<PAGE>
As filed with the Securities and Exchange Commission on May 7, 1997
SEC Registration No. 333-12557
U.S. SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 2 TO
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.
Krys Boyle Freedman Scott & Sawyer, P.C. Lynnfield Woods Office Park
600 Seventeenth Street, Suite 2700 220 Broadway, Suite 204
South Tower Lynnfield, Massachusetts 01940
Denver, Colorado 80202 (617) 593-4525
(303) 893-2300
_____________________________________________________________________________
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
<PAGE>
Redeemable 690,000<FN4> $0.10 $ 69,000 $ 23.79
Warrants Warrants Per Warrant
Common Stock, 690,000 $6.0125 $4,148,625 $1,430.56
$.001 Par Value Shares Per Share
<FN5>
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
Redeemable Warrants Per Warrant
Warrants
<FN8>
Common Stock 60,000 $6.0125 $ 365,500 $ 126.03
$.001 Par Value Shares Per Share
<FN9>
Total $8,128,850 $2,803.04
<FN10>
- -----------------------------------------------------------------------------
<FN>
<FN1>
Estimated solely for the purpose of calculating the registration fee.
<FN2>
Includes 90,000 Shares that may be purchased by Westport Resources Investment
Services, Inc. (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.
<FN7>
To be issued to the Underwriter.
<FN8>
Issuable upon exercise of the Underwriter's Warrants.
<FN9>
Issuable upon exercise of Underwriter's Redeemable Warrants.
<FN10>
$2,949.78 was paid at the time of the initial filing. The total fee shown is
reduced as a result of the elimination of the registration of 92,000 shares of
Common Stock which was to have been sold by selling shareholders.
</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.
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 Not Applicable
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 Business - Legal Proceedings
(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 MAY 7, 1997
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
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 _______, 1999. 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 May 6, 1997, the closing bid and ask prices of
the Common Stock were $4.50 and $5.25, respectively. (See "PRICE RANGE OF
COMMON STOCK.") The Common Stock and Redeemable Warrants have been approved
for listing on the American Stock Exchange ("AMEX") under the proposed symbols
"MTE" and "MTEW", respectively. It is currently anticipated that the offering
price per share will be between $5.00 and $6.00. The final offering price of
the Shares will be determined by negotiations between the Company and Westport
Resources Investment Services, Inc. (the "Representative") 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.")
__________________
THESE ARE SPECULATIVE SECURITIES. AN INVESTMENT IN THE SECURITIES
OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
___________________
<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-allotment Option is exercised in full) to the Representative, of which
$20,000 has been paid as of the date of this Prospectus, and (ii) the sale to
the Representative by the Company of a warrant (the "Representative's
Warrants") to purchase 60,000 shares of Common Stock at $____ per share and
60,000 Redeemable 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 Representative against certain liabilities, including
liabilities arising under the Securities Act of 1933. (See "UNDERWRITING.")
<FN2>
Before deducting expenses payable by the Company estimated at $239,000,
including the non-accountable expense allowance referred to in footnote 1.
<FN3>
The Company has granted to the Representative 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>
Westport Resources Investment Services, Inc.
315 Post Road West
Westport, Connecticut 06880
The date of this Prospectus is _________, 1997.
2
<PAGE>
(INSIDE FRONT COVER)
(Picture of convenience store)
(METEOR INDUSTRIES, INC. LOGO)
(Picture of convenience store)
Convenience Stores, Las Cruces, NM
3
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS 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.
The Securities are being offered on a "firm commitment" basis subject to
receipt and acceptance by the Underwriters, the approval of certain legal
matters by its counsel and prior sale. The Underwriters reserve 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 Westport Resources Investment Services, Inc., in
Westport, Connecticut.
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. 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 nine convenience stores
in southern New Mexico. The Company sells fuel branded Phillips 66, Conoco,
Texaco, Diamond Shamrock and FINA.
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 and was also acquired in the transaction
with CRI.
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>
<TABLE>
<CAPTION>
<S> <C>
Securities offered 600,000 Shares of Common Stock
600,000 Redeemable Warrants
Shares of Common Stock
Outstanding:
Prior to the offering<FN1> 3,440,138 Shares
After the offering<FN1><FN2> 4,040,138 Shares
Trading Symbol - OTC Bulletin
Board METE
Proposed AMEX Trading Symbols:
Common Stock MTE
Redeemable Warrants MTEW
__________________
<FN>
<FN1>
Does not include (i) 7,000 shares of Common Stock issuable upon the exercise
of outstanding warrants to purchase Common Stock; (ii) up to 896,911 shares of
5
<PAGE>
Common Stock of the Company issuable upon the exchange of Preferred Stock of a
subsidiary; (iii) 1,250,000 shares of Common Stock reserved for issuance
pursuant to stock options which may be granted under the Company's Incentive
Stock Option Plan and its 1997 Incentive Equity Plan of which options to
purchase 413,300 shares of Common Stock are currently outstanding; or (iv)
130,000 shares of Common Stock issuable upon the exercise of an option held by
consultants. (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 Representative'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 December 31
1996 1995 1994 1993 1992
------- ------- ------ ----- -----
Current Assets $ 8,488 $ 6,708 $ 126 $ -- $ --
Property and Equipment 8,277 8,568 250 -- --
Other Assets 3,669 3,273 164 -- --
Discontinued Operations -- -- 572 660 (28)
Total Assets 20,434 18,549 1,112 660 (28)
Current Liabilities 8,943 6,921 403 -- --
Long-term Debt 446 2,195 -0- -- --
Deferred Tax Liability 1,773 1,894 -0- -- --
Minority Interest 4,152 3,615 -0- -- --
Stockholders' Equity 5,120 3,924 709 660 (28)
6
<PAGE>
STATEMENT OF OPERATIONS DATA:
(In Thousands, Except Per Share Data)
INCEPTION TO
FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1993 1992
--------- ------- --------- --------- ------------
Sales $ 59,984 $ 9,828 $ 473 $ -0- $ -0-
Cost of sales 49,644 7,373 -0- -0- -0-
Operating Expenses 9,119 2,395 602 2 -0-
Other income
(Expense) (79) (71) -0- -0- -0-
Income(loss) from
continuing
operations 462 (74) (129) (2) -0-
Income from discon-
tinued operations -0- 1,871 179 690 765
Net income 462 1,796 49 688 765
Net income(loss) from
continuing opera-
tions per common
share .15 (.15) (1,295.32) (22.82) -0-
Net income per
common share $ 0.15 $ 3.67 $ 489.95 $6,883.42 $7,652.20
Weighted average
shares
outstanding 3,184,397 489,035 100 100 100
Cash dividends $ -0- $ -0- $ -0- $ -0- $ -0-
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. 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.
7
<PAGE>
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.
3. 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.
4. 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.
5. 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.
6. 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 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
<PAGE>
7. PAKISTAN POWER PROJECT. Due to general political and economic
instability in Pakistan, the Company's investment of approximately $685,000 in
Saba Power Company Ltd. may not yield any return to the Company. (See
"Business - Saba Power Company Ltd.)
8. CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS. Management and
principal shareholders will beneficially own 75.8% 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 or the repayment of debt.
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.
13. ENVIRONMENTAL ISSUES. 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
9
<PAGE>
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 OF 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.
RISK OF 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.
14. OUTSTANDING OPTIONS AND WARRANTS. Currently, the Company has
outstanding options and warrants to purchase up to 550,300 shares of Common
Stock at prices ranging from $1.00 to $5.25 per share, and has the ability to
grant options to purchase 836,700 additional shares under its Incentive Stock
Option Plan and its 1997 Incentive Equity Plan. Additionally, the Company has
agreed to sell to the Representative and its designees Representative's
Warrants to purchase up to 60,000 shares of Common Stock and 60,000 Redeemable
Warrants exercisable during the four year period commencing one year from the
date of this Prospectus at $_____ per share of Common Stock and $____ per
Redeemable Warrant, subject to adjustment. The Representative will have
certain registration rights with respect to the Representative'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.
10
<PAGE>
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. POTENTIAL SECURITIES LAW LIABILITIES FOR PRIVATE OFFERING. During
February and March 1997, the Company sold 130,000 shares of its Common Stock
and warrants to purchase 130,000 shares of Common Stock to 16 accredited
investors for a total of $520,000 in a private offering. Because such sales
were made at a time when the Registration Statement relating to this public
offering was on file with the SEC, the private sales might be considered to e
"integrated," or part of the same offering as this public offering. The
Company does not believe that the two offerings would be integrated for
several reasons, one of which is that the proceeds of the offerings are to be
used for different purposes. However, if it was determined that the two
offerings were to be integrated, the sales to the private investors should
have been registered under the Securities Act of 1933, as amended, because
they were part of a "public offering." As a result, if the persons who
purchased the shares in February and March 1997 were to bring a legal action
against the Company alleging violation of the securities laws and were to be
successful, then the Company could be held liable to those persons for up to
the full amount of the purchase price ($520,000) plus interest. No legal
actions have been threatened or are pending with respect to this matter. If
any such legal actions should be brought against the Company, the Company
intends to vigorously maintain a defense against such actions.
16. 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 896,911 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.")
17. COMMON STOCK ELIGIBLE FOR RESALE. Of the 3,440,138 shares of Common
Stock outstanding as of the date of this Prospectus, approximately 2,967,000
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 2,837,000 shares are presently eligible
for resale under Rule 144 and the remaining 130,000 shares will be eligible
for sale in February and March of 1998. 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 2,598,371 shares of Common Stock currently
owned by them (including shares underlying their stock options which are
currently exercisable or exercisable within 60 days), for a period of one year
from the date of this Prospectus without the prior written consent of the
Representative. The Company has agreed to use reasonable efforts to register
640,000 shares of restricted Common Stock for resale by the holders thereof,
and the Company may file such registration statement within three to nine
months after the date of this Prospectus. The Company also intends to file an
S-8 registration statement which would register the shares of Common Stock
issuable on the exercise of stock options granted under the
11
<PAGE>
Company's stock option plans, which would allow the resale of such shares.
(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.
18. POSSIBLE VOLATILITY OF PRICE OF SHARES. The price of shares of
publicly-traded corporations tend to fluctuate over a wide range. It can be
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.
19. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS. This Prospectus contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act which are intended to be covered by the safe harbors created
thereby. These statements include the plans and objectives of management for
future operations, including plans and objectives relating to (i) petroleum
marketing and (ii) acquisitions and financing. The forward-looking statements
included herein are based on current expectations that involve numerous risks
and uncertainties. Although the Company expects to operate its petroleum
marketing business, and make acquisitions with financing from major oil
companies, there can be no assurance that competitive conditions within the
industry will not change materially or adversely, and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions and future business
decisions, all of which are difficult or impossible to predict accurately and
many of which are beyond the control of the Company. Although the Company
believes that the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements included in this
Prospectus will prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by
the Company of any other person that the objectives and plans of the Company
will be achieved.
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 in June, 1993
and finalized the purchase in September, 1993. The purchase price for the
common stock was $4,100,000, which was paid $1,750,000 in the form of cash to
Seller and the discharge of certain of his obligations at closing and
$2,350,000 in the form of a promissory note payable over the following four
years. 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.
12
<PAGE>
On June 12, 1995, Meteor purchased all of the outstanding shares of
Hillger Oil Company ("Hillger") headquartered in Las Cruces, New Mexico. This
acquisition doubled Meteor's gasoline sales and improved cash flows. Hillger
operates nine convenience stores and supplies 22 branded dealers in New
Mexico. Graves operates seven retail sites and supplies 42 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.
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.
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 52.7% 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 when
acquired by Meteor included: (i) an interest in Saba Power Company Ltd., which
is one of the developers 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 receivable from Saba Petroleum Company
and other miscellaneous assets. Since November 1995, CRI has focused most of
its efforts on the financing of Saba Power Company Ltd. All of CRI's assets,
other than the power project, have now been transferred out of CRI and into
Meteor.
The Company's headquarters are located at 216 Sixteenth Street, Suite
730, Denver, Colorado 80202, and its telephone number is (303) 572-1135.
PRICE RANGE OF COMMON STOCK
The principal market for trading Meteor'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 Meteor's Common Stock since
public trading began in January 1994 provided below were obtained from the
National Quotation Bureau. Beginning in the second quarter of 1995, the
information shown is for closing bid quotations. The stock is principally
owned or controlled by Officers and Directors of Meteor, and the bid prices
reported may not be indicative of the value of the Common Stock. The volume
of trading in Meteor'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.
13
<PAGE>
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
Quarter Ended September 30, 1996. . . . $4.25 $2.87
Quarter Ended December 31, 1996 . . . . $5.87 $3.62
__________________
* 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 March 28, 1997, there were approximately 68 record holders of the
Company's Common Stock. Based on securities position listings, the Company
believes that there are approximately 265 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. 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.
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 for 1995 are included in
the following financial information since November 2, 1995, the effective date
of the acquisition.
14
<PAGE>
BALANCE SHEET DATA: (In Thousands)
At December 31
1996 1995 1994 1993 1992
------- ------- ------ ---- ----
Current Assets $ 8,488 $ 6,708 $ 126 $ -- $ --
Property and Equipment 8,277 8,568 250 -- --
Other Assets 3,669 3,273 164 -- --
Discontinued Operations -- -- 572 660 (28)
Total Assets 20,434 18,549 1,112 660 (28)
Current Liabilities 8,943 6,921 403 -- --
Long-term Debt 446 2,195 -0- -- --
Deferred Tax Liability 1,773 1,894 -0- -- --
Minority Interest 4,152 3,615 -0- -- --
Stockholders' Equity 5,120 3,924 709 660 (28)
STATEMENT OF OPERATIONS DATA:
(In Thousands, Except Per Share Data)
INCEPTION TO
FOR THE YEARS ENDED DECEMBER 31, DECEMBER 31,
----------------------------------------- ------------
1996 1995 1994 1993 1992
--------- -------- --------- --------- ------------
Sales $ 59,984 $ 9,828 $ 473 $ -0- $ -0-
Cost of sales 49,644 7,373 -0- -0- -0-
Operating Expenses 9,119 2,395 602 2 -0-
Other income(expense) (79) (71) -0- -0- -0-
Income(loss) from con-
tinuing operations 462 (74) (129) (2) -0-
Income from discon-
tinued operations -0- 1,871 179 690 765
Net income 462 1,796 49 688 765
Income(loss) from con-
tinuing operations
per common share .15 (.15) (1,295.32) (22.82) -0-
Net income per
common share $ 0.15 $ 3.67 $ 489.95 $6,883.42 $7,652.20
Weighted average
Shares
outstanding 3,184,397 489,035 100 100 100
Cash dividends $ -0- $ -0- $ -0- $ -0- $ -0-
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.
15
<PAGE>
The selected financial information should be read in conjunction with the
historical financial statements and notes thereto of Meteor, included
elsewhere in this document.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $842,000 for the year
ended December 31, 1996 compared to $2,101,000 for the year ended December 31,
1995. The decrease in cash provided is primarily related to the decrease in
net income.
As of December 31, 1996, the Company had a working capital deficit of
$455,000 compared to a working capital deficit of $214,000 at December 31,
1995. The decrease in the working capital is due primarily a long term debt
becoming current.
Net cash used by investing activities totaled $923,000 for the year ended
December 31, 1996, compared to cash used of $1,379,000 for the year ended
December 31, 1995. The reduction is a result of the fact that the Company has
loans to related parties of $1,516,000 in 1995 and only made loans to related
parties of $68,000 in 1996. This was partially offset by purchases of
property and equipment and investment in CRI and in Coors Pyramid L.L.C. 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 $138,000 for the year
ended December 31, 1996 compared to a use of $629,000 for the year ended
December 31, 1995. The decrease in cash used is primarily related to sale of
stock of $734,000.
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 December 31, 1996, $1,861,000 and $280,000 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. The
Company was also in default of the net worth requirements for one of the
subsidiaries. The lender waived these defaults.
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. The balances at December 31, 1996, were $212,000 and $187,000,
respectively. The loans are collateralized by real estate and buildings and
equipment and require approximately $29,000 per month in payments.
At December 31, 1996, the Company owned 50% of a limited liability
company which in June, 1996, acquired a convenience store for $610,000 using
financing from Phillips 66. The balance of the loan at December 31, 1996 was
$505,000. The Company is a co-signer on this loan which has a term of 10
years. The Company records its investment using the equity method, which
reflects only the Company's share of the net worth of the LLC.
The Company owns 100% of a limited liability company which in December,
1996, acquired a convenience store for $415,000 using seller financing of
$315,000. The loan has quarterly payments of $14,326 and a term of 7 years.
16
<PAGE>
A subsidiary of the Company has preferred stock outstanding which
requires no periodic payments but accrues an 8% dividend and must be redeemed
for $3,543,000 plus accrued dividends at the holder's 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 $1,759,139
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 $650,000 will be offset by payments on notes receivable from
the founder also due October 1, 1997. The Company plans to pay this debt by
either selling or refinancing one of its convenience stores.
The Company is obligated to pay lease costs of approximately $66,000
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.
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.
17
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 TO DECEMBER 31, 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 discussion for comparisons is limited because the
historical accounts for 1995 reflect only two months of revenue and expense
for Meteor due to the reverse acquisition by CRI in November, 1995, while 1996
reflects a full year of operations for Meteor.
The Company's sales for the year ended December 31, 1996, were
$59,984,000 compared to $9,828,000 for the comparable period ending December
31, 1995. The increase in revenues is due to increases in gasoline volumes
and prices at the retail level. Sales are expected to be relatively constant
next year assuming no significant acquisitions are made.
The Company's cost of sales for the year ended December 31, 1996, were
$49,644,000 compared to $7,373,000 for the comparable period ended December
31, 1995. The increase in costs of sales is due to an increase in sales as
discussed above.
The Company's gross profit for the year ended December 31, 1996, was
$10,340,000 compared to $2,455,000 for the comparable period ended December
31, 1995. The increase is partially 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
$8,269,000 for the year ended December 31, 1996, compared to $2,244,000 for
the comparable period ended December 31, 1995. The increase in expenses is
related to combining the operations of Hillger, Graves and CRI. As a
percentage of sales general and administrative expenses declined from 23% to
14% reflecting benefits of combining the companies.
The Company's depreciation for the year ended December 31, 1996, was
$850,000 compared to $152,000 for the comparable period ended December 31,
1995. The increase in depreciation expense is due primarily to acquisition of
buildings and equipment.
The Company's other expenses for the year ended December 31, 1996 was
$79,000 compared to $71,000 for the comparable period ended December 31, 1995.
The reasons for the decrease are primarily related to an increase in interest
income, a increase in interest expense, and sales of assets this year.
The Company's provision for income taxes for the year ended December 31,
1996, was $395,000 compared to $(1,470)for the comparable period ended
December 31, 1995. This increase is due to more income. The expected tax
provision based on statutory rates would have been $446,000. The variance
from the effective rate is principally due to benefit of the loss
carryforward.
The Company's income from continuing operations for the year ended
December 31, 1996, was $462,000 compared to a loss from continuing operations
of $74,000 in the prior year due to the above described items.
18
<PAGE>
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994
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.
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. 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 inclusion of Meteor's gross profits for the two
months ended December 31, 1995.
The Company's selling, general and administrative expenses were
$2,224,000 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.
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.
In 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.
In 1995, CRI transferred to Capco Resources, Ltd. and 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.
The income from discontinued operations was $441,197 and the gain on
disposition, net of taxes was $1,429,256 for the year ended December 31, 1995.
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
$2,515,000 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>
19
<PAGE>
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> 1,515,000
----------
Total $2,515,000
__________________
<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 December 31, 1996, $1,861,189 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 December 31, 1996, $1,759,139 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 enhance
its current business through capital expenditures (See "BUSINESS -- Petroleum
Marketing")
</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 and 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.
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 Meteor Holdings LLC and Capco Resources, Inc. ("CRI")
subsidiaries, the Company has an interest in Saba Power Company Ltd., which is
in the process of building a power project in Pakistan.
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PETROLEUM MARKETING BUSINESS AND OPERATIONS
The Company operates its petroleum marketing and convenience store
business primarily from its Farmington, Albuquerque and Las Cruces, New Mexico
offices. The Company operates this business through Pyramid Stores, Inc. and
its two New Mexico subsidiaries, Hillger Oil Company and Graves Oil & Butane
Co., Inc.
The commercial/wholesale operations are the largest part of the Company's
business. This operation has fuel delivery agreements with customers that
include truck stops, retail gasoline service stations, convenience stores,
construction companies, commercial fleet distribution centers, the federal
government, mining companies, and utilities.
The wholesale operation has distributor agreements with Phillips
Petroleum Company, Sun Oil Company, Conoco, Inc., Texaco, Inc., Diamond
Shamrock Corp. and Fina Oil Company. These distributor agreements allow the
Company to purchase petroleum products at wholesale prices directly from
pipeline terminals and refineries controlled by these large oil
producer/refiners. The Company is then authorized to resell those products to
its customers.
The distribution agreements have three-year terms and the Company has one
to two years remaining on its agreements with its primary suppliers, Phillips
66 and 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 larger and longer standing wholesale distributors
of Conoco and Phillips products in New Mexico, it is possible the Company
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 oil company brand with which it has
a contract. The Company could also buy and sell fuel as an unbranded
independent, however, sales volumes and/or margins would likely decrease
materially if the Company did not have access to branded products.
Many of the Company's wholesale 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, such as the Company 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 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 11 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 wholesale revenues come from repeat telephone orders from
existing customers. The Company also advertises in trade journals and attends
industry trade shows in its market.
The Company's wholesale 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 wholesale 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 completed in two days or less.
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<PAGE>
Most of the Company's wholesale 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 wholesale customers could have a
significant impact on the Company's revenues.
The Company's retail operations consist of ownership or leasehold
interests in 22 retail outlets which include service stations, convenience
stores and lube pits. Sixteen outlets are operated by the Company and six are
leased or subleased to third parties. The retail operation represents a
potential growth area for the Company.
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 sell food and tobacco products as a convenience to their
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.
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 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 retail and commercial propane operations. In
November 1993, Graves reentered the residential propane markets 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 rural areas around Farmington 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 over
350 residential and over 200 commercial propane customers 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 the
Company, through its subsidiary CRI, is a party. The Company has an interest
in Saba Power, which has a power plant project 40 miles from Lahore, Pakistan.
The Company has two unrelated joint venture partners, Cogen Technologies of
Houston, Texas ("Cogen") and Coastal Saba Power Ltd. ("Coastal"). Estimated
costs for the 125 megawatt plant are approximately $150,000,000. 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
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<PAGE>
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 was finalized on or prior to March 4, 1997. Limited
activities related to the construction of the project were commenced in late
August of 1996 but were suspended in October. Construction activity is again
underway and although there can be no assurances, the project is expected to
be completed in approximately two years.
At December 31, 1996, the Company, had invested $683,162 in Meteor
Holdings LLC ("MHL") MHL owns an equity interest in Saba Power Company, Ltd.
(the "Power Project") through its ownership of CRI. The investment in the
Power Project is reported using the cost method. The Company also entered
into an agreement with Saba Petroleum Company ("Saba") whereby Saba, a related
party, participated in the Power Project. Saba invested $250,000 in MHL
resulting in MHL's total investment of $933,162 in the Power Project. Saba
owns a .5% interest in the Power Project through its ownership of 27% of MHL.
The Company owns 1.5% of the Power Project through its ownership of 73% of
MHL. Saba's .5% interest in the project is subject to the same terms and
conditions as the Company's 1.5% interest. These percentages, however, could
be reduced in the event that other shareholders of Saba Power are required to
make additional contributions to equity.
MHL has obtained the right to sell its interest in Saba Power to an
affiliate of one of the other shareholders for approximately the amount of its
contribution on October 26, 1997, for a period of 120 days. The Company's
investment in the Power Project is not expected to provide any significant
cash flow to the Company for at least three to four years. Further, if during
the next 2-3 years certain enhancements to the Power Project contracts are not
obtained from the Government of Pakistan, cash flow from the Power Project
will not be earned by or distributed to the Company.
During 1996, Saba Power Company Ltd. and the shareholders thereof,
including the Company, completed the final negotiations with the project's
construction lender and the engineering procurement and construction
contractor was given a limited release to commence construction activities on
the project, which was subsequently suspended. On March 4, 1997, all required
equity capital was fully subscribed and paid by the partners in the form of
cash or letters of credit; all documentation fees were paid to the Government
of Pakistan; and the construction contractor was given a full release. All
required consents were obtained from the Government of Pakistan, and all
defaults were cured. Due to the changing political climate in Pakistan and the
economic risks involved, the Company's management decided not to invest
additional capital in the project. All debt and equity financing for the
Power Project was completed on March 4, 1997, in the total amount of over
$150,000,000.
In connection with this transaction, the Company's co-developer Cogen
Technologies agreed to pay a consulting fee for services provided in 1996, to
the founding partners, of which MHL's share totals $400,000 with the possi-
bility of receiving up to an additional $350,000 over a three year period if
certain contract enhancements are obtained from the Government of Pakistan;
however, there can be no assurance that such enhancements can or will be
obtained. MHL incurred approximately $124,000 in expenses to outside sources
in providing these consulting services. The Company's share of the $276,000
in net revenues totals $200,000 by virtue of its 73% ownership of in MHL.
The Company is not required to invest any additional capital related to
the Power Project. If costs of the project exceed budget and capital is
required
23
<PAGE>
then the Company will have the choice of investing more capital or suffering
ordinary dilution to its ownership interest without incurring any penalties.
ENVIRONMENTAL CONSULTING
Capco Analytical Services Inc.("CAS") is an environmental consulting
company and analytical laboratory located in California. CAS provides
environmental consulting services to its customers throughout the Western
United States including other subsidiaries of Meteor. In addition, CAS may
expand the scope of its present activities to include the possible acquisition
of properties in need of remediation and development. After purchasing a
property, CAS would then arrange for remediation services to be performed.
After remediation is complete, the property could be developed by CAS or sold
to a developer. CAS intends to fund these projects at least partially with
project capital raised through partnerships and/or other private investment
vehicles.
In August of 1996, the company acquired Innovative Solutions and
Technologies, Inc. ("IST"), a small Colorado corporation, which provides
environmental consulting services. IST was acquired for a nominal cash
consideration. Through its president and sole employee, IST provides
consulting services to outside clients as well as Meteor and its affiliates.
INSURANCE
The Company has a commercial liability policy and an umbrella policy, 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 AND MARKETS
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 division also competes 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
companies and petroleum products distribution companies, distribute petroleum
products through a larger number of facilities than the Company.
The wholesale and commercial 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
24
<PAGE>
convinced to change the "brand" of the station (i.e., convert a station or
store from Texaco to Phillips 66). 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 segment of the 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 Giant and other major oil companies that own and operate their
own stores in the Company's market areas such as Texaco and Phillips 66. 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.
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.
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 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. There can be no assurance
that the New Mexico fund will have sufficient capital, or will agree, to fund
remediation of any particular problem.
25
<PAGE>
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 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
26
<PAGE>
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 permits 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 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.
27
<PAGE>
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 160 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. Also, in
Farmington, New Mexico, the Company owns two additional gasoline stations, two
fast lube pits, one car wash, and one cardlock location. The lube pits and
car wash are leased to an unaffiliated third party, the Company operates three
additional cardlock/retail locations 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. The carwash and quick lube pit
are leased to an unaffiliated third party. 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.
Through joint ventures, the Company owns 50% of a 1,800 square foot
convenience store and a one acre undeveloped convenience store site.
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<PAGE>
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 owns one retail outlet in Truth or Consequences, New Mexico that
it leases to an unaffiliated third party. The Company owns a 3,000 square
foot convenience store located in Hatch, New Mexico.
The Company leases a truck stop in Cortez, Colorado from an affiliated
party and subleases the property to an unaffiliated truck stop operator.
The Company's CAS subsidiary 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.
LEGAL PROCEEDINGS
The Company is a party to certain litigation that has arisen in the normal
course of its business and that of its subsidiaries. In the opinion of
management, none of this litigation is likely to have a material effect on the
Company's financial position or results of operations, except that as of the
date of this Prospectus, the Company has agreed to an out of court settlement
with one of its former insurers whereby such insurer has agreed to pay the
Company approximately $550,000 after payment of the Company's costs and
attorney's fees. The Company expects to receive such payment during May 1997.
<R/>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITIONS AND OFFICES HELD
--------------- --- -----------------------------------------------
Edward J. Names 45 President and Director
Ilyas Chaudhary 49 Chairman, Chief Executive Officer and Director
Dennis R. Staal 48 Secretary/Treasurer and Director
Paul W. Greaves 44 President of Subsidiaries
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 and its major subsidiaries, 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
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<PAGE>
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 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. From June, 1992 to September, 1996, Mr. Staal was 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.
PAUL W. GREAVES - President and Chief Executive Officer of the sub-
sidiaries. Mr. Greaves has been the President and Chief Executive Officer of
the following subsidiaries: Pyramid Stores, Inc. and its subsidiaries, Graves
Oil & Butane Co., Inc. and Hillger Oil Company since in April, 1996. Prior to
working for the Company, Mr. Greaves held the position of Regional Manager,
Rocky Mountain Region, for Propane Continental of Overland Park, Kansas, from
April 1994 to April 1996. From 1989 until 1994, Mr. Greaves was Director of
Business Development for the Wescourt Group of Denver, Colorado, a petroleum
marketing and
30
<PAGE>
distribution holding company. Mr. Greaves devotes his full time to the
business of the Company's subsidiaries described above.
EXECUTIVE COMPENSATION
The following information regarding the executive compensation for the
Company's Chief Executive Officer and President for the fiscal years ended
December 31, 1996, 1995 and August 31, 1994. 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 Re- Underlying All
Annual stricted 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>
Ilyas Chaudhary 1996 $ -0- -- -- -- -- -- --
Chairman of 1995 $ -0- -- -- -- 100,000 -- --
Board and
Chief Executive
Officer
Edward J. Names 1996 $101,250 -- -- -- -- -- $5,040
President 1995 $ 78,000 -- -- -- 100,000 -- $4,512*
1994 $ 62,769 -- -- -- -- -- $3,384*
__________________
* Represents premiums paid on health insurance policies for Mr. Names.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS SARs MONEY OPTIONS/
ON AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------- -------- -------- ------------- ----------------
Ilyas Chaudhary -0- -0- 33,333/66,667 $63,541/$127,084
Edward J. Names -0- -0- 33,333/66,667 $63,541/$127,084
EMPLOYMENT ARRANGEMENTS
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
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.
31
<PAGE>
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.
PAUL W. GREAVES entered into a three year employment agreement with the
Company's subsidiary, Pyramid Stores, Inc. ("Pyramid") which became effective
in April of 1996. Mr. Greaves is required to devote full time to the business
of Pyramid and its subsidiaries; Graves Oil & Butane Co., Inc. and Hillger Oil
Company. The agreement calls for a base salary of $80,000 per year plus an
annual bonus of 5% of any increases in earnings before interest, taxes,
depreciation and amortization of Pyramid and its subsidiaries from the prior
year. The Company may terminate Mr. Greaves's employment at any time, without
cause and be obligated for only six months base salary and accrued but unpaid
bonuses. The employment agreement includes a covenant not to compete which is
effective for two years after termination of employment.
STOCK OPTION PLAN
A stock option plan providing for the issuance of incentive stock options
and non-qualified stock options to Meteor's employees was approved by Meteor's
shareholders on April 15, 1993. Pursuant to the Plan, 500,000 shares of
Meteor's $.001 par value Common Stock have been reserved for issuance. On
October 1, 1993, incentive stock options were granted to employees. As of
December 31, 1996, out of these options, options to purchase 41,000 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 December 31, 1996, out of these options, options to purchase
31,300 shares were outstanding (after deducting options which expired as a
result of termination of employment). 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
Meteor, and C. Thomas Houseman, a former Director of Meteor, 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 Meteor's Common Stock,
and Dennis R. Staal, Secretary/Treasurer of the Company, to purchase 15,000
shares of Common Stock. These options are exercisable at $3.50 per share and
vest over
32
<PAGE>
a period of three years on a pro rata annual basis following the date of
grant.
In May of 1996, the Board of Directors granted options to Paul W. Greaves
to purchase 50,000 shares of Meteor's Common Stock. These options are
exercisable at $3.50 per share and vest on a pro rata annual basis over five
years. These options expire five years after the date of grant.
In May of 1996, stock options were granted to two employees to purchase
an aggregate of 55,000 shares of Meteor'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. As of the
date of this prospectus only 5,000 of such options remain outstanding.
On January 2, 1997, Meteor granted options to four employees to purchase
an aggregate of 20,000 shares of Common Stock at $5.07 per share. These
options vest over five years and expire on January 2, 2002.
On February 14, 1997, Meteor granted an option to Dennis R. Staal,
Secretary and Treasurer of Meteor, to purchase 25,000 shares of Common Stock
at $3.50. Also on February 14, 1997, Meteor granted an option to the
president of IST, one of Meteor's subsidiaries, to purchase 5,000 shares of
Common Stock at $3.50 per share. These options vest over three years on a
annual basis and expire five years from the date of grant.
INCENTIVE EQUITY PLAN
The Board of Directors adopted the 1997 Incentive Equity Plan of the
Company (the "Incentive Plan") on January 2, 1997, subject to approval by the
Stockholders of the Company at the next Annual Meeting.
The purpose of the Incentive Plan is to enable the company to attract
officers and other key employees and consultants and to provide them with
appropriate incentives and rewards for superior performance. The Incentive
Plan affords the Company the ability to respond to changes in the competitive
and legal environments by providing the Company with greater flexibility in
key employee and executive compensation than was available through the
previously approved plan or individual stock option agreements. This plan is
designed to be an omnibus plan allowing the Company to grant a wide range of
compensatory awards including stock options, stock appreciation rights,
restricted stock, deferred stock and performance shares or units. The
Incentive Plan is intended to encourage stock ownership by recipients by
providing for or increasing their proprietary interests in the Company,
thereby encouraging them to remain in the Company's employment. The Incentive
Plan has been prepared to comply with all applicable tax and securities laws,
including Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and state and federal tax laws.
Subject to adjustment as provided in the Incentive Plan, the number of
shares of Common Stock that may be issued or transferred, plus the amount of
shares of common Stock covered by outstanding awards granted under the
Incentive Plan, shall not in the aggregate exceed 750,000. The number of
Performance Units granted under the Incentive Plan shall not in the aggregate
exceed 200,000. The number of shares of Common Stock granted under the
Incentive Plan to any individual in any calendar year shall not in the
aggregate exceed 100,000.
To the date of this report, no options, awards or other benefits have
been granted under the Incentive Plan.
33
<PAGE>
CONSULTANTS' OPTIONS
In November 1995, Meteor granted an option to a consultant to purchase a
total of 100,000 shares of Meteor's Common Stock. This option was exercisable
at $2.50 per share, but expired unexercised on January 31, 1997.
On February 14, 1997, Meteor granted options to three consultants to
purchase an aggregate of 130,000 shares of Meteor's Common Stock. These
options are exercisable at $3.50 per share and expire on February 13, 1998.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 25, 1997, 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> 50.7% 43.2%
#950, 444 - 5th Avenue, S.W.
Calgary, Alberta CANADA T0P 2T8
Edward J. Names 333,973<FN2> 9.7% 8.2%
216 - 16th Street, Suite 730
Denver, CO 80202
Ilyas Chaudhary 1,778,333<FN3> 51.7% 43.7%
#950, 444 - 5th Avenue, SW
Calgary, Alberta CANADA TOP 2T8
Dennis R. Staal 92,765<FN4> 2.7% 2.3%
216 - 16th Street, Suite 730
Denver, CO 80202
Adres Chaudhary 378,000 11.0% 9.4%
600 Hunter Trail, Suite #4
Glendora, CA 91740
Theron J. Graves 767,711<FN5> 22.2% 22.2%
761 South Miller
Farmington, NM 87499
All Executive Officers and 2,220,371<FN6> 64.3% 53.8%
Directors as a Group
(4 Persons)
__________________
<FN>
<FN1>
34
<PAGE>
Includes 75,000 shares which have been pledged to Capco Resources Ltd. to
secure certain guarantees made to it by NFF, Ltd. and PAMDEN, Ltd.
<FN2>
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.; 600
shares held by an IRA 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 896,911. (See "DESCRIPTION OF SECURITIES.")
<FN6>
Includes 5,300 shares held directly and 10,000 shares underlying stock options
exercisable within 60 days held by Paul W. Greaves, who is President and Chief
Executive Officer of certain of the Company's subsidiaries.
</FN>
</TABLE>
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 trans-
actions 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.
35
<PAGE>
In February, 1997, the Company agreed to sell a total of a 25% interest
in the Hatch Pyramid LLC to Edward J. Names and Dennis R. Staal for a total
for $38,000. Such investment would be made on the same terms and conditions
as the Company offered and sold a 25% interest to an unaffiliated third party.
Hatch Pyramid LLC was formed for the purpose of acquiring and operating a
convenience store in Hatch, New Mexico. The Company retained a 50% interest
in the entity. In the past the company has sold a 50% interest of two other
limited liability companies to outside investors as part of its expansion
plan. The Company intends to continue to buy and build convenience stores
using money from outside investors including employees of the Company.
TRANSACTIONS INVOLVING GRAVES
On September 28, 1993, the Company acquired all of the issued and out-
standing common stock of Graves Oil & Butane Co., Inc. from its sole share-
holder, 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 December 31, 1996, had an
outstanding balance of $1,759,000.
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.
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
36
<PAGE>
(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 collateralized 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 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 represented
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 included: (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. Subsequent to
December 31, 1996, $500,000 has been paid. Capco has agreed to guarantee the
prepayment of such note prior to 2006 and has agreed to pay an additional 2%
interest until the note is fully paid.
Subsequent to November 1995, all of the assets of CRI, except its
interest in Saba Power Company Ltd., have been transferred to the Company.
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
37
<PAGE>
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.
TRANSACTION WITH SABA PETROLEUM COMPANY
On December 27, 1996, the Company entered into an agreement with Saba
Petroleum Company concerning the ownership of Meteor Holdings LLC. The terms
for this agreement are set forth in this report under "ITEM 1. DESCRIPTION OF
BUSINESS -- SABA POWER COMPANY LTD." Ilyas Chaudhary is President, Chief
Executive Officer and a Director of Saba Petroleum Company, which is listed on
the American Stock Exchange. Mr. Chaudhary is also a principal shareholder of
Capco Resources, Ltd., which owns a majority of the stock of Saba Petroleum
Company and Meteor Industries, Inc.
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 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.
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
38
<PAGE>
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 ________, 1999 (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 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.
39
<PAGE>
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. 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
40
<PAGE>
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. As of the date of this Prospectus, 10,000 warrants have been
exercised and 7,000 remain outstanding.
PRIVATE PLACEMENT WARRANTS
In February and March 1997, the Company sold warrants to purchase up to
130,000 shares of Common Stock as part of a private placement. These warrants
are exercisable at $5.00 during the period from March 28, 1998 until March 27,
1999.
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.
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 3,440,138 shares of Common Stock presently outstanding, approx-
imately 473,000 may be traded without registration or further registration
under most circumstances. The remaining approximately 2,967,000 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 one-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,
41
<PAGE>
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 approximately 2,967,000 restricted shares of Common Stock
outstanding, all but 510,000 shares are presently eligible for resale under
Rule 144. Of those 510,000 shares 270,000 will become eligible in June of
1997 and 140,000 will become eligible in the first quarter of 1998. The
Company has agreed to register 640,000 shares of restricted Common Stock some
of which are not yet eligible for resale under Rule 144, and intends to file a
registration statement for this purpose within three to nine 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
756,830 shares of the Company's Common Stock and following this offering may
be exchanged for up to 896,911 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 approximately 2,508,000 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.
UNDERWRITING
The Underwriters listed below (the "Underwriters") have agreed, subject
to the terms and conditions set forth in the Underwriting Agreement between
the Company and Westport Resources Investment Services, Inc., as
Representative of the Underwriters, to purchase from the Company the number of
shares of Common Stock and Redeemable Warrants set forth opposite their names
as follows:
NAME OF UNDERWRITER NUMBER OF SHARES NUMBER OF REDEEMABLE WARRANTS
- ---------------------------- ---------------- -----------------------------
Westport Resources Investment
Services, Inc.
TOTAL 600,000 600,000
The Underwriters propose 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. The Underwriters have informed
the Company that they do not intend to confirm sales to any accounts for which
they exercise discretionary authority. The Common Stock and Redeemable
Warrants will be offered by the Underwriters when, as, and if delivered to and
accepted by the Underwriters and subject to their right to reject orders or
cancel sales in whole or in part and
42
<PAGE>
subject to approval of certain legal matters by legal counsel and to various
other conditions.
The Company has granted to the Representative 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 Representative may exercise this
option only for the purpose of covering overallotments that it makes in the
sale of the securities. If purchased, the Underwriters 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 Representative 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 $20,000 against this obligation. The
Company and the Representative 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 Representative have 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 Representative would be the public offering price of the
securities underwritten and distributed by the Representative.
Commencing one year from the date of this Prospectus, the Company will
pay the Representative a fee of 3% of the aggregate price of Redeemable
Warrants solicited by it, if (i) the market price of the Company Common Shares
on the date the Redeemable Warrant is exercised is greater than the then
exercise price of the Redeemable Warrants; (ii) the exercise of the Redeemable
Warrant was solicited by a member of the NASD who is so designated in writing
by the holder exercising the Redeemable Warrant; (iii) the Redeemable Warrant
is not held in a discretionary account; (iv) disclosure of compensation
arrangements was made both at the time of the offering and at the time of the
exercise of the Redeemable Warrant; and (v) the solicitation of the exercise
of the Redeemable Warrant was not in violation of Rule 10b-6 promulgated under
the Exchange Act.
The Company has agreed not to sell any additional securities for one year
after the date of this Prospectus without the Representative'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 Representative's prior
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
Representative, for $100.00, Representative's Warrants to purchase 60,000
shares of Common Stock and 60,000 Redeemable Warrants. The exercise price for
the Representative's Warrants will be 125% of the offering price per share of
the Common Stock sold in this Offering and $.125 per Redeemable Warrant, and
the Representative's Warrants will be exercisable at any time during the four
year
43
<PAGE>
period commencing one year after the date of this Prospectus. The Redeemable
Warrants will be exercisable to purchase one share of Common Stock at the same
exercise price as the Redeemable Warrants sold to the public until two years
after the date of this Prospectus. The Representative's Warrants contain
certain demand registration rights. The demand registration rights contained
in the Representative'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 Representative's Warrants provide for
piggyback registration rights for any unsold securities, until five years
after the effective date of this Prospectus.
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company by Krys Boyle Freedman Scott & Sawyer, P.C., 600 Seventeenth
Street, Suite 2700, South Tower, 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 Representative in connection with certain legal matters
relating to this offering.
EXPERTS
The consolidated financial statements of Meteor Industries, Inc. as of
December 31, 1996 and 1995 and for the years then ended, 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.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page(s)
METEOR INDUSTRIES, INC. FINANCIAL STATEMENTS
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets - December 31, 1996 and 1995. . . . . . . . F-2
Consolidated Statements of Operations - For the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Shareholders' Equity - For the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flow - For the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-8
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-22
Consolidated Balance Sheets - August 31, 1995 and 1994. . . . . . . . . F-23
Consolidated Statements of Income - August 31, 1995 and 1994. . . . . . F-25
Consolidated Statements of Stockholders' Equity - August 31,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Consolidated Statements of Cash Flow - August 31, 1995 and 1994 . . . . F-27
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-29
CAPCO RESOURCES, INC. FINANCIAL STATEMENTS
Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-41
Consolidated Balance Sheet - December 31, 1994 and 1993 . . . . . . . . F-42
Consolidated Statement of Operations and Retained Earnings (Deficit)
- - year end December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . F-43
Consolidated Statement of Changes in Financial Position - year end
December 31, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . F-44
Notes to Consolidated Financial statements. . . . . . . . . . . . . . . F-45
<PAGE>
Report of Independent Accountants
To the Board of Directors
of Meteor Industries, Inc.:
We have audited the consolidated balance sheets of Meteor Industries, Inc., as
of December 31, 1996 and 1995 the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Meteor Industries, Inc. as of December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.
As discussed in Note 17, the accompanying 1995 financial statements have been
restated.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
April 24, 1997
F-1
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31 December 31
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 151,992 $ 95,150
Restricted cash 928,355 541,964
Accounts receivable-trade, net of
allowance 5,134,276 4,232,071
Accounts receivable, related party 109,149 48,000
Notes receivable, related party 736,045 156,962
Inventory 1,221,729 1,332,642
Deferred tax asset -- 149,824
Other current assets 206,401 151,103
Total current assets 8,487,947 6,707,716
Property, plant and equipment, net 8,277,368 8,568,392
Other assets
Notes receivable, related party 1,598,430 2,202,210
Investments in closely held businesses 1,285,407 409,141
Other assets 784,579 661,737
Total other assets 3,668,416 3,273,088
TOTAL ASSETS $20,433,731 $18,549,196
Continued on next page
F-2
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31 December 31
1996 1995
CURRENT LIABILITIES
Accounts payable, trade $ 3,512,257 $ 2,870,045
Bank overdraft 170,308 71,657
Current portion, long-term debt 2,176,357 561,048
Accrued expenses 212,940 196,909
Taxes payable 730,034 946,102
Revolving credit facility 2,141,027 2,275,512
Total current liabilities 8,942,923 6,921,273
Long-term debt 445,774 2,194,773
Deferred tax liability 1,773,240 1,893,579
Minority interest in subsidiaries 4,151,903 3,615,398
Total liabilities 15,313,840 14,625,023
Commitments and contingencies (Notes 11, 12 and 13)
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; authorized
10,000,000 shares, 3,310,138 and
3,024,903 shares issued and
outstanding, respectively 3,310 3,025
Paid-in capital 2,660,973 1,927,338
Retained earnings 2,455,608 1,993,810
Total shareholders' equity 5,119,891 3,924,173
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $20,433,731 $18,549,196
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31
1996 1995
Net sales $59,984,499 $ 9,828,092
Cost of sales 49,644,010 7,373,304
Gross profit 10,340,489 2,454,788
Selling, general and administrative
expenses 8,269,292 2,243,612
Depreciation 849,607 151,709
Total expenses 9,118,899 2,395,321
Income from operations 1,221,590 59,467
Other income and (expenses)
Interest income 361,271 28,047
Interest expense (474,136) (91,621)
Gain (loss) on sale of assets 34,323 ( 7,460)
Total other income and (expenses) (78,542) (71,034)
Income (loss) from continuing
operations before income taxes
and minority interest 1,143,048 (11,567)
Income tax (expense) benefit (394,745) 1,470
Income (loss) from continuing
operations before minority interest 748,303 (10,097)
Minority interest (286,505) (63,544)
Income (loss) from continuing operations 461,798 (73,641)
Discontinued operations:
Income from discontinued operations
(net of applicable income taxes
of $452,620) -- 441,197
Gain on disposal of discontinued
operations (net of applicable taxes
of $100,000) -- 1,429,256
Net income $ 461,798 $ 1,796,812
Income (loss) per common share from
continuing operations $ .15 $ (.15)
Net income per common share $ .15 $ 3.67
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
Balance - January 1, 1995 100 $ 100 $ 511,920 $ 196,998 $ 709,018
Stock issued and restated
for reverse acquisition 3,022,803 2,923 1,411,420 1,414,343
Stock issued during
the year 2,000 2 3,998 4,000
Net income 1,796,812 1,796,812
Balance - December 31,
1995 3,024,903 3,025 1,927,338 1,993,810 3,924,173
Stock issued during
the year 285,235 285 733,635 733,920
Net income 461,798 461,798
Balance - December 31,
1996 3,310,138 $3,310 $2,660,973 $2,455,608 $5,119,891
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31
1996 1995
Cash flows from operating activities
Net income $ 461,798 $1,796,812
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 849,607 159,416
(Gain)/loss on disposal of property & equipment (34,323) 7,460
Deferred income taxes 35,269 (1,470)
Minority interest 536,505 63,544
Other (11,486) --
Changes in assets and liabilities, net of
effects from reverse acquisitions
(Increase)/decrease in accounts receivable (1,018,354) (127,762)
(Increase)/decrease in inventories 110,913 (32,022)
(Increase)/decrease in other current assets (55,298) 22,297
Increase in accounts payable 642,212 289,544
Increase/(decrease) in accrued liabilities 10,247 (113,889)
Increase/(decrease) in taxes payable (216,068) 60,115
(Increase)/decrease in other assets (219,069) 8,207
Discontinued operations 0 (31,160)
Net cash provided by operating activities 841,953 2,101,092
Cash flows from investing activities
Cash proceeds from sale of property 116,885 0
Purchases of property and equipment (253,202) (57,003)
Loans to related parties (68,220) (1,516,000)
Net cash from reverse acquisition 0 537,853
Investment in closely held business (876,266) (401,999)
Note receivable payments 158,188 58,556
Net cash provided (used) by investing activities (922,615) (1,378,593)
Cash flows from financing activities
Borrowings on revolving credit facilities 56,203,123 7,734,473
Payments on revolving credit facilities (56,337,608) (7,922,104)
Increase in bank overdraft 98,651 71,657
Borrowings on long-term debt 133,727 82,215
Sale of minority interest in subsidiary 250,000 --
Payments on long-term debt (582,417) (56,903)
Proceeds from common stock issued 733,920 4,000
Restricted cash (386,391) (541,964)
Insurance Proceeds 24,499 --
Net cash provided (used)by financing activities 137,504 (628,626)
Net increase (decrease) in cash and equivalents 56,842 93,873
Cash and equivalents, beginning of period 95,150 1,277
Cash and equivalents, end of period $ 151,992 $ 95,150
F-6
<PAGE>
METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Year Ended December 31
1996 1995
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
Acquisition of property with debt $ 315,000 $ --
Accounts receivable replaced with
note receivable $ 55,000 --
Other operating cash flow information:
Cash paid for taxes $ 537,600 $ 34,152
Cash paid for interest $ 485,531 $ 53,005
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
METEOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
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 and owns through a subsidiary, Hatch
Pyramid LLC, retail gasoline and convenience stores in southern New Mexico.
Capco Resources, Inc. ("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 (See
Note 15). The historical accounts of CRI are reflected in the 1995 financial
statements for the full year. Information for Meteor is included since
November 2, 1995, the date of acquisition. In 1996 the Company transferred
its ownership of CRI to Meteor Holdings LLC ("MHL"). Innovative Solutions and
Technologies, Inc. ("IST") is involved in providing environmental consulting.
Capco Analytical Services, Inc. ("CAS") is involved in providing laboratory
analysis.
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 including its wholly owned subsidiary Hatch Pyramid LLC, CAS and
IST and Meteor's 73% owned subsidiary, Meteor Holdings LLC. All significant
intercompany transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in these financial statements. Actual results may differ from these
estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates of
deposit with original maturity dates of 3 months or less 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 are stated at the lower of cost or market.
Inventories of petroleum products, greases and oils, and related products are
stated at weighted average cost for Hillger and the last in first out (LIFO)
basis for Graves. Sundries inventories are valued by the retail method and
stated on the first in, first out (FIFO) basis which is lower than market.
Approximately $324,000 of inventory is valued using the LIFO method.
F-8
<PAGE>
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 expensed 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:
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.
F-9
<PAGE>
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 outstanding. The number of shares used in the earnings per share
computation for 1996 is 3,184,397 and for 1995 is 489,035. The 1995 number of
shares 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:
1996 1995
DESCRIPTION AMOUNT AMOUNT
-------------------------- ---------- -----------
Land $1,326,349 $ 1,334,374
Buildings and improvements 1,378,282 899,089
Equipment 6,512,753 6,511,294
9,217,384 8,744,757
Accumulated depreciation (940,016) ( 176,365)
Net property and equipment $8,277,368 $ 8,568,392
NOTE 3 -- 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 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 (discussed in Note 7), 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, 1996 and 1995, was 10.25% and 10.50%, respectively. 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 10.25% and 10.50% at December 31, 1996 and 1995, respectively.
Accrued interest receivable at December 31, 1996 and 1995, totaled $45,793 and
$36,210, respectively.
The Company has a note receivable from another subsidiary of Capco Resources
Ltd. (a 57% owner of the Company) 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 its investment in this limited
liability company using the equity method. The carrying value was $133,263 at
December 31, 1996. This investment is not publicly traded.
The Company owns 50% of the Coors Pyramid L.L.C. The investment was acquired
in June, 1996. The Company reports its investment in this limited liability
company using the equity method. The carrying value was $153,680 at December
31, 1996. This investment is not publicly traded.
F-10
<PAGE>
The Company owns 33% of American L.P., Ltd. The investment was acquired in
December 1995, for $100,014. The Company reports its investment in this
limited liability Company using the equity method. This investment is not
publicly traded. The carrying value was $65,302 at December 31, 1996.
At December 31, 1996, the Company, had invested $683,162 in Meteor Holdings
LLC ("MHL") MHL owns an interest in Saba Power Company, Ltd. (the "Power
Project"). The investment in the Power Project is reported using the cost
method. The Company also entered into an agreement with Saba Petroleum
Company ("Saba") whereby Saba, a related party, participated in the Power
Project. Saba invested $250,000 in MHL resulting in MHL's total investment
of $933,162 in the Power Project. Saba owns a .5% interest in the Power
Project through its ownership of 27% of MHL. The Company owns 1.5% of the
Power Project through its ownership of 73% of MHL. Saba's .5% interest in the
project is subject to the same terms and conditions as the Company's 1.5%
interest. These percentages, however, could be reduced in the event that
other shareholders of Saba Power are required to make additional contributions
to equity.
MHL has obtained the right to sell its interest in Saba Power to an affiliate
of one of the other shareholders for approximately the amount of its contri-
bution on October 26, 1996, for a period of 120 days. The Company's investment
in the Power Project is not expected to provide any significant cash flow to
the Company for at least three to four years. Further, if during the next 2-3
years certain enhancements to the Power Project contracts are not obtained
from the Government of Pakistan, then cash flow from the Power Project will
not be earned by or distributed to the Company.
During 1996, Saba Power Company Ltd. and the shareholders thereof, including
the Company, completed the final negotiations with the project's construction
lender and the engineering procurement and construction contractor was given a
limited release to commence construction activities on the project, which was
subsequently suspended. On March 4, 1997, all required equity capital was
fully subscribed and paid by the shareholders; in the form of cash or letters
of credit; all documentation fees were paid to the Government of Pakistan; the
construction contractor was given a full release. All required consents were
obtained from the Government of Pakistan, and all defaults were cured. Due to
the changing political climate in Pakistan and the economic risks involved,
the Company's management decided not to invest additional capital in the
project. All debt and equity financing for the Power Project was completed on
March 4, 1997, in the total amount of over $150,000,000.
In connection with this transaction, the Company's co-developer, Cogen Tech-
nologies, agreed to pay a consulting fee for services provided in 1996, to
the founding partners, of which MHL's share totals $400,000 with the
possibility of receiving up to an additional $350,000 over a three year period
if certain contract enhancements are obtained from the Government of Pakistan;
however, there can be no assurance that such enhancements can or will be
obtained. MHL incurred approximately $124,000 in expenses to outside sources
in pro-viding these consulting services. The Company's share of the $276,000
in net revenues totals $200,000 by virtue of its 73% ownership of in MHL.
The Company is not required to invest any additional capital related to the
Power Project. If costs of the project exceed budget and capital is required
then the Company will have the choice of investing more capital or suffering
ordinary dilution to its ownership interest without incurring any penalties.
F-11
<PAGE>
NOTE 5 -- REVOLVING CREDIT FACILITY
Revolving Credit Facility at December 31, consisted of the following:
1996 1995
---------- ----------
$3,000,000 revolving bank credit facility,
payable to Norwest Business Credit, Inc.,
bearing interest at Norwest Bank Minnesota,
N.A., base rate plus 2.0% (10.25% and 11.25%
at December 31, 1996 and 1995, respectively),
due June 1999. Collateralized by trade
accounts receivable and inventory of Graves $1,861,189 $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% (10.25% and 10.75%
at December 31, 1996 and 1995, respectively),
due June 30, 1999. Collateralized by trade
accounts receivable and inventory of Hillger 279,838 235,568
The revolving bank credit facility agreements require the Company to maintain
certain net worth and performance ratio levels and meet certain financial
reporting requirements. As discussed in Note 1, payments on these loans are
made through collateral cash accounts in the name of the lender. The unused
borrowing base at December 31, 1996, was $938,606.
Hillger was in default in its net worth requirement in December, 1996, Hillger
received a waiver of this default. Graves and Hillger were in default of
certain financial reporting requirements for which waivers were obtained.
NOTE 6 -- LONG-TERM DEBT
Long-term debt at December 31, consisted of the following:
1996 1995
---------- ----------
Note payable to Theron Graves, semiannual
payments of $200,000 including interest at
prime plus 2% (10.25% and 10.75% at December
31, 1996 and 1995, respectively), collateral-
ized by half of Graves common stock, matures
October 1997. $1,759,139 $1,955,663
Note payable to First National Bank of
Farmington, monthly payments of $19,000
including interest at prime plus 2% (10.25%
and 10.75% at December 31, 1996 and 1995,
respectively) collateralized by mortgage on
buildings and land, matures January 1998. 211,872 388,048
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% (11.25% and 11.75% at December 31,
1996 and 1995, respectively), collateralized by
property and equipment, due June 1998. 187,494 312,498
F-12
<PAGE>
Note payable to The Spot, quarterly payments of
$14,326 plus interest at 7.00%, collateralized
by mortgage on building and land, matures
December, 2003. 315,000 --
Note payable to unaffiliated third party
annual payout of $20,000 with no interest
and no collateral, matures June, 2000.
non-compete agreements 60,000 --
Note payable to Ford Motor Credit, monthly
payments of $329 including interest at 11.9%,
collateralized by equipment, matures
December, 1999. 9,919 12,459
Note payable to GMAC, monthly payments
of $257, including interest at 9.95%,
collateralized by equipment, matures
April, 2000. 8,533 --
Note payable to GMAC, monthly payments
of $387, including interest at 9.95%,
collateralized by equipment, matures
April, 1999. 9,330 --
Note payable to GMAC, monthly payments
of $604, including interest at 10.12%,
collateralized by equipment, matures
December, 1999. 18,681 23,754
Leases payable (Note 14) 42,163 63,399
Total 2,622,131 2,755,821
Current portion (2,176,357) (561,048)
Long-term debt $ 445,774 $2,194,773
The following is a schedule by years of the repayment of long-term debt:
PERIOD ENDING
DECEMBER 31, AMOUNT
------------- ----------
1997 $2,176,357
1998 161,973
1999 68,795
2000 58,453
2001 50,464
Remaining 106,089
Total $2,622,131
NOTE 7 -- MINORITY INTEREST IN SUBSIDIARIES
The Series A Convertible Preferred Stock of Graves, 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
F-13
<PAGE>
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 $945,192 and $685,075 as of December 31, 1996
and 1995, respectively. The minority interest is recorded at its discounted
value in the amount of $3,825,903. Dividends and accretion of the preferred
stock discount are reflected in minority interest on the income statement.
The Company owns 73% of MHL which owns 100% of Capco Resources, Inc. The
minority interest of 27% is recorded at its cost basis of $326,000.
NOTE 8 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
1996 1995
-------- -------
Current tax expense $359,476 $ 0
Deferred tax expense (benefit) 35,269 (1,470)
Total provision (benefit) $394,745 $(1,470)
The following reconciles the tax provision with the expected provision
obtained by applying federal and state statutory rates to pretax income (loss)
from continuing operations:
1996 1995
-------- -------
Expected tax provision $445,789 $(3,933)
Nondeductible expenses 4,407 2,425
Benefit of operating
loss carryforwards) (40,107) --
Other (15,344) 38
Total provision $394,745 $(1,470)
The deferred tax asset (liability) in the accompanying balance sheet includes
the following components:
F-14
<PAGE>
1996 1995
------------ -----------
Current:
Deferred tax asset(liability), federal $ (5,042) $ 130,616
Deferred tax asset (liability), state (742) 19,208
Net current deferred asset (liability) $ (5,784) $ 149,824
Noncurrent:
Deferred tax liability, federal $(1,535,934) $(1,650,812)
Deferred tax liability, state (237,306) (242,767)
Net noncurrent deferred tax liability $(1,773,240) $(1,893,579)
Net deferred tax liability (1,779,024) (1,743,755)
Components of deferred income taxes at December 31, were as follows:
1996 1995
----------- -----------
Deferred tax asset
Accounts receivable $ 82,776 $ 80,272
Net operating loss carryforwards -- 40,170
Other 23,764 29,382
Total deferred tax liability 106,540 149,824
Deferred tax liability:
Depreciation and amortization $(1,773,240) $(1,893,579)
Inventory (112,324) --
Total deferred tax liability (1,885,564) (1,893,579)
Net deferred tax liability (1,779,024) (1,743,755)
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 year ended December 31, 1995
and contributions for the year ended December 31, 1996, were $17,014.
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 years ended December 31, 1996
and 1995, Hillger's contribution was $13,056 and $4,346, respectively.
NOTE 10 -- RELATED PARTY TRANSACTIONS
The Company used space, telephone and secretarial services of a corporation
controlled by officers of the Company. Expenses are paid by the Company as
invoiced. At December 31, 1996 and 1995, amounts payable to related parties
were $-0- and $21,256, respectively. These services were discontinued in
1996.
F-15
<PAGE>
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 December 31, 1996 and 1995, rents paid were $54,643 and
$9,102, respectively.
The Company has land, buildings, and equipment in Springerville, Arizona, and
equipment in St. Johns, Arizona, which were used by a relative of the
preferred stockholder. The Company did not charge for the use of its
properties but received revenue from the sale of its products. During the
years ended December 31, 1996 and 1995, revenues reported amounted to $56,612
and $56,864, respectively. The properties are now closed and the Company is
in the process of selling the land, buildings, and equipment.
The Company sells its products to other entities controlled by the preferred
stockholder. During the years ended December 31, 1996 and 1995, revenues
reported amounted to $1,018,928 and $224,425, respectively.
The preferred stockholder is indebted to the Company on two notes totaling
$650,000 as described in Note 3. Interest receivable at December 31, 1996 and
1995, was $45,793 and $36,210, respectively. Interest earned during the years
ended December 31, 1996 and 1995, was $66,790 and $11,677, respectively.
The Company is indebted to the preferred stockholder for $1,759,139 as
described in Note 6. Interest payable at December 31, 1996 and 1995, was
$45,078 and $54,903, respectively. Interest expense during the years ended
December 31, 1996 and 1995, for this note was $193,369 and $36,602,
respectively.
The Company has entered into a consulting agreement with the 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 December 31, 1996 and 1995, the
fees paid were $27,232 and $3,570, respectively.
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.
F-16
<PAGE>
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, 1996 and 1995, the Company expended $31,167 and
$5,876, respectively, for site assessment and related cleanup costs.
Included in other assets at December 31, 1996 and 1995, are unreimbursed costs
from the State of New Mexico of $125,761 and $94,593, respectively.
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, 1996 and 1995, the Company was
contingently liable for $11,462 and $31,175, respectively, 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.
The Company is a co-signer on the Phillips Performance Fund, Inc. note for
$504,982 for its 50% owned equity investment in Coors Pyramid LLC.
NOTE 13 -- OPERATING LEASES
The Company has entered into various noncancelable leases for land, buildings
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 December 31, 1996 and 1995, was $771,716 and
$123,723, respectively.
Minimum future obligations on leases in effect at December 31, 1996, are:
December 31, 1997 $ 759,000
December 31, 1998 $ 753,000
December 31, 1999 $ 705,000
December 31, 2000 $ 663,000
December 31, 2001 $ 665,000
Thereafter $ 2,145,000
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, leased property under capital leases by major classes was
as follows:
1996 1995
---------- ---------
Buildings and improvements $ 18,141 $ 18,141
Equipment 119,600 106,292
Accumulated amortization (69,492) (44,350)
Net leased property $ 68,249 $ 80,083
F-17
<PAGE>
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, 1996:
December 31, 1997 $ 32,785
December 31, 1998 5,670
December 31, 1999 3,832
December 31, 2000 3,832
December 31, 2001 2,875
Total minimum lease payments 48,994
Less: amount representing interest 6,831
Present value of minimum lease payments $ 42,163
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 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 date of
the acquisition. The total cost of the acquisition by CRI exceeded the book
value 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 unaudited results of operations on
a pro forma basis for the year ended December 31, 1995 are as follows:
Revenues $57,721,328
Income (loss) from continuing operations $ (285,335)
Income (loss) per share $ (.16)
NOTE 16 -- STOCK OPTION AND INCENTIVE EQUITY PLAN
The Company has adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). Pro forma disclosures as if the Company adopted the expense
recognition requirements under SFAS No. 123 in 1996 are presented below.
A stock option plan providing for the issuance of incentive stock options and
non-qualified 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. The Company's common stock options
were granted at exercise prices equal to, or in excess of, market prices on
the grant dates, and therefore no compensation cost was recognized. The
majority of the options outstanding at December 31, 1996 will vest by December
31, 1998.
A summary of the status of the Company's stock option plans as of December 31,
1996 and 1995, is presented below:
F-18
<PAGE>
1996 1995
------------------------ -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- --------------
Outstanding at beginning
of year 312,400 $ 3.60 108,000 $ 3.90
Granted 105,000 $ 3.50 236,000 $ 3.46
Exercised
Forfeited (54,100) $ 3.63 ( 31,600) $ 3.54
Outstanding at end
of year 363,300 $ 3.57 312,400 $ 3.60
Options exercisable
at Year-End 123,934 $ 3.66 28,400 $ 3.95
Options Available for
Future Grant 136,700 N/A 187,600 N/A
NUMBER OF EXERCISE PRICE
DATE OPTIONS GRANTED OPTIONS PER SHARE VESTING PERIOD
- -------------------- --------- -------------- --------------
October 1, 1993 41,000 $ 3.00 5 years
February 1, 1994 31,300 $ 5.25 3 years
August 4, 1995 21,000 $ 3.00 3 years
November 30, 1995 215,000 $ 3.50 3 years
May 31, 1996 105,000 $ 3.50 5 years
The following table summarizes information about stock options outstanding at
December 31, 1996:
OPTIONS OUT- WEIGHTED AVERAGE OPTIONS EXER-
EXERCISABLE STANDING AT REMAINING CON- CISABLE AT
PRICE DECEMBER 31, 1996 TRACTUAL LIFE DECEMBER 31, 1996
----------- ----------------- ---------------- -----------------
3.00 41,000 7 24,600
5.25 31,300 8 20,867
3.00 21,000 4 7,000
3.50 215,000 4 71,667
3.50 55,000 5 -0-
Had compensation cost been determined based on the fair value at grant dates
for stock option awards consistent with the SFAS No. 123, the Company's net
income and earnings per share for the years ended December 31, 1996 and 1995,
would have been reduced to the pro forma amounts indicated below:
1996 1995
---------- ----------
Net Income: As reported $ 461,798 $1,215,337
Pro Forma $ 368,367 $1,138,931
Earnings per share: As reported $ .15 $ 2.49
Pro Forma $ .12 $ 2.33
F-19
<PAGE>
The pro forma compensation expense based on the fair value of the options is
estimated on the grant date using the Black-Scholes option-pricing model with
the following assumptions used for grants: no dividends both years; an
expected life of 5 years for both years, expected volatility of 95% and 57%
for 1996 and 1995, respectively, and a risk free rate of return of 6.40 and
6.37 percent, respectively. The weighted average fair value of those purchase
rights granted in 1996 and 1995 was $2.54 and $1.75 respectively. SFAS No.
123 does not apply to awards prior to 1995.
In November 1995, Meteor granted an option to a consultant to purchase a total
of 100,000 shares of Meteor's Common Stock. This option was exercisable at
$2.50 per share, but expired unexercised on January 31, 1997.
NOTE 17 -- DISCONTINUED OPERATIONS
The 1995 financial statements have been restated to properly reflect income
and the provision for income taxes related to discontinued operations. The
net impact of these adjustments was as follows:
As Previously As
Reported Restated
------------- ----------
Income from discontinued operations $ 398,789 $ 441,197
Gain on disposal of discontinued operations 890,189 1,429,256
Net income 1,215,337 1,796,812
Net income per share $2.49 $3.67
a) In September, 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 $1,429,256. The
consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible,
redeemable first preferred shares
of PetroSantander 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) In 1995, CRI transferred all of its holdings of Saba Petroleum
Company and certain assets and liabilities to CRL and to CAPCO Acquisub, Inc.,
a wholly-owned subsidiary of CAPCO Resources Ltd. This transaction was
recorded at book value. The net liabilities transferred had a book value of
approximately $400,114.
The Company has been indemnified by Capco Resources Ltd. with respect to
certain tax liabilities. The Company has recorded a receivable for $48,000
which was received prior to the issuance of the financial statements.
F-20
<PAGE>
The discontinued operations results for 1995 are as follows:
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 8,695,733
General and administrative 1,986,967
Interest and bank charges 1,065,011
Depreciation, depletion and amortization 2,413,743
14,161,454
Operating income 880,199
Income tax expense 452,620
Foreign exchange (gain) loss 51,237
Minority interest 114,655
Dilution gain (179,510)
439,002
Net Income $ 441,197
Gain on disposition, net of tax
of $100,000 $ 1,429,256
NOTE 18 - NEW ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued statement
of Financial Accounting Standards No. 128, "Earning per Share" ("SFAS
No.128"). The standard requires presentation of earnings per share on a
"basic" (only shares outstanding) actual and "fully diluted" (actual shares
outstanding plus the effect of other dilutive securities) basis. At this time,
the Company does not expect the adoption of SFAS No.128 to have a material
impact on the Company's earnings per share.
NOTE 19 - SUBSEQUENT EVENTS
In February and March of 1997, the Company sold shares and warrants to
purchase the Company's Common Stock to 16 accredited investors in a private
offering. A Total of 130,000 shares of Common Stock and 130,000 warrants were
sold in this offering for an aggregate of $520,000 in cash. The Company paid
no commissions in connection with this offering. Each warrant allows the
holder to purchase one share of Common Stock at $5.00 per share from March 28,
1998 until March 27, 1999.
In March 1997 the Company entered into an out of court settlement with one of
its former insurers. As a result, the Company will receive approximately
$500,000 in cash after paying its related attorney's fees. Such funds are
expected to be received by the end of April 1997.
F-21
<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-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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
based upon 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:
F-29
<PAGE>
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
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.
F-30
<PAGE>
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
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.
F-31
<PAGE>
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
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
F-32
<PAGE>
(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:
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
F-33
<PAGE>
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.
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:
F-34
<PAGE>
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)
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:
F-35
<PAGE>
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.
F-36
<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.
F-37
<PAGE>
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
oncerning environmental protection, as well as the New Mexico Ground Water
rotection Act. The various federal and state statutes are designed to ientify
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 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
F-38
<PAGE>
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)
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.
F-39
<PAGE>
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 (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
F-40
<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.
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.
Chartered Accountants
F-41
<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-42
<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-43
<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-44
<PAGE>
CAPCO RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
(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)).
F-45
<PAGE>
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.
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 $1,429,256. The consideration received was in the form of:
Cash $2,401,719
400,000 cumulative, convertible, redeemable
first preferred shares of PetroSantander
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, subsequently restated to ($400,114).
The discontinued operations results for 1994, 1993, and 1992 are as
follows:
F-46
<PAGE>
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 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 $ -
F-47
<PAGE>
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.
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
F-48
<PAGE>
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
The Company is committed under cancelable 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:
F-49
<PAGE>
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
Share-holders' 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 canceled 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-50
<PAGE>
(INSIDE BACK COVER)
(picture of hot air balloon (Picture of hot air balloon)
with "Graves Oil & Butane"
logo)
(Picture of Graves Oil & (Picture of tank trucks)
Butane tank truck)
<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
tation must not be relied upon
as having been authorized.
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..............
Risk Factors....................
The Company.....................
Price Range of Common Stock..... __________________
Dividend Policy.................
Selected Financial Information.. PROSPECTUS
Pro Forma Consolidated State- __________________
ment of Operations.............
Management's Discussion and
Analysis of Financial Condi-
tion and Results of Operations.
Use of Proceeds.................
Business........................
Management...................... Westport Resources
Security Ownership of Manage- Investment Services, Inc.
ment and Principal Shareholders
Certain Transactions............
Description of Securities.......
Underwriting.................... ________, 1997
Selling Shareholders............
Legal Matters...................
Experts.........................
Index to Financial Statements...
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. . . . . . . . . . . . . . . . . . . . 25,000
Accounting Fees and Expenses . . . . . . . . . . . . . . 40,000
Legal Fees and Expenses. . . . . . . . . . . . . . . . . 40,000
Blue Sky Fees and Expenses . . . . . . . . . . . . . . . 10,000
Registrar and Transfer Agent Fees. . . . . . . . . . . . 1,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . 4,395
Total . . . . . . . . . . . . . . . . . . . . . . . $239,000
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.
In February and March of 1997, the Company sold shares and warrants to
purchase the Company's Common Stock to 16 accredited investors in a private
offering. A Total of 130,000 shares of Common Stock and 130,000 warrants were
sold in this offering for an aggregate of $520,000 in cash. The Company paid
no commissions in connection with this offering. Each warrant allows the
holder to purchase one share of Common Stock at $5.00 per share from March 28,
1998 until March 27, 1999.
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 Included in initial filing
American Securities Transfer
& Trust, Inc.
4.2 Form of Representative's Warrant Filed herewith electronically
5 Opinion of Krys Boyle Freedman Filed herewith electronically
Scott & Sawyer, P.C.
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. 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)
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)
II-7
<PAGE>
10.25 Amended and Restated Agree- Included in initial filing
ment between Capco Resources,
Inc. and Saba Petroleum
Company dated August 1, 1996
10.26 Employment Agreement between Included with Amendment No. 1
Pyramid Stores, Inc. and Paul
W. Greaves
10.27 1997 Incentive Plan Incorporated by reference to
Exhibit 10.23 to Registrant's
Form 10-K for the year ended
December 31, 1996 (SEC File No.
0-27968)
10.28 Second Amended and Restated Incorporated by reference to
Agreement between Meteor Exhibit 10.24 to Registrant's
Industries, Inc., Capco Form 10-K for the year ended
Resources, Inc. and Saba December 31, 1996(SEC File No.
Petroleum Company 0-27968)
10.29 Shareholder's Agreement among Incorporated by reference to
Cogen Technologies Saba Capital Exhibit 10.25 to Registrant's
Company, LLC, Capco Resources, Form 10-K for the year ended
Inc., et al December 31, 1996(SEC File No.
0-27968)
10.30 Letter Agreement with Western Incorporated by reference to
Energy Resources Limited Exhibit 10.26 to Registrant's
Form 10-K for the year ended
December 31, 1996(SEC File No.
0-27968)
10.31 Letter Agreement between Meteor Incorporated by reference to
Industries, Inc. and Capco Exhibit 10.27 to Registrant's
Resources, Ltd. dated April Form 10-K for the year ended
23, 1996 December 31, 1996(SEC File No.
0-27968)
11 Computation of per Share Incorporated by reference to
earnings of Common Stock Exhibit 11 to Registrant's
Form 10-K for the year ended
December 31, 1996(SEC File No.
0-27968)
21 Subsidiaries of the Incorporated by reference to
Registrant Exhibit 21 to Registrant's
Form 10-K for the year ended
December 31, 1996(SEC File No.
0-27968)
23.1 Consent of Krys Boyle Included in Exhibit 5
Freedman Scott & Sawyer, PC
23.2 Consent of Cooper & Lybrand Filed herewith electronically
L.L.P.
II-8
<PAGE>
23.3 Consent of Squire & Woodward Filed herewith electronically
P.C.
23.4 Consent of Price Waterhouse Filed herewith electronically
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 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.
II-9
<PAGE>
(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-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to the Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, in
the City of Denver, State of Colorado, on the 30th day of April, 1997.
METEOR INDUSTRIES, INC.
By /s/ Ilyas Chaudhary
Ilyas Chaudhary,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 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 April 30, 1997
Ilyas Chaudhary Executive Officer
and Director
/s/ Edward J. Names President and April 30, 1997
Edward J. Names Director
/s/ Dennis R. Staal Secretary, Treasurer April 30, 1997
Dennis R. Staal (Principal Financial
and Accounting Officer)
and Director
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<PAGE>
METEOR INDUSTRIES, INC.
600,000 Shares
of Common Stock
and
600,000 Redeemable Warrants
UNDERWRITING AGREEMENT
Westport Resources Investment Services, Inc.
315 Post Road West
Westport, Connecticut 06880
, 1997
DEAR SIRS:
Meteor Industries, Inc. a Colorado corporation (the "Company"), pro-
poses to issue and sell to the several Underwriters named in Schedule I here-
to (the "Underwriters"), up to 600,000 shares of common stock of the Company
and up to 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. Westport Resources Investment
Services, Inc. is referred to herein as the "Underwriter" or the "Represen-
tative."
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 rules 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 file 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 430 A 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."
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, up to 600,000
shares of Common Stock, and
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up to 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
three (3) 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 overallotments,
within forty-five (45) days after (i) the effective 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 overallotment.
(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.
(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.
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(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 up to 60,000 shares of Common Stock and up to
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 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
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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
val-
idly 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 charac-
ter 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 the Representative's Warrant Agreement will then constitute a
valid and binding agreement, enforceable in accordance with its 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 delivery of this Agreement,
the Representative's Warrant 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.
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(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 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
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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 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.
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(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.
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.
(xvii)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.
(xviii)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 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 property or assets (tangible or
intangible) of the Company is subject or affected.
(xix) 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
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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.
(xx) 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(l) 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 thereunder. The
Company has never completely or partially withdrawn from a "multiemployer
plan."
(xxi) 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 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.
(xxii)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.
(xxiii)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
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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 effect 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.
(xxiv)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.
(xxv) 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 than 5000 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 eighteen (18) 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.
(xxvi)The Registered Securities have been approved for
listing on NASDAQ or an Exchange.
(xxvii)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.
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(xxviii)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.
(xxix)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.
(xxx)Intentionally left blank.
(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 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.
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(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 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 of the
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 Pros-
pectus, 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 Pros-
pectus 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
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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 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.
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<PAGE>
(f) As soon as it is practicable, but in any event not later
than the first (lst) day of the fifteenth (15th) 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 11(a) 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, 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, issue, sell or
otherwise dispose of any of its equity or long-term debt securities for
twelve (12) months from the effective date including other equity securities
or warrants or options to purchase any shares of Common Stock (except for
Common Stock issuable upon existing conversion rights, options or warrants or
in connection with acquisitions) or any warrants, options or other rights to
purchase Common Stock without the Underwriter s prior written consent to any
officer, director, or holder of 5% or more of the Company s Common Stock or to
any affiliate or associate thereof, except pursuant to an employee benefit
plan approved by the Underwriter or subsequent options issued to employees of
the Company's
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<PAGE>
subsidiaries pursuant to incentive stock option plans. The Company will obtain
prior to the effective date, from each officer and director, each person
related to an officer or director, and each person (except Theron Graves) or
entity who owns 5% or more of the Company s Common Stock or any right to
acquire 5% or more of the Company s Common Stock, a written agreement with the
Underwriter that such person will not sell in open market transactions more
than 5000 shares of the Company s Common Stock owned directly or indirectly by
him or beneficially by him ( as defined by the 1934 Act and rules promulgated
thereunder) on the effective date of the Registration Statement, for a period
of twelve (12) months from such date without the Underwriter s prior written
consent and will cause the transfer agent for the Company to note such
restriction on the certificates representing his shares of Common Stock and on
the transfer books and records of the Company, provided that the aggregate
number of shares sold in such open market transactions shall not exceed
25,000.
It is also understood that later in 1997, the Company intends to
register restricted shares of shareholders who own less than 5% of the
Company, so that such shares may be sold into the marketplace. The Underwriter
has no objection to the filing of such registration statement.
(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
(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.
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<PAGE>
(1) 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, 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 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.
(r) Commencing one year from the effective date of the
Registration Statement, the Company agrees to pay the Underwriter a 3%
solicitation fee for the exercise of the publicly-held warrants solicited by
the Underwriter such solicitation being subject to applicable SEC and NASD
rules.
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
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<PAGE>
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 re-
ferred 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 Krys, Boyle, Freedman, Scott & Sawyer, PC 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
effect 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 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, the 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.
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<PAGE>
(D) The Company had authorized and outstanding
capital stock as set forth in the Prospectus 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 and the Warrants, 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 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
Agreement and Representative s Warrant Agreement, respectively, will 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
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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.
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 com-
pleteness 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 became 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 State-
ment 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 untrue 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.
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(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, 1996, 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, 1996 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 longterm
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, 1996, 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 longterm debt or any increase in the
short-term bank borrowings (other than any increase in short-term bank
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.
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<PAGE>
(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 Krys, Boyle, Freedman, Scott & Sawyer, PC, 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 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, longterm debt or general
affairs of the Company from that set forth in the Prospectus, except changes
which the Prospectus indicates might occur after the effective 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 Lock-up 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 case
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<PAGE>
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.
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
fact 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 fact 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
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<PAGE>
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, 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 under 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
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<PAGE>
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 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 full amount
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
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<PAGE>
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 Names ceases to be employed by the Company
in his present capacity; (ix) the Securities are not listed the 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 officers) and the Underwriter set forth in
or made pursuant to this Agreement will remain in full 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 315 Post Road West, 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 Underwriter(s), 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:______________________________________
(Authorized Officer)
Edward J. Names, President
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<PAGE>
Accepted as of the date first above written:
Westport Resources Investment Services, Inc.
As Representative of the several Underwriters
By:_______________________________________
(Authorized Officer)
John Lane, Senior Vice President
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<PAGE>
EXHIBIT A
SCHEDULE I
UNDERWRITERS
600,000 shares of 600,000
Underwriter Common Stock Redeemable Warrants
- ----------------------------- ----------------- -------------------
Westport Resources Investment
Services, Inc.
TOTAL
<PAGE>
EXHIBIT B
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 WELL INVOLVE NO OBLIGATION OR COMMITMENT OF ANY
KIND UNTIL THE REGISTRATION STATEMENT HAS BECOME EFFECTIVE.
METEOR INDUSTRIES, INC.
SELECTED DEALERS AGREEMENT
, 1997
Dear Sirs:
1. Westport Resources Investment Services, Inc. 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, up to 600,000 shares of common stock
and up to 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
2730, 2740, 2420 to the extent applicable to foreign nonmember brokers or
dealers, and Section 2750 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 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 same 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
<PAGE>
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 effective date, you will make a bona fide 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 effective. 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 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
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<PAGE>
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 comply with the NASD's
interpretation with Respect to FreeRiding and Withholding and with Sections
2730, 2740, 2420, and 2750 of the Rules of Fair Practice. Your attention is
called to and you agree to comply with the following: (a) Article III, Section
2110 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
2740 and the interpretation with respect to "Free-Riding and Withholding;" (b)
Section 10(b) of the 1934 Act and Regulation M and Rule 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 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 15 (c )(3 )(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 315 Post
Road West, Westport, CT 06880 (203-227-3211) and (fax 203-222-8487). All
communications from us to you shall be directed to the address to which this
letter is mailed.
Very truly yours,
Westport Resources Investment Services, Inc.
By__________________________________
(Authorized Officer)
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<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.
<PAGE>
METEOR INDUSTRIES, INC.
600,000 Shares
of Common Stock
and
600,000 Redeemable Warrants
AGREEMENT AMONG UNDERWRITERS
Westport Resources Investment Services, Inc. April , 1997
315 Post Road West
Westport, Connecticut 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 up to 600,000 shares of
Common Stock and up to 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.
(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.
<PAGE>
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 effective 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 15c2-8 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) 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.
-2-
<PAGE>
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 offer 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 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 . t
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 bank 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
-3-
<PAGE>
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 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
-4-
<PAGE>
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, (b) 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 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 Regulation M of the Securities Exchange
Act of 1934) of our participation in the distribution, we will otherwise
comply with Regulation M. 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.
-5-
<PAGE>
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.
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
-6-
<PAGE>
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 amendment(s) 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 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 15c3-1, 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 be 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.
-7-
<PAGE>
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
2730, 2740 and 2420 to the extent applicable to foreign nonmember brokers or
dealers, and Section 2750 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 2740 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.
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.
Westport Resources Investment Services, Inc..
As Representative
By_______________________________
Senior Vice President
<PAGE>
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 SUCH LAWS ARE COMPLIED WITH.
Void After 3:30 P.M., Eastern Time, on , 2002.
Representative's
Warrant to Purchase
Common Stock and Redeemable Warrants
METEOR INDUSTRIES, INC.
This is to Certify That, FOR VALUE RECEIVED, Westport Resources Investment
Services, Inc. (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 , 1998, and not later than
3:30 p.m., Eastern Time, on , 2002, 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 , 1998, but not later than 3:30 p.m., Eastern
Time on , 2002, or if , 2002, 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 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
<PAGE>
exercised. Upon receipt by the Company of this Warrant at the office of the
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 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 "Underwriter(s)", and (ii)transferred to any successor to the
business of the "Underwriter(s)." Any
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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 are 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.
(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
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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 and Redeemable Warrants
purchasable immediately prior to such adjustment by the Exercise Price in
effect 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
case 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 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
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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 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
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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) PIGGYBACK REGISTRATION. In the event that the demand
registration
rights provided for in Section( i) below 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 (i) below 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 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 effective date thereof.
(I) 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.
a. The Company covenants and agrees to give written notice of any
registration request under this Section (i) 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.
(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
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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 Holder(s), 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 Holder(s), 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 Holder(s) 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 Holder(s) 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 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 Holder(s) 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 registra-
tion statement filed pursuant to Section (i) hereof, or permit any other reg-
istration statement to be or remain effective during the effectiveness of a
registration statement filed pursuant to Section (i) 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).
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<PAGE>
(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
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
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<PAGE>
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.
(1) Continuing Effect of 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, Westport Resources Investment Services, Inc., 315
Post Road West, 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 Westport
Resources Investment Services, Inc.
(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
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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 effect
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 _____________, 2004.
Meteor Industries, Inc.
a Colorado corporation
By_______________________________________
Edward J. Names, President
Date:__________________________
Attest:
_______________________________
____________________, Secretary
_______________________________
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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_____
KRYS BOYLE FREEDMAN SCOTT & SAWYER, P.C.
600 17th Street, Suite 2700
South Tower
Denver, Colorado 80202
(303) 893-2300
FAX (303) 893-2882
April 30, 1997
Meteor Industries, Inc.
216 Sixteenth Street, Suite 730
Denver, Colorado 80202
RE: SEC Registration Statement on Form S-1
Ladies and Gentlemen:
We are counsel for Meteor Industries, Inc., a Colorado corporation (the
"Company") in connection with its proposed public offering under the
Securities Act of 1933, as amended, of 600,000 shares of Common Stock (690,000
shares if the over-allotment option is exercised in full) and 600,000
Redeemable Warrants (690,000 Redeemable Warrants if the over-allotment option
is exercised in full) through a Registration Statement on Form S-1 as to which
this opinion is a part, to be filed with the Securities and Exchange
Commission (the "Commission").
In connection with rendering our opinion as set forth below, we have reviewed
and examined originals or copies identified to our satisfaction of the
following:
(1) Articles of Incorporation of the Company as filed with the Secretary
of
State of the State of Colorado, as amended.
(2) Minute book containing the written deliberations and resolutions of
the
Board of Directors and Shareholders of the Company.
(3) The Registration Statement and the Preliminary Prospectus contained
within the Registration Statement.
(4) The other exhibits to the Registration Statement to be filed with the
Commission.
We have examined such other documents and records, instruments and
certificates of public officials, officers and representatives of the Company,
and have made such other investigations as we have deemed necessary or
appropriate under the circumstances.
Based upon the foregoing and in reliance thereon, it is our opinion that: (I)
690,000 shares of Common Stock, $.001 par value, (ii) the 690,000 Redeemable
Warrants; (iii) the 690,000 shares of Common Stock, $.001 par value, issuable
upon exercise of the Redeemable Warrants; (iv) the Underwriter's Warrants to
purchase 60,000 shares of Common Stock and 60,000 Redeemable Warrants; (v) the
Underwriter's Redeemable Warrants to purchase up to 60,000 shares of Common
Stock; and (vi) the 120,000 shares of Common Stock, $.001 par value, issuable
upon the exercise of the Underwriter's Warrants and the Underwriter's
Redeemable Warrants, will upon the purchase, receipt of full payment, issuance
and delivery in accordance with the terms of the offering described in such
Registration Statement, be duly and validly authorized, legally issued, fully
paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Prospectus constituting a part thereof.
Very truly yours,
KRYS BOYLE FREEDMAN SCOTT & SAWYER, P.C.
By /s/ Jon D. Sawyer
Jon D. Sawyer
EXHIBIT 23.2
COOPERS & LYBRAND
Coopers & Lybrand L.L.P.
370 17th Street, Suite 3300
Denver, Colorado 80202-5633
telephone 303/573-2800
facsimile 303/573-2902
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of this registration statement on Form S-1 (File
No. 333-12557) of our report dated April 24, 1997, on our audits of the
consolidated financial statements of Meteor Industries, Inc. as of December
31, 1996 and 1995 and for the years then ended. We also consent to the
reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
April 29, 1997
EXHIBIT 23.3
SQUIRE & WOODWARD, P.C.
Bruce W. Squire, C.P.A.
Marc A. Woodward, C.P.A.
2730 San Pedro NE., Suite D
Albuquerque, New Mexico 98110
Tel: (505) 881-3408
fax: (505) 881-6507
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American Institute of
Certified Public Accountants
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. 333-12557) of our report dated November 22, 1995, on our audits of the
consolidated financial statements of Meteor Industries, Inc. as August 31,
1995 and 1994 and for the years then ended. We also consent to the reference
to our firm under the caption "Experts."
/s/ Squire & Woodward, P.C.
SQUIRE & WOODWARD, P.C.
Albuquerque, New Mexico
April 29, 1997
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
Amendment No. 2 to the Registration Statement on Form S-1 of our report 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) 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
April 30, 1997
