximately $800,000 and were used for purchase of equipment and property,
as well as for debt service and working capital purposes.
On June 12, 1995, Meteor purchased all of the outstanding shares of
Hillger Oil Company ("Hillger") headquartered in Las Cruces, New Mexico.
Hillger operates eight convenience stores and supplies 23 branded dealers in
New Mexico. Graves operates seven retail sites and supplies 44 branded
dealers. In connection with the acquisition of Hillger, Meteor sold 365,000
shares of its common stock for $730,000 in cash and borrowed $875,000 from
Norwest Business Credit, Inc. Meteor is implementing plans for further
expansion in New Mexico. Through a joint venture, Meteor intends to build a
new convenience store in the Albuquerque, New Mexico metropolitan area.
In June 1995, the Company declared an 8% stock dividend to the
shareholders of record as of June 30, 1995.
In October 1995, the Company formed Pyramid Stores, Inc. ("Pyramid"), a
Colorado corporation, as a wholly owned subsidiary to hold the stock of Graves
and Hillger and operate those companies separately from the Company's other
activities. Pyramid's personnel will focus their efforts and Pyramid's
resources on the distribution and marketing of fuel and related products.
In November 1995, the Company issued 1,745,000 shares of its Common
Stock in exchange for all of the outstanding stock of Capco Resources, Inc.
("CRI"), a Delaware corporation. The shares of the Company's Common Stock
issued in this transaction, which represent approximately 53% of the shares
now outstanding, were issued to a U.S. subsidiary of Capco Resources Ltd.
("Capco"), an Alberta corporation, which is listed on the Alberta Stock
Exchange. As a result of this transaction, there was a change in control of
the Company and one of the Company's three directors was replaced by a Capco
representative, Ilyas Chaudhary. Accordingly, the transaction has been
considered a reverse acquisition for accounting purposes and the assets of
Meteor, including the assets of Graves and Hillger have been revalued to their
fair value at the date of the transaction. The major assets of CRI include:
(i) an interest in Saba Power Company Ltd., which is involved in the
development of a power plant in Pakistan; (ii) all of the stock of Capco
Analytical Services, Inc., a California environmental services firm; and (iii)
a $1,516,000 promissory note from Saba Petroleum Company and other
miscellaneous assets.
14
<PAGE>
CRI personnel intend to focus their efforts on the financing of Saba
Power Company Ltd. and to pursue other international power projects. However,
CRI has no full-time employees or capital resources to devote to such efforts,
and as a result such efforts will be limited to CRI's management looking for
potential opportunities and presenting the opportunity to potential partners
to co-develop.
In June 1996, the Company completed a private offering of a total of
270,000 shares of Common Stock for an aggregate of $704,000 in net proceeds.
The Company's headquarters are located at 216 Sixteenth Street, Suite
730, Denver, Colorado 80202, and its telephone number is (303) 572-1135.
15
<PAGE>
PRICE RANGE OF COMMON STOCK
The principal market for trading the Company's Common Stock has been the
over-the-counter market. Prices for the Common Stock are quoted on the OTC
Bulletin Board.
The range of high and low bid quotations for the Company's Common Stock
since public trading began in January 1994 provided below were obtained from
the National Quotation Bureau. The stock is principally owned or controlled
by Officers and Directors of the Company, and the bid prices reported may not
be indicative of the value of the Common Stock. The volume of trading in the
Company's Common Stock has been very limited. These over-the-counter market
quotations reflect inter-dealer prices without retail markup, markdown or
commissions and may not necessarily represent actual transactions.
Bid*
Period High Low
Quarter Ended February 28, 1994. . . . $4.63 $4.17
Quarter Ended May 31, 1994 . . . . . . $4.17 $3.70
Quarter Ended August 31, 1994. . . . . $4.17 $2.78
Quarter Ended November 30, 1994. . . . $4.63 $2.78
Quarter Ended February 28, 1995. . . . $4.63 $3.94
Quarter Ended May 31, 1995 . . . . . . $4.63 $3.47
Quarter Ended August 31, 1995. . . . . $4.28 $2.50
Month Ended September 30, 1995 . . . $3.00 $2.50
Quarter Ended December 31, 1995. . . . $3.25 $2.00
Quarter Ended March 31, 1996 . . . . . $3.75 $2.00
Quarter Ended June 30, 1996. . . . . . $4.25 $1.75
__________________
* As restated to give retroactive affect to a stock dividend of 8% which
was paid to shareholders of record as of June 30, 1995.
As of August 28, 1996, there were approximately 65 record holders of the
Company's Common Stock. Based on securities position listings, the Company
believes that there are approximately 100 beneficial holders of the Company's
Common Stock.
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock and has no
present intention of paying cash dividends in the foreseeable future. In June
1995, the Company declared an 8% stock dividend on its outstanding Common
Stock. It is the present policy of the Board of Directors to retain all
earnings to provide for the growth of the Company. Payment of cash dividends
in the future will depend, among other things, upon the Company's future
earnings, requirements for capital improvements and financial condition. In
addition, the Company's Graves subsidiary is restricted from paying dividends
to the Company which in turn would restrict the Company's ability to pay
dividends.
The Company's ability to pay any cash dividends on the Company's Common
Stock in the future will be limited by the dividend requirements of the
Preferred Stock of a Subsidiary.
16
<PAGE>
SELECTED FINANCIAL INFORMATION
Effective November 2, 1995, Meteor Industries, Inc., acquired 100% of
the issued and outstanding common stock of Capco Resources Inc. ("CRI") in
exchange for 1,745,000 shares of Meteor common stock. The acquisition was
treated as a reverse acquisition of Meteor by CRI. Accordingly, the results
of operations of CRI are included in the following financial information since
inception of CRI. The results of operations of Meteor are included in the
following financial information since November 2, 1995, the effective date of
the acquisition.
BALANCE SHEET DATA:
(In Thousands)
At
June 30 At December 31
1996 1995 1994 1993
Current Assets $ 7,893 $ 6,660 $ 126 $-0-
Property and Equipment 8,816 8,568 250 -0-
Other Assets 3,671 3,273 164 -0-
Discontinued Operations -- -- 572 660
Total Assets 20,380 18,501 1,112 660
Current Liabilities 7,337 6,873 403 -0-
Long-term Debt 2,505 2,195 -0- -0-
Deferred Tax Liability 1,813 1,894 -0- -0-
Minority Interest 3,901 3,615 -0- -0-
Stockholders' Equity 4,824 3,924 709 660
STATEMENT OF OPERATIONS DATA:
<TABLE>
(In Thousands, Except Per Share Data)
<CAPTION>
For the Six Months For the From
Ended June 30, Years Ended Inception
to
1996 1995 1995 December 31, December
31
(Proforma) 1995 1994 1993
1992
<S> <C> <C> <C> <C> <C> <C> <C>
Sales $ 29,379 $ 434 $ 29,016 $ 9,828 $ 473 $ -0- $
- -0-
Cost of Sales 24,260 -0- 24,152 7,373 -0- -0-
- -0-
Operating
Expenses 4,432 497 5,216 2,395 602 2
- -0-
Other Income
(Expense) (32) -0- 138 (71) -0- -0-
- -0-
Income (Loss)
From Continu-
ing Operations 208 (63) (357) (74) (129) (2)
- -0-
Income from Dis-
continued
Operations -0- 233 -0- 1,289 179 690
765
Net Income 208 170 (357) 1,215 49 688
765
Net Income Per
Common Share $ 0.07 $ 0.10 $ (.20)$ 2.49 $489.95 $6,883.42
$7,652.20
17
<PAGE>
Weighted Average
Shares
Outstanding 3,069,903 1,745,000 1,745,000 489,035 100 100
100
Cash Dividends $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $
- -0-
<FN>
<FN1>
The pro forma operations for the six months ended June 30, 1995 combines
the operations of Meteor for the six months ended May 31, 1995, the operations
of Hillger for the three months ended March 31, 1995, and the operations of
CRI and CAS for the six months ended June 30, 1995.
</FN>
</TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The accompanying pro forma consolidated statement of operations for the
year ended December 31, 1995, combines the consolidated post-acquisition
operations of Meteor for the year ended December 31, 1995 (which includes the
operations of Meteor beginning November 2, 1995, and the operations of CRI for
the entire year), the operations of Hillger Oil Company ("Hillger") for the
three months ended March 31, 1995, and the pre-acquisition operations of
Meteor for the ten months ended October 31, 1995. Hillger's results of
operations for the seven months ended October, 1995, are included in the
operations of Meteor, as Meteor closed this acquisition effective April 1,
1995.
The pro forma consolidated statements of operations are presented as if
all acquisitions had occurred at the beginning of the period presented and are
presented for continuing operations only.
The pro forma consolidated statement of operations is not necessarily
indicative of future operations or the actual results that would have occurred
had the acquisition been consummated at the beginning of the period presented.
The pro forma consolidated statement of operations should be read in
conjunction with the historical financial statements and notes thereto of
Meteor, included elsewhere in this document.
The pro forma net income per share is computed by dividing the pro forma
net income by the pro forma number of shares outstanding during the period.
Entries to reflect pro forma adjustments for the 12 month period:
Debit Credit
(a) Rent Expense 129,300 299,900
Deferred Compensation 642,800
Entry to record reduction of Hillger's 1995 rent expense from the
historical amount of $397,400 to the negotiated future amount of $215,500 and
to eliminate Hillger's deferred compensation of $642,800 as it was paid to the
prior owner as part of the purchase agreement and will not be a recurring
event.
(b) Depreciation Expense 95,000
Provision for Income Taxes 143,000
18
<PAGE>
Entry to reflect additional depreciation related to the step up in
property and equipment and reflect income taxes on a consolidated basis.
METEOR INDUSTRIES, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Meteor
(As Succes- Meteor
sor to CRI) Hillger 10-Months Pro Forma Meteor
Year Ended 1/1/95 to ended Debit Pro Forma
12/31/95 3/31/95 10/31/95 (Credit) 12 month
<S> <C> <C> <C> <C> <C>
REVENUES
Sales $9,828,092 $5,523,734 $42,369,502
$57,721,328
Cost of Sales 7,373,304 4,297,464 36,139,781
47,810,549
Gross Profit 2,454,788 1,226,270 6,229,721
9,910,779
EXPENSES
Selling, General &
Administrative 2,243,612 1,989,424 5,475,532 (813,400)
8,895,168
Depreciation/
Amortization 151,709 24,540 545,879 95,000
817,128
Total Expenses 2,395,321 2,013,964 6,021,411 (718,400)
9,712,296
Income from operations 59,467 (787,694) 208,310 718,400
198,483
Other income and
(expenses)
Interest income 28,047 5,337 182,007
215,391
Interest expense (91,621) (20,955) (454,961)
(567,537)
Gain on sale of assets (7,460) 137,352 17,393
147,285
Other income 0 0 159,075
159,075
Total other income (71,034) 121,734 (96,486)
(45,786)
Income(loss) before taxes
and minority interest (11,567) (655,960) 111,824 718,400
152,697
Provision for
income tax (1,470) 0 (84,762) 143,000
56,768
Income(loss) before
minority interest (10,097) (665,960) 196,586 575,400
95,929
Minority interest 63,544 317,720
381,264
Income (loss)
from continuing
operations $ (73,641) $ (665,960) $ (121,134)$575,400 $
(285,335)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR METEOR INDUSTRIES, INC.
This Prospectus contains forward-looking statements within the meaning
of the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995. Such statements are based on management's current expectations
and are subject to a number of factors and uncertainties which could cause
actual results to differ materially from those described in the
forward-looking statements.
Effective November 2, 1995, Meteor acquired CRI. The acquisition was
treated as a reverse acquisition of Meteor by CRI. Accordingly, the
historical accounts of CRI are reflected in the financial statements, so
comparisons with prior year are not very meaningful.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $575,000 for the six
months ended June 30, 1996 compared to a use of funds of $12,000 for the six
months ended June 30, 1995. The increase in cash provided is primarily
related to increases in net income and accounts payable.
As of June 30, 1996, the Company had working capital of $556,000
compared to a working capital deficit of $214,000 at December 31, 1995. The
increase in the working capital is due primarily to sale of stock yielding net
proceeds of $692,000.
Net cash used by investing activities totaled $835,000 for the six
months ended June 30, 1996, compared to a use of $3,000 for the six months
ended June 30, 1995. The increase is for property, equipment purchases and
investments in 1996.
Because of the Company's continued expansion and development efforts,
the Company's liquidity requirements have increased and are expected to
continue to increase as a result of the need to reduce the Company's existing
debt related to prior acquisitions.
Net cash provided by financing activities totaled $870,000 for the six
months ended June 30, 1996 compared to a use of $0 for the six months ended
June 30, 1995. The provision is primarily related to sale of stock and
borrowings related to property purchases.
The Company has two revolving bank credit facilities with Norwest
Business Credit, Inc. - one for $3,000,000 and one for $1,500,000. The credit
lines are subject to the borrowing base of the Company's subsidiaries, as
defined and on June 30, 1996, $1,901,000 and $132,000 were borrowed against
the facilities which are recorded as current liabilities. The Company has
been in default on timely filing of information with the lender. Rather than
change the due dates of various reports, the lender has waived this
requirement in the past and has indicated they will probably continue to waive
it in the future whenever the Company might be late in filing such
information. The Company has filed such information in a timely manner during
the past several months, but because of very short time requirements the
Company may not be able to file timely in the future.
The Company has a term loan with a New Mexico bank which is due in
January, 1998 and a term loan with Norwest Business Credit, Inc. which is due
in June, 1998.
20
<PAGE>
The balances at June 30, 1996, were $312,000 and $291,000, respectively. The
loans are collateralized by real estate and buildings and equipment and
require approximately $29,000 per month in payments.
The Company owns 50% of a limited liability company which in June, 1996,
acquired a convenience store for $610,000 using financing from Phillips 66 for
$523,000. The Company is a co-signer on this loan which has a term of 10
years.
A subsidiary of the Company has preferred stock outstanding which
requires no periodic payments but accrues an 8% dividend and must be redeemed
for $3,543,500 plus accrued dividends at the holders request any time after
September 15, 2000 unless earlier converted into common stock pursuant to its
terms. This preferred stock is treated as a minority interest on the balance
sheet and recorded at its discounted value.
The Company owes the founder of one of its subsidiaries $1,868,000
payable in semi-annual installments of $200,000 which includes principal and
interest calculated at 2 percentage points in excess of Citibank's prime rate.
All previously unpaid principal and interest is due October 1, 1997. It is
anticipated that $435,000 will be offset by payments on notes receivable from
the founder also due October 1, 1997.
The Company is obligated to pay lease costs of approximately $61,000
monthly for land, building, facilities, and equipment.
In order to pay its obligations, the interest on such obligations and
other expenses, the Company must generate cash flows from operations which
exceeds that which has been achieved in the past. In addition, even if
historical cash flow is exceeded throughout the terms of its obligations, the
Company will probably be required to raise capital or refinance its existing
debt in order to pay its obligations as they become due.
The Company utilizes underground tanks at various locations to store
petroleum products and is therefore subject to various federal and state
statutes concerning environmental protection, as well as the New Mexico Ground
Water Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
The state of New Mexico has recognized the potential cleanup costs
resulting from regulations, and the New Mexico Ground Water Protection Act has
included the establishment of a corrective action fund. The purpose of the
fund is to provide monetary assistance in both assessing site damage and
correcting the damage where such costs are in excess of $10,000. Assistance
is not available to repair or replace underground tanks or equipment. The law
specifies requirements which must have been met for an applicant to be
eligible, including a provision that payments will be made in accordance with
regulations (which have not yet been issued), and states that payment from the
corrective action fund are limited to amounts in that fund. The Company is
responsible for any contamination of land it owns or leases; however, the
Company's responsibilities may be limited as a result of possible claims for
reimbursement from third parties.
21
<PAGE>
The Company maintains detailed inventory records and performs tank and
line tightness tests on a regular basis on all underground storage tanks.
Management has assessed the environmental contingencies and does not
anticipate any potential liabilities that will have a material adverse effect
on the consolidated financial position, results of operation, or liquidity of
the Company.
The Pakistan Power Project will not provide any significant cash flow to
the Company for approximately three to four years. In August 1996, CRI
negotiated an amendment to the Project Development and Shareholder's
Agreement. This agreement allows CRI to make approximately a $1,700,000 equity
investment in the Saba Power project in exchange for approximately an 8%
interest in Saba Power. In addition, CRI will have an option (the "Project
Option") to increase its interest in Saba Power by an additional 9.93% for 750
days. If the Company chooses to fully exercise such Project Option, it will
have to invest approximately $4,400,000 plus "interest" accruing at 14% per
annum during the period in which the Project Option remains unexercised. CRI
can take advantage of this Project Option to a lesser degree by making a
proportionately smaller equity investment.
On August 1, 1996, CRI entered into an agreement with Saba Petroleum
Company ("Saba") whereby Saba, a related party, is participating with CRI in
the power project. Saba has agreed to invest $500,000 in the Project for a
2.3% interest. Saba has no interest in the Project Option. As a result of
the above described agreements CRI will invest approximately $1,200,000 for a
5.7% interest in Saba Power and CRI has retained its option to increase its
interest up to approximately 15.6%. As of the date of this Prospectus, CRI
has invested approximately $546,000 and Saba has invested $250,000 in the
power project.
Meteor is providing CRI with the necessary funds for its share of the
Saba Power equity commitment from the proceeds of a private placement of
Meteor's Common Stock completed in June 1996 and expects the partial
collection ($500,000) of its note receivable from Saba Petroleum Company. CRI
has a commitment outstanding for $75,000 as a finders fee to an unaffiliated
party and relating to the project, of which one half is expected to be
reimbursed by one of the other shareholders of Saba Power.
On July 14, 1996, the Government of Pakistan gave notice to Saba Power
that Saba Power was in default of certain provisions in the Implementation
Agreement which required construction of the power project to start by July 3,
1996. The Implementation Agreement and the notice states that Saba Power has
90 days from the date of the notice to cure such default.
In early August 1996, Saba Power and the shareholders thereof completed
the final negotiations with the project's construction lender. On August 20,
1996, the Engineering Procurement and Construction Contractor for Saba Power
was released to commence construction activities on the project. When certain
consents are obtained from the Government of Pakistan, which consents relate
to the construction loan documents, the default would then be cured. It is
anticipated what such consents will be obtained by approximately late
September 1996, well before the end of the 90 day period provided in the
notice of default.
22
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 TO JUNE 30, 1995
The Company is primarily engaged in the business of marketing and
distributing refined petroleum and related products employing wholesale,
convenience store operations and environmental services.
The following table sets forth, for the six month period ended June 30,
1996 and 1995 certain items of the Company's Consolidated Statements of
Operations.
Percentage of Sales
1996 1995 1995
(Pro Forma)
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 82.6% --% 83.2%
Gross Profit 17.4% 100.0% 16.8%
Selling, General &
Administrative Expenses 13.6% 111.0% 16.6%
Depreciation Expense 1.5% 3.5% 1.4%
Other Income and Expenses (.1)% --% .5%
Income Taxes (Benefit) .9% --% (.2)%
Minority Interest .6% --% .7%
Income (loss) from
continuing operations .7% (14.5)% (1.2)%
The pro forma operations for the six months ended June 30, 1995 combines
the operations of Meteor for the six months ended May 31, 1995, the operations
of Hillger for the three months ended March 31, 1995, and the operations of
CRI and CAS for the six months ended June 30, 1995.
The Company's sales for the six months ended June 30, 1996, were
$29,379,000 compared to $434,000 for the comparable period ending June 30,
1995 and $29,016,000 on a pro forma basis. The increase in revenues is due to
increases in gasoline volumes and prices at the retail level. Sales are
expected to be relatively constant throughout the remainder of the year.
The Company's cost of sales for the six months ended June 30, 1996, were
$24,260,000 compared to $0 for the comparable period ended June 30, 1995, and
$24,152,000 on a pro forma basis. The increase in costs of sales on a pro
forma basis is due to an increase in sales as discussed above.
The Company's gross profit for the six months ended June 30, 1996, was
$5,118,000 compared to $434,000 for the comparable period ended June 30, 1995
and $4,864,000 on a pro forma basis. The increase is primarily related to
higher sales and increased margins for gasoline at the retail level. Retail
gasoline margins are dictated by competition in a given area and the Company
has no control over such margins.
The Company's selling, general and administrative expenses were
$3,999,000 for the six months ended June 30, 1996, compared to $482,000 for
the comparable period ended June 30, 1995 and $4,816,000 on a pro forma basis.
The reduction in expenses
23
<PAGE>
on a pro forma basis is related to combining the operations of Hillger and
Graves and realizing the benefits of overhead reduction and reduction of
certain operating costs.
The Company's depreciation for the six months ended June 30, 1996, was
$434,000 compared to $15,000 for the comparable period ended June 30, 1995 and
$400,000 on a pro forma basis. The increase in depreciation expense is due
primarily to acquisition of equipment.
The Company's other income for the six months ended June 30, 1996 was
$(32,000) compared to $0 for the comparable period ended June 30, 1995 and
$138,000 on a pro forma basis. The reasons for the decrease on a pro forma
basis are primarily related to an increase in interest income of $43,000
related to the notes receivable, a reduction in interest expense of $32,000
due to a reduction in long term debt, and a decrease of $245,000 due to fewer
sales of assets this quarter.
The Company's provision for income taxes for the six months ended June
30, 1996, was $255,000 compared to $0 for the comparable period ended June 30,
1995.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994
The following table sets forth, for the years ended December 31, 1995
and 1994 certain items of the Company's Consolidated Statements of
Operations.
<TABLE>
<CAPTION>
Percentage of Sales
1995 1994
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 75.0% --%
Gross Profit 25.0% 100.0%
Total Expenses 24.4% 127.3%
Other Income and (expenses) 0.7% --%
Minority Interest 0.6% --%
Net Income (loss) from continuing
operations (0.7)% (27.3)%
_______________
<FN>
<FN1>
The Company's sales for the year ended December 31, 1995, were $9,828,000
compared to $473,000 for the comparable period ending December 31, 1994. The
increase in revenue is due to an increase in sales due to acquisition of
Meteor of $8,868,000 and an increase of $487,000 at CAS. The increase in
revenues at CAS is due to additional lab analysis which trend is expected to
continue.
</FN>
</TABLE>
The Company's cost of sales for the year ended December 31, 1995, were
$7,373,000 compared to $0 for the comparable period ended December 31, 1994.
The increase in costs of sales is due to the acquisition of CRI by Meteor.
24
<PAGE>
The Company's gross profit for the year ended December 31, 1995, was
$2,455,000 compared to $473,000 for the comparable period ended December 31,
1994. The increase is related to the acquisition of CRI by Meteor.
The Company's selling, general and administrative expenses were
$2,395,000 for the year ended December 31, 1995 compared to $602,000 for the
year ended December 31, 1994. The increase in expenses of $1,388,000 is
related to the acquisition of CRI by Meteor and an increase at CAS of $405,000
due to increased activity at the laboratory.
The Company's other expenses for the year ended December 31, 1995 were
$71,000 compared to $0 for the comparable period December 31, 1994. The
reasons for the increase is due to the acquisition of CRI by Meteor.
The Company's loss from continuing operations for the year ended
December 31, 1995, was $74,000 compared to a loss from continuing operations
of $129,000 in the prior year due to the above described items.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 COMPARED TO 1993
Since CRI had no revenues from continuing operations in 1993, there are
no comparative numbers.
CRI's revenues from continuing operations for 1994 were $472,000 and
expenses were $602,000. The loss is due to starting laboratory analysis work
in 1994.
DISCONTINUED OPERATIONS
CRI had been involved in the production of oil and gas prior to the
transaction with the Company. Those operations were discontinued and will
have no impact on future operations. CRI had these operations in
subsidiaries.
On September 15, 1995, CRI sold the shares of Saba de Colombia, Inc., a
U.S. subsidiary engaged in the exploration and development of petroleum and
natural gas in Colombia, to a third party for consideration of $2,601,719, and
realized a gain net of taxes on the sale of the shares of $890,189.
(Subsequent to September 15, 1995, an additional $317,456 in expenses, net of
taxes, was incurred which reduced the gain from $1,426,395 as reported in the
December 31, 1994, financial statement footnotes for CRI.) In addition, as
discussed in Note 17 to the Meteor December 31, 1995, financial statements,
the Company did not recognize any gain associated with the $350,000 in escrow
which net of tax is $218,750. The consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible,
redeemable first preferred shares
of Petrosandtander Inc. bearing
Dividends at 8.5% 200,000
$2,601,719
25
<PAGE>
Cash of $150,000 and the preferred shares remain in escrow pending
review by Colombian taxing authorities. This subsidiary was sold by CRI in
order to make another investment.
On December 1, 1995, CRI transferred to CAPCO Acquisub, Inc., a wholly-
owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba
Petroleum Company and certain other assets and liabilities. This transaction
was recorded at book value. The net assets transferred had a book value of
approximately $181,361. (Subsequent to December 31, 1995, additional
liabilities and adjustments to asset values were made which reduced the book
value of the net assets from the $1,220,000 value reported in the December 31,
1994, financial statement footnotes for CRI.) These assets were transferred
so that the Company would not be involved in oil and gas production.
The income from discontinued operations was $398,789 and the gain on
disposition, net of taxes was $890,189 for the year ended December 31, 1995.
26
<PAGE>
USE OF PROCEEDS
The estimated net proceeds from the sale of the 600,000 Shares of Common
Stock and 600,000 Redeemable Warrants offered hereby will be approximately
$2,540,000 after deducting underwriting discounts and expenses of the
offering based on an assumed offering price of $5.00 per share and $.10 per
Warrant. Such proceeds will be applied substantially as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPLICATION OF PROCEEDS DOLLAR AMOUNT
<S> <C>
Payment of Accounts Payable $ 200,000
Repayment of Debt<FN1> 500,000
Purchase of Equipment and Inventory 300,000
Acquisition of Petroleum Marketing
Businesses<FN2> 1,540,000
----------
Total $2,540,000
__________________
<FN>
<FN1>
Such amounts will be used to either pay down amounts outstanding under one of
the Company's lines of credit from Norwest Business Credit, Inc., or a
promissory note held by Theron J. Graves. The line of credit bears interest
at the prime rate plus 2.0%, is collateralized by trade accounts receivable
and inventory of the Company's Graves subsidiary, and is due in June 1998. As
of June 30, 1996, $1,901,000 was outstanding under this line of credit. The
promissory note to Mr. Graves bears interest at 2% over the prime rate and is
secured by 50% of the Graves common stock held by the Company. The Company is
required to make payments of $200,000 every six months until October 1, 1997,
when it is due in full. As of June 30, 1996, $1,868,000 was outstanding under
this promissory note.
<FN2>
In the event that the Company does not use all of the amounts allocated for
the acquisition of petroleum marketing businesses within 12 months of the date
of this Prospectus, the Company intends to use such unused funds to acquire an
additional interest in Saba Power Company Ltd. (See "BUSINESS -- Saba Power
Company Ltd.")
</FN>
</TABLE>
It is expected that the net proceeds from this offering will satisfy the
cash requirements of the Company for a period of approximately 12 months, and
that during that period it will not be necessary for the Company to raise
additional funds, except for further expansion of business opportunities not
yet defined.
Any additional proceeds received upon the exercise of the Over-allotment
Option, the Redeemable Warrants and the Underwriter's Warrants to be sold to
the Underwriter will be used for general corporate purposes.
Pending utilization of the proceeds of this offering, the Company may
invest such net proceeds in short-term government securities in a
nondiscretional account of the Company.
27
<PAGE>
BUSINESS
GENERAL
Meteor Industries, Inc. ("Meteor" or the "Company"), through its wholly-
owned subsidiaries, is engaged in the marketing and distribution of refined
petroleum and related products and provides environmental services. In
addition, through its Capco Resources, Inc. ("CRI") subsidiary, the Company
has an interest in Saba Power Company Ltd., which is in the process of co-
developing a power project in Pakistan, and owns Capco Analytical Services,
Inc., which provides environmental consulting and laboratory analysis
services.
PETROLEUM MARKETING BUSINESS AND OPERATIONS
The Company operates its petroleum marketing and convenience store
business primarily from its Farmington and Las Cruces, New Mexico
headquarters. The Company operates this business through two New Mexico
subsidiaries, Hillger Oil Company and Graves Oil & Butane Co., Inc. The
Company also has operations in Albuquerque, New Mexico.
The Company's commercial sales comprise the largest part of the
Company's revenues. This operation has fuel delivery contracts with customers
that include truck stops, retail gasoline service stations, convenience
stores, construction companies, commercial fleet distribution centers, the
federal government, coal mining companies, and power plants in both New Mexico
and Arizona.
The Company has "distribution agreements" with Phillips Petroleum
Company, Sun Oil Company, Conoco, Inc., Texaco, Inc., Diamond Shamrock and
Fina Oil Company. These distribution agreements allow the Company to purchase
petroleum products at wholesale prices directly from pipeline terminals and
refiners controlled by these large oil producers. The Company is then
authorized to resell those products to its customers.
The distribution agreements have three-year terms and the Company has
two years remaining on its agreement with Phillips 66 and three years with
Conoco, Inc. The distribution agreements do not provide for an exclusive
territory and can be terminated by either party upon 30 days notice. There
can be no assurance that these agreements will not have to be renegotiated or
that they will be renewed. Although the Company, through its subsidiaries, is
one of the largest and longest standing distributors of Conoco and Phillips
products in New Mexico, it is possible it could lose such contracts. In such
an event, the Company's operations may be adversely impacted. Management would
attempt to persuade the retail outlets the Company supplies to switch to
another major oil company brand with which it has a contract. The Company
could also buy and sell fuel as an unbranded independent, however, sales
volumes would most likely decrease significantly if the Company did not have
access to branded products.
Many of the Company's customers operate retail gasoline service stations
under the banners of the various oil companies. The banner arrangements
require that a retail operator purchase fuel exclusively from a distributor or
"jobber" who is authorized to sell branded products. On occasion the Company
has supplied new signage and other improvements to retailers so they would
switch to a Company brand. The Company's suppliers may subsidize such
improvements by providing discounts to
28
<PAGE>
the Company or by forgiving certain obligations based on the volume of product
sold to such retailer.
The Company also markets its products to commercial and governmental
accounts. The marketing department consists of twelve people. The marketing
department is primarily responsible for the direct selling efforts of the
Company and for ensuring that customers accounts are properly serviced. The
majority of sales are repeat telephone orders from existing customers. The
Company also advertises in trade journals and attends industry trade shows in
its market.
The distribution process is straightforward. The distribution channel
begins with the loading of the Company's trucks at pipeline terminals or
refineries. When delivered in transport quantities, the trucks deliver the
inventory directly to the customer with no intermediate storage of fuel other
than trucks en route to a customer. The distribution process for bulk fuel
products, from pick-up to delivery to customers, is typically complete in two
days or less.
Most of the Company's customers in the three major regional markets,
Farmington, Albuquerque, and Las Cruces, have been with the Company for many
years. No customer accounts for more than 10% of the Company's sales,
however, the loss of one or more major customers could have a significant
impact on the Company's revenues.
The Company has an ownership or leasehold interest in 16 retail outlets
which include service stations, convenience stores and lube pits. The retail
outlets sell gasoline, propane and other petroleum products directly to the
general public. The services provided are those that would generally be
expected to be provided at this type of facility. The retail outlets also
sells food and tobacco products as a convenience to its customers. Other than
at the convenience stores, non-petroleum products sales are not a material
part of retail revenues. The Company's highest volume convenience stores are
located in the Las Cruces and Albuquerque areas. The Company intends to
expand its convenience store base by acquisition and new construction in its
areas of operation.
The Company has four automated cardlock facilities. The cardlock
systems provide 24-hour-per-day access to fuel dispensing facilities for
commercial fleet customers and customers with automated debit cards. The
cardlock systems do not require that a Company employee to be present to
process the fuel purchase. The cardlock facilities are primarily used by
commercial fleet operators in order to take advantage of automated transaction
process technology which allows a user to insert a "user card" activating the
fuel dispenser and records the transaction. The Company's strategy
contemplates increasing the number of cardlock facilities that the Company
owns or controls.
The Company also has a propane and alternative fuels operations. In
November 1993, Graves reentered the residential propane and alternative fuels
business in Farmington, New Mexico. Graves' management and employees have
significant experience in the propane industry and the Company had a
substantial amount of propane equipment that was underutilized. A significant
percentage of the homes and commercial buildings in the Farmington area do not
have access to natural gas lines and must rely on propane for heating.
Management of the Company believes that the residential propane market
provides a significant opportunity for growth. As of the date of this
prospectus, Graves has approximately 500 residential propane customers
29
<PAGE>
and continues to actively market this product and service. Recently, Graves
became a 33% owner of a residential propane company in Albuquerque, New
Mexico. Management of Graves is actively seeking other propane opportunities
in Southern Colorado and New Mexico.
SABA POWER COMPANY LTD.
Saba Power Company Ltd. ("Saba Power") is a limited liability
corporation in Pakistan which was established in early 1995 to pursue
development of a power plant project in Pakistan. The Government of Pakistan
recognized all of the owners of Saba Power when it accepted the financing
documents to which CRI is a party. CRI has an interst in Saba Power, which
has a power plant project 40 miles from Lahore, Pakistan. Its venture partner
is Cogen Technologies of Houston, Texas ("Cogen"). Estimated costs for the
115 megawatt plant are approximately $144,000,000. The project received a
Letter of Support dated September 18, 1994, and an acknowledgment of financial
closing on April 3, 1996, from the Ministry of Water & Power of the Government
of Pakistan. All documentation relating to the project's permanent debt
financing was approved in May of 1996 and all documentation relating to the
construction financing is expected to be signed in September of 1996. Limited
activities related to the construction of the project were commenced in late
August of 1996. Construction of the project is expected to be completed in
late 1998 or early 1999. However, these dates are tentative and subject to
various potential events beyond the control of the venture partners.
The Pakistan power project will not provide any significant cash flow to
the Company for approximately three to four years and the Company's cash flow
from the project will be limited to its percentage ownership in Saba Power.
The economic growth in Pakistan combined with the constraints on the
public sector budget has led to a significant shortfall in the electric power
supply in Pakistan. The current total installed capacity of the country is
approximately 10,800 megawatts ("MW") for a population of 135 million people.
With electricity being available to only 40% of the population, and the annual
demand growing at 8% to 10% per year, the situation represents a high degree
of additional suppressed demand. Approximately 35% of existing power
generation in the public sector is based on hydro-electric power which varies
significantly over the year. At peak times in the dry season which lasts for
4-5 months, the shortfall reaches as much as 2,500 MW. In recognition of this
situation, the Government of Pakistan embarked on a program to solicit private
investment in the electric sector approximately 7 years ago. Over the years,
successive governments have strengthened the private power policy in many
ways. In early 1994, the present government codified all these developments
and issued a new Policy Framework for Private Power which brought significant
response from investors and developers around the world. The Government of
Pakistan then issued approvals to a limited number of projects including the
Saba Power project.
Saba Power has executed an agreement to sell all capacity and energy
from the project under a 30 year power purchase agreement to the Pakistan
Water and Power Development Authority. A fuel supply agreement has been
executed with the Pakistan State Oil Company and an implementation agreement
has been executed with the Government of Pakistan.
30
<PAGE>
The facility is being developed by Cogen, a privately held independent
power developer based in Houston. Cogen is the largest privately held power
generation company in the United States with approximately 1,500 MW of net
electric generation capacity under ownership from six operating plants and
over 3,000 MW of new projects in development in the United States, Latin
America and Asia. It is also among the 10 largest non-utility electric
generators worldwide.
Construction operations and maintenance of the facility has been
contracted for through internationally recognized contractors. Such
activities will be overseen by Cogen. The plant will use a conventional oil
burning steam generator and is designed to meet environmental emissions
criteria in accordance with World Bank standards.
The project is currently located approximately 3 miles before the town
of Farouqabad just off the Sheikhupura - Sargodha road, which is a local
highway branching off the main north-south national highway in the province of
Punjab. This site is approximately 40 miles west of the city of Lahore and
approximately 7 miles west of the city of Sheikhupura. The site is bounded by
the rail tracks on the north, a drainage channel on the east, a 132 kilovolt
transmission line on the south and partially cultivated farmland on the east.
The site lies in an area which has ground water at shallow depths.
The capitalization of Saba Power has been structured to include
approximately $43 million equity funding and the balance of approximately $101
million will be raised as non-recourse project finance debt. The total
$144,000,000 cost of the project incudes development costs and various
reserves.
In June of 1995, CRI entered into a Project Development and Share-
holders Agreement (the "Project Agreement") with Cogen and the two other
participants in this project. The Project Agreement called for CRI to
assign to Saba Power all of its interest in the Letter of Support, obtained
from the Government of Pakistan. It also defines the relationship between
the participants concerning management duties and equity requirements.
Cogen, as the largest shareholder of Saba Power has agreed to carry on the
day-to-day operations and will have control of the Board of Directors.
Cogen has the primary responsibility for design, engineering, hiring of
consultants, selection of equipment, award of contracts, project financing,
permitting, contracting and overseeing of construction and operations. A
third party operator has been hired for actual operations and maintenance of
the power plant. Pursuant to this contract, budgets have been developed and
approved by all parties.
Notwithstanding the fact that Cogen controls the Saba Power Board of
Directors, approval by all parties to the above Project Agreement is required
to: 1) change the equity of the participants; 2) expand the business of Saba
Power to activities other than related to the project; 3)merge or consolidate
Saba Power with another company; 4) sell all or a substantial portion of Saba
Power's assets; 5) file bankruptcy; 6) determine the terms of a public
offering of Saba Power's stock; and 7) change the approved construction
budget. In addition, the parties have agreed that CRI will not sell its
interest in Saba Power unless it gives Cogen the prior right to purchase on
the same terms and conditions.
Pursuant to the original Project Agreement with Cogen and the other
shareholders of Saba Power, CRI was to make a $9,050,000 equity investment in
order
31
<PAGE>
to fund a 25% interest in the project, and the other shareholders were to make
a $27,150,000 equity investment for a 75% interest. The rest of the financing
required to construct the power plant project was to be financed by Saba Power
with limited recourse bank debt.
In August 1996, CRI negotiated an amendment to the Project Development
and Shareholder's Agreement. This agreement allows CRI to make approximately a
$1,700,000 equity investment in the Pakistan power project in exchange for
approximately an 8% interest in Saba Power. Cogen and the other shareholders
in Saba Power will fund the remaining 92% equity commitment. In addition, CRI
will have an option with Cogen (the "Project Option") to increase its
interest in Saba Power by an additional 9.93% for 750 days. If the Company
chooses to fully exercise such Project Option, it will have to invest
approximately $4,400,000 plus "interest" accruing at 14% per annum during the
period in which the option remains unexercised. CRI can take advantage of this
Project Option to a lesser degree by making a proportionately smaller equity
investment. If total project costs are more than $144,000,000, CRI has the
option to maintain its percentage ownership of Saba Power by investing its
proportionate share or to reduce its ownership percentage proportionately by
not investing additional funds. The Company may use a portion of the proceeds
of this offering to make an additional investment under the Project Option.
(See "USE OF PROCEEDS.")
In August 1996, CRI entered into an agreement with Saba Petroleum
Company ("Saba") whereby Saba, a related party, is participating with CRI in
the Pakistan power project. Saba has agreed to invest $500,000 for a 2.3%
interest in Saba Power. Saba has no interest in the Project Option. As a
result of the above described agreements CRI will invest approximately
$1,200,000 for a 5.7% interest in Saba Power and CRI has retained its Project
Option to increase its interest up to approximately 15.6%.
As of the date of this Prospectus, CRI had invested approximately
$546,000 and Cogen and the other shareholders of Saba Power have invested
approximately $6,000,000. Meteor will provide the necessary funds for the
remainder of CRI's 5.7% equity commitment from cash on hand and expects the
partial collection ($500,000) on its note receivable from Saba Petroleum
Company. CRI has a commitment outstanding for $75,000 as a finders fee to an
unaffiliated party due upon completion of the project of which one half is to
be reimbursed by one of the other shareholders of Saba Power.
On July 14, 1996, the Government of Pakistan gave notice to Saba Power
that Saba Power was in default of certain provisions in the Implementation
Agreement which required construction of the power project to start by July 3,
1996. The Implementation Agreement and the notice states that Saba Power has
90 days from the date of the notice to cure such default.
In early August 1996, Saba Power and the shareholders thereof completed
the final negotiations with the project's construction lenders. The
construction lenders are the Export-Import Bank of the United States; The
Sanwa Bank, Limited as Eurocurrency Facility Agreement and as a lender; ABN
Amro Bank N.V., Singapore Branch, as Inter-Creditor Agreement and as a lender;
and ABN Amro North America, Inc., as agent for ABN Amro Bank N.V., Chicago
Branch, as Eximbank facility agent. On August 20, 1996, the Engineering
Procurement and Construction Contractor for Saba Power was released to
commence construction activities on the project. When certain
32
<PAGE>
consents are obtained from the Government of Pakistan, which consents relate
to the construction loan documents, the default would then be cured. It is
anticipated what such consents will be obtained by approximately late
September 1996, well before the end of the 90 day period provided in the
notice of default.
Assuming: 1) the power plant is built to specifications; and 2) the
plant has the ability to produce the expected output of electricity, the
Government of Pakistan has agreed to pay for a certain percentage of its
capacity whether or not such electricity is ever produced or sold. Because of
these contractual rights from the Government of Pakistan, CRI is relatively
confident that the estimated projected cash flow stream from this project
prepared for the project lenders are based upon reasonable assumptions.
CAPCO ANALYTICAL SERVICES
Capco Analytical Services, Inc. ("CAS"), a wholly owned subsidiary of
Meteor Industries, Inc., was established as an environmental services
subsidiary pursuant to an acquisition in April 1994. CAS provides petroleum
companies and other industrial concerns with environmental consulting and
laboratory analysis. This subsidiary presently has 18 employees.
CAS intends to expand the scope of its present activities to include
providing site assessment and remediation services as well as the possible
acquisition of properties in need of remediation and development. CAS will
then provide remediation services or arrange for those services to be
performed. After a project is remediated, it may be developed by CAS or sold
to a developer. CAS intends to fund these projects at least partially with
project capital raised through partnerships or other private investment
vehicles.
INSURANCE
The Company has a commercial liability policy and an umbrella policy
with a coverage limit of $5,000,000 as well as other policies covering damage
to its properties. These policies cover Company facilities, employees,
equipment, inventories, and vehicles in all states of operation. While
Management believes the Company's insurance coverage is adequate for most
foreseeable problems, and is comparable with the coverage of other companies
in the same business and of similar size, its coverage does not protect the
Company for most liabilities relating to damage of the environment. Such
environmental related coverage is generally unavailable or available only at a
prohibitive cost.
COMPETITION
The petroleum marketing business is highly competitive. The Company
competes on the basis of price, service and corporate capabilities. In all
phases of its operations, the Company encounters strong competition from a
number of companies, including some very large companies. Many of these
larger competitors possess and employ financial and personnel resources
substantially in excess of those which are available to the Company. The
Company's marketing personnel also compete with integrated oil companies which
in some cases own or control a majority of their own marketing facilities.
These major oil companies may offer their products to the Company's
competitors on more favorable terms than those available to the Company from
its suppliers. A significant number of companies, including integrated
oil
33
<PAGE>
companies and petroleum products distribution companies, distribute petroleum
products through a larger number of facilities than the Company.
The distribution of petroleum products is a highly competitive industry.
This competition generally comes from other privately held petroleum jobbers
operating in the same geographic region as the Company. The competition is
primarily focused on the government contract and commercial fleet segments of
the business. The government contract business is awarded via a lowest sealed
bid process and the Company competes heavily with several wholesale
distributors. Competition also occurs for the gasoline service station
customers. In competing for this segment of the business, a customer must be
convinced to change the "brand" of the station (i.e., convert from Phillips 66
to Texaco). A change of brands can be expensive and disruptive to the
operations of the gasoline service station and therefore does not occur
frequently.
Competition in the retail gasoline distribution industry is severe and
highly decentralized. Competition comes from numerous gasoline service
stations that have different brands and from many independent unbranded
stations. The Company competes for retail customers based on brand loyalty
and price. The Company attempts to develop brand loyalty as a result of the
friendly service it provides to its customers. To the extent that the
customer does not have brand loyalty, then the Company competes on price. The
Company does not attempt to be a price leader, but instead changes prices to
meet competitive prices.
The convenience store industry is highly competitive, fragmented and
regionalized. It is characterized by a few large companies, some medium-sized
companies, and many small independent companies. Several competitors are
substantially larger and have greater resources than the Company. The
Company's largest competitors include Seven-Eleven, Diamond Shamrock,
Thriftway, and Circle K. The Company also competes with other convenience
stores, small supermarkets, grocery stores and major and independent gasoline
distributors who have converted units to convenience stores. The Company also
will encounter competition in attempting to acquire sites for new stores and
existing groups of convenience stores.
ENVIRONMENTAL ISSUES
Various federal and state statutes are designed to identify
environmental damage, identify hazardous material and operations, regulate
operations engaged in hazardous activities, and establish procedures for
remedial action. The Company is inspected on a regular basis by both federal
and state environmental authorities. The Environmental Protection Agency
("EPA") and the State of New Mexico have instituted environmental compliance
regulations designed to prevent leakage and contamination from underground
storage tanks. The Company continually expends capital when complying with
changing environmental regulations and expects to spend about $60,000 a year
on environmental compliance.
The State of New Mexico has established the Ground Water Protection Act
for the clean up of contaminated underground sites. Under most circumstances,
the Company's exposure is limited to $10,000 per location, beyond which the
state clean-up fund assumes responsibility. Assistance is not available to
repair or replace underground tanks or equipment. The law specifies
requirements which must have been met for an applicant to be eligible,
includes a provision that payments
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<PAGE>
will be made in accordance with regulations (which have not yet been issued)
and states that payments from the corrective action fund are limited to
amounts in that fund. There can be no assurance that the New Mexico fund will
have sufficient capital, or will agree, to fund remediation of any particular
problem.
In addition, in connection with Company's purchase of the Graves' common
stock, the Seller agreed to indemnify the Company for seven years against
environmental related problems which may arise from activities conducted prior
to the acquisition. The indemnification is not effective unless damages
exceed a minimum of $25,000 per year and the maximum aggregate indemnification
responsibility of Seller over the seven years is $8,000,000.
ENVIRONMENTAL COMPLIANCE. The Company's Regulated Environmental
Activities are subject to an extensive variety of evolving United States
federal, state and local laws, rules and regulations governing the storage,
transportation, manufacture, use, discharge, release and disposal of product
and contaminants into the environment, or otherwise relating to the protection
of the environment. A non-exclusive listing of the environmental laws which
potentially impact the Company's Regulated Environmental Activities is set out
below:
RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, AS AMENDED IN 1984
("RCRA"). The United States Congress enacted RCRA in 1976 and amended it in
1984. RCRA established a comprehensive regulatory framework for the
management of hazardous wastes at active facilities. RCRA creates a "cradle
to grave" system for managing hazardous wastes. Those who generate,
transport, treat, store or dispose of waste above certain quantities are
required to undertake certain performance, testing and record keeping. The
1984 amendments to RCRA known as "HSWA" increased the scope of RCRA to
regulate small quantity hazardous waste generators and waste oil handlers and
recyclers as well as require the identification and regulation of underground
storage tanks in which liquid petroleum or hazardous substances were stored.
HSWA and its implementing regulations require the notification to designated
state agencies of the existence and condition of regulated underground storage
tanks and impose design, construction and installation requirements; leak
detection, presentation, reporting, and cleanup requirements; tank closure and
removal requirements; and fiscal responsibility requirements.
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF
1980 ("CERCLA" or "Superfund") AS AMENDED IN 1982. CERCLA established the
Superfund program to clean up inactive sites at which hazardous substances had
been released. Superfund has been interpreted to create strict, joint and
several liability for the costs of removal and remediation, other necessary
response costs and damages for injury to natural resources. Superfund
liability extends to generators of hazardous substances, as well as to (i) the
current owners and operators of a site at which hazardous substances were
disposed; (ii) any prior owner or operator of the site at the date of
disposal; and (iii) waste transporters who selected such facilities for
treatment or disposal of hazardous substances. CERCLA allows the EPA to
investigate and remediate contaminated sites and to recover the costs of such
activities (response costs), as well as damages to natural resources, from
parties specified as liable under the statute. CERCLA also authorizes private
parties who incur response costs to seek recovery from statutorily liable
parties. CERCLA was amended by the Superfund Amendments and Reauthorization
Act of 1986 ("SARA"). SARA provides a separate funding mechanism for the
clean up of underground storage tanks. CERCLA excludes petroleum including
crude oil or any fraction thereof, with certain
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<PAGE>
limitations from the definition of "hazardous substances" for which liability
for clean up of a contaminated site will attach. This exclusion also applies
to those otherwise hazardous substances which are inherent in petroleum, but
not to those added to or mixed with petroleum products.
THE CLEAN WATER ACT OF 1972, AS AMENDED (the "Clean Water Act"). The
Clean Water Act establishes water pollutant discharge standards applicable to
many basic types of manufacturing facilities and imposes standards on
municipal sewage treatment plants. The Clean Water Act requires states to set
water quality standards for significant bodies of water within their
boundaries and to ensure attainment and/or maintenance of those standards.
Many industrial and governmental facilities must apply for and obtain
discharge permits, monitor pollutant discharges and under certain conditions
reduce certain discharges. The Clean Water Act also requires pre-treatment of
certain discharges prior to release into a publicly owned treatment works.
FEDERAL OIL POLLUTION ACT OF 1990 ("OPA"). The OPA amends the Clean
Water Act and expands the liability for the discharge of oil into navigable
waters. Liability is triggered by discharge or substantial threat of a
discharge of oil into navigable waters. OPA defines three classes of parties
subject to liability: (1) owners, operators, and persons chartering vessels;
(2) lessees and permitees of areas where off-shore facilities are located; and
(3) owners and operators of on-shore facilities.
THE CLEAN AIR ACT OF 1970, AS AMENDED (the "Clean Air Act"). The Clean
Air Act required the EPA to establish and ensure compliance with national
ambient air quality standards ("NAAQS") for certain pollutants. The NAAQS
generally are to be achieved by the individual states through state
implementation plans ("SIPs"). SIPs typically attempt to meet the NAAQS by,
among other things, regulating the quantity and quality of emissions from
specific industrial sources. As required by the Clean Air Act, the EPA also
has established regulations that limit emissions of specified hazardous air
pollutants and has established other regulations that limit emissions from new
industrial sources within certain source categories. The Clean Air Act was
amended extensively in 1990, to, among other things, impose additional
emissions standards that must be implemented by the EPA through regulations.
THE TOXIC SUBSTANCES CONTROL ACT OF 1976 ("TSCA"). TSCA authorizes the
EPA to gather information on the risks of chemicals, and to monitor and
regulate the manufacture, distribution, processing, use and disposal of many
chemicals.
THE EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT ("EPCRA"). EPCRA
was passed as a part of SARA. EPCRA resulted from several widely-publicized
events which focused national attention on the dangers posed by toxic
chemicals present at U.S. industrial facilities. EPCRA requires emergency
planning notification, emergency release notification, and reports with
respect to the storage and release of specified chemicals. Industry must
provide information to communities regarding the presence of extremely
hazardous substances at facilities within those communities.
THE OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION ACT ("OSHA"). OSHA
regulates exposure to toxic substances and other forms of workplace pollution.
The Department of Labor administers OSHA. OSHA specifies maximum levels of
toxic substance exposure. OSHA also sets out a "right-to-know" rule which
requires that
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<PAGE>
workers be informed of, and receive training relating to, the physical and
health hazards posed by hazardous materials in the workplace.
OTHER STATE AS WELL AS LOCAL GOVERNMENT REGULATION. Many states have
been authorized by the EPA to enforce regulations promulgated under various
federal statutes. In addition, there are numerous other state as well as
local authorities that regulate the environment, some of which impose more
stringent environmental standards than Federal laws and regulations. The
penalties for violations of state laws vary but typically include injunctive
relief, recovery of damages for injury to air, water or property, and fines
for non-compliance.
REGULATORY STATUS AND POTENTIAL ENVIRONMENTAL LIABILITY. The operations
and facilities of the Company are subject to numerous federal, state and local
environmental laws and regulations including those described above, as well as
associated permitting and licensing requirements. The Company regards
compliance with applicable environmental regulations as a critical component
of its overall operation and devotes significant attention to protecting the
health and safety of its employees and to protecting the Company's facilities
from environmental problems. Management believes that the Company has
obtained or applied for all permits and approvals required under existing
environmental laws and regulations to operate its current business. In light
of coverage of New Mexico's reimbursement fund and the indemnification of the
Company by the Seller, Management does not believe that any pending or
threatened environmental litigation or enforcement action(s) could materially
and adversely affect the Company's business. While the Company has
implemented, where appropriate, operating procedures at each of its facilities
designed to assure compliance with environmental laws and regulation, given
the nature of its business, the Company always is subject to environmental
risks and the possibility remains that the Company's ownership of its
facilities and its operations and activities could result in civil or criminal
enforcement and public as well as private action(s) against the Company, which
may necessitate or generate mandatory clean up activities, revocation of
required permits or licenses, denial of application for future permits, or
significant fines, penalties or damages, any and all of which could have a
material adverse effect on the Company
EMPLOYEE RELATIONS
The Company employs approximately 150 people, none of whom is
represented by any collective bargaining organizations. Management considers
its employee relations to be satisfactory at the present time.
FACILITIES
The Company owns a 4,300 square foot office building in Farmington, New
Mexico. This office building plus a 4,400 square foot truck repair shop, two
warehouses totaling 15,800 square feet and an 1,855 square foot three bay
service station are located on a 4.7 acre site. While the above-mentioned
buildings are owned by the Company, they are located on property leased from
an affiliated party. The Company pays rent of $550 per month on this land and
the lease terminates on September 30, 2018, with two ten year options to
extend. The Company also owns an additional 2.5 acres adjacent to this
property where it stores moveable above ground fuel tanks.
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<PAGE>
Also, in Farmington, New Mexico, the Company owns two additional
gasoline stations, two fast lube pits and one cardlock location. The Company
operates an additional cardlock/retail location on leased property.
In Albuquerque, New Mexico, the Company owns one bulk petroleum storage
facility which includes a 7,200 square foot warehouse on five acres with a
rail spur. Also, the Company owns a 2,400 square foot convenience store, with
a car wash and quick lube pit in a separate 6,300 square foot building and a
propane distribution and cardlock facility. This convenience store and
related facilities are located on 1.6 acres of land. Also, in Albuquerque,
the Company leases two warehouses and a service station and cardlock facility.
In the Las Cruces area, the Company leases an office building, warehouse
and bulk plant and seven retail outlets. The lease relating to such
properties is a ten (10) year lease with three five (5) year options to renew.
The Company leases a truck stop in Cortez, Colorado from an affiliated
party and subleases the property to a truck stop operator.
The Company leases 8,000 square feet of space for its laboratory in
Ventura, California.
The Company owns a substantial amount of personal property, including
above and below ground tanks located at its bulk plants, service stations and
lube pits described above. It also owns approximately 150 portable above
ground commercial fuel tanks, over 750 propane tanks, various automobiles and
small trucks, and a small fleet of tractors with trailers.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company are as follows:
Name Age Positions and Offices Held
Edward J. Names 44 President and Director
Ilyas Chaudhary 48 Chairman, Chief Executive Officer
and Director
Dennis R. Staal 47 Secretary/Treasurer and Director
There is no family relationship between any Director or Executive
Officer of the Company.
Capco Acquisub, Inc. has the right to appoint two directors, however
only one, Ilyas Chaudhary, is currently representing Capco Acquisub, Inc.
The Company presently has no committees.
Set forth below are the names of all Directors and Executive Officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:
Edward J. Names - President and Director. Mr. Names has been President
and a Director of the Company since 1993. Mr. Names has extensive experience
in mergers and asset acquisitions as well as small business matters such as
business planning, financing, management and contract negotiation. Mr. Names
was President of Alfa Resources, Inc. and its subsidiaries from 1983 to 1995.
Mr. Names resigned as President of Alfa Resources, Inc. as of the closing of
the CRI acquisition, but continues to serve as a director of that company.
Alfa Resources, Inc. is an oil and gas company which files reports pursuant to
the Securities and Exchange Act of 1934. In 1987, Mr. Names became Special
Counsel to the law firm of Wills and Sawyer, P.C., Denver, Colorado, and
maintained that relationship until December 1992. Mr. Names was associated
with the firm of Nelson & Harding, Denver, Colorado, from 1980 to 1981, and
the law firm of Schmidt, Elrod & Wills, Denver, Colorado, where he practiced
corporate and securities law and became a Partner in October 1982. Mr. Names
received a Bachelor of Arts Degree in Economics from the University of
Colorado in 1973, and a Juris Doctorate from the University of Denver College
of Law in 1980. He devotes his full time to the business of the Company and
its subsidiaries.
Ilyas Chaudhary - Chairman of the Board, Chief Executive Officer and
Director. Mr. Chaudhary has been Chairman of the Board, Chief Executive
Officer and a Director of the Company since November 1995. He has also been
an officer and director of Capco Resources, Inc. ("CRI"), which is now a
wholly-owned subsidiary of the Company, since October 1993. He has also been
a director of Saba Petroleum Company, a publicly held oil and gas company
listed on the American Stock Exchange, since 1985, and has served as its
Chairman of the Board since 1993. He has been Saba
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<PAGE>
Petroleum Company's Chief Executive Officer since 1993 and its President since
1994. Mr. Chaudhary is a director and controlling shareholder of Capco
Resources Ltd., the Company's majority shareholder. Mr. Chaudhary has 24
years of experience in various capacities in the oil and gas industry,
including eight years of employment with Schlumberger Well Services from 1972
to 1979. Mr. Chaudhary received a Bachelor of Science degree in Electrical
Engineering from the University of Alberta, Canada.
Dennis R. Staal - Secretary and Treasurer and Director. Mr. Staal has
been Secretary and Treasurer and a Director of the Company since July 1993.
He also serves as an officer and director of several of the Company's wholly
owned subsidiaries. Mr. Staal is a graduate of the University of Nebraska,
where he received a Bachelor of Science degree in Business Administration in
1970. From 1970 through 1973, he was a CPA with Arthur Andersen & Co. From
1973 through 1976, he was Controller for the Health Planning Council of Omaha.
From 1977 through 1981, he served as a Director of Wulf Oil Corporation and as
President of such company from 1979 to 1981. From 1979 through 1982, he
served as a Director of Chadron Energy Corporation, and as Director of the
First National Bank of Chadron. From 1982 through 1984, he was Chief
Financial Officer of High Plains Genetics, Inc. From 1986 to 1991, Mr. Staal
was Director and President of Saba Petroleum Company. Mr. Staal is currently
Treasurer of Alfa Resources, Inc. and an officer and director of its
subsidiaries. Mr. Staal also is President and a Director of Mystique
Developments, Inc., an oil and gas company which files reports pursuant to the
Securities Exchange Act of 1934. He devotes approximately 80% of his time to
the business of the Company and its subsidiaries.
EXECUTIVE COMPENSATION
The following information regarding the executive compensation for the
Company's President for the fiscal years ended August 31, 1995, 1994 and 1993.
No other executive officer received compensation in excess of $100,000 during
such periods.
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Other Underlying
All
Annual Restricted Options/
Other
Name and Principal Compen- Stock SARs LTIP
Compen-
Position Year Salary Bonus sation Award(s) (Number)
Payouts sation
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Edward J. Names 1995 $78,000 -- -- -- -- --
$4,512*
President 1994 $62,769 -- -- -- -- --
$3,384*
1993 $ -0- -- -- -- -- --
--
___________________
* Represents premiums paid on health insurance policies for Mr. Names.
</TABLE>
Edward J. Names, President of the Company, entered into a five-year
employment agreement with the Company which became effective in January 1994,
which provides that Mr. Names is required to devote substantially all his work
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<PAGE>
time to the Company. The agreement was amended in November 1995 to provide
for an annual salary of $105,000. Pursuant to his employment agreement, Mr.
Names is allowed to devote up to 10 hours per month to other business
operations including his duties as a director or officer in other companies
including Alfa Resources, Inc., an oil and gas company of which he is
currently a director. Absent notice to the contrary from the Company or Mr.
Names, the five-year term of the employment agreement will renew automatically
each year. The Company can terminate his employment, however, at any time
without cause and be obligated only for one year's salary. The employment
agreement includes a covenant not to compete which is effective for two years
after termination of employment.
Ilyas Chaudhary, Chairman of the Board and Chief Executive Officer of
the Company, presently receives no salary.
Dennis R. Staal, Secretary/Treasurer of the Company, presently receives
an annual salary totaling $55,000 per year from the Company and a subsidiary.
He devotes approximately 80% of his time to the business of the Company and
its subsidiaries.
STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock
options and non-qualified stock options to the Company's employees was
approved by the Company's shareholders on April 15, 1993. Pursuant to the
Plan, 500,000 shares of the Company's $.001 par value Common Stock have been
reserved for issuance. On October 1, 1993, incentive stock options were
granted to employees. As of August 31, 1996, out of these options, options to
purchase 43,000 shares were outstanding (after deducting options which expired
as a result of termination of employment). These options are exercisable at
$3.00 per share and vest in five equal installments each year following the
date of grant. They expire ten years after the date of grant.
On February 1, 1994, additional incentive stock options were granted to
employees. As of August 31, 1996, out of these options, options to purchase
48,800 shares were outstanding (after deducting options which expired as a
result of termination of employment). Included in these options is an option
to purchase 17,000 shares granted to C. Thomas Houseman, a former Director of
the Company. These options are exercisable at $5.25 per share and vest in
three equal installments each year following the date of grant. They expire
ten years after the date of grant.
On August 4, 1995, incentive stock options to purchase 10,000 shares
each of Common Stock were granted to Dennis R. Staal, Secretary/Treasurer of
the Company, and C. Thomas Houseman, a former Director of the Company, and an
incentive stock option to purchase 1,000 shares was granted to an employee.
These options are exercisable at $3.00 per share and vest over three years on
a pro rata annual basis following the date of grant. They expire five years
after the date of grant.
On November 30, 1995, the Board of Directors granted options to Edward
J. Names, President of the Company, and Ilyas Chaudhary, Chairman and Chief
Executive Officer, each to purchase 100,000 shares of the Company's Common
Stock, and Dennis R. Staal, Secretary/Treasurer of the Company, to purchase
15,000
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<PAGE>
shares of Common Stock. These options are exercisable at $3.50 per share and
vest over a period of three years on a pro rata annual basis following the
date of grant.
In May 1996, stock options were granted to three employees to purchase
an aggregate of 105,000 shares of the Company's Common Stock at $3.50 per
share. The options vest in five equal installments each year following the
date of grant. These options expire five years after the date of grant.
CONSULTANT'S OPTIONS
In November 1995, the Company granted an option to a consultant to
purchase a total of 100,000 shares of the Company's Common Stock. This option
is exercisable at $2.50 per share and expires on December 31, 1996.
DIRECTOR COMPENSATION
Directors of the Company do not receive any fees for their services in
such capacity. However, each Director is reimbursed for all reasonable and
necessary costs and expenses incurred as a result of being a Director of the
Company.
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<PAGE>
SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 16, 1996, and as
adjusted for the sale of the Shares offered hereby, the stock ownership of
each person known by the Company to be the beneficial owner of five percent or
more of the Company's Common Stock, all Directors individually and all
Directors and Officers of the Company as a group. Except as noted, each
person has sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
Percentage of Class
Name and Address Amount of Beneficial Prior to After
of Beneficial Owner Ownership Offering Offering
<S> <C> <C> <C>
Capco Resources Ltd. 1,745,000<FN1> 53.0% 44.8%
#950, 444 - 5th Avenue, S.W.
Calgary, Alberta
Canada TOP 2T8
Edward J. Names 333,973<FN2> 10.0% 8.5%
216 - 16th Street, Suite 730
Denver, CO 80202
Ilyas Chaudhary 1,778,333<FN3> 53.4% 46.5%
#950, 444 - 5th Avenue, SW
Calgary, Alberta
Canada TOP 2T8
Dennis R. Staal 95,165<FN4> 2.9% 2.4%
216 - 16th Street, Suite 730
Denver, CO 80202
Adres Chaudhary 378,000 11.5% 9.9%
600 Hunter Trail, Suite #4
Glendora, CA 91740
Theron J. Graves 731,469<FN5> 22.2% 22.2%
761 South Miller
Farmington, NM 87499
All Executive Officers and 2,207,471 65.5% 55.6%
Directors as a Group
(3 Persons)
__________________
<FN>
<FN1>
Excludes 75,000 shares which have been pledged to Capco Resources Ltd. to
secure certain guarantees made to it by NFF, Ltd. and PAMDEN, Ltd. See <FN2>
and <FN3> below.
<FN2>
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<PAGE>
Represents 33,240 shares held directly by Mr. Names, 265,000 shares held by
NFF, Ltd., a limited partnership of which he served as general partner; 2,400
shares held by his wife of which he disclaims beneficial ownership, and 33,333
shares underlying stock options exercisable within 60 days by Mr. Names. Of
the shares held by NFF, Ltd., 55,000 have been pledged to Capco Resources Ltd.
to secure a guarantee made by NFF, Ltd.
<FN3>
Includes 1,745,000 shares of the Company held by Capco Resources Ltd. of which
Mr. Chaudhary is Chairman of the Board, Chief Executive Officer and
beneficially owns over 50% of its outstanding stock and 33,333 shares
underlying stock options exercisable within 60 days by Mr. Chaudhary.
<FN4>
Includes 5,400 shares held by Mr. Staal; 70,000 shares held by PAMDEN, Ltd., a
limited partnership of which Mr. Staal is general partner; 8,432 shares held
by Mystique Resources Company which is wholly owned by PAMDEN, Ltd.; and 8,333
shares underlying stock options exercisable within 60 days by Mr. Staal. Of
the shares held by PAMDEN, Ltd., 20,000 have been pledged to Capco Resources
Ltd. to secure a guarantee made by PAMDEN, Ltd.
<FN5>
Represents shares of the Company's Common Stock which Mr. Graves presently has
the right to acquire upon the exchange of shares of Graves Preferred Stock
held by him. Following the completion of this offering, the maximum number of
shares of Common Stock which Mr. Graves could receive upon exchange will
increase to 864,668. (See "DESCRIPTION OF SECURITIES.")
</FN>
</TABLE>
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<PAGE>
CERTAIN TRANSACTIONS
The Board of Directors of the Company is of the opinion that the terms
of each of these transactions were at least as favorable to the Company as
could have been obtained from unaffiliated parties. All ongoing and future
transactions with affiliates will be on terms no less favorable than those
which could be obtained from unaffiliated parties.
TRANSACTIONS INVOLVING THE COMPANY'S OFFICERS AND DIRECTORS
During 1993, Edward J. Names, Dennis R. Staal, Daniel B. Matter and C.
Thomas Houseman, the Company's founders, purchased a total of 475,500 shares
of the Company's Common Stock for total consideration of $30,750 cash and $800
in interest expense and services rendered. In addition, these persons have
advanced funds to the Company from time to time.
Edward J. Names, President of Meteor, has personally guaranteed debt due
to Norwest Business Credit, Inc., as described above, up to a maximum of
$250,000 related to the Graves acquisition and $250,000 related to the Hillger
acquisition. Mr. Names and Dennis R. Staal, who is Secretary and Treasurer of
Meteor, each have agreed to personally guarantee the debts of Graves and
Hillger to its major suppliers and a debt to a Farmington, New Mexico bank.
Capco Resources Ltd. has agreed to indemnify Edward Names and Dennis Staal
relating to such guarantees.
TRANSACTIONS INVOLVING GRAVES
On September 28, 1993, the Company acquired all of the issued and
outstanding common stock of Graves Oil & Butane Co., Inc. from its sole
shareholder, Theron J. Graves. As a result of the transaction, Theron J.
Graves retired as the Company's chief executive officer but agreed to provide
consulting services for a period of seven years. Mr. Graves continues his
investment by holding 1,000,000 shares of convertible cumulative preferred
stock of Graves with a liquidation preference of $3,543,500, and a promissory
note from the Company for $2,350,000, which, as of June 30, 1996, had an
outstanding balance of $1,868,000.
The structure of the acquisition is summarized below:
Purchase Price for Common Stock: $4,100,000
Cash Paid at Closing: $1,750,000
Financing Provided by Seller: $2,350,000 note with interest
at 2% over prime, payable $200,000
(including principal and interest)
every six months and the balance
on October 1, 1997 (the "Note").
This Note is secured by 50% of the
Graves common stock purchased by
the Company.
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<PAGE>
Preferred Stock Retained by Seller: 1,000,000 shares of convertible
preferred stock with a total liquidation preference of $3,543,500 and
dividends accruing at a rate of 8% per annum until the date of redemption,
which shall be no earlier than September 15, 2000 (the "Convertible
Securities"). In the event of a default under the promissory note issued to
purchase the Graves common stock, the holders of the Graves Series A Preferred
have the ability to elect all the Graves directors. The Company's preferred
stock obligations are secured by the unencumbered fixed assets of Graves.
These securities are convertible into common stock of Graves or the Company at
the bid price on the date of conversion or a maximum of 22.2% of the Company,
whichever calculation yields fewer shares. The preferred stock, on
conversion, also carries certain piggy-back registration rights.
Indemnifications: Theron Graves has agreed to indemnify the Company
until September 2000 against all losses and expenses exceeding $25,000 per
year up to a cumulative total of $8,000,000 relating to environmental
liabilities associated with the properties of the Company as of the closing
date or any inaccuracies in the representations and warranties in the purchase
agreement.
Prior to the Company's acquisition, Mr. Graves owed approximately
$650,000 to Graves. In connection with the acquisition, Mr. Graves executed
two promissory notes payable on the date the Meteor note to Mr. Graves is due
(October 1, 1997) plus interest at the same rate as the Company's note. One
promissory note is for $100,000 representing the price of an airplane Mr.
Graves purchased from the Company. The other promissory note for $550,000
represents funds advanced to or on behalf of Mr. Graves from time to time over
several years. This note is secured by unimproved real estate Mr. Graves owns
in the Albuquerque, New Mexico area ("Coors Road Property"). If such property
is sold by Mr. Graves, the principal amount of the $550,000 note (up to the
amount of the property's sales price) becomes immediately payable and is to be
discharged by reducing the principal amount of the Company's $2,350,000 note
to Mr. Graves, and the liquidation value of Mr. Graves' preferred stock
retained in Graves Oil, each by one-half the amount accelerated under the
$550,000 note. In addition, the Company has both (i) a right of first refusal
on the entire Coors Road Property, and (ii) a right to purchase a portion of
such property sufficient to build a retail gas station at fair market value,
and all or a portion of the resulting consideration due can be paid by the
Company by reducing the $550,000 note from Mr. Graves.
The Company leases real estate in Colorado from Mr. Theron Graves and
subleases the property to a truck stop operator. Graves pays property taxes
and insurance expense on the property. In addition, the Company leases land
from Mr. Graves on which a yard, warehouses and offices are located. The
parties have entered into an agreement which provides for regular payments of
$500 per month beginning September 1, 1993. The rent escalates at 5% per
annum, the lease term is 25 years, and the Company has two ten year options to
extend such lease.
TRANSACTIONS INVOLVING CAPCO RESOURCES LTD.
In June 1995, Capco Resources, Inc. ("CRI") purchased 378,000 (as
adjusted for the 8% stock dividend) shares of the Company's Common Stock for
$700,000 in cash. As a result of this transaction, CRI's parent, Capco
Resources Ltd. ("Capco"), became a principal shareholder of the Company.
Immediately prior to
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<PAGE>
the acquisition of CRI by the Company, CRI sold all 378,000 shares held by it
to Adres Chaudhary (who is not related to Ilyas Chaudhary) for the forgiveness
of debt in the amount of approximately $700,000. CRI offered Adres Chaudhary
this asset to reduce its debt to him.
In November 1995, the Company issued 1,745,000 shares of its Common
Stock in exchange for all of the outstanding stock of CRI. The shares of the
Company's Common Stock issued in this transaction, which represent
approximately 53% of the shares now outstanding, were issued to a U.S.
subsidiary of Capco. As a result of this transaction, there was a change in
control of the Company and one of the Company's three directors was replaced
by a Capco representative. The major assets of CRI include: (i) an interest
in Saba Power Company Ltd., which is involved in the development of a power
plant in Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a
California environmental services firm; and (iii) a $1,516,000 promissory note
from Saba Petroleum Company and other miscellaneous assets. Saba Petroleum
Company is a publicly-held company of which Ilyas Chaudhary, the Company's
Chief Executive Officer, is an officer, director and principal shareholder.
The promissory note bears interest at 9% and is due in 2006. However, Capco
has agreed to guarantee the prepayment of such note prior to the time it is
required by Cogen to fund the first installment of the Pakistani power project
investment. If such note is not prepaid prior to such date, Capco has agreed
to return to the Company 872,500 shares of Meteor's Common Stock.
In connection with the agreement with Capco, NFF, Ltd. and PAMDEN, Ltd.,
limited partnerships which are controlled by Edward J. Names and Dennis R.
Staal, respectively, guaranteed on a limited recourse basis the
representations and warranties of the Company in the agreement. To secure
these guarantees, NFF, Ltd. and PAMDEN, Ltd. pledged 55,000 and 20,000 shares,
respectively, to Capco.
Also in connection with this agreement a subsidiary of Capco agreed to
indemnify Edward J. Names and Dennis R. Staal against any liability they may
incur as a result of the personal guarantees they have given in order to
assist the Company and its subsidiaries.
CONFLICTS OF INTEREST
All of the Company's Officers and Directors have been in the past and
may continue to be active in other business with other companies and on their
own behalf. These activities could give rise to potential conflicts with the
interests of the Company. The Company's officers, directors, and other
management personnel are subject to the doctrine of corporate opportunities
only insofar as it applies to business opportunities in which the Company has
indicated an interest, either through its proposed business plan or by way of
an express statement of interest contained in the Company' minutes. Pursuant
to a resolution of the Board of Directors of the Company, the Officers are
required to make available to the Company any business opportunity relating to
the wholesale and retail distribution of refined petroleum products which
comes to the attention of any such Officer, and the Company shall have a right
of first refusal with regard to such opportunity. A second resolution of the
Board of Directors sets forth that if a business opportunity relating to the
wholesale and retail distribution of refined petroleum comes to the attention
of a Director and specifically is presented to the Director in his capacity as
such, it must be
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<PAGE>
disclosed to the Company and made available to it. No Officer or Director
owes a fiduciary duty to another entity similar to the duty owed to the
Company regarding business opportunities related to services and products
provided by the Company.
A majority of the disinterested Directors may reject a corporate
opportunity for various reasons. If the Company rejects an opportunity, then
any Director or Officer may avail himself or themselves of such opportunity.
In addition, if an opportunity is presented to the Company, and one or more of
the Company's Officers or Directors has an interest in the opportunity, the
opportunity will be reviewed at a meeting of the Board of Directors and the
interested Director(s) will not vote on issues relating to such opportunity.
The Board of Directors has not yet adopted any resolutions related to
other aspects of the Company's business.
48
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
10,000,000 shares of Common Stock, $.001 par value. Each record holder of
Common Stock is entitled to one vote for each share held on all matters
promptly submitted to the stockholders for their vote. Cumulative voting for
the election of directors is not permitted by the Articles of Incorporation.
Holders of outstanding shares of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors out
of legally available funds; and, in the event of liquidation, dissolution or
winding up of the affairs of the Company, holders are entitled to receive,
ratably, the net assets of the Company available to stockholders after
distribution is made to the preferred stockholders, if any, who are given
preferred rights upon liquidation. Holders of outstanding shares of Common
Stock are, and all unissued shares when offered and sold will be, duly
authorized, validly issued, fully paid, and nonassessable. To the extent that
additional shares of the Company's Common Stock are issued, the relative
interests of the existing stockholders may be diluted.
REDEEMABLE WARRANTS
The following discussion of certain terms and provisions of the
Redeemable Warrants is qualified in its entirety by reference to the Warrant
Agreement (as hereinafter defined) and also the detailed provisions of the
form of Warrant attached to the Warrant Agreement between the Company and
American Stock Transfer & Trust, Inc. (the "Warrant Agent").
Each Redeemable Warrant entitles the holder to purchase, at a price of
$____ subject to adjustment, one share of Common Stock at any time commencing
on the date of this Prospectus until ________, 1998 (two years from the date
of this Prospectus). The Company may redeem the Redeemable Warrants at $.10
per Warrant upon 30 days' prior written notice in the event that the Common
Stock has traded above 150% of the exercise price of the Redeemable Warrants
for 10 consecutive trading days ending not more than ten days prior to the
mailing of the notice of redemption.
For purposes of determining the daily trading price of the Company's
Common Stock, if the Common Stock is listed on a national securities exchange,
is admitted to unlisted trading privileges on a national securities exchange,
or is on NASDAQ, then the last reported sale price of the Common Stock on such
exchange or NASDAQ each day shall be used. If the Common Stock is not so
listed on such exchange or system or admitted to unlisted trading privileges
then the average of the last reported bid prices reported by the OTC Bulletin
Board each day shall be used to determine such daily trading price.
The Redeemable Warrants may only be redeemed if a current registration
statement is in effect. Any Warrant holder who does not exercise prior to the
redemption date, as set forth in the Company's notice of redemption, will
forfeit the right to purchase the shares of Common Stock underlying the
Redeemable Warrants and, after the redemption date, any outstanding Redeemable
Warrants will
49
<PAGE>
become void and be of no further force or effect. If the Company does not
redeem the Redeemable Warrants, such Warrants will expire, become void and be
of no further force or effect on conclusion of the exercise period. All of
the Redeemable Warrants must be redeemed if any are to be redeemed.
The Redeemable Warrants have been issued pursuant to a Warrant Agreement
between the Company and the Warrant Agent. The Company has authorized and
reserved for issuance the shares of Common Stock issuable upon exercise of the
Redeemable Warrants. When delivered, all shares of Common Stock issued upon
exercise of the Redeemable Warrants will be duly and validly authorized and
issued, fully paid and nonassessable, and no preemptive rights or rights of
first refusal will exist with respect thereto.
Redeemable Warrants may be exercised upon surrender of the Warrant
certificate on or prior to its expiration date (or earlier redemption date) at
the offices of American Securities Transfer & Trust, Inc., the Warrant Agent,
with the form of "Election to Purchase" on the reverse side of the Warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by certified check or bank check payable to the order of
the Company) for the number of shares with respect to which such Warrant is
being exercised.
The exercise price of the Redeemable Warrants and the number of shares
to be obtained upon exercise of such Warrant are subject to adjustment in
certain circumstances including a stock split of, or stock dividend on, or a
subdivision, combination, or recapitalization of the Common Stock. In the
event of liquidation, dissolution or winding up of the Company, holders of the
Redeemable Warrants, unless exercised, will not be entitled to participate in
the assets of the Company. Holders of the Redeemable Warrants will have no
voting, preemptive, liquidation or other rights of a shareholder, and no
dividends will be declared on the Redeemable Warrants.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of
10,000,000 shares of Preferred Stock, $1.00 par value. The Board of Directors
of the Company is authorized to issue the Preferred Stock from time to time in
series and is further authorized to establish such series, to fix and
determine the variations in the relative rights and preferences as between
series, to fix voting rights, if any, for each series, and to allow for the
conversion of Preferred Stock into Common Stock. At present, no Preferred
Stock is issued or outstanding or contemplated to be issued.
SECURITIES OF SUBSIDIARY
The Company's Graves subsidiary has authorized 1,000,000 shares of $.01
par value common stock, all of which is issued, outstanding and owned by the
Company. Graves also has authorized 1,000,000 shares of Series A Preferred
Stock, all of which are issued, outstanding and held by Theron J. Graves, the
former 100% shareholder of Graves. (See "CERTAIN TRANSACTIONS --Transactions
Involving Graves.") The Graves Series A Preferred Stock has a liquidation
value of $3.5435 per share, accrues a dividend of 8% per year, and is
redeemable at liquidation value plus accrued dividends by the holder any time
after September 15, 2000.
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<PAGE>
The Graves Series A Preferred Stock is convertible into either the common
stock of Meteor or the common stock of Graves at the option of the holder.
The conversion rate is based on the bid price of the common stock, if a
trading market exists, but the total common shares issued on conversion of all
preferred stock cannot exceed 22.2% of the issuing company's outstanding
common stock. The obligations of Graves under the Series A Preferred Stock is
secured by the fixed assets of Graves. In the event of a default under the
Meteor promissory note issued to purchase the Graves common stock, the holders
of the Graves Series Preferred have the ability to elect all the Graves
Directors. The holder of the common stock received on conversion is entitled
to certain rights to have such common stock registered for sale.
PRIOR UNDERWRITER'S WARRANTS
In connection with the Company's initial public offering, the Company
issued to the managing underwriter warrants to purchase shares of Common Stock
(the "Prior Underwriter's Warrants"). These warrants were exercisable to
purchase approximately 30,250 shares of Common Stock at a price of
approximately $3.40 per share through January 13, 1999. The exercise price of
the Prior Underwriter's Warrants and the number of shares of Common Stock
underlying such warrants was subject to adjustment under certain circumstances
to prevent dilution to the holders in the event of stock dividends, stock
splits, stock combinations or upon a sale of assets, merger or consolidation.
Holders of the shares of Common Stock underlying the Prior Underwriter's
Warrants had the right to join in any registration statement or offering filed
by the Company under the Securities Act of 1933 to register the Prior
Underwriter's Warrants and underlying securities for a period of seven years
from January 14, 1994. In addition, for a period of five years from January
14, 1994, the Company agreed, upon request of the holders of not less than
fifty percent of the Prior Underwriter's Warrants or underlying securities, to
file, not more than once, a registration statement or offering statement under
Regulation A registering or qualifying the underlying shares at the Company's
expense. All expenses of such registration or qualification (except for
underwriting commissions and expense) are the responsibility of the Company.
In March 1996, the Company and the holders of the Prior Underwriter's
Warrants agreed to reduce the number of shares issuable upon exercise of such
warrants to 17,000 and reduce the exercise price on those warrants to $1.00
per share. The holders of the Prior Underwriter's Warrants also agreed to
eliminate the demand registration rights and the anti-dilution provisions of
the warrants. The shares underlying these warrants are being offered for
resale pursuant to this Prospectus. (See "SELLING SHAREHOLDERS.")
REPORTS TO INVESTORS
The Company intends to provide holders of its securities with annual
reports containing financial statements. The Company also will issue
quarterly or other interim reports to its stockholders as it deems
appropriate.
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<PAGE>
TRANSFER AGENT
American Securities Transfer & Trust, Inc., 938 Quail Street, No. 101,
Lakewood, Colorado 80215, serves as the transfer and warrant agent for the
Common Stock and Redeemable Warrants of the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 3,294,903 shares of Common Stock presently outstanding,
approximately 432,440 may be traded without registration or further
registration under most circumstances. The remaining 2,862,463 shares are
"restricted securities" as defined by Rule 144 under the Securities Act of
1933, as amended, and may in the future be resold by existing shareholders
under that rule. In general, Rule 144 provides that a person (or persons
whose shares are aggregated) who has satisfied a two-year holding period may,
under certain circumstances, sell within any three-month period a number of
securities which does not exceed the greater of 1% of the then outstanding
Common Stock or the average weekly trading volume of the class during the four
calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitation, by a person who
is not an affiliate of the Company and who has satisfied a three-year holding
period.
Of the 2,862,463 restricted shares of Common Stock outstanding, 438,300
shares are presently eligible for resale under Rule 144, 402,163 will become
eligible in June 1997, 7,000 will become eligible in October 1997, 1,745,000
will become eligible in November 1997, and 270,000 shares will become eligible
in May and June 1998. The Company has agreed to register 270,000 shares of
restricted Common Stock which are not yet eligible for resale under Rule 144,
and intends to file a registration statement for this purpose within six
months of the completion of this offering.
In addition to the above, the Company's Graves subsidiary has
outstanding shares of preferred stock which may be exchanged for shares of the
Company's Common Stock. Such preferred stock may presently be exchanged for
up to 731,469 shares of the Company's Common Stock and following this offering
may be exchanged for up to 864,668 shares of the Company's Common Stock. Upon
the exchange of any of this preferred stock, Theron J. Graves, who owns all of
the preferred stock, would have piggy-back registration rights with respect to
such shares.
Officers, Directors and record shareholders who own 5% or more of the
Company's outstanding Common Stock have agreed not to sell, publicly transfer
or assign more than 5,000 shares each, and 25,000 shares in the aggregate, of
the 2,510,472 shares of Common Stock beneficially owned by them for a period
of one year from the date of this Prospectus without the prior written consent
of the Underwriter.
52
<PAGE>
UNDERWRITING
Nutmeg Securities, Ltd., the Underwriter, has agreed, subject to the
terms and conditions set forth in the Underwriting Agreement, to purchase from
the Company 600,000 shares of Common Stock and 600,000 Redeemable Warrants.
The Underwriter is obligated to purchase all 600,000 shares of Common Stock
and all 600,000 Redeemable Warrants, if any are purchased.
The Underwriter proposes to offer the Common Stock and Redeemable
Warrants to the public at the initial public offering prices set forth on the
cover page of this Prospectus and to selected dealers at that price less a
concession of not more than $______ per share of Common Stock and $___ per
Redeemable Warrant. After the commencement of this Offering, the offering
price and other selling terms may be changed by the Underwriter. The
Underwriter has informed the Company that it does not intend to confirm sales
to any accounts for which it exercises discretionary authority. The Common
Stock and Redeemable Warrants will be offered by the Underwriter when, as, and
if delivered to and accepted by the Underwriter and subject to its right to
reject orders or cancel sales in whole or in part and subject to approval of
certain legal matters by legal counsel and to various other conditions.
The Company has granted to the Underwriter an option, exercisable not
later than 45 days after the date of this Prospectus, to purchase up to 90,000
additional shares of Common Stock and/or 90,000 Redeemable Warrants at the
same offering prices less underwriting discounts and the nonaccountable
expense allowance described below. The Underwriter may exercise this option
only for the purpose of covering overallotments that it makes in the sale of
the securities. If purchased, the Underwriter will sell the additional shares
of Common Stock and Redeemable Warrants on the same terms as those on which
the 600,000 shares of Common Stock and 600,000 Redeemable Warrants are
offered.
The Company has agreed to pay the Underwriter a nonaccountable expense
allowance of 3% of the gross proceeds of this Offering, including any
additional proceeds derived from the exercise of the overallotment option, and
has made advance payments totaling $15,000 against this obligation. The
Company and the Underwriter have agreed to indemnify each other and related
persons against certain liabilities, including liabilities under the federal
securities laws, and, if such indemnifications are unavailable or are
insufficient, the Company and the Underwriter has agreed to damage
contribution arrangements between them based upon the relative benefits
received from the Offering and the relative fault resulting in such damages.
Such relative benefits and relative fault would be determined in legal actions
among the parties. Under such contribution arrangements, the maximum amount
payable by the Underwriter would be the public offering price of the
securities underwritten and distributed by the Underwriter.
The Company has agreed not to sell any additional securities for one
year after the date of this Prospectus without the Underwriter's prior written
consent, and not to sell or issue any Common Stock, warrants or options to
Officers, Directors or record shareholders who own 5% or more of the Company's
outstanding stock for a period of one year from the date of this Prospectus
without the consent of the Underwriter. In addition, each of the Officers,
Directors, and record shareholders who own 5% or more of the Company's
outstanding stock have agreed not to sell, without the Underwriter's prior
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<PAGE>
written consent, more than 5,000 of the shares of Common Stock owned by them
as of the date of this Prospectus, for a period of one year from the date of
this Prospectus. Such sales shall not aggregate more than 25,000 shares.
The Company has agreed, upon completion of this Offering, to issue to
the Underwriter, for $100.00, Underwriter's Warrants to purchase 60,000 shares
of Common Stock and 60,000 Non-Callable Warrants. The exercise price for the
Underwriter's Warrants will be 125% of the offering price per share of the
Common Stock sold in this Offering and $.125 per Non-Callable Warrant, and the
Underwriter's Warrants will be exercisable at any time during the four year
period commencing one year after the date of this Prospectus. The Non-Callable
Warrants will be exercisable to purchase one share of Common Stock at the same
exercise price as the Redeemable Warrants until two years after the date of
this Prospectus. The Underwriter's Warrants contain certain demand
registration rights. The demand registration rights contained in the
Underwriter's Warrants are for a term of four years beginning one year after
the effective date of this Prospectus. Following the exercise of the demand
registration rights, the Underwriter's Warrants provide for piggyback
registration rights for any unsold securities, until five years after the
effective date of this Prospectus.
54
<PAGE>
SELLING SHAREHOLDER
Included in the securities being offered by this Prospectus are 92,000
shares of Common Stock ("Shares") being offered by the persons listed below
(the "Selling Shareholders").
<TABLE>
<CAPTION>
Number of Shares
Number to be Beneficially Owned
Number of Shares Shares on Completion of the Offering
Name of Selling Beneficially Owned Being % of
Shareholder Record Other Offered Record Other Class
- --------------- ------ ------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Regis Dahl<FN1> -0- 100,000 75,000 -0- 25,000 0.6%
<FN2>
John Lane<FN3> -0- 10,000 10,000 -0- -0- --
<FN4>
Harold W. Gorden 3,000 7,000 7,000 3,000 -0- 0.1%
<FN4>
___________________
<FN>
<FN1>
Mr. Dahl is a consultant to the Company.
<FN2>
Represents shares issuable upon the exercise of a stock option held by Mr
Dahl. Mr. Dahl has granted an option to Sayed Consulting, Inc. to purchase up
to 50,000 shares of the Company's Common Stock.
<FN3>
Mr. Lane is Senior Vice President of Nutmeg Securities, Inc., the Underwriter
of the offering of the Common Stock and Redeemable Warrants described
elsewhere in this Prospectus.
<FN4>
Represents shares issuable upon the exercise of prior underwriter's warrants.
</FN>
</TABLE>
The 92,000 Shares offered hereby by the Selling Shareholders may be
offered and sold from time to time by the Selling Shareholders, or by
pledgees, donees, transferees or other successors in interest. Such offers
and sales may be made from time to time on one or more exchanges or in the
over-the-counter market, or otherwise, at prices and on terms then prevailing
or at prices related to the then-current market price, or in negotiated
transactions. The Shares may be sold by one or more of the following: (a) a
block trade in which the broker or dealer so 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; (b) purchases by a broker or dealer
as principal and resale by such broker or dealer for its account; (c) an
exchange distribution in accordance with the rules of such exchange; (d)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; (e) privately negotiated transactions; and (f) a
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<PAGE>
combination of any such methods of sale. In effecting sales, brokers or
dealers engaged by the Selling Shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers may receive commissions or
discounts from Selling Shareholders or from the purchasers in amounts to be
negotiated immediately prior to the sale. The Selling Shareholders may also
sell such shares in accordance with Rule 144 under the 1933 Act.
The Company has advised the Selling Shareholders that they and any
securities broker-dealers or others who may be deemed to be statutory
underwriters will be subject to the Prospectus delivery requirements under the
Securities Act of 1933. The Company has also advised each Selling
Shareholders that in the event of a "distribution" of his shares, the Selling
Shareholder, any "affiliated purchasers," or any broker-dealer or other person
who participates in such distribution may be subject to Rule 10b-6 under the
Securities Exchange Act of 1934 ("1934 Act") until his or its participation in
that distribution is completed. A "distribution" is defined in Rule
10b-6(c)(5)
as an offering of securities "that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of special
selling efforts and selling methods." The Company has also advised the
Selling Shareholder that Rule 10b-7 under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the Common Stock in connection with this offering.
Rule 10b-6 makes it unlawful for any person who is participating in a
distribution to bid for or purchase stock of the same class as is the subject
of the distribution. If Rule 10b-6 applies to the offer and sale of any of
the Shares, then participating broker-dealers will be obligated to cease
market making activities nine business days prior to their participation in
the offer and sale of such Shares and may not recommence market making
activities until their participation in the distribution has been completed.
If Rule 10b-6 applies to one or more of the principal market makers in the
Company's Common Stock, the market price of such stock could be adversely
affected.
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<PAGE>
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company by Jon D. Sawyer, P.C., 1401 Seventeenth Street, Suite 460,
Denver, Colorado 80202. Jon D. Sawyer, a principal in such firm, beneficially
owns 5,400 shares of the Company's Common Stock. The law firm of William M.
Prifti, Esq, Lynnfield Woods Office Park, 220 Broadway, Suite 204, Lynnfield,
Massachusetts 01940, has acted as legal counsel to the Underwriter in
connection with certain legal matters relating to this offering.
EXPERTS
The consolidated financial statements of Meteor Industries, Inc. for the
periods ended December 31, 1995 and August 31, 1993, included in this
Prospectus and in the Registration Statement have been included herein in
reliance upon the report of Coopers & Lybrand, L.L.P., independent
accountants, given upon the authority of that firm as experts in accounting
and auditing.
The financial statements of the Company for the years ended August 31,
1995 and 1994, included in this Prospectus and in the Registration Statement,
have been audited by Squire & Woodward, P.C., Certified Public Accountants,
and are included herein in reliance on the authority of such firm as experts
in accounting and auditing.
The financial statements of Capco Resources, Inc. included in this
Prospectus and in the Registration Statement, to the extent and for the
periods set forth in their report appearing elsewhere herein, have been
audited by Price Waterhouse, Chartered Accountants and are included herein in
reliance on the authority of such firm as experts in accounting and auditing.
The financial statements of Hillger Oil Company and Graves Oil & Butane
Co., Inc., included in this Prospectus and in the Registration Statement, to
the extent and for the periods set forth in their reports appearing elsewhere
herein, have been audited by Squire & Woodward, P.C., Certified Public
Accountants, and are included herein in reliance on the authority of such firm
as experts in accounting and auditing.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
METEOR INDUSTRIES, INC. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet - June 30, 1996. . . . . . . . . . . . . . . F-1
Consolidated Statements of Operations - June 30, 1996 and 1995. . . . . F-2
Consolidated Statements of Cash Flows- June 30, 1996 and 1995. . . . . F-3
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-4
METEOR INDUSTRIES, INC. FINANCIAL STATEMENTS
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . F-6
Consolidated Balance Sheet - December 31, 1995. . . . . . . . . . . . . F-7
Consolidated Statement of Income - December 31, 1995. . . . . . . . . . F-9
Consolidated Shareholders' Equity - December 31, 1995 . . . . . . . . . F-10
Consolidated Statement of Cash Flow - December 31, 1995 . . . . . . . . F-11
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-13
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-23
Consolidated Balance Sheets - August 31, 1995 and 1994. . . . . . . . . F-24
Consolidated Statements of Income - August 31, 1995 and 1994. . . . . . F-26
Consolidated Statements of Stockholders' Equity - August 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Consolidated Statements of Cash Flow - August 31, 1995 and 1994 . . . . F-28
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-30
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . F-41
Balance Sheet - August 31, 1993 . . . . . . . . . . . . . . . . . . . . F-42
Statement of Operations - August 31, 1993 . . . . . . . . . . . . . . . F-43
Statement of Changes in Stockholders' Equity - August 31, 1993. . . . . F-44
Statement of Cash Flow - August 31, 1993. . . . . . . . . . . . . . . . F-45
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-46
CAPCO RESOURCES, INC. FINANCIAL STATEMENTS
Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-48
Consolidated Balance Sheet - December 31, 1994 and 1993 . . . . . . . . F-49
Consolidated Statement of Operations and Retained Earnings (Deficit)
- year end December 31, 1994 and 1993. . . . . . . . . . . . . . . F-50
Consolidated Statement of Changes in Financial Position - year end
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-51
Notes to Consolidated Financial statements. . . . . . . . . . . . . . . F-52
HILLGER OIL COMPANY FINANCIAL STATEMENTS
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-57
Balance Sheet - March 31, 1995 and 1994 . . . . . . . . . . . . . . . . F-58
Statement of Income - March 31, 1995, 1994 and 1993 . . . . . . . . . . F-60
Statement of Stockholders' Equity - March 31, 1995 and 1994 . . . . . . F-61
Statement of Cash Flow - March 31, 1995. 1994 and 1993. . . . . . . . . F-62
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-64
58
<PAGE>
GRAVES OIL & BUTANE CO., INC. FINANCIAL STATEMENTS
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-71
Consolidated Balance Sheet - August 31, 1993. . . . . . . . . . . . . . F-72
Consolidated Statement of Income - August 31, 1993. . . . . . . . . . . F-74
Consolidated Statement of Retained Earnings - August 31, 1993 . . . . . F-75
Consolidated Statement of Cash Flows - August 31, 199 . . . . . . . . . F-76
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-78
59
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
June 30,
1996
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 705,137
Restricted Cash 317,338
Accounts receivable-trade, net
of allowance 5,085,821
Notes receivable 180,953
Inventory 1,370,624
Deferred tax asset 98,672
Other current assets 134,354
Total current assets 7,892,899
Property, plant and equipment, net 8,816,211
Other assets
Notes receivable, related party 2,236,023
Investments in closely held businesses 688,758
Other assets 745,696
Total other assets 3,670,477
TOTAL ASSETS $20,379,587
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 3,758,869
Bank overdraft --
Current portion, long-term debt 576,823
Accrued expenses 168,296
Taxes payable 799,896
Revolving credit facility 2,032,532
Total current liabilities 7,336,416
Long-term debt 2,504,485
Deferred tax liability 1,813,353
Minority interest in subsidiary 3,901,030
Total liabilities 15,555,284
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; authorized
10,000,000 shares, 3,294,903 shares
issued and outstanding 3,295
Paid-in capital 3,200,438
Retained earnings 1,620,570
Total shareholders' equity 4,824,303
TOTAL LIABILITIES AND SHARE-
HOLDERS' EQUITY $20,379,587
The accompanying notes are an integral part of the financial statements.
F-1
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1996 and 1995
For Six Months Ended
June 30, June 30,
1996 1995
(Unaudited)
Net sales $29,378,558 $ 433,889
Cost of sales 24,260,360 --
Gross profit 5,118,198 433,889
Selling, general and adminis-
trative expenses 3,998,806 481,763
Depreciation 433,578 15,000
Total expenses 4,432,384 496,763
Income (loss) from operations 685,814 (62,874)
Other income and (expenses)
Interest income 186,914 --
Interest expense (249,953) --
Gain (loss) on sale of assets 31,105 --
Total other income (31,934) --
Income (loss) before income taxes
and minority interest 653,880 (62,874)
Provision for income taxes 255,013 --
Income (loss) from continuing oper-
ations before minority interest 398,867 (62,874)
Minority interest 190,632 --
Income (loss) from continuing
operations 208,235 (62,874)
Discontinued operations:
Income from discontinued operations -- 232,986
Net income (loss) $ 208,235 $ 170,112
Income (loss) per common share
from continuing operations $ .07 $ (.04)
Net income per common share $ .07 $ .10
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995
June 30, June 30,
1996 1995
(Unaudited)
Cash flows from operating activities
Net income (loss) $ 208,235 $ 170,112
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 433,578 15,000
Gain (loss) on disposal of property
& equipment (31,105) --
Deferred income taxes (29,074) --
Minority interest 190,632 --
Changes in assets and liabilities, net of
effects from reverse acquisition
(Increase) decrease in accounts receivable (853,750) (20,664)
(Increase) in inventories (37,982) --
(Increase) decrease in other current assets 16,749 776
Increase in accounts payable 888,818 55,269
Increase (decrease) in accrued liabilities (28,613) --
Increase (decrease) in taxes payable (98,206) --
(Increase) in other assets (83,959) --
Discontinued operations -- (232,986)
Net cash provided by operating activities 575,323 (12,493)
Cash flows from investing activities
Purchases of property, equipment and
investment (834,909) (2,666)
Net cash used by investing activities (834,909) (2,666)
Cash flows from financing activities
Payments on revolving credit facilities (242,980) --
Decrease in bank overdraft (71,657) --
Note receivable payments (57,804) --
Payments on long-term debt (197,768) --
Borrowings 523,255 --
Restricted cash 224,626 --
Sale of stock 691,901 --
Net cash provided by financing activities 869,573 --
Net increase in cash and equivalents 609,987 (15,159)
Cash and equivalents, beginning of period 95,150 1,277
Cash and equivalents, end of period $ 705,137 $(13,882)
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
METEOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Meteor Industries, Inc. ("Meteor" or "Company") was incorporated on December
22, 1992, as a Colorado based holding company. Graves Oil & Butane Co., Inc.
("Graves"), which was acquired effective September 1, 1993, is a distributor
of petroleum products primarily in northern New Mexico, Colorado, Arizona and
Utah. Graves also operates gasoline and convenience stores in northern New
Mexico and Colorado. El Boracho, Inc., which was acquired September 1, 1993,
holds a liquor license for use by an Albuquerque, New Mexico convenience
store. Hillger Oil Company ("Hillger"), which was acquired effective April 1,
1995, is a distributor of petroleum products primarily in southern New Mexico.
In addition, Hillger operates gasoline and convenience stores in southern New
Mexico. Capco Resources, Inc. ("CRI"), is a holding Company involved in
developing a power project in Pakistan, and Capco Analytical Services, Inc.
("CAS") is involved in providing environmental consulting and laboratory
analysis in California, both were acquired in November 1995. The acquisition
of CRI was accounted for as a reverse acquisition with CRI treated as the
acquirer. The historical accounts of CRI are reflected in the financial
statements for the previous year.
The consolidated financial statements include the accounts of Meteor
Industries, Inc., and its wholly owned subsidiaries, Graves, (including its
wholly owned subsidiary, El Boracho, Inc.) Hillger, CRI and CAS. All
significant intercompany transactions and balances have been eliminated in
consolidation.
These financial statements have been prepared in accordance with generally
accepted principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the
interim periods presented. The results of operations for these interim
periods are not necessarily indicative of the results to be expected for the
full year. These financial statements should be read in conjunction with the
audited consolidated financial statements and footnotes for the year ended
December 31, 1995.
NOTE 2 -- INCOME TAXES
For both periods presented, the provision for income taxes is based on an
expected annual effective tax rate. The rates utilized for the six months
ended June 30, 1996, and June 30, 1995 were 39% and 0%, respectively.
NOTE 3 -- EARNINGS PER SHARE
Earnings per common and common equivalent share are computed by dividing the
net income by the weighted average number of common shares. The number of
shares used in the earnings per share computation for the six months ended
June 30, 1996, is 3,069,903 and for the six months ended June 30, 1995, is
1,745,000. The number of shares reflects Meteor's share activity during 1996
and CRI's equivalent share activity during 1995.
F-4
<PAGE>
NOTE 4 -- STOCK OPTION PLAN
Options granted since December 31, 1995, are as follows:
DATED OPTIONS NUMBER OF EXERCISE PRICE VESTING
GRANTED OPTIONS PER SHARE PERIOD
May 1996 105,000 $3.50 5 Years
At June 30, 1996, 432,800 options were exercisable.
NOTE 5 -- INVESTMENT IN CLOSELY HELD BUSINESS
In August 1996, CRI negotiated an amendment to the Project Development and
Shareholder's Agreement. This agreement allows CRI to make approximately a
$1,700,000 equity investment in the Pakistan power project in exchange for
approximately an 8% interest in Saba Power. In addition, CRI will have an
option (the "Project Option") to increase its interest in Saba Power by an
additional 9.93% for 750 days. If the Company chooses to fully exercise such
Project Option, it will have to invest approximately $4,400,000 plus
"interest" accruing at 14% per annum during the period in which the option
remains unexercised. CRI can take advantage of this Project Option to a lesser
degree by making a proportionately smaller equity investment. The Company may
use a portion of the proceeds of this offering to make an additional
investment under the Project Option. (See "USE OF PROCEEDS.")
In August 1996, CRI entered into an agreement with Saba Petroleum Company
("Saba") whereby Saba, a related party, is participating with CRI in the
Pakistan power project. Saba has agreed to invest $500,000 for a 2.3%
interest in Saba Power. Saba has no interest in the Project Option. As a
result of the above described agreements CRI will invest approximately
$1,200,000 for a 5.7% interest in Saba Power and CRI has retained its Project
Option to increase its interest up to approximately 15.6%. As of the date of
this Prospectus, CRI had invested approximately $546,000. The Company does
not anticipate any additional cash investments in the next year, other than
discussed above. If total project costs are more than $144,000,000, CRI has
the option to maintain its percentage ownership of Saba Power by investing its
proportionate share or to reduce its ownership percentage proportionately by
not investing additional funds.
Meteor will provide the necessary funds for the remainder of the Saba
Power
equity commitment from the proceeds of a private placement of Meteor's Common
Stock completed in June 1996 and expects the partial collection ($500,000) on
its note receivable from Saba Petroleum Company. CRI has a commitment
outstanding for $75,000 as a finders fee to an unaffiliated party due upon
completion of the project of which one half is to be reimbursed by one of the
other shareholders of Saba Power.
On July 14, 1996, the Government of Pakistan gave notice to Saba Power that
Saba Power was in default of certain provisions in the Implementation
Agreement which required construction of the power project to start by July 3,
1996. The Implementation Agreement and the notice states that Saba Power has
90 days from the date of the notice to cure such default.
In early August 1996, Saba Power and the shareholders thereof completed the
final negotiations with the project's construction lender. On August 20,
1996, the Engineering Procurement and Construction Contractor for Saba Power
was released to commence construction activities on the project. When certain
consents are obtained from the Government of Pakistan, which consents relate
to the construction loan documents, the default would then be cured. It is
anticipated what such consents will be obtained by approximately mid September
1996, well before the end of the 90 day period provided in the notice of
default.
F-5
PAGE
<PAGE>
Report of Independent Accountants
To the Board of Directors
Meteor Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Meteor
Industries, Inc., as of December 31, 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presently fairly,
in all material respects, the financial position of Meteor Industries, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
As discussed in Note 17, the accompanying financial statements have been
restated.
By /s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 31, 1996
F-6
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 95,150
Restricted cash 541,964
Accounts receivable-trade, net of
allowance of $206,979 4,232,071
Notes receivable 156,962
Inventory 1,332,642
Deferred tax asset 149,824
Other current assets 151,103
Total current assets 6,659,716
Property, plant and equipment, net 8,568,392
Other assets
Notes receivable, related party $ 2,202,210
Investments in closely held businesses 409,141
Other assets 661,737
Total other assets 3,273,088
TOTAL ASSETS $18,501,196
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
December 31, 1995
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 2,870,045
Bank overdraft 71,657
Current portion, long-term debt 561,048
Accrued expenses 196,909
Taxes payable 898,102
Revolving credit facility 2,275,512
Total current liabilities 6,873,273
Long-term debt 2,194,773
Deferred tax liability 1,893,579
Minority interest in subsidiary 3,615,398
Total liabilities 14,577,023
Commitments and contingencies (Notes 11, 12 and 13)
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; authorized
10,000,000 shares, 3,024,903 shares issued and
outstanding 3,025
Paid-in capital 2,508,813
Retained earnings 1,412,335
Total shareholders' equity 3,924,173
TOTAL LIABILITIES AND SHARE-
HOLDERS' EQUITY $ 18,501,196
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
Net sales $ 9,828,092
Cost of sales 7,373,304
Gross profit 2,454,788
Selling, general and administrative expenses 2,243,612
Depreciation 151,709
Total expenses 2,395,321
Income from operations 59,467
Other income and (expenses)
Interest income 28,047
Interest expense (91,621)
Loss on sale of assets ( 7,460)
Total other expenses (71,034)
Loss from continuing operations before income
taxes and minority interest (11,567)
Income tax benefit 1,470
Loss from continuing operations before minority
interest (10,097)
Minority interest (63,544)
Loss from continuing operations (73,641)
Discontinued operations:
Income from discontinued operations (net of
applicable income taxes of $180,130) 398,789
Gain on disposal of discontinued operations
(net of applicable taxes of $681,475) 890,189
Net income $ 1,215,337
Loss per common share from continuing operations $ (.15)
Net income per common share $ 2.49
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
Total
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1995 100 $ 100 $ 511,920 $ 196,998 $
709,018
Stock issued and
restated for reverse
acquisition 3,022,803 2,923 1,992,895
1,995,818
Stock issued during
the year 2,000 2 3,998
4,000
Net income 1,215,337
1,215,337
Balance - December 31, 1995 3,024,903 $3,025 $2,508,813 $1,412,335
$3,924,173
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1995
Cash flows from operating activities
Net income $1,215,337
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 159,416
Loss on disposal of property & equipment 7,460
Deferred income taxes (1,470)
Minority interest 63,544
Changes in assets and liabilities, net of
effects from reverse acquisition
(Increase) in accounts receivable (79,762)
(Increase) in inventories (32,022)
Decrease in other current assets 22,297
Increase in accounts payable 289,544
Decrease in accrued liabilities (113,889)
Decrease in taxes payable 12,115
Other assets 8,207
Discontinued operations 550,315
Net cash provided by operating activities 2,101,092
Cash flows from investing activities
Purchases of property and equipment (57,003)
Net cash from reverse acquisition 537,853
Investment in closely held business (401,999)
Net cash used by investing activities 78,851
Cash flows from financing activities
Borrowings on revolving credit facilities 7,734,473
Payments on revolving credit facilities (7,922,104)
Loans to related parties (1,516,000)
Increase in bank overdraft 71,657
Note receivable payments 58,556
Borrowings on long-term debt 82,215
Payments on long-term debt (56,903)
Proceeds from common stock issued 4,000
Restricted cash (541,964)
Net cash used by financing activities (2,086,070)
Net increase in cash and equivalents 93,873
Cash and equivalents, beginning of period 1,277
Cash and equivalents, end of period $ 95,150
F-11
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 1995
(Continued)
NON CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of CRI by issuance of stock accounted
for as a reverse acquisition
Property, plant and equipment $2,066,503
Deferred taxes $ (805,936)
Stockholders' equity $1,260,567
Cash paid for taxes $ 34,152
Cash paid for interest $ 53,005
The accompanying notes are an integral part of the financial statements
F-12
<PAGE>
METEOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Meteor Industries, Inc. ("Meteor" or "Company") was incorporated on December
22, 1992, as a Colorado based holding company. Graves Oil & Butane Co., Inc.
("Graves"), which was acquired effective September 1, 1993, is a wholesale and
retail distributor of petroleum products primarily in northern New Mexico,
Colorado, Arizona and Utah. Graves also operates retail gasoline and
convenience stores in northern New Mexico and Colorado. El Boracho, Inc.,
which was acquired September 1, 1993, holds a liquor license for use by an
Albuquerque, New Mexico convenience store. Hillger Oil Company ("Hillger"),
which was acquired effective April 1, 1995, is a wholesale and retail
distributor of petroleum products primarily in southern New Mexico and
Arizona. In addition, Hillger operates retail gasoline and convenience stores
in southern New Mexico. Capco Resources, Inc. ("CRI"), is a holding Company
involved in providing environmental consulting and laboratory analysis and the
development of a power project in Pakistan. The acquisition of CRI was
accounted for as a reverse acquisition with CRI treated as the acquirer (See
Note 15). The historical accounts of CRI are reflected in the financial
statements for the full year. Information for Meteor is included since
November 2, 1995, the date of acquisition.
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION - The consolidated financial
statements include the accounts of Meteor Industries, Inc., and its wholly
owned subsidiaries, Graves, including its wholly owned subsidiary, El Boracho,
Inc., Hillger and CRI, including its wholly owned subsidiary, Capco Analytical
Services, Inc. ("CAS"). All significant intercompany transactions and balances
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates of
deposit or cash in local banks.
RESTRICTED CASH - The Company has revolving bank credit facilities which
require the use of depository accounts from which collected funds are
transferred to the lender. The lender then applies these collections to the
revolving credit facilities. These accounts are controlled by the lender.
INVENTORIES - Inventories of petroleum products, greases and oils, and related
products are stated at weighted average cost, which is not in excess of
market. Sundries inventories are valued by the retail method and stated on the
first in, first out (FIFO) basis which is lower than market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost; major
renewals and improvements are charged to the property and equipment accounts;
while replacements, maintenance and repairs, which do not improve or extend
the lives of the respective assets, are expended currently.
At the time property and equipment are retired or otherwise disposed of, the
asset and related accumulated depreciation accounts are relieved of the
applicable amounts. Gains or losses from retirements or sales are credited or
charged to income.
REVENUE RECOGNITION - Revenue from product sales is recognized when the
product is delivered. Revenue from services is recognized when the services
are performed and billable.
DEPRECIATION - Depreciation is recorded principally on the straight-line
method at rates based on the estimated useful lives of the assets. The
estimated useful lives are as follows:
<PAGE>
Description Lives
Buildings and improvements 5 to 40 years
Equipment 5 to 20 years
COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES - The Company
continually monitors its costs in excess of net assets acquired (goodwill) and
its other intangibles to determine whether any impairment of these assets has
occurred. In making such determination with respect to goodwill, the Company
evaluates the performance using cash flows, on an undiscounted basis, of the
underlying businesses which gave rise to such amount. With respect to other
intangibles, which include the cost of license agreements, covenants not to
compete and organization costs, the Company bases its determination on the
performance using cash flows, on an undiscounted basis, of the related
products. The Company's goodwill results from the acquisition of Hillger.
The assets acquired in these transactions continue to contribute a
significant portion of the Company's net revenues and earnings.
Substantially all costs in excess of net assets (goodwill) of subsidiaries
acquired are being amortized on the straight-line method over fifteen years.
Other intangibles, which include the costs of license agreements, covenants
not to compete and organization costs are being amortized over five years
using the straight-line method.
INCOME TAXES - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of certain
assets and liabilities for financial and tax reporting. The deferred taxes
represent the future consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or
settled.
ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current operations
are expended or capitalized as appropriate for each expenditure. Whenever an
expenditure relates to an existing condition caused by past operations and
does not contribute to future revenues, the expenditure is expensed currently.
Liabilities are recorded when remedial efforts are probable and the cost can
be reasonably estimated.
EARNINGS PER SHARE - Earnings per common and common equivalent share are
computed by dividing the net income by the weighted average number of common
shares. The number of shares used in the earnings per share computation is
489,035, which reflects CRI's equivalent share activity for ten months and
Meteor share activity from the date of the reverse acquisition.
NOTE 2 -- PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
Description Amount
Land $ 1,334,374
Buildings and improvements 899,089
Equipment 6,511,294
-----------
8,744,757
Accumulated depreciation ( 176,365)
-----------
Net property and equipment $ 8,568,392
For the year ended December 31, 1995, the Company recorded depreciation
expense of $151,709.
NOTE 3 -- NOTES RECEIVABLE - RELATED PARTIES
The Company has two outstanding notes receivable from its minority interest
F-14
<PAGE>
shareholder (100% preferred stockholder of Graves) in the amounts of $550,000
and $100,000. The $550,000 note is due October 1, 1997, and is collateralized
by real estate. However, if the collateral is sold prior to satisfaction of
this note, then one half of the lesser of the outstanding balance or the sale
proceeds of the assets will be applied to reduce the liquidation preference of
the preferred stock, and the remaining one half will be applied to reduce the
note payable to the minority interest shareholder. Interest is receivable
semiannually and is determined at each anniversary based on Citibank of New
York prime plus 2%. The interest rate at December 31, 1995, was 8.50%. The
$100,000 note is unsecured and is due October 1, 1997, with interest accrued
from September 28, 1994. Interest is computed semiannually at Citibank of New
York prime plus 2%, being 8.50% at December 31, 1995. Accrued interest
receivable at December 31, 1995, totaled $36,210.
The Company has a note receivable from another controlled subsidiary of Capco
Resources Ltd. in the amount of $1,516,000 due April 1, 2006. Interest is
receivable semiannually at a rate of 9%.
NOTE 4 -- INVESTMENTS IN CLOSELY HELD BUSINESSES
The Company owns 50% of the Graves Rio Rancho No. 1 Ltd. Co. The investment
was acquired in May 1994. The Company reports their investment in this
limited liability company using the equity method. The value is $133,263.
This investment is not publicly traded.
The Company owns 33 % of American L.P., Ltd. The investment was acquired in
December 1995, for $100,014. The Company reports their investment in this
limited liability Company using the equity method. This investment is not
publicly traded.
At December 31, 1995, the Company, through its subsidiary CRI, owned 25.2% of
Saba Power Company, Ltd. During 1994, Saba Power and several partners
including Cogen Technologies Inc. ("Cogen") received approval to develop,
construct and operate a 115 Megawatt power generating plant in the Islamic
Republic of Pakistan. At December 31, 1995, CRI's $175,865 investment
represents its share of project development costs including legal fees,
engineering feasibility costs, environmental fees, performance guarantee and
other costs incurred to that date. At construction funding these costs will be
treated as equity contributions to the project. The recoverability of the Saba
Power investment is dependent upon successful completion of the project and
commencement of commercial production. The Company and its partners provided
a performance guarantee through a bank in Pakistan, in the original amount of
approximately $355,000 (10,900,000 Rupees.)
The agreements between the partners and the Government of Pakistan have
several conditions, the most significant being:
i) Cogen agreed to fund all project development costs subsequent to
September 30, 1994, and will carry on day to day operations of the project,
including design, engineering, selecting equipment, obtaining financing and
overseeing construction and operations.
ii) In order to maintain its 25.2% ownership CRI must reimburse its
proportionate share of all project developments costs, paid for by Cogen,
including interest at 15% per annum. CRI will be responsible for its
proportionate share of all remaining project costs as incurred. In the event
that CRI does not make any additional equity contributions then CRI will not
be obligated on any performance guarantees or any additional costs, but its
ownership will be reduced proportionately.
iii) On December 19, 1995, Saba Power entered into an agreement with the
Government of Pakistan to increase the Performance Guarantee to $1,456,000 (46
million Rupees) valid up to April 18, 1996, and to move the date of Financial
Closing under the Letter of Support to March 17, 1996. Effective April 1,
1996, Saba Power received from the Government of Pakistan acknowledgment of
financial closing. Final approvals of certain financing documents are
expected to be completed prior to June 30, 1996.
F-15
<PAGE>
iv) On March 31, 1996, CRI executed an amendment to the Project
Development and Shareholder Agreement. This Agreement allows CRI to make a
$2,314,000 equity investment in the Project (such investment is expected to be
made prior to June 30, 1996) in exchange for approximately an 8% interest in
the Project. In addition, CRI will have an option to increase its interest in
the Project to 23% for a one year period ending March 31, 1997. If CRI decides
to exercise such option, it will be required to invest approximately
$7,300,000 in additional equity. CRI can take advantage of this option to a
lesser degree by making a proportionately smaller equity investment. CRI
subsequently entered into an agreement with Saba Petroleum Company whereby
Saba intends to participate with CRI in the Project. Saba intends to invest
approximately $1,500,000 in the Project this year and will have the option to
make an additional investment of approximately $3,650,000 in the first quarter
of 1997. Saba's initial interest in the Project will be approximately 5.4%
which can be increased to 11.5% pursuant to the option. As a result of this
transaction CRI intends to invest $800,000 during 1996 for almost a 3%
interest in the project. CRI shall have the option to increase its interest up
to approximately 11.5% by investing up to approximately $4,000,000 by the
first quarter of 1997.
CRI intends to obtain the necessary financing for its share of the initial
equity commitment through the sale of its common stock and/or the partial
collection of notes receivable. CRI has a commitment outstanding for $75,000
as a finders fee relating to the project of which one half is expected to be
reimbursed by one of the partners.
NOTE 5 -- REVOLVING CREDIT FACILITY
Revolving Credit Facility at December 31, 1995, consisted of the following:
$3,000,000 revolving bank credit facility, payable to Norwest
Business Credit, Inc., bearing interest at Norwest Bank
Minnesota, N.A., base rate plus 2.5% (11.25% at December 31,
1995), due June 1998. Collateralized by trade accounts
receivable and inventory of Graves Oil & Butane Co., Inc. $2,039,944
$1,500,000 revolving bank credit facility, payable to Norwest
Business Credit, Inc., bearing interest at Norwest Bank
Minnesota, N.A., base rate plus 2% (10.75% at December 31,
1995), due June 30, 1998. Collateralized by trade
accounts receivable and inventory of Hillger Oil Company 235,568
The revolving bank credit facility agreements require the Company to maintain
certain net worth and performance ratio levels. As discussed in Note 1,
payments on these loans are made through collateral cash accounts in the name
of the lender.
Graves and Hillger were in default of certain reporting requirements as set
forth in Sections 6.1(b), (c), (d) and (g) of the Credit Agreements with
Norwest Bank for the revolving credit facilities. Total borrowings under
these facilities were $2,275,512 at December 31, 1995. Those defaults concern
untimely filing of financial reports for November 1995, December 1995, January
1996 and February 1996. Graves and Hillger received a waiver for these items
from the bank.
NOTE 6 -- LONG-TERM DEBT
Long-term debt at December 31, 1995 consisted of the following:
Note payable to Theron Graves, semiannual payments of $200,000
including interest at prime plus 2% (10.75% at December 31,
1995), collateralized by half of Graves common stock, matures
October 1997. 1,955,663
Note payable to First National Bank of Farmington, monthly
payments of $19,000 including interest at prime plus 2%
(10.75% at December 31,1995), collateralized by mortgage on
F-16
<PAGE>
buildings and land, matures January 1998. 388,048
Note payable to Norwest Business Credit, Inc., monthly
payments of $10,417 plus interest at Norwest Bank of
Minnesota, N.A. base rate plus 3.0% (11.75% at December 31,
1995), collateralized by property and equipment, due June 30,
1998. 312,498
Note payable to Ford Motor Credit, monthly payments of $329
including interest at 11.9%, collateralized by equipment,
matures December, 1999. 12,459
Note payable to GMAC, monthly payments of $604, including
interest at 10.12%, collateralized by equipment, matures
December, 1999. 23,754
Leases payable 63,399
Total 2,755,821
Current portion (561,048)
Long-term debt $2,194,773
The following is a schedule by years of the repayment of long-term debt:
Period ending
December 31, Amount
1996 $ 561,048
1997 2,110,008
1998 73,735
Remaining 11,030
Total $2,755,821
NOTE 7 -- MINORITY INTEREST IN SUBSIDIARY
The Series A Convertible Preferred Stock of Graves Oil & Butane Co., Inc., is
limited voting stock and is entitled to cumulative annual dividends at a rate
of 8% of the liquidation value. These securities are convertible into common
stock of Graves or Meteor at the bid price on the date of conversion or 22.2%
of Meteor based on whichever calculation yields fewer shares. The record
holder has the right to vote on matters which affect the rights of the class
and to elect two of the seven members of Graves' board of directors. In the
event of default under the Meteor promissory note issued to purchase the
Graves common stock, the holder of the Series A Convertible Preferred Stock
has the ability to elect all of the Graves directors. The Company may at any
time redeem all or any portion of the Series A Convertible Preferred Stock
outstanding at an amount equal to the liquidation value plus all accrued and
unpaid dividends. At any time after September 15, 2000, the record holder
shall have the right to have the Company redeem all or any portion of the
shares outstanding at the price stated above. No dividends have been
declared by the board of directors. Dividends in arrears amount to $685,075
as of December 31, 1995. The minority interest is recorded at its discounted
value. Dividends and accretion of the preferred stock discount are reflected
in minority interest on the income statement.
NOTE 8 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
Current tax expense $ 0
Deferred tax expense (benefit) ( 1,470)
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<PAGE>
Total provision $ ( 1,470)
The following reconciles the tax provision with the expected provision
obtained by applying statutory rates to pretax loss from continuing
operations:
Expected tax provision $ (3,933)
Nondeductible expenses 2,425
Other 38
Total provision $ (1,470)
The deferred tax asset (liability) in the accompanying balance sheet includes
the following components:
Current:
Deferred tax asset, federal $ 130,616
Deferred tax asset, state 19,208
Net current deferred asset $ 149,824
Noncurrent:
Deferred tax liability, federal $(1,650,812)
Deferred tax liability, state (242,767)
Net noncurrent deferred tax liability $(1,893,579)
Components of deferred income taxes at December 31, 1995 were as follows:
Deferred tax asset:
Accounts receivable $ 80,272
Net operating loss carryforwards 40,170
Other 29,382
149,824
Deferred tax liability:
Depreciation and amortization $ 1,893,579
The net operating loss carryover expires in 2007. Management has determined,
based on the carryforward period for the deferred tax asset, no valuation
allowance was necessary at December 31, 1995.
NOTE 9 -- DEFINED CONTRIBUTION PLAN
Graves adopted a 401(k) profit sharing plan effective January 1, 1994.
Excluded from the plan are employees whose employment is governed by a
collective bargaining agreement that includes retirement benefits.
Contributions to the plan are voluntary through a salary reduction agreement
up to a maximum of 15% of compensation. Matching contributions and other
additional contributions may be made by the employer at the employer's
discretion. No contributions were made for the period ended December 31, 1995.
Hillger adopted a 401(k) profit sharing plan effective April 1, 1994. No
employees are excluded from the plan. Contributions to the plan are voluntary
through a salary reduction agreement up to a maximum of 15% compensation.
Matching contributions and other additional contributions may be made by the
employer at the employer's discretion. For the period ended December 31,
1995,
Hillger's contribution was $4,346.
NOTE 10 -- RELATED PARTY TRANSACTIONS
The Company uses space, telephone and secretarial services of a corporation
controlled by officers of the Company. Rent is currently $1,000 per month and
secretarial services are currently $2,000 per month. Other expenses are paid
by
F-18
<PAGE>
the Company as invoiced. At December 31, 1995, amounts payable to related
parties were $21,256.
The following are transactions that occurred with the minority interest (100%
preferred stockholder) in Graves Oil & Butane Co., Inc.:
The Company leases certain real estate from the preferred stockholder of one
of its subsidiaries. For the period ended December 31, 1995, rents paid were
$9,102.
The Company has land, buildings, and equipment in Springerville, Arizona, and
equipment in St. Johns, Arizona, which are used by a relative of the preferred
stockholder of one of its subsidiaries. The Company does not charge for the
use of its properties but received revenue from the sale of its products.
During the period ended December 31, 1995, revenues reported amounted to
$56,864.
The Company sells its products to other entities controlled by the preferred
stockholder of one of its subsidiaries. During the period ended December 31,
1995, revenues reported amounted to $224,425.
The preferred stockholder of one of its subsidiaries is indebted to the
Company on two notes totaling $650,000 as described in Note 3. Interest
receivable at December 31, 1995, was $36,210. Interest earned during the
period ended December 31, 1995, was $11,677.
The Company is indebted to the preferred stockholder of one of its
subsidiaries for $1,955,663 as described in Note 6. Interest payable at
December 31, 1995, was $54,903. Interest expense during the period ended
December 31, 1995, for this note was $36,602.
The Company has entered into a consulting agreement with the preferred
stockholder of one of its subsidiaries which provides for payments of $1,500
per month and the use of a vehicle; fuel for such vehicle; a personal
automobile; health, life, disability, and automobile insurance; and
reimbursement of various expenses including club dues. During the period
ended December 31, 1995, the fees paid were $3,570.
NOTE 11 -- ENVIRONMENTAL PROTECTION EXPENDITURES
The Company utilizes underground tanks at various locations to store petroleum
products and is therefore subject to various federal and state statutes
concerning environmental protection, as well as the New Mexico Ground Water
Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
The state of New Mexico has recognized the potential cleanup costs resulting
from regulations, and the New Mexico Ground Water Protection Act has included
the establishment of a corrective action fund. The purpose of the fund is to
provide monetary assistance in both assessing site damage and correcting the
damage where such costs are in excess of $10,000. Assistance is not available
to repair or replace underground tanks or equipment. The law specifies
requirements which must have been met for an applicant to be eligible,
including a provision that payments will be made in accordance with
regulations (which have not yet been issued), and states that payment from the
corrective action fund are limited to amounts in that fund.
The Company is responsible for any contamination of land it owns or leases.
However, the Company may have limitations on any potential contamination
liabilities as well as claims for reimbursement from third parties. During
the period ended December 31, 1995, the Company expended $5,876 for site
assessment and related cleanup costs. Included in other assets at December
31, 1995, are unreimbursed costs from the State of New Mexico of $94,593.
F-19
<PAGE>
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company is contingently liable for certain costs associated with leasehold
improvements made by a supplier on property of customers of Graves. The
liability for the costs is amortized over a five-year period with the Company
becoming responsible for payment to the supplier if fuel purchases fail to
meet certain volumes. At December 31, 1995, the Company was contingently
liable for $31,175 in unamortized costs. Future losses, if any, cannot be
estimated at this time.
The Company has in escrow 400,000 shares in a Canadian corporation and a
$150,000 cash deposit related to the sale of a subsidiary in 1995. Both the
deposit and the shares are subject to reduction depending on various factors
related to the subsidiary sale. The Company has not recognized any gain or
asset related to the escrow items.
NOTE 13 -- OPERATING LEASES
The Company has entered into various noncancelable leases for land, building
and equipment with terms ranging from 3 to 15 years. Under most leasing
arrangements, the Company pays the property taxes, insurance, maintenance, and
expenses related to the leased property. Total rent expense under operating
leases for the period ended December 31, 1995, was $123,723.
Minimal future obligations on leases in effect at December 31, 1995, are:
December 31, 1996 $ 739,000
December 31, 1997 $ 743,000
December 31, 1998 $ 734,000
December 31, 1999 $ 697,000
December 31, 2000 $ 658,000
Thereafter $2,799,000
Annual minimum future rental payments have not been reduced by $42,000 of
sublease rentals to be received in the future under non-cancelable subleases.
NOTE 14 -- CAPITAL LEASES
As of December 31, 1995, leased property under capital leases by major classes
was as follows:
Buildings and improvements $ 18,141
Equipment 106,292
Accumulated amortization (44,350)
Net leased property $ 80,083
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments as of December 31, 1995:
December 31, 1996 $ 38,527
December 31, 1997 28,952
December 31, 1998 1,837
Total minimum lease payments 69,316
Less: amount representing interest 5,917
Present value of minimum lease payments $ 63,399
NOTE 15 - BUSINESS COMBINATION
Effective November 2, 1995, Meteor Industries, Inc. acquired 100% of the
issued and outstanding common stock of Capco Resources Inc. ("CRI") in
exchange for 1,745,000 shares of Meteor common stock. The shares were valued
at $2.51 each
F-20
<PAGE>
for a total consideration of $4,379,950. The $2.51 value was determined using
the market price of the Company's stock at the date of the transaction and
averaging that with a recent private placement. The acquisition was treated
as a reverse acquisition of Meteor by CRI. Accordingly, the results of
operations of CRI are included in the accompanying financial statements since
January 1, 1995. The results of operations of Meteor are included in the
accompanying financial statements since the effective date of the acquisition.
The total cost of acquisition exceeded the net assets of Meteor by $2,066,503.
The excess was allocated to property and equipment based on appraised value
and will be depreciated over the estimated remaining useful lives of the
assets. The results of operations on a pro forma basis for the year ended
December 31, 1995 is as follows:
Revenues $57,721,328
Income (loss) from continuing operations (285,335)
Income (loss) per share $ (.16)
NOTE 16 -- STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock options and
nonqualified stock options to the Company's key employees was approved by the
Company's stockholders on April 15, 1994. Pursuant to the plan, 500,000
shares of the Company's $.001 par value common stock have been reserved for
issuance. Options must be granted at prices not less than 100% of fair market
value at the time the option is granted. Options issued to each employee vest
in equal installments on the anniversary dates of the date the options were
granted. No options have been exercised. Options have been granted as
follows:
Number of Exercise price
Date options granted options per share Vesting period
October 1, 1993 43,000 $ 3.00 5 years
February 1, 1994 49,600 $ 5.25 3 years
August 4, 1995 21,000 $ 3.00 3 years
November 30, 1995 215,000 $ 3.50 3 years
At December 31, 1995, 328,600 options were exercisable.
NOTE 17 -- DISCONTINUED OPERATIONS
a) On September 15, 1995, CRI sold the shares of Saba de Colombia,
Inc., a U.S. subsidiary engaged in the exploration and development of
petroleum and natural gas in Colombia, to a third party for consideration of
$2,601,719, and realized a gain net of taxes on the sale of the shares of
$890,189. The gain as previously reported of $1,108,939 has been restated to
$890,189 to eliminate certain proceeds held in escrow. The consideration
received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible,
redeemable first preferred shares
of Petrosandtander Inc. bearing
dividends at 8.5% 200,000
$2,601,719
Cash of $150,000 and the preferred shares remain in escrow pending
review by Colombian taxing authorities.
b) On December 1, 1995, CRI transferred to CAPCO Acquisub, Inc., a
wholly-owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba
Petroleum Company and certain other assets and liabilities. This transaction
was recorded at book value. The net assets transferred had a book value of
approximately $181,361
The discontinued operations results for 1995 are as follows:
F-21
<PAGE>
Year Ended
December 31, 1995
Income
Oil and gas sales (net of royalties) $14,197,860
Other income 843,793
15,041,653
Expenses
Production and operating 9,010,631
General and administrative 1,986,967
Interest and bank charges 1,065,011
Depreciation, depletion and amortization 2,413,743
14,476,352
Operating income 565,301
Income tax expense 180,130
Foreign exchange (gain) loss 51,237
Minority interest 114,655
Dilution gain (179,510)
166,512
Net Income $ 398,789
Gain on disposition, net of tax of $681,475 $ 890,189
NOTE 18 -- NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No.
121"). The standard requires the recognition of an impairment loss on certain
identifiable intangible assets and long-lived assets in use or held for
disposal when events or circumstances indicate the carrying value of these
assets may not be recoverable or exceeds their fair value. At this time, the
Company does not expect the adoption of SFAS No. 121 to have a material impact
on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The standard encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options and other equity instruments to employees based on fair value
accounting rules. The standard requires companies that choose not to adopt
the new fair value accounting rules to disclose pro forma net income and
earnings per share under the new method. The standard is effective for fiscal
years beginning after December 15, 1995. The Company will adopt only the
disclosure provisions of SFAS No. 123 in 1996.
F-22
<PAGE>
SQUIRE & WOODWARD, P.C.
Certified Public Accountants - Consultants
2730 San Pedro NE, Suite D
Albuquerque, New Mexico 87110
505/881-3408
FAX 505/881-6597
To the Board of Directors and Stockholders
of Meteor Industries, Inc.
Denver, Colorado
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Meteor
Industries, Inc. and subsidiaries, as of August 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Meteor Industries, Inc. and
subsidiaries, as of August 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Squire & Woodward
SQUIRE & WOODWARD, P.C.
November 22, 1995
F-23
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of August 31, 1995 and 1994
ASSETS
1995 1994
Current assets
Cash $ 244,206 $ 292,121
Cash - restricted 476,007 230,508
Accounts receivable, net of an allowance
for doubtful accounts of $195,500 for
1995 and $165,000 for 1994 4,041,591 4,784,370
Inventory, pledged 1,426,901 853,671
Notes receivable 14,969 21,588
Deferred tax asset 257,893 135,409
Prepaid expenses 184,956 217,931
Other current assets 35,980 20,664
Total current assets 6,682,503 6,556,262
Property and equipment, at cost, partially pledged
net of accumulated depreciation of $5,601,000 for
1995 and $5,533,417 for 1994 5,767,704 4,561,713
Other assets
Notes receivable 271,438 40,833
Notes receivable - related parties 732,625 698,919
Intangibles, net of accumulated
amortization of $70,031
for 1995 and $54,136 for 1994 104,448 120,343
Investment in closely held business 110,000 110,000
Goodwill, net of accumulated amortization
of $3,784 818,121
Other assets 94,449 167,504
Total other assets 2,131,081 1,137,599
TOTAL ASSETS $14,581,288 $12,255,574
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
As of August 31, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
Current liabilities
Accounts payable $ 2,746,718 $ 1,711,450
Notes payable 2,002,085 2,700,165
Bank overdraft 124,166
Current portion of long-term debt 822,112 407,736
Due to related parties 91,077 2,827
Taxes payable 837,042 601,529
Accrued expenses 327,374 182,384
Total current liabilities 6,950,574 5,606,091
Long-term debt, net of current portion
Notes payable 2,095,660 2,603,626
Deferred taxes 1,032,670 456,669
Minority interest in subsidiary 3,488,310 3,107,048
Commitments and contingencies (Notes 15, 16,
17 and 18)
Stockholders' equity
Common stock, $.001 par value,
10,000,000 shares authorized;
1,272,903 shares issued and
outstanding in 1995; 835,500
shares issued and outstanding in 1994 1,273 835
Additional paid-in capital 1,715,290 954,865
Retained deficit (702,489) (473,560)
Total stockholders' equity 1,014,074 482,140
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $14,581,288 $12,255,574
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
As of August 31, 1995 and 1994
1995 1994
Sales $44,970,956 $38,763,225
Cost of sales 38,518,916 33,475,541
Gross profit 6,452,040 5,287,684
Operating expenses
Selling, general, and administrative 5,537,753 4,786,779
Depreciation and amortization 592,773 456,996
Bad debts expense 236,138 14,931
Total operating expenses 6,366,664 5,258,706
Income from operations 85,376 28,978
Other income and expense
Interest income 234,096 235,593
Dividend income 5,452 3,398
Gain on sale of assets 41,110 32,599
Other income 121,314 125,017
Interest expense (526,665) (434,778)
Total other income (124,693) (38,171)
Loss before income taxes and
minority interest (39,317) (9,193)
Provision for income taxes (191,650) (28,562)
Net income before minority interest 152,333 19,369
Minority interest (381,262) (492,929)
Net loss $ (228,929) $ (473,560)
Income per common share (weighted average common
shares outstanding 1,056,191 for 1995 and 691,300
for 1994) $ (.22) $ (.69)
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
As of August 31, 1995 and 1994
Preferred Stock Common Stock Additional
Number Number Paid-in Retained
of Shares Amount of Shares Amount Capital Earnings
Balance -
September 1, 1993 $ 475,000 $ 475 $ 30,575 $
Stock issued 160,000 160,000 200,500 200 764,350
Stock warrants
issued 100
Conversion of
preferred stock (160,000) (160,000) 160,000 160 159,840
Net loss (473,560)
Balance -
August 31, 1994 0 0 835,500 835 954,865 (473,560)
Stock issued 372,373 373 760,490
Stock dividend 65,030 65 (65)
Net income (228,929)
Balance -
August 31, 1995 0 $ 0 1,272,903 $1,273 $1,715,290 $(702,489)
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
As of August 31, 1995 and 1994
1995 1994
Cash flows from operating activities
Net income $ 152,333 $ 19,369
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 592,773 456,994
Gain on disposal of property and equipment (41,072) (32,599)
Gain on disposal of investments (38)
Other income from basis adjustment
to property and equipment (65,000)
Deferred income taxes (252,475) (28,769)
Changes in assets and liabilities, net of
effects from purchase of subsidiaries:
Decrease (increase) in accounts
receivable 1,223,429 (1,056,469)
Decrease (increase) in inventories (35,852) 189,761
Decrease (increase) in other current
assets 193,406 (193,178)
Decrease (increase) in other assets 73,635 (164,537)
Increase in bank overdraft 124,166
Increase in accounts payable 148,184 205,043
Decrease in accrued liabilities (1,407) (32,890)
Net cash provided (used) by
operating activities 2,177,082 (702,275)
Cash flows from investing activities
Cash paid for the purchase of subsidiaries,
net of cash acquired (546,657) (1,832,635)
Cash paid for purchase of investment securities (365) (110,000)
Cash paid for purchases of property and
equipment (377,210) (442,016)
Cash proceeds from sale of investment
securities 657 243,595
Cash proceeds from sale of property 117,199 80,472
Cash paid on notes receivable (205,972) 30,357
Cash paid on related party receivables (24,706) 134,916
Net cash used by investing activities (1,037,056) (1,895,311)
Cash flows from financing activities
Proceeds from short-term borrowings 42,695,070 42,760,933
Principal payments on short-term debt (43,452,946) (40,260,768)
Proceeds from borrowing on long-term debt 536,000
Principal payments on long-term debt (1,569,679) (295,883)
Proceeds from stock and stock warrants issued 760,863 924,650
Net borrowings on related party payables 88,250 (8,923)
Net cash provided (used) by financing
activities (942,442) 3,120,009
Net increase in cash and equivalents 197,584 522,423
Cash and equivalents, beginning of year 522,629 206
Cash and equivalents, end of year $ 720,213 $ 522,629
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
As of August 31, 1995 and 1994
SUPPLEMENTAL INFORMATION
1995 1994
Cash paid (refunds received) for income taxes $(97,845) $ 155,107
Cash paid for interest $515,806 $ 320,651
NONCASH INVESTING AND FINANCING ACTIVITIES
1995 1994
The minority interest in subsidiary was adjusted
to record the dividend in arrears and the accretion
of preferred stock of Graves Oil & Butane Co., Inc. $381,262 $ 492,929
A stock dividend was issued for holders of record at
June 30, 1995, at 8% $ 65
Long-term debt incurred in the acquisition of
subsidiary $2,350,000
Acquisition of land from minority interest
through recapitalization of subsidiary $ 83,853
Reduction of stockholder note receivable in
exchange for reduction of stockholder note payable $ 100,000
Capital lease obligations incurred in the
acquisition of property and equipment $ 124,433
As a result of the purchase of the subsidiary,
the purchase premium increased additional paid-in
capital and was allocated as follows:
Marketable securities $ 47,824
Inventory 299,593
Property and equipment 759,190
Investment in closely held business 55,500
Deferred taxes payable (453,222)
Increase in additional paid-in capital $ 708,885
See accompanying notes to consolidated financial statements.
F-29
<PAGE>
METEOR INDUSTRIES, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of August 31, 1995 and 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Meteor Industries, Inc.
(the company) and Subsidiaries is presented to assist in the understanding of
the company's financial statements. The financial statements and notes are
representations of the company's management, who are responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
PRINCIPALS OF CONSOLIDATION AND ORGANIZATION - The consolidated financial
statements include the accounts of Meteor Industries, Inc. and its wholly
owned subsidiaries, Graves Oil & Butane Co., Inc., including its wholly owned
subsidiary, El Boracho, Inc., and Hillger Oil Company. All significant
intercompany transactions and balances have been eliminated in consolidation.
Meteor Industries, Inc., was incorporated on December 22, 1992, as a Colorado
based holding company. Graves Oil & Butane Co., Inc., which was acquired
effective September 1, 1993, is a wholesale and retail distributor of
petroleum products primarily in northern New Mexico, Colorado, Arizona, and
Utah. The company also operates retail gasoline and convenience stores in
northern New Mexico and Colorado. El Boracho, Inc., which was acquired
September 1, 1993, holds a liquor license for use by an Albuquerque, New
Mexico convenience store. Hillger Oil Company, which was acquired effective
April 1, 1995, is a wholesale and retail distributor of petroleum products
primarily in southern New Mexico and Arizona. In addition, the company
operates retail gasoline and convenience stores in southern New Mexico.
ACCOUNTS RECEIVABLE - Accounts receivable are stated at net realizable value,
using the allowance method of accounting for bad debts.
INVENTORIES - Inventories of petroleum products, greases and oils, and related
products for Hillger Oil Company are stated at weighted average cost, which is
not in excess of market. Inventories of petroleum products, greases and oils,
and related products for Graves Oil & Butane Co., Inc., are valued at Last In,
First Out (LIFO) cost, which is not in excess of market. Graves Oil & Butane
Co., Inc., determines its LIFO reserve using the link chain dollar value
method. At August 31, 1995 and 1994, inventories valued using the LIFO method
were $789,788 and $868,068, respectively. The LIFO reserves were $315,163 and
$307,473, respectively. Sundries inventories are valued by the retail method
and stated on the First In, First Out (FIFO) basis which is lower than market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost; major
renewals and improvements are charged to the property and equipment accounts;
while replacements, maintenance and repairs, which do not improve or extend
the lives of the respective assets, are expended currently. At the time
property and equipment are retired or otherwise disposed of, the asset and
related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.
DEPRECIATION - Depreciation is recorded principally on the straight-line
method at rates based on the estimated useful lives of the assets. The
estimated useful lives are as follows:
Description Lives
Buildings and improvements 5 to 40 years
Office equipment 5 to 7 years
Operating equipment 5 to 16 years
General and administrative 5 to 20 years
Marketing equipment 5 to 10 years
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Delivery equipment 5 to 10 years
AMORTIZATION OF COVENANTS - Covenants not to compete are valued at cost and
are amortized over a 60-month period. Goodwill represents the excess of the
cost of Hillger Oil Company over the fair value of its net assets at the
effective date of acquisition and is being amortized using the straight line
method over 15 years.
INCOME TAXES - Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of certain
assets and liabilities for financial and tax reporting. The deferred taxes
represent the future consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that are
available to offset future income taxes.
ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current operations
are expended or capitalized as appropriate for each expenditure. Whenever an
expenditure relates to an existing condition caused by past operations and
does not contribute to future revenues, the expenditure is expensed currently.
Liabilities are recorded when remedial efforts are probable and the cost can
be reasonably estimated.
EARNINGS PER SHARE - Earnings per common and common equivalent share are
computed by dividing the net income by the weighted average number of common
shares, and if dilutive, common stock equivalent shares (options and warrants)
outstanding during the respective period. Fully diluted earnings per share is
not materially different than primary earnings per share and has not been
presented. The number of shares used in the earnings per share computation is
1,056,191 for 1995 and 691,300 for 1994.
COMPENSATED ABSENCES - Employees of the company are entitled to paid vacation
and paid sick days off, depending on length of service and other factors.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates of
deposit or cash in local banks. See Note 2.
RECLASSIFICATIONS - Certain 1994 amounts have been reclassified to conform
with the 1995 presentation.
USE OF ESTIMATES - The process of preparing financial statements in conformity
with generally accepted accounting principles requires the use of estimates
and assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and
events as of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from estimated amounts.
NOTE 2 -- CASH - RESTRICTED
The company has revolving bank credit facilities (See Note 7) which require
the use of depository accounts called collateral accounts from which collected
funds are transferred to the lender. The lender then applies these
collections to the revolving credit facilities. These accounts are controlled
by the lender.
NOTE 3 -- PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
Description 1995 1994
Land $ 1,037,170 $ 1,032,514
Buildings and improvements 4,113,280 3,980,515
Delivery equipment 2,446,471 2,495,329
Operating equipment 3,264,448 2,079,841
General and administrative 331,205 330,801
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<PAGE>
Office equipment 96,315 96,315
Marketing equipment 79,815 79,815
11,368,704 10,095,130
Accumulated depreciation (5,601,000) (5,533,417)
Net property and equipment $ 5,767,704 $ 4,561,713
For the years ended August 31, 1995 and 1994, the company deducted
depreciation of $587,388 and $441,098, respectively.
NOTE 4 -- NOTES RECEIVABLE - RELATED PARTIES
The company has two outstanding notes receivable from its minority interest
shareholder (100% preferred stockholder of Graves) in the amounts of $550,000
and $100,000. The $550,000 note is due October 1, 1997, and is secured by
real estate. However, if the underlying security is sold prior to
satisfaction of this note, then one half of the lesser of the outstanding
balance or the sale proceeds of the security will be applied to reduce the
liquidation preference of the preferred stock, and the remaining one half will
be applied to reduce the note payable to Theron Graves. Interest is
receivable semiannually and is determined at each anniversary based on
Citibank of New York prime plus 2%. The interest rate at August 31, 1995 and
1994, was 11% and 8.25%, respectively. The $100,000 note is unsecured and is
due October 1, 1997, with interest accrued from September 28. Interest is
computed semiannually at Citibank of New York prime plus 2%, being 11% and
8.25% at August 31, 1995 and 1994, respectively. Accrued interest receivable
at August 31, 1995 and 1994, totaled $73,625 and $48,919, respectively.
NOTE 5 -- INTANGIBLES
Intangible assets consist of organization costs of $3,000, net of accumulated
amortization of $1,200 and $600 for the years ended August 31, 1995 and 1994,
respectively, and a five-year covenant not to compete agreement resulting from
the acquisition of Southwest Petroleum on September 1, 1990, of $76,479 at
August 31, 1995 and 1994, net of accumulated amortization of $68,831 and
$53,536, respectively, and a liquor license acquired in 1991 at a cost of
$95,000.
NOTE 6 -- INVESTMENTS IN CLOSELY HELD BUSINESS
The company owns 50% of the Graves Rio Rancho No. 1 Ltd Co. The investment
was acquired in May 1994 for $110,000. The company reports the investment in
the limited liability company using the equity method. This investment is not
publicly traded. The members of Graves Rio Rancho No. 1 Ltd. Co. set a fair
market value of their company at $220,000.
NOTE 7 -- NOTES PAYABLE
Notes payable at August 31, 1995 and 1994, consisted of the following:
1995 1994
Revolving bank credit facility, payable to
Norwest Business Credit, Inc., bearing interest
at Norwest Bank Minnesota, N.A., base rate
plus 2.5%, being 11.25% for 1995 and 9.75% for
1994. Due June 1998. Collateralized by trade
accounts receivable and inventory of Graves Oil &
Butane Co., Inc. Unused credit at August 31,
1995, was $1,061,474. $1,938,526 $2,700,165
Revolving bank credit facility payable to Norwest
Business Credit, Inc., bearing interest at Norwest
Bank Minnesota, N.A., base rate plus 2%, being
10.75%. Due June 30, 1998. Collateralized
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<PAGE>
by trade accounts receivable and inventory of
Hillger Oil Company. Unused credit at August 31,
1995, was $1,499,364. 63,559
Total notes payable $2,002,085 $2,700,165
The agreements require the company to maintain certain net worth and
performance ratio levels. As discussed in Note 2, payments on these loans are
made through collateral cash accounts in the name of the lender.
NOTE 8 -- LONG-TERM DEBT
Long-term debt at August 31, 1995 and 1994, consisted of the following:
1995 1994
Note payable, Theron Graves, semiannual
payments of $200,000, including interest
at prime plus 2% per annum. Collateralized
by half of Graves common stock. Matures
October 1997. $2,040,921 $2,244,200
Note payable, First National Bank
of Farmington, monthly payments
of $19,000 including interest at prime
plus 2% per annum. Collateralized by
mortgage on buildings and land.
Matures January 1996. 448,709 620,108
Note payable, Federal Land Bank of
Durango, payments of $350 monthly
including interest at 8.25% per annum
(variable rate), collateralized by mortgage on
house and land in Pagosa Springs, Colorado.
Matures in June 2011. 43,364
Note payable, Norwest Business Credit,
Inc., monthly payments of $10,417
plus interest at Norwest Bank of
Minnesota, N.A. base rate plus 3.0%,
being 11.75% per annum, collateralized by
property and equipment. Due June 30, 1998. 354,166
Lease payable, Norwest Equipment
Finance, Inc., monthly payments of $2,276.68
including interest at 8.04% per annum,
collateralized by equipment. Matures
December 1997. 54,159 76,156
Lease payable, Norwest Equipment
Finance, Inc., monthly payments of $306.23
including interest at 10.00% per annum,
collateralized by equipment. Matures July 1998. 9,034 11,661
Lease payable, Dericks Leasing & Financial
Company, monthly payments of $627.68
including interest at 17.93% per annum,
collateralized by equipment. Matures June 1997. 10,783 15,873
Total 2,917,772 3,011,362
Current portion (822,112) (407,736)
Long-term debt, net $2,095,660 $2,603,626
The following is a schedule by years of the repayment of long-term debt:
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<PAGE>
Year ending
August 31, Amount
1996 $ 822,112
1997 364,761
1998 1,730,899
$2,917,772
NOTE 9 -- MINORITY INTEREST IN SUBSIDIARY
The Series A Convertible Preferred Stock of Graves Oil & Butane Co., Inc., is
limited voting stock and is entitled to cumulative annual dividends at a rate
of 8% of the liquidation value per annum. These securities are convertible
into common stock of Graves or Meteor at the bid price on the date of
conversion or 22.2% of the company whichever calculation yields fewer shares.
The record holder has the right to vote on matters which affect the rights of
the class and to elect two of the seven members of the board of directors. In
the event of default under the Meteor promissory note issued to purchase the
Graves common stock, the holder of the Series A Convertible Preferred Stock
has the ability to elect all of the Graves directors. The company may at any
time redeem all or any portion of the Series A Convertible Preferred Stock
outstanding at an amount equal to the liquidation value plus any accrued and
unpaid dividends. At any time after September 15, 2000, the record holder
shall have the right to have the company redeem all or any portion of the
shares outstanding at the price stated above. No dividends were declared by
the board of directors. Dividends in arrears amount to $.56696 and $.28348
per share or $566,960 and $283,480 as of August 31, 1995 and 1994,
respectively.
Included in the minority interest component of the statement of income for the
year ended August 31, 1995, are dividends in arrears of $283,480, and $97,782
which represent the accretion of the preferred stock discount.
The minority interest component for the year ended August 31, 1994, included
dividends in arrears of $283,480, a deemed dividend of $121,881, which
represents the minority interest's share of the difference between the
purchase price and the book value of Graves at the time of acquisition and
$87,568, which represents the accretion of preferred stock discount.
NOTE 10 -- STOCKHOLDERS' EQUITY
During the year ended August 31, 1995, the company issued 372,373 shares of
the company's common stock for a total of $760,863. On July 9, 1995, the
company distributed 65,030 shares of common stock in connection with an 8%
stock dividend. As a result of the stock dividend, common stock was increased
by $65, and additional paid-in capital was decreased by $65.
On August 31, 1995, the company issued 100,000 stock options to outside
consultants in connection with the various completed and pending acquisitions.
The options issued have an exercise price of $2.50 and expire June 30, 1996.
NOTE 11 -- PREFERRED STOCK
During the year ended August 31, 1994, the company sold 160,000 shares of
preferred stock, which was designated as Series A, for $160,000. The shares
had a liquidation preference of $1.00 each, paid no dividends, had limited
voting rights, and were convertible into the company's common stock on a
one-for-one basis. The shares were required to be redeemed by the company on
August 31, 1998, at $1.25 per share if they were not converted earlier. The
shares were converted into the company's common stock on January 24, 1994,
when an offering circular covering the issuance of such common stock was
closed.
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NOTE 12 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
1995 1994
Current tax expense $ $ 207
Deferred tax expense (benefit) (191,650) (28,769)
Total provision $ (191,650) $ (28,562)
The following reconciles the tax provision with the expected provision
obtained by applying statutory rates to pre-tax income:
1995 1994
Expected tax provision $ (13,368) $ (3,126)
Nondeductible expenses 2,157 1,159
Benefit of NOL carryover (1,872) (50,060)
Change in temporary differences (176,820) 25,048
Income tax benefits of other tax
jurisdictions (1,747) (1,583)
Total provision $ (191,650) $(28,562)
A consolidated tax return will be filed with the subsidiaries of Meteor
Industries, Inc. The provision for income taxes was calculated by using a
method that allocates current and deferred taxes to members of the group by
applying the Financial Accounting Standards Board Statement 109 to the members
as if they were separate taxpayers. The deferred tax asset (liability) in the
accompanying balance sheet includes the following components:
1995 1994
Current:
Deferred tax asset, federal $ 224,927 $ 124,896
Deferred tax asset, state 32,966 10,513
Net current deferred asset $ 257,893 $ 135,409
Noncurrent:
Deferred tax liability, federal $ (957,120) $ (401,825)
Deferred tax liability, state (75,550) (54,844)
Net noncurrent deferred tax liability $(1,032,670) $ (456,669)
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<PAGE>
The following temporary differences gave rise to the deferred tax asset and
deferred tax liability at August 31, 1995 and 1994:
1995 1994
Excess of tax amortization and depreciation
over financial accounting amortization and
depreciation $ 2,933,026 $1,181,842
Accrued expenses deducted for financial
accounting purposes, not deductible for tax
purposes until paid $ (269,403) $
Net operating loss and contribution carryovers $ (370,076) $ (364,572)
The deferred tax asset and deferred tax liability comprised the following at
August 31, 1995 and 1994:
Deferred tax asset:
1995 1994
Net operating loss and contribution carryovers $ 148,030 $ 135,409
Inventory and accounts receivable 88,410
Employee benefits 21,453
$ 257,893 $ 135,409
Deferred tax liability:
Depreciation and amortization $ 1,032,670 $ 456,669
The company has available at August 31, 1995, $364,064 of unused operating
loss carryforwards that may be applied against future taxable income and that
expire as follows:
August 31, 2007 $105,877
August 31, 2009 180,757
August 31, 2010 77,430
NOTE 13 -- RETIREMENT PLANS
Graves Oil & Butane Company, Inc., adopted a 401(k) profit sharing plan
effective January 1, 1994. In order to be eligible to participate in the
plan, the employee must have completed 12 months of employment and be credited
with a year of service, and must have attained age 21. Excluded from the plan
are employees whose employment is governed by a collective bargaining
agreement that includes retirement benefits. Contributions to the plan are
voluntary through a salary reduction agreement up to a maximum of 15% of
compensation. Matching contributions and other additional contributions may
be made by the employer at the employer's discretion. For the year ended
August 31, 1995, the amount of pension expense was $26,779. For the year
ended August 31, 1994, no matching contributions had been made.
Hillger Oil Company adopted a 401(k) profit sharing plan effective April 1,
1994. In order to be eligible to participate in the plan, the employee must
have completed 12 months of employment and be credited with a year of service,
and must have attained age 21. No employees were excluded from the plan.
Contributions to the plan are voluntary through a salary reduction agreement
up to a maximum of 15% of compensation. Matching contributions and other
additional contributions may be made by the employer at the employer's
discretion. For the five months ended August 31, 1995, the amount of pension
expense was $9,421.
Prior to acquisition, Hillger Oil Company had adopted a defined benefit plan.
Participation in the plan required an employee to complete one year of service
and be at least 21 years old. Participants were vested in their accounts over
a period of six years. The employer had a fixed obligation to contribute each
plan year to the trust fund the amount the plan's actuary determined was
necessary to fund retirement benefits under the plan. Plan assets consist
primarily of investments in corporate debt and equity securities. The plan
was terminated effective March 31, 1995, prior to the acquisition by Meteor
Industries, Inc. The plan assets have not yet been settled.
NOTE 14 -- RELATED PARTY TRANSACTIONS
The company uses space, telephone and secretarial services of a company
controlled by officers of Meteor Industries, Inc. Rent is currently $1,000
per month and secretarial services are currently $2,000 per month. Other
expenses are reimbursed to the company as invoiced. For the years ended
August 31, 1995 and 1994, the total amount paid to the company was $32,272 and
$18,946, respectively. At August 31, 1995 and 1994, amounts payable to
related parties were $1,500 and $2,827, respectively.
During the year ended August 31, 1994, the company repaid advances made by
various officers for acquisition costs incurred in the prior year. The total
amount repaid was $11,750.
During the year ended August 31, 1994, Almo Industries loaned $10,000 to the
company. The loan, including interest at 5% per annum and 500 shares of
common stock, was repaid from the proceeds of the company's public offering.
During the year ended August 31, 1994, the company received $10,000 from a
stockholder of Meteor Industries, Inc. The note was repaid with interest of
$141.
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<PAGE>
During the year ended August 31, 1995, the company controlled by officers of
Meteor Industries, Inc., loaned the company $95,000. This amount was repaid
with interest in the amount of $1,876.
The company also reimbursed officers for out-of-pocket expenses and some
consulting services. For the year ended August 31, 1995, total amounts paid
to officers was $37,356. Also during the year, an officer loaned the company
$46,000 which is included in the balance sheet as due to related parties.
Included in the amount of stock issued during the year ended August 31, 1995,
as discussed in Note 10, were 5,373 shares issued to the subsidiaries
retirement plan as an employer matching contribution in the amount of $26,779.
The following are transactions that occurred with the minority interest (100%
preferred stockholder) in Graves Oil & Butane Co., Inc:
The company leases certain real estate from the preferred stockholder. For
the years ended August 31, 1995 and 1994, rents paid were $57,286 and $53,000,
respectively.
The company has land, buildings, and equipment in Springerville, Arizona, and
equipment in St. Johns, Arizona, which are used by a relative of its preferred
stockholder. The company does not charge for the use of its properties but
receives revenue from the sale of its products. During the years ended August
31, 1995 and 1994, revenues reported amounted to $413,987 and $567,995,
respectively.
The company sells its products to other entities controlled by the preferred
stockholder. During the years ended August 31, 1995 and 1994, revenues
reported amounted to $1,152,825 and $558,939, respectively.
The preferred stockholder is indebted to the company on two notes totaling
$650,000 as described in Note 4. Interest receivable at August 31, 1995 and
1994, was $73,625 and $48,919, respectively. Interest received during the
years ended August 31, 1995 and 1994, was $41,393 and $29,360, respectively.
The company has entered into a consulting agreement with its preferred
stockholder which provides for payments of $1,500 per month and the use of a
vehicle; fuel for such vehicle; a personal automobile; health, life,
disability, and automobile insurance; and reimbursement of various expenses
including club dues. During the years ended August 31, 1995 and 1994, the
fees paid were $30,021 and $24,606, respectively.
As discussed in Note 19, the company has entered into a purchase agreement
with Mr. Graves in which a note payable in the amount of $2,350,000 was
established. See Note 8. For the years ended August 31, 1995 and 1994,
interest paid on the note was $196,722 and $94,200, respectively. As of
August 31, 1995 and 1994, accrued interest was $94,106 and $90,000,
respectively. Pursuant to the purchase agreement, additional land in the
amount of $83,853 was contributed to the company.
Other transactions:
Hillger Oil Company leases various real property and equipment from a company
in which an employee is a stockholder. Included in rent expense is $208,950
paid to the related party for the five months ended August 31, 1995.
NOTE 15 -- ENVIRONMENTAL PROTECTION EXPENDITURES
The company utilizes underground tanks at various locations to store petroleum
products and is therefore subject to the various federal and state statutes
concerning environmental protection, as well as the New Mexico Ground Water
Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate
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<PAGE>
operations engaged in hazardous activities, and establish procedures for
remedial action as necessary.
The state of New Mexico has recognized the potential cleanup costs resulting
from such regulations, and the New Mexico Ground Water Protection Act has
included the establishment of a corrective action fund. The purpose of the
fund is to provide monetary assistance in both assessing site damage and
correcting the damage where such costs are in excess of $10,000. Assistance
is not available to repair or replace underground tanks or equipment. The law
specifies requirements which must have been met for an applicant to be
eligible, including a provision that payments will be made in accordance with
regulations (which have not yet been issued), and states that payment from the
corrective action fund are limited to amounts in that fund.
The company is responsible for any contamination of land it owns or leases.
However, the company may have limitations on any potential contamination
liabilities as well as claims for reimbursement from third parties. During
the years ended August 31, 1995 and 1994, the company expended $47,013 and
$69,702, respectively, for site assessment and related cleanup costs.
Reimbursement from the state of New Mexico for the year ended August 31, 1995,
amounted to $23,485. Included in other assets at August 31, 1995, are
unreimbursed costs of $86,982.
NOTE 16 -- PURCHASE COMMITMENTS
The company is contingently liable for certain costs associated with leasehold
improvements made by a supplier on property of customers of Graves Oil &
Butane Co., Inc. The liability for the costs is amortized over a five-year
period with the company becoming responsible for payment to the supplier if
fuel purchases fail to meet certain volumes. Originally, the company was
contingently liable on $84,576 in unamortized costs. At August 31, 1995 and
1994, the company was contingently liable on $31,175 and $52,116,
respectively, in unamortized costs. For the years ending August 31, 1995 and
1994, the company made payments to the supplier totaling $8,480 and $4,228,
respectively, for periods when purchase commitments were not met. Future
losses, if any, cannot be estimated at this time.
NOTE 17 -- OPERATING LEASES
The company has entered into various noncancelable leases for land, building,
and equipment with terms ranging from 3 to 15 years. Under most leasing
arrangements, the company pays the property taxes, insurance, maintenance, and
expenses related to the leased property. Total rent expense under operating
leases for the years ended August 31, 1995 and 1994, was $466,106 and
$164,069, respectively.
Minimal future obligations on leases in effect at August 31, 1995, are:
August 31, 1996 $ 731,532
August 31, 1997 730,537
August 31, 1998 745,138
August 31, 1999 733,031
Thereafter 3,456,615
Annual minimum future rental payments have not been reduced by $42,000 of
sublease rentals to be received in the future under non-cancelable subleases.
NOTE 18 -- CAPITAL LEASES
As of August 31, 1995 and 1994, leased property under capital leases by major
classes was as follows:
1995 1994
Buildings and improvements $ 18,141 $ 18,141
Operating equipment 94,117 94,117
General and administrative 12,175 12,175
Accumulated amortization (36,286) (12,096)
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<PAGE>
Net leased property $ 88,147 $112,337
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments as of August 31, 1995:
August 31, 1996 $ 38,527
August 31, 1997 36,016
August 31, 1998 7,616
Total minimum lease payments 82,159
Less: amount representing interest (8,183)
Present value of minimum lease payments $ 73,976
NOTE 19 -- BUSINESS COMBINATION
On June 12, 1995, Meteor Industries, Inc. acquired 100% of the issued and
outstanding common stock (2,500 shares, $100 par value) of Hillger Oil Company
for cash. The acquisition was effective as of April 1, 1995. As part of the
purchase agreement, all of the long-term debt of Hillger Oil Company was
reorganized. At closing, Hillger Oil Company obtained a new revolving credit
line and a term note, the terms of which are discussed in Notes 7 and 8. A
total of $875,000 was borrowed at closing to payoff existing debt and
consummate the transaction. The results of operations of Hillger Oil Company
are included in the accompanying financial statements since the effective date
of the acquisition. The acquisition was accounted for as a purchase and "push
down accounting" was applied, with the result that purchase accounting
adjustments were reflected in the accounting of the company. The total cost
of acquisition exceeded the net assets of Hillger Oil Company by $1,123,144.
Part of the excess was allocated to property and equipment based on appraised
values and will be depreciated over the estimated remaining useful lives of
the assets. The remaining excess was recorded as goodwill and is being
amortized on the straight line method over 15 years.
Effective September 1, 1993, Meteor Industries, Inc., purchased 100% of the
common stock of Graves Oil & Butane Co., Inc., for cash and notes amounting to
$4,100,000. Additional costs of $281,750 were incurred in the acquisition.
Graves Oil & Butane Co., Inc., sells petroleum products at the wholesale and
retail level. The business combination was accounted for under the purchase
method. Results of operations of Graves for the years ended August 31, 1995
and 1994, are included in the income statements of Meteor Industries, Inc. As
part of the acquisition, a note payable to the preferred stockholder of Graves
in the amount of $2,350,000 was incurred. The note payable was included in
long-term debt, which is detailed in Note 8.
NOTE 20 -- SUBSEQUENT EVENTS
In October 1995 the company formed Pyramid Stores, Inc., a Colorado
corporation, as a wholly owned subsidiary to hold all of the stock of Graves
Oil & Butane Co., Inc., and Hillger Oil Company and operate those companies
separately from the company's other activities.
In November 1995, the company issued 1,745,000 shares of its common stock in
exchange for all the outstanding stock of Capco Resources, Inc., (CRI) a
Delaware corporation, which is a U.S. subsidiary of Capco Resources, Ltd. The
shares of the company's common stock issued represent approximately 58% of the
shares now outstanding. The shares were issued to Capco Resources, Ltd.
(Capco), an Alberta corporation which is listed on the Alberta Stock Exchange.
As a result of this transaction, there was a change in control of the company
and two of the company's three directors were replaced by Capco
representatives. The major assets of CRI include: (I) an interest in Saba
Power Company Ltd., which is involved in the development of a power plant in
Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a
California environmental services firm; and
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<PAGE>
(iii) a $1,516,000 promissory note from Saba Petroleum Company and other
miscellaneous assets.
NOTE 21 -- STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock options and
nonqualified stock options to the company's key employees was approved by the
company's stockholders on April 15, 1993. Pursuant to the plan, 500,000
shares of the company's $.001 par value common stock have been reserved for
issuance. Such shares will be issued upon the exercise of options at prices
not less than 100% of fair market value at the time the option is granted.
The options so granted do not vest and are not exercisable by the holder
except on the continued employment of the recipient. Options issued to each
employee vest in equal installments on the anniversary dates of the date the
options were granted. Options have been granted as follows:
Number of Exercise Price Vesting
Date options granted Options Per share Period
October 1, 1993 64,000 $3.00 5 years
February 1, 1994 49,600 $5.25 3 years
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Meteor Industries, Inc.
We have audited the accompanying balance sheet of Meteor Industries, Inc. as
of August 31, 1993 and the related statement of operations, changes in
stockholders' equity and cash flows for the period from December 22, 1992
(inception) to August 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepting auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Meteor Industries, Inc. as of
August 31, 1993 and the results of its operations and its cash flows for the
period from December 22, 1992 (inception) to August 31, 1993 in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand
COOPERS & LYBRAND
Denver, Colorado
February 16, 1994
F-41
<PAGE>
METEOR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AUGUST 31, 1993
ASSETS
Current assets
Cash $ 206
Other assets
Organization costs 3,000
Acquisition costs 41,481
Deferred financing costs 34,000
Other 294
78,775
Total assets $ 78,981
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 36,181
Accounts payable-related parties 11,750
Total liabilities 47,931
Stockholders' equity
Preferred stock $1.00 par value per share,
1,000,000 shares authorized and -0- shares
issued 0
Common stock $.001 par value per share,
10,000,000 shares authorized and 475,000
shares issued and outstanding 475
Additional paid in capital 30,575
Total stockholders' equity 31,050
Total liabilities and stockholders' equity $ 78,981
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
METEOR INDUSTRIES, INC.
STATEMENT OF OPERATIONS
PERIOD FROM DECEMBER 22, 1992 (INCEPTION)
TO DECEMBER 31, 1993
Income $ 0
Expense 0
Net income during Development Stage $ 0
Net Income per share of Common Stock $ 0
Weighted Average Shares Outstanding 358,500
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
METEOR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
PERIOD FROM DECEMBER 22, 1992 (INCEPTION)
TO AUGUST 31, 1993
COMMON STOCK ADD'L
--------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
Balance December
22,1992 (inception) 0 $ 0 $ 0 $ 0 $ 0
Stock for services
April 14,1993($.003
per share) 90,000 90 210 0 300
Stock for Cash Ad-
vanced for Costs
April 15,1993($.003
per share) 150,000 150 350 0 500
June 15,1993 ($.03
per share) 30,000 30 970 0 1,000
June 25,1993 ($.03
per share) 120,000 120 3,880 0 4,000
July 12,1993 ($.20
per share) 5,000 5 995 0 1,000
August 18,1993($.50
per share) 2,000 2 998 0 1,000
Stock for Cash
July 12, 1993 ($.20
per share) 25,000 25 4,975 0 5,000
July 12, 1993 ($.20
per share) 15,000 15 2,985 0 3,000
July 19, 1993 ($.20
per share) 12,500 12 2,488 0 2,500
August 16,1993($.50
per share) 25,500 26 12,724 0 12,750
Net Income 0 0 0 0 0
Balance August 31,
1993 475,000 $475 $30,575 0 $31,050
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
METEOR INDUSTRIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM DECEMBER 22, 1992 (INCEPTION)
TO AUGUST 31, 1993
Cash provided by operations
Net Income $ 0
Cash provided by operations 0
Cash provided by financing activities
Proceeds from borrowings from related parties 9,250
Issuance of stock for cash 23,250
Deferred financing costs (32,000)
Other (294)
Cash provided by financing activities 206
Net increase in cash 206
Cash, beginning of period 0
Cash, end of period 206
Supplemental schedule of non-cash investing and
financing activities:
Issuance of 397,000 shares of common stock for
acquisition costs incurred by related parties $ 7,800
Accounts payable to related parties for
acquisition costs paid on behalf of the
Company $ 2,500
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
METEOR INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Meteor Industries, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on December 22, 1992. The Company is in the development
stage of operations. Planned principal operations of the Company had not yet
commenced on August 31, 1993, and activities to date have been limited to its
formation, obtaining initial capitalization of $31,050 through the issuance of
475,000 shares of common stock, entering into an agreement to acquire Graves
Oil & Butane Co., Inc. ("Graves") and preparing a confidential private
placement memorandum related to the sale of 160,000 shares of the Company's
preferred stock.
DEFERRED FINANCING COSTS
These costs represent the cost of obtaining the line of credit for the
acquisition of Graves (See Note 5). These costs will be amortized over the
term of the agreement.
ACQUISITION COSTS
Acquisition costs represent direct costs incurred associated with the
acquisition of Graves (See Note 5). These costs will be allocated as part of
the purchase.
ORGANIZATION COSTS
Organization costs will be amortized over 5 years.
INCOME TAXES
The Company has recorded no income taxes as it has had no income or
expenses.
INCOME PER SHARE
The net income per share of common stock is computed by dividing the net
income by the weighted average number of common shares outstanding during the
year.
NOTE 2 - PREFERRED STOCK
The preferred stock may be issued by the Board of Directors in more than one
series. The Board will determine the distinguishing features of each
including preference, rights and restrictions, upon the establishment of each
series.
Subsequent to August 31, 1993, the Company sold 160,000 shares of preferred
stock for $160,00, including $10,000 to related parties, which was designated
as Series A. The Shares had a liquidation preference of $1.00 each, paid no
dividends, had limited voting rights, and were convertible into the Company's
common stock on a one-for-one basis. The Shares were required to be redeemed
by the Company on August 31, 1998 at $1.25 per share if they were not
converted earlier. The Shares were converted into the Company's common stock
on January 24, 1994 when an Offering Circular covering the issuance of such
common stock was closed. Such common stock is subject to certain restrictions
on transfer imposed by the underwriter of the public offering.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Company issued 30,000 common shares each, to its President, its Secretary
and to Almo Industries in exchange for services valued at $300, which was
based on time spent in the organization of the Company.
F-46
<PAGE>
The Company issued 270,000 common shares to its President for cash advanced
for acquisition costs of $4,500, 15,000 common shares for cash of $3,000, and
10,000 common shares to his wife for cash of $5,000.
The Company issued 20,000 common shares to Almo Industries for cash of $6,250.
The Company's President advanced $3,500, the secretary advanced $6,000, Almo
Industries advanced $1,250 and a company controlled by the President and
Secretary advanced $1,000 for acquisition costs. These amounts are included
in accounts payable at August 31, 1993.
The Company uses space, telephone and secretarial services of a company
controlled by the President and Secretary. Subsequent to August 31, 1993 the
Company began paying $400 a month for the space, telephone and services.
Subsequent to August 31, 1993 Almo Industries loaned $10,000 to the Company.
The loan, including interest at 5% per annum and 500 shares of common stock,
is to be repaid from the proceeds of the Company's public offering.
Subsequent to August 31, 1993, the Company entered into a 5 year employment
agreement with its president which renews automatically every year. The
Company, however, can terminate the president, without cause, and will be
obligated for one year's salary.
NOTE 4 - STOCK OPTION PLAN
On April 15, 1993, the Company's Board of Directors authorized an Incentive
Stock Option Plan and reserved 500,000 shares of the Company's $.001 par value
common stock for key employees. The Board of Directors is authorized to
determine the exercise price, the time period, the number of shares subject to
the option and the identity of those receiving the options. As of August 31,
1993, no stock options had been granted pursuant to this plan. On October 1,
1993, 65,000 options were granted with an exercise price of $3.00 per share.
NOTE 5 - SUBSEQUENT EVENTS
On September 28, 1993, and effective September 1, 1993, the Company completed
its acquisition of all of the outstanding common stock of Graves. Graves had
total assets and stockholders equity of approximately $9,700,000 and
$6,200,000, respectively, as of August 31, 1993. The Purchase price for the
common stock was $4,100,000 paid in the form of $1,750,000 of cash and the
discharge of certain of the Seller's obligations at closing and a $2,350,000
promissory note payable over the next four years which bears interest at 2%
over prime. In connection with the acquisition the Company guaranteed a line
of credit with Norwest Business Credit, Inc. of up to $4,000,000 subject to
the borrowing base of Graves. In addition an officer of the Company has
personally guaranteed up to $250,000 on amounts outstanding under the line of
credit. At closing $1,850,000 was borrowed.
On January 24, 1994, the Company completed its offering of 200,000 common
shares at a price of $5.00 per share in a public offering underwritten on a
firm commitment basis by VTR Capital, Inc. After deducting offering expenses,
the Company netted approximately $837,500 from this offering. In connection
with the offering the Company issued warrants to purchase 17,000 shares of
common stock to the underwriter. The warrants are exercisable at a price of
$6.00 per share for a 5 year period commencing January 14, 1995. Also, the
Company entered into a contract with the underwriter to consult on financial
matters and provide investment banking services for a 12 month period for a
fee of $25,000.
F-47
<PAGE>
PRICE WATERHOUSE
Chartered Accountants
1200, 425 - 1st Street S.W.
Calgary, Alta. T2P 3V7
403/267-1200
Telecopier: 403/233-0883
May 17, 1995, except for Notes 3, 5, 10(b), 10(c) and 10(d) which are as of
September 15, 1995 for Notes 3(a) and 10(c) December 1, 1995, for Notes 3(b)
and 10(b) and December 29, 1995 for Notes 5 and 10(d)
AUDITORS' REPORT
To the Shareholder of
CAPCO Resources Inc.
We have audited the consolidated balance sheet of CAPCO Resources Inc. as at
December 31, 1994 and 1993 and the consolidated statements of operations and
retained earnings (deficit) and changes in financial position for the three
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
1994 and 1993 and the results of its operations and the changes in its
financial position for the three years then ended in accordance with Canadian
generally accepted accounting principles.
/s/ Price Waterhouse
Chartered Accountants
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by significant uncertainties such as that referred to
in the attached consolidated balance sheet of CAPCO Resources Inc. as at
December 31, 1994 and 1993 and as described in Note 2 of the consolidated
financial statements. Our report to the shareholders dated May 17, 1995,
except for Notes 3, 5, 10(b), 10(c) and 10(d) which are as of September 15,
1995 for Notes 3(a) and 10(c), December 1, 1995, for Notes 3(b) and 10(b) and
December 29, 1995 for Notes 5 and 10(d) is expressed in accordance with
Canadian reporting standards which do not permit a reference to such an
uncertainty in the auditors' report when the uncertainty is adequately
disclosed in the financial statements.
/s/ Price Waterhouse
Chartered Accountants
F-48
<PAGE>
CAPCO RESOURCES INC.
CONSOLIDATED BALANCE SHEET
(in U.S. dollars)
December 31
1994 1993
ASSETS
Current assets
Cash $ 1,277 $ -
Accounts receivable 124,263 -
125,540 -
Capital assets (Note 4) 250,344 -
Other assets
Investment in Saba Power Company Limited
(Note 5) 150,865 -
Deposits and other 12,776 -
Net assets from discontinued operations
(held primarily through shares of other
companies) (Note 3) 572,036 660,023
$1,111,561 $ 660,023
LIABILITIES
Current liabilities
Accounts payable $ 287,814 $ -
Accrued liabilities 114,729 -
402,543 -
SHAREHOLDER'S EQUITY
Share capital
Authorized
10,000 of $.01 par value common voting
shares
Issued and outstanding
100 common voting shares 100 100
Contributed surplus 511,920 511,920
Retained earnings 196,998 148,003
709,018 660,023
$1,111,561 $ 660,023
Commitments and contingencies
(Notes 5, 8 and 10)
Approved by the Board ______________________ Director
______________________ Director
F-49
<PAGE>
CAPCO RESOURCES INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(DEFICIT)
(in U.S. dollars)
Year ended December 31
1994 1993 1992
Revenue
Analytical services and other $ 472,148 $ - $ -
Expenses
General and administrative 577,024 2,282 -
Depreciation and amortization 24,656 - -
601,680 2,282 -
(Loss) for the year before
discontinued operations (129,532) (2,282) -
Income from discontinued
operations (Note 3) 178,527 690,624 765,220
Net income for the year 48,995 688,342 765,220
Retained earnings (deficit),
beginning of year 148,003 (540,339) (1,305,559)
Retained earnings (deficit),
end of year $ 196,998 $ 148,003 $ (540,339)
(Loss) per share from
continuing operations $(1,295.32) $ (22.82) $ -
Earnings per share $ 489.95 $6,883.42 $ 7,652.20
F-50
<PAGE>
CAPCO RESOURCES INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(in U.S. dollars)
Year ended December 31
1994 1993 1992
Cash provided by (used in)
operating activities
Loss for the year before
discontinued operations $ (129,532) $ (2,282) $ -
Items not affecting cash
Depreciation and amortization 24,656 - -
(104,876) (2,282) -
Net change in non-cash working
capital deficiency 278,280 - -
Cash provided by (used in)
discontinued operations 266,514 2,282 (511,920)
439,918 - (511,920)
Cash used in investing activities
Purchase of capital assets (275,000) - -
Investment in Saba Power
Company Limited (Note 5) (150,865) - -
Deposits and other (12,776) - -
(438,641) - -
Cash provided by (used in) financing
activities
Issue of share capital - 100 -
Contributed surplus - - 511,920
Increase in notes receivable,
related party - (100) -
- - 511,920
Net change in cash for the year 1,277 - -
Cash, beginning of year - - -
Cash, end of year $ 1,277 $ - $ -
Supplemental disclosure of cash
flow information
Cash paid during year for Interest
in discontinued operations $1,071,405 $790,960 $ 440,078
Income taxes in discontinued
operations $1,315,480 $ 72,064 $ 112,873
F-51
<PAGE>
CAPCO RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
(In U.S. dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in Canada.
Underlying these principles is the assumption that the Company will be able to
realize its assets and pay its liabilities in the normal course of business
(refer to Note 2). The more significant of the Company's accounting policies
are:
a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiary, CAPCO Analytical Services Inc. Oil and gas and other
miscellaneous operations were treated as discontinued operations as a
definitive merger agreement which contemplated the sale of these assets was
signed January 20, 1995 (see Note 3).
b) ANALYTICAL EQUIPMENT
Analytical equipment is stated at cost less accumulated depreciation.
Depreciation of equipment is provided principally on the straight-line method
over the estimated useful life of the equipment, ranging from three to seven
years.
c) INVESTMENT IN SABA POWER COMPANY LIMITED
The investment in Saba Power Company Limited is recorded using the equity
method. All operations to date have been pre-operational project development
costs and such costs have been capitalized.
d) EARNINGS PER SHARE
Earnings per share is calculated using the weighted monthly average number of
shares outstanding.
2. CORPORATE ITEMS
a) FINANCIAL ITEMS
At December 31, 1994, the Company had a working capital deficiency of
$277,003. The Company's ability to continue as a going concern and to realize
its assets and to discharge its liabilities (see Notes 3 and 5) is dependent
upon the Company obtaining profitable operations or receiving financial
support from its controlling shareholder.
b) CONTROL
At December 31, 1994, the Company was indirectly controlled by an individual
who indirectly held 85.29% of the issued common shares of the parent company,
CAPCO Resources Ltd. (see Note 10(b)).
c) CAPCO ANALYTICAL SERVICES INC.
In April 1994, the Company formed CAPCO Analytical Services, Inc. ("CAS").
CAS acquired $275,000 in assets to be used in laboratory analyses. CAS
assumed liabilities related to the assets of $230,000 and agreed to pay the
remaining $45,000 by providing discount laboratory analysis to the seller.
F-52
<PAGE>
d) ACCOUNTING PRESENTATION
The Company was incorporated in October 1993 and commenced operations when the
U.S. assets of its parent company were transferred to it for corporate
planning purposes. The historical comparative financial information has been
presented as if the Company owned the assets from the time acquired by the
parent company as the purchase transaction occurred between companies under
common control. Subsequent to December 31, 1994, the majority of the assets
transferred by its parent company to the Company were transferred to a related
party or sold, and accounted for as discontinued operations.
3. DISCONTINUED OPERATIONS
a) On September 15, 1995, the Company sold the shares of Saba de Colombia,
Inc., a U.S. subsidiary engaged in the exploration and development of
petroleum and natural gas in Colombia, to a third party for fair market value
of $2,601,719, and realized a gain net of taxes on the sale of the shares of
$1,426,395. The consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible, redeemable
first preferred shares of Petrosandtander
Inc. bearing dividends at 8.5% per annum 200,000
$2,601,719
$150,000 and the preferred shares remain in escrow pending review by Colombian
taxing authorities.
b) On December 1, 1995, the Company transferred to CAPCO Acquisub Inc., a
wholly-owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba
Petroleum Company and certain other assets and liabilities. This transaction
was recorded at book value. The net assets transferred had a book value of
approximately $1,220,000.
The discontinued operations results for 1994, 1993, and 1992 are as follows:
Year ended December 31
1994 1993 1992
Income
Oil and gas sales
(net of royalties) $16,561,431 $14,888,250 $10,736,986
Other income 996,658 729,234 516,759
17,558,089 15,617,484 11,253,745
Expenses
Production and operating 10,807,058 8,392,673 6,070,781
General and administrative 2,530,929 2,998,152 1,775,247
Interest and bank charges 1,252,507 810,168 498,607
Depreciation, depletion
and amortization 2,744,054 2,555,213 1,551,673
17,334,548 14,756,206 9,896,308
Income before the following 223,541 861,278 1,357,437
Income tax expense 540,043 486,947 675,471
Foreign exchange (gain) loss (373,787) (114,313) (224,115)
Minority interest 249,665 (36,676) 140,861
Dilution gain (370,907) (165,304) -
45,014 170,654 592,217
Income for the year $ 178,527 $ 690,624 $ 765,220
The following summarizes the carrying value of major assets and liabilities of
the discontinued operations transferred which has been reflected in the
F-53
<PAGE>
consolidated balance sheet as net assets from discontinued operation. The
assets and liabilities were held primarily through investments in shares in
other companies and were not directly owned:
Year ended December 31
1994 1993 1992
Net working capital $(4,026,062) $(2,583,420) $(2,527,348)
Capital assets 16,798,922 13,060,590 13,169,002
Other assets 652,415 680,222 378,768
Minority interest (3,080,083) (1,834,087) (1,548,533)
Long-term debt (5,385,221) (4,875,000) (3,612,649)
Deferred tax and other (664,617) (306,786) (37,000)
Pension liability (1,844,360) (1,554,154) (1,765,644)
Deferred foreign exchange gain (420,379) (450,270) -
Due to affiliated companies (1,458,579) (1,476,872) (4,084,913)
$ 572,036 $ 660,023 $ (28,317)
4. CAPITAL ASSETS
December 31
1994 1993
Accumulated Net book Net book
Cost amortization value value
Analytical equipment $275,000 $24,656 $250,344 $ -
5. INVESTMENT IN SABA POWER COMPANY LIMITED ("SABA POWER")
During 1994, Saba Power and several partners received approval to develop,
construct and operate a 109 Megawatt power generating plant in the Islamic
Republic of Pakistan. The Company holds an indirect equity investment in Saba
Power of 25.2%. At December 31, 1994, the Company's investment represents its
share of project development costs incurred to that date.
The recoverability of the investment is dependent upon successful completion
of the project and commencement of commercial production. The Company and its
partners provided a performance guarantee through a bank in Pakistan, in the
amount of approximately $355,000 at December 31, 1994 (10,900,000 Rupees).
The agreements between the partners and the Government of Pakistan have
several conditions, the most significant being:
i) To maintain its 25.2% interest in the project, the Company must fund an
initial equity investment of $6.75 million which includes earning a
development fee from the project of $2.7 million, which must be reinvested as
part of the Company's equity commitment. In a letter dated December 29, 1995,
the Company agreed with the majority equity holder, Cogen Technologies Inc.
("Cogen"), that the Company would borrow all additional equity from Cogen,
which is necessary to fund the amount in excess of $6.75 million, including
interest at 15% per annum to be paid out of the cashflow of the project if not
paid sooner by the Company. The Company also confirms that, at the financial
closing (currently March 17, 1996) of the project, it will deposit 50% of the
$4.05 million required, after receiving the development fee, and the amount
borrowed from Cogen. The remaining 50% will be deposited with Cogen on the
first anniversary of the financial closing. Should the Company not meet its
required equity commitment, the majority equity partner will fund the
difference and reduce the Company's interest proportionately.
ii) Cogen agreed to fund all project development costs subsequent to
September 30, 1994 and will carry on day to day operations of the project,
including design, engineering, selecting equipment, obtaining financing and
overseeing construction and operations.
F-54
<PAGE>
iii) The Company must reimburse its proportionate share of all project
development costs, paid for by Cogen, including interest at 15% per annum.
The Company will be responsible for its proportionate share of all remaining
project costs as incurred.
iv) On September 17, 1995 Saba Power entered into an agreement with the
Government of Pakistan to increase the Performance Guarantee to $728,000 (23
million Rupees) valid up to January 18, 1996 and to move the date of Financial
Close under the Letter of Support to December 17, 1995.
The Company has not yet determined how it will obtain the necessary financing
for its share of the initial equity commitment but is investigating options
available to it.
The Company has a commitment outstanding for $75,000 as a finders fee relating
to the project and $60,750 as a letter of credit fee.
6. INCOME TAXES
The provision for income taxes in the Statement of Operations varies from the
amount that would be computed by applying the expected income tax rate of
37.5% (1993 and 1992 - 37.5%) to income from continuing operations. The
principal reasons for the difference between such "expected" income tax
expense and the amount actually recorded are as follows:
Year ended December 31
1994 1993 1992
Computed "expected" income tax recovery $(48,575) $(856) $ -
Tax losses carried forward applied 48,575 856 -
$ - $ - $ -
7. SEGMENTED INFORMATION
During 1994 and 1993 the Company operated predominately in one industry
segment - Laboratory Analysis in the United States and invested in a Power
Project in Pakistan (see Note 5).
United
1994 States Pakistan Other Total
Revenue $ 472,148 $ - $ - $ 472,148
Segment operating profit (loss) $(129,532) $ - $ 178,527 $ 48,995
Identifiable assets $ 388,660 $ 150,865 $ 572,036 $1,111,561
Depreciation and amortization $ 24,656 $ - $2,744,054 $2,768,710
1993
Revenue $ - $ - $ - $ -
Segment operating profit (loss) $ (2,282) $ - $ 690,624 $ 688,342
Identifiable assets $ - $ - $ 660,023 $ 660,023
Depreciation and amortization $ - $ - $2,555,213 $2,555,213
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to extensive Federal, State and local environmental
laws and regulations. These laws, which are constantly changing, include
regulations of the discharge of materials into the environment. The Company
believes that it is in compliance with existing laws and regulations.
LEASES
F-55
<PAGE>
The Company is committed under non-cancellable leases for office space, which
expire in 1998. Future minimum payments are as follows:
1995 $80,400
1996 80,400
1997 80,400
1998 33,500
9. RELATED PARTY TRANSACTIONS
Related party transactions are described as follows:
The Company has in the past, advanced and received funds with related parties.
All of these transactions have been included in discontinued operations (see
Note 3), including the amount from net assets from discontinued operations.
10. SUBSEQUENT EVENTS
a) On April 22, 1995, the Company signed a Project Development and
Shareholders' Agreement relating to the power generating plant in Pakistan
which converted the indirect equity holding into direct investment in Saba
Power.
b) On January 20, 1995, the Company's parent entered into a definitive
merger agreement with Meteor Industries, Inc. (Meteor), a United States public
company engaged in the wholesale and retail marketing of petroleum products
with operations in Colorado and New Mexico. The Company's parent was to
exchange shares of the parent for all the shares of Meteor. Although the
number of shares was to be determined, the Company's parent would issue a
maximum of 2,091,250 shares. This agreement was cancelled and a new agreement
between the Company, its parent, and Meteor was entered into and closed on
December 1, 1995.
The new agreement merged the Company with Meteor in a reverse takeover whereby
all of the shares of the Company were exchanged for 1,745,000 shares of
Meteor, representing 57.8% of the total outstanding shares of Meteor after the
transaction. In connection with this agreement, the Company transferred its
interest in Saba Petroleum Company and certain other assets and liabilities to
another wholly-owned subsidiary of the Company's parent. This resulted in the
discontinuation of operations in oil and gas production and in other assets,
liabilities and revenues and expenses which are allocated to discontinued
operation (see Note 3). The acquisition will be accounted for as a purchase
of Meteor by the Company with income being recorded from the date of
acquisition. The estimated purchase price allocation based upon the August 31,
1995 financial statements of Meteor is as follows:
Current assets $ 6,682,503
Capital assets 7,677,652
Other assets 2,131,081
Current liabilities (6,950,574)
Long-term liabilities (2,095,660)
Deferred taxes (1,682,051)
Minority interest (3,488,310)
$ 2,274,641
c) On September 15, 1995, the Company sold its interest in Saba de Colombia,
Inc. The proceeds of the sale were used to advance monies to Saba Petroleum
Company and to pay some liabilities. The operations of Saba de Colombia, Inc.
and the gain on sale are included in discontinued operations (see Note 3).
d) Restructuring of the Saba Power commitment as disclosed in Note 5.
11. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("GAAP")
There are no material differences between Canadian and U.S. GAAP.
F-56
<PAGE>
SQUIRE & WOODWARD, P.C.
Certified Public Accountants - Consultants
2730 San Pedro NE, Suite D
Albuquerque, New Mexico 87110
505/881-3408
FAX 505/881-6597
To the Board of Directors and Stockholders
of Hillger Oil Company
Las Cruces, New Mexico
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Hillger Oil Company as of
March 31, 1995 and 1994, and the related statements of income, stockholders'
equity, and cash flows for the years ended March 31, 1995 and 1994, and the
statements of income and cash flows for the year ended March 31, 1993. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hillger Oil Company as of
March 31, 1995 and 1994, and the results of their operations and their cash
flows for the years ended March 31, 1995, 1994 and 1993, in conformity with
generally accepted
accounting principles.
/s/ Squire & Woodward, P.C.
Squire & Woodward, P.C.
August 18, 1995
F-57
<PAGE>
HILLGER OIL COMPANY
BALANCE SHEETS
March 31, 1995 and 1994
ASSETS
March 31, March 31,
1995 1994
Current assets
Cash $1,087,592 $ 394,704
Accounts receivable, net of an allowance
for doubtful accounts of $15,700 for
1995 and $11,400 for 1994 480,650 498,674
Investments 254 200,296
Inventory 537,378 548,889
Note receivable 18,014 25,135
Deferred tax asset 80,789 14,355
Other current assets 175,747 93,134
Total current assets 2,380,424 1,775,187
Property and equipment, at cost, partially
pledged net of an accumulated depreciation of
$1,291,356 for 1995, and $1,236,293 for 1994 458,685 1,241,589
Other assets
Note receivable 18,0014
Notes receivable - related parties 9,000 27,929
Loans receivable - related parties 75,290
Other assets 580 43,782
Total other assets 9,580 165,015
Total assets $2,848,689 $3,181,791
See accompanying notes to financial statements.
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<PAGE>
HILLGER OIL COMPANY
BALANCE SHEETS
March 31, 1995 and 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, March 31,
1995 1994
Current liabilities
Accounts payable $ 887,084 $ 907,537
Note payable 59,796
Current portion of long-term debt 616,587 91,033
Taxes payable 365,763 397,079
Accrued expenses 16,147 60,803
Total current liabilities 1,945,377 1,456,452
Long-term debt, net of current portion
Notes payable 323,502 940,085
Deferred taxes 68,705 50,426
Total liabilities 2,337,584 2,446,963
Stockholders' equity
Common stock - $100 par value, 2,500
shares authorized; 2,500 shares issued
and outstanding 250,000 250,000
Retained earnings 261,105 484,828
Total stockholders' equity 511,105 734,828
Total liabilities and stockholders'
equity $2,848,689 $3,181,791
See accompanying notes to financial statements.
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<PAGE>
HILLGER OIL COMPANY
STATEMENTS OF INCOME
For the years ended March 31, 1995, 1994 and 1993
1995 1994 1993
Sales $22,433,358 $22,522,125 $ 21,968,747
Cost of sales 18,386,786 18,852,433 18,848,952
Gross profit 4,046,572 3,669,692 3,119,795
Operating expenses
Operating expenses 4,265,018 3,284,376 2,912,747
Depreciation and amortization 196,361 222,869 212,840
Total operating expenses 4,461,379 3,507,245 3,125,587
Income (loss) from
operations (414,807) 162,447 (5,792)
Other income and expenses
Interest income 22,143 14,913 8,597
Dividend income 19,185
Gain on sale of assets 85,090 2,497
Other income 70,408 90,222 200,473
Interest expense (86,439) (94,705) (114,506)
Total other income 110,387 12,927 94,564
Income (loss) before
income taxes (304,420) 175,374 88,772
Provision for income taxes (88,790) 76,838 18,190
Net income (loss) $ (215,630) $ 98,536 $ 70,582
See accompanying notes to financial statements.
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<PAGE>
HILLGER OIL COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended March 31, 1995, 1994 and 1993
Common Retained
Stock Earnings Total
April 1, 1993 $ 250,000 $ 387,786 $ 637,786
Net income 98,536 98,536
Payment on reissued treasury stock (1,494) (1,494)
March 31, 1994 250,000 484,828 734,828
Net loss (215,630) (215,630)
Payment on reissued treasury stock (8,093) (8,093)
March 31, 1995 $ 250,000 $ 261,105 $ 511,105
See accompanying notes to financial statements.
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<PAGE>
HILLGER OIL COMPANY
STATEMENTS OF CASH FLOWS
For the years ended March 31, 1995, 1994 and 1993
Increase (Decrease) in Cash and Equivalents
1995 1994 1993
Cash flows from operating activities
Cash received from customers $22,437,917 $22,535,310 $21,896,872
Interest and dividends received 41,328 14,913 8,597
Other operating cash receipts 70,408 90,222 200,473
Cash paid to suppliers and employees (21,904,758) (21,991,899) (21,678,371)
Interest paid (86,439) (94,705) (114,506)
Income taxes paid (35,503) (21,344) (10,361)
Other operating cash payments (9,153) (4,973) (1,045)
Net cash provided by
operating activities 513,800 527,524 301,659
Cash flows from investing activities
Cash paid for purchase of investments (400,534) (199,597)
Cash paid for purchases of property
and equipment (79,483) (340,807) (933,517)
Cash proceeds from sale of
investments 405,533
Cash proceeds from sale of property 200,000 172,496
Cash proceeds from image
reimbursements 72,350
Decrease (increase) in notes
receivable 25,135 61,917 (62,734)
Increase in related party receivables (4,587) (16,763) (27)
Net cash provided (used) by
investing activities 218,414 (322,754) (996,278)
Cash flows from financing activities
Long-term borrowings 939,739
Net borrowings on short-term
note payable 59,796 (23,538) 23,538
Principal payments on long-term debt (91,029) (429,055)
Payments made on reissued
treasury stock (8,093) (1,494) (1,409)
Net cash provided (used) by
financing activities (39,326) (454,087) 961,868
Net increase (decrease) in cash and
equivalents 692,888 (249,317) 267,249
Cash and equivalents, beginning of year 394,704 644,021 376,772
Cash and equivalents, end of year $ 1,087,592 $ 394,704 $ 644,021
F-62
<PAGE>
1995 1994 1993
Reconciliation of net income (loss) to
net cash provided (used) by
operating activities
Net income (loss) $ (215,630) $ 98,536 $ 70,582
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization 196,361 222,869 212,840
Gain on disposal of property and
equipment (113,345) (2,497)
Loss on disposal of investments 28,255
Deferred income taxes (48,155) 52,705 2,196
Deferred compensation 772,615
Decrease in accounts receivable 18,024 22,027 88,807
Decrease (increase) in prepaid
expenses (88,561) 1,323 (34,931)
Decrease (increase) in inventories 11,511 34,309 (62,021)
Decrease (increase) in other
current assets 5,948 (14,110) 4,139
Decrease (increase) in other assets 43,202 (13,351) (30,351)
Decrease in accounts payable (20,453) (12,644) (692)
Increase (decrease) in accrued
liabilities (64,739) 135,568 45,457
Increase (decrease) in income
taxes payable (11,233) 2,789 5,633
Total adjustments 729,430 428,988 231,077
Net cash provided by
operating activities $ 513,800 $ 527,524 $ 301,659
F-63
<PAGE>
HILLGER OIL COMPANY
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Hillger Oil Company (the
company) is presented to assist in the understanding of the company's
financial statements. The financial statements and notes are representations
of the company's management, who are responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
BUSINESS ACTIVITY - The company was incorporated February 20, 1950, under
the laws of the state of New Mexico. The company is a retail and wholesale
distributor of petroleum products and also sells various products at retail in
its convenience stores. The company grants credit to customers, substantially
all of whom are local businesses or individuals.
ACCOUNTS RECEIVABLE - Accounts receivable are stated at net realizable
value, using the allowance method of accounting for bad debts.
INVESTMENTS - Investments consist of marketable securities classified as
available-for-sale and are valued at cost which approximates market value.
INVENTORIES - Inventories of petroleum products, greases and oils, and
related products are valued at average cost which is not in excess of market.
Sundries inventories are valued by the retail method and stated on the
First-In, First-Out (FIFO) basis which is lower than market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets. Maintenance and repairs are charged to expense in the year incurred.
Renewals and material betterments are capitalized. Gains and losses on
disposition are credited or charged to income during the year of disposition.
See Note 3.
DEPRECIATION - Depreciation is recorded principally on the straight-line
method at rates based on the estimated useful lives of the assets. The
estimated useful lives are as follows:
Description Lives
Buildings and leasehold improvements 5 to 40 years
Equipment 5 to 20 years
Vehicles 5 to 10 years
INCOME TAXES - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between the
basis of certain assets and liabilities for financial and tax reporting. The
deferred taxes represent the future consequences of those differences, which
will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred taxes also are recognized for operating losses
and contribution carryforwards that are available to offset future taxable
income. See Note 7.
ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current
operations are expensed or capitalized as appropriate for each expenditure.
Whenever an expenditure relates to an existing condition caused by past
operations and does not contribute to future revenues, the expenditure is
expensed currently. Liabilities are recorded when remedial efforts are
probable and the cost can be reasonably estimated.
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<PAGE>
COMPENSATED ABSENCES - Employees of the company are entitled to paid
vacation and paid sick days off, depending on length of service and other
factors.
ADVERTISING COSTS - Advertising costs are expensed as incurred. See Note
9.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash flows,
the company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
NOTE 2 - INVESTMENTS
At March 31, 1995 and 1994, investments were classified as
available-for-sale and consisted of the following:
1995 1994
Equity securities:
Tri-state Grocery stock $ $ 699
Debt securities:
Mutual funds investing in U.S.
government securities 254 93,014
Municipal security - 5.875%,
June 1, 2023 106,583
Total investments $ 254 $200,296
Cost approximates fair value of investments. Unrealized holding gains and
losses are considered by management to be immaterial.
For the years ended March 31, 1995 and 1994, sales of investments occurred as
follows:
1995 1994
Proceeds from sales $ 405,533 $
Cost basis (433,788) 0
Net loss on sale of investments $ (28,255) $ 0
Gross realized gains or losses were
as follows:
Gross realized gains $ 1,792 $
Gross realized losses (30,047) 0
Net loss on sale of investments $ (28,255) $ 0
The basis on which cost was determined in computing realized gain or loss was
the specific identification method.
NOTE 3 - PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
1995 1994
Building and leasehold improvements $ 63,133 $ 747,627
Equipment 1,152,151 1,179,970
Vehicles 534,757 550,285
1,750,041 2,477,882
Accumulated depreciation (1,291,356) (1,236,293)
Net property and equipment $ 458,685 $1,241,589
For the years ended March 31, 1995 and 1994, the company deducted depreciation
of $196,361 and $222,869, respectively.
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<PAGE>
NOTE 4 - NOTE RECEIVABLE
At March 31, 1995 and 1994, note receivable consisted of the following:
1995 1994
Note receivable, $2,400 per month,
including interest at 11.5%, unsecured. $18,014 $43,149
NOTE 5 - NOTES RECEIVABLE - RELATED PARTIES
At March 31, 1995 and 1994, notes receivable from related parties
consisted of the following:
1995 1994
Note receivable - stockholder, due on
demand with 10% interest, unsecured $ $27,929
Note receivable - employee, due upon
receipt of employee benefit plan
funds (closed March 31, 1995), with
interest at 10%, unsecured 9,000
Total notes receivable -
related parties $9,000 $27,929
NOTE 6 - NOTE PAYABLE
At March 31, 1995, note payable consisted of an insurance note, payable in
quarterly installments of $29,900 with no interest due.
NOTE 7 - INCOME TAXES
At March 31, 1995 and 1994, the net deferred income taxes in the accompanying
balance sheets included the following components:
1995 1994
Current:
Deferred tax asset - federal $(71,935) $(12,579)
Deferred tax asset - state (8,854) (1,776)
Net current deferred tax asset $(80,789) $(14,355)
Noncurrent:
Deferred tax asset - federal $ (748) $
Deferred tax asset - state (92)
Deferred tax liability - federal 61,924 44,188
Deferred tax liability - state 7,621 6,238
Net noncurrent deferred tax liability $ 68,705 $ 50,426
At March 31, 1995, 1994, and 1993, the provision for income taxes consisted of
the following components:
1995 1994 1993
Current income tax (benefit) $(40,635) $24,133 $15,994
Deferred income tax (benefit) (14,240) 52,705 2,196
Benefit of operating loss
carryforward (33,915)
Total provision for income tax $(88,790) $76,838 $18,190
The deferred tax liabilities result from the use of accelerated methods of
depreciation of property and equipment. The deferred tax assets result from
an allowance for bad debts that is not deductible for tax purposes until
losses are identified and written off and from operating loss and contribution
carryforwards that are available to offset future taxable income.
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<PAGE>
The tax provisions differ from amounts that would be calculated by applying
the statutory rates to income before income taxes because no tax assets have
been recognized for nontaxable income totaling approximately $10,000 for 1995,
and no tax liabilities have been recognized for nondeductible operating
expenses totaling $16,000 for 1995 and 1994, and $24,000 for 1993, the
company is subject to state income taxes, and the tax provisions consider the
effect of graduated rates.
As of March 31, 1995, the company has an operating loss carryforward of
$77,430 and a contribution carryforward of $9,153 available to offset future
taxable income. The operating loss carryforward expires March 31, 2015, and
the contribution carryforward expires March 31, 2000.
NOTE 8 - LONG-TERM DEBT
A summary of long-term debt as of March 31, 1995 and 1994, follows:
1995 1994
Note payable to stockholder,
monthly payments of $2,301.61,
including interest at 10.00%
per annum, due November 7, 2007.
Not secured. $ 194,661 $ 202,071
Note payable to First National
Bank in Albuquerque, monthly
payments of $2,007.98, including
interest at the bank's base rate
plus 1.00% per annum, due
December 3, 1996. Secured by
trailers. 53,300
Mortgage payable to Western
Bank, monthly payments of $6,493.97,
including interest at 8.50% per
annum with the balance of the note due
February 28, 1996. Secured by
stockholder assets. 606,047 631,267
Mortgage payable to Norwest
Bank New Mexico (formerly United New
Mexico Bank), monthly payments of
$1,348.38, including interest at
Chase Manhattan Bank prime plus 1.00%,
balance due April 15, 2000. Secured by
stockholder assets. 139,381 144,480
940,089 1,031,118
Less current maturities (616,587) (91,033)
Net long-term debt $ 323,502 $ 940,085
Long-term debt maturing in the next five years consists of the following:
1996 $616,587
1997 11,643
1998 12,863
1999 14,210
2000 140,607
Thereafter 144,179
NOTE 9 - ADVERTISING
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<PAGE>
For the years ended March 31, 1995, 1994, and 1993, the total amounts charged
to advertising expense were $14,145, $10,680, and $13,939, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
Hillger Oil Company leases from the stockholders, either directly or
indirectly through an affiliated company, various real property and equipment.
Amounts included in rent expense and paid to the related parties for the year
ended March 31, 1995, were $640,522 and approximately $529,000 for each of the
years ended March 31, 1994 and 1993. See Note 16 for additional information
on the operating leases.
Pursuant to an agreement dated August 1, 1962, the company reacquired 201
shares of stock in exchange for forgiveness of debt of $10,647 and $200 per
month so long as the stockholders or the survivor of them shall live. The
stock was subsequently reissued. On November 15, 1993, the Board of Directors
approved an increase in the monthly payment to $600. Pursuant to the sale of
the company, as discussed in Note 17, the agreement was terminated as of March
31, 1995. For the years ended March 31, 1995, 1994, and 1993 payments made
under the agreement were charged to retained earnings in the amount of $8,093,
$1,494, and $1,409, respectively.
The company has advanced various amounts of money to stockholders and
employees. In addition to the notes receivable discussed in Note 5, loans
receivable in the amount of $75,290 from various stockholders existed at March
31, 1994.
In 1992, the company borrowed $214,182 from a stockholder. The terms and
balances of the note are discussed in Note 8. For the years ended March 31,
1995, 1994, and 1993, interest was paid in the amounts of $20,204, $20,906,
and $7,113, respectively.
NOTE 11 - CREDIT RISK
The company grants credit, generally without collateral, to its customers
which are located primarily in New Mexico. Management believes that its
contract acceptance, billing, and collection policies are adequate to minimize
potential credit risk.
NOTE 12 - CONTINGENCIES
The company utilizes underground tanks at various locations to store petroleum
products and is therefore subject to the various federal and state statutes
concerning environmental protection, as well as the New Mexico Ground Water
Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
Environmental regulation is a relatively new area and its extent as well as
its application will ultimately be defined by case law. The state of New
Mexico has recognized the potential cleanup costs resulting from such
regulations, and the New Mexico Ground Water Protection Act has included the
establishment of a corrective action fund. The purpose of the fund is to
provide monetary assistance in both assessing site damage and correcting the
damage where such costs are in excess of $10,000 per site. Assistance is not
available to repair or replace underground tanks or equipment. The law
specifies requirements which must have been met for an applicant to be
eligible, including a provision that payments will be made in accordance with
regulations (which have not been issued), and states that payments from the
corrective action fund are limited to amounts in that fund.
The company will be responsible for any contamination of land it owns or
leases. However, the company may have limitations on any potential
contamination liabilities as well as claims for reimbursement from third
parties. During the
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<PAGE>
years ended March 31, 1995, 1994, and 1993, the company expended $26,373,
$30,596, and $21,504, respectively for pollution repairs.
NOTE 13 - DEFINED CONTRIBUTION PLAN
The company adopted a 401(k) profit sharing plan effective April 1, 1994. In
order to be eligible to participate in the plan, the employee must be credited
with a year of service, and must have attained the age of 21. No employees
are excluded from the plan. Contributions to the plan are voluntary through a
salary reduction agreement up to a maximum of 15% of compensation. Matching
contributions and other additional contributions may be made by the employer
at the employer's discretion. As of March 31, 1995, $34,018 in matching
contributions had been made by the company.
NOTE 14 - DEFINED BENEFIT PLAN
The company had adopted a defined benefit pension plan. Participation in the
plan required an employee to complete one year of service and be at least 21
years old. Participants were vested in their accounts over a period of six
years. The employer had a fixed obligation to contribute each plan year to
the trust fund the amount the plan's actuary determined was necessary to fund
retirement benefits under the plan. Plan assets consist primarily of
investments in corporate debt and equity securities. The plan was terminated
effective March 31, 1995. The plan assets had not yet been settled.
Pension expense for March 31, 1995, 1994, and 1993, includes the following
components:
1995 1994 1993
Service cost of the current period $ 75,823 $ 42,837 $ 59,418
Interest cost on the projected benefit
obligation 7,916 3,725 2,676
Actual return on assets held in the plan (10,732) (8,890) (24,757)
Net amortization of prior service cost,
transition liability, and net gain 403 1,030 1,400
Pension expense $ 73,410 $ 38,702 $ 38,737
The following sets forth the funded status of the plan and the amounts shown
in the accompanying balance sheet at March 31, 1995 and 1994:
Actuarial present value of benefit obligations:
1995 1994
Vested benefits $ 163,145 $ 159,309
Nonvested benefits
Accumulated benefit obligation 163,145 159,309
Effect of anticipated future
compensation levels and other events 1,049 4,603
Projected benefit obligation 164,194 163,912
Fair value of assets held in the plan 164,194 133,912
Unfunded excess of projected
benefit obligation over plan assets $ 0 $ 30,000
The weighted average discount rate used to measure the projected benefit
obligation is 6%, the rate of increase in future compensation levels is 2%,
and the expected long-term rate of return on assets is 6%. The company uses
the straight-line method of amortization for prior service cost and
unrecognized gains and losses.
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<PAGE>
NOTE 15 - OPERATING LEASES
At March 31, 1995, the company leased various properties under month-to-month
operating leases. In addition, the company leased two trucks under
month-to-month operating leases. The terms of the various leases require the
company to pay for all taxes, maintenance, insurance, and other operating
expenses.
Aggregate rental expense totaled $689,474, $659,004, and $569,909 for the
years ended March 31, 1995, 1994 and 1993, respectively.
The operating leases for the various properties were renegotiated upon the
sale of Hillger Oil Company to Meteor Industries, Inc. (See Note 17). The new
lease commences on the closing date of the sale of the company for a term of
10 years with an option for three additional 5-year terms. The company is
required to pay for all taxes, maintenance, insurance, and other operating
expenses. The lease payments will start at $38,790 per month for the first
year, with an increase of 2.5% per year for each term under this lease.
Minimum future rental payments under operating leases having remaining terms
in excess of 1 year as of March 31, 1995, for each of the next five years and
in the aggregate are:
Year ended March 31: Amount
1996 $ 465,480
1997 477,117
1998 489,045
1999 501,271
2000 513,803
Subsequent to 2000 2,768,234
Total minimum future rental payments $5,214,950
Annual minimum future rental payments have not been reduced by $42,000 of
sublease rentals to be received in the future under noncancelable subleases.
NOTE 16 - SUBSEQUENT EVENTS
On April 7, 1995, Meteor Industries, Inc., purchased 100% of the issued and
outstanding common stock of Hillger Oil Company for cash and notes.
At closing, Hillger Oil Company obtained a new revolving line-of-credit for
$1,500,000, which is limited to approximately $500,000 until the borrowing
base of Hillger Oil Company as defined in the credit agreement increases or
decreases. The interest rate is the Norwest base rate plus 2%. The line is
secured by the trade accounts receivable and inventory of Hillger Oil Company.
The company also obtained a term note of $375,000. The interest rate is the
Norwest base rate plus 3%. The term note is secured by property and equipment
of Hillger Oil Company. A total of $875,000 was borrowed at closing to pay
off existing debt and consummate the transaction as described above. The
notes are due June 30, 1998.
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<PAGE>
SQUIRE & WOODWARD, P.C.
Certified Public Accountants - Consultants
2730 San Pedro NE, Suite D
Albuquerque, New Mexico 87110
505/881-3408
FAX 505/881-6597
To the Board of Directors and Stockholders
of Graves Oil & Butane Co., Inc. and Subsidiary
Farmington, New Mexico
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Graves Oil & Butane Co.,
Inc. And subsidiary as of August 31, 1993, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Graves Oil & Butane Co. and
subsidiary, as of August 31, 1993, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Squire & Woodward, P.C.
Squire & Woodward, P.C.
November 23, 1993
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<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Balance Sheet
As of August 31, 1993
ASSETS
Current assets
Cash and cash equivalents, partially restricted $ 123,634
Marketable securities 41,858
Accounts receivable, net of allowance
for doubtful accounts of $165,000 3,727,901
Notes receivable 32,735
Related party receivable 134,916
Inventory 743,839
Deferred tax asset 189,968
Other current assets 45,417
Total current assets 5,040,268
Property, plant and equipment, net of
accumulated depreciation of $5,680,354 3,599,604
Other assets
Notes receivable 60,043
Notes receivable, shareholder 677,440
Intangibles, net of accumulated
amortization of $38,240 133,239
Investment in closely held business 75,000
Loan receivable, shareholder 100,000
Other assets 24,152
Total other assets 1,069,874
TOTAL ASSETS $ 9,709,746
See accountants' report and notes to financial statements.
F-72
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Balance Sheet
As of August 31, 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Note payable $ 200,000
Accounts payable, trade 1,470,226
Current portion, long-term debt 178,661
Loan payable to shareholder 82,000
Accrued wages 62,422
Payroll taxes payable 17,645
Sales taxes payable 54,755
Excise taxes payable 681,729
Income taxes payable 18,252
Total current liabilities 2,765,690
Long-term debt, net of current portion 654,151
Deferred tax payable 86,775
Stockholders' equity
Capital stock ($1.00 par value; 2,000,000 shares
authorized, issued and outstanding 2,000,000
Paid-in capital 108,999
Retained earnings 4,094,131
Total stockholders' equity 6,203,130
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,709,746
See accountants' report and notes to financial statements.
F-73
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Statement of Income
For the Year Ended August 31, 1993
Revenues
Sales $ 42,889,645
Cost of sales 37,057,554
Gross profit 5,832,091
Expenses
Truck and delivery 1,633,344
Operating 1,951,173
General and administrative 962,626
Selling 218,491
Insurance 489,938
Interest 112,451
Taxes 513,902
Depreciation 357,965
Amortization 15,296
Total expenses 5,355,186
Income from operations 476,905
Other income
Interest income 205,824
Dividend income 50,206
Gain on sale of assets 346,254
Other income 182,522
Income before income taxes 1,261,711
Provision for income taxes (303,499)
Net income $ 958,212
See accountants' report and notes to financial statements.
F-75
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Statement of Retained Earnings
For the Year Ended August 31, 1993
Retained earnings - August 31, 1992
as previously reported $ 4,277,230
Prior period adjustments (244,112)
Retained earnings - August 31, 1992
as restated 4,033,118
Net income 958,212
Dividends paid (897,199)
Retained earnings - August 31, 1993 $ 4,094,131
See accountants' report and notes to financial statements.
F-75
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Year Ended August 31, 1993
Cash flows from operating activities
Net income $ 958,212
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 373,261
Equity accounting increase (30,886)
Deferred tax benefit 285,462
Gain on sale of assets (346,254)
Changes in assets and liabilities
Accounts receivable (106,548)
Inventories 37,765
Other current assets 144,917
Accounts payable (319,881)
Accrued wages 24,159
Interest payable (1,228)
Income taxes payable 18,252
Other taxes payable 145,123
Net cash provided by operating activities 1,182,354
Cash flows from investing activities
Cash payments for the purchase of property (169,738)
Cash payments on related party receivable (112,881)
Collections of shareholder note receivable 56,411
Collections on notes receivable 56,111
Collections on related party receivable 484,661
Cash proceeds form the sale of assets
Net cash provided by (used by) investing activities 314,564
Cash flows from financing activities
Cash dividends (225,000)
Net payments on short-term debt (792,117)
Proceeds on loan payable to shareholder 40,255
Principal payments on long-term debt (167,021)
Net cash provided by financing activities (1,143,883)
Net increase (decrease) in cash and cash equivalents 353,035
Cash and cash equivalents at beginning of year (229,401)
Cash and cash equivalents at end of year $ 123,634
See accountants' report and notes to financial statements.
F-76
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Year Ended August 31, 1993
SUPPLEMENTAL INFORMATION
Cash paid for interest during the year $ 112,451
NONCASH TRANSACTIONS
Prior period adjustments
Cost of sales $ 104,432
Notes receivable 145,971
Property, plant and equipment 72,208
Accounts payable 67,955
Income taxes (146,454)
Total change to retained earnings $ 244,112
PROPERTY EXCHANGES
Investments in marketable securities $ (112,439)
Loan receivable from shareholder (100,000)
Property, plant and equipment 212,439
Total property exchanges $ -
NONCASH DIVIDENDS
Investments in marketable securities $ 555,532
Investments in hangar 66,667
Forgiveness of debt on the Note Receivable 50,000
Total noncash dividends $ 672,199
See accountants' report and notes to financial statements.
F-77
<PAGE>
GRAVES OIL & BUTANE CO., INC.
AND SUBSIDIARY
Notes to Financial Statements
As of August 31, 1993
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Graves Oil & Butane Co.,
Inc. and Subsidiary is presented to assist in the understanding of the
company's financial statements. The financial statements and notes are
representations of the company's management, who are responsible for their
integrity and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied in the
preparation of the financial statements.
BUSINESS ACTIVITY -- The company was incorporated in September, 1958 in
New Mexico and is also authorized to do business in Arizona, Colorado and
Utah. The company sells petroleum products at the wholesale and retail level
throughout the four state area. In 1991, the company acquired all the stock
of El Boracho, Inc. This subsidiary has no activity other than holding a
liquor license for the Albuquerque convenience store.
PRINCIPALS OF CONSOLIDATION -- The consolidated financial statements of
Graves Oil & Butane Co., Inc. and its consolidated subsidiary, El Boracho,
Inc. include all the accounts of El Boracho, Inc. All intercompany
transactions and balances have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents include
certificates of deposit or cash in local banks. The cash is unrestricted and
can be withdrawn at any time.
INVENTORIES -- Inventories of petroleum products, greases and oils, and
related products are valued at Last In, First Out (LIFO) cost, which is not in
excess of market. The company determines its LIFO reserve using the link
chain dollar value method. Sundries inventories are valued by the retail
method and stated on the First In, First Out (FIFO) basis which is lower than
market.
FIXED ASSETS -- Fixed assets are stated at cost; major renewals and
improvements are charged to the fixed assets accounts, while replacements,
maintenance and repairs, which do not improve or extend the lives of the
respective assets, are expended currently. At the time fixed assets are
retired or otherwise disposed of, the asset and related accumulated
depreciation accounts are relieved of the applicable amounts. Gains or losses
from retirements or sales are credited or charged to income.
DEPRECIATION -- Depreciation is recorded principally on the straight line
method at rates based on the estimated useful lives of the assets. The
estimated useful lives are as follows:
Description Lives
Buildings and improvements 5 to 40 years
Office equipment 5 to 7 years
Operating equipment 3 to 16 years
General and administrative 5 to 20 years
Marketing equipment 5 to 10 years
Delivery equipment 5 to 10 years
AMORTIZATION OF COVENANTS -- Covenants not to compete are valued at cost
and are amortized over a 60 month period.
INCOME TAXES -- Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences between the
basis of certain assets and liabilities for financial and tax reporting. The
deferred taxes represent the future consequences of those differences, which
will either
F-78
<PAGE>
be taxable when the assets and liabilities are recovered or settled. Deferred
taxes are also recognized for operating losses that are available to offset
future income taxes.
ENVIRONMENTAL EXPENDITURES -- Expenditures that relate to current
operation are expended or capitalized as appropriate for each expenditure.
Whenever an expenditure relates to an existing condition caused by past
operations and does not contribute to future revenues, the expenditure is
expended currently. Liabilities are recorded when remedial efforts are
probable and the cost can be reasonably estimated.
NOTE 2 -- MARKETABLE SECURITIES
The company invests in various publicly traded companies. The cost of these
investments are reported at the original purchase price of each stock. A
summary of these stocks is as follows:
Carrying Fair Market Current
Value Value Dividends
500 shares of Texaco $ 17,000 $ 32,435 $ 1,200
1,000 shares of Kerr McGee 23,390 55,370 1,520
156 shares of Smith International 1,468 1,877 -
$ 41,858 $ 89,682 $ 2,720
NOTE 3 -- NOTES RECEIVABLE
The notes receivable consist of the following:
Current Noncurrent
Total Portion Portion
Note receivable, $423 per month
including interest at 10%, unsecured.
Receivable from officer. $10,282 $ 4,250 $ 6,032
Note receivable, $800 per month
including interest at 12%, unsecured. 29,279 6,087 23,192
Note receivable, $250 per month
including interest at 9%. Also, the
purchaser shall pay 9% of remaining
balance on June 15, secured by real
estate. 7,020 2,368 4,652
Note receivable, $519 per month
including interest at 9%, secured
by real estate. 18,735 4,519 14,216
Note receivable, due January 20, 1995,
for $14,110 plus interest at 10%,
secured by real estate 14,110 14,110 -
Note receivable, $228 per month
including interest at 10%, secured by
real estate. 13,352 1,401 11,951
Total $92,778 $32,735 $60,043
NOTE 4 -- RELATED PARTY RECEIVABLE
During the year, amounts were advanced to a relative of the company's 100%
stockholder for the purchase of equipment necessary to establish a sales
facility for gasoline. The amount was receivable upon completion of
installation of the equipment, which occurred on September 28, 1993.
F-79
<PAGE>
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
The major classifications of property and equipment are as follows:
Amount
Buildings and improvements $ 4,085,363
Delivery equipment 2,369,020
Operating equipment 1,510,796
Land 914,873
Marketing equipment 79,815
General and administrative 236,262
Office equipment 83,839
Accumulated depreciation (5,680,354)
Net property, plant
and equipment $ 3,599,604
For the current year, the company deducted depreciation of $357,965.
NOTE 6 -- NOTE RECEIVABLE STOCKHOLDER
The company has an outstanding note receivable from its 100% stockholder in
the amount of $650,000. The note is payable on demand or at the sale of the
underlying security. Interest is determined using the applicable federal
rate. The note is secured by real estate. At August 31, 1993, accrued
interest receivable totaled $27,440.
NOTE 7 -- INTANGIBLES
Intangible assets consist of a five year covenant not to compete agreement
resulting from the acquisition of Southwest Petroleum on September 1, 1990,
which has a carrying value of $38,239, net of accumulated amortization of
$38,240, and a liquor license acquired in 1991 at a cost of $95,000.
NOTE 8 -- INVESTMENTS IN CLOSELY HELD BUSINESS
The company owns 1,500 shares of common stock, no par value, of the First
Place Financial Corporation. The stocks were acquired in August 1986 for $50
per share. The company reports the stocks of closely held business under the
cost method in the amount of $75,000. These stocks are not publicly traded.
The Board of Directors of First Place Financial Corporation set a fair market
value price of their stocks at $87 per share for a value of $130,500. During
the year, the company received dividends of $6,600.
NOTE 9 - LOAN RECEIVABLE SHAREHOLDER
During the current fiscal year, the company sold an airplane to its 100%
shareholder. Terms of the sale included a loan receivable in the amount of
$100,000.
NOTE 10 -- NOTE PAYABLE
The company has a $1,600,000 revolving bank credit facility which expires
December 31, 1993, bearing interest at prime plus 1.55%, 7.55% at August 31,
1993. The note is secured by trade accounts receivable, inventory, real
estate and First Place Financial Corporation stock. The agreement requires
the company to maintain certain net worth and performance ratio levels. As
discussed in Note 2, payments on this loan are made through collateral cash
accounts in the name of the lender. The balance outstanding at August 31,
1994, was $2,700,165.
NOTE 11 -- LOAN PAYABLE TO SHAREHOLDER
F-80
<PAGE>
The company leases real estate in Colorado from its 100% shareholder and
subleases the property to a truck stop operator. As of August 31, 1993 unpaid
rent owed by the company to the shareholder totaled $82,000.
NOTE 12 -- LONG-TERM DEBT
Long-term debt at August 31, 1993, consisted of the following:
Current Long-term
Total portion portion
Note payable, First National
Bank of Farmington, payments
of $19,000 monthly including
interest at prime plus 1% per
annum. Secured by mortgage on
buildings and land. Matures
January 1996. $ 788,814 $ 178,069 $ 610,745
Note payable, Federal Land Bank
of Durango, payments of $350
monthly including interest at
7.25% per annum (variable rate),
secured by mortgage on house and
land in Pagosa Springs, Colorado.
Matures in June 2011. 43,998 592 43,406
Total $ 832,812 $ 178,661 $ 654,151
The following is a schedule by years of the repayment of long-term debt:
Year ending
August 31, Amount
1994 $ 179,661
1995 191,679
1996 420,405
1997 758
1998 823
Thereafter 40,486
$ 832,812
NOTE 13 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
Current tax expense $ 18,037
Deferred tax expense 285,462
Total provision $ 303,499
The deferred tax asset (liability) in the accompanying balance sheet includes
the following components:
Current Noncurrent
Deferred tax asset, federal $172,956 $ -
Deferred tax asset, state 24,417
Deferred tax liability, federal (6,489) (76,040)
Deferred tax liability, state (916) (10,735)
Deferred tax asset (liability) $189,968 $(86,775)
The deferred tax liabilities result from the use of accelerated methods of
depreciation of property and equipment and from a reduction in the allowance
for bad debts. The deferred tax asset results from a net operating loss
carryover
F-81
<PAGE>
which is available to offset future taxable income. The carryovers expire as
follows:
Contribution carryover
August 31, 1996 $ 3,008
August 31, 1997 515
August 31, 1998 275
3,798
Net operating loss carryover
August 31, 2007 $504,896
NOTE 14 -- RELATED PARTY TRANSACTIONS
The company leases real estate in Colorado from its 100% shareholder and
subleases the property to a truck stop operator. The company pays ad valorem
taxes and insurance expense on the property and as rent expense, pays to its
shareholder an amount equal to $.01 for each gallon of fuel purchased by the
truck stop operator and 7.5% of net restaurant sales. The rent expenses are
credited to an account payable - shareholder and paid as requested. Expense
for the current period was $55,128 and liability for unpaid lease expenses was
$82,000, at August 31, 1993.
The company leases land from its shareholder on which are located its yard,
warehouses and offices. No lease expense was paid or accrued during the
current period but the parties have entered into an agreement which will
provide for regular monthly payments of $500 beginning October 1, 1993. See
Note 19, Graves #2 Station, et al, for details.
The shareholder is indebted to the company for $677,440 as per Note 6.
Interest paid on the note receivable for the year ended August 31, 1993 was
$73,851.
During the current fiscal year, the company sold an airplane to its
shareholder. Terms of the sale included a loan receivable in the amount of
$100,000. No payments have been made as of August 31, 1993.
The company has land, buildings, and equipment in Springerville, Arizona and
equipment in St. Johns, Arizona, which are used by a nephew of its
stockholder. The nephew operates several businesses at the two locations.
The company does not charge for the use of its assets but during the current
period received revenue from the sale of its products in the amounts of
$1,296,605, and $331,630 from St. Johns and Springerville, respectively.
NOTE 15 -- ENVIRONMENTAL PROTECTION EXPENDITURES
The company utilizes underground tanks at various locations to store petroleum
products and is therefore subject to the various federal and state statutes
concerning environmental protection, as well as the New Mexico Ground Water
Protection Act. The various federal and state statutes are designed to
identify environmental damage, identify hazardous material and/or operations,
regulate operations engaged in hazardous activities, and establish procedures
for remedial action as necessary.
Environmental regulation is a relatively new area and its extent as well as
its application will ultimately be defined by case law. The State of New
Mexico has recognized the potential cleanup costs resulting from such
regulations, and the New Mexico Ground Water Protection Act has included the
establishment of a corrective action fund. The purpose of the fund is to
provide monetary assistance in both assessing site damage and correcting the
damage where such costs are in excess of $10,000. Assistance is not available
to repair or replace underground tanks or equipment. The law specifies
requirements which must have been met for an applicant to be eligible,
includes a provision that payments will be made in accordance with regulations
(which have not yet been issued), and
F-82
<PAGE>
states that payment from the corrective action fund are limited to amounts in
that fund.
The company will be responsible for any contamination of land it owns or
leases. However, the company may have limitations on any potential
contamination liabilities as well as claims for reimbursement from third
parties. During the period ended August 31, 1993, the company expended $4,467
for site assessment and related cleanup costs, all of which was capitalized.
The Company paid and expensed clean-up costs of $23,162 at a customer
location.
NOTE 16 -- PURCHASE COMMITMENTS
The company is contingently liable for certain costs associated with leasehold
improvements made by a supplier on property of customers of Graves Oil and
Butane Company, Inc. The liability for the costs is amortized over a five
year period with the company becoming responsible for payment to the supplier
if fuel purchases fail to meet certain volumes. Originally the company was
contingently liable on $84,576 unamortized costs. At August 31, 1993, the
company was contingently liable on $64,802 unamortized costs. To date the
company has made payments to the supplier totaling $4,229 for periods when
purchase commitments were not met. Future losses, if any, cannot be estimated
at this time.
NOTE 17 -- PRIOR PERIOD ADJUSTMENTS
The retained earnings include the following adjustments:
BAD DEBTS -- On August 31, 1992, the company included
doubtful accounts of $145,970 as notes receivable. One
payor had filed for bankruptcy in March, 1992. The
remaining three accounts were outstanding for several
years. For the year ended August 31, 1993 net income
was overstated by $145,970 offset by $54,042 in
federal and state income taxes $ 91,928
GENERAL PROPERTY AND LIABILITY INSURANCE -- On December
31, 1992, the company paid $67,955 in insurance
premiums which had not been properly accrued at
August 31, 1992. For the year ended August 31, 1992,
net income was overstated by $67,955 offset by $25,159
in federal and state income taxes 42,796
PROPERTY AND EQUIPMENT -- The current listing of assets
included land, improvements and tanks that had been
sold or owned by the shareholder. Total cost of these
properties was $148,959 and accumulated depreciation
was $76,750. Federal and state income taxes are $26,734 45,475
COST OF SALES - The cost of certain gasoline sales made
prior to September 1, 1992 were not properly recognized
by the company. For the year ended August 31, 1992, net
income was overstated $104,432 offset by $40,519 in
federal and state income taxes 63,913
$244,112
NOTE 18 -- DIVIDENDS PAID
The sole shareholder received six dividends in the current period. These
dividends included both cash and property. A description of each dividend is
shown below:
Cash $225,000
150,000 shares of stock in Graves Propane of Arizona.
The dividend is valued at the estimated fair market value. 150,000
F-83
<PAGE>
20,000 shares of stock in Black Mountain Gas Company.
The dividend is reported at the estimated fair market value. 240,000
Joint Venture in Hangar at San Juan Regional Airport.
The dividend is reported at the fair market value based
on subsequent sale. 66,667
One-third ownership of Mesa Propane. Estimated fair market
was 80% of the net book value and a $41,383 loss on disposition
was recorded, prior to the dividend. 165,532
Forgiveness of debt on the Note Receivable from Shareholder 50,000
Total dividends paid $897,199
NOTE 19 -- OPERATING LEASES
The company leases the following properties:
3400 SECOND STREET, ALBUQUERQUE, NEW MEXICO
The company paid rents of $4,500 per month from September 1, 1992 through
November 30, 1992. Effective December 1, 1992, the rent increased to $4,725
per month. The lease accelerates 5% each year and expires on November 30,
2001.
GRAVES #4, FARMINGTON, NEW MEXICO
The company leases land at a base rent of $650 per month plus a premium of one
cent per gallon of petroleum products from the retail outlet and 1/2 cent per
gallon for petroleum products from Cardlock Fuels. The lease expires on June
30, 1998.
M & M TRUCK STOP, CORTEZ, COLORADO
As noted earlier the company leases real estate in Colorado from its 100%
shareholder and subleases the property to a truck stop operator. At the
present time the lease between the company and the 100% shareholder is being
negotiated. Complete details of the new lease are not currently available.
GRAVES #2 STATION, 760 SOUTH MILLER STREET, FARMINGTON YARD, 761 SOUTH MILLER
STREET IN FARMINGTON, NEW MEXICO
The company has entered into an agreement effective October 1, 193, whereby
the company will lease land from a majority shareholder for $500 per month
with annual increases of 5% per year. The lease expires on August 31, 2018.
The company has the option to renew the lease for two periods of ten years.
Future minimum lease payments under these leases are as follows:
August 31, 1994 $ 122,042
August 31, 1995 125,300
August 31, 1996 128,721
August 31, 1997 131,209
August 31, 1998 134,982
NOTE 20 -- SUBSEQUENT EVENTS
In September 1993, Graves Oil and Butane Company, Inc. recapitalized its
outstanding equity securities. The company exchanged all of the outstanding
common stock for one million shares of Series A Convertible Preferred Stock
one cent par value per share (redeemable at the option of the holder after
September 15, 2000, for $3,573,500 plus accrued dividends) and one million
shares of common stock, one cent par value. On September 29, 1993 Meteor
Industries Inc. purchased 100% of the common stock of Graves for cash and
notes. In connection with closing, Graves Oil & Butane Co., Inc. paid a cash
dividend to Meteor
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<PAGE>
Industries Inc. in the amount of $1,750,000 and loaned Meteor Industries, Inc.
$100,000 (which was subsequently repaid).
At closing Graves Oil & Butane Co., Inc. obtained a new revolving line of
credit for $4,100,000 which is limited to approximately $2,200,000 until the
borrowing base of Graves Oil & Butane Co., Inc. as defined in the credit
agreement, increases or decreases. Of the available amount, $1,850,000 was
borrowed at closing to consummate the transaction as described above. The
interest rate is the Norwest base rate plus 1-1/2%. The line is secured by
the trade accounts receivable and inventory of Graves Oil & Butane Co., Inc.
GRAVES OIL & BUTANE CO., INC. FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . F-75
Consolidated Balance Sheet - August 31, 1993 . . . . . . . . . . . . . . F-76
Consolidated Statement of Income - August 31, 1993 . . . . . . . . . . . F-78
Consolidated Statement of Retained Earnings - August 31, 1993. . . . . . F-79
Consolidated Statement of Cash Flows - August 31, 1993 . . . . . . . . . F-80
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-82
F-85
<PAGE>
No person is authorized to
give any information or to make
any representation other than
those contained in this Pros-
pectus, and if given or made 600,000 Shares of Common Stock
such information or represen- 600,000 Redeemable Warrants, and
tation must not be relied upon 92,000 Shares of Common Stock
as having been authorized. Offered by Selling Shareholders
This Prospectus does not con-
stitute an offer to sell or a METEOR INDUSTRIES, INC.
solicitation of an offer to buy
any securities other than the
securities offered by this Pros-
pectus or an offer to sell or a
solicitation of an offer to buy
the securities in any jurisdic-
tion to any person to whom it is
unlawful to make such offer or
solicitation in such jurisdiction.
TABLE OF CONTENTS
Page
Prospectus Summary.............. 5
Risk Factors.................... 8
The Company..................... 14
Price Range of Common Stock..... 16 __________________
Dividend Policy................. 16
Selected Financial Information.. 17 PROSPECTUS
Pro Forma Consolidated State- __________________
ment of Operations............. 18
Management's Discussion and
Analysis of Financial Condi-
tion and Results of Operations. 20
Use of Proceeds................. 27
Business........................ 39
Management...................... 43 NUTMEG SECURITIES, LTD.
Security Ownership of Manage-
ment and Principal Shareholders
Certain Transactions............ 45
Description of Securities....... 49
Underwriting.................... 53 ________, 1996
Selling Shareholders............ 55
Legal Matters................... 57
Experts......................... 57
Index to Financial Statements... 58
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne by
the Registrant, are as follows:
SEC Filing Fee . . . . . . . . . . . . . . . . . . . . . $ 2,950
AMEX Initial Listing Fees. . . . . . . . . . . . . . . . 32,500
NASD Filing Fee. . . . . . . . . . . . . . . . . . . . . 1,355
Underwriter's Non-Accountable Expense Allowance. . . . . 91,800
Printing Expenses. . . . . . . . . . . . . . . . . . . . 20,000
Accounting Fees and Expenses . . . . . . . . . . . . . . 20,000
Legal Fees and Expenses. . . . . . . . . . . . . . . . . 30,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . 10,000
Registrar and Transfer Agent Fees. . . . . . . . . . . . 1,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . 4,395
Total . . . . . . . . . . . . . . . . . . . . . . . $214,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, Director or Officer of the
Registrant is insured or indemnified in any manner against any liability which
he may incur in his capacity as such, is as follows:
As permitted by Colorado law, the Company's Articles of Incorporation
provide that the Company will indemnify its directors and officers against
expenses and liabilities they incur to defend, settle, or satisfy any civil or
criminal action brought against them on account of their being or having been
Company directors or officers unless, in any such action, they are adjudged to
have acted with gross negligence or willful misconduct. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in that Act and is, therefore,
unenforceable.
Pursuant to the provisions of the Colorado Business Corporation Act,
the Company's Articles of Incorporation exclude personal liability for its
directors for monetary damages based upon any violation of their fiduciary
duties as directors, except as to liability for any breach of the duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, acts in violation of Section
7-108-403 of the Colorado Business Corporation Act, or any transactions from
which a director receives an improper personal benefit.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three fiscal years, the Company issued securities which
were not registered under the Securities Act of 1933, as amended (the "Act"),
as follows. The numbers of shares of Common Stock stated give retroactive
effect to an 8% stock dividend which was effected in June 1995.
During the period from April 15, 1993 through August 16, 1993, the
Company issued 635,000 shares of its Common Stock to 27 persons who were
officers, directors and sophisticated investors (includes the conversion of
Series A Preferred Stock into Common Stock) as follows:
<TABLE>
<CAPTION>
Amount and Type
Name Number of Shares of Consideration
<S> <C> <C>
Edward J. Names<FN1> 325,000 $12,500 Cash
$ 300 Services
Dennis R. Staal<FN2> 105,000 $17,000 Cash
$ 300 Services
Almo Industries 50,000 $ 6,250 Cash
$ 300 Services
John D. Bellino 2,000 $ 2,000 Cash
John E. Bradley 2,000 $ 2,000 Cash
Richard B. Cutforth 5,000 $ 5,000 Cash
Michael J. Derrick 2,500 $ 2,500 Cash
Donald A. French 5,000 $ 5,000 Cash
Geraldine Gibson 3,000 $ 3,000 Cash
John A. Gould 5,000 $ 5,000 Cash
Gerald M. Greenberg 10,000 $10,000 Cash
H. Wayne Hoover 2,500 $ 2,500 Cash
Kim E. Hensley 30,000 $30,000 Cash
C. Thomas Houseman 5,000 $ 5,000 Cash
Lear 171 Inc. 10,000 $10,000 Cash
James L. Lewis 2,500 $ 2,500 Cash
Phil & Barbara Minnis 10,000 $10,000 Cash
C.L. Nordstrom 5,000 $ 5,000 Cash
Sandra L. Schlueter 3,000 $ 3,000 Cash
Michael Skurich 5,000 $ 5,000 Cash
ENS Family Partnership 10,000 $10,000 Cash
John & Dinah Sullivan, TTEE 10,000 $10,000 Cash
TBT Family Partners, Ltd. 5,000 $ 5,000 Cash
Gary R. Tice 5,000 $ 5,000 Cash
Daniel J. Vogl 5,000 $ 5,000 Cash
Pamela J. Wilkinson 2,500 $ 2,500 Cash
ITEN 10,000 $10,000 Cash
<FN>
<FN1>
Includes shares issued to Mr. Names' wife.
<FN2>
II-2
<PAGE>
Includes shares issued to a corporation controlled by Mr. Staal.
</FN>
</TABLE>
In connection with these issuances, the Company relied on Section 4(2)
of the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Company.
During January 1994, the Company sold 200,000 shares of Common Stock for
an aggregate of $1,000,000 in cash. The Company paid a commission of $100,000
to VTR Capital, Inc. for its services as underwriter, and issued it
Underwriter's Warrants to purchase 30,250 shares of the Company's Common
Stock. In March 1996, the Company renegotiated the terms of the Underwriter's
Warrants to reduce the exercise price and reduce the number of shares issuable
to 17,000.
With respect to these sales, the Company relied on Section 3(b) of the
Securities Act of 1933, as amended, and Regulation A promulgated thereunder.
Each investor was given a copy of an Offering Circular containing complete
information concerning the Company, an Offering Statement on Form 1-A was
filed with the SEC and the Company complied with the other applicable
requirements of Regulation A.
In June 1995, the Company sold 396,360 shares of its Common Stock to
four sophisticated investors for an aggregate of $734,000 in cash as follows:
Amount and Type
Name Number of Shares of Consideration
Capco Resources, Inc.* 378,000 $700,000 in cash
C. Thomas Houseman 2,160 $ 4,000 in cash
Charles R. Gwirtsman 10,800 $ 20,000 in cash
Sawyer Family Partners 5,400 $ 10,000 in cash
__________________
* The shares sold to Capco Resources, Inc. were subsequently resold to Adres
Chaudhary.
Also in June 1995, the Company issued 5,803 shares of its Common Stock
to employees of its Graves subsidiary under Graves' 401(k) plan. The shares
issued were valued at $4.63 per share.
In October 1995, the Company sold 7,000 shares of its Common Stock to
two sophisticated investors for the consideration set forth as follows:
Amount and Type
Name Number of Shares of Consideration
C. Thomas Houseman 2,000 $4,000 in cash
Paul Greaves 5,000 $6,000 in cash and
$4,000 in services
In connection with the issuances made in June and October 1995, the
Company relied on Section 4(2) of the Securities Act of 1933, as amended. The
shares were
II-3
<PAGE>
offered for investment only and not for the purpose of resale or distribution,
and the transfer thereof was appropriately restricted by the Company.
In November 1995, the Company issued 1,745,000 shares of its Common
Stock in exchange for all of the outstanding stock of Capco Resources, Inc., a
Delaware corporation. The shares of the Company's Common Stock issued in this
transaction were issued to a U.S. subsidiary of Capco Resources Ltd., an
Alberta corporation, which is listed on the Alberta Stock Exchange.
In connection with this issuance, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended. The shares were offered for
investment only and not for the purpose of resale or distribution, and the
transfer thereof was appropriately restricted by the Company.
In May and June 1996, the Company sold shares of the Company's Common
Stock to 21 accredited investors and 3 unaccredited investors in a private
offering. A total of 270,000 shares of Common Stock were sold in this
offering for an aggregate of $704,700 in cash. The Company paid no
commissions in connection with this offering.
With respect to these sales, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder. Each investor was given a copy of a Private Placement Memorandum
containing information concerning the Registrant, a Form D was filed with the
SEC and the Company complied with the other applicable requirements of Rule
506. Each investor signed a subscription agreement in which he represented
that he was purchasing the shares for investment only and not for the purpose
of resale or distribution. The appropriate restrictive legends were placed on
the certificates and stop transfer instructions were issued to the transfer
agent.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-K:
Exhibit
Sequential
No. Description Location
1.1 Form of Underwriting Agreement Filed herewith electronically
1.2 Form of Selected Dealers Agree- Filed herewith electronically
ment
1.3 Form of Agreement Among Under- Filed herewith electronically
writers
II-4
<PAGE>
3.1 Articles of Incorporation, Incorporated by reference
as amended to Exhibit 2.1 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
3.2 Bylaws Incorporated by reference
to Exhibit 2.2 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
4.1 Form of Warrant Agreement with Filed herewith electronically
American Securities Transfer
& Trust, Inc.
4.2 Form of Underwriter's Warrant Filed herewith electronically
5 Opinion of Jon D. Sawyer, P.C. To be filed by amendment
10.1 Stock Option Plan Incorporated by reference
to Exhibit 6.1 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.2 Stock Purchase Agreement Incorporated by reference
among Registrant, Graves to Exhibit 6.2 to Regis-
Oil & Butane Co., Inc. and trant's Form 1-A Offering
Theron J. Graves dated Statement (SEC File No.
June 23, 1993, Amendment 24D-3802 SML)
dated August 23, 1993, and
Closing Memorandum dated
September 28, 1993
10.3 $2,350,000 Promissory Note Incorporated by reference
Payable to Theron J. Graves to Exhibit 6.3 to Regis-
and Security Agreement trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.4 Notes Receivable ($550,000 Incorporated by reference
and $100,000) from Theron J. to Exhibit 6.4 to Regis-
Graves trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.5 Registration Agreement re- Incorporated by reference
garding Subsidiary's Pre- to Exhibit 6.5 to Regis-
ferred Stock trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
II-5
<PAGE>
10.6 Security Agreement regarding Incorporated by reference
Subsidiary's Preferred Stock to Exhibit 6.6 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.7 Consulting Agreement with Incorporated by reference
Theron J. Graves to Exhibit 6.7 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.8 Lease regarding corporate Incorporated by reference
Offices and storage yard to Exhibit 6.11 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.9 Lease regarding Albuquerque Incorporated by reference
warehouse to Exhibit 6.12 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.10 Lease regarding East Main Incorporated by reference
Properties to Exhibit 6.13 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.11 Norwest Credit and Security Incorporated by reference
Agreement to Exhibit 6.14 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.12 $4,000,000 Note Payable to Incorporated by reference
Norwest (partially drawn upon) to Exhibit 6.15 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.13 Meteor Corporate Guarantee Incorporated by reference
as regarding Norwest to Exhibit 6.16 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.14 Employment Agreement with Incorporated by reference
Edward J. Names to Exhibit 6.17 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
II-6
<PAGE>
10.15 Leases regarding Cortez Incorporated by reference
truck stop to Exhibit 6.18 to Regis-
trant's Form 1-A Offering
Statement (SEC File No.
24D-3802 SML)
10.16 Agreement between the Incorporated by reference
Registrant and Hillger Oil to Exhibit 10.16 to Regis-
Co., Inc., as amended trant's Registration State-
ment on Form 10 (SEC File
No. 0-27968)
10.17 Lease Agreement between Incorporated by reference
Hillger Oil Co., Inc. and to Exhibit 10.17 to Regis-
Hillco, Inc. trant's Registration State-
ment on Form 10 (SEC File
No. 0-27968)
10.18 Credit and Security Agree- Incorporated by reference
ment between Hillger Oil to Exhibit 10.18 to Regis-
Co., Inc. and Norwest trant's Registration State-
Business Credit, Inc. ment on Form 10 (SEC File
No. 0-27968)
10.19 Project Development and Incorporated by reference
Shareholders' Agreement to Exhibit 10.19 to Regis-
for Pakistan Power Project trant's Registration State-
ment on Form 10 (SEC File
No. 0-27968)
10.20 Amended and Restated Share Incorporated by reference
Exchange and Reorganization to Exhibit 10.20 to Regis-
Agreement trant's Registration State-
ment on Form 10 (SEC File
No. 0-27968)
10.21 Amendment to Employment Incorporated by reference
Agreement with Edward J. to Exhibit 10.21 to Regis-
Names trant's Registration State-
ment on Form 10 (SEC File
No. 0-27968)
10.22 Amended and Restated Incorporated by reference
Promissory Note from Saba to Exhibit 10.22 to Regis-
Petroleum Company to Capco trant's Registration State-
Resources, Inc. ment on Form 10 (SEC File
No. 0-27968)
10.23 Amendment to Project Incorporated by reference
Development and Shareholders' to Exhibit 10.23 to Regis-
Agreement for Pakistan Power trant's Registration State-
Project ment on Form 10 (SEC File
No. 0-27968)
II-7
<PAGE>
10.24 Agreement between Capco Incorporated by reference
Resources, Inc. and Saba to Exhibit 10.24 to Regis-
Petroleum Company dated trant's Registration State-
April 24, 1996 ment on Form 10 (SEC File
No. 0-27968)
10.25 Amended and Restated Agree- Filed herewith electronically
ment between Capco Resources,
Inc. and Saba Petroleum
Company dated August 1, 1996
21 Subsidiaries of the Registrant Filed herewith electronically
23.1 Consent of Jon D. Sawyer, P.C. To be filed by amendment
23.2 Consent of Coopers & Lybrand Filed herewith electronically
L.L.P.
23.3 Consent of Squire & Woodward, Filed herewith electronically
P.C.
23.4 Consent of Price Waterhouse, Filed herewith electronically
Chartered Accountants
All financial statement schedules have been omitted, as the required
information is inapplicable or the information is presented in the financial
statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant 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
Registrant of expenses incurred or paid by a Director, Officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Director, Officer or controlling person in
connection with the securities being registered, the Registrant 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 Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) For purpose of determining any liability under the Securities Act
of 1933, 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 registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under
II-8
<PAGE>
the Securities Act shall be deemed to be part of this Registration Statement
as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
(3) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the Registration Statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant 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 24th day of September, 1996.
METEOR INDUSTRIES, INC.
By /s/ Ilyas Chaudhary
Ilyas Chaudhary,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Ilyas Chaudhary Chairman, Chief September 24, 1996
Ilyas Chaudhary Executive Officer
and Director
/s/ Edward J. Names President and September 24, 1996
Edward J. Names Director
/s/ Dennis R. Staal Secretary, Treasurer September 24, 1996
Dennis R. Staal (Principal Financial
and Accounting Officer)
and Director
II-10
<PAGE>
EXHIBIT 1.1
METEOR INDUSTRIES, INC.
600,000 Shares
of Common Stock
and
600,000 Redeemable Warrants
UNDERWRITING AGREEMENT
--------, 1996
NUTMEG SECURITIES, LTD.
495 Post Road East
Westport, CT 06880
Dear Sirs:
Meteor Industries, Inc. a Colorado corporation (the "Company"), proposes
to issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), 600,000 shares of common stock of the Company and 600,000
redeemable warrants (the "Securities". The Company hereby confirms the
agreement made by it with respect to the purchase of the Securities by the
Underwriter, which Securities are more fully described in the Registration
Statement referred to below. Nutmeg Securities, Ltd. is referred to herein as
the "Underwriter" or the "Representative."
You have advised the Company that the Underwriters desire to act on a
firm commitment basis to publicly offer and sell the Securities for the
Company and that you are authorized to execute this Agreement. The Company
confirms the agreement made by it with respect to the relationship with the
Underwriters as follows:
1. FILING OF REGISTRATION STATEMENT WITH S.E.C. AND DEFINITIONS. A
Registration Statement and Prospectus on Form S-1 (File No.333-------) with
respect to the Securities has been carefully and accurately prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the published nobles and regulations (the "Rules and
Regulations") thereunder or under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and has been filed with the Securities and
Exchange Commission (the "Commission") and such other states that the
Underwriter deems necessary in its discretion to so {ale to permit a public
offering and trading thereunder. Such registration statement, including the
prospectus, Part II, and all financial schedules and exhibits thereto, as
amended at the time when it shall become effective, is herein referred to as
the "Registration Statement," and the prospectus included as part of the
Registration Statement on file with the Commission that discloses all the
information that was omitted from the prospectus on the effective date
pursuant to Rule 430A of the Rules and Regulations with any changes contained
in any prospectus filed with the commission by the Company with the
Underwriters consent after the effective date of the Registration Statement,
is herein referred to as the "Final Prospectus." The prospectus included as
part of the Registration Statement of the Company and in any amendments
thereto prior to the effective date of the Registration Statement is referred
to herein as a "Preliminary Prospectus."
1
<PAGE>
2. DISCOUNT, DELIVERY, AND SALE OF THE SECURITIES.
(a) Subject to the terms and conditions of this Agreement, and on the
basis of the representations, warranties, and agreements herein contained, the
Company agrees to sell to, and the Underwriters agree to buy from the Company
at a purchase price of $--- per share and $0.10 per Redeemable Warrant before
any underwriter expense allowances, an aggregate of 600,000 shares of Common
Stock, and 600,000 Redeemable Warrants on a firm commitment basis the "Initial
Securities".
It is understood that the Underwriters propose to offer the Securities
to be purchased hereunder to the public upon the terms and conditions set
forth in the Registration Statement, after the Registration Statement becomes
effective.
(b) Delivery of the Securities against payment of the purchase price
therefor by certified or official bank check or checks or wire transfer in
next-day funds, payable to the order of the Company shall take place at the
offices of the clearing broker for the Underwriter at New York City, within
four (4) business days after the Securities are first traded (or such other
place as may be designated by agreement between you and the Company) at 11:00
A.M., New York time or such time and date as you and the Company may agree
upon in writing, such time and date of payment and delivery for the Securities
being herein called the "Initial Closing Date."
The Company will make the certificates for the shares of Common Stock
and Redeemable Warrants to be purchased by the Underwriters hereunder
available to the Underwriter for inspection and packaging at least two (2)
full business days prior to the Initial Closing Date. The certificates shall
be in such names and denominations as the Underwriter may request to the
Company in writing at least two (2) full business days prior to any Closing
Date.
(c) In addition, subject to the terms and conditions of this Agreement
and on the basis of the representations, warranties and agreements herein
contained' the Company grants an option to the Underwriters to purchase up to
an additional 90,000 shares of Common Stock and/or up to 90,000 additional
Warrants as the case may be ("Option Securities") at the same terms as the
Underwriters shall pay for the Initial Securities being sold by the Company
pursuant to the provisions of Section 2(a) hereof This option may be exercised
from time to time, for the purpose of covering over allotments, within forty-
five (45) days after (i) the elective date of the Registration Statement if
the Company has elected not to rely on Rule 430A under the Rules and
Regulations or (ii) the date of this Agreement if the Company has elected to
rely upon Rule 430A under the Rules and Regulations, upon written notice by
the Underwriter setting forth the number of Option Securities as to which the
Underwriter is exercising the option and the time and date at which such
certificates are to be delivered. Such time and date shall be determined by
the Underwriter but shall not be earlier than four (4) nor later than ten (10)
full business days after the date of the exercise of said option. Nothing
herein shall obligate the Underwriter to make any over allotment.
(d) Definitive certificates in negotiable form for the Securities to be
purchased by the Underwriter hereunder will be delivered at the closing by the
Company to the Underwriters against payment of the purchase price by the
Underwriters by certified or bank cashier's checks or wire transfer in next
day funds payable to the order of the Company.
2
<PAGE>
(e) The information set forth under "Underwriting" in any preliminary
prospectus and Prospectus relating to the Securities and the information set
forth in the last paragraph on the front cover page, under the last paragraph
on page 2 concerning stabilization and over-allotment by the Underwriters, and
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriter to the Company for inclusion therein,
and you represent and warrant to the Company that the statements made therein
are correct.
(f) On the Initial Closing Date, the Company shall issue and sell to
the Representative, warrants (the "Representative's Warrants") at a purchase
price of $.001 per Representative's Warrant, which shall entitle the holders
thereof to purchase an aggregate of 60,000 shares of Common Stock and 60,000
Redeemable Warrants. The shares of common stock and redeemable warrants
issuable upon the exercise of the Representative's Warrants are hereafter
referred to as the "Representative's Securities" or "Representative's
Warrants." The shares of common stock issuable upon exercise of the redeemable
warrants are hereinafter referred to collectively as the "Warrant Shares". The
Representative's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement
at a price equaling one hundred twenty-five percent (125%) of the initial
public offering price of the Securities. The form of Representative's Warrant
Certificate shall be substantially in the form filed as an Exhibit to the
Registration Statement. Payment for the Representative's Warrants shall be
made on the Initial Closing Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to you as follows:
(i) The Company has prepared and filed with the Commission a
registration statement, and an amendment or amendments thereto, on Form S-1
(No. 333-----), including any related preliminary prospectus ("Preliminary
Prospectus"), for the registration of the Securities, the Representative's
Warrant and the Warrant Shares (sometimes referred to herein collectively as
the "Registered Securities"), under the Act, which registration statement and
amendment or amendments have been prepared by the Company in conformity with
the requirements of the Act, and the Rules and Regulations. The Company will
promptly file a further amendment to said registration statement in the form
heretofore delivered to the Underwriter and will not file any other amendment
thereto to which the Underwriter shall have objected verbally or in writing
after having been furnished with a copy thereof. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, any schedules, exhibits and all other
documents filed as a part thereof or that may be incorporated therein
(including, but not limited to those documents or information incorporated by
reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Rules and Regulations),
is hereinafter called the "Registration Statement," and the form of prospectus
in the form first filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations, is hereinafter called the "Prospectus."
(ii) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Prospectus or the
Registration Statement and no proceeding for an order suspending the
effectiveness
3
<PAGE>
of the Registration Statement or any of the Company's securities
has been instituted or is pending or threatened. Each such Prospectus and/or
any supplement thereto has conformed in all material respects with the
requirements of the Act and the Rules and Regulations and on its date did not
include any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein not misleading, in light of the
circumstances under which they were made; and when the Prospectus becomes
legally effective and for twenty-five (25) days subsequent thereto (i) the
Prospectus and/or any supplement thereto will contain all statements which are
required to be stated therein by the Act and Rules and Regulations, and (ii)
the Prospectus and/or any supplement thereto will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading' in
light of the circumstances under which they were made; provided, however, that
no representations, warranties or agreements are made hereunder as to
information contained in or omitted from the Prospectus in reliance upon, and
in conformity with, the written information furnished to the Company by you as
set forth in Section 2(e) above.
(iii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its businesses as described in the Prospectus and is
duly qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the
business, properties or operations of the Company and the subsidiaries as a
whole.
(iv) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, the Option Securities and
the Representative's Securities and to enter into this Agreement, the
Representative's Warrant dated as of the initial closing date to be exercised
and delivered by the Company to the Representative (the "Representative's
Warrant Agreement"), and to consummate the transactions provided for in such
agreements, and each of such agreements has been duly and properly authorized,
and on the Initial Closing Date will be duly and properly executed and
delivered by the Company. This Agreement constitutes and on the Initial
Closing Date each of the Representative's Warrant Agreement and the Consulting
Agreement will then constitute valid and binding agreements, enforceable in
accordance with their respective terms (except as the enforceability thereof
may be limited by bankruptcy or other similar laws affecting the rights of
creditors generally or by general equitable principles and except as the
enforcement of indemnification provisions may be limited by federal or state
securities laws).
(v) Except as disclosed in the Prospectus, the Company is not in
violation of its respective certificate or articles of incorporation or bylaws
or in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture,
note or other evidence of indebtedness or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture, partnership or other agreement
or instrument to which the Company is a party or by which it may be bound or
is not in material violation of any law, order, rule, regulation, writ,
injunction or decree of any governmental instrumentality or court, domestic or
foreign; and the execution and
4
<PAGE>
delivery of this Agreement, the Representative's Warrant Agreement and the
Consulting Agreement, and the consummation of the transactions contemplated
therein and in the Prospectus and compliance with the terms of each such
agreement will not conflict with, or result in a material breach of any of the
terms, conditions or provisions of, or constitute a material default under, or
result in the imposition of any material lien, charge or encumbrance upon any
of the property or assets of the Company pursuant to, any material bond,
debenture, note or other evidence of indebtedness or any material contract,
indenture, mortgage, loan agreement, lease, joint venture, partnership or
other agreement or instrument to which the Company is a party nor will such
action result in the material violation by the Company of any of the
provisions of its respective certificate or articles of incorporation or
bylaws or any law, order, rule, regulation, writ, injunction, decree of any
government, governmental instrumentality or court, domestic or foreign, except
where such violation will not have a material adverse effect on the financial
condition of the Company.
(vi) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus and the Company will have the
adjusted capitalization set forth therein on the Initial Closing Date; all of
the shares of issued and outstanding capital stock of the Company set forth
therein have been duly authorized, validly issued and are fully paid and
nonassessable; the holders thereof do not have any rights of rescission with
respect therefor and are not subject to personal liability for any obligations
of the Company by reason of being stockholders under the laws of the State in
which the Company is incorporated; none of such outstanding capital stock is
subject to or was issued in violation of any preemptive or similar rights of
any stockholder of the Company; and such capital stock (including the
Securities, the Option Securities and the Representative's Securities)
conforms in all material respects to all statements relating thereto contained
in the Prospectus.
(vii) The Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital stock,
rights, warrants' options or other securities, except for this Agreement or as
described in the Prospectus. The Securities, the Option Securities and the
Representative's Securities are not and will not be subject to any preemptive
or other similar rights of any stockholder, have been duly authorized and,
when issued, paid for and delivered in accordance with the terms hereof, will
be validly issued, fully paid and non-assessable and will conform to the
respective descriptions thereof contained in the Prospectus; except for
payment of the applicable purchase price paid upon exercise of the options or
warrants, as the case may be the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken
for the authorization, issue and sale of the Securities, the Option Securities
and the Representative's Securities has been duly and validly taken; and the
certificates representing the Securities, the Option Securities and the
Representative's Securities will be in due and proper form. Upon the issuance
and delivery pursuant to the terms hereof of the Securities, the Option
Securities and the Representative's Securities to be sold by the Company
hereunder, the Underwriter will acquire good and marketable title to such
Securities, Option Securities and Representative's Securities free and clear
of any lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction of any kind whatsoever other than restrictions as may be
imposed under the securities laws.
(viii) The Company has good and marketable title to all
properties and
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assets described in the Prospectus as owned by it, free and
clear of all liens, charges, encumbrances or restrictions, except such as are
described or referred to in the Prospectus or which are not materially
significant or important in relation to its business or which have been
incurred in the ordinary course of business; except as described in the
Prospectus all of the leases and subleases under which the Company holds
properties or assets as lessee or sublessee as described in the Prospectus are
in full force and effect, and the Company is not in material default in
respect of any of the terms or provisions of any of such leases or subleases,
and no claim has been asserted by anyone adverse to the Company's rights as
lessor, sublessor, lessee or sublessee under any of the leases or subleases
mentioned above or affecting or questioning the Company's right to the
continued possession of the leased or subleased premises or assets under any
such lease or sublease; and the Company owns or leases all such properties as
are necessary to its operations as now conducted and as contemplated to be
conducted, except as otherwise stated in the Prospectus.
(ix) The financial statements, together with related notes, set
forth in the Prospectus fairly present the financial position and results of
operations of the Company at the respective dates and for the respective
periods to which they apply. Said statements and related notes have been
prepared in accordance with generally accepted accounting principles applied
on a basis which is consistent in all material respects during the periods
involved but any stub period has not been audited by an independent accounting
firm. There has been no material adverse change or material development
involving a prospective change in the condition, financial or otherwise, or in
the prospects, value, operation, properties, business or results of operations
of the Company whether or not arising in the ordinary course of business,
since the date of the financial statements included in the Registration
Statement and the Prospectus.
(x) Subsequent to the respective dates as of which information is
given in the Prospectus as it may be amended or supplemented, and except as
described in the Prospectus, the Company has not, directly or indirectly,
incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business or entered into any transactions not in the
ordinary course of business, which are material to the business of the Company
as a whole and there has not been any change in the capital stock of, or any
incurrence of long term debts by, the Company or any issuance of options,
warrants or rights to purchase the capital stock of the Company or declaration
or payment of any dividend on the capital stock of the Company or any material
adverse change in the condition (financial or other), net worth or results of
operations of the Company as a whole and the Company has not become a party
to, any material litigation whether or not in the ordinary course of business.
(xi) To the knowledge of the Company, there is no pending or
threatened, action, suit or proceeding to which the Company is a party before
or by any court or governmental agency or body, which might result in any
material adverse change in the condition (financial or other), business or
prospects of the Company as a whole or might materially and adversely affect
the properties or assets of the Company as a whole nor are there any actions,
suits or proceedings against the Company related to environmental matters or
related to discrimination on the basis of age, sex, religion or race which
might be expected to materially and adversely affect the conduct of the
business, property, operations, financial condition or earnings of the Company
as a whole, and no labor disturbance by the employees of the
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Company individually exists or is, to the knowledge of the Company, imminent
which might be expected to materially and adversely affect the conduct of the
business, property, operations, financial condition or earnings of the Company
as a whole.
(xii) Except as may be disclosed in the Prospectus, the Company
has properly prepared and filed all necessary federal, state, local and
foreign income and franchise tax returns, has paid all taxes shown as due
thereon, has established adequate reserves for such taxes which are not yet
due and payable, and does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(xiii) The Company has sufficient licenses, permits, right to use
trade or service marks and other governmental authorizations currently
required for the conduct of its business as now being conducted and as
contemplated to be conducted and the Company is in all material respects
complying therewith. Except as set forth in the Prospectus, the expiration of
any such licenses, permits, or other governmental authorizations would not
materially affect the Company's operations. To its knowledge, none of the
activities or businesses of the Company are in material violation of, or cause
the Company to materially violate any law, rule, regulations, or order of the
United States, any state, county or locality, or of any agency or body of the
United States or of any state, county or locality.
(xiv) The Company has not at any time (i) made any contributions
to any candidate for political office in violation of law, or failed to
disclose fully any such contribution, or (ii) made any payment to any state,
federal or foreign governmental officer or official, or other person charged
with similar public or quasipublic duties, other than payments required or
allowed by applicable law.
(xv) Except as set forth in the Prospectus the Company knows of no
outstanding claims for services either in the nature of a finder's fee,
brokerage fee or otherwise with respect to this financing for which the
Company or the Underwriters may be responsible, or which may affect the
Underwriter's compensation as determined by the National Association of
Securities Dealers, Inc. ("NASD") except as otherwise disclosed in the
Prospectus or known by the Underwriters.
(xvi) The Company has its property adequately insured against loss
or damage by fire and maintains such other insurance as is customarily
maintained by companies in the same or similar business.
(xvii) The Representative's Warrants herein described are duly
and validly authorized and upon delivery to the Representative in accordance
herewith will be duly issued and legal, valid and binding obligations of the
Company, except as the enforceability thereof may be limited by bankruptcy or
other similar laws affecting the rights of creditors generally or by equitable
principles, and except as the enforcement of indemnification provisions may be
limited by federal or state securities laws.
(xviii) The Representative's Securities issuable upon exercise of
any of the Representative's Warrants have been duly authorized, and when
issued upon payment of the exercise price therefor, will be validly issued,
fully paid and nonassessable.
(xix) Except as set forth in the Prospectus, no default exists in
the due performance and observance of any term, covenant or condition of any
material
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license, contract, indenture, mortgage, installment sale agreement,
lease, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement
or instrument to which the Company is a party or by which the Company may be
bound or to which the proper or assets (tangible or intangible) of the Company
is subject or selected.
(xx) To the best of the Company's knowledge it has generally
enjoyed a satisfactory employer-employee relationship with its employees and,
to the best of its knowledge, is in substantial compliance in all material
respects with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. To the best of the Company's knowledge, there
are no pending investigations involving the Company, by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of
such federal, state, local, or foreign laws and regulations. To the best of
the Company's knowledge, there is no unfair labor practice charge or complaint
against the Company pending before the National Labor Relations Board or any
strike, picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or to its knowledge involving the Company, or any
predecessor entity, and none has ever occurred. To the best of the Company's
knowledge, no representation question is pending respecting the employees of
the Company, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company. To the best of the Company's
knowledge, no grievance or arbitration proceeding is pending or to its
knowledge threatened under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
is pending, or, to its knowledge is imminent; and the Company is not aware of
any pending or imminent labor disturbance by the employees of any of its
principal suppliers, manufacturers or contractors which may result in any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs, position, prospects, value, operation, properties,
business or results of operations of the Company.
(xxi) Except as may be set forth in the Registration Statement,
the Company does not maintain, sponsor or contribute to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multiemployer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not
maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust
created thereunder) has engaged in a "prohibited transaction" within the
meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code
(the "Code"), which could subject the Company to any tax penalty on prohibited
transactions and which has not adequately been corrected. Each ERISA Plan is
in compliance with all material reporting, disclosure and other requirements
of the Code and ERISA as they relate to any such ERISA Plan. Determination
letters have been received from the Internal Revenue Service with respect to
each ERISA Plan which is intended to comply with Code Section 401(a), stating
that such ERISA Plan and the attendant trust are qualified. The Company has
never completely or partially withdrawn from a "multiemployer plan."
(xxii) None of the Company, or any of its employees, directors,
stockholders, or affiliates (within the meaning of the Rules and Regulations)
has taken or will take, directly or indirectly, any action designed to or
which has
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constituted or which might be expected to cause or result in, under
the Exchange Act, or otherwise, stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Securities, Option Securities, Representative's Securities or otherwise.
(xxiii) None of the patents, patent applications, trademarks,
service marks, trade names, copyrights, and licenses and rights to the
foregoing presently owned or held by the Company, are in dispute or, to the
best knowledge of the Company's management are in any conflict with the right
of any other person or entity. The Company (i) except as disclosed in the
Prospectus owns or has the right to use, all patents, trademarks, service
marks, trade names and copyrights, technology and licenses and rights with
respect to the foregoing, used in the conduct of its business as now conducted
or proposed to be conducted without infringing upon or otherwise acting
adversely to the right or claimed right of any person, corporation or other
entity under or with respect to any of the foregoing, and except as set forth
in the Prospectus or otherwise disclosed to the Underwriter in writing, to the
best knowledge of the Company's management is not obligated or under any
liability whatsoever to make any material payments by way of royalties, fees
or otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
(xxiv) Except as disclosed in the Prospectus the Company owns and
has adequate right to use to the best knowledge of the Company's management
all trade secrets, know-how (including all other unpatented and/or
unpatentable proprietary or confidential information systems or procedures),
inventions, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein "intellectual property")
required for or incident to the development, manufacture, operation and sale
of all products and services sold or proposed to be sold by the Company. The
Company is not aware of any such development of similar or identical trade
secrets or technical information by others. The Company has valid and binding
confidentiality agreements with all of its officers, covering its intellectual
property (subject to the equitable powers of any court), which agreements have
remaining terms of at least two years from the effective date of the
Registration Statement except where the failure to have such agreements would
not materially and adversely elect the Company's business taken as a whole.
The Company has good and marketable title to, or valid and enforceable
leasehold estates in, all items of real and personal property stated in the
Prospectus, to be owned or leased by it free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to
in the Prospectus and liens for taxes not yet due and payable.
(xxv) Cooper & Lybrand, whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(xxvi) The Company has agreed to execute and has also caused to be
duly executed agreements pursuant to which each of the Company's officers and
directors and shareholders and any person or entity deemed to be an affiliate
of the Company pursuant to the Rules and Regulations, except for Theron J.
Graves, has agreed not to, directly or indirectly, sell, assign, transfer, or
otherwise dispose of more
9
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than 5,000 shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) for a period of not less than
twelve(12) months following such effective date without the prior written
consent of the Underwriter. The Company will cause the Transfer Agent, as
defined below to mark an appropriate legend on the face of stock certificates
representing all of such securities and to place "stop transfer" orders on the
Company's stock ledgers.
(xxvii) The Registered Securities have been approved for listing
on NASDAQ or an Exchange.
(xxviii) Except as set forth in the Prospectus or disclosed in
writing to the Underwriter (which writing specifically refers to this
Section), no officer or director of the Company, holder of 5% or more of
securities of the Company or any "affiliate" or "associate" (as these terms
are defined in Rule 405 promulgated under the Rules and Regulations) of any of
the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or
sells services or products which are furnished or sold or are proposed to be
furnished or sold by the Company, or (B) purchases from or sells or furnishes
to the Company any goods or services, or (ii) a beneficiary interest in any
contract or agreement to which the Company is a party or by which it may be
bound or affected. Except as set forth in the Prospectus under "Certain
Transactions" or disclosed in writing to the Underwriter (which writing
specifically refers to this Section) there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company,
and any officer, director, principal stockholder of the Company, or any
partner, affiliate or associate of any of the foregoing persons or entities.
(xxix) Any certificate signed by any officer of the Company, and
delivered to the Underwriter or to the Underwriter's counsel (as defined
herein) shall be deemed a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
(xxx) Each of the minute books of the Company has been made
available to the Underwriter and contains a complete summary of all meetings
and actions of the directors and stockholders of the Company, since the time
of its incorporation and reflect all transactions referred to in such minutes
accurately in all respects.
(xxxi) Except and only to the extent described in the Prospectus
or disclosed in writing to the Underwriter (which writing specifically refers
to this Section), no holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the
Company have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the
Company or to require the Company to file a registration statement under the
Act and no person or entity holds any anti-dilution rights with respect to any
securities of the Company. Except as disclosed in the Prospectus, all rights
so described or disclosed have been waived or have not been triggered with
respect to the transactions contemplated by this Agreement and the
Representative's Warrant Agreement (including the warrants issuable
thereunder).
(xxxii) The Company has not entered into any employment agreements
with
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its executive officers, except as disclosed in the Prospectus.
(xxxiii) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Registered Securities
pursuant to the Prospectus and the Registration Statement, the issuance of the
Underwriter's Warrants, the performance of this Agreement, the
Representative's Warrant Agreement and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue
and/or sale of any of the Securities, the Option Securities and the
Underwriter's Securities, except such as have been or may be obtained under
the Act, otherwise or may be required under state securities or blue sky laws
in connection with the Underwriter's purchase and distribution of the
Securities, the Option Securities, the Representative's Securities and the
Underwriter's Warrants to be sold by the Company hereunder or may be required
by the Rules of the National Association of Securities Dealer, Inc. ("NASD").
(xxxiv) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits
to the Registration Statement to which the Company is a party or by which it
may be bound or to which its assets, properties or businesses may be subject
have been duly and validly authorized, executed and delivered by the Company
and constitute the legal, valid and binding agreements of the Company,
enforceable against the Company, in accordance with their respective terms.
The descriptions in the Registration Statement of agreements, contracts and
other documents are accurate and fairly present the information required to be
shown with respect thereto by Form S-1, and there are no contracts or other
documents which are required by the Act to be described in the Registration
Statement or filed as exhibits to the Registration Statement which are not
described or filed as required, and the exhibits which have been filed are
complete and correct copies of the documents of which they purport to be
copies.
(xxxv) Within the past five (5) years, none of the Company's
independent public accountants has brought to the attention of the Company's
management any "material weakness" as defined in the Statement of Auditing
Standard No. 60 in any of the Company's internal controls.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with you that:
(a) It will cooperate in all respects in making the Prospectus
effective and will not at any time, whether before or after the effective
date, file any amendment to or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which you or
your counsel shall have reasonably objected or which is not in material
compliance with the Act and the Rules and Regulations or applicable state law.
As soon as the Company is advised thereof, the Company will advise you,
and confirm the advice in writing, of the receipt of any comments of the
Commission or any state securities department, when the Registration Statement
becomes effective if the provisions of Rule 430A promulgated under the Act
will be relied upon, when the Prospectus has been filed in accordance with
said Rule 430A, of the effectiveness of any posteffective amendment to the
Registration Statement or Prospectus, or the filing of any supplement to the
Prospectus or any amended
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Prospectus, of any request made by the Commission or
any state securities department for amendment of the Prospectus or for
supplementing of the Prospectus or for additional information with respect
thereto, of the issuance of any stop order suspending the effectiveness
Prospectus or any order preventing or suspending the use of any Prospectus or
any order suspending trading in the Common Stock of the Company, or of the
suspension of the qualification of the Securities, the Option Securities or
the Representatives Securities for offering in any jurisdiction, or of the
institution of any proceedings for any such purposes, and will use its best
efforts to prevent the issuance of any such order and, if issued, to obtain as
soon as possible the lifting or dismissal thereof.
The Company has caused to be delivered to you copies of such Prospectus,
and the Company has consented and hereby consents to the use of such copies
for the purposes permitted by law. The Company authorizes you and the dealers
to use the Prospectus and such copies of the Prospectus in connection with the
sale of the Securities, the Option Securities and the Representative's
Securities for such period as in the opinion of your counsel and our counsel
the use thereof is required to comply with the applicable provisions of the
Act and the Rules and Regulations. The Company will prepare and file with the
states, promptly upon your request, any such amendments or supplements to the
Prospectus, and take any other action, as, in the opinion of your counsel, may
be necessary or advisable in connection with the initial sale of the
Securities, the Option Securities and the Underwriter's Securities and will
use its best efforts to cause the same to become effective as promptly as
possible.
The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to rule
424(b)(1) or pursuant to Rule 424(b)(3) not later than the Commission's close
of business on the earlier of (i) the second business day following the
execution and delivery of this Agreement, and (ii) the fifth business day
after the effective date of the Registration Statement.
In case of the happening, at any time within such period as a Prospectus
is required under the Act to be delivered in connection with the initial sale
of the Securities, the Option Securities and the Representative's Securities
of any event of which the Company has knowledge and which materially affects
the Company, or the securities thereof, and which should be set forth in an
amendment of or a supplement to the Prospectus in order to make the statements
therein not then misleading, in light of the circumstances existing at the
time the Prospectus is required under the Act to be delivered, or in case it
shall be necessary to amend or supplement the Prospectus to comply with the
Act, the Rules and Regulations or any other law, the Company will forthwith
prepare and furnish to you copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities as you may
reasonably request, in order that the Prospectus, as so amended or
supplemented, will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under
which they are made. The preparation and furnishing of any such amendment or
supplement to the Prospectus or supplement to be attached to the Prospectus
shall be without expense to you.
The Company will to the best of its ability comply with the Act, the
Exchange Act and applicable state securities laws so as to permit the initial
offer and sales of the Securities, the Option Securities and the
Representatives Securities under
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the Act, the Rules and Regulations, and applicable state securities laws.
(b) It will cooperate to qualify the Securities and the Option
Securities and the Representative's Securities for initial sale under the
securities laws of such jurisdictions as you may designate and will make such
applications and furnish such information as may be required for that purpose,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long as the Underwriter may reasonably request.
(c) So long as any of the Securities, the Option Securities or the
Representative's Securities remain outstanding in the hands of the public, the
Company, at its expense, will annually furnish to its shareholders a report of
its operations to include financial statements audited by independent public
accountants, and will furnish to the Underwriter as soon as practicable after
the end of each fiscal year, a balance sheet of the Company as at the end of
such fiscal year, together with statements of operations, shareholders'
equity, and changes in cash flow of the Company for such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or report
thereon of independent public accountants.
(d) It will deliver to you at or before the Initial Closing Date two
signed copies of the Registration Statement including all financial statements
and exhibits filed therewith, whether or not incorporated by reference. The
Company will deliver to you, from time to time until the effective date of the
Prospectus, as many copies of the Prospectus as you may reasonably request.
The Company will deliver to you on the effective date of the Prospectus and
thereafter for so long as a Prospectus is required to be delivered under the
Act and the Rules and Regulations as many copies of the Prospectus, in final
form, or as thereafter amended or supplemented, as you may from time to time
reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Securities and the Option Securities substantially in the manner set forth
under "Use of Proceeds" in the Prospectus. No portion of the proceeds shall be
used, directly or indirectly, to acquire any securities issued by the Company,
without the prior written consent of the Underwriter.
(f) As soon as it is practicable, but in any event not later than the
first (1st) day of the fifteenth (l5th) full calendar month following the
effective date of the Registration Statement, the Company will make available
to its security holders and the Underwriter an earnings statement (which need
not be audited) covering a period of at least twelve (12) consecutive months
beginning after the effective date of the Registration Statement, which shall
satisfy the requirements of Section 1 lead of the Act and Rule 158(a) of the
Rules and Regulations.
(g) Costs and Expenses. The Company shall pay to the Underwriter at
each closing date, and to be deducted from the purchase price for the
Securities and the Option Securities, an amount equal to three percent (3%) of
the gross proceeds received by the Company from the sale of the Securities and
the Option Securities at such closing date less in the case of the Initial
Closing Date, the sum of $15,000 previously paid by the Company. If the sale
of the Securities by the Underwriter is not consummated for any reason not
attributable to the Underwriter,
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or if (i) the Company withdraws the
Registration Statement from the Commission or does not proceed with the public
offering, or (ii) the representations in Section 3 hereof are not correct or
the covenants cannot be complied with, or (iii) there has been a materially
adverse change in the condition, prospects or obligations of the Company or a
materially adverse change in stock market conditions from current conditions,
all as determined by the Underwriter, then the Company shall reimburse the
Underwriter for its out of pocket expenses including without limitation, its
legal fees and disbursements all on an accountable basis but not to exceed
$25,000 (less the $15,000 previously paid by the Company), and if any excess
remains from the advance previously paid, such excess will be returned to the
Company.
Subject to the provisions above the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the
Registration Statement and Prospectus (including the fee of the Commission,
any securities exchange and the NASD in connection with the filing required by
the NASD relating to the offering of the Securities contemplated hereby); all
expenses, including fees of counsel, which shall be due and payable on the
Closing Date in connection with the qualification of the Securities under the
state securities or blue sky laws; the cost of furnishing to you copies of the
Prospectus, this Agreement, the cost of printing the certificates representing
the Securities and of preparing and photocopying the Underwriting Agreement
and related Underwriting documents, the cost of two underwriter's bound
volumes, any advertising costs and expenses, including but not limited to the
Company's expenses on "road show" information meetings and presentations,
prospectus memorabilia, issue and transfer taxes, if any. The Company will
also pay all costs and expenses incident to the furnishing of any amended
Prospectus of or any supplement to be attached to the Prospectus.
(h) The Company shall not, without the Underwriter's prior written
consent which shall not be unreasonably withheld, sell or offer to sell any
shares of Common Stock for one (1) year after the effective date including
other equity securities or warrants or options to purchase any shares of
Common Stock or equity securities except (i) in connection with acquisitions,
(ii) pursuant to warrants and options outstanding immediately prior to or as a
result of the Closing, or (iii) pursuant to options granted under Company's
Stock Option Plan as described in the Prospectus.
(i) During a date five years after the date hereof, the Company will
make available to its shareholders, as soon as practicable, and deliver to the
Underwriter:
(1) as soon as they are available, copies of all reports
(financial or other) mailed to shareholders;
(2) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or
any securities exchange;
(3) every press release and every material news item or article of
interest to the financial community in respect of the Company or its affairs
which was prepared and released by or on behalf of the Company; and
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(4) any additional information of a public nature concerning the
Company (and any future subsidiaries) or its businesses which the Underwriter
may request.
During such five-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are consolidated,
and will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(j) The Company will maintain a Transfer Agent and, if necessary under
the jurisdiction of incorporation of the Company, a Registrar (which may be
the same entity as the Transfer Agent) for its Common Stock.
(k) The Company will furnish to the Underwriter or on the Underwriter's
order, without charge, at such place as the Underwriter may designate, copies
of each Preliminary Prospectus, the Final Prospectus the Registration
Statement and any pre-effective or post-effective amendments thereto (two of
which copies will be signed and will include all financial statements and
exhibits), the Prospectus, and all amendments and supplements thereto,
including any prospectus prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as the
Underwriter may request.
(l) Neither the Company nor any of its officers, directors,
stockholders or any of its affiliates will take, directly or indirectly, any
action designed to, or which might in the future reasonably be expected to
cause or result in stabilization or manipulation of the price of any of the
Company's securities.
(m) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may
be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(n) The Company shall cause the Securities to be listed on the American
Stock Exchange for a period of five (5) years from the date hereof, use its
best efforts to maintain the listing of the Securities to the extent they are
outstanding.
(o) As soon as practicable, (i) before the effective date of the
Registration Statement, file a Form 8-A with the Commission providing for the
registration under the Exchange Act of the Securities and (ii) but in no event
more than 30 days from the effective date of the Registration Statement' take
all necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and/or Moody's OTC Manual and to continue such
inclusion for a period of not less than five years if the securities are not
listed on the AMEX.
(p) Until the completion of the distribution of the Securities, the
Company shall not without the prior written consent of the Underwriter and its
counsel which consent shall not be unreasonably withheld or delayed, issue,
directly or indirectly, any press release or other communication or hold any
press conference with respect to the Company or its activities or the offering
contemplated hereby, other than trade releases issued in the ordinary course
of the Company's business
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consistent with past practices with respect to the
Company's operations.
(q) Until the earlier of (i) five (5) years from the date hereof or (ii)
the sale to the public of the Warrant Shares, the Company will not take any
action or actions which may prevent or disqualify the Company's use of Form
S-1
(or other appropriate form) for the registration under the Act of the
Warrant Shares.
5. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriters to offer and sell the Securities and the Option Securities is
subject to the accuracy (as of the date hereof, and as of the Closing Dates)
of and compliance with the representations and warranties of the Company to
the performance by it of its agreement and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement shall have become effective as and when
cleared by the Commission, and you shall have received notice thereof, on or
prior to any closing date no stop order suspending the effectiveness of the
Prospectus shall have been issued and no proceedings for that or similar
purpose shall have been instituted or shall be pending, or, to your knowledge
or to the knowledge of the Company, shall be contemplated by the Commission;
any request on the part of the Commission for additional information shall
have been complied with to the reasonable satisfaction of counsel to the
Underwriter; and qualification, under the securities laws of such states as
you may designate, of the issue and sale of the Securities upon the terms and
conditions herein set forth or contemplated and containing no provision
unacceptable to you shall have been secured, and no stop order shall be in
effect denying or suspending effectiveness of such qualification nor shall any
stop order proceedings with respect thereto be instituted or pending or
threatened under such law.
(b) On any closing date and, with respect to the letter referred to in
subparagraph (iii), as of the date hereof, you shall have received:
(i) the opinion, together with such number of signed or
photostatic copies of such opinion as you may reasonably request, addressed to
you by Jon D. Sawyer, Esq., a law corporation, counsel for the Company, in
form and substance reasonably satisfactory to the Underwriter and William M.
Prifti, Esq., counsel to the Underwriter, dated each such closing date, to the
elect that:
(A) The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the jurisdiction in
which it is incorporated and has all necessary corporate power and authority
to carry on its business as described in the Prospectus.
(B) The Company is qualified to do business in each
jurisdiction in which conducting its business requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the Company's business or assets.
(C) The Company has the full corporate power and authority
to enter into this Agreement and the Representative's Warrant Agreement and to
consummate the transactions provided for therein and each such Agreement has
been duly and validly authorized, executed and delivered by the Company. Each
of this Agreement and the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party thereto, constitutes
a legal, valid and
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binding agreement of the Company enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency or
similar laws governing the rights of creditors and to general equitable
principles, and provided that no opinion need be given as to the
enforceability of any indemnification or contribution provisions, and none of
the Company's execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder or thereunder, its consummation
of the transactions contemplated herein or therein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any material breach or violation of any of the terms
or provisions of, or constitutes or will constitute a material default under,
or result in the creation or imposition of any material lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction of any
kind whatsoever upon, any property or assets (tangible or intangible) of the
Company pursuant to the terms of (A) the articles of incorporation or by-laws
of the Company, (B) to the knowledge of such counsel, any material license,
contract, indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or any other agreement
or instrument to which the Company is a party or by which it is or may be
bound, or (C) to the knowledge of such counsel, any statute, judgment, decree,
order, rule or regulation applicable to the Company, whether domestic or
foreign.
(D) The Company had authorized and outstanding capital stock
as set forth in the Prospectus under the heading "Capitalization" as of the
date set forth therein, and all of such issued and outstanding shares of
capital stock have been duly and validly authorized and issued, and to the
knowledge of such counsel are fully paid and nonassessable, and to the
knowledge of such counsel no stockholder of the Company is entitled to any
preemptive rights to subscribe for, or purchase shares of the capital stock
and to the knowledge of such counsel none of such securities were issued in
violation of the preemptive rights of any holders of any securities of the
Company.
(E) To the knowledge of such counsel, the Company is not a
party to or bound by any instrument, agreement or other arrangement providing
for it to issue any capital stock, rights, warrants, options or other
securities, except for this Agreement, the Representative's Warrant Agreement,
and except as described in the Prospectus. The Units, the Common Stock, the
Warrants and the Representative's Warrants each conforms in all material
respects to the respective descriptions thereof contained in the Prospectus.
The outstanding shares of Common Stock have been, and the Units, the Common
Stock and the Warrants comprising the Units, the Warrant Stock and the
Representative's Warrant Stock, upon issuance and delivery and payment
therefore in the manner described herein, the Warrant Agreement and the
Representative Agreement, as the case may be, will be, duly authorized,
validly issued, fully paid and nonassessable. There are no preemptive or other
rights to subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of Common Stock pursuant to the Company's articles of
incorporation, by-laws, other governing documents or any agreement or other
instrument known to such counsel to which the Company is a party or by which
it is bound.
(F) The certificates representing the Securities comprising
the Units are in due and proper form and each of the Warrant Stock and the
Representative's Warrant Stock has been duly authorized and reserved for
issuance and when issued and delivered in accordance with the respective terms
of the Warrant
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Agreement and Representative's Warrant Agreement, respectively,
will be duly and validly issued, fully paid and nonassessable.
(G) To the knowledge of such counsel, there are no claims,
suits or other legal proceedings pending or threatened against the Company in
any court or before or by any governmental body which might materially affect
the business of the Company or the financial condition of the Company as a
whole, except as set forth in or contemplated by the Prospectus.
(H) Based on oral and/or written advice from the staff of
the Commission, the Registration Statement has become effective and, to the
knowledge of such counsel, no stop order suspending the effectiveness of the
Prospectus is in effect and no proceedings for that purpose are pending
before, or threatened by, federal or by a state securities administrator.
(i) To the knowledge of such counsel, there are no legal or
governmental proceedings, actions, arbitrations, investigations, inquiries or
the like pending or threatened against the Company of a character required to
be disclosed in the Prospectus which have not been so disclosed, questions the
validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement or might adversely affect the condition,
financial or otherwise, or the prospects of the Company or which could
adversely affect the Company's ability to perform any of its obligations under
this Agreement or the Representative's Warrant Agreement.
(J) To such counsel's knowledge, there are no material
agreements, contracts or other documents known to such counsel required by the
Act to be described in the Registration Statement and the Prospectus and filed
as exhibits to the Registration Statement other than those described in the
Registration Statement and the Prospectus and filed as exhibits thereto, and
to such counsel's knowledge (A) the exhibits which have been filed are correct
copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any
supplement or amendment thereto of contracts and other documents to which the
Company is a party or by which it is bound, including any document to which
the Company is a party or by which it is bound incorporated by reference into
the Prospectus and any supplement or amendment thereto, are accurate in all
material respects and fairly represent the information required to be shown by
Form S-1.
(K) No consent, approval, order or authorization from any
regulatory board, agency or instrumentality having jurisdiction over the
Company, or its properties (other than registration under the Act or
qualification under state or foreign securities law or approval by the NASD)
is required for the valid authorization, issuance, sale and delivery of the
Securities, the Option Securities or the Representative's Warrant.
(L) The statements in the Prospectus under "Risk
Factors-Control by Existing Stockholders," "Management Limitation of
Liability," "Description of the Securities," and "Shares Eligible For Future
Sale" have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects.
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In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not certified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which leads them to believe
that, at the time the Registration Statement effective and at all times
subsequent thereto up to and on the Closing Date and on any later date on
which Option Shares are to be purchased, the Registration Statement and any
amendment or supplement, when such documents became effective or were filed
with the Commission (other than the financial statements including the notes
thereto and supporting schedules and other financial and statistical
information derived therefrom, as to which such counsel need express no
comment) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date on
which the Option Shares are to be purchased, as the case may be, the
Prospectus and any amendment or supplement thereto (other than the financial
statements including the notes thereto and other financial and statistical
information derived therefrom, as to which such counsel need express no
comment) contained any untie statement of a material fact or omitted to state
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Such opinion shall also cover such other matters incident to the
transactions contemplated hereby and the offering Prospectus as you or counsel
to the Underwriter shall reasonably request. In rendering such opinion, to the
extent deemed reasonable by them, such counsel may rely upon certificates of
any officer of the Company or public officials as to matters of fact of which
the maker of such certificate has knowledge:
(ii) A certificate, signed by the Chief Executive Officer and the
Principal Financial or Accounting Officer of the Company dated the Closing
Date, to the effect that with regard to the Company, each of the conditions
set forth in Section 5(d) have been satisfied.
(iii) A letter, addressed to the Underwriter and in form and
substance satisfactory to the Underwriter in all respects (including the
nonmaterial nature of the changes or decreases, if any, referred to in clause
(D) below), from Coopers & Lybrand, dated, respectively, as of the effective
date of the Registration Statement and as of the Closing Date, as the case may
be:
(A) Confirming that they are independent public accountants
with respect to the Company and its consolidated subsidiaries, if any, within
the meaning of the Act and the applicable published Rules and Regulations.
(B) Stating that, in their opinion, the financial
statements, related notes and schedules of the Company and its consolidated
subsidiaries, if any, included in the Registration Statement examined by them
comply as to form in all material respects with the applicable accounting
requirements of the Act and the published Rules and Regulations thereunder.
(C) Stating that, with respect to the period from December
31,
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1995, to a specified date (the specified date") not earlier than five (5)
business days prior to the date of such letter, they have read the minutes of
meetings of the stockholders and board of directors (and various committees
thereof) of the Company and its consolidated subsidiaries, if any, for the
period from December 31, 1995 through the specified date, and made inquiries
of officers of the Company and its consolidated subsidiaries, if any,
responsible for financial and accounting matters and, especially as to whether
there was any decrease in sales, income before extraordinary items or net
income as compared with the corresponding period in the preceding year; or any
change in the capital stock of the Company or any change in the long-term debt
or any increase in the short-term bank borrowings or any decrease in net
current assets or net assets of the Company or of any of its consolidated
subsidiaries, if any, and further stating that while such procedures and
inquiries do not constitute an examination made in accordance with generally
accepted auditing standards, nothing came to their attention which caused them
to believe that during the period from December 31, 1995, through the
specified date there were any decreases as compared with the corresponding
period in the preceding year in sales, income before extraordinary items or
net income; or any change in the capital stock of the Company or consolidated
subsidiary, if any, or any change in the long-term debt or any increase in the
short-term bank borrowings (other than any increase in short-term band
borrowings in the ordinary course of business) of the Company or any
consolidated subsidiary, if any, or any decrease in the net current assets or
net assets of the Company or any consolidated subsidiary, if any; and
(D) Stating that they have carried out certain specified
procedures (specifically set forth in such letter or letters) as specified by
the Underwriter (after consultations with Coopers & Lybrand' relating to such
procedures), not constituting an audit, with respect to certain tables,
statistics and other financial data in the Prospectus specified by the
Underwriter and such financial data not included in the Prospectus but from
which information in the Prospectus is derived, and which have been obtained
from the general accounting records of the Company or consolidated
subsidiaries, if any, or from such accounting records by analysis or
computation, and having compared such financial data with the accounting
records of the Company or the consolidated subsidiaries, if any, stating that
they have found such financial data to agree with the accounting records of
the Company.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Prospectus and other related matters shall be satisfactory to
or approved by counsel to the Underwriter and you shall have received from Jon
D. Sawyer, Esq., a signed opinion dated as of each closing date, with respect
to the incorporation of the Company, the validity of the Securities, the form
of the Prospectus, (other than the financial statements together with related
notes and other financial and statistical data contained in the Prospectus or
omitted therefrom, as to which such counsel need express no opinion), the
execution of this Agreement and other related matters as you may reasonably
require.
(d) At each closing date, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects with the same effect as if made on and as of such closing date; (ii)
the Prospectus and any amendments or supplements thereto shall contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations and in all material respects conform to the
requirements thereof, and neither the Prospectus nor any amendment or
supplement thereto shall contain any
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untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary, in light of the circumstances
under which they were made in order to make the statements therein not
misleading; (iii) there shall have been since the respective dates as of which
information is given no material adverse change in the business, properties or
condition (financial or otherwise), results of operations, capital stock,
long-term debt or general affairs of the Company from that set forth in the
Prospectus, except changes which the Prospectus indicates might occur after
the elective date of the Prospectus, and the Company shall not have incurred
any material liabilities or material obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the
ordinary course of business other than as referred to in the Prospectus and
which would be required to be set forth in the Prospectus; and (iv) except as
set forth in the Prospectus, no action, suit or proceeding at law or in equity
shall be pending or threatened against the Company which would be required to
be set forth in the Prospectus, and no proceedings shall be pending or
threatened against the Company or any subsidiary before or by any commission,
board or administrative agency in the United States or elsewhere, wherein an
unfavorable decision, ruling or finding would materially and adversely affect
the business, property, condition (financial or otherwise), results of
operations or general affairs of the Company.
(e) On the Initial Closing Date, the Company shall have executed and
delivered to the Underwriter, (i) the Representatives' Warrant Agreement
substantially in the form filed as an Exhibit to the Registration Statement in
final form and substance satisfactory to the Underwriter, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company.
(f) On or before the Initial Closing Date, the Securities shall have
been duly approved for listing on the American Stock Exchange, any other
Exchange or on NASDAQ.
(g) On or before the Initial Closing Date, there shall have been
delivered to the Underwriter all of the Lockup Agreements required to be
delivered pursuant to Section 3(a)(xxv) and 4(h), in form and substance
satisfactory to the Underwriter and Underwriter's counsel.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the ease may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
6. CONDITIONS OF THE COMPANY'S OBLIGATIONS. The obligation of the Company to
sell and deliver the Securities is subject to the following:
(a) The provisions regarding the effective date, as described in Section
10.
(b) At the Initial Closing Date, no stop order suspending the
effectiveness of the Prospectus shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission or by any state
securities department.
(c) Tender of payment by the Underwriter in accord with Section 2
hereof.
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7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and its employees and each person, if any, who controls you within the meaning
of the Act, against any losses, claims, damages or liabilities, joint or
several (which shall, for any purposes of this Agreement, include, but not be
limited to, all costs of defense and investigation and all attorneys' fees),
to which each Underwriter or such controlling person may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material feet contained in the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission made in the Prospectus, or such
amendment or supplement to state a material feet required to be stated therein
or necessary to make the statements therein not misleading, which is in
reliance upon and in conformity with written information furnished by the
Company to you specifically for use in the preparation thereof, and provided
further that the indemnity agreement contained in this subsection (a) shall
not inure to the benefit of you with respect to any person asserting any such
loss, claim, damage or liability who has purchased the Securities which are
the subject thereof if you or any participants failed to send or give a copy
of the Prospectus to such person at or prior to the written confirmation of
the sale of such Securities to such person and except that, with respect to
any untrue statement or omission or any alleged untrue statement or omission,
made in any Pre-Effective Prospectus, the indemnity agreement contained in
this subsection (a) shall not inure to the benefit of any Underwriter (or to
any person controlling any such underwriter) from whom the person asserting
any such loss, claim, damage or liability purchased the securities concerned
to the extent that such untrue statement or omission, or alleged untrue
statement or omission, has been corrected in a later Pre-Effective Prospectus
or in the Final Prospectus unless the Underwriter circulated a later Pre-
Effective Prospectus or the Final Prospectus to such person
(b) Each Underwriter will indemnify and hold harmless the Company, each
of its directors, each of its officers, each person, if any, who controls the
Company within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission was made in the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by you specifically for use in the
preparation thereof. This indemnity will be in addition to any liability which
any Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section,
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notify the indemnifying party of the commencement thereof, but the omission so
to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this Section. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party, similarly notified, to assume the
defense thereof, subject to the provisions herein stated, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. The indemnified party shall have the right
to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that, if the indemnified party is you or a person who controls
you, the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party or (ii) the named parties to
any such action (including any impleaded parties) include both you or such
controlling person and the indemnifying party and you or such controlling
person shall have been advised by such counsel that there is a conflict of
interest which would prevent counsel for the indemnifying party from
representing the indemnifying party and you or such controlling person (in
which case the indemnifying party shall not have the right to assume the
defense of such action on behalf of you or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions
in the same jurisdiction or which are consolidated into the same jurisdiction
arising out of the same general allegations or circumstances be liable for the
reasonable fees and expenses of more than one separate firm of attorneys for
you and all such controlling persons, which firm shall be designated in
writing by you). No settlement of any action against an indemnified party
shall be made without the consent of the indemnified party, which shall not be
unreasonably withheld in light of all factors of importance to such
indemnified party.
8. CONTRIBUTION. In order to provide for just and equitable contribution
tinder the Act in any case in which (i) the indemnifying party makes a claim
for indemnification pursuant to Section 7 hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 7 provide for
indemnification in such case, or (ii) contribution under the Act may be
required on the part of the Underwriters, then the Company and the
Underwriters in the aggregate shall contribute to the aggregate losses,
claims, damages, or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) in either such case (after
contribution from others) in such proportions that the Underwriters are
responsible in the aggregate for that portion of such losses, claims, damages
or liabilities determined by multiplying the total amount of such losses,
claims, damages or liabilities times the difference between the public
offering price and the
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commission to the Underwriter and dividing the product thereof by the public
offering price, and the Company, if applicable, shall be responsible for that
portion of such losses, claims, damages or liabilities times the commission to
the Underwriters and dividing the product thereof by the public offering
price; provided, however, that the Underwriters shall not be required to so
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriters hereunder if such allocation is not
permitted by applicable law, then the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such damages and other relevant equitable considerations shall also be
considered. No person guilty of a fraudulent misrepresentation (within the
meaning of Section 12(2) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. The
foregoing contribution agreement shall in no way affect the contribution
liabilities of any person having liability under Section 12 of the Act other
than the Company and the Underwriter. As used in this paragraph, the term
"Underwriters" includes any person who controls the Underwriters within the
meaning of Section 15 of the Act. If the hill of the contribution specified in
this paragraph is not permitted by law, then any Underwriter and each person
who controls any Underwriter shall be entitled to contribution from the
Company, to the full extent permitted by law.
9. EFFECTIVE DATE. This Agreement shall become effective at 10:00 a.m. New
York time on the next full business day following the effective date of the
Registration Statement, or at such other time after the effective date of the
Prospectus as you in your discretion shall first commence the public offering
of any of the Securities covered thereby, provided, however, that at all times
the provisions of Sections 7, 8, 9 and 11 shall be effective.
10. TERMINATION.
(a) This Agreement, may be terminated at any time prior to the Closing
Date by you if in your judgment it is impracticable to offer for sale or to
enforce contracts made by you for the sale of the Securities agreed to be sold
hereunder by reason of (i) the Company as a whole having sustained a material
loss, whether or not insured, by reason of fire, earthquake, flood, accident
or other calamity, or from any labor dispute or court or government action,
order or decree, (ii) trading in securities of the Company having been
suspended by a state securities administrator or by the Commission, (iii)
material governmental restrictions having been imposed on trading in
securities generally (not in force and effect on the date hereof) or trading
on the New York Stock Exchange, American Stock Exchange, or in the over-the-
counter market shall have been suspended, (iv) a banking moratorium having
been declared by federal or New York State authorities, (v) an outbreak or
escalation of hostilities or other national or international calamity having
occurred, (vi) the passage by the Congress of the United States or by any
state legislative body, of any act or measure, or the adoption of any orders,
rules or regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is believed likely by
you to have a material impact on the business, financial condition or
financial statements of the Company; or (vii) any material adverse change
having occurred, since the respective dates as of which information is given
in the Prospectus, in the condition, financial or otherwise, of the Company as
a whole, whether or not arising in the ordinary course of business; (viii)
Edward J. Names ceases to be employed by the Company in his present capacity;
(ix) the Securities are not listed on the
24
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American Stock Exchange or on NASDAQ.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11 or in Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. REPRESENTATIONS, WARRANTS AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities' agreements, representations, warranties and other
statements of the Company (or its owners)) and the Underwriter set forth in or
made pursuant to this Agreement will remain in fu11 force and effect,
regardless of any investigation made by or on behalf of the Underwriter, the
Company, or any of their officers or directors and will survive delivery of
and payment for the Securities.
12. NOTICES. All communications hereunder will be in writing and, except as
otherwise expressly provided herein, if sent to you, will be mailed, delivered
or telephoned and confirmed to you at Nutmeg Securities, Ltd., 495 Post Road
East' Westport, CT 06880, Attention: John Lane, Senior Vice President; to the
Company at 216 Sixteenth Street, Suite 730, Denver, CO 80202, Attention:
Edward J. Names, President.
13. PARTIES IN INTEREST. This Agreement is made solely for the benefit of the
Underwriters, and the Company, and their respective controlling persons,
directors and officers, and their respective successors, assigns, executors
and administrators. No other person shall acquire or have any right under or
by virtue of this Agreement.
14. HEADINGS. The Section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
15. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, without giving effect to
conflict of law principles.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
instrument.
If the foregoing correctly sets forth the understanding between the
Company and you, as Representative of the several underwriters, please so
indicate in the space provided below for such purpose, whereupon this letter
and your acceptance shall constitute a binding agreement between us.
Very truly yours,
METEOR INDUSTRIES, INC.
By:
----------------------------------------
Edward J. Names, President
(Authorized Officer)
Accepted as of the date first above written:
25
<PAGE>
NUTMEG SECURITIES, LTD.
As Representative of the several Underwriters
By:
----------------------------------------
John Lane, Senior Vice President
(Authorized Officer)
26
<PAGE>
EXHIBIT A
SCHEDULE I
UNDERWRITERS
600,000 600,000
Underwriter Common Stock Redeemable Warrant
Nutmeg Securities, Ltd.
TOTAL
27
<PAGE>
EXHIBIT 1.2
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. NO OFFER
TO BUY THE SECURITIES CAN BE ACCEPTED AND NO PART OF THE PURCHASE PRICE CAN BE
RECEIVED UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE, AND ANY SUCH
OFFER MAY BE WITHDRAWN OR REVOKED, WITHOUT OBLIGATION OR COMMITMENT OF ANY
KIND, AT ANY TIME PRIOR TO NOTICE OF ITS ACCEPTANCE GIVEN AFTER THE EFFECTIVE
DATE. YOUR EXECUTION HEREOF WILL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY
KIND UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
METEOR INDUSTRIES, INC.
SELECTED DEALERS AGREEMENT
---------, 1996
Dear Sirs:
1. Nutmeg Securities, Ltd. named as the Underwriter ("Underwriter") in
the enclosed preliminary Prospectus, proposes to offer on a firm commitment
basis, subject to the terms and conditions and execution of the Underwriting
Agreement, 600,000 shares of common stock and 600,000 redeemable warrants at $
per share and Redeemable Warrants at $.10 per Warrant ("Securities") of the
above Company. The Securities are more particularly described in the enclosed
preliminary Prospectus, additional copies of which will be supplied in
reasonable quantities upon request. Copies of the definitive Prospectus will
be supplied after the effective date of the Registration Statement.
2. The Underwriter is soliciting offers to buy, upon the terms and
conditions hereof, a part of the Securities from Selected Dealers, including
you who are to act as principal and who are (i) registered with the Securities
and Exchange Commission ("Commission") as broker-dealers under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and members in good standing
with the National Association of Securities Dealers, Inc. ("NASD"), or (ii)
dealers or institutions with their principal place of business located outside
the United States, its territories and possessions who are not eligible for
membership in the NASD and who agree to make no sales within the United
States, its territories or possessions or to persons who are nationals thereof
or residents therein and, in making sales, to comply with the NASD's
Interpretation with Respect to FreeRiding and Withholding and with Sections 8,
24p 25, to the extent applicable to foreign nonmember brokers or dealers, and
Section 36 of the NASD's Rules of Fair Practice. The Securities are to be
offered at a public price of $_____ per share and $_____ per Redeemable
Warrant. Selected Dealers will be allowed a concession of not less than $_____
per share and $_____ per Redeemable Warrant. You will be notified of the
precise amount of such concession prior to the effective date of the
Registration Statement. You may reallow not in excess of $_____ per share and
$_____ per Redeemable Warrant to dealers who meet the requirements set forth
in this Section 2. This offer is solicited subject to the issuance and
delivery of the Securities and their
1
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acceptance by the Underwriter, to the approval of legal matters by counsel and
to the terms and conditions as herein set forth.
3. Your offer to purchase may be revoked in whole or in part without
obligation or commitment of any kind by you and any time prior to acceptance
and no offer may be accepted by us and no sale can be made until after the
registration statement covering the Securities has become effective with the
Commission. Subject to the foregoing, upon execution by you of the Offer to
Purchase below and the return of saline to us, you shall be deemed to have
offered to purchase the number of Securities set forth in your offer on the
basis set forth in paragraph 2 above. Any oral notice by us of acceptance of
your offer shall be immediately followed by written or telegraphic
confirmation preceded or accompanied by a copy of the Prospectus. If a
contractual commitment arises hereunder, all the terms of this Selected
Dealers Agreement shall be applicable. We may also make available to you an
allotment to purchase Securities, but such allotment shall be subject to
modification or termination upon notice from us any time prior to an exchange
of confirmations reflecting completed transactions. All references hereafter
in this Agreement to the purchase and sale of Securities assume and are
applicable only if contractual commitments to purchase are completed in
accordance with the foregoing.
4. You agree that in reoffering said Securities, if your offer is
accepted after the elective date, you will make a bona Ode public distribution
of same. You will advise us upon request of Securities purchased by you
remaining unsold and we shall have the right to repurchase such Securities
upon demand at the public offering price without paying the concession with
respect to any Securities so repurchased. Any of the Securities purchased by
you pursuant to this Agreement are to be subject to the terms hereof
Securities shall not be offered or sold by you below the public offering price
before the termination of this Agreement.
5. Payment for Securities which you purchase hereunder shall be made by
you on or before five (5) business days after the date of each confirmation by
certified or bank cashier's check payable to the Underwriter. Certificates for
the Securities shall be delivered as soon as practicable after delivery
instructions are received by the Underwriter.
6. A registration statement covering the offering has been filed with
the Securities and Exchange Commission in respect to the Securities. You will
be promptly advised when the registration statement becomes elective. Each
Selected Dealer in selling Securities pursuant hereto agrees (which agreement
shall also be for the benefit of the Company) that it will comply with the
applicable requirements of the Securities Act of 1933 and of the Securities
Exchange Act of 1934 and any applicable rules and regulations issued under
said Acts. No person is authorized by the Company or by the Underwriter to
give any information or to make any representations other than those contained
in the Prospectus in connection with the sale of the Securities. Nothing
contained herein shall render the Selected Dealers a member of the
Underwriting Group or partners with the Underwriter or with one another.
7. You will be informed by us as to the states in which we have been
advised by counsel the Securities have been qualified for sale or are exempt
under the respective securities or blue sky laws of such states, but we have
not assumed and will not assume any obligation or responsibility as to the
right of any Selected Dealer to sell Securities in any
2
<PAGE>
state. You agree not to sell Securities in any other state or jurisdiction and
to not sell Securities in any state or jurisdiction unless you are qualified
or licensed to sell securities in such state or jurisdiction.
8. The Underwriter shall have full authority to take such action as it
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. The Underwriter shall not be under any liability to you,
except such as may be incurred under the Securities Act of 1933 and the rules
and regulations thereunder, except for lack of good faith and except for
obligations assumed by us in this Agreement, and no obligation on our part
shall be implied or inferred herefrom.
9. Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate when the
offering is completed. Nothing herein contained shall be deemed a commitment
on our part to sell you any Securities; such contractual commitment can only
be made in accordance with the provisions of paragraph 3 hereof.
10. You represent that you are a member in good standing of the NASD
and registered as a broker-dealer with the Commission, or that you are a
foreign broker-dealer not eligible for membership under Section 1 of the
Bylaws of the NASD who agrees to make no sales within the United States, its
territories or possessions or to persons who are nationals thereof or
residents therein and, in making sales, to complex with the NASD's
interpretation with Respect to FreeRiding and Withholding and with Sections 8,
24, 25 to the extent applicable to foreign nonmember brokers and dealers, and
Section 36 of the NASD's Rules of Fair Practice. Your attention is called to
and you agree to comply with the following: (a) Article III, Section 1 of the
Rules of Fair Practice of the NASD and the interpretations of said Section
promulgated by the Board of Governors of the NASD including Section 24 and the
interpretation with respect to"Free-Riding and Withholding; "(b)Section 10(b)
of the 1934 Act and Rules 10b-6, 10b-10 of the general rules and regulations
promulgated under the 1934 Act; and (c) Rule 15c2-8 of the general rules and
regulations promulgated under the 1934 Act requiring the distribution of a
preliminary Prospectus to all persons reasonably expected to be purchasers of
the Securities from you at least 48 hours prior to the time you expect to mail
confirmations. You, as a member of the NASD, by signing this Agreement,
acknowledge that you are familiar with the cited laws and rules and agree that
you will not directly and/or indirectly violate any provisions of applicable
law in connection with your participation in the distribution of the
Securities.
11. In addition to compliance with the provisions of paragraph 10
hereof, you will not, until advised by us in writing or by wire that the
entire offering has been distributed and closed, bid for or purchase
Securities in the open market or otherwise make a market in the Securities or
otherwise attempt to induce others to purchase the Securities in the open
market. Nothing contained in this paragraph 11 shall, however, preclude you
from acting as agent in the execution of unsolicited orders of customers in
transactions effectuated for them through a market maker.
12. You understand that the Underwriter may in connection with the
offering engage in stabilizing transactions. If the Underwriter contracts for
or purchases in the open market in connection with such stabilization any
Securities sold to you hereunder and not effectively placed by you, the
Underwriter may charge you the Selected Dealer's concession originally allowed
you on the Securities so purchased
3
<PAGE>
and you agree to pay such amount to us on demand.
13. By submitting an Offer to Purchase you confirm that you may, in
accordance with Rule 156-1 adopted under the 1934 Act, agree to purchase the
number of Securities you may become obligated to purchase under the provisions
of this Agreement.
14. All communications from you should be directed to us at 495 Post
Road East, Westport, CT 06880 (203226-1857) and (fax 203-226-5052). All
communications from us to you shall be directed to the address to which this
letter is mailed.
Very truly yours,
NUTMEG SECURITIES, LTD.
By
--------------------------------
(Authorized Officer)
4
<PAGE>
OFFER TO PURCHASE
The undersigned does hereby offer to purchase (subject to the right to
revoke as set forth in paragraph 3) _____________* Securities in accordance
with the terms and conditions set forth above. We hereby acknowledge receipt
of the Prospectus referred to in the first paragraph thereof relating to such
Securities. We further state that in purchasing such Securities we have relied
upon such Prospectus and upon no other statement whatsoever, written or oral.
- ------------------------------------
By
----------------------------------
(Authorized Officer)
*If a number appears here which does not correspond with what you wish to
offer to purchase, you may change the number by crossing out the number,
inserting a different number and initializing the change.
5
<PAGE>
EXHIBIT 1.3
METEOR INDUSTRIES, INC.
600,000 Shares
of Common Stock
and
600,000 Redeemable Warrants
AGREEMENT AMONG UNDERWRITERS
--------, 19--
NUTMEG SECURITIES, LTD.
495 Post Road, East
Westport, CT 06880
As Representative
GENTLEMEN:
We wish to confirm as follows the agreement among you, the undersigned
and the other members of the Underwriting Group named in Schedule I to the
Underwriting Agreement, as it is to be executed (all such parties being herein
called the "Underwriters"), with respect to the purchase by the Underwriters
severally from Meteor Industries, Inc. ("Company") of 600,000 shares of Common
Stock and 600,000 Redeemable Warrants ("Securities") set forth in Schedule I
to the Underwriting Agreement. The number of Securities to be purchased by
each Underwriter from the Company shall be determined in accordance with
Section 2 of the Underwriting Agreement. It is understood that changes may be
made in those who are to be Underwriters and in the respective numbers of
Securities to be purchased by them, but that the Underwriting Agreement will
not be changed without our consent, except as provided herein, and in the
Underwriting Agreement. The obligations of the Underwriters to purchase the
number of Securities set opposite their respective names in Schedule I to the
Underwriting Agreement, are herein called their "underwriting obligations."
The number of Securities set opposite our name in said Schedule I, are herein
called "our Securities." For purposes of this Agreement the following
definitions shall be applicable:
(a) "Manager's Concession" shall be the compensation to you for acting
as Manager as provided in Paragraph 1 of not less than ----- percent (----%)
of the underwriting discount. The Manager's Concession shall include the right
to a portion of the warrants to be issued pursuant to the Underwriting
Agreement and, the right to the nonaccountable expenses to be paid pursuant to
the Underwriting Agreement.
(b) "Underwriting Group Concession" shall mean compensation to members
of the Underwriting Group for assuming the underwriting risk and shall be not
less than --- percent (--%) of the underwriting discount.
(c) "Dealer's Concession" shall mean compensation to Dealers, who are
members of the Selling Group and shall, as to Dealers who have executed an
agreement with you, be not less than ----- percent (---%) of the underwriting
discount.
(d) "Dealer's Reallowance Concession" shall mean the compensation
allowed Dealers by Underwriters other than you and shall be one-half (1/2) of
the Dealer's Concession.
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<PAGE>
(e) It is contemplated that the underwriting discount will be ten
percent (10%) of the offering price. You, in your absolute discretion, shall
determine, within the foregoing limitations, the precise allocation of the
underwriting discount and shall notify us of same at least twenty-four (24)
hours prior to the execution of the Underwriting Agreement.
1. AUTHORITY AND COMPENSATION OF REPRESENTATIVE. We hereby authorize
you, as our Representative and on our behalf, (a) to enter into an agreement
with the Company substantially in the form attached hereto as Exhibit A
("Underwriting Agreement"), but with such changes therein as in your judgment
are not materially adverse to the Underwriters, (b) to exercise all the
authority and discretion vested in the Underwriters and in you by the
provisions of the Underwriting Agreement, and (c) to take all such action as
you, in your discretion, may deem necessary or advisable in order to carry out
the provisions of the Underwriting Agreement and this Agreement and the sale
and distribution of the Securities, provided, however, that the time within
which the Registration Statement is required to become elective pursuant to
the Underwriting Agreement will not be extended more than forty-eight (48)
hours without the approval of a majority in interest of the Underwriters
(including you). We authorize you, in executing the Underwriting Agreement on
our behalf, to set forth in Schedule I of the Underwriting Agreement as our
commitment to purchase the number of Securities (which shall not be
substantially in excess of the number of Securities included in your
invitation to participate unless we have agreed otherwise) included in a wire,
telex, or similar means of communication transmitted by you to us at least
twenty-four (24) hours prior to the commencement of the offering as our
finalized underwriting participation.
As our share of the compensation for your services hereunder, we will
pay you, and we authorize you to charge to our account, a sum equal to the
Manager's Concession.
2. PUBLIC OFFERING. A public offering of the Securities is to be made,
as herein provided, as soon after the Registration Statement relating thereto
shall become effective as in your judgment is advisable. The Securities shall
be initially offered to the public at the public offering price of $----- per
share and $0.10 per Redeemable Warrant. You will advise us by telegraph or
telephone when the Securities shall be released for offering. We authorize you
as Representative of the Underwriters, after the initial public offering, to
vary the public offering price, in your sole discretion, by reason of changes
in general market conditions or otherwise. The public offering price of the
Securities at any time in effect is herein called the "Offering Price."
We hereby agree to deliver all preliminary and final Prospectuses as
required for compliance with the provisions of Rule l5c2-8 under the
Securities Exchange Act of 1934 and Section 5(b) of the Securities Act of
1933. You have heretofore delivered to us such preliminary Prospectuses as
have been requested by us, receipt of which is hereby acknowledged, and will
deliver such final Prospectuses as will be requested by us.
3. OFFERING TO DEALERS AND GROUP SALES. We authorize you to reserve for
offering and sale, and on our behalf to sell, to institutions or other retail
purchasers (such sales being herein called "Group Sales") and to dealers
selected by you (such dealers being herein called the "Dealers") all or any
part of our Securities as you may determine. Such sales of Securities, if any,
shall be made (I)
2
<PAGE>
in the case of Group Sales, at the Offering Price, and (ii)in the case of
sales to Dealers, at the Offering Price less the Dealer's Concession.
Any Group Sales shall be as nearly as practicable in proportion to the
underwriting obligations of the respective Underwriters. Any sales to Dealers
made for our account shall be as nearly as practicable in the ratio that the
Securities reserved for our account for offering to Dealers bears to the
aggregate of all Securities of all Underwriters, including you, so reserved.
On any Group Sales or sales to Dealers made by you on our behalf, we shall be
entitled to receive only the Underwriter's Concession.
You agree to notify us not less than twenty-four (24) hours prior to the
commencement of the public offering as to the number of Securities, if any,
which we may retain for direct sale. Prior to the termination of this
Agreement, you may reserve for offering and sale, as herein before provided,
any Securities remaining unsold theretofore retained by us and we may, with
your consent, retain any Securities remaining unsold theretofore reserved by
you. Sales to Dealers shall be made under a Selected Dealers Agreement,
attached hereto as Exhibit B and by this reference incorporated herein. We
authorize you to determine the form and manner of any communications with
Dealers, and to make such changes in the Selected Dealers Agreement, as you
may deem appropriate. In the event that there shall be any such agreements
with Dealers, you are authorized to act as managers thereunder, and we agree,
in such event, to be governed by the terms and conditions of such agreements.
Each Underwriter agrees that it will not offer any of the Securities for sale
at a price below the Offering Price or allow any concession therefrom, except
as herein otherwise provided. We, as to our Securities, may enter into
agreements with Dealers, but any Dealer's Reallowance Concession shall not
exceed half of the Dealer's Concession.
It is understood that any person to whom an offer may be made, as
hereinbefore provided, shall be a member of the National Association of
Securities Dealers, Inc. ("NASD") or dealers or institutions with their
principal place of business located outside of the United States, its
territories or possessions, and who are not eligible for membership under
Section 1 of the Bylaws of the NASD who agree to make no sales within the
United States, its territories or possessions, or to persons who are nationals
thereof, or residents therein, and, in making sales, to comply with the NASD's
Rules of Fair Practice.
We authorize you to determine the form and manner of any public
advertisement of the Securities.
Nothing in this Agreement contained shall be deemed to restrict our
right, subject to the provisions of this Section 3, to over our Securities
prior to the effective date of the Registration Statement, provided, however,
that any such offer shall be made in compliance with any applicable
requirements of the Securities Act of 1933 and the Securities Exchange Act of
1934 and the rules and regulations of the Securities and Exchange Commission
thereunder and of any applicable state securities laws.
4. REPURCHASES IN THE OPEN MARKET. Any Securities sold by us (otherwise
than through you) which, prior to the termination of this Agreement, or such
earlier date as you may determine, shall be contracted for or purchased in the
open market by you on behalf of any Underwriter or Underwriters, shall be
repurchased by us on demand
3
<PAGE>
at a price equal to the cost of such purchase plus commissions and taxes, if
any, on redelivery. Any Securities delivered on such repurchase need not be
the identical Securities originally sold by us. In lieu of delivery of such
Securities to us, you may (i) sell such Securities in any manner for our
account and charge us with the amount of any loss or expense, or credit us
with the amount of any profit, less any expense, resulting from such sale, or
(ii) charge our account with an amount not in excess of the concession to
Dealers on such Securities.
5. DELIVERY AND PAYMENT. We agree to deliver to you, at or before 9:00
A.M., New York, New York Time, on the Closing Date referred to in the
Underwriting Agreement, at your office, a certified or band; cashier's check
payable to your order for the offering price of the Securities less Dealer's
Concession of the Securities which we retained for direct sale by us, the
proceeds of which check shall be delivered to you, in the manner provided in
the Underwriting Agreement, to or for the account of the Company against
delivery of certificates for such Securities to you for our account. You are
authorized to accept such delivery and to give receipts therefor. You may
advance funds for Securities which have been sold or reserved for sale to
retail purchasers or Dealers for our account. If we fail (whether or not such
failure shall constitute a default hereunder) to deliver to you, or you fail
to receive, our check and/or payment for sales made by you for our account for
the Securities which we have agreed to purchase, you, individually and not as
Representative of the Underwriters, are authorized (but shall not be
obligated) to make payment, in the manner provided in the Underwriting
Agreement, to or for the account of the Company for such Securities for our
account, but any such payment by you shall not relieve us of any of our
obligations under the Underwriting Agreement or under this Agreement and we
agree to repay you on demand the amount so advanced for our account.
We also agree on demand to take up and pay for or to deliver to you
funds sufficient to pay for at cost any Securities of the Company purchased by
you for our account pursuant to the provisions of Section 9 hereof, and to
deliver to you on demand any Securities sold by you for our account, pursuant
to any provision of this Agreement.
We authorize you to deliver our Securities, and any other Securities
purchased by you for our account pursuant to the provisions of Section 9
hereof, against sales made by you for our account pursuant to any provision of
this Agreement.
Upon receipt by you of payment for the Securities sold by us and/or
through you for our account, you will remit to us promptly an amount equal to
the Underwriter's Concession on such Securities. You agree to cause to be
delivered to us, as soon as practicable after the Closing Date referred to in
the Underwriting Agreement, such part of our Securities purchased on such
Closing Date as shall not have been sold or reserved for sale by your for our
account.
In case any Securities reserved for sale in Group Sales or to Dealers
shall not be purchased and paid for in due course as contemplated hereby, we
agree to accept delivery when tendered by you of any Securities so reserved
for our account and not so purchased and pay you the offering price less the
Dealer's and Underwriter's Concessions.
6. AUTHORITY TO BORROW. We authorize you to advance your funds for our
account (charging current interest rates) and to arrange loans for our account
for the
4
<PAGE>
purpose of carrying out this Agreement and in connection therewith to
execute and deliver any notes or other instruments, and to hold, or pledge as
security therefor, all or any part of our Securities of the Company purchased
hereunder for our account. Any lending bank is hereby authorized to accept
your instructions as Representative in all matters relating to such loans. Any
part of our Securities held by you, may be delivered to us for carrying
purposes, and if so delivered, will be redelivered to you upon demand.
7. ALLOCATION OF EXPENSE AND LIABILITY. We authorize you to charge our
account with, and we agree to pay (a) all transfer taxes on sales made by you
for our account, except as herein otherwise provided, and (b) our
proportionate share (based on our underwriting obligations) of all expenses in
excess of those reimbursed by the Company incurred by you in connection with
the purchase, carrying and distribution, or proposed purchase and
distribution, of the Securities and all other expenses arising under the terms
of the Underwriting Agreement or this Agreement. Your determination of all
such expenses and your allocation thereof shall be final and conclusive. Funds
for our account at any time in your hands as our Representative may be held in
your general funds without accountability for interest. As soon as practicable
after the termination of this Agreement, the net credit or debit balance in
our account, after proper charge and credit for all interim payments and
receipts, shall be paid to or paid by us, provided, however, that you, in your
discretion, may reserve from distribution an amount to cover possible
additional expenses chargeable to the several Underwriters.
8. LIABILITY FOR FUTURE CLAIMS. Neither any statement by you, as
Representative of the Underwriters, of any credit or debit balance in our
account nor any reservation from distribution to cover possible additional
expenses relating to the Securities shall constitute any representation by you
as to the existence or nonexistence of possible unforeseen expenses or
liabilities of or charges against the several Underwriters. Notwithstanding
the distribution of any net credit balance to us or the termination of this
Agreement, or both, we shall be and remain liable for, and will pay on demand,
(a) our proportionate share (based on our underwriting obligations) of all
expenses and liabilities which may be incurred by, or for the accounts of the
Underwriters, including any liability which may be incurred by the
Underwriters or any of them, and (b) any transfer taxes paid after such
settlement on account of any sale or transfer for our account.
9. STABILIZATION. We authorize you, until the termination of this
Agreement, (a) to make purchases and sales of the Securities, in the open
market or otherwise, for long or short account, and on such terms, and at such
prices as you in your discretion may deem desirable, ebb in arranging for
sales of Securities, to overallot, and (c) either before or after the
termination of this Agreement, to cover any short position incurred pursuant
to this Section 9; subject, however, to the applicable rules and regulations
of the Securities and Exchange Commission under the Securities Exchange Act of
1934. All such purchases, sales and overallotments shall be made for the
accounts of the several Underwriters as nearly as practicable in proportion to
their respective underwriting obligations; provided, however, that our net
position resulting from such purchases and sales and overallotments shall not
at any time exceed, either for long or short account, fifteen percent (15%) of
the number of Securities agreed to be purchased by us.
If you engage in any stabilizing transactions as representative of the
underwriters, you shall promptly notify us of that fact and in like manner you
agree
5
<PAGE>
to promptly notify and file with us any stabilizing transaction in
accordance with the requirements of Rule 17a-2(d) under the Securities
Exchange Act of 1934.
We agree to advise you from time to time, upon request, until the
settlement of accounts hereunder, of the number of Securities at the time
retained by us unsold, and we will upon request sell to you, for the accounts
of one or more of the several Underwriters, such number of our unsold
Securities as you may designate, at the Offering Price less such amount, not
in excess of the concession to Dealers, as you may determine.
10. OPEN MARKET TRANSACTIONS. We agree that, except with your consent
and except as herein provided upon advice from you, we will not make purchases
or sales on the open market or otherwise, or attempt to induce others to make
purchases or sales, either before or after the purchase of the Securities, and
prior to the completion (as defined in Rule lOb-6 of the Securities Exchange
Act of 1934) of our participation in the distribution, we will otherwise
comply with Rule lOb-6. Nothing in this Section 10 contained shall prohibit us
from acting as broker or agent in the execution of unsolicited orders of
customers for the purchase or sale of any securities of the Company.
11. BLUE SKY. Prior to the initial offering by the Underwriters, you
will inform us as to the states under the respective securities or Blue Sky
laws of which it is believed that the Securities have been qualified or are
exempt for sale, but you do not assume any responsibility or obligation as to
the accuracy of such information or as to the right of any Underwriter or
Dealer to sell the Securities in any jurisdiction. We will not sell any
Securities in any other state or jurisdiction and we will not sell Securities
in any state or jurisdiction unless we are qualified or licensed to sell
securities in such state or jurisdiction. We authorize you, if you deem it
unadvisable in arranging sales of Securities for our account hereunder, to
sell any of our Securities to any particular Dealer, or other buyer, because
of the securities or Blue Sky laws of any jurisdiction, to sell our Securities
to one or more other Underwriters at the Offering Price less, in the case of a
sale to any Dealer, such amount, not in excess of the concession to Dealers
thereon, as you may determine. The transfer tax on any such sales among
Underwriters shall be treated as an expense and charged to the respective
accounts of the several Underwriters, in proportion to their respective
underwriting obligations.
12. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters, in
respect to their obligations under the Underwriting Agreement shall not
release us from any of our obligations. In case of such default by one or more
Underwriters, you are authorized to increase, pro rata, with the other
nondefaulting Underwriters, the number of defaulted Securities which we shall
be obligated to purchase from the Company, provided, however, that the
aggregate amount of all such increases for all Underwriters shall not exceed
ten percent (10%) of such Securities, and, if the aggregate number of the
Securities not taken up by such defaulting Underwriters exceeds such ten
percent (10%), you are further authorized, but shall not be obligated, to
arrange for the purchase by other persons, who may include yourselves, of all
or a portion of the Securities not taken up by such Underwriters. In the event
any such increases or arrangements are made, the respective numbers of
Securities to be purchased by the nondefaulting Underwriters and by any such
other person or persons shall be taken as the basis for the underwriting
obligations under this Agreement, but this shall not in any way affect the
liability of any defaulting Underwriters to the other Underwriters for damages
resulting from such default.
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In the event of default by one or more Underwriters in respect of their
obligations under this Agreement to take up and pay for any Securities
purchased by your for their respective accounts, pursuant to Section 9 hereof,
or to deliver any such Securities sold or overallotted by you for their
respective accounts pursuant to any provisions of this Agreement, and to the
extent that arrangements shall not have been made by you for other persons to
assume the obligations of such defaulting Underwriter or Underwriters, each
nondefaulting Underwriter shall assume its proportionate share of the
aforesaid obligations of each such defaulting Underwriter without relieving
any such Underwriter of its liability therefor.
13. TERMINATION OF AGREEMENT. Unless earlier terminated by you, the
provisions of Sections 2, 3, 4, 6, 9 and 10 of this Agreement shall, except as
otherwise provided therein, terminate thirty (30) full business days after the
effective date of the Registration Statement herein referred to, but may be
extended by you for an additional period or periods not exceeding thirty (30)
full business days in the aggregate. You may, however, terminate this
Agreement, or any provisions hereof, at any time by written or telegraphic
notice to us.
14. GENERAL POSITION OF THE REPRESENTATIVE. In taking action under this
Agreement, you shall act only as agent of the several Underwriters. Your
authority as Representative of the several Underwriters shall include the
taking of such action as you may deem advisable in respect of all matters
pertaining to any and all offers and sales of the Securities, including the
right to make any modifications which you consider necessary or desirable in
the arrangements with Dealers or others. You shall be under no liability for
or in respect of the value of the Securities or the validity or the form
thereof, the Registration Statement, the Prospectus, the Underwriting
Agreement, or other instruments executed by the Company or others of any
agreement on its or their part; nor shall you, as such Representative or
otherwise, be liable under any of the provisions hereof, or for any matters
connected herewith, except for want of good faith, and except for any
liability arising under the Securities Act of 1933; and no obligation not
expressly assumed by you as such Representative herein shall be implied from
this Agreement. In representing the Underwriters hereunder, you shall act as
the representative of each of them respectively. Nothing herein contained
shall constitute the several Underwriters partners with you or with each
other, or render any Underwriter liable for the commitments of any other
Underwriter, except as otherwise provided in Section 12 hereof. The
commitments and liabilities of each of the several Underwriters are several in
accordance with their respective underwriting obligations and are not joint.
15. ACKNOWLEDGMENT OF REGISTRATION STATEMENT, ETC. We hereby confirm
that we have examined the Registration Statement (including all amendments
thereto) relating to the Securities as heretofore filed with the Securities
and Exchange Commission, that we are familiar with the amendments to the
Registration Statement and the final form of Prospectus proposed to be filed,
that we are willing to accept the responsibilities of an underwriter
thereunder, and that we are willing to proceed as therein contemplated. We
further confirm that the statements made under the heading "Underwriting" in
such proposed final form of Prospectus are correct and we authorize you so to
advise the Company on our behalf. We understand that the aforementioned
documents are subject to further change and that we will be supplied with
copies of any amendment or amendments to the Registration Statement and of any
amended Prospectus promptly, if and when received by you, but the making of
such
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changes and amendments shall not release us or affect our obligations
hereunder or under the Underwriting Agreement.
16. INDEMNIFICATION. Each Underwriter, including you, agrees to
indemnify and hold harmless each other Underwriter and each person who
controls any other Underwriter within the meaning of Section 15 of the
Securities Act of 1933, as amended, to the extent of their several commitments
under the Underwriting Agreement and upon the terms that such Underwriter
agrees to indemnify and hold harmless the Company as set forth in Section 7 of
the Underwriting Agreement. The Agreement contained in this Section 16 shall
survive any termination of this Agreement Among Underwriters.
17. CAPITAL REQUIREMENTS. We confirm that our ratio of aggregate
indebtedness to net capital is such that we may, in accordance with and
pursuant to Rule 15 c 3-1, promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, agree to purchase the
number of Securities we may be obligated to purchase under any provision of
the Underwriting Agreement or this Agreement.
18. MISCELLANEOUS. We have transmitted herewith a completed
Underwriters' Questionnaire on the form thereof supplied by you. Any notice
hereunder from you to us or from us to you shall he deemed to have been duly
give if sent by registered mail, telegram, teletype, telex, telecopier,
graphic scan, or other written form of telecommunication to us at our address
as set forth in the Underwriting Agreement, or to you at the address set forth
on the first page of this Agreement.
You hereby confirm that you are registered as a broker-dealer with the
United States Securities and Exchange Commission and that you are a member of
the NASD and we confirm that we are either a member of the NASD or a foreign
broker-dealer not eligible for membership under Section I of the Bylaws of the
NASD, who agrees to make no sales within the United States, its territories or
possessions, or to persons who are nationals thereof or residents therein,
and, in making sales, to comply with the requirements of the NASD's
Interpretation with Respect to Free Riding and Withholding, and with Sections
8, 24, and 25 to the extent applicable to foreign nonmember brokers or
dealers, and Section 36 of the NASD's Rules of Fair Practice.
We will comply with all applicable federal laws, the laws of the states
or other jurisdictions concerned and the Rules and Regulations of the NASD,
including, but not limited to, Section 24 of the Rules of Fair Practice.
This instrument may be signed by the Underwriters in various
counterparts which together shall constitute one and the same agreement among
all the Underwriters and shall become effective as between us at such time as
you shall have confirmed same by returning an executed copy to us, and
thereafter, as to us and the other Underwriters, upon execution by them of
counterparts which are confirmed by you. In no event, however, shall we have
any liability under this Agreement if the Underwriting Agreement is not
executed.
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to us a counterpart hereof.
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Very truly yours,
- --------------------------------------
Attorney-in-Fact
for the several Underwriters
named in Schedule I
to the Underwriting Agreement
Confirmed as of the date first above written.
NUTMEG SECURITIES, LTD.
As Representative
By
-------------------------------------
Senior Vice President
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EXHIBIT 4.1
WARRANT AGREEMENT
METEOR INDUSTRIES, INC.
AND
AMERICAN SECURITIES TRANSFER & TRUST, INC.
WARRANT AGENT
------------, 1996
THIS AGREEMENT (the "Agreement") is dated as of ------------, 1996,
between Meteor Industries, Inc., a Colorado corporation (the "Company"), and
American Securities Transfer & Trust, Inc., Lakewood, Colorado (the "Warrant
Agent").
WHEREAS, the Company proposes to offer to the public up to 690,000
shares of common stock, $.001 par value (the "Common Stock") of the Company
and 690,000 Redeemable Common Stock Purchase Warrants (the "Warrants"), with
each such Warrant entitling the holder to purchase one share of Common Stock;
WHEREAS, the Company desires to provide for issuance of warrant
certificates (the "Warrant Certificates") representing the Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer and exchange of Warrant Certificates and
exercise of the Warrants,
NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter set forth, it is agreed that:
1. WARRANTS/WARRANT CERTIFICATES. Each Warrant shall entitle the
holder (the "Registered Holder" or, in the aggregate, the "Registered
Holders") in whose name the Warrant Certificate shall be registered on the
books maintained by the Warrant Agent to purchase one share of Common Stock of
the Company on exercise thereof, subject to modification and adjustment as
provided in Section 8. A copy of the form of Warrant Certificate is attached
hereto as Exhibit A.
Warrant Certificates representing the right to purchase Warrant
Shares shall be executed by the Company's President and attested to by the
Company's Secretary or Assistant Secretary and delivered to the Warrant Agent
upon execution of this Agreement.
Subject to the provisions of Sections 3, 5, 6 and 7, the Warrant
Agent shall deliver Warrant Certificates in required whole number
denominations to Registered Holders in connection with any transfer or
exchange permitted under this Agreement. Except as provided in Section 6
hereof, no Warrant Certificates shall be issued except (i) Warrant
Certificates initially issued hereunder, (ii) Warrant Certificates issued on
or after the initial issuance date, upon the exercise of any Warrants, to
evidence the unexercised Warrants held by the exercising Registered holder,
and (iii) Warrant Certificates issued after the
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initial issuance date, upon any transfer or exchange of Warrant Certificates
or replacements of lost or mutilated Warrant Certificates.
2. FORM AND EXECUTION OF WARRANT CERTIFICATES. The Warrant
Certificates shall be substantially in the form attached as Exhibit A. The
Warrant Certificates shall be dated as of the date of their issuance, whether
on initial issuance, transfer or exchange or in lieu of mutilated, lost,
stolen or destroyed Warrant Certificates.
Each such Warrant Certificate shall be numbered serially in
accordance with the Common Stock initially attached thereto with the letter
"W" appearing on each Warrant Certificate. The Warrant Certificates may be
detached immediately, and, in such event, the Warrant Certificates may be
issued by number preceded by the letter "W" without regard to the number of
the certificate representing the Common Stock initially attached thereto.
The Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so countersigned.
In the event any officer of the Company who executed the Warrant Certificates
shall cease to be an officer of the Company before the date of issuance of the
Warrant Certificates or before countersignature and delivery by the Warrant
Agent, such Warrant Certificates may be countersigned, issued and delivered by
the Warrant Agent with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the
Company.
3. EXERCISE. Subject to the provisions of Sections 4, 7 and 8, each
Warrant may be exercised to purchase one share of Common Stock at a price (the
"Exercise Price") of $---- at any time during the period (the "Exercise
Period") commencing on the date (the "Initial Exercise Date") of the Company's
Prospectus (therefore, commencing on ----------, 1996) and terminating on a
date (the "Expiration Date") two (2) years after the date of the Company's
Prospectus (therefore, terminating on ------------, 1998), unless extended by
a majority vote of the Company's Board of Directors at its discretion. The
Company shall promptly notify the Warrant Agent of any extension of the
Exercise Period of the Warrants. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date (the
"Exercise Date") of the surrender for exercise of the Warrant Certificate.
The exercise form shall be executed by the Registered Holder thereof or his
attorney duly authorized in writing and will be delivered together with
payment to the Warrant Agent at American Securities Transfer & Trust, Inc.,
938 Quail Street, No. 101, Lakewood, Colorado 80216 (the "Corporate Office"),
in cash or by official bank or certified check, of an amount equal to the
aggregate applicable Exercise Price, in lawful money of the United States of
America.
Unless Warrant Shares may not be issued as provided herein, the
person entitled to receive the number of Warrant Shares deliverable on such
exercise shall be treated for all purposes as the holder of such Warrant
Shares as of the close of business on the Exercise Date. In addition, the
Warrant Agent shall also, at such time, verify that all of the conditions
precedent to the issuance of Warrant Shares set forth in Section 4 have been
satisfied as of the Exercise Date. If any one of the conditions precedent set
forth in Section 4 are not satisfied as of the Exercise Date, the Warrant
Agent shall request written instructions from the Company as to whether to
return the Warrant and Exercise
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Price to the exercising Registered Holder or to hold the same until all such
conditions have been satisfied. The Company shall not be obligated to issue
any fractional share interests in Warrant Shares issuable or deliverable on
the exercise of any Warrant or scrip or cash therefore and such fractional
shares shall be of no value whatsoever. If more than one Warrant shall be
exercised at one time by the same Registered Holder, the number of full Shares
which shall be issuable on exercise thereof shall be computed on the basis of
the aggregate number of full shares issuable on such exercise.
Within thirty days after the Exercise Date, and in any event prior
to the applicable Expiration Date, pursuant to a Stock Transfer Agreement
between the Company and Warrant Agent, the Warrant Agent shall cause to be
issued and delivered to the person or persons entitled to receive the same, a
certificate or certificates for the number of Warrant Shares deliverable on
such exercise. No adjustment shall be made in respect of cash dividends on
Warrant Shares delivered on exercise of any Warrant. The Warrant Agent shall
promptly notify the Company in writing of any exercise and of the number of
Warrant Shares delivered and shall cause payment of an amount in cash equal to
the Exercise Price to be promptly made to the order of the Company.
Upon the exercise of any Warrant, the Warrant Agent shall promptly
deposit the payment into an escrow account established by mutual agreement of
the Company and the Warrant Agent at a federally insured commercial bank. All
funds deposited in the escrow account will be disbursed on a weekly basis to
the Company once they have been determined by the Warrant Agent to be
collected funds. Once the funds are determined to be collected, the Warrant
Agent shall cause the share certificate(s) representing the exercised Warrants
to be issued.
Expenses incurred by American Securities Transfer & Trust, Inc.
while acting in the capacity as Warrant Agent will be paid by the Company.
These expenses, including delivery of exercised share certificates to the
shareholder, will be deducted from the exercise fee submitted prior to
distribution of funds to the Company.
A detailed accounting statement relating to the number of shares
exercised and the net amount of exercised funds remitted will be given to the
Company with the payment of each exercise amount. This will serve as an
interim accounting for the Company's use during the Exercise Period. A
complete accounting will be made by the Warrant Agent to the Company
concerning all persons exercising Warrants, the number of shares issued and
the amounts paid at the completion of the Exercise Period.
The Company may deem and treat the Registered Holder of the
Warrants at any time as the absolute owner thereof for all purposes, and the
Company shall not be affected by any notice to the contrary. The Warrants
shall not entitle the holder thereof to any of the rights of shareholders or
to any dividend declared on the Common Stock unless the holder shall have
exercised the Warrants and purchased the shares of Common Stock prior to the
record date fixed by the Board of Directors of the Company for the
determination of holders of Common Stock entitled to such dividend or other
right.
4. RESERVATION OF SHARES AND PAYMENT OF TAXES. The Company covenants
that it will at all times reserve and have available from its authorized
Common
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Stock such number of shares as shall then be issuable on the exercise
of all outstanding Warrants. The Company covenants that all Warrant Shares
which shall be so issuable shall be duly and validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof.
The Company and the Warrant Agent acknowledge that the Company
will be required, pursuant to the Securities Act of 1933, as amended (the
"Act"), to deliver to each Registered Holder, upon the exercise of Warrants
and delivery of Warrant Shares, a prospectus covering the issuance of the
Warrant Shares which meets the requirements of the Act, which prospectus must
be a part of an effective registration statement under the Act at the time
that the Warrant is exercised. No Warrants may be exercised nor may Warrant
shares be issued by the Company's transfer agent or delivered by the Warrant
Agent unless, on the pertinent Exercise Date: (i) the Company has an
effective registration statement covering the issuance of the Warrant Shares
under the Act; (ii) the Warrant Agent has copies of the prospectus which is a
part of such effective registration statement and which the Warrant Agent
hereby agrees to deliver with the Warrant Shares; and (iii) the Warrant Shares
may legally be issued and delivered to the exercising Registered Holder under
the securities laws of the state in which such Registered Holder resides.
The Company agrees to use its best efforts to maintain, to the
extent required by the Act, an effective registration statement under the Act
covering the issuance of the Warrant Shares during the period the Warrants are
exercisable. The Company further agrees, from time to time, to furnish the
Warrant Agent with copies of the Company's prospectus to be delivered to
exercising Registered Holders, as set forth above.
If any shares of Common Stock to be reserved for the purpose of
exercise of Warrants hereunder require any other registration with or approval
of any government authority under any federal or state law before such shares
may be validly issued or delivered, then the Company covenants that it will in
good faith and as expeditiously as possible endeavor to secure such registra-
tion or approval, as the case may be. No Warrant Shares shall be issued
unless and until any such registration requirements have been satisfied.
The Registered Holder shall pay all documentary, stamp or similar
taxes and other government charges that may be imposed with respect of the
issuance of the Warrants, or the issuance, transfer or delivery of any Warrant
Shares on exercise of the Warrants. In the event the Warrant Shares are to be
delivered in a name other than the name of the Registered Holder of the
Warrant Certificate, no such delivery shall be made unless the person
requesting the same has paid to the Warrant Agent the amount of any such taxes
or charges incident thereto.
In the event the Warrant Agent ceases to also serve as the stock
transfer agent for the Company, the Warrant Agent is irrevocably authorized to
requisition the Company's new transfer agent from time to time for
Certificates of Warrant Shares required upon exercise of the Warrants, and the
Company will authorize such transfer agent to comply with all such requisi-
tions. The Company will file with the Warrant Agent a statement setting forth
the name and address of its new transfer agent, for shares of Common Stock or
other capital stock issuable upon exercise of the Warrants and of each
successor transfer agent.
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5. REGISTRATION OF TRANSFER. The Warrant Certificates may be
transferred in whole or in part. Warrant Certificates to be exchanged shall
be surrendered to the Warrant Agent at its Corporate Office. The Company
shall execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the holder
making the transfer shall be entitled to receive.
The Warrant Agent shall keep transfer books at its Corporate
Office which shall register Warrant Certificates and the transfer thereof. On
due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants. All Warrant
Certificates presented for registration of transfer or exercise shall be duly
endorsed or be accompanied by a written instrument or instruments or transfer
in form satisfactory to the Company and the Warrant Agent. At the time of
exercise, the transfer fee shall be paid by the Holder. The Company may
require payment of a sum sufficient to cover any tax or other government
charge that may be imposed in connection therewith.
All Warrant Certificates so surrendered, or surrendered for
exercise, or for exchange in case of mutilated Warrant Certificates, shall be
promptly cancelled by the Warrant Agent and thereafter retained by the Warrant
Agent until termination of the agency created by this Agreement. Prior to due
presentment for registration of transfer thereof, the Company and the Warrant
Agent may treat the Registered Holder of any Warrant Certificate as the
absolute owner thereof (notwithstanding any notations of ownership or writing
thereon made by anyone other than the Company or the Warrant Agent), and the
parties hereto shall not be affected by any notice to the contrary.
6. LOSS OR MUTILATION. On receipt by the Company and the Warrant
Agent of evidence satisfactory as to the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate, the Company shall
execute, and the Warrant Agent shall countersign and deliver in lieu thereof,
a new Warrant Certificate representing an equal aggregate number of Warrants.
In the case of loss, theft or destruction of any Warrant Certificate, the
individual requesting issuance of a new Warrant Certificate shall be required
to indemnify the Company and Warrant Agent in an amount satisfactory to each
of them. In the event a Warrant Certificate is mutilated, such Certificate
shall be surrendered and cancelled by the Warrant Agent prior to delivery of a
new Warrant Certificate. Applicants for a new Warrant Certificate shall also
comply with such other regulations and pay such other reasonable charges as
the Company may prescribe.
7. CALL OPTION. Following issuance of the Warrants, in the event
that the trading price of the Company's Common Stock exceeds $--- for 10
consecutive trading days ending not more than ten days prior to the mailing of
the notice of redemption, the Company shall have the right and option, upon 30
days' written notice to each Registered Holder, to call, redeem and acquire
all of the Warrants remaining outstanding and unexercised at the date fixed
for such redemption in such notice (the "Redemption Date"), which Redemption
Date shall be 30 days after the date of such notice, for an amount equal to
$.10 per Warrant; provided, however, that the Registered Holders shall in any
event have the right during the 30-day period immediately following the date
of such notice to exercise the
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Warrants being called for redemption in accordance with the provisions of
Section 3 hereof. For the purposes of determining the daily trading price of
the Company's Common Stock, if the Common Stock is listed on a national
securities exchange, is admitted to unlisted trading privileges on a national
securities exchange, or is on NASDAQ, then the last reported sale price of the
Common Stock on such exchange or NASDAQ each day shall be used. If the Common
Stock is not so listed on such exchange or system or admitted to unlisted
trading privileges then the average of the last reported bid prices reported
by the OTC Bulletin Board each day shall be used to determine such daily
trading price. In the event that any Warrants called for redemption are
exercised during the 30-day period following the notice of redemption, this
call option shall be deemed not to have been exercised by the Company as to
the Warrants so exercised by the holders thereof. Said notice of redemption
shall require each Registered Holder to surrender to the Company, on the
Redemption Date, at the Corporate Office of the Warrant Agent (or its
successor), his certificate or certificates representing the Warrants to be
redeemed. Notwithstanding the fact that any Warrants called for redemption
have not been surrendered for redemption and cancellation on the Redemption
Date, after the Redemption Date, such Warrants shall be deemed to be expired
and all rights of the holders of such unsurrendered Warrants shall cease and
terminate, other than the right to receive the redemption price of $.10 per
Warrant for such Warrants, without interest, provided, however, that such
right to receive the redemption price of $.10 per Warrant for such Warrants
shall itself expire two years from the Redemption Date. The Company shall
notify the Warrant Agent verbally, with confirmation in writing, of the call
of the Warrants and of the Redemption Date and the Company shall instruct the
Warrant Agent accordingly as to the procedures to be followed by the Warrant
Agent in connection with the redemption of such Warrants.
8. ADJUSTMENT OF EXERCISE PRICE AND SHARES. After each adjustment of
the Exercise Price(s) pursuant to this Section 8, the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall be the number
receivable upon exercise thereof prior to such adjustment multiplied by a
fraction, the numerator of which shall be the original Exercise Price as
defined in Section 3 above and the denominator of which shall be such adjusted
Exercise Price. The Exercise Price of the Warrants shall be subject to
adjustment as set forth below:
(a)(i) If the Company subdivides its outstanding shares of Common
Stock into a greater number of shares of Common Stock, the Exercise Price in
effect immediately prior to such subdivision shall be proportionately reduced.
Conversely, if the Company combines its outstanding shares of Common Stock
into a lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased. In
case of a subdivision or combination, the adjustment of the Exercise Price
shall be made as of the effective date of the applicable event. A
distribution on shares of Common Stock, including a distribution of
Convertible Securities, to shareholders of the Company on a pro rata basis
shall be considered a subdivision of shares of Common Stock for the purposes
of this subsection (a)(i) of this Section 8, except that the adjustment will
be made as of the record date for such distribution and any such distribution
of Convertible Securities shall be deemed to be a distribution of the shares
of Common Stock underlying such Convertible Securities.
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(ii) If the Company shall at any time distribute or cause
to be distributed to its shareholders, on a pro rata basis, cash or assets of
the Company, or cash, assets, or securities of any entity other than the
Company including a subsidiary of the Company, then the Exercise Price in
effect immediately prior to such distribution shall automatically be reduced
by an amount determined by dividing (x) the amount (if cash) or the value (if
assets or securities) of the holders' of Warrants pro rata share of such
distribution determined assuming that all holders of Warrants had exercised
their Warrants on the day prior to such distribution, by (y) the number of
shares of Common Stock issuable upon the exercise of this Warrant by the
Holder on the day prior to such distribution.
(b) Anything in this Section 8 to the contrary notwithstanding,
the Company shall not be required to give effect to any adjustment in the
Exercise Price unless and until the net effect of one or more adjustments,
determined as above provided, shall have required a change of the Exercise
Price by at least one cent, but when the cumulative net effect of more than
one adjustment so determined shall be to change the actual Exercise Price by
at least one cent, such change in the Exercise Price shall thereupon be given
effect.
(c) Upon any adjustment of the Exercise Price, the Holder of
this Warrant shall thereafter (until another such adjustment) be entitled to
purchase, at the new Exercise Price, the number of shares, calculated to the
nearest full share, obtained by multiplying the number of shares of Common
Stock initially issuable upon exercise of this Warrant by the Exercise Price
specified in the first paragraph hereof and dividing the product so obtained
by the new Exercise Price.
(d)(i) Whenever reference is made in this Section 8 to the
distribution of shares of Common Stock, the term "Common Stock" shall mean the
Common Stock of the Company authorized as of the date hereof and any other
class of stock ranking on a parity with such Common Stock. However, subject
to the provisions of subsection (e) of this Section 8, shares issuable upon
exercise hereof shall include only shares of the class designated as Common
Stock of the Company as of the date hereof.
(ii) Whenever reference is made in this Section 8 to the
distribution of Convertible Securities, the term "Convertible Securities"
shall mean options or warrants or rights for the purchase of Common Stock of
the Company or for the purchase of any stock or other securities convertible
into or exchangeable for Common Stock of the Company.
(e) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock of the Company (other than
a change in par value or from par value to no par value, or from no par value
to par value, or as a result of an issuance of Common Stock by way of dividend
or other distribution or of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale or
conveyance to another corporation of the property of the Company as an
entirety or
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substantially as an entirety, the Company shall cause effective provision to
be made so that the Holder shall have the right thereafter, by exercising this
Warrant, to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance.
Any such provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Warrant. The foregoing provisions of this subsection (e) shall similarly
apply to successive reclassifications, capital reorganizations and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances. In the event the Company spins off a subsidiary by distributing
to the shareholders of the Company as a dividend or otherwise the stock of the
subsidiary, the Company shall reserve for the life of this Warrant, shares of
the subsidiary to be delivered to the Holders of the Warrants upon exercise to
the same extent as if they were owners of record of the Warrant Stock on the
record date for payment of the shares of the subsidiary.
(f) Before taking any action which could cause an adjustment
reducing the Exercise Price below the then par value of the shares of Common
Stock issuable upon exercise of any Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and nonassess-
able shares of such Common Stock at such adjusted Exercise Price.
(g)(i) Upon any adjustment of the Exercise Price required to be
made pursuant to this Section 8, the Company within 30 days thereafter shall
(A) cause to be filed with the Warrant Agent a certificate of a firm of
independent accountants setting forth the Exercise Price after such adjustment
and setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based, which certificate shall be conclusive
evidence of the correctness of such adjustment, and (B) cause to be mailed to
each of the Registered Holders of the Warrants written notice of such
adjustment. Where appropriate, such notice may not be given in advance and
included as a part of the notice required to be mailed under the provisions of
subsection 8(d)(ii).
(ii) In case at any time:
(A) The Company shall declare any dividend upon its
Common Stock payable otherwise than in cash or in Common Stock of the Company;
or
(B) The Company shall offer for subscription to the
holders of its Common Stock any additional shares of stock of any class or any
other securities convertible into shares of stock or any rights to subscribe
thereto; or
(C) There shall be any capital reorganization or
reclassification of the capital stock of the Company, or a sale of all or
substantially all of the shares of the assets of the Company, or a
consolidation or merger of the Company with another corporation (other than a
merger with a Subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants
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<PAGE>
other than a change in par value or from par value to no par value or from no
par value to par value); or
(D) There shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall cause to be mailed
to each of the Registered Holders of the Warrants, at the earliest practicable
time (and, in any event, not less than 20 days before any record date or other
date set for definitive action), written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or such reorganization, reclassification,
sale, consolidation, merger, dissolution, liquidation or winding up shall take
place, as the case may be. Such notice shall also set forth such facts as
shall indicate the effect of such action (to the extent such effect may be
known at the date of such notice) on the Exercise Price and the kind and
amount of the shares of stock and other securities and property deliverable
upon exercise of the Warrants. Such notice shall also specify the date as of
which the holders of the Common Stock of record shall participate in said
dividend, distribution or subscription rights or shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation or winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation or winding up of the
Company, the right to exercise the Warrants shall terminate).
(iii) Without limiting the obligation of the Company to
provide notice to the Registered Holders of the Warrants of corporate actions
hereunder, is agreed that failure of the Company to give notice shall not
invalidate such corporate action of the Company.
9. REDUCTION IN EXERCISE PRICE AT COMPANY'S OPTION. In addition to
any adjustments made to the Exercise Price pursuant to Section 8, the
Company's Board of Directors may, at its sole discretion, reduce the Exercise
Price of the Warrants in effect at any time either for the life of such
Warrants or any shorter period of time determined by the Company's Board of
Directors. The Company shall promptly notify the Warrant Agent and the
Registered Holders of any such reductions in the Exercise Price.
10. DUTIES, COMPENSATION AND TERMINATION OF WARRANT AGENT. The
Warrant Agent shall act hereunder as agent and in a ministerial capacity for
the Company, and its duties shall be determined solely by the provisions
hereof. The Warrant Agent shall not, by issuing and delivering Warrant
Certificates or by any other act hereunder, be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of the Common Stock or
other property delivered on exercise of any Warrant. The Warrant Agent shall
not at any time be under any duty or responsibility to any holder of the
Warrant Certificates to make or cause to be made any adjustment of the
Exercise Price or to determine whether any fact exists which may require any
such adjustments.
The Warrant Agent shall not (i) be liable for any recital or
statement of fact contained herein or for any action taken or omitted by it in
9
<PAGE>
reliance on any Warrant Certificate or other document or instrument believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of
the Company to comply with any of its covenants and obligations contained in
this Agreement except for its own negligence or willful misconduct, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own negligence or willful misconduct.
The Company agrees to indemnify the Warrant Agent against any and
all losses, expenses and liabilities which the Warrant Agent may incur in
connection with the delivery of copies of the Company's prospectus to
exercising Registered Holders upon the exercise of any Warrants as set forth
in Section 4.
The Warrant Agent may at any time consult with counsel
satisfactory to it (which may be counsel for the Company) and shall incur no
liability or responsibility for any action taken or omitted by it in good
faith in accordance with the opinion or advice of such counsel. Any notice,
statement, instruction, request, direction, order or demand of the Company
shall be sufficiently evidenced by an instrument signed by its President and
attested by its Secretary or Assistant Secretary. The Warrant Agent shall not
be liable for any action taken or omitted by it in accordance with such
notice, statement, instruction, request, order or demand.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse the Warrant Agent for
its reasonable expenses as per the fee schedule attached hereto as Exhibit B.
The Company further agrees to indemnify the Warrant Agent against any and all
losses, expenses and liabilities, including judgments, costs and counsel fees,
for any action taken or omitted by the Warrant Agent in the execution of its
duties and powers hereunder, excepting losses, expenses and liabilities
arising as a result of the Warrant Agent's negligence or willful misconduct.
The Warrant Agent may resign its duties or the Company may
terminate the Warrant Agent and the Warrant Agent shall be discharged from all
further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or willful misconduct), on 30
days' prior written notice to the other party. At least 15 days prior to the
date such resignation is to become effective, the Warrant Agent shall cause a
copy of such notice of resignation to be mailed to the Registered Holder of
each Warrant Certificate. On such resignation or termination the Company
shall appoint a new warrant agent. If the Company shall fail to make such
appointment within a period of 30 days after it has been notified in writing
of the resignation by the Warrant Agent, then the registered holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent.
After acceptance in writing of an appointment of a new warrant
agent is received by the Company, such new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further assurance,
conveyance, act or deed; provided, however, if it shall be necessary or
expedient to execute and deliver any further assurance, conveyance, act or
deed, the same shall be done at the expense of the Company and shall be
legally and validly executed. The Company shall file a notice of appointment
of a new warrant agent with the
10
<PAGE>
resigning Warrant Agent and shall forthwith cause a copy of such notice to be
mailed to the Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant
agent may be converted or merged, or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party, or any corporation succeeding to the corporate trust business of the
Warrant Agent shall be a successor Warrant Agent under this Agreement,
provided that such corporation is eligible for appointment as a successor to
the Warrant Agent under the provisions of the preceding paragraph. Any such
successor Warrant Agent shall promptly cause notice of its succession as
Warrant Agent to be mailed to the Company and to the Registered Holder of each
Warrant Certificate. No further action shall be required for establishment
and authorization of such successor warrant agent.
The Warrant Agent, its officers or directors and its subsidiaries
or affiliates may buy, hold or sell Warrants or other securities of the
Company and otherwise deal with the Company in the same manner and to the same
extent and with like effect as though it were not Warrant Agent. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
11. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may
by supplemental agreement make any changes or corrections in this Agreement
(i) that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or mistake or error herein contained; or
(ii) that they may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Warrant Certificates; provided,
however, this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than 51% of the Warrants
outstanding. Additionally, except as provided in Section 8, no change in the
number or nature of the Warrant Shares purchasable on exercise of a Warrant,
increase the purchase price therefor, or the acceleration of the Expiration
Date of a Warrant shall be made without the consent in writing of the
Registered Holder of the Warrant Certificate representing such Warrant, other
than such changes as are specifically prescribed or allowed by this Agreement.
12. NOTICES. All notices, demands, elections, opinions or requests
(however characterized or described) required or authorized hereunder shall be
deemed given sufficiently if in writing and sent by registered or certified
mail, return receipt requested and postage prepaid, or by tested telex,
telegram or cable to, in the case of the Company:
Meteor Industries, Inc.
216 Sixteenth Street, Suite 730
Denver, Colorado 80202
11
<PAGE>
with a copy to:
Jon D. Sawyer
Jon D. Sawyer, P.C.
1401 Seventeenth Street, Suite 460
Denver, Colorado 80202
and in the case of the Warrant Agent:
American Securities Transfer & Trust, Inc.
938 Quail Street, No. 101
Lakewood, Colorado 80215
and if to the Registered Holder of a Purchase Warrant Certificate, at the
address of such holder as set forth on the books maintained by the Warrant
Agent.
13. BINDING AGREEMENT. This Agreement shall be binding upon and inure
to the benefit of the Company, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Purchase Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim or to impose on any
other person any duty, liability or obligation.
14. FURTHER INSTRUMENTS. The parties shall execute and deliver any
and all such other instruments and shall take any and all other actions as may
be reasonably necessary to carry out the intention of this Agreement.
15. SEVERABILITY. If any provision of this Agreement shall be held,
declared or pronounced void, voidable, invalid, unenforceable, or inoperative
for any reason by any court of competent jurisdiction, government authority or
otherwise, such holding, declaration or pronouncement shall not affect
adversely any other provision of this Agreement, which shall otherwise remain
in full force and effect and be enforced in accordance with its terms, and the
effect of such holding, declaration or pronouncement shall be limited to the
territory or jurisdiction in which made.
16. WAIVER. All the rights and remedies of either party under this
Agreement are cumulative and not exclusive of any other rights and remedies as
provided by law. No delay or failure on the part of either party in the
exercise of any right or remedy arising from a breach of this Agreement shall
operate as a waiver of any subsequent right or remedy arising from a
subsequent breach of this Agreement. The consent of any party where required
hereunder to act or occurrence shall not be deemed to be a consent to any
other action or occurrence.
17. GENERAL PROVISIONS. This Agreement shall be construed and
enforced in accordance with, and governed by, the laws of the State of
Colorado. Except as otherwise expressly stated herein, time is of the essence
in performing hereunder. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, and this Agreement may
not be modified or amended or any term or provisions hereof waived or dis-
charged except in writing signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. The headings of
this Agreement are for con-
12
<PAGE>
venience in reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
METEOR INDUSTRIES, INC.
ATTEST:
By
- ---------------------------- ------------------------------------------
Dennis R. Staal, Secretary Edward J. Names, President
THE WARRANT AGENT:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By
------------------------------------------
Authorized Officer
Title:
--------------------------------------
13
<PAGE>
EXHIBIT A
METEOR INDUSTRIES, INC.
Incorporated Under the Laws of the State of Colorado
No. W- ----- Common Stock
Purchase Warrants
CUSIP -----------
CERTIFICATE FOR REDEEMABLE (See Reverse
COMMON STOCK PURCHASE WARRANTS For Certain
Definitions)
This Warrant Certificate certifies that -------------------, or regis-
tered assigns ("the Warrant Holder"), is the registered owner of the above
indicated number of Redeemable Common Stock Purchase Warrants (the "Warrants")
expiring on -------------, 1998 (the "Expiration Date"). Each Warrant
entitles the Warrant Holder to purchase one (1) share of common stock, $.001
par value ("Share") from Meteor Industries, Inc., a Colorado corporation (the
"Company"), at a purchase price of $---- (the "Exercise Price"), commencing on
- ----------, 1996, and terminating on the Expiration Date ("Exercise Period"),
upon surrender of this Warrant Certificate with the exercise form hereon duly
completed and executed with payment of the Exercise Price at the office of
American Securities Transfer & Trust, Inc. (the "Warrant Agent"), but only
subject to the conditions set forth herein and in a Warrant Agreement dated as
of -----------, 1996 (the "Warrant Agreement"), between the Company and the
Warrant Agent. The Exercise Price, the number of shares purchasable upon
exercise of each Warrant, the number of Warrants outstanding and the
Expiration Date are subject to adjustments upon the occurrence of certain
events. The Warrantholder may exercise all or any number of Warrants.
Reference hereby is made to the provisions on the reverse side of this Warrant
Certificate and to the provisions of the Warrant Agreement, all of which are
incorporated by reference in and made a part of this Warrant Certificate and
shall for all purposes have the same effect as though fully set forth at this
place.
Upon due presentment for transfer of this Warrant Certificate at the
office of the Warrant Agent, a new Warrant Certificate or Warrant Certificates
of like tenor and evidencing in the aggregate a like number of Warrants, sub-
ject to any adjustments made in accordance with the provisions of the Warrant
Agreement, shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
upon payment of $------ per Warrant Certificate and any tax or governmental
charge imposed in connection with such transfer.
The Warrantholder of the Warrants evidenced by this Warrant Certificate
may exercise all or any whole number of such Warrants during the period and in
the manner stated hereon. The Exercise Price shall be payable in lawful money
of the United States of America and in cash or by certified or bank cashier's
check or bank draft payable to the order of the Company. If upon exercise of
any Warrants evidenced by this Warrant Certificate the number of Warrants
exercised shall be less than the total number of Warrants so evidenced, there
shall be issued to the Warrantholder a new Warrant Certificate evidencing the
number of Warrants not so exercised.
1
<PAGE>
Subject to the following paragraph, no Warrant may be exercised after
5:00 p.m. Mountain Time on the Expiration Date and any Warrant not exercised
by such time shall become void, unless extended by the Company.
In the event that the trading price of the Company's Common Stock
exceeds $---- for 10 consecutive trading days ending not more than ten days
prior to the mailing of the notice of redemption, the Company shall have the
right to call all or a portion of the Warrants for redemption upon 30 days'
written notice, at a price of $.10 per Warrant. During the 30-day period
immediately following the giving of such notice, the Warrantholders shall have
the right to exercise the Warrants so held by them. Upon expiration of such
30-day period, all rights of the Warrantholders shall terminate, other than
the rights to receive the redemption price of $.10 per Warrant therefor,
without interest, and the right to receive the redemption price of $.10 per
Warrant shall itself expire on the Warrant Expiration Date.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its President and by its Secretary, each by a facsimile of his/her signature,
and has caused a facsimile of its corporate seal to be imprinted hereon.
Dated:--------------
METEOR INDUSTRIES, INC.
By
- ---------------------------- ------------------------------------------
AMERICAN SECURITIES TRANSFER & TRUST,
INC.,
Warrant Agent
By
------------------------------------------
Authorized Officer
2
<PAGE>
TRANSFER FEE $---- PER CERTIFICATE
METEOR INDUSTRIES, INC.
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as Under Uniform Gifts
tenants in common to Minors Act -------
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To Be Executed by the Registered Holder if He
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED ----------------------- hereby sells, assigns and
transfers unto -------------------------- Redeemable Warrants, evidenced by
the within Warrant Certificate, and does hereby irrevocably constitute and
appoint ---------------------- Attorney to transfer the said Warrants
evidenced by the within Warrant Certificate on the books of the Company, with
full power of substitution.
Dated: ----------------- --------------------------------------
Signature
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without alteration
or enlargement or any change whatsoever.
Signature Guaranteed:
- -----------------------------
3
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if he Desires to Exercise
Warrants Evidenced by the Within Warrant Certificate)
To Meteor Industries, Inc.:
The undersigned hereby irrevocably elects to exercise ----------
Redeemable Warrants, evidenced by the within Warrant Certificate for, and to
purchase thereunder, ---------- full shares of Common Stock issuable upon
exercise of said Warrants and delivery of $-------- and any applicable taxes.
The undersigned requests that certificates for such shares be issued in
the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
- ------------------------------------ ------------------------------------
(Please print name and address)
- ------------------------------------
- ------------------------------------
If said number of Redeemable Warrants shall not be all the Redeemable
Warrants evidenced by the within Warrant Certificate, the undersigned requests
that a new Warrant Certificate evidencing the Redeemable Warrants not so
exercised be issued in the name of and delivered to:
------------------------------------
(Please print name and address)
------------------------------------
------------------------------------
Dated:------------------- Signature:------------------------------
NOTICE: The above signature must correspond with the name as written upon the
face of the within Warrant Certificate in every particular, without alteration
or enlargement or any change whatsoever, or if signed by any other person the
Form of Assignment hereon must be duly executed and if the certificate
representing the shares or any Warrant Certificate representing Warrants not
exercised is to be registered in a name other than that in which the within
Warrant Certificate is registered, the signature of the holder hereof must be
guaranteed.
Signature Guaranteed:
- -------------------------------
SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS, AND CREDIT UNITS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO SEC RULE
17Ad-15.
4
<PAGE>
EXHIBIT 4.2
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION STATEMENT AS TO SUCH
SECURITIES FILED UNDER THE ACT, OR AN EXEMPTION FROM REGISTRATION, AND
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. THE ISSUER MAY REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF THAT SUCH REGISTRATION IS
NOT REQUIRED AND THAT LAWS ARE COMPLIED WITH.
Void After 3:30 P.M., Eastern Time, on ---------, 2001
Representative's Warrant to Purchase
Common Stock and Redeemable Warrants
METEOR INDUSTRIES, INC.
This is to Certify That, FOR VALUE RECEIVED, Nutmeg Securities, Ltd.
(the "Holder") is entitled to purchase, subject to the provisions of this
Warrant, from Meteor Industries, Inc. ("Company"), a Colorado corporation, at
any time on or after -------, 1997, and not later than 3:30 p.m., Eastern
Time, on -------, 2001, at $--- per share of Common Stock and $------ per
Redeemable Warrants of the Company ("Securities") exercisable at a purchase
price for the Securities which is 125% of the public offering price of the
Securities; the shares of Common Stock are at $--- per share and, in the case
of the Redeemable Warrants, at $------- per Redeemable Warrant. The number of
Securities to be received upon the exercise of this Warrant and the price to
be paid for the Securities may be adjusted from time to time as hereinafter
set forth. The purchase price of a Security in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the
"Exercise Price." This Warrant is or may be one of a series of Warrants
identical in form issued by the Company to purchase an aggregate of 60,000
Shares of Common Stock and 60,000 Redeemable Warrants. The Securities, as
adjusted from time to time, underlying the Warrants are hereinafter sometimes
referred to as "Warrant Securities". The Securities issuable upon the exercise
hereof are in all respects identical to the securities being purchased by the
Underwriter for resale to the public pursuant to the terms and conditions of
the Underwriting Agreement entered into on this date between the Company and
Holder, except that the Exercise Price per share of Common Stock to be
acquired upon the exercise of the Redeemable Warrants issuable to Holder
pursuant hereto shall be $--- per share.
(a) EXERCISE OF WARRANT. Subject to the provisions of Section (g)
hereof, this Warrant may be exercised in whole or in part at anytime or from
time to time on or after ---------, 1997, but not later than 3:30 p.m.,
Eastern Time on ------, 2001, or if -------, 2001, is a day on which banking
institutions are authorized by law to close, then on the next succeeding day
which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the
Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of shares of Common Stock or Redeemable
Warrants, as the case may be as specified in such Form, together with all
federal and state taxes applicable upon such exercise. The Company agrees to
provide notice to the Holder that any tender offer is being made for the
Securities no later than the day the Company becomes aware that any tender
offer is being made for the Securities. If this Warrant should be exercised in
part only, the
1
<PAGE>
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the right of the Holder to purchase the
balance of the shares purchasable hereunder along with any additional
Redeemable Warrants not exercised. Upon receipt by the Company of this Warrant
at the office Company or at the office of the Company's stock transfer agent,
in proper form for exercise and accompanied by the total Exercise Price, the
Holder shall be deemed to be the holder of record of the Securities issuable
upon such exercise, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such Securities
shall not then be actually delivered to the Holder.
(b) RESERVATION OF SECURITIES. The Company hereby agrees that at all
times there shall be reserved for issuance and/or delivery upon exercise of
this Warrant such number of shares of Securities as shall be required for
issuance or delivery upon exercise of this Warrant. The Company covenants and
agrees that, upon exercise of the Warrants and payment of the Exercise Price
therefor, all Securities and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject
to the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all Securities
issuable upon the exercise of the Warrants to be listed (subject to official
notice of issuance) on all securities exchanges on which the Common Stock
issued to the public in connection herewith may then be listed and/or quoted
on NASDAQ.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(1) If the Securities are listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange, the
current value shall be the last reported sale price of the Common Stock on
such exchange on the last business day prior to the date of exercise of this
Warrant or if no such sale is made on such day, the average of the closing bid
and asked prices for such day on such exchange, or
(2) If the Securities are not so listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported
bid and asked prices reported by the National Association of Securities
Dealers Automated Quotation System (or, if not so quoted on NASDAQ or by the
National Quotation Bureau, Inc.) on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Securities are not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
value shall be an amount, not less than book value, determined in such
reasonable manner as may be prescribed by the Board of Directors of the
Company, such determination to be final and binding on the Holder.
(d) EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
Holder thereof to purchase (under
2
<PAGE>
the same terms and conditions as provided by this Warrant) in the aggregate
the same number of Securities purchasable hereunder. This Warrant may not be
sold, transferred, assigned, or hypothecated until after one year from the
effective date of the registration statement except that it may be (i)
assigned in whole or in part to the officers of the "Underwriters)", and (ii)
transferred to any successor to the business of the "Underwriters." Any such
assignment shall be made by surrender of this Warrant to the Company, or at
the office of its stock transfer agent, if any, with the Assignment Form
annexed hereto duly executed and with funds sufficient to pay any transfer
tax; whereupon the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in-such instrument of assignment,
and this Warrant shall promptly be canceled.
This Warrant may be divided or combined with other Warrants which carry the
same rights upon presentation hereof at the office of the Company or at the
office of its stock transfer agent, if any, together with a written notice
specifying the names and denominations in which new Warrants are to be issued
and signed by the Holder hereof. The term "Warrant" as used herein includes
any Warrants issued in substitution for or replacement of this Warrant, or
into which this Warrant may be divided or exchanged. Upon receipt by the
Company of evidence satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation
of this Warrant, if mutilated, the Company will execute and deliver a new
Warrant of like tenor and date. Any such new Warrant executed and delivered
shall constitute an additional contractual obligation on the part of the
Company, whether or not the Warrant so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder arc limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding and unexercised (i) if the Company shall pay any dividend
exclusive of a cash dividend, or make any distribution upon the Common Stock,
or (ii) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any shares of stock of any class or any other
rights, or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger
of the Company with or into another corporation, sale, lease or transfer of
all or substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding
up of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least ten (10) days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record
is to be taken for the purpose of such dividend, distribution or rights, or
(y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date,
if any, is to be fixed, as of which the holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for equivalent
securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
(g) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK
DELIVERABLE.
3
<PAGE>
(A)(i) Except as hereinafter provided, in the event the Company shall,
at any time or from time to time after the date hereof, issue any shares of
Common Stock as a stock dividend to the holders of Common Stock, or subdivide
or combine the outstanding shares of Common Stock into a greater or lesser
number of shares (any such issuance, subdivision or combination being herein
call a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Exercise Price of the Common Stock issuable upon the exercise of
the Warrant and the Redeemable Warrant in effect immediately prior to such
Change of Shares shall be changed to a price (including any applicable
fraction of a cent to the nearest cent) determined by dividing (i) the sum of
(a) the total number of shares of Common Stock outstanding immediately prior
to such Change of Shares, multiplied by the Exercise Price in effect
immediately prior to such Change of Shares, and (b) the consideration, if any,
received by the Company upon such issuance, subdivision or combination by (ii)
the total number of shares of Common Stock outstanding immediately after such
Change of Shares; provided, however, that in no event shall the Exercise Price
be adjusted pursuant to this computation to an amount in excess of the
Exercise Price in effect immediately prior to such computation, except in the
case of a combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section (g) the following provisions shall be applicable:
(I) Shares of Common Stock issuable by way of dividend or other
distribution on any capital stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of shareholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued without
consideration.
(II) The number of shares of Common Stock at any one time
outstanding shall not be deemed to include the number of shares issuable
(subject to readjustment upon the actual issuance thereof) upon the exercise
of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(ii) Upon each adjustment of the Exercise Price pursuant to this
Section (g) the number of shares of Common Stock and Redeemable Warrants
purchasable upon the exercise of each Warrant shall be the number derived by
multiplying the number of shares of Common Stock Redeemable Warrants
purchasable immediately prior to such adjustment by the Exercise Price in
elect prior to such adjustment and dividing the product so obtained by the
applicable adjusted Exercise Price.
(B) In case of any reclassification or change of outstanding Securities
issuable upon exercise of the Warrants (other than a change in par value, or
from par value to no par value, or from no par value to par value or as a
result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another corporation other than a merger
with a "Subsidiary" (which shall mean any corporation or corporations, as the
ease may be, of which capital stock having ordinary power to elect a majority
of the Board of Directors of such corporation (regardless of whether or not at
the time capital stock of any other class or classes of such corporation shall
have or may have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned by the Company or by one or more
Subsidiaries) or by the Company and one or more Subsidiaries in which merger
the Company is the continuing corporation and
4
<PAGE>
which does not result in any reclassification or change of the then
outstanding shares of Common Stock or other capital stock issuable upon
exercise of the Warrants (other than a change in par value, or from par value
to no par value, or from no par value to par value or as a result of
subdivision or combination) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, then, as a condition of such reclassification, change,
consolidation, merger, sale or conveyance, the Company, or such successor or
purchasing corporation, as the case may be, shall make lawful and adequate
provision whereby the Holder of each Warrant then outstanding shall have the
right thereafter to receive on exercise of such Warrant the kind and amount of
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of
securities issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and shall
forthwith file at the principal office of the Company a statement signed by
its President or a Vice President and by its Treasurer or an Assistant
Treasurer or its Secretary or an Assistant Secretary evidencing such
provision. Such provisions shall include provision for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for
in Section (g)(A). The above provisions of this Section (g)(B) shall similarly
apply to successive reclassifications and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(C) Irrespective of any adjustments or changes in the Exercise Price or
the number of Securities purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the
Company shall exercise its option to issue new Warrant Certificates pursuant
hereto, continue to express the Exercise Price per share and the number of
shares purchasable thereunder as the Exercise Price per share and the number
of shares purchasable thereunder as expressed in the Warrant Certificates when
the same were originally issued.
(D) After each adjustment of the Exercise Price pursuant to this Section
(g), the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, of the Company setting forth: (i) the Exercise Price
as so adjusted, (ii) the number of Securities purchasable upon exercise of
each Warrant, after such adjustment, and (iii) a brief statement of the facts
accounting for such adjustment. The Company will promptly file such
certificate in the Company's minute books and cause a brief summary thereof to
be sent by ordinary first class mail to each Holder at his last address as it
shall appear on the registry books of the Company. No failure to mail such
notice nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to mail
such notice, or except as to the holder whose notice was defective. The
affidavit of an officer or the Secretary or an Assistant Secretary of the
Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts stated therein.
(E) No adjustment of the Exercise Price shall be made as a result of or
in connection with the issuance or sale of Securities if the amount of said
adjustment shall be less than $.10, provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried forward,
to at least $.10. In
5
<PAGE>
addition, Holders shall not be entitled to cash dividends paid by the Company
prior to the exercise of any Warrant or Warrants held by them.
(F) In the event that the Company shall at any time prior to the
exercise of all Warrants declare a dividend consisting solely of shares of
Common Stock or otherwise distribute to its stockholders any assets, property,
rights, evidences of indebtedness, the Holders of the unexercised Warrants
shall thereafter be entitled, in addition to the Securities or other
securities and property receivable upon the exercise thereof, to receive, upon
the exercise of such Warrants, the same property, assets, rights, evidences of
indebtedness, that they would have been entitled to receive at the time of
such dividend or distribution as if the Warrants had been exercised
immediately prior to such dividend or distribution. At the time of any such
dividend or distribution, the Company shall make appropriate reserves to
ensure the timely performance of the provisions of this Section (g).
(h) DEMAND REGISTRATION.
(1) At any time commencing one year from the effective date of the
registration statement and expiring four (4) years thereafter, the Holders of
the Warrants and/or Warrant Securities representing a "Majority" (as
hereinafter defined) of such securities (assuming the exercise of all of the
Warrants) shall have the right (which right is in addition to the registration
rights under Section (i) hereof), exercisable by written notice to the
Company, to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, a registration statement and
such other documents, including a prospectus, as may be necessary in the
opinion of both counsel for the Company and counsel for the Underwriter and
Holders, in order to comply with the provisions of the Act, so as to permit a
public offering and sale of their respective Warrant Securities for twelve
(12) consecutive months by such Holders and any other holders of the Warrants
and/or Warrant Securities who notify the Company within ten (10) days after
receiving notice from the Company of such request.
(2) The Company covenants and agrees to give written notice of any
registration request under this Section (h) by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
(i) PIGGYBACK REGISTRATION. In the event that the demand registration
rights provided for in Section(h) have been exercised and fully complied with
by the Company, and at the end of the twelve (12) month registration period
provided for in Section (h) the Holders shall not have sold all of their
Warrants and/or Warrant Securities, then if at any time commencing one year
from the effective date of the registration statement and expiring four (4)
years thereafter, the Company proposes to register any of its securities under
the Securities Act of 1933, as amended (the "Act") (other than in connection
with a merger or pursuant to Form S-8, S-4 or other comparable registration
statement) it will give written notice by registered mail, at least thirty
(30) days prior to the filing of each such registration statement, to the
Holders and to all other Holders of the Warrants and/or the Warrant Securities
of its intention to do so. If the Holder or other Holders of the Warrants
and/or Warrant Securities notify the Company within twenty (20) days after
receipt of any such notice of its or their desire to include any such
securities in such proposed registration statement, the Company shall afford
each of the Underwriter and such Holders of the Warrants and/or Warrant
Securities the opportunity to have
6
<PAGE>
any such Warrant Securities registered under such registration statement.
Notwithstanding the provisions of this Section, the Company shall have
the right at any time after it shall have given written notice pursuant to
this Section (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the elective date thereof.
(j) COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section (h) or (i) hereof, the Company
covenants and agrees as follows:
(i) The Company shall use its best efforts to file a registration
statement within sixty (60) days of receipt of any demand therefor, shall use
its best efforts to have any registration statement declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell Warrant
Securities such number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and expenses
of Holder(s)'counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections (h), (i) and (j) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses. If
the Company shall fail to comply with the provisions of Section (j)(i), the
Company shall, in addition to any other equitable or other relief available to
the Holders), extend the Exercise Period by such number of days as shall equal
the delay caused by the Company's failure.
(iii) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as are reasonably requested by the Holders), provided that
the Company shall not be obligated to execute or file any general consent to
service of process to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(iv) The Company shall indemnify the Holders of the Warrant
Securities to be sold pursuant to any registration statement and each person,
if any, who controls such Holders within the meaning of Section 15 of the Act
or Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), from and against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become
subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 7 of the Underwriting Agreement relating to
the offering.
(v) The Holders of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of
the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage
or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending
7
<PAGE>
against any claim whatsoever) to which they may become subject under the Act,
the Exchange Act or otherwise, arising from information furnished by or on
behalf of such Holders, or their successors or assigns, for specific inclusion
in such registration statement to the same extent with the same effect as the
provisions contained in Section 7 of the Underwriting Agreement pursuant to
which the Underwriter has agreed to indemnify the Company.
(vi) The Holders may exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(vii) The Company shall not permit the inclusion of any securities
other than the Warrant Securities to be included in any registration statement
filed pursuant to Section (h) hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a registration
statement filed pursuant to Section (h) hereof, other than a secondary
offering of equity securities of the Company, without the prior written
consent of the Holders of the Warrants and Warrant Securities representing a
Majority of such securities (assuming an exercise of all the Warrants
underlying the Warrants).
(viii) The Company shall furnish to each Holder participating in
the offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (x) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (y) a "cold
comfort" letter dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(ix) The Company shall as soon as practicable after the effective
date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
(x) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and memoranda
described below and to the managing underwriters, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Holder and underwriter
to do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement as it
deems reasonably necessary to comply with applicable securities laws or rules
of the National Association of Securities Dealers, Inc. ("NASD") or an
Exchange. Such investigation shall include access to books, records and
properties and
8
<PAGE>
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times and as often as any such Holder or underwriter shall reasonably request.
(xi) The Company shall enter into an underwriting agreement with
the managing underwriters, which may be the Underwriter. Such agreement shall
be satisfactory in form and substance to the Company, and such managing
underwriters, and shall contain such representations, warranties and covenants
by the Company and such other terms as are customarily contained in agreements
of that type used by the managing underwriter; provided however, that no
Holder shall be required to make any representations, warranties or covenants
or grant any indemnity to which it shall object in any such underwriting
agreement. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Warrant Securities and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make
any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(xii) For purposes of this Agreement, the term " Majority" in
reference to the Holders of Warrants or Warrant Securities, shall mean in
excess of fifty (50%) of the then outstanding Warrants and Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
their family, persons acting as nominees or in conjunction therewith or (ii)
have not been resold to the public pursuant to a registration statement filed
with the Commission under the Act.
(k) CONDITIONS OF COMPANY'S OBLIGATIONS. The Company's obligation under
Section j hereof shall be conditioned as to each such public offering, upon a
timely receipt by the Company in writing of:
(A) Information as to the terms of such public offering furnished by or
on behalf of the Holders making a public distribution of their Warrant
Securities; and
(B) Such other information as the Company may reasonably require from
such Holder, or any underwriter for any of them, for inclusion in such
registration statement or offering statement or post-effective amendment.
(C) An agreement by the Holder to sell his Warrants and Warrant
Securities on the basis provided in the Underwriting Agreement.
(l) CONTINUING EFFECT AGREEMENT. The Company's agreements with respect
to the Warrant Securities in this Warrant will continue in effect regardless
of the exercise or surrender of this Warrant.
(m) NOTICES. Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in writing and
delivered personally or sent by certified mail, to the Holder, addressed to
him or sent to, Nutmeg Securities, Ltd. 495 Post Road East, Westport, CT
06880, or, if the Holder has designated, by notice in writing to the Company,
any other address, to such other address, and, if to the Company, addressed to
it at 216 Sixteenth Street, Denver, CO 80202. The Company may change its
address by written notice to Nutmeg
9
<PAGE>
Securities, Ltd.
(n) LIMITED TRANSFERABILITY. This Warrant Certificate and the Warrant
may not be sold, transferred, assigned or hypothecated for a one-year period
after the effective date of the Registration Statement except to underwriters
of the Offering referred to in the Underwriting Agreement or to individuals
who are either partners or officers of such an underwriter or by will or by
operation of law. The Warrant may be divided or combined, upon request to the
Company by the Warrant holder, into a certificate or certificates evidencing
the same aggregate number of Warrants. The Warrant may not be offered, sold,
transferred, pledged or hypothecated in the absence of any effective
registration statement as to such Warrant filed under the Act, or an exemption
from the requirement of such registration, and compliance with the applicable
federal and state securities laws. The Company may require an opinion of
counsel satisfactory to the Company that such registration is not required and
that such laws are complied with. The Company may treat the registered holder
of this Warrant as he or it appears on the Company's book at any time as the
Holder for all purposes. The Company shall permit the Holder or his duly
authorized attorney, upon written request during ordinary business hours, to
inspect and copy or make extracts from its books showing the registered
holders of Warrants.
(o) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Securities, or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the
public pursuant to Sections (h) or (i) hereof; unless counsel satisfactory to
the Company is of the opinion as to any such certificate that such legend, or
one similar thereto, is unnecessary:
"The warrants represented by this certificate are restricted securities
and may not be offered for sale, sold or otherwise transferred unless an
opinion of counsel satisfactory to the Company is obtained stating that such
offer, sale or transfer is in compliance wrath state and federal securities
law."
(p) APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Colorado, without giving eject to
conflict of law principles.
(q) ASSIGNABILITY. This Warrant may not be amended except in a writing
signed by each Holder and the Company.
(r) SURVIVAL OF INDEMNIFICATION PROVISIONS. The indemnification
provisions of this Warrant shall survive until May 28, 2004.
METEOR INDUSTRIES, INC.
a Colorado corporation
By:
---------------------------------------
Edward J. Names, President
Date:-------------
10
<PAGE>
Attest:
- ----------------------------------
- --------------, Secretary
---------------------------------------
11
<PAGE>
PURCHASE FORM
Dated ----------, 19--
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ------- shares of Common Stock and ----------- Redeemable
Warrants and hereby makes payment of $---------- in payment of the actual
exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name
--------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-----------------------------------------------------------------------
Signature
---------------------------------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED, --------------------------------------------------- hereby
sells, assigns and transfers unto
Name
--------------------------------------------------------------------------
(please typewrite or print in block letters)
Address
-----------------------------------------------------------------------
the right to purchase -------- shares of Common Stock and ------- Redeemable
Warrants as represented by this Warrant to the extent of shares of Common
Stock and Redeemable Warrants as to which such right is exercisable and does
hereby irrevocably constitute and appoint, ----------------------------
attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
Signature
---------------------------------------------------------------------
Dated: ------------, 19----
12
<PAGE>
EXHIBIT 10.25
AMENDED AND RESTATED AGREEMENT
BETWEEN CAPCO RESOURCES, INC. AND
SABA PETROLEUM COMPANY
This Agreement is made this 1st day of August 1996, between Capco
Resources, Inc. ("Capco"), a Delaware corporation, and Saba Petroleum Company
("Saba"), a Colorado corporation.
Whereas, Capco and Saba entered into a certain agreement on April 23,
1996, relating to Saba's participation in the Saba Power Project (as defined
below), and
Whereas, Capco and Saba desire to amend and restate the original
agreement pursuant to this Amended and Restated Agreement; and
Whereas, Capco entered into a Project Development and Shareholders'
Agreement dated June 2, 1995 (the "Shareholders' Agreement"), whereby it has
the right to participate in the Saba Power Project, a proposed 115 Megawatt
power plant to be located in Labore, Pakistan (the "Project"); and
Whereas, Capco Resources, Inc. has negotiated revisions to the
Shareholders' Agreement (see attached "Amended and Restated Project
Development and Shareholders' Agreement") allowing Capco to purchase
approximately an 8.0% interest in the Project for approximately $1,728,000 to
be paid as follows: approximately $500,000 shortly after filing the finalized
Project loan documents with the Government of Pakistan and approximately
$1,208,000 upon the signing of the ancillary documents required for the
Project participants to drawn down on the construction facility. Upon payment
of such sums, Capco shall have the option to purchase an additional 9.93% of
the Project, which would allow Capco to increase its interest in the Project
to a total f up to 17.93% upon the terms described in the Amended and Restated
Project Development Shareholders' Agreement (the "Option"); and
Whereas, Capco and Saba have negotiated terms pursuant to which Saba can
participate in the Saba Power Project;
In consideration of the mutual covenants and agreements contained
herein, it is hereby agreed among the parties as follows:
1) Saba will invest $500,000 in cash to buy an approximately 2.3%
interest in the Project. This interest shall not include any ownership or
right to participate in the Option.
2) If required, Capco shall hold Saba's interest in trust pursuant to a
written agreement until such time as it is determined that such interest can
be directly assigned to Saba without any detrimental effect to the parties
hereto or the project as a whole.
3) Actual percentage interest amounts described herein may change based
on any differences in the actual Project costs from what is reflected in the
Amended and Restated Project Development and Shareholders' Agreement attached
hereto.
4) Saba's total cash investment of $500,000 shall be paid as follows:
a) $250,000 upon the "true up" of the pre-operational out-of-pocket
development costs (which sum has already been paid by Saba); and b) the
balance of $250,000 when such
1
<PAGE>
funds are required to be paid pursuant to the Amended and Restated Project
Development and Shareholders' Agreement which is anticipated to be on or about
August 8, 1997.
5) If Saba fails to invest the amounts required above then Saba's
interest in the Project shall be reduced based on the amount invested. It is
understood that certain equity credits would be lost by both parties if such
funds are not paid in a timely manner.
6) This Agreement shall be governed by the laws of the State of
Colorado.
7) This Agreement may be signed in counterparts, each of which shall be
deemed an original and together shall constitute one and the same instrument.
8) This Agreement contains the entire agreement and understanding among
the parties hereto concerning the Project and supersedes all prior and
contemporaneous agreements, discussions, negotiations and understanding either
written or oral. No amendment or modification of any of the terms and
conditions contained herein shall be made except by a duly authorized written
agreement.
SABA PETROLEUM COMPANY CAPCO RESOURCES, INC.
By: /s/ Ilyas Chaudhary By: /s/ Edward J. Names
--------------------------- ---------------------------------
Ilyas Chaudhary, President Edward J. Names, President
2
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF OTHER NAMES UNDER
INCORPORATION OR WHICH SUBSIDIARY
NAME ORGANIZATION DOES BUSINESS
Graves Oil & Butane Co., Inc. New Mexico None
Hillger Oil Company New Mexico None
El Boracho, Inc. New Mexico None
Pyramid Stores, Inc. Colorado None
Capco Resources, Inc. Delaware None
Capco Analytical Services, Inc. California None
Meteor Holdings L.L.C. Colorado None
<PAGE>
EXHIBIT 23.2
COOPERS & LYBRAND
Coopers & Lybrand L.L.P.
370 17th Street, Suite 3300
Denver, Colordao 80202-5633
telephone 303/573-2800
facsimile 303/573-2902
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports dated May 31, 1996 and February 16, 1994, on our audits of the
financial statements of Meteor Industries, Inc. We also consent to the
reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Denver, Colorado
September 24, 1996
EXHIBIT 23.3
SQUIRE & WOODWARD, P.C.
Bruce W. Squire, C.P.A.
Marc A. Woodward, C.P.A.
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549
Gentlemen:
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement of Meteor
Industries, Inc., on Form S-1 of our report dated November 22, 1995, on the
financial statements of Meteor Industries, Inc., our report dated August 18,
1995, on the financial statements of of Hillger Oil Company, and our report
dated November 23, 1993, on the financial statements of Graves Oil & Butane
Co., Inc. We also consent to the reference to our firm under the caption
"Experts" in the Prospectus.
/s/ Squire & Woodward, P.C.
SQUIRE & WOODWARD, P.C.
September 19, 1996
2730 San Pedro NE., Suite D
Albuquerque, New Mexico 98110
tel: (505) 881-3408
fax: (505) 881-6507
------------------------------
American Institute of
Certified Public Accountants
EXHIBIT 23.4
PRICE WATERHOUSE
Chartered Accountants
1200 425 - 1st Street, S.W.
Calgary, Alberta T2P 3V7
403/267-100
telecopier: 403/233-0883
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 17, 1995 relating
to the financial statements of CAPCO Resources Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus
/s/ Price Waterhouse
Chartered Accountants
September 20, 1996
