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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED
For the Year ended December 31, 1997
Commission File Number: 0-27968
METEOR INDUSTRIES, INC.
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(Exact Name of Issuer as Specified in its Charter)
COLORADO 84-1236619
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
216 SIXTEENTH STREET, SUITE 730, DENVER, COLORADO 80202
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(Address of Principal Executive Offices)
Issuer's telephone number including area code: (303)572-1135
Securities registered under to Section 12(b) of the Exchange Act: None.
Securities registered under to Section 12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
Title of Class
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [ ]
At March 30, 1998, 4,130,228 shares of Common Stock (the Registrant's only
class of voting stock) were outstanding. The aggregate market value of the
Common Stock on that date held by non-affiliates was approximately $6,200,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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ITEM 1. BUSINESS.
GENERAL
Meteor Industries, Inc. ("Meteor") owns and operates and acquires independent
refined petroleum product distribution companies. These marketing companies
sell gasoline, diesel fuel, lubricants, propane and convenience store items.
Meteor has grown through the acquisition of profitable companies in this
consolidating industry. Management of Meteor has determined that the
petroleum marketing industry is ready for a well financed independent public
company to "roll up" privately held distributors. Management believes that
Meteor has become a leading consolidator of such distributors in the Rocky
Mountain Region and Western United States. Since 1993, Meteor has completed
seven acquisitions, five of which have been acquisitions of petroleum
distributors.
HISTORY
Meteor 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 entered into a Purchase Agreement
in June, 1993 and finalized the purchase in September, 1993.
In January 1994, Meteor 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.
In June 1995, Meteor purchased all of the outstanding shares of Hillger Oil
Company ("Hillger") headquartered in Las Cruces, New Mexico. Hillger is
predominantly an operator of convenience stores but also sells fuels on a
wholesale and commercial basis. In connection with the acquisition of
Hillger, Meteor sold 365,000 shares of its common stock for $730,000 in cash.
In June 1995, Meteor declared an 8% stock dividend to the shareholders of
record as of June 30, 1995.
In October 1995, Meteor formed Meteor Marketing, Inc., formerly Pyramid
Stores, Inc., a Colorado corporation, as a wholly owned subsidiary to hold the
stock of its petroleum distribution subsidiaries and operate those companies
separately from Meteor's other activities.
In November 1995, Meteor 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 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. Accordingly, the transaction was 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 building a
power plant in Pakistan; (ii) all of the stock of Capco Analytical Services,
Inc., a California environmental services firm which was sold in 1997; and
(iii) a $1,516,000 promissory note receivable from Saba Petroleum Company
which was collected in 1997; and other miscellaneous assets.
Graves owns 50% of a limited liability company which in June 1996, acquired a
convenience store for $610,000 using financing through Phillips Performance
Fund.
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At about the same time the Company purchased all of the inventory, dealer
business and lubricant customers of Duke City Distributing Company
(Albuquerque, New Mexico). In February 1997, Graves acquired certain assets of
Tedken Oil Co, a convenience store and a 24-hour automated fueling facility.
Tedken Oil Co. was located in Farmington, New Mexico. In connection with this
acquisition, Meteor raised $520,000 in cash through the sale of 130,000 shares
of common stock and 130,000 warrants with an exercise price of $5.00 per
share.
In June 1997, Meteor completed a public offering of 690,000 shares of its
common stock and 690,000 warrants. Net proceeds from this offering totaled
approximately $3,139,000. Upon completion of this offering, Meteor's shares
and warrants were listed on the American Stock Exchange.
In August 1997, Meteor acquired all of the common stock of Fleischli Oil
Company, Inc. ("Fleischli") for $4,888,000. Fleischli is a petroleum
marketing and distribution company doing business in Colorado, Wyoming, South
Dakota, Nevada, Utah, Montana, Nebraska and Idaho. Fleischli sells large
volumes of fuel and lubricants to industrial users throughout these states,
concentrating on the mining industry.
Meteor's headquarters are located at 216 Sixteenth Street, Suite 730, Denver,
Colorado 80202, and its telephone number is (303) 572-1135.
THE PETROLEUM DISTRIBUTION INDUSTRY
The Petroleum Marketers Association of American ("PMAA") estimates that in
1996 the total volume of refined petroleum products sold in the United States
was approximately 27 million gallons per day. Refined petroleum products are
distributed by three types of entities: pipeline companies that distribute
directly to large end-users, such as utilities and airports; major oil
companies that often supply their own retail outlets and are normally
restricted to urban areas; and independently-owned wholesale petroleum
distributors.
According to PMAA there are over 10,000 independent petroleum distributors in
the United States that distribute approximately 35% of all refined petroleum
products sold in the United States. Due to these industry characteristics, as
well as the absence of other significant industry consolidators, the owners of
independent petroleum businesses, a majority of which are relatively small
owner-operators, have limited alternatives to sell their operations. The
Company believes these factors create an opportunity for it to consolidate
this industry and accomplish additional acquisitions in its existing region
and in additional market areas.
PETROLEUM MARKETING OPERATIONS
Meteor operates its petroleum marketing and convenience store business
primarily from its Colorado, New Mexico and Wyoming offices. The Company
operates this business through Meteor Marketing, Inc. and its two New Mexico
subsidiaries, Hillger Oil Company and Graves Oil & Butane Co., Inc. and one
Wyoming subsidiary, Fleischli Oil Company, Inc. (hereinafter collectively
referred to as the "Company").
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 commercial/wholesale operation has distributor agreements with Phillips
Petroleum Company, Sun Lubricants, Conoco, Inc., Exxon Lubricants, Inc.,
Diamond Shamrock Corp., Sinclair Oil Company and Fina Oil Company. These
distributor
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agreements allow the Company to purchase petroleum products at wholesale
prices directly from distribution centers, pipeline terminals and refineries
controlled by these large oil producer/refiners. The Company is then
authorized to resell those products to its customers.
The Company's distribution agreements generally have three-year terms. The
primary distribution agreements are with Sinclair Oil Company, Phillips 66,
Sun Lubricants Company and Conoco, Inc. The Phillips distribution agreement
expires in June, 1998 and the Conoco agreement expires in April, 1999. 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 is a large and long standing distributor of
Sinclair, Conoco and Phillips products in the states where the Company
operates, it is possible the Company could lose such contracts. In such an
event, the Company's operations may be adversely impacted. If such contracts
were lost, management would attempt to persuade the Company's customers to
switch to other oil company brands with which it has a contract. The Company
could also buy and sell fuel as an unbranded independent, however sales
volumes and/or margins could 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 various large oil companies. The banner arrange-
ments 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 14 people. The marketing department is
primarily responsible for the direct selling efforts of the Company and for
ensuring that customer's accounts are properly serviced. The majority of the
Company's 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 transactions and most of its commercial sales are very
straightforward. The distribution channel begins with the loading of the
Company's trucks at pipeline terminals or refineries. When delivered in
transport quantities, the trucks deliver the inventory directly to the
customer with no intermediate storage of fuel. The distribution process for
bulk fuel products, from pick-up to delivery to customers, is typically
completed in less than two days.
The Company's wholesale/commercial customers in New Mexico are in three major
regional markets; Farmington, Las Cruces and Albuquerque and have been with
the Company for many years. Fleischli's market area is in the states of
Wyoming, Colorado, South Dakota, Nebraska, Utah, Montana, and Idaho. No
customer accounts for more than 10% of the Company's sales. The loss of one
or more major customers could have a significant impact on the Company's
revenues.
The Company's retail operations consist of ownership or leasehold interests in
20 retail outlets which include service stations, convenience stores and lube
pits. Fifteen outlets are operated by the Company and five are leased or
subleased to third parties. Hillger operates nine convenience stores and
supplies 2 branded dealers in New Mexico. Graves operates six retail sites
and supplies 2 branded dealers. Fleischli supplies 1 branded dealer.
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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 continue to expand its convenience store base mostly by
acquisition and in some cases new construction.
The Company has nine 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 wholesale, 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 Annual Report, Graves has over
641 residential and over 15 commercial propane customers and continues to
actively market this product and service. More recently, Graves became a 33%
owner of a residential propane company in Albuquerque, New Mexico. Management
of the Company is actively seeking other propane opportunities in its market
areas.
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 Company has an interest in Saba Power, which
has a power plant project under construction 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. Construction
activity is underway and although there can be no assurances, the project is
expected to be completed in the spring of 1998.
At December 31, 1997, the Company, had invested $690,200 in Meteor Holdings
LLC ("MHL") MHL owns an equity 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 $940,200 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
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reduced in the event that other shareholders of Saba Power are required to
make additional contributions to equity. No such additional equity
contributions have been requested.
MHL had 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
subject to Pakistan Government approval. While the Company is continuing its
efforts to sell its interest in the Power Project, government approval has not
been obtained and there can be no assurance that such approvals will be
obtained in the future.
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.
ENVIRONMENTAL CONSULTING
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 alsocompetes 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
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distributors. Competition also occurs for the gasoline service station
customers. In competing for this segment of the business, a customer must be
convinced to change the "brand" of the station (i.e., convert 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 and
service.
The gasoline retail 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, and
Giant Industries 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.
GOVERNMENTAL REGULATIONS
ENVIRONMENTAL MATTERS
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 States of New Mexico, Colorado and Wyoming 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
$70,000 a year on environmental compliance.
The States of New Mexico, Colorado and Wyoming have established Trust Funds
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 Trust Funds
are limited to amounts in that fund. There can be no assurance that the Trust
Funds will have sufficient capital, or will agree, to fund remediation of any
particular problem.
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
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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 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 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 govern
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mental 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 the Superfund Amendments and Reauthorization Act (SARA).
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 hazardous and 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.
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
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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
the state reimbursement funds 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.
EMPLOYEES
The Company employs approximately 273 people, none of whom are represented by
any collective bargaining organizations. Management considers its employee
relations to be satisfactory at the present time.
ITEM 2. PROPERTIES
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 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 quick lube pits, one car
wash, and two cardlock locations. The lube pits and car wash are leased to an
unaffiliated third party, the Company operates two 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.
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
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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.
In the Fleischli geographic area, the Company owns three properties which are
leased to unaffiliated parties. The first property in Casper, Wyoming
includes a certain building, grounds and facilities including a loading dock
on approximately 4.5 acres. The term of this lease is approximately two years
and expires July, 1999. The second property also in Casper, Wyoming, includes
a certain building, grounds and facilities with the ground area being
approximately 29,450 feet and total building area including loading dock of
approximately 12,000 feet. The lease expired in January, 1997 but was renewed
on a 3 year term and will expire in January, 2000. The third property in Rock
Springs, Wyoming, is comprised of a 6,375 square foot building. This lease
was signed in January, 1998 and is for one year and will expire in January,
1999.
Fleischli leases two properties in Cheyenne, Wyoming from an affiliated party.
The first property includes a warehouse building. The lease commenced in
July, 1995 and has a term of 120 consecutive months which expires in June,
2005. The second property is a commercial office building on a parcel of 1.48
acres. The term of the lease commenced in July, 1995 and has a term of 120
consecutive months which will expire in June, 2005. Fleischli also leases two
properties from two unaffiliated parties. The first is in Commerce City,
Colorado and contains warehousing for bulk goods equipment and bulk storage
tanks on an approximately 16,850 square feet parcel of land. This lease
commenced on January 1, 1997 and expires on December 21, 2001. The second
lease is in Beowawe, Nevada and includes the land and track for use in storage
and handling of engine and hydraulic oils and propane and other purposes
incidental thereto. The area is 117,286 square feet. The term of the lease
commenced in March 1994 and is automatically renewed on a year-to-year basis.
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 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 700 portable above ground
commercial fuel tanks, and propane tanks, 13 automobiles and 42 trucks, 67
tractors/trucks, 95 trailers and 14 forklifts.
ITEM 3. 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 to this litigation is likely to have a material effect on the
Company's financial position or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year covered by this Annual Report, no matter was submitted
to a vote of the Company's shareholders through the solicitation of proxies or
otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
Prices for the Common Stock are quoted on the American Stock Exchange.
Bid
Period High Low
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
Quarter Ended March 31, 1997. . . . . . $5.63 $3.50
Quarter Ended June 30,1997. . . . . . . $7.63 $4.25
Quarter Ended September 30, 1997. . . . $7.75 $5.13
Quarter Ended December 31, 1997 . . . . $5.50 $3.81
__________________
As of March 26, 1998, there were approximately 40 record holders of the
Company's Common Stock. Based on securities position listings, the Company
believes that there are approximately 600 beneficial holders of the Company's
Common Stock.
DIVIDENDS
The Company has paid no cash dividends on its Common Stock and has no present
intention of paying cash dividends in the foreseeable future. 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.
PRIVATE SALES OF SECURITIES
During the year ended December 31, 1996, and during the quarter ended March
31, 1997, the Company sold shares of its Common Stock which were not
registered under the Securities Act of 1933, as amended, as follows:
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.
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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 6. SELECTED 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 for 1995 are included in
the following financial information since November 2, 1995, the effective date
of the acquisition.
BALANCE SHEET DATA: (In Thousands)
At December 31
1997 1996 1995 1994 1993
------ ------- ------ ------ ------
Current Assets $15,826 $ 8,488 $6,708 $ 126 $ --
Property and Equipment 13,940 8,277 8,568 250 --
Other Assets 2,175 3,669 3,273 164 --
Discontinued Operations -- -- -- 572 660
Total Assets 31,941 20,434 18,549 1,112 660
Current Liabilities 12,935 8,943 6,921 403 --
Long-term Debt 2,912 446 2,195 -- --
Deferred Tax Liability 2,288 1,773 1,894 -- --
Minority Interest 4,515 4,152 3,615 -- --
Stockholders' Equity 9,291 5,120 3,924 709 660
STATEMENT OF OPERATIONS DATA:
(In Thousands, Except Per Share Data)
For the Years Ended December 31,
1997 1996 1995 1994 1993
--------- ------- --------- -------- --------
Sales $ 88,440 $59,984 $ 9,828 $ 473 $ -0-
Cost of sales 75,439 49,644 7,373 -0- -0-
Operating Expenses 11,814 9,119 2,395 602 2
Other income (Expense) 397 (79) (71) -0- -0-
Income (loss) from
continuing operations 601 462 (74) (129) (2)
Income from discontinued
operations -0- -0- 1,871 179 690
Net income 601 462 1,796 49 688
Earnings per common
share and equivalent:
Basic
Continuing Operations $ .16 $ .15 $ (.15) $(1295.32) $ (22.82)
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Discontinued Operations -- -- 3.82 1785.27 6906.24
Net Income .16 .15 3.67 489.95 6883.42
Diluted:
Continuing operations $ .16 $ 0.14 $ (.15) $(1295.32) $ (22.82)
Discontinued operations -- -- 3.80 1785.27 6906.24
Net Income $ .16 $ 0.14 $ 3.65 489.95 6883.42
Weighted average number of
common shares and common
share equivalents:
Basic 3,821,061 3,184,397 489,035 100 100
Diluted 3,862,826 3,227,496 492,535 100 100
Cash dividends $ -0- $ -0- $ -0- $ -0- $ -0-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Report contains forward-looking statements within the meaning of the
"safe harbor" provisions of the Private Securities Litigation 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 prior to November 2,
1995, so comparisons with prior years are not very meaningful.
The consolidated statement of operations should be read in conjunction with
the historical financial statements and notes thereto of Meteor, included
elsewhere in this document.
The Company is engaged in the distribution and marketing of refined petroleum
products including gasoline, diesel fuel, propane and lubricants. The
Company's growth, since its inception in 1992, has been primarily through the
acquisition of businesses in the petroleum marketing industry. The Company's
strategy is to continue to pursue acquisitions in the fragmented petroleum
marketing industry.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $1,158,646 for the year
ended December 31, 1997 compared to $841,953 for the year ended December 31,
1996 and $2,101,092 for the year ended December 31, 1995. The increase in
cash provided in 1997 is primarily related to the Fleischli acquisition.
As of December 31, 1997, the Company had working capital of $2,891,493
compared to a working capital deficit of $454,976 at December 31, 1996. The
increase in the working capital is due primarily to a public offering of stock
in 1997.
Net cash used by investing activities totaled $2,575,560 for the year ended
December 31, 1997, compared to cash used of $922,615 for the year ended
December 31, 1996 and 1,378,593 for the year ended December 31, 1995. The
Company collected loans to related parties of $2,150,000 in 1997. This was
offset by purchases of property and equipment and the acquisition of
Fleischli.
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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 $1,490,616 for the year
ended December 31, 1997 compared to a provision of $137,504 for the year ended
December 31, 1996 and a sue of $628,626 for the year ended December 31, 1995.
The increase in 1997 is primarily related to a public offering of stock in
1997, partially offset by payments on debts.
The Company has three revolving bank credit facilities with Norwest Business
Credit, Inc. - one for $3,000,000, one for $1,500,000 and one for $5,000,000.
The credit lines are subject to the borrowing base of the Company's
subsidiaries, as defined and on December 31, 1997, $779,501, 507,127 and
$2,546,944 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 and net
income requirements for two of the subsidiaries. The lender waived these
defaults.
The Company has various loans with banks which require payments of $592,000 in
1998.
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, 1997 was $467,000.
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.
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 is obligated to pay lease costs of approximately $893,000 in 1998
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 exceed
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 states the Company operates in have recognized the potential cleanup costs
resulting from regulations, and have included the establishment of
corrective
15
<PAGE>
action funds. The purpose of the funds are to provide monetary assistance in
both assessing site damage and correcting the damage. 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 maintains detailed inventory records and performs tank and line
tightness tests on a regular basis on all underground storage tanks.
Management has assessed the environmental contingencies and does not
anticipate any potential liabilities that will have a material adverse effect
on the consolidated financial position, results of operation, or liquidity of
the Company.
The 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, 1997, 1996 and 1995, the Company expended
$118,745, $31,167, and $5,876 respectively, for site assessment, related
cleanup costs, and regulatory compliance. Included in other assets at
December 31, 1997 and 1996, are unreimbursed costs from the States of
$20,047 and $125,761, respectively. The Company as accrued $296,940,
discounted at 10%, for environmental remediation which management believes
is adequate to cover known remediation problems.
Meteor and its subsidiaries have checked with the manufacturers of their
various software packages and have been told that new versions addressing the
year 2000 will be available between mid-year through end of 1998. At this
time we have no reason to believe that there will be any problems with our
various software packages.
The Company is required to adopt SFAS No. 130, "Reporting Comprehensive
Income," in the first quarter of 1998. Upon adoption of SFAS No. 130, the
Company will present a new Statement of Comprehensive Income which will report
all changes in the Company's stockholders' equity other than transactions with
stockholders. Comprehensive income pursuant to SFAS No. 130 would include net
income, as reported in the Statement of Operations, plus the net changes in
the foreign currency translation, liabilities components, and unrealized gains
and losses on certain investments in debt and equity securities.
The Company is required to adopt SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," in the fourth quarter of 1998. SFAS
No. 131 will supersede the business segment disclosure requirements currently
in effect under SFAS No. 14. SFAS No. 131, among other things, establishes
standards regarding the information a company is required disclose about its
operating segments and provides guidance regarding what constitutes a
reportable operating segment. The Company currently believes segment
disclosures pursuant to SFAS No. 131 will not be materially different from the
current disclosures pursuant to SFAS No. 14.
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
The Company is primarily engaged in the business of marketing and distributing
refined petroleum products and related products employing wholesale and retail
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operations and environmental services.
The Company had sales of $88,440,000 in 1997 compared to $59,984,000 in 1996,
a $28,456,000 (47.4%) increase. The increase is primarily attributable to the
Company's acquisition of Fleischli on August 1, 1997, and partially offset by
lower rack prices during the current period resulting in lower net sales.
Fuel sales gallons increased to 92,888,000, compared to 62,405,000 in 1996, a
30,483,000 (48.9%) increase. The increase is primarily the result of the
Fleischli acquisition.
Gross profits for 1997 and 1996 were $13,000,000 and $10,340,000 respectively,
an increase of $2,660,000 (26.0%). The increase is primarily attributable to
the Company's acquisition of Fleischli, and partially offset by a decline in
retail gasoline margins during the current period resulting in lower gross
margin. Retail 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 $10,858,000
for the year ended December 31, 1997, compared to $8,269,000 for the period
ended December 31, 1996, an increase of $2,569,000 (31.2%). The increase is
related to the Fleischli acquisition which added $2,904,000 in expenses, while
existing operations reduced expenses by $324,000 (3.9%). As a percentage of
sales, selling, general and administrative expenses declined from 14% to 12%
reflecting benefits of combining the companies.
The Company's depreciation and amortization for the year ended December 31,
1997, was $956,000 compared to $850,000 for the period ending December 31,
1996. The increase in depreciation and amortization is primarily due to the
Fleischli acquisition.
The Company's other income or expense for the year ended December 31, 1997,
was $397,000 in income compared to in $79,000 expense for the period of
December 31, 1996. The reason for the increase is a lawsuit settlement
received in the current period. This is an unusual item that the Company does
not expect to recur in the future.
The Company's provision for income taxes for the year ended December 31, 1997
was $583,000 compared to $395,000 for the period ended December 31, 1996. The
increase is due to higher income. The expected federal tax provision based
upon statutory rates would have been $538,000.
The Company's net income for the year ended December 31, 1997, was $601,000
compared to $462,000 for the period ended December 31, 1996 due to the above
described items.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO DECEMBER 31, 1995
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.
In addition to the fact that the historical accounts for 1995 reflect only two
months of revenue and expense, the increase in revenues is partially due to
increases in gasoline volumes and prices at the retail level.
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<PAGE>
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 the increased level of
sales discussed above. The increase in the percentage of sales is due to no
cost of sales for CRI in either 1996 or 1995, however, due to the reverse
acquisition, a full year of CRI sales are included. Excluding CRI the cost of
sales in 1995 would be 83.1%.
The Company's gross profit for the year ended December 31, 1996, was
$10,340,000 compared to $2,455,000 for the period ended December 31, 1995.
The increase is partially related to higher sales as described above 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 period ended
December 31, 1995. The increase in expenses is related to combining the oper-
ations 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 period ended December 31, 1995. In addition to
the fact that the historical accounts for 1995 reflect only two months of
revenue and expense, 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 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 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 the benefit of loss carryforwards.
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.
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,
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net of taxes was $1,429,256 for the year ended December 31, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Included at F-1 through F-25.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Directors and Executive Officers of the Company are as follows:
Name Age Positions and Offices Held
--------------- --- ----------------------------------------------
Edward J. Names 46 President and Director
Ilyas Chaudhary 50 Chairman, Chief Executive Officer and Director
Dennis R. Staal 49 Secretary/Treasurer and Director
Paul W. Greaves 45 President of Subsidiaries
Irwin Kaufman 61 Director
Rafiq Sayed 45 Director
Robert K. Jensen 41 President of a Subsidiary
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.
On August 5, 1997, a special meeting of the board of directors was held. Two
additional directors were appointed to the board. They are Irwin Kaufman and
Rafiq Sayed. At that same meeting, the Company established an audit committee
and appointed Edward Names, Irwin Kaufman and Rafiq Sayed to that committee.
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 Meteor since it was incorporated in 1993. Mr. Names has extensive
experience in mergers and asset acquisitions as well as small business matters
such as business planning, financing, management and contract negotiation.
Mr. Names was President of Alfa Resources, Inc. and its subsidiaries from 1983
to 1995. Mr. Names resigned as President of Alfa Resources, Inc. as of the
closing of the CRI acquisition and resigned as a director in 1997. 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.
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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. He devotes approximately 80% of his time to the business of the
Company and its subsidiaries.
IRWIN KAUFMAN - Mr. Kaufman has been a director of the Company since August
1997. Mr. Kaufman is a financial consultant facilitating contacts with the
investment community. Mr. Kaufman helps arrange financing for small and
mid-sized companies and consults with management to enhance shareholder value.
He has worked as a financial consultant for the last several years. Mr.
Kaufman has also been a principal consultant for Computer and Mathematics
Education for the Sherman Fairchild Foundation.
RAFIQ SAYED - Mr. Sayed has been a director of the Company since August 1997.
Mr. Sayed is a customer focused technology executive and consultant with
experience in the global telecommunications industry. Mr. Sayed has 22 years
experience with STC LTD U.K. and Northern Telecom in technical and executive
positions. In his most recent position with Nortel, Mr. Sayed managed the
development and re-architecture and re-engineering of the DMS-100 Common layer
and was also responsible for release management, process definition, customer
and employee satisfaction, quality of technical definition, product
integration, validation, test automation and global support. Mr. Sayed
completed H.N.D. in Electrical/Electronic Engineering (Equivalent of BSEE),
Southbank College, London, England with emphasis on Power Distribution in
1975.
PAUL W. GREAVES - President and Chief Executive Officer of the subsidiaries.
Mr. Greaves has been the President and Chief Executive Officer of the
following subsidiaries: Meteor Marketing, Inc. (formerly Pyramid Stores, Inc.)
and its subsidiaries, Graves Oil & Butane Co., Inc. and Hillger Oil Company
since in April, 1996. Mr. Greaves has also acts as Chief Executive Officer of
Fleischli since August, 1997. Prior to working for the Company, Mr. Greaves
held the position of Regional Manager, Rocky Mountain Region, for Propane
Continental of
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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 distribution holding company. Mr.
Greaves devotes his full time to the business of the Company's subsidiaries
described above.
ROBERT JENSEN - President of Fleischli, a subsidiary of Meteor. Mr. Jensen
started with Fleischli in the early 1970's as a laborer and held several
management and non-management positions including warehouse/delivery person,
assistant manager of several retail gasoline stations and regional sales
representative. Mr. Jensen became President of Fleischli in 1993. Mr. Jensen
graduated from the University of Wyoming in 1981. He is involved in numerous
industry organizations having earned Salesman of the Year awards from both the
Wyoming Contractors Associations and the Wyoming Mining Association. Mr.
Jensen is a board member of the Wyoming Chapter of the National Multiple
Sclerosis Society, Cheyenne LEADS economic development group and Chairman of
the Cheyenne, Laramie County Economic Development Joint Powers Board.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto furnished to
the Company during its most recent fiscal year, and Forms 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year
and certain representations, no persons who were either a director, officer,
or beneficial owner of more than 10% of the Company's common stock, failed to
file on a timely basis reports required by section 16(a) of the Exchange Act
during the most recent fiscal year.
ITEM 11. 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, 1997, 1996, and 1995. No other executive officer received
compensation in excess of $100,000 during such periods.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Securities
Other Underlying All
Annual Restrict- Options/ Other
Name and Principal Compen- ed 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 1997 $ -0- -- -- -- -- -- --
Chairman of 1996 $ -0- -- -- -- -- -- --
Board and Chief 1995 $ -0- -- -- -- -- 100,000 --
Executive Officer
Edward J. Names 1997 $105,000 -- -- -- -- -- $5,500*
President 1996 $101,250 -- -- -- -- -- $5,040*
1995 $ 78,000 -- -- -- -- 100,000 $4,512*
</TABLE>
___________________
22
<PAGE>
* Represents premiums paid on health insurance policies for Mr. Names.
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- 66,667/33,333 $-0-/$-0-
Edward J. Names -0- -0- 66,667/33,333 $-0-/$-0-
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. 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 $65,020 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, Meteor Marketing, Inc. 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., Hillger Oil
Company, and Fleischli Oil Company, Inc. The agreement calls for a base
salary of $80,000 per year plus an annual bonus based upon the financial
performance of Meteor and its subsidiaries. The Company may terminate Mr.
Greaves's employment at any time, without cause and be obligated for 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. As of
March 31, 1998, and after reducing the number of expired options, 495,300
options were
23
<PAGE>
issued and outstanding under the Plan.
On October 1, 1993, options were granted to employees. As of December 31,
1997, out of these options, options to purchase 21,500 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, 1997, out of these options, options to purchase
16,800 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 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. As of
December 31, 1997, of these options, only options to purchase 5,000 shares
remain outstanding.
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.
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
per share. 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.
In October 1997, Meteor granted options to Robert Jensen, Fleischli's
President, to purchase 15,000 shares at an exercise price of $5.50 per share.
These options vest over three years and expire in October 2003. In March 1998
Meteor granted
24
<PAGE>
5,000 options to Mr. Jensen at an exercise price of $4.25. Such options vest
over five years and expire in March of 2008.
In March 1998 Meteor granted 5,000 options to each of two Directors. One half
of such options vest immediately and one half vest in March of 1999. The
exercise price is $4.25 per share. Also in March Meteor issued a total of
33,500 options to certain employees of the Company. Such options vest over
five years and expire in March 2008.
CONSULTANTS' OPTIONS
On February 14, 1997, Meteor granted options to three consultants to purchase
an aggregate of 130,000 shares of Meteor's Common Stock with an exercise price
of $3.50 per share to acquire restricted stock. Of the 130,000 options,
50,000 of such options expired in February 1998; 50,000 of such options were
exchanged for the 85,000 options expiring on December 31, 1998 exercisable at
$3.81 per share; and 30,000 shares of such options expire in February 2000.
In September, 1997, Meteor granted options to Irwin Kaufman to purchase 50,000
shares of Meteor's common stock exercisable at $5.77. These options were
canceled and 27,500 were issued on March 11, 1998, pursuant to the 1993 Plan
and such options had an exercise price of $4.25. Such options expire in March
of 2001.
On January 27, 1998, Meteor granted options to one consultant to purchase
50,000 shares of Meteor's Common stock. These options are exercisable at
$4.00 per share and expire on December 31, 1998.
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
25
<PAGE>
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.
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 30, 1998, 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>
NAME AND ADDRESS AMOUNT OF BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP OF CLASS
<S> <C> <C>
Capco Resources Ltd. 1,825,000<FN1> 44.2%
#950, 444 - 5th Avenue, S.W.
Calgary, Alberta
Canada TOP 2T8
Edward J. Names 373,907<FN2> 8.9%
216 - 16th Street, Suite 730
Denver, CO 80202
Ilyas Chaudhary 1,891,667<FN3> 45.1%
#950, 444 - 5th Avenue, SW
Calgary, Alberta
Canada TOP 2T8
Dennis R. Staal 107,599<FN4> 2.6%
216 - 16th Street, Suite 730
Denver, CO 80202
Irwin Kaufman 43,600<FN5> 1.0%
8224 Paseo Vista Drive
Las Vegas, NV 89128
Rafiq Sayed 21,500<FN6> .05%
102 Avenue of the Estates
Cary, NC 27511
Theron J. Graves 1,178,548<FN7> 22.0%
761 South Miller
Farmington, NM 87499
All Executive Officers and 2,460,273<FN8><FN9> 56.8%
Directors as a Group
(7 Persons)
__________________
26
<PAGE>
<FN>
<FN1>
Excludes 75,000 shares which have been pledged to Capco Resources Ltd. to
secure certain guarantees made to it by NFF, Ltd. and PAMDEN, Ltd.
<FN2>
Represents 40,240 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 66,667
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 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 66,667 shares underlying stock
options exercisable within 60 days by Mr. Chaudhary.
<FN4>
Includes 5,400 shares held by Mr. Staal; 71,500 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 21,667 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>
Consists of 30,000 shares underlying stock options exercisable within 60 days
by Mr. Kaufman and 13,600 shares owned by Mr. Kaufman directly .
<FN6>
Consists of 2,500 shares underlying stock options exercisable within 60 days
by Mr. Sayed and 19,000 shares owned by Mr. Sayed directly.
<FN7>
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.
<FN8>
Includes 6,300 shares held directly and 20,000 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.
<FN9>
Includes 2,000 shares held directly by Robert Jensen, who is President of
Fleischli Oil Company, Inc.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 and $250,000 related to the Fleischli acquisition. Mr. Names and
Dennis R.
27
<PAGE>
Staal, who is Secretary and Treasurer of Meteor, each have agreed to
personally guarantee the debts of Graves and Hillger to its major suppliers.
Capco Resources Ltd. has agreed to indemnify Edward Names and Dennis Staal
relating to such guarantees.
TRANSACTIONS INVOLVING GRAVES
On September 28, 1993, the Company acquired all of the issued and outstanding
common stock of Graves Oil & Butane Co., Inc. from its sole shareholder,
Theron J. Graves. As a result of the transaction, Theron J. Graves retired as
the Company's chief executive officer but agreed to provide consulting
services for a period of seven years. Mr. Graves continues his investment by
holding 1,000,000 shares of convertible cumulative preferred stock of Graves.
The convertible preferred stock has a total liquidation preference of
$3,543,500 and accruing dividends 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.
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.
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. Adres Chaudhary has
since transferred such shares to two individuals in a private transaction.
Neither individual owns more than 5% of the Company's common stock.
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
28
<PAGE>
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 has been paid in full. Capco has agreed to guarantee the prepayment of
such note prior 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 warranties of the Company in the agreement. To
collateralize 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
29
<PAGE>
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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following statements are filed as part of this Report:
Page(s)
Report of Independent Accountants ................................ F-1
Consolidated Balance Sheets - December 31, 1997 and 1996 ......... F-2
Consolidated Statements of Operations - December 31, 1997, 1996
and 1995..................................................... F-4
Consolidated Statement of Shareholders' Equity - December 31, 1997
1996 and 1995................................................ F-5
Consolidated Statements of Cash Flow - December 31, 1997, 1996
and 1995.................................................... F-6
Notes to Consolidated Financial Statements ....................... F-9
Financial Statement Schedule
Report of Independent Accountants................................. S-1
Schedule 2 - Valuation and Qualifying Accounts.................... S-2
(b)
Exhibit
Number Description Location
- ------- -------------------------- ------------------------------------
3.1 Articles of Incorporation, Incorporated by reference to Exhibit
as amended 2.1 to Registrant's Form 1-A Offering
Statement (SEC File No. 24D-3802 SML)
3.2 Bylaws Incorporated by reference to Exhibit
2.2 to Registrant's Form 1-A Offering
Statement (SEC File No. 24D-3802 SML)
10.1 Stock Option Plan Incorporated by reference to Exhibit
6.1 to Registrant's Form 1-A Offering
Statement (SEC File No. 24D-3802 SML)
10.2 Stock Purchase Agreement Incorporated by reference to Exhibit
among Registrant, Graves 6.2 to Registrant's Form 1-A Offer-
Oil & Butane Co., Inc. and ing Statement (SEC File No. 24D-3802
Theron J. Graves dated June SML)
23,1993, Amendment dated
August 23, 1993 and Closing
Memorandum dated September
28, 1993
30
<PAGE>
10.3 $2,350,000 Promissory Note Incorporated by reference to Exhibit
payable to Theron J. Graves 6.3 to Registrant's Form 1-A Offering
and Security Agreement Statement (SEC File No. 24D-3802 SML)
10.4 Notes Receivable ($550,000 Incorporated by reference to Exhibit
and $100,000) from Theron 6.4 to Registrant's Form 1-A Offer-
J. Graves ing Statement (SEC File No. 24D-3802
SML)
10.5 Registration Agreement Incorporated by reference to Exhibit
regarding Subsidiary's 6.5 to Registrant's Form 1-A Offering
Preferred Stock Statement (SEC File No. 24D-3802 SML)
10.6 Security Agreement regard- Incorporated by reference to Exhibit
ing Subsidiary's Preferred 6.6 to Registrant's Form 1-A Offering
Stock Statement (SEC File No. 24D-3802 SML)
10.7 Consulting Agreement with Incorporated by reference to Exhibit
Theron J. Graves 6.7 to Registrant's Form 1-A Offering
Statement (SEC File No. 24D-3802 SML)
10.8 Lease regarding corporate Incorporated by reference to Exhibit
offices and storage yard 6.11 to Registrant's Form 1-A Offer-
ing Statement (SEC File No. 24D-3802
SML)
10.9 Lease regarding Albuquerque Incorporated by reference to Exhibit
warehouse 6.12 to Registrant's Form 1-A Offer-
ing Statement (SEC File No. 24D-3802
SML)
10.10 Lease regarding East Main Incorporated by reference to Exhibit
Properties 6.13 to Registrant's Form 1-A Offer-
ing Statement (SEC File No. 24D-3802
SML)
10.11 Norwest Credit and Security Incorporated by reference to Exhibit
Agreement 6.14 to Registrant's Form 1-A Offer-
ing Statement (SEC File No. 24D-3802
SML)
10.12 $4,000,000 Note Payable to Incorporated by reference to Exhibit
Norwest (partially drawn 6.15 to Registrant's Form 1-A Offer-
upon) ing Statement (SEC File No. 24D-3802
SML)
10.13 Meteor Corporate Guarantee Incorporated by reference to Exhibit
as regarding Norwest 6.16 to Registrant's Form 1-A Offer-
ing Statement (SEC File No. 24D-3802
SML)
10.14 Employment Agreement with Incorporated by reference to Exhibit
Edward J. Names 6.17 to Registrant's Form 1-A Offer-
ing Statement (SEC File No. 24D-3802
SML)
10.15 Leases regarding Cortez Incorporated by reference to Exhibit
truck stop 6.18 to Registrant's Form 1-A Offer-
31
<PAGE>
ing Statement (SEC File No. 24D-3802
SML)
10.16 Agreement between the Incorporated by reference to Exhibit
Registrant and Hillger Oil 10.16 to Company's Registration
Statement on Form 10 (SEC File No.
0-27986)
10.17 Lease Agreement between Incorporated by reference to Exhibit
Hillger Oil Co., Inc. and 10.17 to Company's Registration
Hillco, Inc. Statement on Form 10 (SEC File No.
0-27968)
10.18 Credit and Security Agree- Incorporated by reference to Exhibit
ment between Hillger Oil 10.18 to Company's Registration
Co., Inc. and Norwest Statement on Form 10 (SEC File No.
Business Credit, Inc. 0-27968)
10.19 Project Development and Incorporated by reference to Exhibit
Shareholders' Agreement 10.19 to Company's Registration
for Pakistan Power Project Statement on Form 10 (SEC File No.
0-27968)
10.20 Amended and Restated Share Incorporated by reference to Exhibit
Exchange and Reorganization 10.20 to Company's Registration
Agreement Statement on Form 10 (SEC File No.
0-27968)
10.21 Amendment to Employment Incorporated by reference to Exhibit
Agreement with Edward J. 10.21 to Company's Registration
Names Statement on Form 10 (SEC File No.
0-27968)
10.22 Amended and Restated Incorporated by reference to Exhibit
Promissory Note from Saba 10.22 to Company's Registration
Petroleum Company to Capco Statement on Form 10 (SEC File No.
Resources, Inc. 0-27968)
10.23 1997 Incentive Plan Incorporated by reference to Exhibit
10.23 to Company's Form 10-K dated
12/31/96 (SEC File No. 0-27968)
10.24 Second Amended and Restated Incorporated by reference to Exhibit
Agreement between Meteor 10.24 to Company's Form 10-K dated
Industries, Inc., Capco 12/31/96 (SEC File No. 0-27968)
Resources, Inc. and Saba
Petroleum Company
10.25 Shareholder's Agreement Incorporated by reference to Exhibit
among Cogen Technologies, 10.25 to Company's Form 10-K dated
Saba Capital Company, LLC, 12/31/96 (SEC File No. 0-27968)
Capco Resources, Inc., et
al
10.26 Letter Agreement with Incorporated by reference to Exhibit
Western Energy Resources 10.26 to Company's Form 10-K dated
Limited 12/31/96 (SEC File No. 0-27968)
32
<PAGE>
10.27 Letter Agreement between Incorporated by reference to Exhibit
Meteor Industries, Inc. 10.27 to Company's Form 10-K dated
and Capco Resources, Ltd. 12/31/96 (SEC File No. 0-27968)
dated April 23, 1996
10.28 Meteor Corporate Guaranty Filed herewith electronically
with Norwest Business
Credit, Inc.
10.29 Revolving Note with Nor- Filed herewith electronically
west Business Credit, Inc.
10.30 Credit and Security Filed herewith electronically
Agreement
21 Subsidiaries of the Filed herewith electronically
Registrant
27.1 Financial Data Schedule for Filed herewith electronically
fiscal year ending
December 31, 1997
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Meteor Industries, Inc.:
We have audited the consolidated financial statements of Meteor Industries,
Inc. as of December 31, 1997 and 1996 and for each of the three years in the
period ending December 31, 1997, as listed in Item 14(a) of this Form 10-K.
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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ending December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
March 31, 1998
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METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31 December 31
1997 1996
CURRENT ASSETS
Cash $ 225,694 $ 151,992
Restricted cash 1,150,266 928,355
Accounts receivable-trade, net of
allowance of $455,067 and $242,246
respectively 9,745,318 5,134,276
Accounts receivable, related party 91,919 109,149
Notes receivable, net 106,031 736,045
Inventory 3,818,332 1,221,729
Deferred tax asset 404,970 --
Other current assets 283,604 206,401
Total current assets 15,826,134 8,487,947
Property, plant and equipment, net 13,939,783 8,277,368
Other assets
Notes receivable, net 179,110 1,598,430
Investments in closely held businesses 1,395,045 1,285,407
Other assets 601,279 784,579
Total other assets 2,175,434 3,668,416
TOTAL ASSETS $31,941,351 $20,433,731
Continued on next page
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METEOR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31 December 31
1997 1996
CURRENT LIABILITIES
Accounts payable, trade $ 5,655,272 $ 3,512,257
Accounts payable, related party 26,407 --
Bank overdraft 327,734 170,308
Current portion, long-term debt 592,195 2,176,357
Accrued expenses 826,875 212,940
Taxes payable 1,672,586 730,034
Revolving credit facility 3,833,572 2,141,027
Total current liabilities 12,934,641 8,942,923
Long-term debt 2,912,183 445,774
Deferred tax liability 2,288,349 1,773,240
Minority interest in subsidiaries 4,515,010 4,151,903
Total liabilities 22,650,183 15,313,840
Commitments and contingencies (Notes 11, 12 and 13)
SHAREHOLDERS' EQUITY
Common stock, $.001 par value; authorized
10,000,000 shares, 4,130,228 and
3,310,138 shares issued and
outstanding, respectively 4,130 3,310
Paid-in capital 6,319,071 2,660,973
Treasury stock, at cost, 18,500 and
0 shares held respectively (88,694) --
Retained earnings 3,056,661 2,455,608
Total shareholders' equity 9,291,168 5,119,891
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $31,941,351 $20,433,731
The accompanying notes are an integral part of the financial statements.
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METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31
1997 1996 1995
Net sales $ 88,439,730 $ 59,984,499 $ 9,828,092
Cost of sales 75,439,269 49,644,010 7,373,304
Gross profit 13,000,461 10,340,489 2,454,788
Selling, general and
administrative expenses 10,858,086 8,269,292 2,243,612
Depreciation and amortization 956,101 849,607 151,709
Total expenses 11,814,187 9,118,899 2,395,321
Income from operations 1,186,274 1,221,590 59,467
Other income and (expenses)
Interest income 376,463 361,271 28,047
Interest expense (603,903) (474,136) (91,621)
Other 480,482 -- --
Gain (loss)on sale of assets 143,909 34,323 (7,460)
Total other income and (expenses) 396,951 (78,542) (71,034)
Income (loss) from continuing oper-
ations before income taxes
and minority interest 1,583,225 1,143,048 (11,567)
Income tax (expense) benefit (582,627) (394,745) 1,470
Minority interest expense (399,545) (286,505) (63,544)
Income (loss) from continuing
operations $ 601,053 $ 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
income taxes of $100,000) -- -- 1,429,256
Net income $ 601,053 $ 461,798 $ 1,796,812
Earnings (loss) per common share
and equivalent:
Basic
Continuing operations $ .16 $ .15 $ (.15)
Discontinued operations -- -- 3.82
Net income $ .16 $ .15 $ 3.67
Diluted
Continuing operations $ .16 $ .14 $ (.15)
Discontinued operations -- -- 3.80
Net income $ .16 $ .14 $ 3.65
Weighted average common share
and common share equivalents:
Basic 3,821,061 3,184,397 489,035
Diluted 3,862,826 3,227,496 492,535
The accompanying notes are an integral part of the financial statements.
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METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
Additional
Common Stock Paid-In Retained Treasury
Shares Amount Capital Earnings Stock 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 dur-
ing 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
Stock issued dur-
ing the year 820,090 820 3,597,709 -- -- 3,598,529
Warrants issued
during the year -- -- 60,389 -- -- 60,389
Treasury stock
acquisition -- -- -- -- (88,694) (88,694)
Net income -- -- -- 601,053 -- 601,053
Balance - December
31, 1997 4,130,228 $4,130 $6,319,071 $3,056,661 $(88,694) $9,291,168
The accompanying notes are an integral part of the financial statements.
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METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31
1997 1996 1995
Cash flows from operating activities
Net income $ 601,053 $ 461,798 $ 1,796,812
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 956,101 849,607 159,416
Loss (gain) on disposal of property
& equipment (143,909) (34,323) 7,460
Deferred income taxes (249,457) 35,269 (1,470)
Minority interest 399,545 286,505 63,544
Other 0 (11,486) 0
(Increase)/decrease in accounts
receivable 1,815,430 (1,073,621) (314,741)
Increase/(decrease) in bad debt
reserve 212,821 55,267 186,979
(Increase)/decrease in inventories (363,556) 110,913 (32,022)
(Increase)/decrease in other
current assets (77,203) (55,298) 22,297
Increase/(decrease)accounts payable (2,321,095) 642,212 289,544
Increase/(decrease) in accrued
liabilities (743,950) 10,247 (113,889)
Increase/(decrease) in taxes
payable 930,154 (216,068) 60,115
(Increase)/decrease in other assets 142,712 (219,069) 8,207
Discontinued operations -- -- (31,160)
Net cash provided by operating
activities 1,158,646 841,953 2,101,092
Cash flows from investing activities
Acquisition of Fleischli, net
of acquired cash (3,525,608) 0 0
Cash proceeds from sale of property 178,143 116,885 0
Purchases of property and equipment (1,230,148) (253,202) (57,003)
Loans to related parties 0 (68,220) (1,516,000)
Net cash from reverse acquisition 0 0 537,853
Investment in closely held business (109,638) (876,266) (401,999)
Note receivable payments 2,111,691 158,188 58,556
Net cash (used) by
investing activities (2,575,560) (922,615) (1,378,593)
Continued on next page
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METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Year Ended December 31
1997 1996 1995
Cash flows from financing activities
Borrowings on revolving credit
facilities $76,864,675 $56,203,123 $ 7,734,473
Payments on revolving credit
facilities (77,272,130) (56,337,608) (7,922,104)
Increase in bank overdraft 157,426 98,651 71,657
Borrowings on long-term debt 1,560,261 133,727 82,215
Sale of minority interests in
subsidiary 37,387 250,000 --
Distribution to minority interest (73,825) -- --
Payments on long-term debt (3,131,491) (582,417) (56,903)
Proceeds from common stock issued 3,658,918 733,920 4,000
Purchase of treasury stock (88,694) -- --
Restricted cash (221,911) (386,391) (541,964)
Insurance proceeds -- 24,499 --
Net cash provided (used) by
financing activities 1,490,616 137,504 (628,626)
Net increase in cash and
equivalents 73,702 56,842 93,873
Cash and equivalents, beginning of
period 151,992 95,150 1,277
Cash and equivalents, end of period $ 225,694 $ 151,992 $ 95,150
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 $ 701,955 $ 315,000 $ --
Capital lease assets and
obligations assumed $1,094,811 $ 13,308 $ --
Accounts receivable replaced with
note receivable $ -- $ 55,000 $ --
Other operating cash flow information:
Cash paid for taxes $ 703,755 $ 537,600 $ 34,152
Cash paid for interest $ 641,894 $ 485,531 $ 53,005
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METEOR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Year Ended December 31
1997 1996 1995
ACQUISITION OF FLEISCHLI OIL COMPANY
Accounts receivables, net 6,622,063 -- --
Notes receivable 62,357 -- --
Inventory 2,233,047 -- --
Deferred tax asset 262,055 -- --
Property, plant and equipment 4,934,957 -- --
Accounts payable, trade (4,490,517) -- --
Current portion, long term debt (460,195) -- --
Accrued expenses (1,357,885) -- --
Taxes payable (12,398) -- --
Revolving credit facility (2,100,000) -- --
Long term debt (1,291,327) -- --
Deferred tax liability (876,549) -- --
Total $3,525,608 $ -- $ --
The accompanying notes are an integral part of the financial statements.
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METEOR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 in its own account and through
limited liability companies, 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 its own account and
through limited liability companies. 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. 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. Fleischli Oil
Company, Inc. ("Fleischli"), which was acquired effective August 1, 1997, is a
wholesale distributor of petroleum products primarily in Wyoming, Colorado,
Utah and Nebraska.
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., its wholly owned subsidiary Bloomfield Pyramid L.L.C., Hillger,
including its 75% owned subsidiary Hatch Pyramid LLC and its wholly owned
subsidiary Socorro Pyramid L.L.C., Fleischli, 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.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Accounts receivable, accounts payable
and accrued expenses are stated in fair value due to their short-term nature.
The carrying value of notes receivable approximates fair value. The carrying
value of notes payable approximates fair value since the notes are either very
recent or have variable interest rates.
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 and Fleischli. Sundries inventories are valued by the retail
method and stated on the first in, first out (FIFO) basis which is lower than
market. The amount of inventory valued using the LIFO method is $3,095,132 and
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$543,122 at December 31, 1997 and 1996, respectively. The LIFO reserve at
December 31, 1997 and 1996 is $403,065 and $348,382, respectively.
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 operations.
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
periodically evaluates its costs in excess of net assets acquired (goodwill)
and its other intangibles to determine whether any impairment of these assets
has occurred, in accordance with Statement of Financial Accounting Standards
No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. In 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. Any impairments are recognized using
discounted cash flows. 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
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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, and is not subject to recovery, the
expenditure is expensed currently. Liabilities are recorded when remedial
efforts are probable and the cost can be reasonably estimated. The
recoverability of expenditures is recognized when the expenditure is incurred.
The estimated future expenditures are discounted at 10% to present value.
EARNINGS PER SHARE - The Company retroactively adapted SFAS No. 128, "Earnings
Per Share" in 1997. Earnings per common and common equivalent share are
computed by dividing the net income by the weighted average number of common
shares outstanding. A reconciliation of the denominator used in the
calculation of basic and diluted earnings per share is presented below.
Antidilutive stock options and warrants 849,300, 0, 28,200 for the years
ended December 31, 1997, 1996 and 1995, respectively, are omitted from the
denominator. The numerator is unchanged. The shares available upon exchange of
a subsidiary's preferred stock 1,122,864, 854,989, 863,147 for the years ended
December 31, 997, 1996 and 1995, respectively, are omitted as they are
antidilutive.
1997 1996 1995
---- ---- ----
Denominator:
Average common shares outstanding 3,821,061 3,184,397 489,035
Average dilutive stock options and
warrants 41,765 43,099 3,500
Diluted shares 3,862,826 3,227,496 492,535
NOTE 2 -- PROPERTY AND EQUIPMENT
The major classifications of property and equipment are as follows:
1997 1996
DESCRIPTION AMOUNT AMOUNT
Land $ 2,313,992 $ 1,326,349
Buildings and improvements 3,859,672 1,378,282
Equipment 9,564,469 6,512,753
15,738,133 9,217,384
Accumulated depreciation (1,798,350) (940,016)
Net property and equipment $13,939,783 $ 8,277,368
NOTE 3 -- NOTES RECEIVABLE
The Company had two outstanding notes receivable from its minority interest
shareholder (100% preferred stockholder of Graves) in the amounts of $550,000
and $100,000, which became due in October 1997 and were paid. Accrued
interest receivable at December 31, 1996 totaled $45,793.
The Company had a note receivable from another subsidiary of Capco Resources
Ltd. (a 44% owner of the Company) in the amount of $1,516,000, which was paid
in 1997.
The Company has a note receivable from a former subsidiary in the amount of
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$132,293. Interest and principle is receivable monthly The interest rate is
8%. $22,411 is classified as current and $109,882 is long term.
The Company also has various notes receivable created through its operations.
The notes have varying interest rates and terms. At December 31, 1997, the
total of the notes are $152,848, of which $83,620 is classified as current and
$69,228 is long term.
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 $216,052 at
December 31, 1997. 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 $173,491 at December
31, 1997. This investment is not publicly traded.
The Company owns 33% of American L.P., Ltd. The investment was acquired in
December 1995, for $100,014. The Company reports 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, 1997.
At December 31, 1997, the Company had invested $690,200 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
$940,200 in the Power Project. Saba owns approximately .5% interest in the
Power Project through its ownership of 27% of MHL. The Company owns
approximately 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.
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.
NOTE 5 -- REVOLVING CREDIT FACILITY
Revolving Credit Facility at December 31, consisted of the following:
1997 1996
$3,000,000 revolving bank credit facility,
payable to Norwest Business Credit, Inc.,
bearing interest at Norwest Bank Minnesota,
N.A., base rate plus 1.5% (10.0% and 10.25%
at December 31, 1997 and 1996, respectively),
due June 30, 1999. Collateralized by trade
accounts receivable and inventory of Graves. $ 779,501 $1,861,189
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$1,500,000 revolving bank credit facility,
payable to Norwest Business Credit, Inc.,
bearing interest at Norwest Bank Minnesota,
N.A., base rate plus 1.5% (10.0% and 10.25%
at December 31, 1997 and 1996, respectively),
due June 30, 1999. Collateralized by trade
accounts receivable and inventory of Hillger $ 507,127 $ 279,838
$5,000,000 revolving bank credit facility, pay-
able to Norwest Business Credit, Inc., bearing
interest at Norwest Bank Minnesota, N.A., base
rate plus 1.5% (10.0% at December 31, 1997),
due June 30, 1999. Collateralized by trade
accounts receivable and inventory of Fleischli $ 2,546,944 $ --
Total $ 3,833,572 $2,141,027
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, 1997, was $1,075,334.
Hillger was in default of its net worth and net income requirement, as well as
its requirements regarding liens, indebtedness and investments in
subsidiaries, in December, 1997, however Hillger received a waiver of these
defaults. Fleischli was in default of its covenant regarding capital
expenditures in December, 1997, for which a waiver was obtained. Graves,
Hillger and Fleischli 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:
1997 1996
Note payable to Theron Graves, semiannual
payments of $200,000 including interest at
prime plus 2% (10.25% at December 31 1996),
collateralized by half of Graves common stock,
matured in October 1997. $ -0- $1,759,139
Note payable to First National Bank of
Farmington, monthly payments of $19,000
including interest at prime plus 2% (10.25%
at December 31, 1996) collateralized by
mortgage on buildings and land, paid in
December 1997. -0- 211,872
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% in 1996 and base rate plus 2.5% in 1997
(11.0% and 11.25% at December 31, 1997 and 1996,
respectively), collateralized by property and
equipment, due June 1998. 62,490 187,494
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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. 278,817 315,000
Note payable to unaffiliated third party
annual payment of $20,000 with no interest
and no collateral, matures June, 2000. 40,000 60,000
Note payable to Ford Motor Credit, monthly
payments of $329 including interest at 11.9%,
collateralized by equipment, matures
December, 1999. 6,996 9,919
Note payable to GMAC, monthly payments
of $257, including interest at 9.95%,
collateralized by equipment, matures
April, 2000. 6,246 8,533
Note payable to GMAC, monthly payments
of $387, including interest at 9.95%,
collateralized by equipment. Paid in 1997. -0- 9,330
Note payable to GMAC, monthly payments
of $604, including interest at 10.12%,
collateralized by equipment, Paid in 1997. -0- 18,681
Note payable to unaffiliated third party
monthly payment of $1,772 including interest
at 8.5%, collateralized by land and building,
matures October, 2011. 178,700 -0-
Note payable to Phillips Performance Fund,
monthly payments of $7,863 including interest
at commercial paper rate plus 1.8%, collater-
alized by mortgage on building and land, matures
July, 2007. 648,083 -0-
Note payable to Norwest Bank, Albuquerque,
monthly payments of $13,098 including interest
at 9.65%, collateralized by mortgage on building
and land, matures November, 2002, the agreement
requires the company to maintain certain net
worth and cashflow levels. 1,000,000 -0-
Notes payable to American National Bank, due
in monthly installments of $6,259, including
interest at the Wall Street Journal prime,
currently 8.5%, plus .5% collateralized by
real estate, due November, 2002. 350,792 -0-
Note payable to Sun Company, Inc., monthly
payments of $4,853 including interest at 8.0%,
not collateralized, due December, 2006. 360,652 -0-
Note payable to American National Bank,
monthly payments of $851 including interest
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at New York Citibank prime, currently 8.5%,
plus 0.5%, collateralized by equipment,
due April, 2000. 21,389 -0-
Note payable to American National Bank,
monthly payments of $696 including interest
at New York Citibank prime, currently 8.5%,
plus 0.5%, collateralized by equipment,
due April, 2000. 17,489 -0-
Note payable to American National Bank,
monthly payments of $696 including interest
at New York Citibank prime, currently 8.5%,
plus 0.5%, collateralized by equipment,
due April, 2000. 17,489 -0-
Leases payable (Note 14) 515,235 42,163
Total 3,504,378 2,622,131
Current portion (592,195) (2,176,357)
Long-term debt $2,912,183 $ 445,774
The following is a schedule by years of the repayment of long-term debt:
PERIOD ENDING
DECEMBER 31, AMOUNT
1998 $ 592,195
1999 538,496
2000 322,786
2001 301,224
2002 941,435
Remaining 808,242
Total $3,504,378
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
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 $1,228,673 and $945,192 as of December 31,
1997 and 1996, respectively. The minority interest is recorded at its
discounted value in the amount of $4,227,623. Dividends and accretion of the
preferred stock discount are
F-15
<PAGE>
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 $250,000.
The Company owns 75% of Hatch Pyramid L.L.C. The minority interest of 25% is
recorded at its cost basis of $37,387.
NOTE 8 -- INCOME TAXES
The provision for income taxes from continuing operations consists of the
following components:
1997 1996 1995
Current tax expense $ 832,084 $359,476 $ 0
Deferred tax expense (benefit) (249,457) 35,269 (1,470)
Total provision $ 582,627 $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:
1997 1996 1995
Expected tax provision $ 538,296 $ 445,789 $ (3,933)
Nondeductible expenses 8,893 4,407 2,425
Benefit of operating loss
carryforwards -- (40,107) --
State income taxes, net of
federal benefit 35,438 (15,344) 38
Total provision $ 582,627 $ 394,745 $ (1,470)
The deferred tax asset (liability) in the accompanying balance sheet includes
the following components:
1997 1996
Current:
Deferred tax asset(liability),
federal $ 353,051 $ (5,042)
Deferred tax asset(liability),
state 51,919 (742)
Net current deferred asset
(liability) $ 404,970 $ (5,784)
Noncurrent:
Deferred tax liability, federal $(1,994,971) $(1,535,934)
Deferred tax liability, state (293,378) (237,306)
Net noncurrent deferred tax
liability $(2,288,349) $(1,773,240)
Net deferred tax liability $(1,883,379) $(1,779,024)
Components of deferred income taxes at December 31, were as follows:
F-16
<PAGE>
1997 1996
Deferred tax asset:
Accounts receivable $ 188,213 $ 82,776
Inventory 35,239 7,712
Other 59,231 16,052
Accrued environmental costs 122,287 --
Total deferred tax asset 404,970 106,540
Deferred tax liability:
Depreciation and amortization $(2,288,349) $(1,773,240)
Other -- (112,324)
Total deferred tax liability (2,288,349) (1,885,564)
Net deferred tax liability (1,883,379) (1,779,024)
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. Contributions and fees for the years ended December 31, 1997,
1996, and 1995, were $2,665, $17,014 and $-0-, respectively.
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, 1997,
1996 and 1995, Hillger's contribution and fees were $28,451, $13,056, and
$4,346 respectively.
Fleischli has a 401(k) Profit-Sharing Plan with eligibility requirements of 21
years of age and one year of service. The Plan provides for employee
contributions not to exceed legal limitations, a discretionary employer
matching contribution, and a discretionary profit-sharing contribution. The
Company did not make any contributions to the Plan for the year ended December
31, 1997.
NOTE 10 -- RELATED PARTY TRANSACTIONS
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, 1997, 1996 and 1995, rents paid were $54,600,
$54,600, 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 referred
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, 1997, 1996 and 1995, revenues reported amounted to $-0-, $56,612
and $56,864, respectively. The properties are now closed and
F-17
<PAGE>
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, 1997, 1996 and 1995,
revenues reported amounted to $532,781, $1,018,928 and $224,425, respectively.
The preferred stockholder was indebted to the Company on two notes totaling
$650,000. Interest receivable at December 31, 1996, was $45,793. Interest
earned during the years ended December 31, 1997, 1996 and 1995, was $54,302,
$66,790, and $11,677, respectively.
The Company was indebted to the preferred stockholder for $1,759,139.
Interest payable at December 31, 1996, was $45,078. Interest expense during
the years ended December 31, 1997, 1996 and 1995 for this note was $127,225,
$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, 1997, 1996 and
1995, the fees paid were $22,192, $27,232 and $3,570, respectively.
The Company leases a commercial office building for $2,700 per month from a
corporation controlled by a director of one of the Company's subsidiaries, see
Note 13.
The Company leases rolling stock from various related parties under capital
lease agreements. The total obligation under these agreements at December 31,
1997 was $204,669, and interest expense for the period ended December 31, 1997
was $12,401.
The Company has accounts payable to related parties, including employees and
corporations controlled by directors of one of the Company's or its
subsidiaries, in the amount of $26,407 at December 31 1997.
The Company has accounts receivables to related parties, including employees
and corporations controlled by directors of one of the Company's or its
subsidiaries, in the amount of $91,919 at December 31, 1997.
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. 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 states the Company operates in have recognized the potential cleanup costs
resulting from regulations, and have included the establishment of
corrective action funds. The purpose of the funds are to provide monetary
assistance in both assessing site damage and correcting the damage.
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
F-18
<PAGE>
(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 December 31, 1997, 1996 and 1995, the Company expended
$118,745, $31,167, and $5,876 respectively, for site assessment, related
cleanup costs, and regulatory compliance. Included in other assets at
December 31, 1997 and 1996, are unreimbursed costs from the States of $20,047
and $125,761, respectively. The Company has accrued $296,940, discounted to
present value at 10%, for environmental remediation which management believes
is adequate to cover known remediation problems. It is anticipated these
expenditures will occur over the next 10 years.
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, 1997 and 1996, the Company was
contingently liable for $6,516 and $11,462, 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 a Phillips Performance Fund, Inc. note for
$467,025 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, 1997, 1996 and 1995, was $843,634,
$771,716, and $123,723, respectively.
Minimum future obligations on leases in effect at December 31, 1997, are:
December 31, 1998 $ 892,641
December 31, 1999 $ 839,160
December 31, 2000 $ 802,958
December 31, 2001 $ 798,312
December 31, 2002 $ 645,828
Thereafter $1,743,915
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
F-19
<PAGE>
As of December 31, leased property under capital leases by major classes was
as follows:
1997 1996
Buildings and improvements $ 18,141 $ 18,141
Equipment 1,214,411 119,600
Accumulated amortization (660,824) (69,492)
Net leased property $ 571,728 $ 68,249
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, 1997:
December 31, 1998 $275,000
December 31, 1999 256,596
December 31, 2000 41,961
December 31, 2001 2,875
Total minimum lease payments 576,432
Less: amount representing interest 61,197
Present value of minimum lease payments $515,235
NOTE 15 -- STOCK OPTION AND INCENTIVE EQUITY PLANS
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 1997 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
options were granted with maximum terms of between one and ten years. The
majority of the options outstanding at December 31, 1997 will vest by December
31, 1998.
A summary of the status of the Company's stock option plans as of December 31,
1997 and 1996, is presented below:
F-20
1997 1996 1995
------------------ --------------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE EXERCISE EXERCISE
PRICE SHARES PRICE SHARES PRICE
------ ---------- ------- -------- ------ ---------
Outstanding
at beginning
of year 363,300 $ 3.57 312,400 $ 3.60 108,000 $ 3.90
Granted at
market 215,000 $ 3.77 -- $ -- 21,000 $ 3.00
Granted ex-
ceeding
market 65,000 $ 5.71 105,000 $ 3.50 215,000 $ 3.50
Exercised -- $ -- -- $ -- -- --
Forfeited (44,000) $(4.22) (54,100) $ 3.63 (31,600) $ 3.54
Outstanding
at end of
year 599,300 $ 3.82 363,300 $ 3.57 312,400 $ 3.60
Options exer-
cisable at
Year-End 214,834 $ 3.69 123,934 $ 3.66 28,400 $ 3.95
Options Avail-
able for Future
Grant 115,700 N/A 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
January 2, 1997 20,000 $ 5.07 5 years
February 14, 1997 30,000 $ 3.50 5 years
February 14, 1997 50,000 $ 3.50 1 year
February 14, 1997 30,000 $ 3.50 3 years
September 12, 1997 50,000 $ 5.77 Immediately
October 31, 1997 15,000 $ 5.50 3 years
November 10, 1997 85,000 $ 3.8125 1 year
The following table summarizes information about stock options outstanding at
December 31, 1997:
F-21
<PAGE>
OPTIONS WEIGHTED AVERAGE OPTIONS
EXERCISABLE OUTSTANDING AT REMAINING CON- EXERCISABLE AT
PRICE DECEMBER 31, 1997 TRACTUAL LIFE DECEMBER 31, 1997
- ----------- ----------------- ---------------- -----------------
3.00 21,500 6 17,200
5.25 16,800 7 16,800
3.00 21,000 3 14,000
3.50 215,000 3 143,334
3.50 55,000 4 11,000
5.07 10,000 5 -0-
3.50 30,000 5 -0-
3.50 50,000 1 -0-
3.50 30,000 3 -0-
5.77 50,000 1 12,500
5.50 15,000 3 -0-
3.8125 85,000 1 -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, 1997, 1996 and
1995, would have been reduced to the pro forma amounts indicated below:
1997 1996 1995
Net Income: As reported $ 601,053 $ 461,798 $1,796,812
Pro Forma $ 408,457 $ 368,367 $1,720,406
Earnings per share: Basic
As reported $ .16 $ .15 $ 3.67
Pro Forma $ .11 $ .12 $ 3.52
Diluted
As reported $ .16 $ .14 $ 3.65
Pro Forma $ .11 $ .11 $ 3.49
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; one
expected life of 5 years for 1996 and 2.96 for 1997, expected volatility of
60% and 95% for 1997 and 1996, respectively, and a risk free rate of return of
5.87 and 6.40 percent, respectively. The weighted average fair value of those
purchase rights granted in 1997 and 1996 was $1.78 and $2.54 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 16 - WARRANTS
REDEEMABLE WARRANTS
In June 1997 the Company sold redeemable warrants to purchase up to 690,000
shares of Common Stock as part of a public offering. The warrants are
exercisable until June 3, 1999.
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
F-22
<PAGE>
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 hereto.
PRIOR UNDERWRITING WARRANTS
In connection with the Company's initial public offering, the Company issued
to the managing underwriter 17,000 warrants to purchase shares of Common Stock
at $1.00 per share. 10,000 warrants have been exercised and 7,000 remain
outstanding. The warrants are exercisable until January 13, 1999.
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 and March 27,
1999.
NOTE 17 - NEW ACCOUNTING PRINCIPLES NOT YET ADOPTED
The Company is required to adopt SFAS No. 130, "Reporting Comprehensive
Income," in the first quarter of 1998. Upon adoption of SFAS No. 130, the
Company will present a new Statement of Comprehensive Income which will report
all changes in the Company's stockholders' equity other than transactions with
stockholders. Comprehensive income pursuant to SFAS No. 130 would include net
income, as reported in the Statement of Operations, plus the net changes in
the foreign currency translation, liabilities components, and unrealized gains
and losses on certain investments in debt and equity securities.
The Company is required to adopt SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," in the fourth quarter of 1998. SFAS
No. 131 will supersede the business segment disclosure requirements currently
in effect under SFAS No. 14. SFAS No. 131, among other things, establishes
standards regarding the information a company is required to disclose about
its operating segments and provides guidance regarding what constitutes a
reportable operating segment. The Company currently believes segment
disclosures pursuant to SFAS No. 131 will not be materially different from the
current disclosures pursuant to SFAS No. 14.
NOTE - 18 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
F-23
<PAGE>
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.
NOTE 19 - DISCONTINUED OPERATIONS
On September 15, 1995, CRI sold the shares of Saba de Colombia, Inc., a U.S.
subsidiary engaged in the exploration and development of petroleum and natural
gas in Colombia, to a third party for consideration of $2,601,719, and
realized a gain net of taxes on the sale of the shares of $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.
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 assets 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.
The discontinued operations results for 1995 are as follows:
F-24
<PAGE>
YEAR ENDED
DECEMBER 31, 1995
Income -----------------
Oil and gas sales (net of royalties) $14,197,860
Other income 843,793
15,041,653
Expenses
Production and operating 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 20 - FLEISCHLI ACQUISITIONS
On August 11, 1997, Meteor closed on its acquisition of all of the outstanding
common stock of Fleischli. The purchase price for the common stock was
$4,888,000 paid in the form of cash.
The following unaudited pro forma combined information for the twelve months
ended December 31, 1997 and 1996 combines the historical financial
information for the Company and Fleischli assuming the acquisition was
consummated at the beginning of the periods presented. The pro forma
information includes the results of operations of the Company and Fleischli,
along with adjustments which give effect to events that are directly
attributable to the transaction and which are expected to have a continuing
impact.
This unaudited pro forma financial information does not purport to represent
the results of operations that actually would have resulted had the purchase
occurred on the date specified, nor should it be taken as indicative of the
future results of operations.
1997 1996
Sales $135,894,308 $146,793,103
Net income $ 820,822 $ 931,913
Net income per common share
Basic $ .21 $ .29
Diluted $ .21 $ .29
The summarized quarterly financial data presented below reflects all
adjustments which, in the opinion of management, are of a normal and recurring
nature necessary to present fairly the results of operations for the periods
presented.
F-25
<PAGE>
1997 Total Fourth Third Second First
- ------------- ----------- ----------- ----------- ----------- -----------
Sales $88,439,730 $32,998,622 $27,280,844 $14,307,724 $13,852,540
Gross profit $13,000,461 $ 4,617,514 $ 3,828,705 $ 2,330,173 $ 2,224,069
Income before
income taxes
and minority
taxes $ 1,583,225 $ 482,832 $ 415,724 $ 167,972 $ 516,697
Net income $ 601,053 $ 228,928 $ 155,337 $ 2,033 $ 214,755
Net income
per share
Basic $ 0.16 $ 0.06 $ 0.04 $ -- $ 0.06
Diluted $ 0.16 $ 0.06 $ 0.04 $ -- $ 0.06
1996
- -------------
Sales $59,984,499 $14,453,616 $16,152,325 $15,993,019 $13,385,539
Gross profit $10,340,489 $ 2,544,851 $ 2,677,440 $ 2,562,582 $ 2,555,616
Income before
income taxes
and minority
taxes $ 1,143,048 $ 100,149 $ 389,019 $ 322,297 $ 331,583
Net income $ 461,798 $ 111,578 $ 141,985 $ 34,947 $ 173,288
Net income
per share
Basic $ 0.15 $ 0.04 $ 0.04 $ 0.01 $ 0.06
Diluted $ 0.14 $ 0.03 $ 0.04 $ 0.01 $ 0.06
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Meteor Industries, Inc.:
Our report on the consolidated financial statements of Meteor Industries, Inc.
as of December 31, 1997 and 1996 and for each of three years in the period
ending December 31, 1997 is included on page F-1 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index in Item 14 of
this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
March 31, 1998
S-1
<PAGE>
SCHEDULE 2
VALUATION AND QUALIFYING ACCOUNTS
Balance Charged Balance
beginning Charged to other end
Description of the year to costs accounts of year
- ----------- ------------ -------- -------- --------
1997
----
Inventory reserve $ 7,500 $ 30,347 $ -0- $ 37,847
Bad debt reserve - Accounts
receivable $ 242,246 $ 221,209 $ (8,468)(a)$ 455,067
Bad debt reserve - Notes
receivable $ -0- $ 23,087 $ 77,467 (b)$ 100,554
1996
----
Inventory reserve $ 15,000 $ (7,500) $ -0- $ 7,500
Bad debt reserve - Accounts
receivable $ 206,979 $ 57,431 $ (22,164)(c)$ 242,246
Bad debt reserve - Notes
receivable $ -0- $ -0- $ -0- $ -0-
1995
----
Inventory reserve $ -0- $ -0- $ 15,000 (d)$ 15,000
Bad debt reserve - Accounts
receivable $ -0- $ 21,248 $ 185,731 (d)$ 206,979
Bad debt reserve - Notes
receivable $ -0- $ -0- $ -0- $ -0-
(a) Acquisition of Fleischli Oil Company, net of reclassification
(b) Reclassification
(c) Reclassification
(d) Reverse acquisition step up
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
METEOR INDUSTRIES, INC.
Dated: March 31, 1998 By: /s/ Edward J. Names
Edward J. Names, President
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
Dated: March 31, 1998 By: /s/ Ilyas Chaudhary
Ilyas Chaudhary, Chief Executive
Officer and Director
Dated: March 31, 1998 By: /s/ Edward J. Names
Edward J. Names, President and
Director
Dated: March 31, 1998 By: /s/ Dennis R. Staal
Dennis R. Staal, Secretary/
Treasurer (Principal Financial
and Accounting Officer) and
Director
Dated: March 31, 1998 By: /s/ Irwin Kaufman
Irwin Kaufman, Director
Dated: March 31, 1998 By: /s/ Rafiq Sayed
Rafiq Sayed, Director
This Guaranty, dated as of August 13, 1997, is made by Meteor Industries,
Inc., a Colorado corporation (the "Guarantor") for the benefit of Norwest
Business Credit, Inc., a Minnesota corporation (with its participants,
successors and assigns, the "Lender").
The Lender and Fleischli Oil Company, Inc., a Wyoming corporation (the
"Borrower"), are parties to a Credit and Security Agreement of even date
herewith pursuant to which the Lender may make advances and extend other
financial accommodations to the Borrower.
As a condition to extending such credit to the Borrower, the Lender has
required the execution and delivery of this Guaranty.
ACCORDINGLY, the Guarantor, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agrees as follows:
1. Definitions. All terms defined in the Credit Agreement that are not
otherwise defined herein shall have the meanings given them in the Credit
Agreement.
2. Guaranty. The Guarantor hereby absolutely and unconditionally guarantees
to the Lender the full and prompt payment when due, whether at maturity or
earlier by reason of acceleration or otherwise, of (i) the Obligations and
(ii) each and every other sum now or hereafter owing to the Lender by the
Borrower, including but not limited to, debts, liabilities and obligations
arising out of loans, credit transactions, financial accommodations,
discounts, purchases of property or other transactions with the Borrower or
for the Borrower's account or out of any other transaction or event, owed to
the Lender or owed to others by reason of participations granted to or
interests acquired or created for or sold to them by the Lender, in each case
whether now existing or hereafter arising, whether arising directly in a
transaction or event involving the Lender or acquired by the Lender from
another by purchase or assignment or as collateral security, whether owed by
the Borrower as drawer, maker, endorser, accommodation party, guarantor,
principal, surety or as a member of any partnership, syndicate, association or
group or in any other capacity, whether absolute or contingent, direct or
indirect, primary or secondary, sole, joint, several or joint and several,
secured or unsecured, due or not due, contractual, tortious or statutory,
liquidated or unliquidated, arising by agreement or imposed by law or
otherwise (all of said sums being hereinafter called the "Indebtedness").
3. Guarantor's Representations and Warranties. The Guarantor represents and
warrants to the Lender that:
i) the Guarantor is a corporation, duly organized and existing in good
standing and has full power and authority to make and deliver this Guaranty;
ii) the execution, delivery and performance of this Guaranty by the
Guarantor have been duly authorized by all necessary action of its directors
and shareholders and do not and will not violate the provisions of, or
constitute a default under, any presently applicable law or its articles of
incorporation and bylaws or any agreement presently binding on it;
iii) this Guaranty has been duly executed and delivered by the
authorized officer of the Guarantor and constitutes its lawful, binding and
legally enforceable obligation; and
iv) the authorization, execution, delivery and performance of this
Guaranty do not require notification to, registration with, or consent or
approval by, any federal, state or local regulatory body or administrative
agency. The Guarantor represents and warrants to the Lender that the Guarantor
has a direct and substantial economic interest in the Borrower and expects to
derive substantial benefits therefrom and from any loans, credit transactions,
financial accommodations, discounts, purchases of property and other
transactions and events resulting in the creation of the Indebtedness
guarantied hereby, and that this Guaranty is given for a business purpose. The
Guarantor agrees to rely exclusively on the right to revoke this Guaranty
prospectively as to future transactions, in accordance with paragraph 4, if at
any time, in the opinion of the directors or officer, the benefits then being
received by the Guarantor in connection with this Guaranty are not sufficient
to warrant the continuance of this Guaranty as to the future Indebtedness of
the Borrower. Accordingly, so long as this Guaranty is not revoked
prospectively in accordance with paragraph 4, the Lender may rely conclusively
on a continuing warranty, hereby made, that the Guarantor continues to be
benefitted by this Guaranty and the Lender shall have no duty to inquire into
or confirm the receipt of any such benefits, and this Guaranty shall be
effective and enforceable by the Lender without regard to the receipt, nature
or value of any such benefits.
4. Unconditional Nature. No act or thing need occur to establish the
Guarantor's liability hereunder, and no act or thing, except full payment and
discharge of all of the Indebtedness, shall in any way exonerate the Guarantor
hereunder or modify, reduce, limit or release the Guarantor's liability
hereunder. This is an absolute, unconditional and continuing guaranty of
payment of the Indebtedness and shall continue to be in force and be binding
upon the Guarantor, whether or not all of the Indebtedness is paid in full,
until this Guaranty is revoked prospectively as to future transactions, by
written notice actually received by the Lender, and such revocation shall not
be effective as to the amount of Indebtedness existing or committed for at the
time of actual receipt of such notice by the Lender, or as to any renewals,
extensions, refinancings or refundings thereof.
5. Dissolution or Insolvency of Guarantor. The dissolution or adjudication
of bankruptcy of the Guarantor shall not revoke this Guaranty, except upon
actual receipt of written notice thereof by the Lender and only prospectively,
as to future transactions, as herein set forth. If the Guarantor shall be
dissolved or shall be or become insolvent (however defined), then the Lender
shall have the right to declare immediately due and payable, and the Guarantor
will forthwith pay to the Lender, the full amount of all of the Indebtedness
whether due and payable or unmatured. If the Guarantor voluntarily commences
or there is commenced involuntarily against the Guarantor a case under the
United States Bankruptcy Code, the full amount of all Indebtedness, whether
due and payable or unmatured, shall be immediately due and payable without
demand or notice thereof.
6. Subrogation. The Guarantor will not exercise or enforce any right of
contribution, reimbursement, recourse or subrogation available to the
Guarantor as to any of the Indebtedness, or against any person liable
therefor, or as to any collateral security therefor, unless and until all of
the Indebtedness shall have been fully paid and discharged.
7. Enforcement Expenses. The Guarantor will pay or reimburse the Lender for
all costs, expenses and attorneys' fees paid or incurred by the Lender in
endeavoring to collect and enforce the Indebtedness and in enforcing this
Guaranty.
8. Lender's Rights. The Lender shall not be obligated by reason of its
acceptance of this Guaranty to engage in any transactions with or for the
Borrower. Whether or not any existing relationship between the Guarantor and
the Borrower has been changed or ended and whether or not this Guaranty has
been revoked, the Lender may enter into transactions resulting in the creation
or continuance of the Indebtedness and may otherwise agree, consent to or
suffer the creation or continuance of any of the Indebtedness, without any
consent or approval by the Guarantor and without any prior or subsequent
notice to the Guarantor. The Guarantor's liability shall not be affected or
impaired by any of the following acts or things (which the Lender is expressly
authorized to do, omit or suffer from time to time, both before and after
revocation of this Guaranty, without consent or approval by or notice to the
Guarantor):
i) any acceptance of collateral security, guarantors, accommodation
parties or sureties for any or all of the Indebtedness;
ii) one or more extensions or renewals of the Indebtedness (whether or
not for longer than the original period) or any modification of the interest
rates, maturities, if any, or other contractual terms applicable to any of the
Indebtedness or any amendment or modification of any of the terms or
provisions of any loan agreement or other agreement under which the
Indebtedness or any part thereof arose;
iii) any waiver or indulgence granted to the Borrower, any delay or lack
of diligence in the enforcement of the Indebtedness or any failure to
institute proceedings, file a claim, give any required notices or otherwise
protect any of the Indebtedness;
iv) any full or partial release of, compromise or settlement with, or
agreement not to sue, the Borrower or any guarantor or other person liable in
respect of any of the Indebtedness;
v) any release, surrender, cancellation or other discharge of any evidence
of the Indebtedness or the acceptance of any instrument in renewal or
substitution therefor;
vi) any failure to obtain collateral security (including rights of setoff)
for the Indebtedness, or to see to the proper or sufficient creation and
perfection thereof, or to establish the priority thereof, or to preserve,
protect, insure, care for, exercise or enforce any collateral security; or any
modification, alteration, substitution, exchange, surrender, cancellation,
termination, release or other change, impairment, limitation, loss or
discharge of any collateral security;
vii) any collection, sale, lease or disposition of, or any other
foreclosure or enforcement of or realization on, any collateral security;
viii) any assignment, pledge or other transfer of any of the Indebtedness
or any evidence thereof;
ix) any manner, order or method of application of any payments or credits
upon the Indebtedness; and
x) any election by the Lender under Section 1111(b) of the United States
Bankruptcy Code. The Guarantor waives any and all defenses and discharges
available to a surety, guarantor or accommodation co-obligor.
9. Waivers by Guarantor. The Guarantor waives any and all defenses, claims,
setoffs and discharges of the Borrower, or any other obligor, pertaining to
the Indebtedness, except the defense of discharge by payment in full. Without
limiting the generality of the foregoing, the Guarantor will not assert, plead
or enforce against the Lender any defense of waiver, release, discharge or
disallowance in bankruptcy, statute of limitations, res judicata, statute of
frauds, anti-deficiency statute, fraud, incapacity, minority, usury,
illegality or unenforceability which may be available to the Borrower or any
other person liable in respect of any of the Indebtedness, or any setoff
available against the Lender to the Borrower or any other such person, whether
or not on account of a related transaction. The Guarantor expressly agrees
that the Guarantor shall be and remain liable for any deficiency remaining
after foreclosure of any mortgage or security interest securing the
Indebtedness, whether or not the liability of the Borrower or any other
obligor for such deficiency is discharged pursuant to statute or judicial
decision. The liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or other
disposition of all or substantially all of the assets, marshalling of assets
and liabilities, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of, or other similar event or proceeding affecting, the Borrower or any of its
assets. The Guarantor will not assert, plead or enforce against the Lender any
claim, defense or setoff available to the Guarantor against the Borrower. The
Guarantor waives presentment, demand for payment, notice of dishonor or
nonpayment and protest of any instrument evidencing the Indebtedness. The
Lender shall not be required first to resort for payment of the Indebtedness
to the Borrower or other persons, or their properties, or first to enforce,
realize upon or exhaust any collateral security for the Indebtedness, before
enforcing this Guaranty.
10. If Payments Set Aside, etc. If any payment applied by the Lender to the
Indebtedness is thereafter set aside, recovered, rescinded or required to be
returned for any reason (including, without limitation, the bankruptcy,
insolvency or reorganization of the Borrower or any other obligor), the
Indebtedness to which such payment was applied shall for the purpose of this
Guaranty be deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such Indebtedness as
fully as if such application had never been made.
11. No Duties Owed by Lender. The Guarantor acknowledges and agrees that the
Lender
i) has not made any representations or warranties with respect to,
ii) does not assume any responsibility to the Guarantor for, and
iii) has no duty to provide information to the Guarantor regarding, the
enforceability of any of the Indebtedness or the financial condition of the
Borrower or any guarantor. The Guarantor has independently determined the
creditworthiness of the Borrower and the enforceability of the Indebtedness
and until the Indebtedness is paid in full will independently and without
reliance on the Lender continue to make such determinations.
12. Additional Obligation of Guarantor. The Guarantor's liability under this
Guaranty is in addition to and shall be cumulative with all other liabilities
of the Guarantor to the Lender as guarantor, surety, endorser, accommodation
co-obligor or otherwise of any of the Indebtedness or obligation of the
Borrower, without any limitation as to amount, unless the instrument or
agreement evidencing or creating such other liability specifically provides to
the contrary.
13. Miscellaneous. This Guaranty shall be effective upon delivery to the
Lender, without further act, condition or acceptance by the Lender, shall be
binding upon the Guarantor and the successors and assigns of the Guarantor and
shall inure to the benefit of the Lender and its participants, successors and
assigns. Any invalidity or unenforceability of any provision or application of
this Guaranty shall not affect other lawful provisions and application
thereof, and to this end the provisions of this Guaranty are declared to be
severable. This Guaranty may not be waived, modified, amended, terminated,
released or otherwise changed except by a writing signed by the Guarantor and
the Lender. This Guaranty shall be governed by and construed in accordance
with the substantive laws (other than conflict laws) of the State of Colorado.
The Guarantor hereby
i) consents to the personal jurisdiction of the state and federal courts
located in the State of Colorado in connection with any controversy related to
this Guaranty;
ii) waives any argument that venue in any such forum is not convenient,
iii) agrees that any litigation initiated by the Lender or the Guarantor
in connection with this Guaranty shall be venued in either the District Court
of the City and County of Denver, Colorado, or the United States District
Court, District of Colorado; and
iv) agrees that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF, BASED ON OR PERTAINING TO THIS GUARANTY.
IN WITNESS WHEREOF, this Guaranty has been duly executed by the
Guarantor the date first written above.
METEOR INDUSTRIES, INC.
By /s/ Dennis R. Staal
Its Address: 216 Sixteenth Street
Suite 730
Denver, Colorado 80202
STATE OF COLORADO )
)
COUNTY OF DENVER )
The foregoing instrument was acknowledged before me this 13th day of
August, April 8, 1998 by Dennis R. Staal, the Treasurer of Meteor Industries,
Inc., a Colorado corporation, on behalf of the corporation.
/s/ Notary Public
Notary Public
REVOLVING NOTE
$5,000,000
Denver, Colorado
August 13, 1997
For value received, the undersigned, FLEISCHLI OIL COMPANY, INC., a Wyoming
corporation (the "Borrower"), hereby promises to pay on the termination Date
under the Credit Agreement (defined below), to the order of NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in
Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Five Million Dollars
($5,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Credit and Security Agreement of even date herewith (as the same may
hereafter be amended, supplemented or restated from time to time, the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon shall be due and payable as provided in
the Credit Agreement. This Note may be prepaid only in accordance with the
Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement, which
provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured,
among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or
more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when
due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
FLEISCHLI OIL COMPANY, INC.
By /s/ Dennis R. Staal
Dennis R. Staal
Its Treasurer
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
FLEISCHLI OIL COMPANY, INC.
AND
NORWEST BUSINESS CREDIT, INC.
Dated as of: August 13, 1997
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
Section 1.1 Definitions
Section 1.2 Cross References
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 Revolving Advances
Section 2.2 Interest; Minimum Interest Charge; Default Interest;
Participations; Usury
Section 2.3 Fees
Section 2.4 Computation of Interest and Fees; When Interest Due and Payable
Section 2.5 Capital Adequacy
Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line; Termination
of the Credit Facility by the Borrower
Section 2.7 Termination, Line Reduction and Prepayment Fees; Waiver of
Termination, Prepayment and Line Reduction Fees.
Section 2.8 Mandatory Prepayment
Section 2.9 Payment
Section 2.10 Payment on Non-Banking Days
Section 2.11 Use of Proceeds
Section 2.12 Liability Records
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF
Section 3.1 Grant of Security Interest
Section 3.2 Notification of Account Debtors and Other Obligors
Section 3.3 Assignment of Insurance
Section 3.4 Occupancy
Section 3.5 License
Section 3.6 Financing Statement
Section 3.7 Setoff
ARTICLE IV CONDITIONS OF LENDING
Section 4.1 Conditions Precedent to the Initial Revolving Advance
Section 4.2 Conditions Precedent to All Advances
ARTICLE V REPRESENTATIONS AND WARRANTIES
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements
Section 5.3 Legal Agreements
Section 5.4 Subsidiaries
Section 5.5 Financial Condition; No Adverse Change
Section 5.6 Litigation
Section 5.7 Regulation U
Section 5.8 Taxes
Section 5.9 Titles and Liens
Section 5.10 Plans
Section 5.11 Default
Section 5.12 Environmental Matters
Section 5.13 Submissions to Lender
Section 5.14 Financing Statements
Section 5.15 Rights to Payment
Section 5.16 Financial Solvency
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS
Section 6.1 Reporting Requirements
Section 6.2 Books and Records; Inspection and Examination
Section 6.3 Account Verification
Section 6.4 Compliance with Laws
Section 6.5 Payment of Taxes and Other Claims
Section 6.6 Maintenance of Properties
Section 6.7 Insurance
Section 6.8 Preservation of Existence
Section 6.9 Delivery of Instruments, etc
Section 6.10 Lockbox
Section 6.11 Collateral Account
Section 6.12 Performance by the Lender
Section 6.13 Minimum Book Net Worth
Section 6.14 Minimum Net Income
Section 6.15 New Covenants
ARTICLE VII NEGATIVE COVENANTS
Section 7.1 Liens
Section 7.2 Indebtedness
Section 7.3 Guaranties
Section 7.4 Investments and Subsidiaries
Section 7.5 Dividends
Section 7.7 Consolidation and Merger; Asset Acquisitions
Section 7.8 Sale and Leaseback
Section 7.9 Restrictions on Nature of Business
Section 7.10 Capital Expenditures
Section 7.11 Accounting
Section 7.12 Discounts, etc
Section 7.13 Defined Benefit Pension Plans
Section 7.14 Other Defaults
Section 7.15 Place of Business; Name
Section 7.16 Organizational Documents
Section 7.17 Salaries
Section 7.18 Change in Ownership
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 Events of Default
Section 8.2 Rights and Remedies
Section 8.3 Certain Notices
ARTICLE IX MISCELLANEOUS
Section 9.1 No Waiver; Cumulative Remedies
Section 9.2 Amendments, Etc
Section 9.3 Addresses for Notices, Etc
Section 9.4 Further Documents
Section 9.5 Collateral
Section 9.6 Costs and Expenses
Section 9.7 Indemnity
Section 9.8 Participants
Section 9.9 Execution in Counterparts
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information
Section 9.11 Severability of Provisions
Section 9.12 Headings
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of August 13, 1997
FLEISCHLI OIL COMPANY, INC., a Wyoming corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is defined
in the UCC, including without limitation the aggregate unpaid obligations of
customers and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open account or
deferred payment basis.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means Meteor Industries, Inc., Hillger Oil
Company, Graves Oil & Butane Co., Inc., and any other Person controlled by,
controlling or under common control with the Borrower, including (without
limitation) any Subsidiary of the Borrower. For purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Banking Day" means a day other than a Saturday, Sunday or other day on
which banks are generally not open for business in Minneapolis, Minnesota.
"Base Rate" means the rate of interest publicly announced from time to time by
Norwest Bank Minnesota, National Association as its "base rate" or, if such
bank ceases to announce a rate so designated, any similar successor rate
designated by the Lender.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"Borrowing Base" means, at any time and subject to change from time to
time in the Lender's sole discretion, the lesser of:
(a) (i) the Maximum Line; or
(b) (i) the sum of (A) 80% of Eligible Accounts that do not constitute
Eligible GASCARD Accounts, plus (B) 75% of Eligible GASCARD Accounts, plus (C)
the lesser of (1) 50% of Eligible Inventory or (2) $1,500,000; less (ii) the
sum of (A) the Fuel Tax Reserve plus (B) the GASCARD Fee Reserve.
"Capital Expenditures" for a period means any expenditure of money for
the lease, purchase or other acquisition of any capital asset, or for the
lease of any other asset whether payable currently or in the future.
"Collateral" means all of the Borrower's Equipment, General Intangibles,
Inventory, Receivables, all sums on deposit in any Collateral Account, and any
items in any Lockbox; together with (i) all substitutions and replacements for
and products of any of the foregoing; (ii) proceeds of any and all of the
foregoing; (iii) in the case of all tangible Collateral, all accessions; (iv)
all accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any such Collateral; and (v)
all warehouse receipts, bills of lading and other documents of title now or
hereafter covering such Collateral.
"Collateral Account" has the meaning given in the Collateral Account
Agreement.
"Collateral Account Agreement" means the Collateral Account Agreement of
even date herewith by and among the Borrower, Norwest Bank Colorado, National
Association and the Lender.
"Commitment" means the Lender's commitment to make Advances to or for
the Borrower's account pursuant to Article II.
"Credit Facility" means the credit facility being made available to the
Borrower by the Lender pursuant to Article II.
"Default" means an event that, with giving of notice or passage of time
or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day of
any month during which a Default or Event of Default has occurred and ending
on the date the Lender notifies the Borrower in writing that such Default or
Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to two percent (2%) over the
Floating Rate, which rate shall change when and as the Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid 90 days or more after the invoice
date;
(ii) That portion of Accounts that is disputed or subject to a claim of
offset or a contra account;
(iii) That portion of Accounts not yet earned by the final delivery of
goods or rendition of services, as applicable, by the Borrower to the
customer;
(iv) Accounts owed by any unit of government, whether foreign or
domestic (provided, however, that there shall be included in Eligible Accounts
that portion of Accounts owed by such units of government for which the
Borrower has provided evidence satisfactory to the Lender that (A) the Lender
has a first priority perfected security interest and (B) such Accounts may be
enforced by the Lender directly against such unit of government under all
applicable laws);
(v) Accounts owed by an account debtor located outside the United
States and Canada which are not (A) backed by a bank letter of credit naming
the Lender as beneficiary or assigned to the Lender, in the Lender's
possession and acceptable to the Lender in all respects, in its sole
discretion, or (B) covered by a foreign receivables insurance policy
acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is insolvent, that is the
subject of bankruptcy proceedings or that has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate, officer or
employee of the Borrower;
(viii) Accounts not subject to a duly perfected security interest
in the Lender's favor or which are subject to any lien, security interest or
claim in favor of any Person other than the Lender including without
limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured, extended,
amended or modified;
(x) That portion of Accounts that constitutes advertising, finance
charges, service charges or sales or excise taxes;
(xi) That portion of Accounts that are on a cash or COD basis;
(xii) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 10% or more of the total amount due under Accounts from
such debtor is ineligible under clauses (i), (ii) or (ix) above;
(xiii) Accounts owed by an account debtor, regardless of whether
otherwise eligible, to the extent the amount due under Accounts from such
debtor is greater than 15% of the Borrower's total Accounts (provided,
however, that this clause (xiii) shall not apply to Accounts owed by Barrick
Gold Corporation, Barrick Goldstrike Mines, Inc., or Barrick Bullfrog, Inc.);
and
(xiv) Accounts, or portions thereof, otherwise deemed ineligible by the
Lender in its sole discretion.
"Eligible GASCARD Accounts" means Eligible Accounts that are owed to the
Borrower as a result of a purchase of fuel through the GASCARD System, which
system is operated by GASCARD, Inc., a Delaware corporation, or any successor
thereto.
"Eligible Inventory" means all Inventory of the Borrower consisting of
canned and bulk motor oil and oil additives, grease, gear oil, hydraulic oil,
antifreeze, transmission fluid, white oil, methanol, filters, solvents,
kerosene, and fuel hardware, at the lower of cost or market value as
determined in accordance with GAAP; provided, however, that the following
shall not in any event be deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse, job site
or other premises not approved by the Lender in writing; located outside of
the states, or localities, as applicable, in which the Lender has filed
financing statements to perfect a first priority security interest in such
Inventory; covered by any negotiable or non-negotiable warehouse receipt, bill
of lading or other document of title; on consignment from or to any Person or
subject to any bailment;
(ii) Inventory that is damaged, obsolete, slow moving or not currently
saleable in the normal course of the Borrower's operations;
(iii) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the vendor
thereof;
(iv) Inventory that is subject to a security interest in favor of any
Person other than the Lender;
(v) Inventory that is at a location other than one listed on Exhibit D
hereto; and
(vi) Inventory otherwise deemed ineligible by the Lender in its sole
discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but not
limited to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the Base Rate
plus one and one-half percent (1.5%), which annual rate shall change when and
as the Base Rate changes.
"Fuel Tax Reserve" initially means $60,000, which amount may be modified
by the Lender in its sole discretion.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5.
"GASCARD Fee Reserve" initially means $20,000, which amount may be
modified by the Lender in its sole discretion.
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Guarantors" means the Individual Guarantor and the Organizational
Guarantor.
"Hazardous Substance" has the meaning given in Section 5.12.
"Individual Guarantor" means Edward J. Names.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among the
Borrower, Norwest Bank Colorado, National Association, and the Lender, of even
date herewith.
"Maturity Date" means June 30, 2000.
"Maximum Line" means $5,000,000, unless said amount is reduced pursuant
to Section 2.6, in which event it means the amount to which said amount is
reduced.
"Minimum Interest Charge" has the meaning given in Section 2.2(b).
"Net Income" means fiscal year-to-date after-tax net income, decreased
by the sum of any extraordinary, non-operating or non-cash income recorded by
the Borrower and increased by any extraordinary, non-cash or non-operating
expense or loss recorded by the Borrower, as determined in accordance with
GAAP.
"Note" means the Revolving Note.
"Obligations" means the Note and each and every other debt, liability
and obligation of every type and description which the Borrower may now or at
any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises
in a transaction involving the Lender alone or in a transaction involving
other creditors of the Borrower, and whether it is direct or indirect, due or
to become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising
under this Agreement, the Note or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or
hereafter entered into.
"Organizational Guarantor" means Meteor Industries, Inc.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the premises
legally described in Exhibit C attached hereto.
"Receivables" means each and every right of the Borrower to the payment
of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services, out of a loan, out
of the overpayment of taxes or other liabilities, or otherwise arises under
any contract or agreement, whether such right to payment is created, generated
or earned by the Borrower or by some other person who subsequently transfers
such person's interest to the Borrower, whether such right to payment is or is
not already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens
and security interests) which the Borrower may at any time have by law or
agreement against any account debtor or other obligor obligated to make any
such payment or against any property of such account debtor or other obligor;
all including but not limited to all present and future accounts, contract
rights, loans and obligations receivable, chattel papers, bonds, notes and
other debt instruments, tax refunds and rights to payment in the nature of
general intangibles.
"Reportable Event" shall have the meaning assigned to that term in Title
IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Note" means the Borrower's revolving promissory note, payable
to the order of the Lender in substantially the form of Exhibit A hereto and
any note or notes issued in substitution therefor, as the same may hereafter
be amended, supplemented or restated from time to time.
"Security Documents" means this Agreement, the Collateral Account
Agreement, the Lockbox Agreement, and any other document delivered to the
Lender from time to time to secure the Obligations, as the same may hereafter
be amended, supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such
corporation, irrespective of whether or not at the time stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency, is at the time directly or indirectly owned by
the Borrower, by the Borrower and one or more other Subsidiaries, or by one or
more other Subsidiaries.
"Termination Date" means the earliest of (i) the Maturity Date, (ii) the
date the Borrower terminates the Credit Facility, or (iii) the date the Lender
demands payment of the Obligations after an Event of Default pursuant to
Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.13 as the state whose laws shall govern
this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
Section 1.2 Cross References. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Revolving Advances. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Revolving Advances"). The
Lender shall have no obligation to make a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances would exceed the Borrowing Base. The Borrower's
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral as provided in Article III. Within
the limits set forth in this Section 2.1, the Borrower may borrow, prepay
pursuant to Section 2.6 and reborrow. The Borrower agrees to comply with the
following procedures in requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 11:00 a.m. (Denver time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone, specifying
the date of the requested Revolving Advance and the amount thereof. Each
request shall be by (i) any officer of the Borrower; or (ii) any person
designated as the Borrower's agent by any officer of the Borrower in a writing
delivered to the Lender; or (iii) any person whom the Lender reasonably
believes to be an officer of the Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Revolving Advance
by crediting the same to the Borrower's demand deposit account maintained with
Norwest Bank Wyoming, N.A. unless the Lender and the Borrower shall agree in
writing to another manner of disbursement. Upon the Lender's request, the
Borrower shall promptly confirm each telephonic request for an Advance by
executing and delivering an appropriate confirmation certificate to the
Lender. The Borrower shall repay all Advances even if the Lender does not
receive such confirmation and even if the person requesting an Advance was not
in fact authorized to do so. Any request for an Advance, whether written or
telephonic, shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the time of the
request.
Section 2.2 Interest; Minimum Interest Charge; Default Interest;
Participations; Usury. Interest accruing on the Note shall be due and payable
in arrears on the first day of each month.
(a) Revolving Note. Except as set forth in Sections 2.2(c) and 2.2(e),
the outstanding principal balance of the Revolving Note shall bear interest at
the Floating Rate.
(b) Minimum Interest Charge. Notwithstanding the interest payable
pursuant to Section 2.2(a), each calendar quarter the Borrower shall pay to
the Lender interest according to the table below of not less than the amount
set forth opposite such quarter (the "Minimum Interest Charge") during the
term of this Agreement beginning the quarter ending December 31, 1997:
Quarter Amount
January 1 to March 31 $10,000
April 1 to June 30 $25,000
July 1 to September 30 $25,000
October 1 to December 31 $25,000
The Borrower shall pay any deficiency between the Minimum Interest
Charge and the amount of interest otherwise calculated under Section 2.2(a) on
the date and in the manner provided in Section 2.4.
(c) Default Interest Rate. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights and
remedies, the principal of the Advances outstanding from time to time shall
bear interest at the Default Rate, effective for any periods designated by the
Lender from time to time during that Default Period.
(d) Participations. If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the Lender
to pay the full amount of all interest calculated under Section 2.2(a), along
with all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise elects to
accept less than its prorata share of such fees, charges and other amounts due
under this Agreement.
(e) Usury. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document, all
agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and other charges exceed the applicable limits imposed by
the usury laws of the State of Colorado. If any payments in the nature of
interest, additional interest and other charges made under any Loan Document
are held to be in excess of the applicable limits imposed by the usury laws of
the State of Colorado, it is agreed that any such amount held to be in excess
shall be considered payment of principal hereunder, and the indebtedness
evidenced hereby shall be reduced by such amount so that the total liability
for payments in the nature of interest, additional interest and other charges
shall not exceed the applicable limits imposed by the usury laws of the State
of Colorado, in compliance with the desires of the Borrower and the Lender.
This provision shall never be superseded or waived and shall control every
other provision of the Loan Documents and all agreements between the Borrower
and the Lender, or their successors and assigns.
Section 2.3 Fees.
(a) Origination Fee. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable origination fee of $50,000, due and payable
upon the execution of this Agreement.
(b) Unused Line Fee. For the purposes of this Section 2.3(b), "Unused
Amount" means the Maximum Line reduced by outstanding Revolving Advances. The
Borrower agrees to pay to the Lender an unused line fee at the rate of
one-quarter percent (0.25%) per annum on the average daily Unused Amount from
the date of this Agreement to and including the Termination Date, due and
payable monthly in arrears on the first day of the month and on the
Termination Date.
(c) Audit Fees. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits, appraisals or inspections
conducted by or for the Lender of any Collateral or the Borrower's operations
or business at the rates established from time to time by the Lender as its
audit fees (which fees are currently $60 per hour per auditor), together with
all actual out-of-pocket costs, fees and expenses incurred in conducting any
such audit, appraisal or inspection.
Section 2.4 Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days. Interest
shall be payable in arrears on the first day of each month and on the
Termination Date.
Section 2.5 Capital Adequacy.
If any Related Lender determines at any time that its Return has been
reduced as a result of any Rule Change, such Related Lender may require the
Borrower to pay it the amount necessary to restore its Return to what it would
have been had there been no Rule Change. For purposes of this Section 2.5:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the force
of law, that applies to any Related Lender. Such rules include rules requiring
financial institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters of
credit.
(b) "Related Lender" includes (but is not limited to) the Lender, any
parent corporation of the Lender and any assignee of any interest of the
Lender hereunder and any participant in the loans made hereunder.
(c) "Return," for any period, means the return as determined by a
Related Lender on the Advances based upon its total capital requirements and a
reasonable attribution formula that takes account of the Capital Adequacy
Rules then in effect and amounts received or receivable under this Agreement
or the Notes with respect to any Advance. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
(d) "Rule Change" means any change in any Capital Adequacy Rule
occurring after the date of this Agreement, but the term does not include any
changes in applicable requirements that at the Closing Date are scheduled to
take place under the existing Capital Adequacy Rules or any increases in the
capital that any Related Lender is required to maintain to the extent that the
increases are required due to a regulatory authority's assessment of the
financial condition of such Related Lender.
The Lender will promptly notify the Borrower of any event of which it
has knowledge, occurring after the date hereof, which will entitle the Lender
to compensation pursuant to this Section 2.5. Certificates of any Related
Lender sent to the Borrower from time to time claiming compensation under this
Section 2.5, stating the reason therefor and setting forth in reasonable
detail the calculation of the additional amount or amounts to be paid to the
Related Lender hereunder to restore its Return shall be conclusive absent
manifest error. In determining such amounts, the Related Lender may use any
reasonable averaging and attribution methods. Notwithstanding any provision
of this Agreement to the contrary, if the Lender requires the Borrower to make
any payments pursuant to this Section 2.5, the Borrower may prepay the
Advances in whole, but not in part, and terminate the Commitment upon 30 days'
prior written notice to the Lender without penalty or premium.
Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise
provided herein, the Borrower may prepay the Revolving Advances in whole at
any time or from time to time in part. The Borrower may terminate the Credit
Facility or reduce the Maximum Line at any time if it (i) gives the Lender at
least 30 days' prior written notice and (ii) pays the Lender the prepayment,
termination or line reduction fees in accordance with Section 2.7. Any
reduction in the Maximum Line must be in an amount not less than $500,000 or
an integral multiple thereof. If the Borrower reduces the Maximum Line to
zero, all Obligations shall be immediately due and payable. Upon termination
of the Credit Facility and payment and performance of all Obligations, the
Lender shall release or terminate the Security Interest and the Security
Documents to which the Borrower is entitled by law.
Section 2.7 Termination, Line Reduction and Prepayment Fees; Waiver of
Termination, Prepayment and Line Reduction Fees.
(a) Termination and Line Reduction Fees. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay the Lender a fee in
an amount equal to a percentage of the Maximum Line (or the reduction, as the
case may be) as follows: (i) two percent (2%) if the termination or reduction
occurs on or before June 30, 1998; and (ii) one percent (1%) if the
termination or reduction occurs after June 30, 1998.
(b) Waiver of Termination and Line Reduction Fees. The Borrower will
not be required to pay the termination or line reduction fees otherwise due
under this Section 2.7 if such termination or line reduction is made (i) using
increased cash flow generated from the Borrower's operations, (ii) by
refinancing of the Borrower by an affiliate of the Lender, or (iii) if
following the termination, the Borrower does not obtain debt financing for
working capital purposes from any other source for a period of at least six
months.
Section 2.8 Mandatory Prepayment. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time
exceed the Borrowing Base, the Borrower shall immediately prepay the Revolving
Advances to the extent necessary to eliminate such excess. Any payment
received by the Lender under this Section 2.8 or under Section 2.6 may be
applied to the Obligations, in such order and in such amounts as the Lender,
in its discretion, may from time to time determine.
Section 2.9 Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations upon
receipt by the Lender. The Lender may hold all payments not constituting
immediately available funds for a maximum of three (3) days before applying
them to the Obligations. Notwithstanding anything in Section 2.1, the Borrower
hereby authorizes the Lender, in its discretion at any time or from time to
time without the Borrower's request and even if the conditions set forth in
Section 4.2 would not be satisfied, to make a Revolving Advance in an amount
equal to the portion of the Obligations from time to time due and payable.
Section 2.10 Payment on Non-Banking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such
extension of time shall in such case be included in the computation of
interest on the Advances or the fees hereunder, as the case may be.
Section 2.11 Use of Proceeds. The Borrower shall use the proceeds of
Advances in accordance with Schedule 2.11.
Section 2.12 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower
establishes the contrary. Upon the Lender's demand, the Borrower will admit
and certify in writing the exact principal balance of the Obligations that the
Borrower then asserts to be outstanding. Any billing statement or accounting
rendered by the Lender shall be conclusive and fully binding on the Borrower
unless the Borrower gives the Lender specific written notice of exception
within 30 days after receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time (whether or not a Default Period then exists) notify
any account debtor or other person obligated to pay the amount due that such
right to payment has been assigned or transferred to the Lender for security
and shall be paid directly to the Lender. The Borrower will join in giving
such notice if the Lender so requests. At any time after the Borrower or the
Lender gives such notice to an account debtor or other obligor, the Lender
may, but need not, in the Lender's name or in the Borrower's name, (a) demand,
sue for, collect or receive any money or property at any time payable or
receivable on account of, or securing, any such right to payment, or grant any
extension to, make any compromise or settlement with or otherwise agree to
waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and
receive, open and dispose of the Borrower's mail, applying all Collateral as
permitted under this Agreement and holding all other mail for the Borrower's
account or forwarding such mail to the Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of
insurance and refunds of unearned premiums) due or to become due under, and
all other rights of the Borrower with respect to, any and all policies of
insurance now or at any time hereafter covering the Collateral or any evidence
thereof or any business records or valuable papers pertaining thereto, and the
Borrower hereby directs the issuer of any such policy to pay all such monies
directly to the Lender. At any time, whether or not a Default Period then
exists, the Lender may (but need not), in the Lender's name or in the
Borrower's name, execute and deliver proof of claim, receive all such monies,
endorse checks and other instruments representing payment of such monies, and
adjust, litigate, compromise or release any claim against the issuer of any
such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all such
goods to purchasers.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of the
Premises, the Borrower shall reimburse the Lender promptly for the full amount
thereof. In addition, the Borrower will pay, or reimburse the Lender for, all
taxes, fees, duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
Section 3.5 License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the
Borrower for the purpose of selling, leasing or otherwise disposing of any or
all Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a
financing statement in any state to perfect the security interests granted
hereby. For this purpose, the following information is set forth:
Name and address of Debtor:
Fleischli Oil Company, Inc.
2350 West Lincoln Way
P.O. Box 487
Cheyenne, Wyoming 82003
Federal Tax Identification No. 83-0206526
Name and address of Secured Party:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Federal Tax Identification No. 41-1237652
Section 3.7 Setoff. The Borrower agrees that the Lender may at any time
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall
have the right to appropriate or setoff any deposit or other liability then
owed by such Person to the Borrower, whether or not due, and apply the same to
the payment of said participating interest, as fully as if such Person had
lent directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Initial Revolving Advance. The
Lender's obligation to make the initial Revolving Advance hereunder shall be
subject to the condition precedent that the Lender shall have received all of
the following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) For all locations listed on Exhibit D, a true and correct copy of
any and all leases pursuant to which the Borrower is leasing such Premises,
together with a landlord's disclaimer and consent with respect to each such
lease.
(d) For all locations listed on Exhibit D, a true and correct copy of
any and all mortgages pursuant to which the Borrower has mortgaged such
Premises, together with a mortgagee's disclaimer and consent with respect to
each such mortgage.
(e) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Colorado, National Association.
(f) The Lockbox Agreement, properly executed by the Borrower and
Norwest Bank Colorado, National Association.
(g) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against the
Borrower, (ii) no financing statements have been filed and remain in effect
against the Borrower except those financing statements relating to Permitted
Liens or to liens held by Persons who have agreed in writing that upon receipt
of proceeds of the Advances, they will deliver UCC releases and/or
terminations satisfactory to the Lender, and (iii) the Lender has duly filed
all financing statements necessary to perfect the Security Interest, to the
extent the Security Interest is capable of being perfected by filing.
(h) A certificate of the Borrower's secretary or assistant secretary
certifying as to (i) the resolutions of the Borrower's directors and if
required, shareholders, authorizing the execution, delivery and performance of
the Loan Documents, (ii) the Borrower's articles of incorporation and bylaws,
and (iii) the signatures of the Borrower's officers or agents authorized to
execute and deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on the Borrower's behalf.
(i) A current certificate issued by the Secretary of State of Wyoming,
certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Wyoming.
(j) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(k) A certificate of an officer of the Borrower confirming to the best
of his knowledge, in his personal capacity, the representations and warranties
set forth in Article V.
(l) An opinion of counsel to the Borrower, addressed to the Lender.
(m) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's favor
and with all liability insurance naming the Lender as an additional insured.
(n) A separate guaranty, properly executed by each Guarantor, pursuant
to which each Guarantor unconditionally guarantees the full and prompt payment
of all Obligations to the extent of each such guaranty.
(o) A waiver of interest, properly executed by the spouse of the
Individual Guarantor, waiving any and all interest such spouse may have in the
assets disclosed to the Lender in the financial statements of the Individual
Guarantor and in any future earnings or assets acquired by the Individual
Guarantor.
(p) A certificate of the secretary or assistant secretary of Meteor
Industries, Inc. certifying as to (i) the resolutions of the directors and, if
required, shareholders, of that company authorizing the execution, delivery
and performance of the guaranty executed and delivered to the Lender by it;
(ii) the company's articles of incorporation and bylaws; and (iii) the
signatures of the officer or agents authorized to execute and deliver such
guaranty on behalf of such company.
(q) An opinion of counsel to Meteor Industries, Inc., addressed to the
Lender.
(r) Payment of the fees, costs and expenses due through the date of
the initial Advance under Section 2.3 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section 9.6,
including all legal expenses incurred through the date of this Agreement.
(s) A letter addressed to the Lender executed by the Organizational
Guarantor and by Graves Oil & Butane Co., Inc. ("Graves"), certifying that
Graves owes the Organizational Guarantor no more than $400,000.
(t) A letter addressed to the Lender executed by the Organizational
Guarantor and by Hillger Oil Company ("Hillger"), certifying that Hillger owes
no amount of money to the Organizational Guarantor.
(u) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance as though made on and as of such
date, except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number. The Borrower is
a corporation , duly organized, validly existing and in good standing under
the laws of the State of Wyoming and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. No dissolution or termination of the Borrower has
occurred, and no notice of dissolution or articles of termination have been
filed with respect to the Borrower. The Borrower has all requisite power and
authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, the Borrower has done
business solely under the names set forth in Schedule 5.1 hereto. The
Borrower's chief executive office and principal place of business is located
at the address set forth in Schedule 5.1 hereto, and all of the Borrower's
records relating to its business or the Collateral are kept at that location.
All Inventory and Equipment is located at that location or at one of the other
locations set forth in Schedule 5.1 hereto. The Borrower's tax identification
number is correctly set forth in Section 3.6 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i)
require any consent or approval of the Borrower's shareholders; (ii) require
any authorization, consent or approval by, or registration, declaration or
filing with, or notice to, any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or any third party,
except such authorization, consent, approval, registration, declaration,
filing or notice as has been obtained, accomplished or given prior to the date
hereof; (iii) violate any provision of any law, rule or regulation (including,
without limitation, Regulation X of the Board of Governors of the Federal
Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability to the Borrower or of the Borrower's articles of
incorporation and bylaws; (iv) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other material
agreement, lease or instrument to which the Borrower is a party or by which it
or its properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature (other than the Security
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms.
Section 5.4 Subsidiaries. The Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender audited financial statements as of February
28, 1997 and unaudited financial statements for the fiscal year-to-date period
ended May 31, 1997 and those statements fairly present the Borrower's
financial condition on the dates thereof and the results of its operations and
cash flows for the periods then ended and were prepared in accordance with
generally accepted accounting principles. Since the date of the most recent
financial statements, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local
taxes required to be withheld by each of them. The Borrower and its Affiliates
have filed all federal, state and local tax returns which to the knowledge of
the officers of the Borrower or any Affiliate, as the case may be, are
required to be filed, and the Borrower and its Affiliates have paid or caused
to be paid to the respective taxing authorities all taxes as shown on said
returns or on any assessment received by any of them to the extent such taxes
have become due.
Section 5.9 Titles and Liens. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender
and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances, except
for Permitted Liens. No financing statement naming the Borrower as debtor is
on file in any office except to perfect only Permitted Liens.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains
or has maintained any Plan. Neither the Borrower nor any Affiliate has
received any notice or has any knowledge to the effect that it is not in full
compliance with any of the requirements of ERISA. No Reportable Event or other
fact or circumstance which may have an adverse effect on the Plan's tax
qualified status exists in connection with any Plan. Neither the Borrower nor
any of its Affiliates has:
(a) Any accumulated funding deficiency within the meaning of ERISA; or
(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may
become payable to participants or beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or
by which it or its property is bound or affected, the breach or default of
which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 Environmental Matters.
(a) Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(i) "Environmental Law" means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the protection
of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants, hazardous
substances, hazardous wastes, petroleum and fractions thereof, and all other
chemicals, wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) Except as disclosed in Schedule 5.12, to the Borrower's best
knowledge, there are not present in, on or under the Premises any Hazardous
Substances in such form or quantity as to create any liability or obligation
for either the Borrower or the Lender under common law of any jurisdiction or
under any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on or
under the Premises in such a way as to create any such liability.
(c) Except as disclosed in Schedule 5.12, to the Borrower's best
knowledge, the Borrower has not disposed of Hazardous Substances in such a
manner as to create any liability under any Environmental Law.
(d) Except as disclosed in Schedule 5.12, there are not and there
never have been any requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating in any way to the
Premises or the Borrower, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's best knowledge, no
such matter is threatened or impending.
(e) Except as disclosed in Schedule 5.12, to the Borrower's best
knowledge, the Borrower's businesses are and have in the past always been
conducted in accordance with all Environmental Laws and all licenses, permits
and other authorizations required pursuant to any Environmental Law and
necessary for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit required
under any Environmental Law is scheduled to expire within 12 months and there
is no threat that any such permit will be withdrawn, terminated, limited or
materially changed.
(f) Except as disclosed in Schedule 5.12, to the Borrower's best
knowledge, the Premises are not and never have been listed on the National
Priorities List, the Comprehensive Environmental Response, Compensation and
Liability Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents describing
or relating in any way to the Premises or Borrower's businesses.
Section 5.13 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the
Security Interest and the other security interests created by the Security
Documents. To the best of Borrower's knowledge, when such financing statements
are filed in the offices noted therein, the Lender will have a valid and
perfected security interest in all Collateral and all other collateral
described in the Security Documents which is capable of being perfected by
filing financing statements. None of the Collateral or other collateral
covered by the Security Documents is or will become a fixture on real estate,
unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be
when arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.16 Financial Solvency. Both before and after giving effect to
the acquisition of the common stock of the Borrower by Meteor Industries, Inc.
and all of the transactions contemplated in the Loan Documents, none of the
Borrower or its Affiliates:
(a) was or will be insolvent, as that term is used and defined in
Section 101(32) of the United States Bankruptcy Code and Section 2 of the
Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to engage in
a business or a transaction for which any remaining assets of the Borrower or
such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to, nor believes that it will, incur
debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations under the
Loan Documents or other documents to which it is a party or by taking any
action with respect thereto, intends to hinder, delay or defraud either its
present or future creditors; and
(e) at this time contemplates filing a petition in bankruptcy or for
an arrangement or reorganization or similar proceeding under any law any
jurisdiction, nor, to the best knowledge of the Borrower, is the subject of
any actual, pending or threatened bankruptcy, insolvency or similar
proceedings under any law of any jurisdiction.
ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form
and detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower and the Organizational Guarantor,
audited financial statements of the Borrower and the Organizational Guarantor
with the unqualified opinion of independent certified public accountants
selected by the Borrower or the Organizational Guarantor, as the case may be,
and reasonably acceptable to the Lender, which annual financial statements
shall include the balance sheet of the Borrower or the Organizational
Guarantor, as the case may be, as at the end of such fiscal year and the
related statements of income, retained earnings and cash flows of the Borrower
or the Organizational Guarantor, as the case may be, for the fiscal year then
ended, all in reasonable detail and prepared in accordance with GAAP
(provided, however, that the Borrower may satisfy the above requirements by
delivering to the Lender audited consolidated financial statements for the
Organizational Guarantor and unaudited financial statements showing the
Borrower's performance independent from that of the Organizational Guarantor,
which statements must meet all of the requirements of this Section 6.1(a)
other than the requirement that such statements be audited) together with, in
the case of the Borrower, (i) a report signed by such accountants stating that
in making the investigations necessary for said review they obtained no
knowledge, except as specifically stated, of any Default or Event of Default
hereunder and all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.12 through 6.15 and 7.10 hereof; and (ii)
a certificate of the Borrower's chief financial officer stating that such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the accounting
practices applied in the financial statements referred to in Section 5.5
hereof and whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder and, if so, stating in reasonable detail
the facts with respect thereto;
(b) as soon as available and in any event within 25 days after the end
of each month, an unaudited/internal balance sheet and statements of income
and retained earnings of the Borrower as at the end of and for such month and
for the year to date period then ended, prepared, if the Lender so requests,
on a consolidating and consolidated basis to include any Affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in
accordance with GAAP, subject to year-end audit adjustments; and accompanied
by a certificate of the Borrower's chief financial officer, substantially in
the form of Exhibit B hereto stating (i) that such financial statements have
been prepared in accordance with GAAP, subject to year-end audit adjustments,
and fairly represent the Borrower's financial position and the results of its
operations, (ii) whether or not such officer has knowledge of the occurrence
of any Default or Event of Default hereunder not theretofore reported and
remedied and, if so, stating in reasonable detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to evidence, and
the computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.13, 6.14, and 7.10;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable, an inventory
certification report, and a calculation of the Borrower's Accounts, Eligible
Accounts, Inventory and Eligible Inventory as at the end of such month or
shorter time period;
(d) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each month of
such year, each in reasonable detail, representing the Borrower's good faith
projections and certified by the Borrower's chief financial officer as being
the most accurate projections available and identical to the projections used
by the Borrower for internal planning purposes, together with such supporting
schedules and information as the Lender may in its discretion require;
(e) each Banking Day, an assignment, sales, and collection report
certified by the chief financial officer or other responsible financial
officer of the Borrower, which report shall include notice of (i) any disputes
or claims by customers of the Borrower, (ii) any goods returned to or
recovered by the Borrower, and (iii) any change in the persons constituting
the officers or directors of the Borrower.
(f) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or which
seek a monetary recovery against the Borrower in excess of $25,000;
(g) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a detailed statement by a
responsible officer of the Borrower of the steps being taken by the Borrower
to cure the effect of such breach, default or event;
(h) as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect to
any Plan has occurred, the statement of the Borrower's chief financial officer
setting forth details as to such Reportable Event and the action which the
Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(i) as soon as possible, and in any event within 10 days after the
Borrower fails to make any quarterly contribution required with respect to any
Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the Borrower's chief financial officer setting forth details
as to such failure and the action which the Borrower proposes to take with
respect thereto, together with a copy of any notice of such failure required
to be provided to the Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers exceeding $25,000 individually or $50,000
in the aggregate during any fiscal year; (ii) credit memos; (iii) any goods
returned to or recovered by the Borrower; and (iv) any change in the persons
constituting the Borrower's officers and directors;
(k) promptly upon knowledge thereof, notice of any loss of or material
damage to any Collateral or other collateral covered by the Security Documents
or of any substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(m) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the Securities
and Exchange Commission or any national securities exchange;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which could
materially and adversely affect the Borrower's business or its financial
condition;
(o) promptly upon payment thereof, evidence of payment of any gasoline
or special fuels taxes;
(p) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents and
delivery receipts for goods sold, and such other material, reports, records or
information as the Lender may request; and
(q) as soon as available, and in any event by not later than February
28 of each year, an updated personal financial statement of each Individual
Guarantor as at December 31 of the previous year.
Section 6.2 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which
true and complete entries will be made in accordance with GAAP and, upon the
Lender's request, will permit any officer, employee, attorney or accountant
for the Lender to audit, review, make extracts from or copy any and all
corporate and financial books and records of the Borrower at all times during
ordinary business hours, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower's affairs with any of its directors, officers, employees
or agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine, inspect or have appraised any Collateral,
other collateral covered by the Security Documents or any other property of
the Borrower at any time during ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors
and other obligors to verify accounts.
Section 6.4 Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and keep
the Collateral, and require that others use and keep the Collateral, only for
lawful purposes, without violation of any federal, state or local law, statute
or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction or
any Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges
levied or imposed upon it or upon its income or profits, upon any properties
belonging to it (including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest,
prior to the date on which penalties attach thereto, (b) all federal, state
and local taxes required to be withheld by it, and (c) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a lien or
charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other properties
necessary or useful in its business in good condition, repair and working
order (normal wear and tear excepted) and will from time to time replace or
repair any worn, defective or broken parts; provided, however, that nothing in
this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
Lender's judgment, desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens and
encumbrances except Permitted Liens.
Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible
and reputable, in such amounts and against such risks as may from time to time
be required by the Lender, but in all events in such amounts and against such
risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower
operates. Without limiting the generality of the foregoing, the Borrower will
at all times keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the
extent of its interest, and all policies of such insurance shall contain a
lender's loss payable endorsement for the Lender's benefit acceptable to the
Lender. All policies of liability insurance required hereunder shall name the
Lender as an additional insured.
Section 6.8 Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or
assigned by the Borrower.
Section 6.10 Lockbox. The Borrower shall irrevocably direct all
present and future Account debtors and other Persons obligated to make
payments on Receivables to make such payments directly to a special lockbox
(the "Lockbox") under the Lender's control.
(a) All of the Borrower's invoices, account statements and other
written or oral communications directing, instructing, demanding or requesting
payment of any Receivable or any other amount constituting Collateral shall
conspicuously direct that all payments be made to the Lockbox and shall
include the Lockbox address. All payments received in the Lockbox shall be
processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account or, at
the Lender's option, to deliver to the Lender all collections on Receivables
and all other proceeds of Collateral, which the Borrower may receive directly
notwithstanding its direction to Account debtors and other obligors to make
payments to the Lockbox, immediately upon receipt thereof, in the form
received, except for the Borrower's endorsement when deemed necessary. Until
delivered to the Lender or deposited in the Collateral Account, the Borrower
shall hold all proceeds or collections of Collateral in trust for and as the
property of the Lender and shall not commingle them with any other funds or
property of the Borrower. All such collections shall constitute proceeds of
Collateral and shall not constitute payment of any Obligation.
Section 6.11 Collateral Account.
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as the
property of the Lender and shall not commingle such payments with any of its
other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except after
full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute proceeds
of Collateral and shall not constitute payment of the Obligations. The Lender
from time to time at its discretion may, after allowing two Banking Days,
apply deposited funds in the Collateral Account to the payment of the
Obligations, in any order or manner of application satisfactory to the Lender,
by transferring such funds to the Lender's general account.
(d) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral Account,
the bank maintaining such account, the amount of that item, or such bank at
its discretion may charge any uncollected item to the Borrower's commercial
account or other account. The Borrower shall be liable as an endorser on all
items deposited in the Collateral Account, whether or not in fact endorsed by
the Borrower.
Section 6.12 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a
period of ten calendar days after the Lender gives the Borrower written notice
thereof (or in the case of the agreements contained in Sections 6.5, 6.7 and
6.11, immediately upon the occurrence of such failure, without notice or lapse
of time), the Lender may, but need not, perform or observe such covenant on
behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and
all costs and expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Lender in connection with or as a result of the
performance or observance of such agreements or the taking of such action by
the Lender, together with interest thereon from the date expended or incurred
at the Floating Rate. To facilitate the Lender's performance or observance of
such covenants of the Borrower, the Borrower hereby irrevocably appoints the
Lender, or the Lender's delegate, acting alone, as the Borrower's attorney in
fact (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by the Borrower under
this Section 6.12.
Section 6.13 Minimum Book Net Worth. The Borrower will maintain, at the
end of each month listed below, its Book Net Worth at an amount not less than
the amount set forth opposite such month:
Month Minimum Book Net Worth
July 1997 $3,795,000
August 1997 3,835,000
September 1997 3,900,000
October 1997 3,975,000
November 1997 3,950,000
December 1997 3,950,000
January 1998 3,915,000
February 1998 3,850,000
March 1998 3,895,000
April 1998 3,895,000
May 1998 3,925,000
June 1998 3,975,000
July 1998 4,015,000
August 1998 4,050,000
September 1998 4,135,000
October 1998 4,235,000
November 1998 4,175,000
December 1998 and
each month thereafter 4,110,000
If at any time the Borrower shall receive any additional equity from any
source other than the Borrower's earnings, the Minimum Book Net Worth covenant
for that date and for each date thereafter shall be increased by the amount of
such additional equity received.
Section 6.14 Minimum Net Income. The Borrower will achieve during each period
described below, Net Income of not less than the amount set forth opposite
such period:
Period Minimum Net Income
Two months ended September 30, 1997 $ 0
Five months ended December 31, 1997 55,000
Three months ended March 31, 1998 (184,000)
Six months ended June 30, 1998 (82,000)
Nine months ended September 30, 1998 72,000
Twelve months ended December 31, 1998 50,000
Section 6.15 New Covenants. On or before April 30, 1999, the Borrower
and the Lender shall agree on new covenant levels for Sections 6.13, 6.14,
and 7.10 for periods after December 31, 1998. The new covenant levels will be
based on the Borrower's projections for such periods and shall be no less
stringent than the present levels.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents, covenants,
restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the Borrower's business or operations as presently
conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1 hereto,
securing indebtedness for borrowed money permitted under Section 7.2;
(c) the Security Interest and liens and security interests created by
the Security Documents; and
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the lesser of cost or
fair market value thereof so long as no Default Period is then in existence
and none would exist immediately after such acquisition.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume or
permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
In addition, the Borrower will not make any payment on any indebtedness
owed to any Person other than the Lender other than scheduled payments of
principal and interest in accordance with the schedules attached to Schedule
7.2 hereto.
Section 7.3 Guaranties. The Borrower will not assume, guarantee, endorse
or otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in existence
on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist any
loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without limitation
any partnership or joint venture, except:
(i) investments in direct obligations of the United States of America
or any agency or instrumentality thereof whose obligations constitute full
faith and credit obligations of the United States of America having a maturity
of one year or less, commercial paper issued by U.S. corporations rated "A-1"
or "A-2" by Standard & Poors Corporation or "P-1" or "P-2" by Moody's
Investors Service or certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of deposit or
bankers' acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(ii) travel advances or loans to the Borrower's officers and employees
not exceeding at any one time an aggregate of $5,000; and
(iii) advances in the form of progress payments, prepaid rent or
security deposits.
(b) The Borrower will not create or permit to exist any Subsidiary.
Section 7.5 Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on
any class of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect
to a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now
owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which the Borrower
intends to use for substantially the same purpose or purposes as the property
being sold or transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than $450,000 in the aggregate
during the remainder of its fiscal year ending December 31, 1997, or of more
than $850,000 in the aggregate during any fiscal year.
Section 7.11 Accounting. The Borrower will not adopt any material change
in accounting principles other than as required by GAAP. The Borrower will not
adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not adopt,
create, assume or become a party to any defined benefit pension plan, unless
disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not transfer its
chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 Organizational Documents. The Borrower will not amend its
articles of incorporation and bylaws. The Borrower will not become an S
Corporation within the meaning of the Internal Revenue Code of 1986, as
amended.
Section 7.17 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any directors, shareholders or consultants, or any
member of their families, by more than 10% in any fiscal year, either
individually or for all such persons in the aggregate, or pay any such
increase from any source other than profits earned in the year of payment;
provided, however, that the above 10% restriction shall not apply to directors
Robert Jensen and Paul Greaves.
Section 7.18 Change in Ownership. The Borrower will not issue or sell
any stock of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders, and the
Borrower will not permit or suffer to occur the sale, transfer, assignment,
pledge or other disposition of any or all of the issued and outstanding shares
of stock of the Borrower. Notwithstanding the foregoing, the Borrower may
issue or sell shares of its stock in a public or private offering provided
that after the sale or issuance of its stock in such an offer,
(i) at least 51% of such stock is owned by the Corporate Guarantor;
and
(ii) Edward J. Names and Dennis Staal continue to manage the day-to-day
affairs of the Corporate Guarantor.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. "Event of Default", wherever used herein,
means any one of the following events:
(a) Default in the payment of the Obligations when they become due and
payable;
(b) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower or any Guarantor shall be or become insolvent, or
admit in writing its or his inability to pay its or his debts as they mature,
or make an assignment for the benefit of creditors; or the Borrower or any
Guarantor shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or him or for all or any substantial part
of its or his property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower or such
Guarantor, as the case may be; or the Borrower or any Guarantor shall
institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower or any such
Guarantor; or any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the Borrower or any Guarantor;
(e) A petition shall be filed by or against the Borrower or any
Guarantor under the United States Bankruptcy Code naming the Borrower or such
Guarantor as debtor;
(f) Any representation or warranty made by the Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or by the
Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or
any such guaranty shall prove to have been incorrect in any material respect
when deemed to be effective;
(g) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of $25,000 and the continuance of
such judgment, decree or order unsatisfied and in effect for any period of 30
consecutive days without a stay of execution;
(h) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or
under any indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any lease of
any of the Premises, and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture, other instrument
or lease;
(i) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after
written notice to such effect shall have been given to the Borrower by the
Lender; or a trustee shall have been appointed by an appropriate United States
District Court to administer any Plan; or the Pension Benefit Guaranty
Corporation shall have instituted proceedings to terminate any Plan or to
appoint a trustee to administer any Plan; or the Borrower shall have filed for
a distress termination of any Plan under Title IV of ERISA; or the Borrower
shall have failed to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are likely to
occur in the future, result in the imposition of a lien on the Borrower's
assets in favor of the Plan;
(j) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower
hereunder or under any note;
(k) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the ordinary
course, or sell all or substantially all of its assets, without the Lender's
prior written consent;
(l) The Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax deficiency which is
being contested in good faith and by proper proceedings and for which it shall
have set aside on its books adequate reserves therefor) or notice of any state
or federal tax liens shall be filed or issued;
(m) Default in the payment of any amount owed by the Borrower to the
Lender other than any indebtedness arising hereunder;
(n) Any Guarantor shall repudiate, purport to revoke or fail to
perform any such Guarantor's obligations under such Guarantor's guaranty in
favor of the Lender, any individual Guarantor shall die or any other Guarantor
shall cease to exist; or
(o) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2 Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Obligations
to be forthwith due and payable, whereupon all Obligations shall become and be
forthwith due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Obligations;
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any
evidence thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby
expressly waives) and the right to sell, lease or otherwise dispose of any or
all of the Collateral, and, in connection therewith, the Borrower will on
demand assemble the Collateral and make it available to the Lender at a place
to be designated by the Lender which is reasonably convenient to both parties;
(e) the Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(f) the Lender may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of
Default described in subsections (d) or (e) of Section 8.1, the Obligations
shall be immediately due and payable automatically without presentment,
demand, protest or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days
before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be
effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given
at its address or telecopier number as set forth below:
If to the Borrower:
Fleischli Oil Company, Inc.
c/o Meteor Industries, Inc.
216 Sixteenth Street, Suite 730
Denver, Colorado 80202
Telecopier: 303-572-1803
Attention: Edward J. Names
If to the Lender:
Norwest Business Credit, Inc.
1740 Broadway
Denver, Colorado 80274-8625
Telecopier: 303/863-4904
Attention: Pamela Klempel
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given
on (a) the date received if personally delivered, (b) when deposited in the
mail if delivered by mail, (c) the date sent if sent by overnight courier, or
(d) the date of transmission if delivered by telecopy, except that notices or
requests to the Lender pursuant to any of the provisions of Article II shall
not be effective until received by the Lender.
Section 9.4 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents,
conveyances, assignments, security agreements, financing statements and other
agreements and writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the Lender's
rights under the Loan Documents (but any failure to request or assure that the
Borrower executes, delivers or endorses any such item shall not affect or
impair the validity, sufficiency or enforceability of the Loan Documents and
the Security Interest, regardless of whether any such item was or was not
executed, delivered or endorsed in a similar context or on a prior occasion).
Section 9.5 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any
deficiency. The Lender's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other third
person, and the Lender need not otherwise preserve, protect, insure or care
for any Collateral. The Lender shall not be obligated to preserve any rights
the Borrower may have against prior parties, to realize on the Collateral at
all or in any particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand all
costs and expenses, including (without limitation) attorneys' fees incurred by
the Lender in connection with the Obligations, this Agreement, the Loan
Documents, and any other document or agreement related hereto or thereto, and
the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 9.7 Indemnity. In addition to the payment of expenses pursuant
to Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the
foregoing (the "Indemnitees") from and against any of the following
(collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution and
delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12 proves
to be incorrect in any respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall
be designated a party thereto, which may be imposed on, incurred by or
asserted against any such Indemnitee, in any manner related to or arising out
of or in connection with the making of the Advances and the Loan Documents or
the use or intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from
any of the foregoing is brought against any Indemnitee, upon such Indemnitee's
request, the Borrower, or counsel designated by the Borrower and satisfactory
to the Indemnitee, will resist and defend such action, suit or proceeding to
the extent and in the manner directed by the Indemnitee, at the Borrower's
sole costs and expense. Each Indemnitee will use its best efforts to cooperate
in the defense of any such action, suit or proceeding. If the foregoing
undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The Borrower's obligation under this Section 9.7 shall survive the termination
of this Agreement and the discharge of the Borrower's other obligations
hereunder.
Section 9.8 Participants. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability
or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.9 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same
instrument.
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter
hereof. Without limiting the Lender's right to share information regarding the
Borrower and its Affiliates with the Lender's participants, accountants,
lawyers and other advisors, the Lender, Norwest Corporation, and all direct
and indirect subsidiaries of Norwest Corporation, may exchange any and all
information they may have in their possession regarding the Borrower and its
Affiliates, and the Borrower waives any right of confidentiality it may have
with respect to such exchange of such information.
Section 9.11 Severability of Provisions. Any provision of this Agreement
which is prohibited or unenforceable shall be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof.
Section 9.12 Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute
a part of this Agreement for any other purpose.
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. The
parties hereto hereby (i) consent to the personal jurisdiction of the state
and federal courts located in the State of Colorado in connection with any
controversy related to this Agreement; (ii) waive any argument that venue in
any such forum is not convenient; (iii) agree that any litigation initiated by
the Lender or the Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the District Court of the City and County
of Denver, Colorado, or the United States District Court, District of
Colorado; and (iv) agree that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. THE PARTIES WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING
TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
NORWEST BUSINESS CREDIT, INC.
By /s/ Pamela Klempel
Pamela Klempel
Its Assistant Vice President
FLEISCHLI OIL COMPANY, INC.
By /s/ Dennis R. Staal
Dennis R. Staal
Its Treasurer
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
Exhibit D Eligible Inventory Locations
___________________
Schedule 2.11 Sources and Uses of Funds
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.12 Hazardous Substances Matters
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$5,000,000 Denver, Colorado
August 13, 1997
For value received, the undersigned, FLEISCHLI OIL COMPANY, INC., a
Wyoming corporation (the "Borrower"), hereby promises to pay on the
Termination Date under the Credit Agreement (defined below), to the order of
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its
main office in Minneapolis, Minnesota, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of Five Million Dollars
($5,000,000) or, if less, the aggregate unpaid principal amount of all
Revolving Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the
Credit and Security Agreement of even date herewith (as the same may hereafter
be amended, supplemented or restated from time to time, the "Credit
Agreement") by and between the Lender and the Borrower. The principal hereof
and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured,
among other things, pursuant to the Credit Agreement and the Security
Documents as therein defined, and may now or hereafter be secured by one or
more other security agreements, mortgages, deeds of trust, assignments or
other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when
due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
FLEISCHLI OIL COMPANY, INC.
By /s/ Dennis R. Staal
Dennis R. Staal
Its Treasurer
<PAGE>
Exhibit B to Credit and Security Agreement
Compliance Certificate
To: Pamela Klempel
Norwest Business Credit, Inc.
Date: __________________, 199___
Subject: Fleischli Oil Company, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of August
13, 1997 (the "Credit Agreement"), attached are the financial statements of
Fleischli Oil Company, Inc. (the "Borrower") as of and for ________________,
19___ (the "Reporting Date") and the year-to-date period then ended (the
"Current Financials"). All terms used in this certificate have the meanings
given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition and the results of its operations as of the
date thereof.
Events of Default. (Check one):
- The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
- The undersigned has knowledge of the occurrence of a Default or Event
of Default under the Credit Agreement and attached hereto is a statement of
the facts with respect to thereto.
I hereby certify to the Lender as follows:
- The Reporting Date does not mark the end of one of the Borrower's
fiscal quarters, hence I am completing only paragraphs 1 and 3 below.
- The Reporting Date marks the end of one of the Borrower's fiscal
quarters, hence I am completing all paragraphs below.
- The Reporting Date marks the end of the Borrower's fiscal year, hence
I am completing all paragraphs below.
Financial Covenants. I further hereby certify as follows:
1. Minimum Book Net Worth. Pursuant to Section 6.13 of the Credit
Agreement, as of the Reporting Date, the Borrower's Book Net Worth was
$____________ which satisfies/does not satisfy the requirement that such
amount be not less than $_____________ on the Reporting Date as set forth in
table below (as such table may be modified in accordance with Section 6.13):
Month Minimum Book Net Worth
July 1997 $3,795,000
August 1997 3,835,000
September 1997 3,900,000
October 1997 3,975,000
November 1997 3,950,000
December 1997 3,950,000
January 1998 3,915,000
February 1998 3,850,000
March 1998 3,895,000
April 1998 3,895,000
May 1998 3,925,000
June 1998 3,975,000
July 1998 4,015,000
August 1998 4,050,000
September 1998 4,135,000
October 1998 4,235,000
November 1998 4,175,000
December 1998 and each
month thereafter 4,110,000
2. Minimum Net Income. Pursuant to Section 6.14 of the Credit
Agreement, the Borrower's Net Income for the period ending on the Reporting
Date was $____________, which satisfies/does not satisfy the requirement
that such amount be not less than $_____________ during such period as set
forth in table below:
Period Minimum Net Income
Two months ended September 30, 1997 $ 0
Five months ended December 31, 1997 55,000
Three months ended March 31, 1998 (184,000)
Six months ended June 30, 1998 (82,000)
Nine months ended September 30, 1998 72,000
Twelve months ended December 31, 1998 50,000
3. Capital Expenditures. Pursuant to Section 7.10 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend, for Capital Expenditures,
$__________________ in the aggregate, which satisfies/does not satisfy the
requirement that such expenditures not exceed $_________________ in the
aggregate during such year.
4. Salaries. As of the Reporting Date, the Borrower is/is not in
compliance with Section 7.17 of the Credit Agreement concerning salaries.
Attached hereto are all relevant facts in reasonable detail to evidence,
and the computations of the financial covenants referred to above. These
computations were made in accordance with GAAP.
FLEISCHLI OIL COMPANY, INC.
By /s/ Dennis R. Staal
Its Treasurer
<PAGE>
Exhibit C to Credit and Security Agreement
Premises
The Premises referred to in the Credit and Security Agreement are described as
follows:
Administrative Headquarters:
2350 Lincolnway
Cheyenne, Wyoming 82001
Cheyenne Location:
2302 Lincolnway
Cheyenne, Wyoming 82001
Casper Location #1:
6000 E. Yellowstone
Evansville, Wyoming 82636
Casper Location #2:
515 Walnut
Casper, Wyoming 82601
Casper Location #3:
6050 E. Yellowstone
Evansville, Wyoming 82636
Gillette Location:
3002 Conestoga
Gillette, Wyoming 82718
Craig Location:
666 West 1st Street
Craig, Colorado 80625
Denver Location:
6395 E. 80th Avenue
DuPont, Colorado 80002
Rock Springs Location:
151 N. Industrial Drive
Rock Springs, Wyoming 82901
Carlin Location:
923 Spruce Street
Carlin, Nevada 89822
Beowawe Location:
_____________________
Beowawe, Nevada ____________
<PAGE>
Exhibit D to Credit and Security Agreement
Eligible Inventory Premises
The Premises where Eligible Inventory may be located are described as follows:
Administrative Headquarters:
2350 Lincolnway
Cheyenne, Wyoming 82001
Cheyenne Location:
2302 Lincolnway
Cheyenne, Wyoming 82001
Casper Location #1:
6000 E. Yellowstone
Evansville, Wyoming 82636
Casper Location #2:
515 Walnut
Casper, Wyoming 82601
Rock Springs Location:
151 N. Industrial Drive
Rock Springs, Wyoming 82901
Denver Location:
6395 E. 80th Avenue
DuPont, Colorado 80002
Beowawe Location:
_____________________
Beowawe, Nevada ____________
Carlin Location:
923 Spruce Street
Carlin, Nevada 89822
<PAGE>
Schedule 2.11 to Credit and Security Agreement
Uses of Funds
To pay off the American National Bank revolving line of credit and one of two
term loans; for ongoing working capital purposes; and for acquisition
financing as may be approved from time to time by the Lender in its sole
discretion.
<PAGE>
Schedule 5.1 to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place
of Business, and Locations of Collateral
Trade Names:
Trailblazer Oil Co.
Chief Executive Office/Principal Place of Business
Fleischli Oil Company, Inc.
2350 West Lincoln Way
P.O. Box 487
Cheyenne, Wyoming 82003
Other Inventory and Equipment Locations:
None
<PAGE>
Schedule 5.12 to Credit and Security Agreement
Hazardous Substances on Premises:
Disposal of Hazardous Substances:
Requests, claims, notices, investigations, demands, administrative
proceedings, hearings or litigation:
Listings in National Priorities List, the Comprehensive Environmental
Response, Compensation and Liability Information System, etc.:
<PAGE>
Schedule 7.1 to Credit and Security Agreement
Permitted Liens
Creditor Collateral Jurisdiction Filing Date Filing No.
Century 2 Bulk Grease Sweetwater 11/1/96 U227908
Lubricants Co. Tanks County, WY
Caterpillar 1 Caterpillar Laramie 12/7/92 U424309
Financial Lift Truck County, WY
Services Corp.
Norwest Equip- Various pieces Laramie 12/20/93 U506165
ment Finance, of computer County, WY
Inc. equipment
Key Corp Leasing 1 Polar, 1 FET Laramie 10/9/95 U529904
County, WY
Key Corp Leasing 1 Polar, 1 FET Laramie 10/17/95 U530211
County, WY
Key Corp Leasing New 1996 Laramie 11/8/95 U530976
Freightliner County, WY
Key Corp Leasing New 1996 Laramie 11/17/95 U531268
Freightliner County, WY
Key Corp Leasing 1996, Aluminum Laramie 11/27/95 U531529
Semi Trailer County, WY
Key Corp Leasing 1996, Aluminum Laramie 12/11/95 U532036
Semi Trailer County, WY
American Nat- 1 1997 Ford Laramie 5/1/97 U550518
ional Bank Expedition County, WY
American Nat- 1 1997 Chevrolet Laramie 5/12/97 U550916
ional Bank County, WY
American Nat- 1 1997 Chevrolet Laramie 5/12/97 U550917
ional Bank County, WY
<PAGE>
Schedule 7.2 to Credit and Security Agreement
Permitted Indebtedness and Guaranties
Indebtedness:
Principal Maturity Monthly
Creditor Amount Date Payment Collateral
American National $368,569 11/16/02 $6,259.24 Real Estate located
Bank at 6000 E.
Yellowstone,
Evansville, Natrona
County, Wyoming
Sun Company, Inc. $400,000 12/31/06 $4,853.10 None
Guaranties:
Amount and Description
Primary Obligor of Obligation Guaranteed Beneficiary of Guaranty
None
SUBSIDIARIES OF REGISTRANT
JURISDICTION OF OTHER NAMES UNDER
INCORPORATION OR WHICH SUBSIDIARY
NAME (AND % OWNED) ORGANIZATION DOES BUSINESS
- ------------------------------------- ---------------- -----------------
Pyramid Stores, Inc. (100%) Colorado None
Graves Oil & Butane Co., Inc.(100% by New Mexico None
Pyramid Stores, Inc.)
El Boracho, Inc. (100% by Graves) New Mexico None
Hillger Oil Company (100% by Pyramid) New Mexico None
Hatch Pyramid LLC (75%) New Mexico None
Capco Analytical Services, Inc.(100%) California None
Innovative Solutions and Technologies,
Inc. (100%) Colorado None
Meteor Holdings LLC (73%) Colorado None
Capco Resources, Inc. (100% by Meteor Delaware None
Holdings LLC)
Bloomfield Pyramid LLC (100%) New Mexico None
Graves Rio Rancho LLC (50%) New Mexico None
Coors Pyramid, LLC (50%) New Mexico None
Fleischli Oil Company, Inc. (100%) Wyoming None
American LP Ltd. Co. (33%) New Mexico None
Socorro Pyramid L.L.C. (100%) New Mexico None
/TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of operations found on
pages F-2 through F-4 of the Company's Form 10-K for the year to date, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,375,960
<SECURITIES> 0
<RECEIVABLES> 10,319,834
<ALLOWANCES> (482,597)
<INVENTORY> 3,818,332
<CURRENT-ASSETS> 15,826,134
<PP&E> 15,738,133
<DEPRECIATION> (1,798,350)
<TOTAL-ASSETS> 31,941,351
<CURRENT-LIABILITIES> 12,934,641
<BONDS> 0
<COMMON> 4,130
0
0
<OTHER-SE> 9,287,038
<TOTAL-LIABILITY-AND-EQUITY> 31,941,351
<SALES> 88,439,730
<TOTAL-REVENUES> 88,439,730
<CGS> 75,439,269
<TOTAL-COSTS> 11,814,187
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 603,903
<INCOME-PRETAX> 1,583,225
<INCOME-TAX> 582,627
<INCOME-CONTINUING> 601,053
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 601,053
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
