-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NzR2rwsAiU3j5PVqXLhW0MgsIpktywHejed2whjkv4x7NeIw22yTaMU2n4tlrSz2 okpZoJThNVgMtfbFlMQRlg== 0000948830-97-000149.txt : 19970528 0000948830-97-000149.hdr.sgml : 19970528 ACCESSION NUMBER: 0000948830-97-000149 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19970527 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: METEOR INDUSTRIES INC CENTRAL INDEX KEY: 0000912875 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO & HOME SUPPLY STORES [5531] IRS NUMBER: 841236619 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-12557 FILM NUMBER: 97614009 BUSINESS ADDRESS: STREET 1: 216 16TH ST STE 730 CITY: DENVER STATE: CO ZIP: 80202 MAIL ADDRESS: STREET 1: 216 16TH ST STREET 2: STE 730 CITY: DENVER STATE: CO ZIP: 80202 S-1/A 1 As filed with the Securities and Exchange Commission on May 23, 1997 SEC Registration No. 333-12557 U.S. SECURITIES AND EXCHANGE COMMISSION AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 METEOR INDUSTRIES, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Colorado 5541 84-1236619 - ---------------------- ---------------------------- ------------------- (State or Other Juris- (Primary Standard Industrial (IRS Employer Iden- diction of Incorpora- Classification Code Number) tification Number) tion) 216 Sixteenth Street, Suite 730, Denver, Colorado 80202 (303) 572-1135 ------------------------------------------------------------- (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Edward J. Names, President 216 Sixteenth Street, Suite 730, Denver, Colorado 80202 (303) 572-1135 --------------------------------------------------------- (Name, Address and Telephone Number of Agent for Service) Copies to: Jon D. Sawyer, Esq. William M. Prifti, Esq. Krys Boyle Freedman Scott & Sawyer, P.C. Lynnfield Woods Office Park 600 Seventeenth Street, Suite 2700 220 Broadway, Suite 204 South Tower Lynnfield, Massachusetts 01940 Denver, Colorado 80202 (617) 593-4525 (303) 893-2300 _____________________________________________________________________________ Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. _X_ _____________________________________________________________________________ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED TITLE OF EACH MAXIMUM MAXIMUM CLASS OF AMOUNT OFFERING AGGREGATE AMOUNT OF SECURITIES TO TO BE PRICE PER OFFERING REGISTRA- BE REGISTERED REGISTERED UNIT PRICE TION FEE Common Stock, 690,000 $4.625 $3,191,250 $1,100.43 $.001 Par Value Shares Per Share Redeemable 690,000 $0.10 $ 69,000 $ 23.79 Warrants Warrants Per Warrant Common Stock, 690,000 $6.0125 $4,148,625 $1,430.56 $.001 Par Value Shares Per Share Underwriter's -- -- $ 100 $ 0.03 Warrants Common Stock 60,000 $5.78125 $ 346,875 $ 119.61 $.001 Par Value Shares Per Share Underwriter's 60,000 $0.125 $ 7,500 $ 2.59 Redeemable Warrants Per Warrant Warrants Common Stock 60,000 $6.0125 $ 365,500 $ 126.03 $.001 Par Value Shares Per Share Total $8,128,850 $2,803.04 - ----------------------------------------------------------------------------- Estimated solely for the purpose of calculating the registration fee. Includes 90,000 Shares that may be purchased by Westport Resources Investment Services, Inc. (the "Underwriter"), in whole or in part, to cover overallotments, if any. Estimated based on the average of the closing bid and ask quotations on the OTC Bulletin Board on September 19, 1996. Includes 90,000 Warrants that may be purchased by the Underwriter, in whole or in part, to cover overallotments. Issuable upon exercise of the Redeemable Warrants. To be issued to the Underwriter. Issuable upon exercise of the Underwriter's Warrants. Issuable upon exercise of Underwriter's Redeemable Warrants. $2,949.78 was paid at the time of the initial filing. The total fee shown is reduced as a result of the elimination of the registration of 92,000 shares of Common Stock which was to have been sold by selling shareholders.
Pursuant to Rule 416, there are also being registered such additional shares of Common Stock, $.001 par value, as may become issuable in accordance with the anti-dilution provisions of the Underwriter's Warrants. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. METEOR INDUSTRIES, INC. Cross-Reference Sheet pursuant to Item 501(b) of Regulation S-K between Registration Statement (Form S-1) and Form of Prospectus. Item Number and Caption Heading in Prospectus 1. Forepart of the Registration Outside Front Cover Page; Statement and Outside Front Inside Front Cover Page Cover Page of Prospectus 2. Inside Front and Outside Back Inside Front Cover Page; Cover Pages of Prospectus Outside Back Cover Page 3. Summary Information, Risk Prospectus Summary; Risk Factors and Ratio of Earnings Factors; The Company to Fixed Charges 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Description of Securities; Underwriting 6. Dilution Not Applicable 7. Selling Security Holders Not Applicable 8. Plan of Distribution Outside Front Cover Page; Underwriting 9. Description of the Securities to Description of Securities be Registered 10. Interest of Named Experts and Legal Matters Counsel 11. Information With Respect to the Registrant: (a) Description of Business The Company; Business (b) Description of Properties Business -- Facilities (c) Legal Proceedings Business - Legal Proceedings (d) Market Price; Dividends and Price Range of Common Stock; Related Stockholder Matters Dividend Policy; Risk Factors; Description of Securities (e) Financial Statements Financial Statements (f) Selected Financial Information Selected Financial Information (g) Supplementary Financial Not Applicable Information (h) Management's Discussion and Management's Discussion and Analysis of Financial Condi- Analysis of Financial Condi- tion and Results of Opera- tion and Results of Operations tions (i) Disagreements with Accountants Not Applicable (j) Directors and Officers Management (k) Executive Compensation Management (l) Security Ownership Security Ownership of Management and Principal Shareholders (m) Certain Relationships and Management; Certain Transactions Related Transactions 12. Disclosure of Commission Posi- Not Applicable tion on Indemnification for Securities Act Liabilities SUBJECT TO COMPLETION; DATED MAY 23, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. METEOR INDUSTRIES, INC. 600,000 Shares of Common Stock and 600,000 Redeemable Warrants Meteor Industries, Inc., a Colorado corporation (the "Company"), hereby offers 600,000 shares of common stock, par value $.001 per share (the "Common Stock"), and 600,000 redeemable common stock purchase warrants (the "Redeemable Warrants"). The Common Stock and the Redeemable Warrants offered hereby (sometimes hereinafter collectively referred to as the "Securities") may be purchased in this offering only together on the basis of one share of Common Stock and one Redeemable Warrant. Each Redeemable Warrant is separately transferable immediately upon issuance. Each Redeemable Warrant entitles the holder to purchase one share of Common Stock at a price of $___ per share (130% of the Common Stock Offering Price) commencing on the date of this Prospectus until _______, 1999. The Redeemable Warrants are redeemable by the Company at a redemption price of $.10 per Redeemable Warrant at any time commencing 90 days from the date of this Prospectus on 30 days' prior written notice, provided that the market price of the Common Stock equals or exceeds $____ per share (150% of the Common Stock Offering Price) for 10 consecutive trading days ending within 20 days prior to the notice of redemption. (See "DESCRIPTION OF SECURITIES.") The Company's Common Stock currently trades on the OTC Bulletin Board under the symbol "METE", and on May 21, 1997, the closing bid and ask prices of the Common Stock were $5.125 and $5.625, respectively. (See "PRICE RANGE OF COMMON STOCK.") The Common Stock and Redeemable Warrants have been approved for listing on the American Stock Exchange ("AMEX") under the proposed symbols "MTE" and "MTEW", respectively. It is currently anticipated that the offering price per share will be between $5.00 and $6.00. The final offering price of the Shares will be determined by negotiations between the Company and Westport Resources Investment Services, Inc. (the "Representative") based upon the then current market price for the Common Stock, the Company's financial condition, estimates of its business potential, liquidity for the Common Stock, and general market conditions immediately preceding the date of this Prospectus. (See "PRICE RANGE OF COMMON STOCK" and "UNDERWRITING.") __________________ THESE ARE SPECULATIVE SECURITIES. AN INVESTMENT IN THE SECURITIES OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS." ___________________ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ___________________
Price to Underwriting Proceeds to Public Discount Company Per Share . . . . . . . . . . . $ $ $ Per Warrant . . . . . . . . . . $0.10 $0.01 $0.09 Total. . . . . . . . . . . $ $ $ Does not include (i) a non-accountable expense allowance of 3% of the gross proceeds from this offering amounting to $_______ ($_____ if the Over-allotment Option is exercised in full) to the Representative, of which $20,000 has been paid as of the date of this Prospectus, and (ii) the sale to the Representative by the Company of a warrant (the "Representative's Warrants") to purchase 60,000 shares of Common Stock at $____ per share and 60,000 Redeemable Warrants to purchase 60,000 shares of Common Stock at an exercise price of $______ at any time after twelve months from the date hereof and for a period of four years thereafter. The Company has also agreed to indemnify the Representative against certain liabilities, including liabilities arising under the Securities Act of 1933. (See "UNDERWRITING.") Before deducting expenses payable by the Company estimated at $239,000, including the non-accountable expense allowance referred to in footnote 1. The Company has granted to the Representative a 45-day option to purchase up to 90,000 additional Shares and/or 90,000 additional Redeemable Warrants on the same terms and conditions as set forth above solely to cover over-allotments, if any. If the over-allotment option is exercised in full, the total Price to the Public, Underwriting Discount and Proceeds to the Company will be $_______, $________ and $________, respectively. Westport Resources Investment Services, Inc. 315 Post Road West Westport, Connecticut 06880 The date of this Prospectus is _________, 1997. 2 (INSIDE FRONT COVER) (Picture of convenience store) (METEOR INDUSTRIES, INC. LOGO) (Picture of convenience store) Convenience Stores, Las Cruces, NM 3 IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. The Securities are being offered on a "firm commitment" basis subject to receipt and acceptance by the Underwriters, the approval of certain legal matters by its counsel and prior sale. The Underwriters reserve the right to withdraw, cancel or modify the offering and to reject any order in whole or in part. It is expected that delivery of the certificates representing the Securities will be made on or about three business days from the date of this Prospectus, at the office of Westport Resources Investment Services, Inc., in Westport, Connecticut. ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the securities offered hereby has been filed by the Company with the Securities and Exchange Commission, Washington, D.C. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the securities offered hereby, reference is made to such Registration Statement, exhibits and schedules. Statements contained in this Prospectus as to the contents of any contract or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. However, all material elements of such contracts and documents are disclosed in this Prospectus. A copy of the Registration Statement may be inspected without charge at the Commission's principal offices in Washington, D.C., and copies of all or any part thereof may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. The Company is subject to the reporting requirements of Section 13(a) and to the proxy requirements of Section 14 of the Securities Exchange Act of 1934, as amended, and in accordance therewith files periodic reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information concerning the Company may be inspected or copied at the public reference facilities at the Commission located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices in New York, 7 World Trade Center, New York, New York 10048, and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such documents can be obtained at the public reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Electronic filings made through the Electronic Data Gathering, Analysis and Retrieval system are publicly available through the Commission's web site (http.//www.sec.gov). 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus. THE COMPANY Meteor Industries, Inc. ("Meteor" or "Company") was incorporated on December 22, 1992, as a Colorado based holding company. Graves Oil & Butane Co., Inc. ("Graves"), which was acquired effective September 1, 1993, is engaged in the marketing and distribution of refined petroleum and related products primarily in northern New Mexico, Colorado, Arizona and Utah. Graves operates seven retail sites in northern New Mexico. Hillger Oil Company ("Hillger"), which was acquired effective April 1, 1995, is engaged in the marketing and distribution of refined petroleum and related products primarily in southern New Mexico and Arizona. Hillger operates nine convenience stores in southern New Mexico. The Company sells fuel branded Phillips 66, Conoco, Texaco, Diamond Shamrock and FINA. In November 1995, the Company acquired all of the outstanding stock of Capco Resources, Inc. ("CRI"), in exchange for shares of the Company's Common Stock which represent approximately 53% of the shares now outstanding. CRI is a holding company involved in the development of a power project in Pakistan. The acquisition of CRI was accounted for as a reverse acquisition with CRI treated as the acquirer. Capco Analytical Services, Inc. ("CAS"), a wholly-owned subsidiary of CRI, is involved in providing environmental consulting and laboratory analysis and was also acquired in the transaction with CRI. Approximately 98% of the Company's gross revenues are presently derived from the Graves and Hillger subsidiaries. The proceeds of this offering will be used to reduce accounts payable, purchase equipment and inventory, the repayment of debt, and the acquisition of petroleum marketing businesses. THE OFFERING
Securities offered 600,000 Shares of Common Stock 600,000 Redeemable Warrants Shares of Common Stock Outstanding: Prior to the offering 3,440,138 Shares After the offering 4,040,138 Shares Trading Symbol - OTC Bulletin Board METE Proposed AMEX Trading Symbols: Common Stock MTE Redeemable Warrants MTEW __________________ Does not include (i) 7,000 shares of Common Stock issuable upon the exercise of outstanding warrants to purchase Common Stock; (ii) up to 896,911 shares of 5 Common Stock of the Company issuable upon the exchange of Preferred Stock of a subsidiary; (iii) 1,250,000 shares of Common Stock reserved for issuance pursuant to stock options which may be granted under the Company's Incentive Stock Option Plan and its 1997 Incentive Equity Plan of which options to purchase 413,300 shares of Common Stock are currently outstanding; or (iv) 130,000 shares of Common Stock issuable upon the exercise of an option held by consultants. (See "MANAGEMENT" and "DESCRIPTION OF SECURITIES.") Does not give effect to an aggregate of 900,000 shares of Common Stock issuable upon exercise of: (i) the Redeemable Warrants; (ii) the over-allotment option; (iii) the Representative's Warrants; and (iv) the Redeemable Warrants subject to the over-allotment option. (See "UNDERWRITING.")
RISK FACTORS: The purchase of these securities involves a high degree of risk. Prospective investors should review carefully and consider the factors described under "RISK FACTORS." USE OF PROCEEDS: The proceeds from the offering will be used to reduce accounts payable, the repayment of debt, to purchase equipment and inventory, and the acquisition of petroleum marketing businesses. (See "USE OF PROCEEDS.") SUMMARY FINANCIAL DATA: Effective November 2, 1995, Meteor Industries, Inc., acquired 100% of the issued and outstanding common stock of Capco Resources Inc. ("CRI") in exchange for 1,745,000 shares of Meteor common stock. The acquisition was treated as a reverse acquisition of Meteor by CRI. Accordingly, the results of operations of CRI are included in the following financial information since inception of CRI. The results of operations of Meteor are included in the following financial information since November 2, 1995, the effective date of the acquisition. The following table sets forth certain selected financial data with respect to the Company and is qualified in its entirety by reference to the financial statements and notes thereto included in this Prospectus. BALANCE SHEET DATA: (In Thousands) At December 31 March 31 ------------------------------------------ 1997 1996 1995 1994 1993 1992 ------- ------- ------- ------ ----- ----- Current Assets $ 9,306 $ 8,488 $ 6,708 $ 126 $ -- $ -- Property and Equipment 8,180 8,277 8,568 250 -- -- Other Assets 3,064 3,669 3,273 164 -- -- Discontinued Operations -- -- -- 572 660 (28) Total Assets 20,550 20,434 18,549 1,112 660 (28) Current Liabilities 8,284 8,943 6,921 403 -- -- Long-term Debt 414 446 2,195 -0- -- -- Deferred Tax Liability 1,745 1,773 1,894 -0- -- -- Minority Interest 4,252 4,152 3,615 -0- -- -- Stockholders' Equity 5,855 5,120 3,924 709 660 (28) 6 STATEMENT OF OPERATIONS DATA: (In Thousands, Except Per Share Data)
FOR THE THREE MONTHS ENDED FOR THE YEARS INCEPTION TO MARCH 31 ENDED DECEMBER 31, DECEMBER 31, ------------------- ----------------------------- ------------------- 1997 1996 1996 1995 1994 1993 1992 Sales. . . . . $ 13,853 $ 13,386 $ 59,984 $ 9,828 $ 473 $ -0- $ -0- Cost of sales. 11,628 10,830 49,644 7,373 -0- -0- -0- Operating Expenses . . 2,192 2,182 9,119 2,395 602 2 -0- Other income (Expense) . 485 (42) (79) (71) -0- -0- -0- Income (loss) From continu- ing operations 215 173 462 (74) (129) (2) -0- Income from dis- continued Operations. . -0- -0- -0- 1,871 179 690 765 Net income. . . 215 173 462 1,796 49 688 765 Income (loss) from continuing oper- ations per common share . . . . .06 .06 .15 (.15)(1295.32) (22.82) -0- Net income per Common share $ .06 $ .06 $ 0.15 $ 3.67 $ 489.95 $6,883.42 $7,652.20 Weighted average Shares outstanding. 3,353,561 3,024,903 3,184,397 489,035 100 100 100 Cash dividends $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
RISK FACTORS The securities offered hereby represent a speculative investment and involve a high degree of risk of a loss of part or all of the investment. Therefore, prospective investors should read this entire Prospectus and carefully consider the following risk factors in addition to the other information set forth elsewhere in this Prospectus prior to making an investment. 1. SUBSTANTIAL DEBT SERVICE. The structure of Meteor's acquisitions of Graves and Hillger have resulted in substantial debt service obligations to be funded by operations. Because of the nature of these leveraged buyouts and because of the Company's continued expansion and development plans, the Company's liquidity requirements have increased and are expected to continue to increase as a result of the need to reduce the Company's existing debt and to finance capital expenditures and increased inventory requirements. In order to pay its debt obligations, the interest on such obligations and other expenses, the Company must generate cash flows from operations which exceed that which were achieved in the past. In addition, even if previous cash flows are exceeded throughout the terms of its obligations, the Company most likely will be required to raise capital, refinance its existing debt or sell assets in order to pay its obligations as they become due. 7 2. RELIANCE ON KEY EMPLOYEES. The Company is wholly dependent on the personal efforts and abilities of its Officers and key employees. The loss of or unavailability to the Company of the services of one or more of its key employees would have a materially adverse effect on the Company's business prospects and/or potential earning capacity. In particular, the Company's President, Edward J. Names, who has an employment contract, is instrumental for the overall planning and management of the Company, its financing and its growth. There can be no assurance, if the services of any of these individuals were unavailable to the Company, that the Company would be able to employ a qualified replacement person or persons on terms suitable to the Company. The Company presently does not maintain key person life insurance on any of its key employees but has agreed to obtain a policy on the life of Edward J. Names in the amount of $1,500,000 upon completion of this offering. 3. FRANCHISE AGREEMENTS. The Company's petroleum marketing is dependent on franchise agreements with major producers of petroleum products. The Company's existing contracts with Phillips Petroleum Company, Conoco, Inc., Diamond Shamrock, Texaco, Inc., Fina Oil Company and Sun Oil Company have been in place for many years, but each of these contracts is terminable at the supplier's discretion on short notice. The loss of the Phillips 66 and Conoco contracts in particular could have a material adverse effect on the Company's revenues and profits. 4. COMPETITION. The Company's convenience store and gasoline distribution businesses are highly competitive. The Company competes with businesses similar in size to itself, with major oil companies with far greater resources than it possesses, and also with weaker firms who cut prices and engage in other efforts to remain in business. This competition, from time to time, adversely impacts operations and earnings. The Company operates 15 convenience stores or retail outlets without convenience stores in connection with its retail gasoline operations and leases one store to an independent operator. The convenience store business has been extremely competitive resulting in bankruptcies and reorganizations for a number of companies in the industry. 5. NARROW MARGINS FOR REFINED PETROLEUM PRODUCTS AND MARKET SHARE CONFLICTS. The distribution of refined petroleum products by the Company is extremely competitive, with narrow margins, requiring constant, careful attention, supervision and controls. Management has limited control over the competitive pricing of petroleum products. Foreign producers and refiners of petroleum products from time to time may affect materially the available supply of petroleum products, which could affect pricing and margins. Also, major oil companies, concerned with maintaining or increasing their respective market shares, sometimes depress prices and margins to attain or sustain product volume. These practices from time to time impact the earnings and operations of independent distributors such as the Company. 6. POTENTIAL ACCIDENTS. The Company owns and operates gasoline storage tanks, a fleet of 34 tank trucks, and wholesale and retail outlets for refined petroleum products. The presence of flammable and combustible products at these facilities provides the potential for fires and explosions which could destroy both property and human life. These products, almost all liquids, also have the potential to impose environmental damage if released. The Company has general liability coverage and a commercial umbrella liability policy with total coverage limits of $5 million as well as other insurance covering damage to its properties. While management believes the Company's insurance coverage is adequate for most foreseeable problems, and is comparable with the coverage of other companies in the same business and of similar size, its coverage does not necessarily protect the Company for ultimate liability for any damage to the environment, especially if such environmental damage is caused by leaking lines or tanks. Such environmental related coverage generally is unavailable or available a prohibitive cost. See the heading "Environmental Risks" below. 8 7. PAKISTAN POWER PROJECT. Due to general political and economic instability in Pakistan, the Company's investment of approximately $685,000 in Saba Power Company Ltd. may not yield any return to the Company. (See "Business - - Saba Power Company Ltd.) 8. CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS. Management and principal shareholders will beneficially own 75.8% of the outstanding common stock after this offering. Effective control of the Company will remain in the hands of such persons. 9. LIMITED DIRECTOR LIABILITY. The liability of a Director to the Company or any Shareholder for monetary damages for breach of his fiduciary duties as a Director is limited by the Company's Articles of Incorporation with certain exceptions. In addition, the Company will provide Officers and Directors the maximum indemnification allowable from time to time under Colorado law. These provisions limit the Company's and its Shareholders' ability to obtain damages or other relief from its Officers and Directors in the event of claimed wrongdoing. 10. GENERIC PREFERRED STOCK AUTHORIZED. The Company's Articles of Incorporation authorize the issuance of up to 10,000,000 shares of Preferred Stock, the terms, preferences, rights and restrictions of which may be established by its Board of Directors. Other companies on occasion have issued series of such preferred stock with terms, rights, preferences and restrictions that could be considered to discourage other persons from attempting to acquire control of such companies and thereby insulate incumbent management. It is possible the Company could issue shares of its Preferred Stock for such a purpose. In certain circumstances, the existence of corporate devices which would inhibit or discourage takeover attempts could have a depressive effect on the market value of the stock of a company. The Board of Directors has no current plans to issue any shares of Preferred Stock. 11. NO DIVIDENDS. The Company has paid no dividends on its Common Stock since incorporation. The Company does not anticipate paying dividends on its Common Stock in the foreseeable future and intends to devote any earnings to the development of the Company's business or the repayment of debt. 12. CONFLICTS OF INTEREST. Certain conflicts of interest may exist between the Company and its officers and directors. Each of such individuals has other business interests to which they devote their attention, and they are expected to continue to do so. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with their fiduciary duties to the Company. No officer or director owes a fiduciary duty to another entity regarding business opportunities related to lines of business similar to that of the Company. 13. ENVIRONMENTAL ISSUES. The Company's operations, which include distribution and jobbing of refined petroleum products (collectively the above operations are referred to as "Regulated Environmental Activities") are subject to a variety of federal, state and local laws, rules and regulations governing the storage, translation, manufacture, use, discharge, release and disposal of products and contaminants into the environment or otherwise relating to the protection of the environment. The Company's Regulated Environmental Activities, by their very nature, give rise to the potential for substantial environmental risks including: RISK OF RELEASE OF PETROLEUM AND RELATED PRODUCTS AND WASTES. The accidental or unintended release or discharge of petroleum and related products 9 and wastes which result from normal activities at tank farms and service stations and during the transportation or manufacture of such products and wastes, or the release or discharge of such products or waste in excess of permitted levels, may occur despite the operational controls and procedures established by the Company. Releases or discharge of such petroleum and related products and associated wastes, could contaminate the environment. Such releases or discharges may give rise to potential liability under the environmental laws, rules and regulations of the United States, individual states, and local jurisdictions relating to contamination or threat of contamination of air, soil, groundwater and surface waters. Such liability could expose the Company to fines or other penalties, both civil and criminal, and could result in the Company being required to institute extensive cleanup and remediation activities. RISK OF VIOLATION OF ENVIRONMENTAL REGULATIONS. The Company is subject to numerous environmental laws, rules and regulations covering its Regulated Environmental Activities. The Company's failure to comply with any applicable environmental regulation, whether or not intentional, can give rise to fines, penalties and sanctions, including criminal charges against employees and management, and may under certain circumstances require the closure of such non-complying facilities. RISK OF FUTURE ENVIRONMENTAL REGULATIONS. The environmental laws, rules and regulations which cover the Company's Regulated Environmental Activities continue to evolve. Stricter environmental regulations and controls or modified environmental regulations and controls could impose added costs on the operation of the Company, or cause the manufacture, storage, transportation or sale of some of the Company's products to become either unprofitable or illegal. RISK OF ENVIRONMENTAL HEALTH AND SAFETY OF PERSONS. Exposure of the Company's employees or the public to certain petroleum and related products or waste could result in damage to human health and safety, and give rise to liability to the Company, thereby impacting the economic value of the Company. RISK OF ENVIRONMENTAL REIMBURSEMENT PROCEDURES. Certain of the Company's Regulated Environmental Activities, such as leaking petroleum storage tank remediation, give rise to a potential for reimbursement of all or a portion of the amounts expended from applicable governmental reimbursement programs. Such reimbursement programs are subject to changes in applicable statutes or the interpretation of the law, which could alter the timing or availability of reimbursement funds to the Company and its customers. 14. OUTSTANDING OPTIONS AND WARRANTS. Currently, the Company has outstanding options and warrants to purchase up to 550,300 shares of Common Stock at prices ranging from $1.00 to $5.25 per share, and has the ability to grant options to purchase 836,700 additional shares under its Incentive Stock Option Plan and its 1997 Incentive Equity Plan. Additionally, the Company has agreed to sell to the Representative and its designees Representative's Warrants to purchase up to 60,000 shares of Common Stock and 60,000 Redeem- able Warrants exercisable during the four year period commencing one year from the date of this Prospectus at $_____ per share of Common Stock and $____ per Redeemable Warrant, subject to adjustment. The Representative will have certain registration rights with respect to the Representative's Warrants and the shares of Common Stock underlying such warrants. For the term of such options and warrants, the holders thereof will have an opportunity to profit from the rise in the market price of the Company's Common Stock without assuming the risks of ownership. This may have an adverse effect on the terms upon which the Company could obtain additional capital. 10 Furthermore, it might be expected that the holders of such options and warrants would exercise them at a time when the Company would be able to obtain equity capital on terms more favorable than those provided for by the options and warrants. (See "MANAGEMENT," "DESCRIPTION OF SECURITIES" and "UNDERWRITING.") 15. POTENTIAL SECURITIES LAW LIABILITIES FOR PRIVATE OFFERING. During February and March 1997, the Company sold 130,000 shares of its Common Stock and warrants to purchase 130,000 shares of Common Stock to 16 accredited investors for a total of $520,000 in a private offering. Because such sales were made at a time when the Registration Statement relating to this public offering was on file with the SEC and because such sales were made within 6 months of this public offering, the private sales might be considered to be "integrated," or part of the same offering as this public offering. The Company does not believe that the two offerings would be integrated for several reasons, one of which is that the proceeds of the offerings are to be used for different purposes. However, if it was determined that the two offerings were to be integrated, the sales to the private investors should have been registered under the Securities Act of 1933, as amended, because they were part of a "public offering." As a result, if the persons who purchased the shares in February and March 1997 were to bring a legal action against the Company alleging violation of the securities laws and were to be successful, then the Company could be held liable to those persons for up to the full amount of the purchase price ($520,000) plus interest. No legal actions have been threatened or are pending with respect to this matter. If any such legal actions should be brought against the Company, the Company intends to vigorously maintain a defense against such actions. 16. PREFERRED STOCK OF SUBSIDIARY. Graves Oil & Butane Co., Inc., a subsidiary of the Company has outstanding shares of preferred stock. held by Theron J. Graves, which currently may be exchanged for shares of the Company's Common Stock at the current bid price or up to 22.2% of the shares of the Company's Common Stock outstanding after such exchange, whichever yields fewer shares. As a result, after this offering Mr. Graves will have the right to acquire a maximum of 896,911 shares of the Company's Common Stock assuming that no options or warrants are exercised. Mr. Graves would have certain piggy-back registration rights with respect to any shares which he receives upon exchange. As a result, Mr. Graves has the right to acquire a substantial number of shares of the Company's Common Stock in the future, and the resale of such shares could adversely affect the market for the Company's Common Stock. (See "SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS" and "DESCRIPTION OF SECURITIES.") 17. COMMON STOCK ELIGIBLE FOR RESALE. Of the 3,440,228 shares of Common Stock outstanding as of the date of this Prospectus, approximately 2,999,100 shares are "restricted securities" and under certain circumstances may be sold in compliance with Rule 144 adopted under the Securities Act of 1933, as amended. Of such shares, approximately 2,869,100 shares are presently eligible for resale under Rule 144 and the remaining 130,000 shares will be eligible for sale in February and March of 1998. The Company has obtained the agreement of its Officers, Directors and record shareholders who own 5% or more of the Company's outstanding common stock to not sell, publicly transfer or assign more than 25,000 of the 2,598,371 shares of Common Stock currently owned by them (including shares underlying their stock options which are currently exercisable or exercisable within 60 days), for a period of one year from the date of this Prospectus without the prior written consent of the Representative. The Company has agreed to use reasonable efforts to register 640,000 shares of restricted Common Stock for resale by the holders thereof, and the Company may file such registration statement within three to nine months after the date of this Prospectus. The Company also intends to file an S-8 registration statement which would register the shares of Common Stock issuable on the exercise of stock 11 options granted under the Company's stock option plans, which would allow the resale of such shares. (See "DESCRIPTION OF SECURITIES -- Shares Eligible for Future Sale.") Future sales of such shares will in all likelihood depress the market price of the Company's Common Stock. 18. POSSIBLE VOLATILITY OF PRICE OF SHARES. The price of shares of publicly-traded corporations tend to fluctuate over a wide range. It can be expected, therefore, that there may be wide fluctuations in the market price for the Common Stock. There is no assurance that an active market will develop in the Common Stock. The lack of a current market for the Common Stock and fluctuations in trading interest and changes in the Company's operating results, financial condition and prospects could have a significant impact on the market price for the Common Stock. 19. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. This Prospectus contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act which are intended to be covered by the safe harbors created thereby. These statements include the plans and objectives of management for future operations, including plans and objectives relating to (i) petroleum marketing and (ii) acquisitions and financing. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Although the Company expects to operate its petroleum marketing business, and make acquisitions with financing from major oil companies, there can be no assurance that competitive conditions within the industry will not change materially or adversely, and that there will be no material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company of any other person that the objectives and plans of the Company will be achieved. THE COMPANY Meteor Industries, Inc. ("Meteor" or the "Company") was incorporated in Colorado on December 22, 1992, to purchase all the outstanding common stock of Graves Oil & Butane Co., Inc. ("Graves"). The two companies and Graves' then sole shareholder ("Seller") entered into a Purchase Agreement in June, 1993 and finalized the purchase in September, 1993. The purchase price for the common stock was $4,100,000, which was paid $1,750,000 in the form of cash to Seller and the discharge of certain of his obligations at closing and $2,350,000 in the form of a promissory note payable over the following four years. The Seller also retained preferred stock in Graves with a redemption value of $3,543,500 plus accrued dividends to be redeemed subsequent to September 15, 2000, if not earlier converted into common stock. In January 1994, the Company completed an initial public offering of 200,000 shares of its Common Stock pursuant to Regulation A under the Securities Act of 1933. The net proceeds of this offering to the Company was approximately $800,000. 12 On June 12, 1995, Meteor purchased all of the outstanding shares of Hillger Oil Company ("Hillger") headquartered in Las Cruces, New Mexico. This acquisition doubled Meteor's gasoline sales and improved cash flows. Hillger operates nine convenience stores and supplies 22 branded dealers in New Mexico. Graves operates seven retail sites and supplies 42 branded dealers. In connection with the acquisition of Hillger, Meteor sold 365,000 shares of its common stock for $730,000 in cash and borrowed $875,000 from Norwest Business Credit, Inc. In June 1995, the Company declared an 8% stock dividend to the shareholders of record as of June 30, 1995. In October 1995, the Company formed Pyramid Stores, Inc. ("Pyramid"), a Colorado corporation, as a wholly owned subsidiary to hold the stock of Graves and Hillger and operate those companies separately from the Company's other activities. In November 1995, the Company issued 1,745,000 shares of its Common Stock in exchange for all of the outstanding stock of Capco Resources, Inc. ("CRI"), a Delaware corporation. The shares of the Company's common stock issued in this transaction, which represent approximately 52.7% of the shares now outstanding, were issued to a U.S. subsidiary of Capco Resources Ltd. ("Capco"), an Alberta corporation, which is listed on the Alberta Stock Exchange. As a result of this transaction, there was a change in control of the Company and one of the Company's three directors was replaced by a Capco representative, Ilyas Chaudhary. Accordingly, the transaction has been considered a reverse acquisition for accounting purposes and the assets of Meteor, including the assets of Graves and Hillger have been revalued to their fair value at the date of the transaction. The major assets of CRI when acquired by Meteor included: (i) an interest in Saba Power Company Ltd., which is one of the developers of a power plant in Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a California environmental services firm; and (iii) a $1,516,000 promissory note receivable from Saba Petroleum Company and other miscellaneous assets. Since November 1995, CRI has focused most of its efforts on the financing of Saba Power Company Ltd. All of CRI's assets, other than the power project, have now been transferred out of CRI and into Meteor. The Company's headquarters are located at 216 Sixteenth Street, Suite 730, Denver, Colorado 80202, and its telephone number is (303) 572-1135. 13 The following organizational chart shows the Company's subsidiaries and its percentage ownership in each: ----------------------------------------------- Meteor Industries, Inc. ----------------------------------------------- : : : : : : : : ------------------- ---------------- -------------- ------------------- Meteor Holdings LLC Capco Analytical Pyramid Stores Innovative Services 73% Services, Inc. Inc. & Technologies, Inc. ------------------- 100% 100% 100% : ---------------- -------------- ------------------- : : : -------------------- ----------- -------------------- Capco Resources Inc. Hillger Oil Graves Oil & Butane 100% Company Co., Inc. -------------------- 100% 100% of common stock : ----------- --------------------- : : : : : : : -------------------- : : : : : : Saba Power Company ------------- ---------- : : : ----------- Ltd. Hatch Pyramid Graves Rio : : : El Boracho, 2% LLC Rancho LLC : : : Inc. ------------------- 75% 50% : : : 100% ------------- ---------- : : : ------------ ------------ : ----------- Bloomfield : American LP Pyramid LLC : 33% 100% : ----------- ------------ : ----------------- Coors Pyramid LLC 50% ----------------- PRICE RANGE OF COMMON STOCK The principal market for trading Meteor's Common Stock has been the over-the-counter market. Prices for the Common Stock are quoted on the OTC Bulletin Board. The range of high and low bid quotations for Meteor's Common Stock since public trading began in January 1994 provided below were obtained from the National Quotation Bureau. Beginning in the second quarter of 1995, the information shown is for closing bid quotations. The stock is principally owned or controlled by Officers and Directors of Meteor, and the bid prices reported may not be indicative of the value of the Common Stock. The volume of trading in Meteor's Common Stock has been very limited. These over-the- counter market quotations reflect inter-dealer prices without retail markup, markdown or commissions and may not necessarily represent actual transactions. 14 Bid* Period High Low Quarter Ended February 28, 1994 . . . . $4.63 $4.17 Quarter Ended May 31, 1994. . . . . . . $4.17 $3.70 Quarter Ended August 31, 1994 . . . . . $4.17 $2.78 Quarter Ended November 30, 1994 . . . . $4.63 $2.78 Quarter Ended February 28, 1995 . . . . $4.63 $3.94 Quarter Ended May 31, 1995. . . . . . . $4.63 $3.47 Quarter Ended August 31, 1995 . . . . . $4.28 $2.50 Month Ended September 30, 1995. . . . $3.00 $2.50 Quarter Ended December 31, 1995 . . . . $3.25 $2.00 Quarter Ended March 31, 1996. . . . . . $3.75 $2.00 Quarter Ended June 30, 1996 . . . . . . $4.25 $1.75 Quarter Ended September 30, 1996. . . . $4.25 $2.87 Quarter Ended December 31, 1996 . . . . $5.87 $3.62 Quarter Ended March 31, 1997. . . . . . $5.25 $3.50 __________________ * As restated to give retroactive affect to a stock dividend of 8% which was paid to shareholders of record as of June 30, 1995. As of May 19, 1997, there were approximately 70 record holders of the Company's Common Stock. Based on securities position listings, the Company believes that there are approximately 265 beneficial holders of the Company's Common Stock. DIVIDEND POLICY The Company has paid no cash dividends on its Common Stock and has no present intention of paying cash dividends in the foreseeable future. In June 1995, the Company declared an 8% stock dividend on its outstanding Common Stock. It is the present policy of the Board of Directors to retain all earnings to provide for the growth of the Company. Payment of cash dividends in the future will depend, among other things, upon the Company's future earnings, requirements for capital improvements and financial condition. The Company's ability to pay any cash dividends on the Company's Common Stock in the future will be limited by the dividend requirements of the Preferred Stock of a Subsidiary. SELECTED FINANCIAL INFORMATION Effective November 2, 1995, Meteor Industries, Inc., acquired 100% of the issued and outstanding common stock of Capco Resources Inc. ("CRI") in exchange for 1,745,000 shares of Meteor common stock. The acquisition was treated as a reverse acquisition of Meteor by CRI. Accordingly, the results of operations of CRI are included in the following financial information since inception of CRI. The results of operations of Meteor for 1995 are included in the following financial information since November 2, 1995, the effective date of the acquisition. 15 BALANCE SHEET DATA: (In Thousands) At December 31 March 31 ------------------------------------------ 1997 1996 1995 1994 1993 1992 ------- ------- ------- ------ ----- ----- Current Assets $ 9,306 $ 8,488 $ 6,708 $ 126 $ -- $ -- Property and Equipment 8,180 8,277 8,568 250 -- -- Other Assets 3,064 3,669 3,273 164 -- -- Discontinued Operations -- -- -- 572 660 (28) Total Assets 20,550 20,434 18,549 1,112 660 (28) Current Liabilities 8,284 8,943 6,921 403 -- -- Long-term Debt 414 446 2,195 -0- -- -- Deferred Tax Liability 1,745 1,773 1,894 -0- -- -- Minority Interest 4,252 4,152 3,615 -0- -- -- Stockholders' Equity 5,855 5,120 3,924 709 660 (28) STATEMENT OF OPERATIONS DATA: (In Thousands, Except Per Share Data)
FOR THE THREE MONTHS ENDED FOR THE YEARS INCEPTION TO MARCH 31 ENDED DECEMBER 31, DECEMBER 31, ------------- --------------------------------- ------------ 1997 1996 1996 1995 1994 1993 1992 Sales. . . . . $ 13,853 $ 13,386 $ 59,984 $ 9,828 $ 473 $ -0- $ -0- Cost of sales. 11,628 10,830 49,644 7,373 -0- -0- -0- Operating Expenses . . 2,192 2,182 9,119 2,395 602 2 -0- Other income (Expense) . 485 (42) (79) (71) -0- -0- -0- Income (loss) From continu- ing operations 215 173 462 (74) (129) (2) -0- Income from dis- continued Operations. . -0- -0- -0- 1,871 179 690 765 Net income. . . 215 173 462 1,796 49 688 765 Income (loss) from continuing oper- ations per common share . . . . .06 .06 .15 (.15)(1295.32) (22.82) -0- Net income per Common share $ .06 $ .06 $ 0.15 $ 3.67 $ 489.95 $6,883.42 $7,652.20 Weighted average Shares outstanding. 3,353,561 3,024,903 3,184,397 489,035 100 100 100 Cash dividends $ -0- $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR METEOR INDUSTRIES, INC. This Prospectus contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Effective November 2, 1995, Meteor acquired CRI. The acquisition was treated as a reverse acquisition of Meteor by CRI. Accordingly, the historical accounts of CRI are reflected in the financial statements, so comparisons with prior year are not very meaningful. The selected financial information should be read in conjunction with the historical financial statements and notes thereto of Meteor, included elsewhere in this document. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaled $521,000 for the three months ended March 31, 1997 compared to $856,000 for the period ended March 31, 1997. The decrease in cash provided is primarily related to the timing of payments of accounts payable. As of March 31, 1997, the Company had a working capital of $1,022,000 compared to a working capital deficit of $455,000 at December 31, 1996. The increase in the working capital is due primarily to sale of stock and partial collection of a note receivable from related party. Net cash provided by investing activities totaled $423,000 for the three months ended March 31, 1997, compared to cash used of $46,000 for the period ended March 31, 1996. The increase is primarily a result of the partial collection of a loan to related party. This was partially offset by purchases of property and equipment. 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. During the quarter the Company raised $520,000 in a private placement of stock. Net cash used by financing activities totaled $403,000 for the three months ended March 31, 1997, compared to a use of $775,000 for the period ended March 31, 1996. The decrease in cash used is primarily related to the sale of stock. The Company has two revolving bank credit facilities with Norwest Business Credit, Inc. - one for $3,000,000 and one for $1,500,000. The credit lines are subject to the borrowing base of the Company's subsidiaries, as defined, and on March 31, 1997, $1,565,000 and $250,000 were borrowed against the facilities which are recorded as current liabilities. The Company has been in default on the timely filing of information with the lender. The Company was also in default of the net worth requirements for one of the subsidiaries, which default has been corrected. The lender waived these defaults. The Company is and will continue to be in default in timely filing of information and one of the Company's subsidiaries is in violation of its debt service coverage requirements. The Company has not requested waivers of these violations. However, it is expected that the lender will continue to waive these violations as they have in the past. 17 The Company has a term loan with a New Mexico bank which is due in January, 1998 and a term loan with Norwest Business Credit, Inc. which is due in June, 1998. The balances at March 31, 1997, were $160,000 and $156,000, respectively. The loans are collateralized by real estate and buildings and equipment and require approximately $29,000 per month in payments. At March 31, 1997, the Company owned 50% of a limited liability company which in June 1996 acquired a convenience store for $610,000 using financing from Phillips Performance Fund Inc. The balance of the loan at March 31, 1997 was $496,000. 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 limited liability company. The Company owns 75% of a limited liability company which in December 1996 acquired a convenience store for $415,000 using seller financing of $315,000. The loan has quarterly payments of $14,000 and a term of 7 years. A subsidiary of the Company has preferred stock outstanding which requires no periodic payments but accrues an 8% dividend and must be redeemed for $3,543,000 plus accrued dividends at the holder's request any time after September 15, 2000 unless earlier converted into common stock pursuant to its terms. This preferred stock is treated as a minority interest on the balance sheet and recorded at its discounted value. The Company owes the founder of one of its subsidiaries $1,759,000 payable in semi-annual installments of $200,000 which includes principal and interest calculated at 2 percentage points in excess of Citibank's prime rate. All previously unpaid principal and interest is due October 1, 1997. It is anticipated that $670,000 will be offset by payments on notes receivable from the founder also due October 1, 1997. The Company plans to pay this debt by drawing down its $3,000,000 line of credit or possibly selling or refinancing one of its convenience stores. The Company is obligated to pay lease costs of approximately $66,000 monthly for land, building, facilities, and equipment. In order to pay its obligations, the interest on such obligations and other expenses, the Company must generate cash flow from operations which exceeds that which has been achieved in the past. In addition, even if historical cash flow is exceeded throughout the terms of its obligations, the Company will probably be required to raise capital or refinance its existing debt in order to pay its obligations as they become due. The Company has filed a registration statement pursuant to which it expects to sell 600,000 shares of stock during the second quarter of 1997. The Company utilizes underground tanks at various locations to store petroleum products and is therefore subject to various federal and state statutes concerning environmental protection, as well as the New Mexico Ground Water Protection Act. The various federal and state statutes are designed to identify environmental damage, identify hazardous material and/or operations, regulate operations engaged in hazardous activities, and establish procedures for remedial action as necessary. The state of New Mexico has recognized the potential cleanup costs resulting from regulations, and the New Mexico Ground Water Protection Act has included the establishment of a corrective action fund. The purpose of the fund is to provide 18 monetary assistance in both assessing site damage and correcting the damage where such costs are in excess of $10,000. Assistance is not available to repair or replace underground tanks or equipment. The law specifies requirements which must have been met for an applicant to be eligible, including a provision that payments will be made in accordance with regulations (which have not yet been issued), and states that payment from the corrective action fund are limited to amounts in that fund. The Company is responsible for any contamination of land it owns or leases; however, the Company's responsibilities may be limited as a result of possible claims for reimbursement from third parties. The Company maintains detailed inventory records and performs tank and line tightness tests on a regular basis on all underground storage tanks. Management has assessed the environmental contingencies and does not anticipate any potential liabilities that will have a material adverse effect on the consolidated financial position, results of operation, or liquidity of the Company. RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1997 TO MARCH 31, 1996 The Company is primarily engaged in the business of marketing and distributing refined petroleum and related products employing wholesale, convenience store operations and environmental services. The Company's sales for the three months ended March 31, 1997, were $13,853,000 compared to $13,386,000 for the comparable period ending March 31, 1996. The increase in revenue of $467,000 is primarily related to increases in propane sales and sales at the convenience stores. Sales are expected to be similar to the previous year assuming no significant acquisitions are made. The Company's cost of sales for the three months ended March 31, 1997, were $11,628,000 (83.9% of sales) compared to $10,830,000 (80.1% of sales) for the comparable period ended March 31, 1996. The increase of $798,000 in cost of sales is primarily due to an increase in fuel costs which the Company was not able to pass on to its customers due to competition. The Company's gross profit for the three months ended March 31, 1997, was $2,224,000 compared to $2,556,000 for the comparable period ended March 31, 1996. The decrease of $332,000 is primarily related to a decrease in gasoline margins. Gasoline margins are dictated by competition in a given area and the Company has limited control over such margins. The Company's selling, general and administrative expenses were $1,973,000 for the three months ended March 31, 1997, compared to $1,961,000 for the comparable period ended March 31, 1996. Even though the Company has cut expenses at the subsidiary levels, total expenses have increased due to an increase in corporate overhead related to acquisition activity and capital raising activities. The Company's depreciation for the three months ended March 31, 1997, was $220,000 compared to $221,000 for the comparable period ended March 31, 1996. The Company's other income for the three months ended March 31, 1997 was $485,000 compared to $0 for the comparable period ended March 31, 1996. The increase is related to a settlement of litigation for $480,000, net of expenses. 19 The Company's provision for income taxes for the three months ended March 31, 1997, was $202,000 compared to $63,000 for the comparable period ended March 31, 1996. This increase is due to more income and the utilization of a loss carryforward in 1996. The Company's net income for the three months ended March 31, 1997, was $215,000 compared to $173,000 in the prior period. The change in net income is due to the above described items. It should be noted that if the Company had not had other income from the settlement of litigation of approximately $480,000, the Company would have recorded a net loss of approximately $78,000 for the three months ended March 31, 1997. COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 TO DECEMBER 31, 1995 The Company is primarily engaged in the business of marketing and distributing refined petroleum and related products employing wholesale, convenience store operations and environmental services. The following discussion for comparisons is limited because the historical accounts for 1995 reflect only two months of revenue and expense for Meteor due to the reverse acquisition by CRI in November, 1995, while 1996 reflects a full year of operations for Meteor. The Company's sales for the year ended December 31, 1996, were $59,984,000 compared to $9,828,000 for the comparable period ending December 31, 1995. The increase in revenues is due to increases in gasoline volumes and prices at the retail level. Sales are expected to be relatively constant next year assuming no significant acquisitions are made. The Company's cost of sales for the year ended December 31, 1996, were $49,644,000 compared to $7,373,000 for the comparable period ended December 31, 1995. The increase in costs of sales is due to an increase in sales as discussed above. The Company's gross profit for the year ended December 31, 1996, was $10,340,000 compared to $2,455,000 for the comparable period ended December 31, 1995. The increase is partially related to higher sales and increased margins for gasoline at the retail level. Retail gasoline margins are dictated by competition in a given area and the Company has no control over such margins. The Company's selling, general and administrative expenses were $8,269,000 for the year ended December 31, 1996, compared to $2,244,000 for the comparable period ended December 31, 1995. The increase in expenses is related to combining the operations of Hillger, Graves and CRI. As a percentage of sales general and administrative expenses declined from 23% to 14% reflecting benefits of combining the companies. The Company's depreciation for the year ended December 31, 1996, was $850,000 compared to $152,000 for the comparable period ended December 31, 1995. The increase in depreciation expense is due primarily to acquisition of buildings and equipment. The Company's other expenses for the year ended December 31, 1996 was $79,000 compared to $71,000 for the comparable period ended December 31, 1995. The reasons for the decrease are primarily related to an increase in interest income, an increase in interest expense, and sales of assets this year. The Company's provision for income taxes for the year ended December 31, 1996, was $395,000 compared to $(1,470)for the comparable period ended December 20 31, 1995. This increase is due to more income. The expected tax provision based on statutory rates would have been $446,000. The variance from the effective rate is principally due to benefit of the loss carryforward. The Company's income from continuing operations for the year ended December 31, 1996, was $462,000 compared to a loss from continuing operations of $74,000 in the prior year due to the above described items. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO DECEMBER 31, 1994 The Company's sales for the year ended December 31, 1995, were $9,828,000 compared to $473,000 for the comparable period ending December 31, 1994. The increase in revenue is due to an increase in sales due to acquisition of Meteor of $8,868,000 and an increase of $487,000 at CAS. The increase in revenues at CAS is due to additional lab analysis which trend is expected to continue. The Company's cost of sales for the year ended December 31, 1995, were $7,373,000 compared to $0 for the comparable period ended December 31, 1994. The increase in costs of sales is due to the acquisition of CRI by Meteor. The Company's gross profit for the year ended December 31, 1995, was $2,455,000 compared to $473,000 for the comparable period ended December 31, 1994. The increase is related to the inclusion of Meteor's gross profits for the two months ended December 31, 1995. The Company's selling, general and administrative expenses were $2,224,000 for the year ended December 31, 1995 compared to $602,000 for the year ended December 31, 1994. The increase in expenses of $1,388,000 is related to the acquisition of CRI by Meteor and an increase at CAS of $405,000 due to increased activity at the laboratory. The Company's other expenses for the year ended December 31, 1995 were $71,000 compared to $0 for the comparable period December 31, 1994. The reasons for the increase is due to the acquisition of CRI by Meteor. The Company's loss from continuing operations for the year ended December 31, 1995, was $74,000 compared to a loss from continuing operations of $129,000 in the prior year due to the above described items. DISCONTINUED OPERATIONS CRI had been involved in the production of oil and gas prior to the transaction with the Company. Those operations were discontinued and will have no impact on future operations. CRI had these operations in subsidiaries. In 1995, CRI sold the shares of Saba de Colombia, Inc., a U.S. subsidiary engaged in the exploration and development of petroleum and natural gas in Colombia, to a third party. In 1995, CRI transferred to Capco Resources, Ltd. and CAPCO Acquisub, Inc., a wholly-owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba Petroleum Company and certain other assets and liabilities. The income from discontinued operations was $441,197 and the gain on disposition, net of taxes was $1,429,256 for the year ended December 31, 1995. USE OF PROCEEDS The estimated net proceeds from the sale of the 600,000 Shares of Common Stock and 600,000 Redeemable Warrants offered hereby will be approximately 21 $2,515,000 after deducting underwriting discounts and expenses of the offering based on an assumed offering price of $5.00 per Share and $.10 per Warrant. Such proceeds will be applied substantially as follows:
APPROXIMATE APPLICATION OF PROCEEDS DOLLAR AMOUNT Payment of Accounts Payable $ 200,000 Repayment of Debt 500,000 Purchase of Equipment and Inventory 300,000 Acquisition of Petroleum Marketing Businesses 1,515,000 ---------- Total $2,515,000 __________________ Such amounts will be used to either pay down amounts outstanding under one of the Company's lines of credit from Norwest Business Credit, Inc., or a promissory note held by Theron J. Graves. The line of credit bears interest at the prime rate plus 2.0%, is collateralized by trade accounts receivable and inventory of the Company's Graves subsidiary, and is due in June 1998. As of March 31, 1997, $1,565,000 was outstanding under this line of credit. The promissory note to Mr. Graves bears interest at 2% over the prime rate and is secured by 50% of the Graves common stock held by the Company. As of March 31, 1997, $1,759,000 was outstanding under this promissory note. Until such funds are actually used to acquire petroleum marketing businesses, the Company may use such funds to temporarily pay down the line of credit described in Note (1) above. In the event that the Company does not use all of the amounts allocated for the acquisition of petroleum marketing businesses within 12 months of the date of this Prospectus, the Company intends to use such unused funds to enhance its current business through capital expenditures (See "BUSINESS -- Petroleum Marketing")
It is expected that the net proceeds from this offering will satisfy the cash requirements of the Company for a period of approximately 12 months, and that during that period it will not be necessary for the Company to raise additional funds, except for further expansion and business opportunities not yet defined. Any additional proceeds received upon the exercise of the Over-allotment Option, the Redeemable Warrants and the Underwriter's Warrants to be sold to the Underwriter will be used for general corporate purposes. Pending utilization of the proceeds of this offering, the Company may invest such net proceeds in short-term government securities in a nondiscretional account of the Company. BUSINESS GENERAL Meteor Industries, Inc. ("Meteor" or the "Company"), through its wholly- owned subsidiaries, is engaged in the marketing and distribution of refined petroleum and related products and provides environmental services. In addition, 22 through its Meteor Holdings LLC and Capco Resources, Inc. ("CRI") subsidiaries, the Company has an interest in Saba Power Company Ltd., which is in the process of building a power project in Pakistan. PETROLEUM MARKETING BUSINESS AND OPERATIONS The Company operates its petroleum marketing and convenience store business primarily from its Farmington, Albuquerque and Las Cruces, New Mexico offices. The Company operates this business through Pyramid Stores, Inc. and its two New Mexico subsidiaries, Hillger Oil Company and Graves Oil & Butane Co., Inc. The commercial/wholesale operations are the largest part of the Company's business. This operation has fuel delivery agreements with customers that include truck stops, retail gasoline service stations, convenience stores, construction companies, commercial fleet distribution centers, the federal government, mining companies, and utilities. The wholesale operation has distributor agreements with Phillips Petroleum Company, Sun Oil Company, Conoco, Inc., Texaco, Inc., Diamond Shamrock Corp. and Fina Oil Company. These distributor agreements allow the Company to purchase petroleum products at wholesale prices directly from pipeline terminals and refineries controlled by these large oil producer/refiners. The Company is then authorized to resell those products to its customers. The distribution agreements have three-year terms and the Company has one to two years remaining on its agreements with its primary suppliers, Phillips 66 and Conoco, Inc. The distribution agreements do not provide for an exclusive territory and can be terminated by either party upon 30 days notice. There can be no assurance that these agreements will not have to be renegotiated or that they will be renewed. Although the Company, through its subsidiaries, is one of the larger and longer standing wholesale distributors of Conoco and Phillips products in New Mexico, it is possible the Company could lose such contracts. In such an event, the Company's operations may be adversely impacted. Manage- ment would attempt to persuade the retail outlets the Company supplies to switch to another oil company brand with which it has a contract. The Company could also buy and sell fuel as an unbranded independent, however, sales volumes and/or margins would likely decrease materially if the Company did not have access to branded products. Many of the Company's wholesale customers operate retail gasoline service stations under the banners of the various oil companies. The banner 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 11 people. The marketing department is primarily responsible for the direct selling efforts of the Company and for ensuring that customers accounts are properly serviced. The majority of wholesale revenues come from repeat telephone orders from existing customers. The Company also advertises in trade journals and attends industry trade shows in its market. The Company's wholesale distribution process is straightforward. The distribution channel begins with the loading of the Company's trucks at pipeline 23 terminals or refineries. When delivered in transport quantities, the trucks deliver the inventory directly to the wholesale customer with no intermediate storage of fuel other than trucks en route to a customer. The distribution process for bulk fuel products, from pick-up to delivery to customers, is typically completed in two days or less. Most of the Company's wholesale customers in the three major regional markets, Farmington, Albuquerque, and Las Cruces, have been with the Company for many years. No customer accounts for more than 10% of the Company's sales, however, the loss of one or more major wholesale customers could have a significant impact on the Company's revenues. The Company's retail operations consist of ownership or leasehold interests in 22 retail outlets which include service stations, convenience stores and lube pits. Sixteen outlets are operated by the Company and six are leased or subleased to third parties. The retail operation represents a potential growth area for the Company. The retail outlets sell gasoline, propane and other petroleum products directly to the general public. The services provided are those that would generally be expected to be provided at this type of facility. The retail outlets also sell food and tobacco products as a convenience to their customers. Other than at the convenience stores, non-petroleum products sales are not a material part of retail revenues. The Company's highest volume convenience stores are located in the Las Cruces and Albuquerque areas. The Company intends to expand its convenience store base by acquisition and new construction. The Company has four automated cardlock facilities. The cardlock systems provide 24-hour-per-day access to fuel dispensing facilities for commercial fleet customers and customers with automated debit cards. The cardlock systems do not require that a Company employee be present to process the fuel purchase. The cardlock facilities are primarily used by commercial fleet operators in order to take advantage of automated transaction process technology which allows a user to insert a "user card" activating the fuel dispenser and records the transaction. The Company's strategy contemplates increasing the number of cardlock facilities that the Company owns or controls. The Company also has retail and commercial propane operations. In November 1993, Graves reentered the residential propane markets in Farmington, New Mexico. Graves' management and employees have significant experience in the propane industry and the Company had a substantial amount of propane equipment that was underutilized. A significant percentage of the homes and commercial buildings in the rural areas around Farmington do not have access to natural gas lines and must rely on propane for heating. Management of the Company believes that the residential propane market provides a significant opportunity for growth. As of the date of this Prospectus, Graves has over 350 residential and over 200 commercial propane customers and continues to actively market this product and service. Recently, Graves became a 33% owner of a residential propane company in Albuquerque, New Mexico. Management of Graves is actively seeking other propane opportunities in Southern Colorado and New Mexico. SABA POWER COMPANY LTD. Saba Power Company Ltd. ("Saba Power") is a limited liability corporation in Pakistan which was established in early 1995 to pursue development of a power plant project in Pakistan. The Government of Pakistan recognized all of the owners of Saba Power when it accepted the financing documents to which the Company, through its subsidiary CRI, is a party. The Company has an interest in 24 Saba Power, which has a power plant project 40 miles from Lahore, Pakistan. The Company has two unrelated joint venture partners, Cogen Technologies of Houston, Texas ("Cogen") and Coastal Saba Power Ltd. ("Coastal"). Estimated costs for the 125 megawatt plant are approximately $150,000,000. The project received a Letter of Support dated September 18, 1994, and an acknowledgment of financial closing on April 3, 1996, from the Ministry of Water & Power of the Government of Pakistan. All documentation relating to the project's permanent debt financing was approved in May of 1996 and all documentation relating to the construction financing was finalized on or prior to March 4, 1997. Limited activities related to the construction of the project were commenced in late August of 1996 but were suspended in October. Construction activity is again underway and although there can be no assurances, the project is expected to be completed in approximately two years. At December 31, 1996, the Company, had invested $683,162 in Meteor Holdings LLC ("MHL") MHL owns an equity interest in Saba Power Company, Ltd. (the "Power Project") through its ownership of CRI. The investment in the Power Project is reported using the cost method. The Company also entered into an agreement with Saba Petroleum Company ("Saba") whereby Saba, a related party, participated in the Power Project. Saba invested $250,000 in MHL resulting in MHL's total investment of $933,162 in the Power Project. Saba owns a .5% interest in the Power Project through its ownership of 27% of MHL. The Company owns 1.5% of the Power Project through its ownership of 73% of MHL. Saba's .5% interest in the project is subject to the same terms and conditions as the Company's 1.5% interest. These percentages, however, could be reduced in the event that other shareholders of Saba Power are required to make additional contributions to equity. MHL has obtained the right to sell its interest in Saba Power to an affiliate of one of the other shareholders for approximately the amount of its contribution on October 26, 1997, for a period of 120 days. The Company's investment in the Power Project is not expected to provide any significant cash flow to the Company for at least three to four years. Further, if during the next 2-3 years certain enhancements to the Power Project contracts are not obtained from the Government of Pakistan, cash flow from the Power Project will not be earned by or distributed to the Company. During 1996, Saba Power Company Ltd. and the shareholders thereof, including the Company, completed the final negotiations with the project's construction lender and the engineering procurement and construction contractor was given a limited release to commence construction activities on the project, which was subsequently suspended. On March 4, 1997, all required equity capital was fully subscribed and paid by the partners in the form of cash or letters of credit; all documentation fees were paid to the Government of Pakistan; and the construction contractor was given a full release. All required consents were obtained from the Government of Pakistan, and all defaults were cured. Due to the changing political climate in Pakistan and the economic risks involved, the Company's management decided not to invest additional capital in the project. All debt and equity financing for the Power Project was completed on March 4, 1997, in the total amount of over $150,000,000. In connection with this transaction, the Company's co-developer Cogen Technologies agreed to pay a consulting fee for services provided in 1996, to the founding partners, of which MHL's share totals $400,000 with the possi- bility of receiving up to an additional $350,000 over a three year period if certain contract enhancements are obtained from the Government of Pakistan; however, there can be no assurance that such enhancements can or will be obtained. MHL 25 incurred approximately $124,000 in expenses to outside sources in providing these consulting services. The Company's share of the $276,000 in net revenues totals $200,000 by virtue of its 73% ownership of in MHL. The Company is not required to invest any additional capital related to the Power Project. If costs of the project exceed budget and capital is required then the Company will have the choice of investing more capital or suffering ordinary dilution to its ownership interest without incurring any penalties. ENVIRONMENTAL CONSULTING Capco Analytical Services Inc.("CAS") is an environmental consulting company and analytical laboratory located in California. CAS provides environmental consulting services to its customers throughout the Western United States including other subsidiaries of Meteor. In addition, CAS may expand the scope of its present activities to include the possible acquisition of properties in need of remediation and development. After purchasing a property, CAS would then arrange for remediation services to be performed. After remediation is complete, the property could be developed by CAS or sold to a developer. CAS intends to fund these projects at least partially with project capital raised through partnerships and/or other private investment vehicles. In August of 1996, the company acquired Innovative Solutions and Technologies, Inc. ("IST"), a small Colorado corporation, which provides environmental consulting services. IST was acquired for a nominal cash consideration. Through its president and sole employee, IST provides consulting services to outside clients as well as Meteor and its affiliates. INSURANCE The Company has a commercial liability policy and an umbrella policy, as well as other policies covering damage to its properties. These policies cover Company facilities, employees, equipment, inventories, and vehicles in all states of operation. While Management believes the Company's insurance coverage is adequate for most foreseeable problems, and is comparable with the coverage of other companies in the same business and of similar size, its coverage does not protect the Company for most liabilities relating to damage of the environment. Such environmental related coverage is generally unavailable or available only at a prohibitive cost. COMPETITION AND MARKETS The petroleum marketing business is highly competitive. The Company competes on the basis of price, service and corporate capabilities. In all phases of its operations, the Company encounters strong competition from a number of companies, including some very large companies. Many of these larger competitors possess and employ financial and personnel resources substantially in excess of those which are available to the Company. The Company's marketing division also competes with integrated oil companies which in some cases own or control a majority of their own marketing facilities. These major oil companies may offer their products to the Company's competitors on more favorable terms than those available to the Company from its suppliers. A significant number of companies, including integrated oil companies and petroleum products distribution companies, distribute petroleum products through a larger number of facilities than the Company. The wholesale and commercial distribution of petroleum products is a highly competitive industry. This competition generally comes from other privately held 26 petroleum jobbers operating in the same geographic region as the Company. The competition is primarily focused on the government contract and commercial fleet segments of the business. The government contract business is awarded via a lowest sealed bid process and the Company competes heavily with several wholesale distributors. Competition also occurs for the gasoline service station customers. In competing for this segment of the business, a customer must be convinced to change the "brand" of the station (i.e., convert a station or store from Texaco to Phillips 66). A change of brands can be expensive and disruptive to the operations of the gasoline service station and therefore does not occur frequently. Competition in the retail segment of the gasoline distribution industry is severe and highly decentralized. Competition comes from numerous gasoline service stations that have different brands and from many independent unbranded stations. The Company competes for retail customers based on brand loyalty and price. The Company attempts to develop brand loyalty as a result of the friendly service it provides to its customers. To the extent that the customer does not have brand loyalty, then the Company competes on price. The Company does not attempt to be a price leader, but instead changes prices to meet competitive prices. The convenience store industry is highly competitive, fragmented and regionalized. It is characterized by a few large companies, some medium-sized companies, and many small independent companies. Several competitors are substantially larger and have greater resources than the Company. The Company's largest competitors include Seven-Eleven, Diamond Shamrock, Thriftway, and Giant and other major oil companies that own and operate their own stores in the Company's market areas such as Texaco and Phillips 66. The Company also competes with other convenience stores, small supermarkets, grocery stores and major and independent gasoline distributors who have converted units to convenience stores. The Company also will encounter competition in attempting to acquire sites for new stores and existing groups of convenience stores. Meteor Industries, Inc. ("Meteor" or the "Company"), through its wholly-owned subsidiaries, is engaged in the marketing and distribution of refined petroleum and related products and provides environmental services. In addition, through its Capco Resources, Inc. ("CRI") subsidiary, the Company has an interest in Saba Power Company Ltd., which is in the process of co-developing a power project in Pakistan, and owns Capco Analytical Services, Inc., which provides environmental consulting and laboratory analysis services. ENVIRONMENTAL ISSUES Various federal and state statutes are designed to identify environmental damage, identify hazardous material and operations, regulate operations engaged in hazardous activities, and establish procedures for remedial action. The Company is inspected on a regular basis by both federal and state environmental authorities. The Environmental Protection Agency ("EPA") and the State of New Mexico have instituted environmental compliance regulations designed to prevent leakage and contamination from underground storage tanks. The Company continually expends capital when complying with changing environmental regulations and expects to spend about $60,000 a year on environmental compliance. The State of New Mexico has established the Ground Water Protection Act for the clean up of contaminated underground sites. Under most circumstances, the Company's exposure is limited to $10,000 per location, beyond which the state clean-up fund assumes responsibility. Assistance is not available to repair or replace underground tanks or equipment. The law specifies requirements which must have been met for an applicant to be eligible, includes a provision that 27 payments will be made in accordance with regulations (which have not yet been issued) and states that payment from the corrective action fund are limited to amounts in that fund. There can be no assurance that the New Mexico fund will have sufficient capital, or will agree, to fund remediation of any particular problem. In addition, in connection with Company's purchase of the Graves' common stock, the Seller agreed to indemnify the Company for seven years against environmental related problems which may arise from activities conducted prior to the acquisition. The indemnification is not effective unless damages exceed a minimum of $25,000 per year and the maximum aggregate indemnification responsibility of Seller over the seven years is $8,000,000. ENVIRONMENTAL COMPLIANCE. The Company's Regulated Environmental Activities are subject to an extensive variety of evolving United States federal, state and local laws, rules and regulations governing the storage, transportation, manufacture, use, discharge, release and disposal of product and contaminants into the environment, or otherwise relating to the protection of the environ- ment. 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 28 of a contaminated site will attach. This exclusion also applies to those otherwise hazardous substances which are inherent in petroleum, but not to those added to or mixed with petroleum products. THE CLEAN WATER ACT OF 1972, AS AMENDED (THE "CLEAN WATER ACT"). The Clean Water Act establishes water pollutant discharge standards applicable to many basic types of manufacturing facilities and imposes standards on municipal sewage treatment plants. The Clean Water Act requires states to set water quality standards for significant bodies of water within their boundaries and to ensure attainment and/or maintenance of those standards. Many industrial and governmental facilities must apply for and obtain discharge permits, monitor pollutant discharges and under certain conditions reduce certain discharges. The Clean Water Act also requires pre-treatment of certain discharges prior to release into a publicly owned treatment works. FEDERAL OIL POLLUTION ACT OF 1990 ("OPA"). The OPA amends the Clean Water Act and expands the liability for the discharge of oil into navigable waters. Liability is triggered by discharge or substantial threat of a discharge of oil into navigable waters. OPA defines three classes of parties subject to liability: (1) owners, operators, and persons chartering vessels; (2) lessees and permits of areas where off-shore facilities are located; and (3) owners and operators of on-shore facilities. THE CLEAN AIR ACT OF 1970, AS AMENDED (THE "CLEAN AIR ACT"). The Clean Air Act required the EPA to establish and ensure compliance with national ambient air quality standards ("NAAQS") for certain pollutants. The NAAQS generally are to be achieved by the individual states through state implementation plans ("SIPs"). SIPs typically attempt to meet the NAAQS by, among other things, regulating the quantity and quality of emissions from specific industrial sources. As required by the Clean Air Act, the EPA also has established regulations that limit emissions of specified hazardous air pollutants and has established other regulations that limit emissions from new industrial sources within certain source categories. The Clean Air Act was amended extensively in 1990, to, among other things, impose additional emissions standards that must be implemented by the EPA through regulations. THE TOXIC SUBSTANCES CONTROL ACT OF 1976 ("TSCA"). TSCA authorizes the EPA to gather information on the risks of chemicals, and to monitor and regulate the manufacture, distribution, processing, use and disposal of many chemicals. THE EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT ("EPCRA"). EPCRA was passed as a part of SARA. EPCRA resulted from several widely-publicized events which focused national attention on the dangers posed by toxic chemicals present at U.S. industrial facilities. EPCRA requires emergency planning notification, emergency release notification, and reports with respect to the storage and release of specified chemicals. Industry must provide information to communities regarding the presence of extremely hazardous substances at facilities within those communities. THE OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION ACT ("OSHA"). OSHA regulates exposure to toxic substances and other forms of workplace pollution. The Department of Labor administers OSHA. OSHA specifies maximum levels of toxic substance exposure. OSHA also sets out a "right-to-know" rule which requires that workers be informed of, and receive training relating to, the physical and health hazards posed by hazardous materials in the workplace. OTHER STATE AS WELL AS LOCAL GOVERNMENT REGULATION. Many states have been authorized by the EPA to enforce regulations promulgated under various federal 29 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 com- pliance with applicable environmental regulations as a critical component of its overall operation and devotes significant attention to protecting the health and safety of its employees and to protecting the Company's facilities from environmental problems. Management believes that the Company has obtained or applied for all permits and approvals required under existing environmental laws and regulations to operate its current business. In light of coverage of New Mexico's reimbursement fund and the indemnification of the Company by the Seller, Management does not believe that any pending or threatened environmental litigation or enforcement action(s) could materially and adversely affect the Company's business. While the Company has implemented, where appropriate, operating procedures at each of its facilities designed to assure compliance with environmental laws and regulation, given the nature of its business, the Company always is subject to environmental risks and the possibility remains that the Company's ownership of its facilities and its operations and activities could result in civil or criminal enforcement and public as well as private action(s) against the Company, which may necessitate or generate mandatory clean up activities, revocation of required permits or licenses, denial of application for future permits, or significant fines, penalties or damages, any and all of which could have a material adverse effect on the Company. EMPLOYEE RELATIONS The Company employs approximately 160 people, none of whom is represented by any collective bargaining organizations. Management considers its employee relations to be satisfactory at the present time. FACILITIES The Company owns a 4,300 square foot office building in Farmington, New Mexico. This office building plus a 4,400 square foot truck repair shop, two warehouses totaling 15,800 square feet and an 1,855 square foot three bay service station are located on a 4.7 acre site. While the above-mentioned buildings are owned by the Company, they are located on property leased from an affiliated party. The Company pays rent of $550 per month on this land and the lease terminates on September 30, 2018, with two ten year options to extend. The Company also owns an additional 2.5 acres adjacent to this property where it stores moveable above ground fuel tanks. Also, in Farmington, New Mexico, the Company owns two additional gasoline stations, two fast lube pits, one car wash, and one cardlock location. The lube pits and car wash are leased to an unaffiliated third party, the Company operates three additional cardlock/retail locations on leased property. In Albuquerque, New Mexico, the Company owns one bulk petroleum storage facility which includes a 7,200 square foot warehouse on five acres with a rail spur. Also, the Company owns a 2,400 square foot convenience store, with a car wash and quick lube pit in a separate 6,300 square foot building and a propane distribution and cardlock facility. The carwash and quick lube pit are leased to an unaffiliated third party. This convenience store and related facilities 30 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 retail outlet in Truth or Consequences, New Mexico that it leases to an unaffiliated third party. The Company owns a 3,000 square foot convenience store located in Hatch, New Mexico. The Company leases a truck stop in Cortez, Colorado from an affiliated party and subleases the property to an unaffiliated truck stop operator. The Company's CAS subsidiary leases 8,000 square feet of space for its laboratory in Ventura, California. The Company owns a substantial amount of personal property, including above and below ground tanks located at its bulk plants, service stations and lube pits described above. It also owns approximately 150 portable above ground commercial fuel tanks, over 750 propane tanks, various automobiles and small trucks, and a small fleet of tractors with trailers. LEGAL PROCEEDINGS The Company is a party to certain litigation that has arisen in the normal course of its business and that of its subsidiaries. In the opinion of management, none of this litigation is likely to have a material effect on the Company's financial position or results of operations, except that in March 1997, the Company agreed to an out of court settlement with one of its former insurers whereby such insurer has agreed to pay the Company an amount which, after deducting the Company's costs and attorney's fees, will result in the Company receiving approximately $480,000. The Company received such payment during May 1997. MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS NAME AGE POSITIONS AND OFFICES HELD --------------- --- ----------------------------------------------- Edward J. Names 45 President and Director Ilyas Chaudhary 49 Chairman, Chief Executive Officer and Director Dennis R. Staal 48 Secretary/Treasurer and Director Paul W. Greaves 44 President of Subsidiaries There is no family relationship between any Director or Executive Officer of the Company. In connection with the Company's listing on the American Stock Exchange the Company has agreed to add two independent directors to its board of directors within thirty days after the effective date of this Prospectus. These persons have not yet been identified by the Company. Capco Acquisub, Inc. has the right to appoint two directors, however only one, Ilyas Chaudhary, is currently representing Capco Acquisub, Inc. The Company presently has no committees. 31 Set forth below are the names of all Directors and Executive Officers of the Company and its major subsidiaries, all positions and offices with the Company held by each such person, the period during which he has served as such, and the principal occupations and employment of such persons during at least the last five years: EDWARD J. NAMES - President and Director. Mr. Names has been President and a Director of the Company since 1993. Mr. Names has extensive experience in mergers and asset acquisitions as well as small business matters such as business planning, financing, management and contract negotiation. Mr. Names was President of Alfa Resources, Inc. and its subsidiaries from 1983 to 1995. Mr. Names resigned as President of Alfa Resources, Inc. as of the closing of the CRI acquisition, but continues to serve as a director of that company. Alfa Resources, Inc. is an oil and gas company which files reports pursuant to the Securities and Exchange Act of 1934. In 1987, Mr. Names became Special Counsel to the law firm of Wills and Sawyer, P.C., Denver, Colorado, and maintained that relationship until December 1992. Mr. Names was associated with the firm of Nelson & Harding, Denver, Colorado, from 1980 to 1981, and the law firm of Schmidt, Elrod & Wills, Denver, Colorado, where he practiced corporate and securities law and became a Partner in October 1982. Mr. Names received a Bachelor of Arts Degree in Economics from the University of Colorado in 1973, and a Juris Doctorate from the University of Denver College of Law in 1980. He devotes his full time to the business of the Company and its subsidiaries. ILYAS CHAUDHARY - Chairman of the Board, Chief Executive Officer and Director. Mr. Chaudhary has been Chairman of the Board, Chief Executive Officer and a Director of the Company since November 1995. He has also been an officer and director of Capco Resources, Inc. ("CRI"), which is now a wholly-owned subsidiary of the Company, since October 1993. He has also been a director of Saba Petroleum Company, a publicly held oil and gas company listed on the American Stock Exchange, since 1985, and has served as its Chairman of the Board since 1993. He has been Saba Petroleum Company's Chief Executive Officer since 1993 and its President since 1994. Mr. Chaudhary is a director and controlling shareholder of Capco Resources Ltd., the Company's majority shareholder. Mr. Chaudhary has 24 years of experience in various capacities in the oil and gas industry, including eight years of employment with Schlumberger Well Services from 1972 to 1979. Mr. Chaudhary received a Bachelor of Science degree in Electrical Engineering from the University of Alberta, Canada. DENNIS R. STAAL - Secretary and Treasurer and Director. Mr. Staal has been Secretary and Treasurer and a Director of the Company since July 1993. He also serves as an officer and director of several of the Company's wholly-owned subsidiaries. Mr. Staal is a graduate of the University of Nebraska, where he received a Bachelor of Science degree in Business Administration in 1970. From 1970 through 1973, he was a CPA with Arthur Andersen & Co. From 1973 through 1976, he was Controller for the Health Planning Council of Omaha. From 1977 through 1981, he served as a Director of Wulf Oil Corporation and as President of such company from 1979 to 1981. From 1979 through 1982, he served as a Director of Chadron Energy Corporation, and as Director of the First National Bank of Chadron. From 1982 through 1984, he was Chief Financial Officer of High Plains Genetics, Inc. From 1986 to 1991, Mr. Staal was Director and President of Saba Petroleum Company. Mr. Staal is currently Treasurer of Alfa Resources, Inc. and an officer and director of its subsidiaries. From June, 1992 to September, 1996, Mr. Staal was President and a Director of Mystique Developments, Inc., an oil and gas company which files reports pursuant to the Securities Exchange Act of 1934. He devotes approximately 80% of his time to the business of the Company and its subsidiaries. 32 PAUL W. GREAVES - President and Chief Executive Officer of the sub- sidiaries. Mr. Greaves has been the President and Chief Executive Officer of the following subsidiaries: Pyramid Stores, Inc. and its subsidiaries, Graves Oil & Butane Co., Inc. and Hillger Oil Company since in April, 1996. Prior to working for the Company, Mr. Greaves held the position of Regional Manager, Rocky Mountain Region, for Propane Continental of Overland Park, Kansas, from April 1994 to April 1996. From 1989 until 1994, Mr. Greaves was Director of Business Development for the Wescourt Group of Denver, Colorado, a petroleum marketing and distribution holding company. Mr. Greaves devotes his full time to the business of the Company's subsidiaries described above. EXECUTIVE COMPENSATION The following information regarding the executive compensation for the Company's Chief Executive Officer and President for the fiscal years ended December 31, 1996, 1995 and August 31, 1994. No other executive officer received compensation in excess of $100,000 during such periods. SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards Payouts Securities Other Re- Underlying All Annual stricted Options/ Other Name and Principal Compen- Stock SARs LTIP Compen- Position Year Salary Bonus sation Award(s)(Number) Payouts sation - ---------------- ---- ------ ----- ------ ------- ------- --------- ------- Ilyas Chaudhary 1996 $ -0- -- -- -- -- -- -- Chairman of 1995 $ -0- -- -- -- 100,000 -- -- Board and Chief Executive Officer Edward J. Names 1996 $101,250 -- -- -- -- -- $5,040 President 1995 $ 78,000 -- -- -- 100,000 -- $4,512* 1994 $ 62,769 -- -- -- -- -- $3,384* __________________ * Represents premiums paid on health insurance policies for Mr. Names.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES SECURITIES UNDERLYING VALUE OF UNEXER- SHARES UNEXERCISED CISED IN-THE ACQUIRED OPTIONS SARs MONEY OPTIONS/ ON AT FY-END SARs AT FY-END EXERCISE VALUE EXERCISABLE/ EXERCISABLE/ NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE - ---------------- -------- -------- ------------- ---------------- Ilyas Chaudhary -0- -0- 33,333/66,667 $63,541/$127,084 Edward J. Names -0- -0- 33,333/66,667 $63,541/$127,084 33 EMPLOYMENT ARRANGEMENTS EDWARD J. NAMES, President of the Company, entered into a five-year employment agreement with the Company which became effective in January 1994, which provides that Mr. Names is required to devote substantially all his work time to the Company. The agreement was amended in November 1995 to provide for an annual salary of $105,000. Pursuant to his employment agreement, Mr. Names is allowed to devote up to 10 hours per month to other business operations including his duties as a director or officer in other companies including Alfa Resources, Inc., an oil and gas company of which he is currently a director. Absent notice to the contrary from the Company or Mr. Names, the five-year term of the employment agreement will renew automatically each year. The Company can terminate his employment, however, at any time without cause and be obligated only for one year's salary. The employment agreement includes a covenant not to compete which is effective for two years after termination of employment. ILYAS CHAUDHARY, Chairman of the Board and Chief Executive Officer of the Company, presently receives no salary. DENNIS R. STAAL, Secretary/Treasurer of the Company, presently receives an annual salary totaling $55,000 per year from the Company and a subsidiary. He devotes approximately 80% of his time to the business of the Company and its subsidiaries. PAUL W. GREAVES entered into a three year employment agreement with the Company's subsidiary, Pyramid Stores, Inc. ("Pyramid") which became effective in April of 1996. Mr. Greaves is required to devote full time to the business of Pyramid and its subsidiaries; Graves Oil & Butane Co., Inc. and Hillger Oil Company. The agreement calls for a base salary of $80,000 per year plus an annual bonus of 5% of any increases in earnings before interest, taxes, depreciation and amortization of Pyramid and its subsidiaries from the prior year. The Company may terminate Mr. Greaves's employment at any time, without cause and be obligated for only six months base salary and accrued but unpaid bonuses. The employment agreement includes a covenant not to compete which is effective for two years after termination of employment. STOCK OPTION PLAN A stock option plan providing for the issuance of incentive stock options and non-qualified stock options to Meteor's employees was approved by Meteor's shareholders on April 15, 1993. Pursuant to the Plan, 500,000 shares of Meteor's $.001 par value Common Stock have been reserved for issuance. On October 1, 1993, incentive stock options were granted to employees. As of December 31, 1996, out of these options, options to purchase 41,000 shares were outstanding (after deducting options which expired as a result of termination of employ- ment). These options are exercisable at $3.00 per share and vest in five equal installments each year following the date of grant. They expire ten years after the date of grant. On February 1, 1994, additional incentive stock options were granted to employees. As of December 31, 1996, out of these options, options to purchase 31,300 shares were outstanding (after deducting options which expired as a result of termination of employment). These options are exercisable at $5.25 per share and vest in three equal installments each year following the date of grant. They expire ten years after the date of grant. On August 4, 1995, incentive stock options to purchase 10,000 shares each of Common Stock were granted to Dennis R. Staal, Secretary/Treasurer of Meteor, 34 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. In May of 1996, stock options were granted to two employees to purchase an aggregate of 55,000 shares of Meteor's Common Stock at $3.50 per share. The options vest in five equal installments each year following the date of grant. These options expire five years after the date of grant. As of the date of this prospectus only 5,000 of such options remain outstanding. On January 2, 1997, Meteor granted options to four employees to purchase an aggregate of 20,000 shares of Common Stock at $5.07 per share. These options vest over five years and expire on January 2, 2002. On February 14, 1997, Meteor granted an option to Dennis R. Staal, Secretary and Treasurer of Meteor, to purchase 25,000 shares of Common Stock at $3.50. Also on February 14, 1997, Meteor granted an option to the president of IST, one of Meteor's subsidiaries, to purchase 5,000 shares of Common Stock at $3.50 per share. These options vest over three years on a annual basis and expire five years from the date of grant. INCENTIVE EQUITY PLAN The Board of Directors adopted the 1997 Incentive Equity Plan of the Company (the "Incentive Plan") on January 2, 1997, subject to approval by the Stockholders of the Company at the next Annual Meeting. The purpose of the Incentive Plan is to enable the company to attract officers and other key employees and consultants and to provide them with appropriate incentives and rewards for superior performance. The Incentive Plan affords the Company the ability to respond to changes in the competitive and legal environments by providing the Company with greater flexibility in key employee and executive compensation than was available through the previously approved plan or individual stock option agreements. This plan is designed to be an omnibus plan allowing the Company to grant a wide range of compensatory awards including stock options, stock appreciation rights, restricted stock, deferred stock and performance shares or units. The Incentive Plan is intended to encourage stock ownership by recipients by providing for or increasing their proprietary interests in the Company, thereby encouraging them to remain in the Company's employment. The Incentive Plan has been prepared to comply with all applicable tax and securities laws, including Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and state and federal tax laws. 35 Subject to adjustment as provided in the Incentive Plan, the number of shares of Common Stock that may be issued or transferred, plus the amount of shares of common Stock covered by outstanding awards granted under the Incentive Plan, shall not in the aggregate exceed 750,000. The number of Performance Units granted under the Incentive Plan shall not in the aggregate exceed 200,000. The number of shares of Common Stock granted under the Incentive Plan to any individual in any calendar year shall not in the aggregate exceed 100,000. To the date of this report, no options, awards or other benefits have been granted under the Incentive Plan. CONSULTANTS' OPTIONS In November 1995, Meteor granted an option to a consultant to purchase a total of 100,000 shares of Meteor's Common Stock. This option was exercisable at $2.50 per share, but expired unexercised on January 31, 1997. On February 14, 1997, Meteor granted options to three consultants to purchase an aggregate of 130,000 shares of Meteor's Common Stock. These options are exercisable at $3.50 per share and expire on February 13, 1998. DIRECTOR COMPENSATION Directors of the Company do not receive any fees for their services in such capacity. However, each Director is reimbursed for all reasonable and necessary costs and expenses incurred as a result of being a Director of the Company. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of May 20, 1997, the stock ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's Common Stock, all Directors individually and all Directors and Officers of the Company as a group. Except as noted, each person has sole voting and investment power with respect to the shares shown.
PERCENTAGE OF CLASS NAME AND ADDRESS AMOUNT OF BENEFICIAL PRIOR TO AFTER OF BENEFICIAL OWNER OWNERSHIP OFFERING OFFERING - --------------------------- -------------------- -------------------- Capco Resources Ltd. 1,745,000 50.7% 43.2% #950, 444 - 5th Avenue, S.W. Calgary, Alberta CANADA T0P 2T8 Edward J. Names 333,973 9.7% 8.2% 216 - 16th Street, Suite 730 Denver, CO 80202 Ilyas Chaudhary 1,778,333 51.7% 43.7% #950, 444 - 5th Avenue, SW Calgary, Alberta CANADA TOP 2T8 Dennis R. Staal 92,765 2.7% 2.3% 216 - 16th Street, Suite 730 Denver, CO 80202 Adres Chaudhary 378,000 11.0% 9.4% 600 Hunter Trail, Suite #4 Glendora, CA 91740 36 Theron J. Graves 767,711 22.2% 22.2% 761 South Miller Farmington, NM 87499 All Executive Officers and 2,220,371 64.3% 53.8% Directors as a Group (4 Persons) __________________ Includes 75,000 shares which have been pledged to Capco Resources Ltd. to secure certain guarantees made to it by NFF, Ltd. and PAMDEN, Ltd. Represents 33,240 shares held directly by Mr. Names, 265,000 shares held by NFF, Ltd., a limited partnership of which he served as general partner; 2,400 shares held by his wife of which he disclaims beneficial ownership, and 33,333 shares underlying stock options exercisable within 60 days by Mr. Names. Of the shares held by NFF, Ltd., 55,000 have been pledged to Capco Resources Ltd. to secure a guarantee made by NFF, Ltd. Includes 1,745,000 shares of the Company held by Capco Resources Ltd. of which Mr. Chaudhary is Chairman of the Board, Chief Executive Officer and beneficially owns over 50% of its outstanding stock and 33,333 shares underlying stock options exercisable within 60 days by Mr. Chaudhary. Includes 5,400 shares held by Mr. Staal; 70,000 shares held by PAMDEN, Ltd., a limited partnership of which Mr. Staal is general partner; 8,432 shares held by Mystique Resources Company which is wholly owned by PAMDEN, Ltd.; 600 shares held by an IRA and 8,333 shares underlying stock options exercisable within 60 days by Mr. Staal. Of the shares held by PAMDEN, Ltd., 20,000 have been pledged to Capco Resources Ltd. to secure a guarantee made by PAMDEN, Ltd. Represents shares of the Company's Common Stock which Mr. Graves presently has the right to acquire upon the exchange of shares of Graves Preferred Stock held by him. Following the completion of this offering, the maximum number of shares of Common Stock which Mr. Graves could receive upon exchange will increase to 896,911. (See "DESCRIPTION OF SECURITIES.") Includes 5,300 shares held directly and 10,000 shares underlying stock options exercisable within 60 days held by Paul W. Greaves, who is President and Chief Executive Officer of certain of the Company's subsidiaries.
CERTAIN TRANSACTIONS The Board of Directors of the Company is of the opinion that the terms of each of these transactions were at least as favorable to the Company as could have been obtained from unaffiliated parties. All ongoing and future trans- actions with affiliates will be on terms no less favorable than those which could be obtained from unaffiliated parties. TRANSACTIONS INVOLVING THE COMPANY'S OFFICERS AND DIRECTORS During 1993, Edward J. Names, Dennis R. Staal, Daniel B. Matter and C. Thomas Houseman, the Company's founders, purchased a total of 475,500 shares of the Company's Common Stock for total consideration of $30,750 cash and $800 in interest expense and services rendered. In addition, these persons have advanced funds to the Company from time to time. 37 Edward J. Names, President of Meteor, has personally guaranteed debt due to Norwest Business Credit, Inc., as described above, up to a maximum of $250,000 related to the Graves acquisition and $250,000 related to the Hillger acquisition. Mr. Names and Dennis R. Staal, who is Secretary and Treasurer of Meteor, each have agreed to personally guarantee the debts of Graves and Hillger to its major suppliers and a debt to a Farmington, New Mexico bank. Capco Resources Ltd. has agreed to indemnify Edward Names and Dennis Staal relating to such guarantees. In February, 1997, the Company agreed to sell a total of a 25% interest in the Hatch Pyramid LLC to Edward J. Names and Dennis R. Staal for a total for $38,000. Such investment would be made on the same terms and conditions as the Company offered and sold a 25% interest to one of Meteor's minority interest holders. Hatch Pyramid LLC was formed for the purpose of acquiring and operating a convenience store in Hatch, New Mexico. The Company retained a 50% interest in the entity. In the past the company has sold a 50% interest of two other limited liability companies to outside investors as part of its expansion plan. The Company intends to continue to buy and build convenience stores using money from outside investors including employees of the Company. TRANSACTIONS INVOLVING GRAVES On September 28, 1993, the Company acquired all of the issued and out- standing common stock of Graves Oil & Butane Co., Inc. from its sole share- holder, Theron J. Graves. As a result of the transaction, Theron J. Graves retired as the Company's chief executive officer but agreed to provide consulting services for a period of seven years. Mr. Graves continues his investment by holding 1,000,000 shares of convertible cumulative preferred stock of Graves with a liquidation preference of $3,543,500, and a promissory note from the Company for $2,350,000, which, as of December 31, 1996, had an outstanding balance of $1,759,000. The structure of the acquisition is summarized below: Purchase Price for Common Stock: $4,100,000 Cash Paid at Closing: $1,750,000 Financing Provided by Seller: $2,350,000 note with interest at 2% over prime, payable $200,000 (including principal and interest) every six months and the balance on October 1, 1997 (the "Note"). This Note is secured by 50% of the Graves common stock purchased by the Company. Preferred Stock Retained by Seller: 1,000,000 shares of convertible preferred stock with a total liquidation preference of $3,543,500 and dividends accruing at a rate of 8% per annum until the date of redemption, which shall be no earlier than September 15, 2000 (the "Convertible Securities"). In the event of a default under the promissory note issued to purchase the Graves common stock, the holders of the Graves Series A Preferred have the ability to elect all the Graves directors. The Company's preferred stock obligations are secured by the unencumbered fixed assets of Graves. These securities are convertible into common stock of Graves or the Company at the bid price on the date of conversion or a maximum of 22.2% of the Company, whichever calculation yields fewer shares. The preferred stock, on conversion, also carries certain piggy-back registration rights. 38 INDEMNIFICATIONS: Theron Graves has agreed to indemnify the Company until September 2000 against all losses and expenses exceeding $25,000 per year up to a cumulative total of $8,000,000 relating to environmental liabilities associated with the properties of the Company as of the closing date or any inaccuracies in the representations and warranties in the purchase agreement. Prior to the Company's acquisition, Mr. Graves owed approximately $650,000 to Graves. In connection with the acquisition, Mr. Graves executed two promissory notes payable on the date the Meteor note to Mr. Graves is due (October 1, 1997) plus interest at the same rate as the Company's note. One promissory note is for $100,000 representing the price of an airplane Mr. Graves purchased from the Company. The other promissory note for $550,000 represents funds advanced to or on behalf of Mr. Graves from time to time over several years. This note is collateralized by unimproved real estate Mr. Graves owns in the Albuquerque, New Mexico area ("Coors Road Property"). If such property is sold by Mr. Graves, the principal amount of the $550,000 note (up to the amount of the property's sales price) becomes immediately payable and is to be discharged by reducing the principal amount of the Company's $2,350,000 note to Mr. Graves, and the liquidation value of Mr. Graves' preferred stock retained in Graves Oil, each by one-half the amount accelerated under the $550,000 note. In addition, the Company has both (i) a right of first refusal on the entire Coors Road Property, and (ii) a right to purchase a portion of such property sufficient to build a retail gas station at fair market value, and all or a portion of the resulting consideration due can be paid by the Company by reducing the $550,000 note from Mr. Graves. The Company leases real estate in Colorado from Mr. Theron Graves and subleases the property to a truck stop operator. Graves pays property taxes and insurance expense on the property. In addition, the Company leases land from Mr. Graves on which a yard, warehouses and offices are located. The parties have entered into an agreement which provides for regular payments of $500 per month beginning September 1, 1993. The rent escalates at 5% per annum, the lease term is 25 years, and the Company has two ten year options to extend such lease. TRANSACTIONS INVOLVING CAPCO RESOURCES LTD. In June 1995, Capco Resources, Inc. ("CRI") purchased 378,000 (as adjusted for the 8% stock dividend) shares of the Company's Common Stock for $700,000 in cash. As a result of this transaction, CRI's parent, Capco Resources Ltd. ("Capco"), became a principal shareholder of the Company. Immediately prior to the acquisition of CRI by the Company, CRI sold all 378,000 shares held by it to Adres Chaudhary (who is not related to Ilyas Chaudhary) for the forgiveness of debt in the amount of approximately $700,000. CRI offered Adres Chaudhary this asset to reduce its debt to him. In November 1995, the Company issued 1,745,000 shares of its Common Stock in exchange for all of the outstanding stock of CRI. The shares of the Company's Common Stock issued in this transaction, which represented approximately 53% of the shares now outstanding, were issued to a U.S. subsidiary of Capco. As a result of this transaction, there was a change in control of the Company and one of the Company's three directors was replaced by a Capco representative. The major assets of CRI included: (i) an interest in Saba Power Company Ltd., which is involved in the development of a power plant in Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a California environmental services firm; and (iii) a $1,516,000 promissory note from Saba Petroleum Company and other miscellaneous assets. Saba Petroleum Company is a publicly-held company of which Ilyas Chaudhary, the Company's Chief Executive Officer, is an officer, director and principal shareholder. The promissory note bears interest at 9% and 39 is due in 2006. Subsequent to December 31, 1996, $500,000 has been paid. Capco has agreed to guarantee the prepayment of such note prior to 2006 and has agreed to pay an additional 2% interest until the note is fully paid. Subsequent to November 1995, all of the assets of CRI, except its interest in Saba Power Company Ltd., have been transferred to the Company. In connection with the agreement with Capco, NFF, Ltd. and PAMDEN, Ltd., limited partnerships which are controlled by Edward J. Names and Dennis R. Staal, respectively, guaranteed on a limited recourse basis the representations and warranties of the Company in the agreement. To secure these guarantees, NFF, Ltd. and PAMDEN, Ltd. pledged 55,000 and 20,000 shares, respectively, to Capco. Also in connection with this agreement a subsidiary of Capco agreed to indemnify Edward J. Names and Dennis R. Staal against any liability they may incur as a result of the personal guarantees they have given in order to assist the Company and its subsidiaries. TRANSACTION WITH SABA PETROLEUM COMPANY On December 27, 1996, the Company entered into an agreement with Saba Petroleum Company concerning the ownership of Meteor Holdings LLC. The terms for this agreement are set forth in this report under "ITEM 1. DESCRIPTION OF BUSINESS -- SABA POWER COMPANY LTD." Ilyas Chaudhary is President, Chief Executive Officer and a Director of Saba Petroleum Company, which is listed on the American Stock Exchange. Mr. Chaudhary is also a principal shareholder of Capco Resources, Ltd., which owns a majority of the stock of Saba Petroleum Company and Meteor Industries, Inc. CONFLICTS OF INTEREST All of the Company's Officers and Directors have been in the past and may continue to be active in other business with other companies and on their own behalf. These activities could give rise to potential conflicts with the interests of the Company. The Company's officers, directors, and other management personnel are subject to the doctrine of corporate opportunities only insofar as it applies to business opportunities in which the Company has indicated an interest, either through its proposed business plan or by way of an express statement of interest contained in the Company' minutes. Pursuant to a resolution of the Board of Directors of the Company, the Officers are required to make available to the Company any business opportunity relating to the wholesale and retail distribution of refined petroleum products which comes to the attention of any such Officer, and the Company shall have a right of first refusal with regard to such opportunity. A second resolution of the Board of Directors sets forth that if a business opportunity relating to the wholesale and retail distribution of refined petroleum comes to the attention of a Director and specifically is presented to the Director in his capacity as such, it must be disclosed to the Company and made available to it. No Officer or Director owes a fiduciary duty to another entity similar to the duty owed to the Company regarding business opportunities related to services and products provided by the Company. A majority of the disinterested Directors may reject a corporate opportunity for various reasons. If the Company rejects an opportunity, then any Director or Officer may avail himself or themselves of such opportunity. In addition, if an opportunity is presented to the Company, and one or more of the Company's Officers or Directors has an interest in the opportunity, the opportunity will be reviewed at a meeting of the Board of Directors and the interested Director(s) will not vote on issues relating to such opportunity. 40 The Board of Directors has not yet adopted any resolutions related to other aspects of the Company's business. DESCRIPTION OF SECURITIES COMMON STOCK The Company's Articles of Incorporation authorize the issuance of 10,000,000 shares of Common Stock, $.001 par value. Each record holder of Common Stock is entitled to one vote for each share held on all matters promptly submitted to the stockholders for their vote. Cumulative voting for the election of directors is not permitted by the Articles of Incorporation. Holders of outstanding shares of Common Stock are entitled to such dividends as may be declared from time to time by the Board of Directors out of legally available funds; and, in the event of liquidation, dissolution or winding up of the affairs of the Company, holders are entitled to receive, ratably, the net assets of the Company available to stockholders after distribution is made to the preferred stockholders, if any, who are given preferred rights upon liquidation. Holders of outstanding shares of Common Stock are, and all unissued shares when offered and sold will be, duly authorized, validly issued, fully paid, and nonassessable. To the extent that additional shares of the Company's Common Stock are issued, the relative interests of the existing stockholders may be diluted. REDEEMABLE WARRANTS The following discussion of certain terms and provisions of the Redeemable Warrants is qualified in its entirety by reference to the Warrant Agreement (as hereinafter defined) and also the detailed provisions of the form of Warrant attached to the Warrant Agreement between the Company and American Stock Transfer & Trust, Inc. (the "Warrant Agent"). Each Redeemable Warrant entitles the holder to purchase, at a price of $____ subject to adjustment, one share of Common Stock at any time commencing on the date of this Prospectus until ________, 1999 (two years from the date of this Prospectus). The Company may redeem the Redeemable Warrants at $.10 per Warrant upon 30 days' prior written notice in the event that the Common Stock has traded above 150% of the exercise price of the Redeemable Warrants for 10 consecutive trading days ending not more than ten days prior to the mailing of the notice of redemption. For purposes of determining the daily trading price of the Company's Common Stock, if the Common Stock is listed on a national securities exchange, is admitted to unlisted trading privileges on a national securities exchange, or is on NASDAQ, then the last reported sale price of the Common Stock on such exchange or NASDAQ each day shall be used. If the Common Stock is not so listed on such exchange or system or admitted to unlisted trading privileges then the average of the last reported bid prices reported by the OTC Bulletin Board each day shall be used to determine such daily trading price. The Redeemable Warrants may only be redeemed if a current registration statement is in effect. Any Warrant holder who does not exercise prior to the redemption date, as set forth in the Company's notice of redemption, will forfeit the right to purchase the shares of Common Stock underlying the Redeemable Warrants and, after the redemption date, any outstanding Redeemable Warrants will become void and be of no further force or effect. If the Company does not redeem the Redeemable Warrants, such Warrants will expire, become void and be of no 41 further force or effect on conclusion of the exercise period. All of the Redeemable Warrants must be redeemed if any are to be redeemed. The Redeemable Warrants have been issued pursuant to a Warrant Agreement between the Company and the Warrant Agent. The Company has authorized and reserved for issuance the shares of Common Stock issuable upon exercise of the Redeemable Warrants. When delivered, all shares of Common Stock issued upon exercise of the Redeemable Warrants will be duly and validly authorized and issued, fully paid and nonassessable, and no preemptive rights or rights of first refusal will exist with respect thereto. Redeemable Warrants may be exercised upon surrender of the Warrant certificate on or prior to its expiration date (or earlier redemption date) at the offices of American Securities Transfer & Trust, Inc., the Warrant Agent, with the form of "Election to Purchase" on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by payment of the full exercise price (by certified check or bank check payable to the order of the Company) for the number of shares with respect to which such Warrant is being exercised. The exercise price of the Redeemable Warrants and the number of shares to be obtained upon exercise of such Warrant are subject to adjustment in certain circumstances including a stock split of, or stock dividend on, or a sub- division, combination, or recapitalization of the Common Stock. In the event of liquidation, dissolution or winding up of the Company, holders of the Redeemable Warrants, unless exercised, will not be entitled to participate in the assets of the Company. Holders of the Redeemable Warrants will have no voting, preemptive, liquidation or other rights of a shareholder, and no dividends will be declared on the Redeemable Warrants. PREFERRED STOCK The Company's Articles of Incorporation authorize the issuance of 10,000,000 shares of Preferred Stock, $1.00 par value. The Board of Directors of the Company is authorized to issue the Preferred Stock from time to time in series and is further authorized to establish such series, to fix and determine the variations in the relative rights and preferences as between series, to fix voting rights, if any, for each series, and to allow for the conversion of Preferred Stock into Common Stock. At present, no Preferred Stock is issued or outstanding or contemplated to be issued. SECURITIES OF SUBSIDIARY The Company's Graves subsidiary has authorized 1,000,000 shares of $.01 par value common stock, all of which is issued, outstanding and owned by the Company. Graves also has authorized 1,000,000 shares of Series A Preferred Stock, all of which are issued, outstanding and held by Theron J. Graves, the former 100% shareholder of Graves. (See "CERTAIN TRANSACTIONS --Transactions Involving Graves.") The Graves Series A Preferred Stock has a liquidation value of $3.5435 per share, accrues a dividend of 8% per year, and is redeemable at liquidation value plus accrued dividends by the holder any time after September 15, 2000. The Graves Series A Preferred Stock is convertible into either the common stock of Meteor or the common stock of Graves at the option of the holder. The conversion rate is based on the bid price of the common stock, if a trading market exists, but the total common shares issued on conversion of all preferred stock cannot exceed 22.2% of the issuing company's outstanding common stock. The obligations of Graves under the Series A Preferred Stock is secured by the fixed assets of Graves. In the event of a default under the Meteor promissory note issued to purchase the Graves common stock, the holders of the Graves Series Preferred have 42 the ability to elect all the Graves Directors. The holder of the common stock received on conversion is entitled to certain rights to have such common stock registered for sale. PRIOR UNDERWRITER'S WARRANTS In connection with the Company's initial public offering, the Company issued to the managing underwriter warrants to purchase shares of Common Stock (the "Prior Underwriter's Warrants"). These warrants were exercisable to purchase approximately 30,250 shares of Common Stock at a price of approximately $3.40 per share through January 13, 1999. The exercise price of the Prior Underwriter's Warrants and the number of shares of Common Stock underlying such warrants was subject to adjustment under certain circumstances to prevent dilution to the holders in the event of stock dividends, stock splits, stock combinations or upon a sale of assets, merger or consolidation. Holders of the shares of Common Stock underlying the Prior Underwriter's Warrants had the right to join in any registration statement or offering filed by the Company under the Securities Act of 1933 to register the Prior Underwriter's Warrants and underlying securities for a period of seven years from January 14, 1994. In addition, for a period of five years from January 14, 1994, the Company agreed, upon request of the holders of not less than fifty percent of the Prior Underwriter's Warrants or underlying securities, to file, not more than once, a registration statement or offering statement under Regulation A registering or qualifying the underlying shares at the Company's expense. All expenses of such registration or qualification (except for underwriting commissions and expense) are the responsibility of the Company. In March 1996, the Company and the holders of the Prior Underwriter's Warrants agreed to reduce the number of shares issuable upon exercise of such warrants to 17,000 and reduce the exercise price on those warrants to $1.00 per share. The holders of the Prior Underwriter's Warrants also agreed to eliminate the demand registration rights and the anti-dilution provisions of the warrants. As of the date of this Prospectus, 10,000 warrants have been exercised and 7,000 remain outstanding. PRIVATE PLACEMENT WARRANTS In February and March 1997, the Company sold warrants to purchase up to 130,000 shares of Common Stock as part of a private placement. These warrants are exercisable at $5.00 during the period from March 28, 1998 until March 27, 1999. REPORTS TO INVESTORS The Company intends to provide holders of its securities with annual reports containing financial statements. The Company also will issue quarterly or other interim reports to its stockholders as it deems appropriate. TRANSFER AGENT American Securities Transfer & Trust, Inc., 938 Quail Street, No. 101, Lakewood, Colorado 80215, serves as the transfer and warrant agent for the Common Stock and Redeemable Warrants of the Company. SHARES ELIGIBLE FOR FUTURE SALE Of the 3,440,228 shares of Common Stock presently outstanding, approx- imately 441,128 may be traded without registration or further registration under 43 most circumstances. The remaining approximately 2,999,100 shares are "restricted securities" as defined by Rule 144 under the Securities Act of 1933, as amended, and may in the future be resold by existing shareholders under that rule. In general, Rule 144 provides that a person (or persons whose shares are aggregated) who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding Common Stock or the average weekly trading volume of the class during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitation, by a person who is not an affiliate of the Company and who has satisfied a three-year holding period. Of the approximately 2,999,100 restricted shares of Common Stock outstanding, all but 510,000 shares are presently eligible for resale under Rule 144. Of those 510,000 shares 270,000 will become eligible in June of 1997 and 140,000 will become eligible in the first quarter of 1998. The Company has agreed to register 640,000 shares of restricted Common Stock some of which are not yet eligible for resale under Rule 144, and intends to file a registration statement for this purpose within three to nine months of the completion of this offering. In addition to the above, the Company's Graves subsidiary has outstanding shares of preferred stock which may be exchanged for shares of the Company's Common Stock. Such preferred stock may presently be exchanged for up to 756,830 shares of the Company's Common Stock and following this offering may be exchanged for up to 896,911 shares of the Company's Common Stock. Upon the exchange of any of this preferred stock, Theron J. Graves, who owns all of the preferred stock, would have piggy-back registration rights with respect to such shares. Officers, Directors and record shareholders who own 5% or more of the Company's outstanding Common Stock have agreed not to sell, publicly transfer or assign more than 5,000 shares each, and 25,000 shares in the aggregate, of the approximately 2,508,000 shares of Common Stock beneficially owned by them for a period of one year from the date of this Prospectus without the prior written consent of the Underwriter. UNDERWRITING The Underwriters listed below (the "Underwriters") have agreed, subject to the terms and conditions set forth in the Underwriting Agreement between the Company and Westport Resources Investment Services, Inc., as Representative of the Underwriters, to purchase from the Company the number of shares of Common Stock and Redeemable Warrants set forth opposite their names as follows: NAME OF UNDERWRITER NUMBER OF SHARES NUMBER OF REDEEMABLE WARRANTS - ---------------------------- ---------------- ----------------------------- Westport Resources Investment Services, Inc. TOTAL 600,000 600,000 The Underwriters propose to offer the Common Stock and Redeemable Warrants to the public at the initial public offering prices set forth on the cover page 44 of this Prospectus and to selected dealers at that price less a concession of not more than $______ per share of Common Stock and $___ per Redeemable Warrant. After the commencement of this Offering, the offering price and other selling terms may be changed. The Underwriters have informed the Company that they do not intend to confirm sales to any accounts for which they exercise discretionary authority. The Common Stock and Redeemable Warrants will be offered by the Underwriters when, as, and if delivered to and accepted by the Underwriters and subject to their right to reject orders or cancel sales in whole or in part and subject to approval of certain legal matters by legal counsel and to various other conditions. The Company has granted to the Representative an option, exercisable not later than 45 days after the date of this Prospectus, to purchase up to 90,000 additional shares of Common Stock and/or 90,000 Redeemable Warrants at the same offering prices less underwriting discounts and the nonaccountable expense allowance described below. The Representative may exercise this option only for the purpose of covering overallotments that it makes in the sale of the securities. If purchased, the Underwriters will sell the additional shares of Common Stock and Redeemable Warrants on the same terms as those on which the 600,000 shares of Common Stock and 600,000 Redeemable Warrants are offered. The Company has agreed to pay the Representative a nonaccountable expense allowance of 3% of the gross proceeds of this Offering, including any additional proceeds derived from the exercise of the overallotment option, and has made advance payments totaling $20,000 against this obligation. The Company and the Representative have agreed to indemnify each other and related persons against certain liabilities, including liabilities under the federal securities laws, and, if such indemnifications are unavailable or are insufficient, the Company and the Representative have agreed to damage contribution arrangements between them based upon the relative benefits received from the Offering and the relative fault resulting in such damages. Such relative benefits and relative fault would be determined in legal actions among the parties. Under such contribution arrangements, the maximum amount payable by the Representative would be the public offering price of the securities underwritten and distributed by the Representative. Commencing one year from the date of this Prospectus, the Company will pay the Representative a fee of 3% of the aggregate price of Redeemable Warrants solicited by it, if (i) the market price of the Company Common Shares on the date the Redeemable Warrant is exercised is greater than the then exercise price of the Redeemable Warrants; (ii) the exercise of the Redeemable Warrant was solicited by a member of the NASD who is so designated in writing by the holder exercising the Redeemable Warrant; (iii) the Redeemable Warrant is not held in a discretionary account; (iv) disclosure of compensation arrangements was made both at the time of the offering and at the time of the exercise of the Redeemable Warrant; and (v) the solicitation of the exercise of the Redeemable Warrant was not in violation of Rule 10b-6 promulgated under the Exchange Act. The Company has agreed not to sell any additional securities for one year after the date of this Prospectus without the Representative's prior written consent, and not to sell or issue any Common Stock, warrants or options to Officers, Directors or record shareholders who own 5% or more of the Company's outstanding stock for a period of one year from the date of this Prospectus without the consent of the Underwriter. In addition, each of the Officers, Directors, and record shareholders who own 5% or more of the Company's outstanding stock have agreed not to sell, without the Representative's prior written consent, more than 5,000 of the shares of Common Stock owned by them as of the date of this Prospectus, for a period of one year from the date of this Prospectus. Such sales shall not aggregate more than 25,000 shares. 45 The Company has agreed, upon completion of this Offering, to issue to the Representative, for $100.00, Representative's Warrants to purchase 60,000 shares of Common Stock and 60,000 Redeemable Warrants. The exercise price for the Representative's Warrants will be 125% of the offering price per share of the Common Stock sold in this Offering and $.125 per Redeemable Warrant, and the Representative's Warrants will be exercisable at any time during the four year period commencing one year after the date of this Prospectus. The Redeemable Warrants will be exercisable to purchase one share of Common Stock at the same exercise price as the Redeemable Warrants sold to the public until two years after the date of this Prospectus. The Representative's Warrants contain certain demand registration rights. The demand registration rights contained in the Representative's Warrants are for a term of four years beginning one year after the effective date of this Prospectus. Following the exercise of the demand registration rights, the Representative's Warrants provide for piggyback registration rights for any unsold securities, until five years after the effective date of this Prospectus. LEGAL MATTERS The legality of the securities of the Company offered will be passed on for the Company by Krys Boyle Freedman Scott & Sawyer, P.C., 600 Seventeenth Street, Suite 2700, South Tower, Denver, Colorado 80202. Jon D. Sawyer, a principal in such firm, beneficially owns 5,400 shares of the Company's Common Stock. The law firm of William M. Prifti, Esq, Lynnfield Woods Office Park, 220 Broadway, Suite 204, Lynnfield, Massachusetts 01940, has acted as legal counsel to the Representative in connection with certain legal matters relating to this offering. EXPERTS The consolidated financial statements of Meteor Industries, Inc. as of December 31, 1996 and 1995 and for the years then ended, included in this Prospectus and in the Registration Statement have been included herein in reliance upon the report of Coopers & Lybrand, L.L.P., independent accountants, given upon the authority of that firm as experts in accounting and auditing. The financial statements of the Company for the years ended August 31, 1995 and 1994, included in this Prospectus and in the Registration Statement, have been audited by Squire & Woodward, P.C., Certified Public Accountants, and are included herein in reliance on the authority of such firm as experts in accounting and auditing. The financial statements of Capco Resources, Inc. included in this Prospectus and in the Registration Statement, to the extent and for the periods set forth in their report appearing elsewhere herein, have been audited by Price Waterhouse, Chartered Accountants and are included herein in reliance on the authority of such firm as experts in accounting and auditing. 46 INDEX TO FINANCIAL STATEMENTS Page(s) METEOR INDUSTRIES, INC. FINANCIAL STATEMENTS Report of Independent Accountants . . . . . . . . . . . . . . . . . . . F-1 Consolidated Balance Sheets - March 31, 1997 (unaudited) December 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statements of Operations - For the Three Months Ended March 31, 1997 and 1996 (unaudited) and For the Years Ended December 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Consolidated Statement of Shareholders' Equity - For the Three Months Ended March 31, 1997(unaudited) and For the Years Ended December 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Cash Flow - For the Three Months Ended March 31, 1997 and 1996 (unaudited) and For the Years Ended December 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-8 Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . . . F-22 Consolidated Balance Sheets - August 31, 1995 and 1994. . . . . . . . . F-23 Consolidated Statements of Income - August 31, 1995 and 1994. . . . . . F-25 Consolidated Statements of Stockholders' Equity - August 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26 Consolidated Statements of Cash Flow - August 31, 1995 and 1994 . . . . F-27 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . F-29 CAPCO RESOURCES, INC. FINANCIAL STATEMENTS Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-40 Consolidated Balance Sheet - December 31, 1994 and 1993 . . . . . . . . F-41 Consolidated Statement of Operations and Retained Earnings (Deficit) - - year end December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . F-42 Consolidated Statement of Changes in Financial Position - year end December 31, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . F-43 Notes to Consolidated Financial statements. . . . . . . . . . . . . . . F-44 Report of Independent Accountants To the Board of Directors of Meteor Industries, Inc.: We have audited the consolidated balance sheets of Meteor Industries, Inc., as of December 31, 1996 and 1995 the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Meteor Industries, Inc. as of December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. As discussed in Note 17, the accompanying 1995 financial statements have been restated. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Denver, Colorado April 24, 1997 F-1 METEOR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS ASSETS March 31 December 31 December 31 1997 1996 1995 (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 692,595 $ 151,992 $ 95,150 Restricted cash 1,249,436 928,355 541,964 Accounts receivable-trade, net of allowance 5,033,584 5,134,276 4,232,071 Accounts receivable, related party 138,664 109,149 48,000 Notes receivable, related party 766,700 736,045 156,962 Inventory 1,252,482 1,221,729 1,332,642 Deferred tax asset 2,991 -- 149,824 Other current assets 169,042 206,401 151,103 Total current assets 9,305,494 8,487,947 6,707,716 Property, plant and equipment, net 8,180,489 8,277,368 8,568,392 Other assets Notes receivable, related party 1,048,654 1,598,430 2,202,210 Investments in closely held businesses 1,290,665 1,285,407 409,141 Other assets 724,561 784,579 661,737 Total other assets 3,063,880 3,668,416 3,273,088 TOTAL ASSETS $20,549,863 $20,433,731 $18,549,196 Continued on next page F-2 METEOR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND SHAREHOLDERS' EQUITY March 31 December 31 December 31 1997 1996 1995 (Unaudited) CURRENT LIABILITIES Accounts payable, trade $ 3,191,495 $ 3,512,257 $ 2,870,045 Bank overdraft -- 170,308 71,657 Current portion, long-term debt 2,104,604 2,176,357 561,048 Accrued expenses 275,014 212,940 196,909 Taxes payable 899,837 730,034 946,102 Revolving credit facility 1,812,629 2,141,027 2,275,512 Total current liabilities 8,283,579 8,942,923 6,921,273 Long-term debt 414,351 445,774 2,194,773 Deferred tax liability 1,744,954 1,773,240 1,893,579 Minority interest in subsidiaries 4,252,333 4,151,903 3,615,398 Total liabilities 14,695,217 15,313,840 14,625,023 Commitments and contingencies (Notes 11, 12 and 13) SHAREHOLDERS' EQUITY Common stock, $.001 par value; authorized 10,000,000 shares, 3,440,228, 3,310,138 and 3,024,903 shares issued and outstanding, respectively 3,440 3,310 3,025 Paid-in capital 3,180,843 2,660,973 1,927,338 Retained earnings 2,670,363 2,455,608 1,993,810 Total shareholders' equity 5,854,646 5,119,891 3,924,173 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $20,549,863 $20,433,731 $18,549,196 The accompanying notes are an integral part of the financial statements. F-3 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months For the Year Ended March 31 Ended December 31 1997 1996 1996 1995 (Unaudited) (Unaudited) Net sales $13,852,540 $13,385,539 $59,984,499 $9,828,092 Cost of sales 11,628,471 10,829,923 49,644,010 7,373,304 Gross profit 2,224,069 2,555,616 10,340,489 2,454,788 Selling, general and admin- istrative expenses 1,972,452 1,961,050 8,269,292 2,243,612 Depreciation 219,515 221,089 849,607 151,709 Total expenses 2,191,967 2,182,139 9,118,899 2,395,321 Income from operations 32,102 373,477 1,221,590 59,467 Other income and (expenses) Interest income 101,441 54,701 361,271 28,047 Interest expense (115,153) (127,700) (474,136) (91,621) Gain (loss) on sale of assets 17,500 31,105 34,323 ( 7,460) Other 480,807 -- -- -- Total other income and (expenses) 484,595 (41,894) (78,542) (71,034) Income (loss) from continuing operations before income taxes and minority interest 516,697 331,583 1,143,048 (11,567) Income tax (expense) benefit 201,512 62,979 (394,745) 1,470 Income (loss) from continuing operations before minority interest 315,185 268,604 748,303 (10,097) Minority interest 100,430 95,316 (286,505) (63,544) Income (loss) from continuing operations 214,755 173,288 461,798 (73,641) Discontinued operations: Income from discontinued operations (net of applicable income taxesof $452,620) -- -- -- 441,197 Gain on disposal of discontinued operations (net of applicable taxes of $100,000) -- -- -- 1,429,256 Net income $ 214,755 $ 173,288 $ 461,798 $ 1,796,812 Income (loss) per common share from continuing operations $ .06 $ .06 $ .15 $ (.15) Net income per common share $ .06 $ .06 $ .15 $ 3.67 The accompanying notes are an integral part of the financial statements. F-4 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 1996 and 1995 and the Three Months Ended March 31, 1997 (Unaudited) Additional Common Stock Paid-In Retained Shares Amount Capital Earnings Total Balance - January 1, 1995 100 $ 100 $ 511,920 $ 196,998 $ 709,018 Stock issued and restated for reverse acquisition 3,022,803 2,923 1,411,420 1,414,343 Stock issued during the year 2,000 2 3,998 4,000 Net income 1,796,812 1,796,812 Balance - December 31, 1995 3,024,903 3,025 1,927,338 1,993,810 3,924,173 Stock issued during the year 285,235 285 733,635 733,920 Net income 461,798 461,798 Balance - December 31, 1996 3,310,138 3,310 2,660,973 2,455,608 5,119,891 Stock issued during the period (unaudited) 130,000 130 519,870 520,000 Net income (unaudited) 214,755 214,755 Balance - March 31, 1997 (unaudited) 3,440,138 $3,340 $3,180,843 $2,670,363 $5,854,646 The accompanying notes are an integral part of the financial statements. F-5 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months For the Year Ended March 31 Ended December 31 1997 1996 1996 1995 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 214,755 $ 173,288 $ 461,798 $1,796,812 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 219,515 221,089 849,607 159,416 (Gain)/loss on disposal of property & equipment (17,500) (31,105) (34,323) 7,460 Deferred income taxes (31,277) (182,723) 5,269 (1,470) Minority interest 100,430 95,316 286,505 63,544 Other -- -- (11,486) -- Changes in assets and liabil- ities, net of effects from reverse acquisitions (Increase)/decrease in accounts receivable 71,177 (130,557) (1,018,354) (127,762) (Increase)/decrease in inventories (30,753) (78,566) 110,913 (32,022) (Increase)/decrease in other current assets 37,359 (48,545) (55,298) 22,297 Increase in accounts payable (320,762) 759,486 642,212 289,544 Increase/(decrease)in accrued liabilities 62,074 46,916 10,247 (113,889) Increase/(decrease) in taxes payable 169,803 107,067 (216,068) 60,115 (Increase)/decrease in other assets 46,170 (75,302) (219,069) 8,207 Discontinued operations -- -- -- (31,160) Net cash provided by operating activities 520,991 856,364 841,953 2,101,092 Cash flows from investing activities Cash proceeds from sale of property 34,893 31,105 116,885 -- Purchases of property and equipment (126,181) (125,809) (253,202) (57,003) Loans to related parties -- -- (68,220) (1,516,000) Net cash from reverse acquisition -- -- -- 537,853 Investment in closely held business (5,258) -- (876,266) (401,999) Note receivable payments 519,121 48,970 158,188 58,556 Net cash provided (used) by investing activities 422,575 (45,734) (922,615) (1,378,593) F-6 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the Three Months For the Year Ended March 31 Ended December 31 1997 1996 1996 1995 (Unaudited) (Unaudited) Cash flows from financing activities Borrowings on revolving credit facilities 14,523,606 12,431,661 56,203,123 7,734,473 Payments on revolving credit facilities (14,852,004) (13,188,226)(56,337,608) (7,922,104) Increase in bank overdraft (170,308) (71,657) 98,651 71,657 Borrowings on long-term debt (103,176) -- 133,727 82,215 Sale of minority interest in subsidiary -- -- 250,000 -- Payments on long-term debt -- (56,511) (582,417) (56,903) Proceeds from common stock issued 520,000 -- 733,920 4,000 Restricted cash (321,081) 110,069 (386,391) (541,964) Insurance Proceeds -- -- 24,499 -- Net cash provided (used)by financing activities (402,963) (774,664) 137,504 (628,626) Net increase (decrease) in cash and equivalents 540,603 35,966 56,842 93,873 Cash and equivalents, beginning of period 151,992 95,150 95,150 1,277 Cash and equivalents, end of period $ 692,585 $ 131,116 $ 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 & equipment $ -- $ -- $ -- $2,066,503 Deferred taxes $ -- $ -- $ -- $ (805,936) Stockholders' equity $ -- $ -- $ -- $1,260,567 Acquisition of property with debt $ -- $ -- $ 315,000 $ -- Accounts receivable replaced with note receivable $ -- $ -- $ 55,000 $ -- Other operating cash flow information: Cash paid for taxes $ -- $ -- $ 537,600 $ 34,152 Cash paid for interest $ 68,075 $ 70,097 $ 485,531 $ 53,005 The accompanying notes are an integral part of the financial statements. F-7 METEOR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Meteor Industries, Inc.("Meteor" or "Company") was incorporated on December 22, 1992, as a Colorado based holding company. Graves Oil & Butane Co., Inc. ("Graves"), which was acquired effective September 1, 1993, is a wholesale and retail distributor of petroleum products primarily in northern New Mexico, Colorado, Arizona and Utah. Graves also operates retail gasoline and convenience stores in northern New Mexico and Colorado. El Boracho, Inc., which was acquired September 1, 1993, holds a liquor license for use by an Albuquerque, New Mexico convenience store. Hillger Oil Company ("Hillger"), which was acquired effective April 1, 1995, is a wholesale and retail distributor of petroleum products primarily in southern New Mexico and Arizona. In addition, Hillger operates and owns through a subsidiary, Hatch Pyramid LLC, retail gasoline and convenience stores in southern New Mexico. Capco Resources, Inc. ("CRI"), is a holding Company involved in the development of a power project in Pakistan. The acquisition of CRI was accounted for as a reverse acquisition with CRI treated as the acquirer (See Note 15). The historical accounts of CRI are reflected in the 1995 financial statements for the full year. Information for Meteor is included since November 2, 1995, the date of acquisition. In 1996 the Company transferred its ownership of CRI to Meteor Holdings LLC ("MHL"). Innovative Solutions and Technologies, Inc. ("IST") is involved in providing environmental consulting. Capco Analytical Services, Inc. ("CAS") is involved in providing laboratory analysis. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION - The consolidated financial statements include the accounts of Meteor Industries, Inc., and its wholly owned subsidiaries, Graves, including its wholly owned subsidiary, El Boracho, Inc., Hillger including its wholly owned subsidiary Hatch Pyramid LLC, CAS and IST and Meteor's 73% owned subsidiary, Meteor Holdings LLC. All significant intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements. Actual results may differ from these estimates. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates of deposit with original maturity dates of 3 months or less or cash in local banks. RESTRICTED CASH - The Company has revolving bank credit facilities which require the use of depository accounts from which collected funds are transferred to the lender. The lender then applies these collections to the revolving credit facilities. These accounts are controlled by the lender. INVENTORIES - Inventories are stated at the lower of cost or market. Inventories of petroleum products, greases and oils, and related products are stated at weighted average cost for Hillger and the last in first out (LIFO) basis for Graves. Sundries inventories are valued by the retail method and stated on the first in, first out (FIFO) basis which is lower than market. Approximately $324,000 of inventory is valued using the LIFO method. F-8 PROPERTY AND EQUIPMENT - Property and equipment are stated at cost; major renewals and improvements are charged to the property and equipment accounts; while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets, are expensed currently. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. REVENUE RECOGNITION - Revenue from product sales is recognized when the product is delivered. Revenue from services is recognized when the services are performed and billable. DEPRECIATION - Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets. The estimated useful lives are as follows: DESCRIPTION LIVES -------------------------- ------------- Buildings and improvements 5 to 40 years Equipment 5 to 20 years COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES - The Company continually monitors its costs in excess of net assets acquired (goodwill) and its other intangibles to determine whether any impairment of these assets has occurred. In making such determination with respect to goodwill, the Company evaluates the performance using cash flows, on an undiscounted basis, of the underlying businesses which gave rise to such amount. With respect to other intangibles, which include the cost of license agreements, covenants not to compete and organization costs, the Company bases its determination on the performance using cash flows, on an undiscounted basis, of the related products. The Company's goodwill results from the acquisition of Hillger. The assets acquired in these transactions continue to contribute a significant portion of the Company's net revenues and earnings. Substantially all costs in excess of net assets (goodwill) of subsidiaries acquired are being amortized on the straight-line method over fifteen years. Other intangibles, which include the costs of license agreements, covenants not to compete and organization costs are being amortized over five years using the straight-line method. INCOME TAXES - Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current operations are expended or capitalized as appropriate for each expenditure. Whenever an expenditure relates to an existing condition caused by past operations and does not contribute to future revenues, the expenditure is expensed currently. Liabilities are recorded when remedial efforts are probable and the cost can be reasonably estimated. F-9 EARNINGS PER SHARE - Earnings per common and common equivalent share are computed by dividing the net income by the weighted average number of common shares outstanding. The number of shares used in the earnings per share computation for 1996 is 3,184,397 and for 1995 is 489,035. The 1995 number of shares reflects CRI's equivalent share activity for ten months and Meteor share activity from the date of the reverse acquisition. UNAUDITED INTERIM FINANCIAL INFORMATION - The consolidated balance sheet at March 31, 1997, the consolidated statements of operations and cash flows for the three month interim periods ended March 31, 1997 and 1996 and the consolidated statement of stockholders' equity for the three month interim period ended March 31, 1997, have been prepared by the Company without audit. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the interim financial information have been made. The results of operations for interim periods are not necessarily indicative of the operating results of a full year or of future years. NOTE 2 -- PROPERTY AND EQUIPMENT The major classifications of property and equipment are as follows: 1996 1995 DESCRIPTION AMOUNT AMOUNT -------------------------- ---------- ----------- Land $1,326,349 $ 1,334,374 Buildings and improvements 1,378,282 899,089 Equipment 6,512,753 6,511,294 9,217,384 8,744,757 Accumulated depreciation (940,016) ( 176,365) Net property and equipment $8,277,368 $ 8,568,392 NOTE 3 -- NOTES RECEIVABLE - RELATED PARTIES The Company has two outstanding notes receivable from its minority interest shareholder (100% preferred stockholder of Graves) in the amounts of $550,000 and $100,000. The $550,000 note is due October 1, 1997, and is collateralized by real estate. However, if the collateral is sold prior to satisfaction of this note, then one half of the lesser of the outstanding balance or the sale proceeds of the assets will be applied to reduce the liquidation preference of the preferred stock (discussed in Note 7), and the remaining one half will be applied to reduce the note payable to the minority interest shareholder. Interest is receivable semiannually and is determined at each anniversary based on Citibank of New York prime plus 2%. The interest rate at December 31, 1996 and 1995, was 10.25% and 10.50%, respectively. The $100,000 note is unsecured and is due October 1, 1997, with interest accrued from September 28, 1994. Interest is computed semiannually at Citibank of New York prime plus 2%, being 10.25% and 10.50% at December 31, 1996 and 1995, respectively. Accrued interest receivable at December 31, 1996 and 1995, totaled $45,793 and $36,210, respectively. The Company has a note receivable from another subsidiary of Capco Resources Ltd. (a 57% owner of the Company) in the amount of $1,516,000 due April 1, 2006. Interest is receivable semiannually at a rate of 9%. F-10 NOTE 4 -- INVESTMENTS IN CLOSELY HELD BUSINESSES The Company owns 50% of the Graves Rio Rancho No. 1 Ltd. Co. The investment was acquired in May 1994. The Company reports its investment in this limited liability company using the equity method. The carrying value was $133,263 at December 31, 1996. This investment is not publicly traded. The Company owns 50% of the Coors Pyramid L.L.C. The investment was acquired in June, 1996. The Company reports its investment in this limited liability company using the equity method. The carrying value was $153,680 at December 31, 1996. This investment is not publicly traded. The Company owns 33% of American L.P., Ltd. The investment was acquired in December 1995, for $100,014. The Company reports its investment in this limited liability Company using the equity method. This investment is not publicly traded. The carrying value was $65,302 at December 31, 1996. At December 31, 1996, the Company, had invested $683,162 in Meteor Holdings LLC ("MHL") MHL owns an interest in Saba Power Company, Ltd. (the "Power Project"). The investment in the Power Project is reported using the cost method. The Company also entered into an agreement with Saba Petroleum Company ("Saba") whereby Saba, a related party, participated in the Power Project. Saba invested $250,000 in MHL resulting in MHL's total investment of $933,162 in the Power Project. Saba owns a .5% interest in the Power Project through its ownership of 27% of MHL. The Company owns 1.5% of the Power Project through its ownership of 73% of MHL. Saba's .5% interest in the project is subject to the same terms and conditions as the Company's 1.5% interest. These percentages, however, could be reduced in the event that other shareholders of Saba Power are required to make additional contributions to equity. MHL has obtained the right to sell its interest in Saba Power to an affiliate of one of the other shareholders for approximately the amount of its contri- bution on October 26, 1996, for a period of 120 days. The Company's investment in the Power Project is not expected to provide any significant cash flow to the Company for at least three to four years. Further, if during the next 2-3 years certain enhancements to the Power Project contracts are not obtained from the Government of Pakistan, then cash flow from the Power Project will not be earned by or distributed to the Company. During 1996, Saba Power Company Ltd. and the shareholders thereof, including the Company, completed the final negotiations with the project's construction lender and the engineering procurement and construction contractor was given a limited release to commence construction activities on the project, which was subsequently suspended. On March 4, 1997, all required equity capital was fully subscribed and paid by the shareholders; in the form of cash or letters of credit; all documentation fees were paid to the Government of Pakistan; the construction contractor was given a full release. All required consents were obtained from the Government of Pakistan, and all defaults were cured. Due to the changing political climate in Pakistan and the economic risks involved, the Company's management decided not to invest additional capital in the project. All debt and equity financing for the Power Project was completed on March 4, 1997, in the total amount of over $150,000,000. In connection with this transaction, the Company's co-developer, Cogen Tech- nologies, agreed to pay a consulting fee for services provided in 1996, to the founding partners, of which MHL's share totals $400,000 with the possibility of receiving up to an additional $350,000 over a three year period if certain contract enhancements are obtained from the Government of Pakistan; F-11 however, there can be no assurance that such enhancements can or will be obtained. MHL incurred approximately $124,000 in expenses to outside sources in pro-viding these consulting services. The Company's share of the $276,000 in net revenues totals $200,000 by virtue of its 73% ownership of in MHL. The Company is not required to invest any additional capital related to the Power Project. If costs of the project exceed budget and capital is required then the Company will have the choice of investing more capital or suffering ordinary dilution to its ownership interest without incurring any penalties. NOTE 5 -- REVOLVING CREDIT FACILITY Revolving Credit Facility at December 31, consisted of the following: 1996 1995 ---------- ---------- $3,000,000 revolving bank credit facility, payable to Norwest Business Credit, Inc., bearing interest at Norwest Bank Minnesota, N.A., base rate plus 2.0% (10.25% and 11.25% at December 31, 1996 and 1995, respectively), due June 1999. Collateralized by trade accounts receivable and inventory of Graves $1,861,189 $2,039,944 $1,500,000 revolving bank credit facility, payable to Norwest Business Credit, Inc., bearing interest at Norwest Bank Minnesota, N.A., base rate plus 2% (10.25% and 10.75% at December 31, 1996 and 1995, respectively), due June 30, 1999. Collateralized by trade accounts receivable and inventory of Hillger 279,838 235,568 The revolving bank credit facility agreements require the Company to maintain certain net worth and performance ratio levels and meet certain financial reporting requirements. As discussed in Note 1, payments on these loans are made through collateral cash accounts in the name of the lender. The unused borrowing base at December 31, 1996, was $938,606. Hillger was in default in its net worth requirement in December, 1996, Hillger received a waiver of this default. Graves and Hillger were in default of certain financial reporting requirements for which waivers were obtained. NOTE 6 -- LONG-TERM DEBT Long-term debt at December 31, consisted of the following: 1996 1995 ---------- ---------- Note payable to Theron Graves, semiannual payments of $200,000 including interest at prime plus 2% (10.25% and 10.75% at December 31, 1996 and 1995, respectively), collateral- ized by half of Graves common stock, matures October 1997. $1,759,139 $1,955,663 Note payable to First National Bank of Farmington, monthly payments of $19,000 including interest at prime plus 2% (10.25% F-12 and 10.75% at December 31, 1996 and 1995, respectively) collateralized by mortgage on buildings and land, matures January 1998. 211,872 388,048 Note payable to Norwest Business Credit, Inc., monthly payments of $10,417 plus interest at Norwest Bank of Minnesota, N.A. base rate plus 3.0% (11.25% and 11.75% at December 31, 1996 and 1995, respectively), collateralized by property and equipment, due June 1998. 187,494 312,498 Note payable to The Spot, quarterly payments of $14,326 plus interest at 7.00%, collateralized by mortgage on building and land, matures December, 2003. 315,000 -- Note payable to unaffiliated third party annual payout of $20,000 with no interest and no collateral, matures June, 2000. non-compete agreements 60,000 -- Note payable to Ford Motor Credit, monthly payments of $329 including interest at 11.9%, collateralized by equipment, matures December, 1999. 9,919 12,459 Note payable to GMAC, monthly payments of $257, including interest at 9.95%, collateralized by equipment, matures April, 2000. 8,533 -- Note payable to GMAC, monthly payments of $387, including interest at 9.95%, collateralized by equipment, matures April, 1999. 9,330 -- Note payable to GMAC, monthly payments of $604, including interest at 10.12%, collateralized by equipment, matures December, 1999. 18,681 23,754 Leases payable (Note 14) 42,163 63,399 Total 2,622,131 2,755,821 Current portion (2,176,357) (561,048) Long-term debt $ 445,774 $2,194,773 The following is a schedule by years of the repayment of long-term debt: PERIOD ENDING DECEMBER 31, AMOUNT ------------- ---------- 1997 $2,176,357 1998 161,973 1999 68,795 F-13 2000 58,453 2001 50,464 Remaining 106,089 Total $2,622,131 NOTE 7 -- MINORITY INTEREST IN SUBSIDIARIES The Series A Convertible Preferred Stock of Graves, is limited voting stock and is entitled to cumulative annual dividends at a rate of 8% of the liquidation value. These securities are convertible into common stock of Graves or Meteor at the bid price on the date of conversion or 22.2% of Meteor based on whichever calculation yields fewer shares. The record holder has the right to vote on matters which affect the rights of the class and to elect two of the seven members of Graves' board of directors. In the event of default under the Meteor promissory note issued to purchase the Graves common stock, the holder of the Series A Convertible Preferred Stock has the ability to elect all of the Graves directors. The Company may at any time redeem all or any portion of the Series A Convertible Preferred Stock outstanding at an amount equal to the liquidation value plus all accrued and unpaid dividends. At any time after September 15, 2000, the record holder shall have the right to have the Company redeem all or any portion of the shares outstanding at the price stated above. No dividends have been declared by the board of directors. Dividends in arrears amount to $945,192 and $685,075 as of December 31, 1996 and 1995, respectively. The minority interest is recorded at its discounted value in the amount of $3,825,903. Dividends and accretion of the preferred stock discount are reflected in minority interest on the income statement. The Company owns 73% of MHL which owns 100% of Capco Resources, Inc. The minority interest of 27% is recorded at its cost basis of $326,000. NOTE 8 -- INCOME TAXES The provision for income taxes from continuing operations consists of the following components: 1996 1995 -------- ------- Current tax expense $359,476 $ 0 Deferred tax expense (benefit) 35,269 (1,470) Total provision (benefit) $394,745 $(1,470) The following reconciles the tax provision with the expected provision obtained by applying federal and state statutory rates to pretax income (loss) from continuing operations: 1996 1995 -------- ------- Expected tax provision $445,789 $(3,933) Nondeductible expenses 4,407 2,425 Benefit of operating loss carryforwards) (40,107) -- Other (15,344) 38 Total provision $394,745 $(1,470) F-14 The deferred tax asset (liability) in the accompanying balance sheet includes the following components: 1996 1995 ------------ ----------- Current: Deferred tax asset(liability), federal $ (5,042) $ 130,616 Deferred tax asset (liability), state (742) 19,208 Net current deferred asset (liability) $ (5,784) $ 149,824 Noncurrent: Deferred tax liability, federal $(1,535,934) $(1,650,812) Deferred tax liability, state (237,306) (242,767) Net noncurrent deferred tax liability $(1,773,240) $(1,893,579) Net deferred tax liability (1,779,024) (1,743,755) Components of deferred income taxes at December 31, were as follows: 1996 1995 ----------- ----------- Deferred tax asset Accounts receivable $ 82,776 $ 80,272 Net operating loss carryforwards -- 40,170 Other 23,764 29,382 Total deferred tax liability 106,540 149,824 Deferred tax liability: Depreciation and amortization $(1,773,240) $(1,893,579) Inventory (112,324) -- Total deferred tax liability (1,885,564) (1,893,579) Net deferred tax liability (1,779,024) (1,743,755) NOTE 9 -- DEFINED CONTRIBUTION PLAN Graves adopted a 401(k) profit sharing plan effective January 1, 1994. Excluded from the plan are employees whose employment is governed by a collective bargaining agreement that includes retirement benefits. Contributions to the plan are voluntary through a salary reduction agreement up to a maximum of 15% of compensation. Matching contributions and other additional contributions may be made by the employer at the employer's discretion. No contributions were made for the year ended December 31, 1995 and contributions for the year ended December 31, 1996, were $17,014. Hillger adopted a 401(k) profit sharing plan effective April 1, 1994. No employees are excluded from the plan. Contributions to the plan are voluntary through a salary reduction agreement up to a maximum of 15% compensation. Matching contributions and other additional contributions may be made by the employer at the employer's discretion. For the years ended December 31, 1996 and 1995, Hillger's contribution was $13,056 and $4,346, respectively. F-15 NOTE 10 -- RELATED PARTY TRANSACTIONS The Company used space, telephone and secretarial services of a corporation controlled by officers of the Company. Expenses are paid by the Company as invoiced. At December 31, 1996 and 1995, amounts payable to related parties were $-0- and $21,256, respectively. These services were discontinued in 1996. The following are transactions that occurred with the minority interest (100% preferred stockholder) in Graves Oil & Butane Co., Inc.: The Company leases certain real estate from the preferred stockholder. For the years ended December 31, 1996 and 1995, rents paid were $54,643 and $9,102, respectively. The Company has land, buildings, and equipment in Springerville, Arizona, and equipment in St. Johns, Arizona, which were used by a relative of the preferred stockholder. The Company did not charge for the use of its properties but received revenue from the sale of its products. During the years ended December 31, 1996 and 1995, revenues reported amounted to $56,612 and $56,864, respectively. The properties are now closed and the Company is in the process of selling the land, buildings, and equipment. The Company sells its products to other entities controlled by the preferred stockholder. During the years ended December 31, 1996 and 1995, revenues reported amounted to $1,018,928 and $224,425, respectively. The preferred stockholder is indebted to the Company on two notes totaling $650,000 as described in Note 3. Interest receivable at December 31, 1996 and 1995, was $45,793 and $36,210, respectively. Interest earned during the years ended December 31, 1996 and 1995, was $66,790 and $11,677, respectively. The Company is indebted to the preferred stockholder for $1,759,139 as described in Note 6. Interest payable at December 31, 1996 and 1995, was $45,078 and $54,903, respectively. Interest expense during the years ended December 31, 1996 and 1995, for this note was $193,369 and $36,602, respectively. The Company has entered into a consulting agreement with the preferred stockholder which provides for payments of $1,500 per month and the use of a vehicle; fuel for such vehicle; a personal automobile; health, life, disability, and automobile insurance; and reimbursement of various expenses including club dues. During the years ended December 31, 1996 and 1995, the fees paid were $27,232 and $3,570, respectively. NOTE 11 -- ENVIRONMENTAL PROTECTION EXPENDITURES The Company utilizes underground tanks at various locations to store petroleum products and is therefore subject to various federal and state statutes concerning environmental protection, as well as the New Mexico Ground Water Protection Act. The various federal and state statutes are designed to identify environmental damage, identify hazardous material and/or operations, regulate operations engaged in hazardous activities, and establish procedures for remedial action as necessary. The state of New Mexico has recognized the potential cleanup costs resulting from regulations, and the New Mexico Ground Water Protection Act has included the establishment of a corrective action fund. The purpose of the fund is to F-16 provide monetary assistance in both assessing site damage and correcting the damage where such costs are in excess of $10,000. Assistance is not available to repair or replace underground tanks or equipment. The law specifies re- quirements which must have been met for an applicant to be eligible, including a provision that payments will be made in accordance with regulations (which have not yet been issued), and states that payment from the corrective action fund are limited to amounts in that fund. The Company is responsible for any contamination of land it owns or leases. However, the Company may have limitations on any potential contamination liabilities as well as claims for reimbursement from third parties. During the period ended December 31, 1996 and 1995, the Company expended $31,167 and $5,876, respectively, for site assessment and related cleanup costs. Included in other assets at December 31, 1996 and 1995, are unreimbursed costs from the State of New Mexico of $125,761 and $94,593, respectively. NOTE 12 -- COMMITMENTS AND CONTINGENCIES The Company is contingently liable for certain costs associated with leasehold improvements made by a supplier on property of customers of Graves. The liability for the costs is amortized over a five-year period with the Company becoming responsible for payment to the supplier if fuel purchases fail to meet certain volumes. At December 31, 1996 and 1995, the Company was contingently liable for $11,462 and $31,175, respectively, in unamortized costs. Future losses, if any, cannot be estimated at this time. The Company has in escrow 400,000 shares in a Canadian corporation and a $150,000 cash deposit related to the sale of a subsidiary in 1995. Both the deposit and the shares are subject to reduction depending on various factors related to the subsidiary sale. The Company has not recognized any gain or asset related to the escrow items. The Company is a co-signer on the Phillips Performance Fund, Inc. note for $504,982 for its 50% owned equity investment in Coors Pyramid LLC. NOTE 13 -- OPERATING LEASES The Company has entered into various noncancelable leases for land, buildings and equipment with terms ranging from 3 to 15 years. Under most leasing arrangements, the Company pays the property taxes, insurance, maintenance, and expenses related to the leased property. Total rent expense under operating leases for the years ended December 31, 1996 and 1995, was $771,716 and $123,723, respectively. Minimum future obligations on leases in effect at December 31, 1996, are: December 31, 1997 $ 759,000 December 31, 1998 $ 753,000 December 31, 1999 $ 705,000 December 31, 2000 $ 663,000 December 31, 2001 $ 665,000 Thereafter $ 2,145,000 Annual minimum future rental payments have not been reduced by $42,000 of sublease rentals to be received in the future under non-cancelable subleases. NOTE 14 -- CAPITAL LEASES As of December 31, leased property under capital leases by major classes was as follows: F-17 1996 1995 ---------- --------- Buildings and improvements $ 18,141 $ 18,141 Equipment 119,600 106,292 Accumulated amortization (69,492) (44,350) Net leased property $ 68,249 $ 80,083 The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 1996: December 31, 1997 $ 32,785 December 31, 1998 5,670 December 31, 1999 3,832 December 31, 2000 3,832 December 31, 2001 2,875 Total minimum lease payments 48,994 Less: amount representing interest 6,831 Present value of minimum lease payments $ 42,163 NOTE 15 - BUSINESS COMBINATION Effective November 2, 1995, Meteor Industries, Inc. acquired 100% of the issued and outstanding common stock of Capco Resources Inc. ("CRI") in exchange for 1,745,000 shares of Meteor common stock. The shares were valued at $2.51 each for a total consideration of $4,379,950. The $2.51 value was determined using the market price of the Company's stock at the date of the transaction and averaging that with a recent private placement. The acquisition was treated as a reverse acquisition of Meteor by CRI. Accordingly, the results of operations of CRI are included in the accompanying financial statements since January 1, 1995. The results of operations of Meteor are included in the accompanying financial statements since the date of the acquisition. The total cost of the acquisition by CRI exceeded the book value of Meteor by $2,066,503. The excess was allocated to property and equipment based on appraised value and will be depreciated over the estimated remaining useful lives of the assets. The unaudited results of operations on a pro forma basis for the year ended December 31, 1995 are as follows: Revenues $57,721,328 Income (loss) from continuing operations $ (285,335) Income (loss) per share $ (.16) NOTE 16 -- STOCK OPTION AND INCENTIVE EQUITY PLAN The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Pro forma disclosures as if the Company adopted the expense recognition requirements under SFAS No. 123 in 1996 are presented below. A stock option plan providing for the issuance of incentive stock options and non-qualified stock options to the Company's key employees was approved by the Company's stockholders on April 15, 1994. Pursuant to the plan, 500,000 shares of the Company's $.001 par value common stock have been reserved for issuance. Options must be granted at prices not less than 100% of fair market value at the time the option is granted. Options issued to each employee vest in equal installments on the anniversary dates of the date the options were F-18 granted. No options have been exercised. The Company's common stock options were granted at exercise prices equal to, or in excess of, market prices on the grant dates, and therefore no compensation cost was recognized. The majority of the options outstanding at December 31, 1996 will vest by December 31, 1998. A summary of the status of the Company's stock option plans as of December 31, 1996 and 1995, is presented below: 1996 1995 ------------------------ ----------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ------- -------------- ------- -------------- Outstanding at beginning of year 312,400 $ 3.60 108,000 $ 3.90 Granted 105,000 $ 3.50 236,000 $ 3.46 Exercised Forfeited (54,100) $ 3.63 ( 31,600) $ 3.54 Outstanding at end of year 363,300 $ 3.57 312,400 $ 3.60 Options exercisable at Year-End 123,934 $ 3.66 28,400 $ 3.95 Options Available for Future Grant 136,700 N/A 187,600 N/A NUMBER OF EXERCISE PRICE DATE OPTIONS GRANTED OPTIONS PER SHARE VESTING PERIOD - -------------------- --------- -------------- -------------- October 1, 1993 41,000 $ 3.00 5 years February 1, 1994 31,300 $ 5.25 3 years August 4, 1995 21,000 $ 3.00 3 years November 30, 1995 215,000 $ 3.50 3 years May 31, 1996 105,000 $ 3.50 5 years The following table summarizes information about stock options outstanding at December 31, 1996: OPTIONS OUT- WEIGHTED AVERAGE OPTIONS EXER- EXERCISABLE STANDING AT REMAINING CON- CISABLE AT PRICE DECEMBER 31, 1996 TRACTUAL LIFE DECEMBER 31, 1996 ----------- ----------------- ---------------- ----------------- 3.00 41,000 7 24,600 5.25 31,300 8 20,867 3.00 21,000 4 7,000 3.50 215,000 4 71,667 3.50 55,000 5 -0- Had compensation cost been determined based on the fair value at grant dates for stock option awards consistent with the SFAS No. 123, the Company's net income and earnings per share for the years ended December 31, 1996 and 1995, would have been reduced to the pro forma amounts indicated below: F-19 1996 1995 ---------- ---------- Net Income: As reported $ 461,798 $1,215,337 Pro Forma $ 368,367 $1,138,931 Earnings per share: As reported $ .15 $ 2.49 Pro Forma $ .12 $ 2.33 The pro forma compensation expense based on the fair value of the options is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used for grants: no dividends both years; an expected life of 5 years for both years, expected volatility of 95% and 57% for 1996 and 1995, respectively, and a risk free rate of return of 6.40 and 6.37 percent, respectively. The weighted average fair value of those purchase rights granted in 1996 and 1995 was $2.54 and $1.75 respectively. SFAS No. 123 does not apply to awards prior to 1995. In November 1995, Meteor granted an option to a consultant to purchase a total of 100,000 shares of Meteor's Common Stock. This option was exercisable at $2.50 per share, but expired unexercised on January 31, 1997. NOTE 17 -- DISCONTINUED OPERATIONS The 1995 financial statements have been restated to properly reflect income and the provision for income taxes related to discontinued operations. The net impact of these adjustments was as follows: As Previously As Reported Restated ------------- ---------- Income from discontinued operations $ 398,789 $ 441,197 Gain on disposal of discontinued operations 890,189 1,429,256 Net income 1,215,337 1,796,812 Net income per share $2.49 $3.67 a) In September, 1995, CRI sold the shares of Saba de Colombia, Inc., a U.S. subsidiary engaged in the exploration and development of petroleum and natural gas in Colombia, to a third party for consideration of $2,601,719, and realized a gain net of taxes on the sale of the shares of $1,429,256. The consideration received was in the form of: Cash $2,401,719 400,000 cumulative, convertible, redeemable first preferred shares of PetroSantander Inc. bearing dividends at 8.5% 200,000 $2,601,719 Cash of $150,000 and the preferred shares remain in escrow pending review by Colombian taxing authorities. b) In 1995, CRI transferred all of its holdings of Saba Petroleum Company and certain assets and liabilities to CRL and to CAPCO Acquisub, Inc., a wholly-owned subsidiary of CAPCO Resources Ltd. This transaction was recorded at book value. The net liabilities transferred had a book value of approximately $400,114. F-20 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: YEAR ENDED DECEMBER 31, 1995 Income ----------------- Oil and gas sales (net of royalties) $14,197,860 Other income 843,793 15,041,653 Expenses Production and operating 8,695,733 General and administrative 1,986,967 Interest and bank charges 1,065,011 Depreciation, depletion and amortization 2,413,743 14,161,454 Operating income 880,199 Income tax expense 452,620 Foreign exchange (gain) loss 51,237 Minority interest 114,655 Dilution gain (179,510) 439,002 Net Income $ 441,197 Gain on disposition, net of tax of $100,000 $ 1,429,256 NOTE 18 - NEW ACCOUNTING PRONOUNCEMENTS In February, 1997, the Financial Accounting Standards Board issued statement of Financial Accounting Standards No. 128, "Earning per Share" ("SFAS No.128"). The standard requires presentation of earnings per share on a "basic" (only shares outstanding) actual and "fully diluted" (actual shares outstanding plus the effect of other dilutive securities) basis. At this time, the Company does not expect the adoption of SFAS No.128 to have a material impact on the Company's earnings per share. NOTE 19 - SUBSEQUENT EVENTS In February and March of 1997, the Company sold shares and warrants to purchase the Company's Common Stock to 16 accredited investors in a private offering. A Total of 130,000 shares of Common Stock and 130,000 warrants were sold in this offering for an aggregate of $520,000 in cash. The Company paid no commissions in connection with this offering. Each warrant allows the holder to purchase one share of Common Stock at $5.00 per share from March 28, 1998 until March 27, 1999. In March 1997 the Company entered into an out of court settlement with one of its former insurers. As a result, the Company will receive approximately $480,000 in cash after paying its related attorney's fees. Such funds were received in May 1997. F-21 SQUIRE & WOODWARD, P.C. Certified Public Accountants - Consultants 2730 San Pedro NE, Suite D Albuquerque, New Mexico 87110 505/881-3408 FAX 505/881-6597 To the Board of Directors and Stockholders of Meteor Industries, Inc. Denver, Colorado INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated balance sheets of Meteor Industries, Inc. and subsidiaries, as of August 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Meteor Industries, Inc. and subsidiaries, as of August 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Squire & Woodward SQUIRE & WOODWARD, P.C. November 22, 1995 F-22 METEOR INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets As of August 31, 1995 and 1994 ASSETS 1995 1994 Current assets Cash $ 244,206 $ 292,121 Cash - restricted 476,007 230,508 Accounts receivable, net of an allowance for doubtful accounts of $195,500 for 1995 and $165,000 for 1994 4,041,591 4,784,370 Inventory, pledged 1,426,901 853,671 Notes receivable 14,969 21,588 Deferred tax asset 257,893 135,409 Prepaid expenses 184,956 217,931 Other current assets 35,980 20,664 Total current assets 6,682,503 6,556,262 Property and equipment, at cost, partially pledged net of accumulated depreciation of $5,601,000 for 1995 and $5,533,417 for 1994 5,767,704 4,561,713 Other assets Notes receivable 271,438 40,833 Notes receivable - related parties 732,625 698,919 Intangibles, net of accumulated amortization of $70,031 for 1995 and $54,136 for 1994 104,448 120,343 Investment in closely held business 110,000 110,000 Goodwill, net of accumulated amortization of $3,784 818,121 Other assets 94,449 167,504 Total other assets 2,131,081 1,137,599 TOTAL ASSETS $14,581,288 $12,255,574 See accompanying notes to consolidated financial statements. F-23 METEOR INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Balance Sheets As of August 31, 1995 and 1994 LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 Current liabilities Accounts payable $ 2,746,718 $ 1,711,450 Notes payable 2,002,085 2,700,165 Bank overdraft 124,166 Current portion of long-term debt 822,112 407,736 Due to related parties 91,077 2,827 Taxes payable 837,042 601,529 Accrued expenses 327,374 182,384 Total current liabilities 6,950,574 5,606,091 Long-term debt, net of current portion Notes payable 2,095,660 2,603,626 Deferred taxes 1,032,670 456,669 Minority interest in subsidiary 3,488,310 3,107,048 Commitments and contingencies (Notes 15, 16, 17 and 18) Stockholders' equity Common stock, $.001 par value, 10,000,000 shares authorized; 1,272,903 shares issued and outstanding in 1995; 835,500 shares issued and outstanding in 1994 1,273 835 Additional paid-in capital 1,715,290 954,865 Retained deficit (702,489) (473,560) Total stockholders' equity 1,014,074 482,140 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,581,288 $12,255,574 See accompanying notes to consolidated financial statements. F-24 METEOR INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Income As of August 31, 1995 and 1994 1995 1994 Sales $44,970,956 $38,763,225 Cost of sales 38,518,916 33,475,541 Gross profit 6,452,040 5,287,684 Operating expenses Selling, general, and administrative 5,537,753 4,786,779 Depreciation and amortization 592,773 456,996 Bad debts expense 236,138 14,931 Total operating expenses 6,366,664 5,258,706 Income from operations 85,376 28,978 Other income and expense Interest income 234,096 235,593 Dividend income 5,452 3,398 Gain on sale of assets 41,110 32,599 Other income 121,314 125,017 Interest expense (526,665) (434,778) Total other income (124,693) (38,171) Loss before income taxes and minority interest (39,317) (9,193) Provision for income taxes (191,650) (28,562) Net income before minority interest 152,333 19,369 Minority interest (381,262) (492,929) Net loss $ (228,929) $ (473,560) Income per common share (weighted average common shares outstanding 1,056,191 for 1995 and 691,300 for 1994) $ (.22) $ (.69) See accompanying notes to consolidated financial statements. F-25 METEOR INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity As of August 31, 1995 and 1994 Preferred Stock Common Stock Additional Number Number Paid-in Retained of Shares Amount of Shares Amount Capital Earnings Balance - September 1, 1993 $ 475,000 $ 475 $ 30,575 $ Stock issued 160,000 160,000 200,500 200 764,350 Stock warrants issued 100 Conversion of preferred stock (160,000) (160,000) 160,000 160 159,840 Net loss (473,560) Balance - August 31, 1994 0 0 835,500 835 954,865 (473,560) Stock issued 372,373 373 760,490 Stock dividend 65,030 65 (65) Net income (228,929) Balance - August 31, 1995 0 $ 0 1,272,903 $1,273 $1,715,290 $(702,489) See accompanying notes to consolidated financial statements. F-26 METEOR INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows As of August 31, 1995 and 1994 1995 1994 Cash flows from operating activities Net income $ 152,333 $ 19,369 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 592,773 456,994 Gain on disposal of property and equipment (41,072) (32,599) Gain on disposal of investments (38) Other income from basis adjustment to property and equipment (65,000) Deferred income taxes (252,475) (28,769) Changes in assets and liabilities, net of effects from purchase of subsidiaries: Decrease (increase) in accounts receivable 1,223,429 (1,056,469) Decrease (increase) in inventories (35,852) 189,761 Decrease (increase) in other current assets 193,406 (193,178) Decrease (increase) in other assets 73,635 (164,537) Increase in bank overdraft 124,166 Increase in accounts payable 148,184 205,043 Decrease in accrued liabilities (1,407) (32,890) Net cash provided (used) by operating activities 2,177,082 (702,275) Cash flows from investing activities Cash paid for the purchase of subsidiaries, net of cash acquired (546,657) (1,832,635) Cash paid for purchase of investment securities (365) (110,000) Cash paid for purchases of property and equipment (377,210) (442,016) Cash proceeds from sale of investment securities 657 243,595 Cash proceeds from sale of property 117,199 80,472 Cash paid on notes receivable (205,972) 30,357 Cash paid on related party receivables (24,706) 134,916 Net cash used by investing activities (1,037,056) (1,895,311) Cash flows from financing activities Proceeds from short-term borrowings 42,695,070 42,760,933 Principal payments on short-term debt (43,452,946) (40,260,768) Proceeds from borrowing on long-term debt 536,000 Principal payments on long-term debt (1,569,679) (295,883) Proceeds from stock and stock warrants issued 760,863 924,650 Net borrowings on related party payables 88,250 (8,923) Net cash provided (used) by financing activities (942,442) 3,120,009 Net increase in cash and equivalents 197,584 522,423 Cash and equivalents, beginning of year 522,629 206 Cash and equivalents, end of year $ 720,213 $ 522,629 See accompanying notes to consolidated financial statements. F-27 METEOR INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows As of August 31, 1995 and 1994 SUPPLEMENTAL INFORMATION 1995 1994 Cash paid (refunds received) for income taxes $(97,845) $ 155,107 Cash paid for interest $515,806 $ 320,651 NONCASH INVESTING AND FINANCING ACTIVITIES 1995 1994 The minority interest in subsidiary was adjusted to record the dividend in arrears and the accretion of preferred stock of Graves Oil & Butane Co., Inc. $381,262 $ 492,929 A stock dividend was issued for holders of record at June 30, 1995, at 8% $ 65 Long-term debt incurred in the acquisition of subsidiary $2,350,000 Acquisition of land from minority interest through recapitalization of subsidiary $ 83,853 Reduction of stockholder note receivable in exchange for reduction of stockholder note payable $ 100,000 Capital lease obligations incurred in the acquisition of property and equipment $ 124,433 As a result of the purchase of the subsidiary, the purchase premium increased additional paid-in capital and was allocated as follows: Marketable securities $ 47,824 Inventory 299,593 Property and equipment 759,190 Investment in closely held business 55,500 Deferred taxes payable (453,222) Increase in additional paid-in capital $ 708,885 See accompanying notes to consolidated financial statements. F-28 METEOR INDUSTRIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements As of August 31, 1995 and 1994 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of Meteor Industries, Inc. (the company) and Subsidiaries is presented to assist in the understanding of the company's financial statements. The financial statements and notes are based upon representations of the company's management, who are responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. PRINCIPALS OF CONSOLIDATION AND ORGANIZATION - The consolidated financial statements include the accounts of Meteor Industries, Inc. and its wholly owned subsidiaries, Graves Oil & Butane Co., Inc., including its wholly owned subsidiary, El Boracho, Inc., and Hillger Oil Company. All significant intercompany transactions and balances have been eliminated in consolidation. Meteor Industries, Inc., was incorporated on December 22, 1992, as a Colorado based holding company. Graves Oil & Butane Co., Inc., which was acquired effective September 1, 1993, is a wholesale and retail distributor of petroleum products primarily in northern New Mexico, Colorado, Arizona, and Utah. The company also operates retail gasoline and convenience stores in northern New Mexico and Colorado. El Boracho, Inc., which was acquired September 1, 1993, holds a liquor license for use by an Albuquerque, New Mexico convenience store. Hillger Oil Company, which was acquired effective April 1, 1995, is a wholesale and retail distributor of petroleum products primarily in southern New Mexico and Arizona. In addition, the company operates retail gasoline and convenience stores in southern New Mexico. ACCOUNTS RECEIVABLE - Accounts receivable are stated at net realizable value, using the allowance method of accounting for bad debts. INVENTORIES - Inventories of petroleum products, greases and oils, and related products for Hillger Oil Company are stated at weighted average cost, which is not in excess of market. Inventories of petroleum products, greases and oils, and related products for Graves Oil & Butane Co., Inc., are valued at Last In, First Out (LIFO) cost, which is not in excess of market. Graves Oil & Butane Co., Inc., determines its LIFO reserve using the link chain dollar value method. At August 31, 1995 and 1994, inventories valued using the LIFO method were $789,788 and $868,068, respectively. The LIFO reserves were $315,163 and $307,473, respectively. Sundries inventories are valued by the retail method and stated on the First In, First Out (FIFO) basis which is lower than market. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost; major renewals and improvements are charged to the property and equipment accounts; while replacements, maintenance and repairs, which do not improve or extend the lives of the respective assets, are expended currently. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to income. DEPRECIATION - Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets. The estimated useful lives are as follows: F-29 Description Lives Buildings and improvements 5 to 40 years Office equipment 5 to 7 years Operating equipment 5 to 16 years General and administrative 5 to 20 years Marketing equipment 5 to 10 years Delivery equipment 5 to 10 years AMORTIZATION OF COVENANTS - Covenants not to compete are valued at cost and are amortized over a 60-month period. Goodwill represents the excess of the cost of Hillger Oil Company over the fair value of its net assets at the effective date of acquisition and is being amortized using the straight line method over 15 years. INCOME TAXES - Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future income taxes. ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current operations are expended or capitalized as appropriate for each expenditure. Whenever an expenditure relates to an existing condition caused by past operations and does not contribute to future revenues, the expenditure is expensed currently. Liabilities are recorded when remedial efforts are probable and the cost can be reasonably estimated. EARNINGS PER SHARE - Earnings per common and common equivalent share are computed by dividing the net income by the weighted average number of common shares, and if dilutive, common stock equivalent shares (options and warrants) outstanding during the respective period. Fully diluted earnings per share is not materially different than primary earnings per share and has not been presented. The number of shares used in the earnings per share computation is 1,056,191 for 1995 and 691,300 for 1994. COMPENSATED ABSENCES - Employees of the company are entitled to paid vacation and paid sick days off, depending on length of service and other factors. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include certificates of deposit or cash in local banks. See Note 2. RECLASSIFICATIONS - Certain 1994 amounts have been reclassified to conform with the 1995 presentation. USE OF ESTIMATES - The process of preparing financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. F-30 NOTE 2 -- CASH - RESTRICTED The company has revolving bank credit facilities (See Note 7) which require the use of depository accounts called collateral accounts from which collected funds are transferred to the lender. The lender then applies these collections to the revolving credit facilities. These accounts are controlled by the lender. NOTE 3 -- PROPERTY AND EQUIPMENT The major classifications of property and equipment are as follows: Description 1995 1994 --------------------------- ----------- ----------- Land $ 1,037,170 $ 1,032,514 Buildings and improvements 4,113,280 3,980,515 Delivery equipment 2,446,471 2,495,329 Operating equipment 3,264,448 2,079,841 General and administrative 331,205 330,801 Office equipment 96,315 96,315 Marketing equipment 79,815 79,815 11,368,704 10,095,130 Accumulated depreciation (5,601,000) (5,533,417) Net property and equipment $ 5,767,704 $ 4,561,713 For the years ended August 31, 1995 and 1994, the company deducted depreciation of $587,388 and $441,098, respectively. NOTE 4 -- NOTES RECEIVABLE - RELATED PARTIES The company has two outstanding notes receivable from its minority interest shareholder (100% preferred stockholder of Graves) in the amounts of $550,000 and $100,000. The $550,000 note is due October 1, 1997, and is secured by real estate. However, if the underlying security is sold prior to satisfaction of this note, then one half of the lesser of the outstanding balance or the sale proceeds of the security will be applied to reduce the liquidation preference of the preferred stock, and the remaining one half will be applied to reduce the note payable to Theron Graves. Interest is receivable semiannually and is determined at each anniversary based on Citibank of New York prime plus 2%. The interest rate at August 31, 1995 and 1994, was 11% and 8.25%, respectively. The $100,000 note is unsecured and is due October 1, 1997, with interest accrued from September 28. Interest is computed semiannually at Citibank of New York prime plus 2%, being 11% and 8.25% at August 31, 1995 and 1994, respectively. Accrued interest receivable at August 31, 1995 and 1994, totaled $73,625 and $48,919, respectively. NOTE 5 -- INTANGIBLES Intangible assets consist of organization costs of $3,000, net of accumulated amortization of $1,200 and $600 for the years ended August 31, 1995 and 1994,respectively, and a five-year covenant not to compete agreement resulting from the acquisition of Southwest Petroleum on September 1, 1990, of $76,479 at August 31, 1995 and 1994, net of accumulated amortization of $68,831 and $53,536, respectively, and a liquor license acquired in 1991 at a cost of $95,000. F-31 NOTE 6 -- INVESTMENTS IN CLOSELY HELD BUSINESS The company owns 50% of the Graves Rio Rancho No. 1 Ltd Co. The investment was acquired in May 1994 for $110,000. The company reports the investment in the limited liability company using the equity method. This investment is not publicly traded. The members of Graves Rio Rancho No. 1 Ltd. Co. set a fair market value of their company at $220,000. NOTE 7 -- NOTES PAYABLE Notes payable at August 31, 1995 and 1994, consisted of the following: 1995 1994 Revolving bank credit facility, payable to Norwest Business Credit, Inc., bearing interest at Norwest Bank Minnesota, N.A., base rate plus 2.5%, being 11.25% for 1995 and 9.75% for 1994. Due June 1998. Collateralized by trade accounts receivable and inventory of Graves Oil & Butane Co., Inc. Unused credit at August 31, 1995, was $1,061,474. $1,938,526 $2,700,165 Revolving bank credit facility payable to Norwest Business Credit, Inc., bearing interest at Norwest Bank Minnesota, N.A., base rate plus 2%, being 10.75%. Due June 30, 1998. Collateralized by trade accounts receivable and inventory of Hillger Oil Company. Unused credit at August 31, 1995, was $1,499,364. 63,559 Total notes payable $2,002,085 $2,700,165 The agreements require the company to maintain certain net worth and performance ratio levels. As discussed in Note 2, payments on these loans are made through collateral cash accounts in the name of the lender. NOTE 8 -- LONG-TERM DEBT Long-term debt at August 31, 1995 and 1994, consisted of the following: 1995 1994 Note payable, Theron Graves, semiannual payments of $200,000, including interest at prime plus 2% per annum. Collateralized by half of Graves common stock. Matures October 1997. $2,040,921 $2,244,200 Note payable, First National Bank of Farmington, monthly payments of $19,000 including interest at prime plus 2% per annum. Collateralized by mortgage on buildings and land. Matures January 1996. 448,709 620,108 Note payable, Federal Land Bank of Durango, payments of $350 monthly including interest at 8.25% per annum F-32 (variable rate), collateralized by mortgage on house and land in Pagosa Springs, Colorado. Matures in June 2011. 43,364 Note payable, Norwest Business Credit, Inc., monthly payments of $10,417 plus interest at Norwest Bank of Minnesota, N.A. base rate plus 3.0%, being 11.75% per annum, collateralized by property and equipment. Due June 30, 1998. 354,166 Lease payable, Norwest Equipment Finance, Inc., monthly payments of $2,276.68 including interest at 8.04% per annum, collateralized by equipment. Matures December 1997. 54,159 76,156 Lease payable, Norwest Equipment Finance, Inc., monthly payments of $306.23 including interest at 10.00% per annum, collateralized by equipment. Matures July 1998. 9,034 11,661 Lease payable, Dericks Leasing & Financial Company, monthly payments of $627.68 including interest at 17.93% per annum, collateralized by equipment. Matures June 1997. 10,783 15,873 Total 2,917,772 3,011,362 Current portion (822,112) (407,736) Long-term debt, net $2,095,660 $2,603,626 The following is a schedule by years of the repayment of long-term debt: Year ending August 31, Amount ----------- ---------- 1996 $ 822,112 1997 364,761 1998 1,730,899 $2,917,772 NOTE 9 -- MINORITY INTEREST IN SUBSIDIARY The Series A Convertible Preferred Stock of Graves Oil & Butane Co., Inc., is limited voting stock and is entitled to cumulative annual dividends at a rate of 8% of the liquidation value per annum. These securities are convertible into common stock of Graves or Meteor at the bid price on the date of conversion or 22.2% of the company whichever calculation yields fewer shares. The record holder has the right to vote on matters which affect the rights of the class and to elect two of the seven members of the board of directors. In the event of default under the Meteor promissory note issued to purchase the Graves common stock, the holder of the Series A Convertible Preferred Stock has the ability to elect all of the Graves directors. The company may at any time redeem all or any portion of the Series A Convertible Preferred Stock outstanding at an amount equal to the liquidation value plus any accrued and unpaid dividends. At any time after September 15, 2000, the record holder shall have the right to have the F-33 company redeem all or any portion of the shares outstanding at the price stated above. No dividends were declared by the board of directors. Dividends in arrears amount to $.56696 and $.28348 per share or $566,960 and $283,480 as of August 31, 1995 and 1994, respectively. Included in the minority interest component of the statement of income for the year ended August 31, 1995, are dividends in arrears of $283,480, and $97,782 which represent the accretion of the preferred stock discount. The minority interest component for the year ended August 31, 1994, included dividends in arrears of $283,480, a deemed dividend of $121,881, which represents the minority interest's share of the difference between the purchase price and the book value of Graves at the time of acquisition and $87,568, which represents the accretion of preferred stock discount. NOTE 10 -- STOCKHOLDERS' EQUITY During the year ended August 31, 1995, the company issued 372,373 shares of the company's common stock for a total of $760,863. On July 9, 1995, the company distributed 65,030 shares of common stock in connection with an 8% stock dividend. As a result of the stock dividend, common stock was increased by $65, and additional paid-in capital was decreased by $65. On August 31, 1995, the company issued 100,000 stock options to outside consultants in connection with the various completed and pending acquisitions. The options issued have an exercise price of $2.50 and expire June 30, 1996. NOTE 11 -- PREFERRED STOCK During the year ended August 31, 1994, the company sold 160,000 shares of preferred stock, which was designated as Series A, for $160,000. The shares had a liquidation preference of $1.00 each, paid no dividends, had limited voting rights, and were convertible into the company's common stock on a one-for-one basis. The shares were required to be redeemed by the company on August 31, 1998, at $1.25 per share if they were not converted earlier. The shares were converted into the company's common stock on January 24, 1994, when an offering circular covering the issuance of such common stock was closed. NOTE 12 -- INCOME TAXES The provision for income taxes from continuing operations consists of the following components: 1995 1994 ---------- --------- Current tax expense $ $ 207 Deferred tax expense (benefit) (191,650) (28,769) Total provision $ (191,650) $ (28,562) The following reconciles the tax provision with the expected provision obtained by applying statutory rates to pre-tax income: F-34 1995 1994 ---------- --------- Expected tax provision $ (13,368) $ (3,126) Nondeductible expenses 2,157 1,159 Benefit of NOL carryover (1,872) (50,060) Change in temporary differences (176,820) 25,048 Income tax benefits of other tax jurisdictions (1,747) (1,583) Total provision $ (191,650) $(28,562) A consolidated tax return will be filed with the subsidiaries of Meteor Industries, Inc. The provision for income taxes was calculated by using a method that allocates current and deferred taxes to members of the group by applying the Financial Accounting Standards Board Statement 109 to the members as if they were separate taxpayers. The deferred tax asset (liability) in the accompanying balance sheet includes the following components: 1995 1994 Current: Deferred tax asset, federal $ 224,927 $ 124,896 Deferred tax asset, state 32,966 10,513 Net current deferred asset $ 257,893 $ 135,409 Noncurrent: Deferred tax liability, federal $ (957,120) $ (401,825) Deferred tax liability, state (75,550) (54,844) Net noncurrent deferred tax liability $(1,032,670) $ (456,669) The following temporary differences gave rise to the deferred tax asset and deferred tax liability at August 31, 1995 and 1994: 1995 1994 Excess of tax amortization and depreciation over financial accounting amortization and depreciation $ 2,933,026 $1,181,842 Accrued expenses deducted for financial accounting purposes, not deductible for tax purposes until paid $ (269,403) $ Net operating loss and contribution carryovers $ (370,076) $ (364,572) The deferred tax asset and deferred tax liability comprised the following at August 31, 1995 and 1994: Deferred tax asset: 1995 1994 Net operating loss and contribution carryovers $ 148,030 $ 135,409 Inventory and accounts receivable 88,410 Employee benefits 21,453 $ 257,893 $ 135,409 Deferred tax liability: Depreciation and amortization $ 1,032,670 $ 456,669 The company has available at August 31, 1995, $364,064 of unused operating loss carryforwards that may be applied against future taxable income and that expire as follows: F-35 August 31, 2007 $105,877 August 31, 2009 180,757 August 31, 2010 77,430 NOTE 13 -- RETIREMENT PLANS Graves Oil & Butane Company, Inc., adopted a 401(k) profit sharing plan effective January 1, 1994. In order to be eligible to participate in the plan, the employee must have completed 12 months of employment and be credited with a year of service, and must have attained age 21. Excluded from the plan are employees whose employment is governed by a collective bargaining agreement that includes retirement benefits. Contributions to the plan are voluntary through a salary reduction agreement up to a maximum of 15% of compensation. Matching contributions and other additional contributions may be made by the employer at the employer's discretion. For the year ended August 31, 1995, the amount of pension expense was $26,779. For the year ended August 31, 1994, no matching contributions had been made. Hillger Oil Company adopted a 401(k) profit sharing plan effective April 1, 1994. In order to be eligible to participate in the plan, the employee must have completed 12 months of employment and be credited with a year of service, and must have attained age 21. No employees were excluded from the plan. Contributions to the plan are voluntary through a salary reduction agreement up to a maximum of 15% of compensation. Matching contributions and other additional contributions may be made by the employer at the employer's discretion. For the five months ended August 31, 1995, the amount of pension expense was $9,421. Prior to acquisition, Hillger Oil Company had adopted a defined benefit plan. Participation in the plan required an employee to complete one year of service and be at least 21 years old. Participants were vested in their accounts over a period of six years. The employer had a fixed obligation to contribute each plan year to the trust fund the amount the plan's actuary determined was necessary to fund retirement benefits under the plan. Plan assets consist primarily of investments in corporate debt and equity securities. The plan was terminated effective March 31, 1995, prior to the acquisition by Meteor Industries, Inc. The plan assets have not yet been settled. NOTE 14 -- RELATED PARTY TRANSACTIONS The company uses space, telephone and secretarial services of a company controlled by officers of Meteor Industries, Inc. Rent is currently $1,000 per month and secretarial services are currently $2,000 per month. Other expenses are reimbursed to the company as invoiced. For the years ended August 31, 1995 and 1994, the total amount paid to the company was $32,272 and $18,946, respectively. At August 31, 1995 and 1994, amounts payable to related parties were $1,500 and $2,827, respectively. During the year ended August 31, 1994, the company repaid advances made by various officers for acquisition costs incurred in the prior year. The total amount repaid was $11,750. During the year ended August 31, 1994, Almo Industries loaned $10,000 to the company. The loan, including interest at 5% per annum and 500 shares of common stock, was repaid from the proceeds of the company's public offering. During the year ended August 31, 1994, the company received $10,000 from a stockholder of Meteor Industries, Inc. The note was repaid with interest of $141. F-36 During the year ended August 31, 1995, the company controlled by officers of Meteor Industries, Inc., loaned the company $95,000. This amount was repaid with interest in the amount of $1,876. The company also reimbursed officers for out-of-pocket expenses and some consulting services. For the year ended August 31, 1995, total amounts paid to officers was $37,356. Also during the year, an officer loaned the company $46,000 which is included in the balance sheet as due to related parties. Included in the amount of stock issued during the year ended August 31, 1995, as discussed in Note 10, were 5,373 shares issued to the subsidiaries retirement plan as an employer matching contribution in the amount of $26,779. The following are transactions that occurred with the minority interest (100% preferred stockholder) in Graves Oil & Butane Co., Inc: The company leases certain real estate from the preferred stockholder. For the years ended August 31, 1995 and 1994, rents paid were $57,286 and $53,000, respectively. The company has land, buildings, and equipment in Springerville, Arizona, and equipment in St. Johns, Arizona, which are used by a relative of its preferred stockholder. The company does not charge for the use of its properties but receives revenue from the sale of its products. During the years ended August 31, 1995 and 1994, revenues reported amounted to $413,987 and $567,995, respectively. The company sells its products to other entities controlled by the preferred stockholder. During the years ended August 31, 1995 and 1994, revenues reported amounted to $1,152,825 and $558,939, respectively. The preferred stockholder is indebted to the company on two notes totaling $650,000 as described in Note 4. Interest receivable at August 31, 1995 and 1994, was $73,625 and $48,919, respectively. Interest received during the years ended August 31, 1995 and 1994, was $41,393 and $29,360, respectively. The company has entered into a consulting agreement with its preferred stockholder which provides for payments of $1,500 per month and the use of a vehicle; fuel for such vehicle; a personal automobile; health, life, disability, and automobile insurance; and reimbursement of various expenses including club dues. During the years ended August 31, 1995 and 1994, the fees paid were $30,021 and $24,606, respectively. As discussed in Note 19, the company has entered into a purchase agreement with Mr. Graves in which a note payable in the amount of $2,350,000 was established. See Note 8. For the years ended August 31, 1995 and 1994, interest paid on the note was $196,722 and $94,200, respectively. As of August 31, 1995 and 1994, accrued interest was $94,106 and $90,000, respectively. Pursuant to the purchase agreement, additional land in the amount of $83,853 was contributed to the company. Other transactions: Hillger Oil Company leases various real property and equipment from a company in which an employee is a stockholder. Included in rent expense is $208,950 paid to the related party for the five months ended August 31, 1995. F-37 NOTE 15 -- ENVIRONMENTAL PROTECTION EXPENDITURES The company utilizes underground tanks at various locations to store petroleum products and is therefore subject to the various federal and state statutes oncerning environmental protection, as well as the New Mexico Ground Water rotection Act. The various federal and state statutes are designed to ientify environmental damage, identify hazardous material and/or operations, regulate operations engaged in hazardous activities, and establish procedures for remedial action as necessary. The state of New Mexico has recognized the potential cleanup costs resulting from such regulations, and the New Mexico Ground Water Protection Act has included the establishment of a corrective action fund. The purpose of the fund is to provide monetary assistance in both assessing site damage and correcting the damage where such costs are in excess of $10,000. Assistance is not available to repair or replace underground tanks or equipment. The law specifies requirements which must have been met for an applicant to be eligible, including a provision that payments will be made in accordance with regulations (which have not yet been issued), and states that payment from the corrective action fund are limited to amounts in that fund. The company is responsible for any contamination of land it owns or leases. However, the company may have limitations on any potential contamination liabilities as well as claims for reimbursement from third parties. During the years ended August 31, 1995 and 1994, the company expended $47,013 and $69,702, respectively, for site assessment and related cleanup costs. Reimbursement from the state of New Mexico for the year ended August 31, 1995, amounted to $23,485. Included in other assets at August 31, 1995, are unreimbursed costs of $86,982. NOTE 16 -- PURCHASE COMMITMENTS The company is contingently liable for certain costs associated with leasehold improvements made by a supplier on property of customers of Graves Oil & Butane Co., Inc. The liability for the costs is amortized over a five-year period with the company becoming responsible for payment to the supplier if fuel purchases fail to meet certain volumes. Originally, the company was contingently liable on $84,576 in unamortized costs. At August 31, 1995 and 1994, the company was contingently liable on $31,175 and $52,116, respectively, in unamortized costs. For the years ending August 31, 1995 and 1994, the company made payments to the supplier totaling $8,480 and $4,228, respectively, for periods when purchase commitments were not met. Future losses, if any, cannot be estimated at this time. NOTE 17 -- OPERATING LEASES The company has entered into various noncancelable leases for land, building, and equipment with terms ranging from 3 to 15 years. Under most leasing arrangements, the company pays the property taxes, insurance, maintenance, and expenses related to the leased property. Total rent expense under operating leases for the years ended August 31, 1995 and 1994, was $466,106 and $164,069, respectively. Minimal future obligations on leases in effect at August 31, 1995, are: August 31, 1996 $ 731,532 August 31, 1997 730,537 August 31, 1998 745,138 August 31, 1999 733,031 Thereafter 3,456,615 F-38 Annual minimum future rental payments have not been reduced by $42,000 of sublease rentals to be received in the future under non-cancelable subleases. NOTE 18 -- CAPITAL LEASES As of August 31, 1995 and 1994, leased property under capital leases by major classes was as follows: 1995 1994 Buildings and improvements $ 18,141 $ 18,141 Operating equipment 94,117 94,117 General and administrative 12,175 12,175 Accumulated amortization (36,286) (12,096) Net leased property $ 88,147 $112,337 The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of August 31, 1995: August 31, 1996 $ 38,527 August 31, 1997 36,016 August 31, 1998 7,616 Total minimum lease payments 82,159 Less: amount representing interest (8,183) Present value of minimum lease payments $ 73,976 NOTE 19 -- BUSINESS COMBINATION On June 12, 1995, Meteor Industries, Inc. acquired 100% of the issued and outstanding common stock (2,500 shares, $100 par value) of Hillger Oil Company for cash. The acquisition was effective as of April 1, 1995. As part of the purchase agreement, all of the long-term debt of Hillger Oil Company was reorganized. At closing, Hillger Oil Company obtained a new revolving credit line and a term note, the terms of which are discussed in Notes 7 and 8. A total of $875,000 was borrowed at closing to payoff existing debt and consummate the transaction. The results of operations of Hillger Oil Company are included in the accompanying financial statements since the effective date of the acquisition. The acquisition was accounted for as a purchase and "push down accounting" was applied, with the result that purchase accounting adjustments were reflected in the accounting of the company. The total cost of acquisition exceeded the net assets of Hillger Oil Company by $1,123,144. Part of the excess was allocated to property and equipment based on appraised values and will be depreciated over the estimated remaining useful lives of the assets. The remaining excess was recorded as goodwill and is being amortized on the straight line method over 15 years. Effective September 1, 1993, Meteor Industries, Inc., purchased 100% of the common stock of Graves Oil & Butane Co., Inc., for cash and notes amounting to $4,100,000. Additional costs of $281,750 were incurred in the acquisition. Graves Oil & Butane Co., Inc., sells petroleum products at the wholesale and retail level. The business combination was accounted for under the purchase method. Results of operations of Graves for the years ended August 31, 1995 and 1994, are included in the income statements of Meteor Industries, Inc. As part of the acquisition, a note payable to the preferred stockholder of Graves in the amount of $2,350,000 was incurred. The note payable was included in long-term debt, which is detailed in Note 8. F-39 NOTE 20 -- SUBSEQUENT EVENTS In October 1995 the company formed Pyramid Stores, Inc., a Colorado corporation, as a wholly owned subsidiary to hold all of the stock of Graves Oil & Butane Co., Inc., and Hillger Oil Company and operate those companies separately from the company's other activities. In November 1995, the company issued 1,745,000 shares of its common stock in exchange for all the outstanding stock of Capco Resources, Inc., (CRI) a Delaware corporation, which is a U.S. subsidiary of Capco Resources, Ltd. The shares of the company's common stock issued represent approximately 58% of the shares now outstanding. The shares were issued to Capco Resources, Ltd. (Capco), an Alberta corporation which is listed on the Alberta Stock Exchange. As a result of this transaction, there was a change in control of the company and two of the company's three directors were replaced by Capco representatives. The major assets of CRI include: (I) an interest in Saba Power Company Ltd., which is involved in the development of a power plant in Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a California environmental services firm; and (iii) a $1,516,000 promissory note from Saba Petroleum Company and other miscellaneous assets. NOTE 21 -- STOCK OPTION PLAN A stock option plan providing for the issuance of incentive stock options and nonqualified stock options to the company's key employees was approved by the company's stockholders on April 15, 1993. Pursuant to the plan, 500,000 shares of the company's $.001 par value common stock have been reserved for issuance. Such shares will be issued upon the exercise of options at prices not less than 100% of fair market value at the time the option is granted. The options so granted do not vest and are not exercisable by the holder except on the continued employment of the recipient. Options issued to each employee vest in equal installments on the anniversary dates of the date the options were granted. Options have been granted as follows: Number of Exercise Price Vesting Date options granted Options Per share Period October 1, 1993 64,000 $3.00 5 years February 1, 1994 49,600 $5.25 3 years F-40 PRICE WATERHOUSE Chartered Accountants 1200, 425 - 1st Street S.W. Calgary, Alta. T2P 3V7 403/267-1200 Telecopier: 403/233-0883 May 17, 1995, except for Notes 3, 5, 10(b), 10(c) and 10(d) which are as of September 15, 1995 for Notes 3(a) and 10(c) December 1, 1995, for Notes 3(b) and 10(b) and December 29, 1995 for Notes 5 and 10(d) AUDITORS' REPORT To the Shareholder of CAPCO Resources Inc. We have audited the consolidated balance sheet of CAPCO Resources Inc. as at December 31, 1994 and 1993 and the consolidated statements of operations and retained earnings (deficit) and changes in financial position for the three years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1994 and 1993 and the results of its operations and the changes in its financial position for the three years then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING CONFLICT In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by significant uncertainties such as that referred to in the attached consolidated balance sheet of CAPCO Resources Inc. as at December 31, 1994 and 1993 and as described in Note 2 of the consolidated financial statements. Our report to the shareholders dated May 17, 1995, except for Notes 3, 5, 10(b), 10(c) and 10(d) which are as of September 15, 1995 for Notes 3(a) and 10(c), December 1, 1995, for Notes 3(b) and 10(b) and December 29, 1995 for Notes 5 and 10(d) is expressed in accordance with Canadian reporting standards which do not permit a reference to such an uncertainty in the auditors' report when the uncertainty is adequately disclosed in the financial statements. Chartered Accountants F-41 CAPCO RESOURCES INC. CONSOLIDATED BALANCE SHEET (in U.S. dollars) December 31 1994 1993 ASSETS Current assets Cash $ 1,277 $ - Accounts receivable 124,263 - 125,540 - Capital assets (Note 4) 250,344 - Other assets Investment in Saba Power Company Limited (Note 5) 150,865 - Deposits and other 12,776 - Net assets from discontinued operations (held primarily through shares of other companies) (Note 3) 572,036 660,023 $ 1,111,561 $ 660,023 LIABILITIES Current liabilities Accounts payable $ 287,814 $ - Accrued liabilities 114,729 - 402,543 - SHAREHOLDER'S EQUITY Share capital Authorized 10,000 of $.01 par value common voting shares Issued and outstanding 100 common voting shares 100 100 Contributed surplus 511,920 511,920 Retained earnings 196,998 148,003 709,018 660,023 $ 1,111,561 $ 660,023 Commitments and contingencies (Notes 5, 8 and 10) Approved by the Board ______________________ Director ______________________ Director F-42 CAPCO RESOURCES INC. CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT) (in U.S. dollars) Year ended December 31 1994 1993 1992 Revenue Analytical services and other $ 472,148 $ - $ - Expenses General and administrative 577,024 2,282 - Depreciation and amortization 24,656 - - 601,680 2,282 - (Loss) for the year before discontinued operations (129,532) (2,282) - Income from discontinued operations (Note 3) 178,527 690,624 765,220 Net income for the year 48,995 688,342 765,220 Retained earnings (deficit), beginning of year 148,003 (540,339) (1,305,559) Retained earnings (deficit), end of year $ 196,998 $ 148,003 $ (540,339) (Loss) per share from continuing operations $(1,295.32) $ (22.82) $ - Earnings per share $ 489.95 $6,883.42 $ 7,652.20 F-43 CAPCO RESOURCES INC. CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (in U.S. dollars) Year ended December 31 1994 1993 1992 Cash provided by (used in) operating activities Loss for the year before discontinued operations $ (129,532) $ (2,282) $ - Items not affecting cash Depreciation and amortization 24,656 - - (104,876) (2,282) - Net change in non-cash working capital deficiency 278,280 - - Cash provided by (used in) discontinued operations 266,514 2,282 (511,920) 439,918 - (511,920) Cash used in investing activities Purchase of capital assets (275,000) - - Investment in Saba Power Company Limited (Note 5) (150,865) - - Deposits and other (12,776) - - (438,641) - - Cash provided by (used in) financing activities Issue of share capital - 100 - Contributed surplus - - 511,920 Increase in notes receivable, related party - (100) - - - 511,920 Net change in cash for the year 1,277 - - Cash, beginning of year - - - Cash, end of year $ 1,277 $ - $ - Supplemental disclosure of cash flow information Cash paid during year for Interest in discontinued operations $1,071,405 $790,960 $ 440,078 Income taxes in discontinued operations $1,315,480 $ 72,064 $ 112,873 F-44 CAPCO RESOURCES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1994 (U.S. dollars) 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in Canada. Underlying these principles is the assumption that the Company will be able to realize its assets and pay its liabilities in the normal course of business (refer to Note 2). The more significant of the Company's accounting policies are: a) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiary, CAPCO Analytical Services Inc. Oil and gas and other miscellaneous operations were treated as discontinued operations as a definitive merger agreement which contemplated the sale of these assets was signed January 20, 1995 (see Note 3). b) ANALYTICAL EQUIPMENT Analytical equipment is stated at cost less accumulated depreciation. Depreciation of equipment is provided principally on the straight-line method over the estimated useful life of the equipment, ranging from three to seven years. c) INVESTMENT IN SABA POWER COMPANY LIMITED The investment in Saba Power Company Limited is recorded using the equity method. All operations to date have been pre-operational project development costs and such costs have been capitalized. d) EARNINGS PER SHARE Earnings per share is calculated using the weighted monthly average number of shares outstanding. 2. CORPORATE ITEMS a) FINANCIAL ITEMS At December 31, 1994, the Company had a working capital deficiency of $277,003. The Company's ability to continue as a going concern and to realize its assets and to discharge its liabilities (see Notes 3 and 5) is dependent upon the Company obtaining profitable operations or receiving financial support from its controlling shareholder. b) CONTROL At December 31, 1994, the Company was indirectly controlled by an individual who indirectly held 85.29% of the issued common shares of the parent company, CAPCO Resources Ltd. (see Note 10(b)). F-45 c) CAPCO ANALYTICAL SERVICES INC. In April 1994, the Company formed CAPCO Analytical Services, Inc. ("CAS"). CAS acquired $275,000 in assets to be used in laboratory analyses. CAS assumed liabilities related to the assets of $230,000 and agreed to pay the remaining $45,000 by providing discount laboratory analysis to the seller. d) ACCOUNTING PRESENTATION The Company was incorporated in October 1993 and commenced operations when the U.S. assets of its parent company were transferred to it for corporate planning purposes. The historical comparative financial information has been presented as if the Company owned the assets from the time acquired by the parent company as the purchase transaction occurred between companies under common control. Subsequent to December 31, 1994, the majority of the assets transferred by its parent company to the Company were transferred to a related party or sold, and accounted for as discontinued operations. 3. DISCONTINUED OPERATIONS a) On September 15, 1995, the Company sold the shares of Saba de Colombia, Inc., a U.S. subsidiary engaged in the exploration and development of petroleum and natural gas in Colombia, to a third party for fair market value of $2,601,719, and realized a gain net of taxes on the sale of the shares of $1,429,256. The consideration received was in the form of: Cash $2,401,719 400,000 cumulative, convertible, redeemable first preferred shares of PetroSantander Inc. bearing dividends at 8.5% per annum 200,000 $2,601,719 $150,000 and the preferred shares remain in escrow pending review by Colombian taxing authorities. b) On December 1, 1995, the Company transferred to CAPCO Acquisub Inc., a wholly-owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba Petroleum Company and certain other assets and liabilities. This transaction was recorded at book value. The net assets transferred had a book value of approximately $1,220,000, subsequently restated to ($400,114). The discontinued operations results for 1994, 1993, and 1992 are as follows: F-46 Year ended December 31 1994 1993 1992 Income Oil and gas sales (net of royalties) $16,561,431 $14,888,250 $10,736,986 Other income 996,658 729,234 516,759 17,558,089 15,617,484 11,253,745 Expenses Production and operating 10,807,058 8,392,673 6,070,781 General and administrative 2,530,929 2,998,152 1,775,247 Interest and bank charges 1,252,507 810,168 498,607 Depreciation, depletion and amortization 2,744,054 2,555,213 1,551,673 17,334,548 14,756,206 9,896,308 Income before the following 223,541 861,278 1,357,437 Income tax expense 540,043 486,947 675,471 Foreign exchange (gain) loss (373,787) (114,313) (224,115) Minority interest 249,665 (36,676) 140,861 Dilution gain (370,907) (165,304) - 45,014 170,654 592,217 Income for the year $ 178,527 $ 690,624 $ 765,220 The following summarizes the carrying value of major assets and liabilities of the discontinued operations transferred which has been reflected in the consolidated balance sheet as net assets from discontinued operation. The assets and liabilities were held primarily through investments in shares in other companies and were not directly owned: Year ended December 31 1994 1993 1992 Net working capital $(4,026,062) $(2,583,420) $(2,527,348) Capital assets 16,798,922 13,060,590 13,169,002 Other assets 652,415 680,222 378,768 Minority interest (3,080,083) (1,834,087) (1,548,533) Long-term debt (5,385,221) (4,875,000) (3,612,649) Deferred tax and other (664,617) (306,786) (37,000) Pension liability (1,844,360) (1,554,154) (1,765,644) Deferred foreign exchange gain (420,379) (450,270) - Due to affiliated companies (1,458,579) (1,476,872) (4,084,913) $ 572,036 $ 660,023 $ (28,317) 4. CAPITAL ASSETS December 31 1994 1993 Accumulated Net book Net book Cost amortization value value Analytical equipment $275,000 $24,656 $250,344 $ - F-47 5. INVESTMENT IN SABA POWER COMPANY LIMITED ("SABA POWER") During 1994, Saba Power and several partners received approval to develop, construct and operate a 109 Megawatt power generating plant in the Islamic Republic of Pakistan. The Company holds an indirect equity investment in Saba Power of 25.2%. At December 31, 1994, the Company's investment represents its share of project development costs incurred to that date. The recoverability of the investment is dependent upon successful completion of the project and commencement of commercial production. The Company and its partners provided a performance guarantee through a bank in Pakistan, in the amount of approximately $355,000 at December 31, 1994 (10,900,000 Rupees). The agreements between the partners and the Government of Pakistan have several conditions, the most significant being: i) To maintain its 25.2% interest in the project, the Company must fund an initial equity investment of $6.75 million which includes earning a development fee from the project of $2.7 million, which must be reinvested as part of the Company's equity commitment. In a letter dated December 29, 1995, the Company agreed with the majority equity holder, Cogen Technologies Inc. ("Cogen"), that the Company would borrow all additional equity from Cogen, which is necessary to fund the amount in excess of $6.75 million, including interest at 15% per annum to be paid out of the cashflow of the project if not paid sooner by the Company. The Company also confirms that, at the financial closing (currently March 17, 1996) of the project, it will deposit 50% of the $4.05 million required, after receiving the development fee, and the amount borrowed from Cogen. The remaining 50% will be deposited with Cogen on the first anniversary of the financial closing. Should the Company not meet its required equity commitment, the majority equity partner will fund the difference and reduce the Company's interest proportionately. ii) Cogen agreed to fund all project development costs subsequent to September 30, 1994 and will carry on day to day operations of the project, including design, engineering, selecting equipment, obtaining financing and overseeing construction and operations. iii) The Company must reimburse its proportionate share of all project development costs, paid for by Cogen, including interest at 15% per annum. The Company will be responsible for its proportionate share of all remaining project costs as incurred. iv) On September 17, 1995 Saba Power entered into an agreement with the Government of Pakistan to increase the Performance Guarantee to $728,000 (23 million Rupees) valid up to January 18, 1996 and to move the date of Financial Close under the Letter of Support to December 17, 1995. The Company has not yet determined how it will obtain the necessary financing for its share of the initial equity commitment but is investigating options available to it. The Company has a commitment outstanding for $75,000 as a finders fee relating to the project and $60,750 as a letter of credit fee. 6. INCOME TAXES The provision for income taxes in the Statement of Operations varies from the amount that would be computed by applying the expected income tax rate of F-48 37.5% (1993 and 1992 - 37.5%) to income from continuing operations. The principal reasons for the difference between such "expected" income tax expense and the amount actually recorded are as follows: Year ended December 31: 1994 1993 1992 Computed "expected" income tax recovery $(48,575) $(856) $ - Tax losses carried forward applied 48,575 856 - $ - $ - $ - 7. SEGMENTED INFORMATION During 1994 and 1993 the Company operated predominately in one industry segment - Laboratory Analysis in the United States and invested in a Power Project in Pakistan (see Note 5). United 1994 States Pakistan Other Total Revenue $ 472,148 $ - $ - $ 472,148 Segment operating profit (loss) $(129,532) $ - $ 178,527 $ 48,995 Identifiable assets $ 388,660 $ 150,865 $ 572,036 $1,111,561 Depreciation and amortization $ 24,656 $ - $2,744,054 $2,768,710 1993 Revenue $ - $ - $ - $ - Segment operating profit (loss) $ (2,282) $ - $ 690,624 $ 688,342 Identifiable assets $ - $ - $ 660,023 $ 660,023 Depreciation and amortization $ - $ - $2,555,213 $2,555,213 8. COMMITMENTS AND CONTINGENCIES The Company is subject to extensive Federal, State and local environmental laws and regulations. These laws, which are constantly changing, include regulations of the discharge of materials into the environment. The Company believes that it is in compliance with existing laws and regulations. LEASES The Company is committed under cancelable leases for office space, which expire in 1998. Future minimum payments are as follows: 1995 $80,400 1996 80,400 1997 80,400 1998 33,500 9. RELATED PARTY TRANSACTIONS Related party transactions are described as follows: F-49 The Company has in the past, advanced and received funds with related parties. All of these transactions have been included in discontinued operations (see Note 3), including the amount from net assets from discontinued operations. 10. SUBSEQUENT EVENTS a) On April 22, 1995, the Company signed a Project Development and Share-holders' Agreement relating to the power generating plant in Pakistan which converted the indirect equity holding into direct investment in Saba Power. b) On January 20, 1995, the Company's parent entered into a definitive merger agreement with Meteor Industries, Inc. (Meteor), a United States public company engaged in the wholesale and retail marketing of petroleum products with operations in Colorado and New Mexico. The Company's parent was to exchange shares of the parent for all the shares of Meteor. Although the number of shares was to be determined, the Company's parent would issue a maximum of 2,091,250 shares. This agreement was canceled and a new agreement between the Company, its parent, and Meteor was entered into and closed on December 1, 1995. The new agreement merged the Company with Meteor in a reverse takeover whereby all of the shares of the Company were exchanged for 1,745,000 shares of Meteor, representing 57.8% of the total outstanding shares of Meteor after the transaction. In connection with this agreement, the Company transferred its interest in Saba Petroleum Company and certain other assets and liabilities to another wholly-owned subsidiary of the Company's parent. This resulted in the discontinuation of operations in oil and gas production and in other assets, liabilities and revenues and expenses which are allocated to discontinued operation (see Note 3). The acquisition will be accounted for as a purchase of Meteor by the Company with income being recorded from the date of acquisition. The estimated purchase price allocation based upon the August 31, 1995 financial statements of Meteor is as follows: Current assets $ 6,682,503 Capital assets 7,677,652 Other assets 2,131,081 Current liabilities (6,950,574) Long-term liabilities (2,095,660) Deferred taxes (1,682,051) Minority interest (3,488,310) $ 2,274,641 c) On September 15, 1995, the Company sold its interest in Saba de Colombia, Inc. The proceeds of the sale were used to advance monies to Saba Petroleum Company and to pay some liabilities. The operations of Saba de Colombia, Inc. and the gain on sale are included in discontinued operations (see Note 3). d) Restructuring of the Saba Power commitment as disclosed in Note 5. 11. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") There are no material differences between Canadian and U.S. GAAP. F-50 (INSIDE BACK COVER) (picture of hot air balloon (Picture of hot air balloon) with "Graves Oil & Butane" logo) (Picture of Graves Oil & (Picture of tank trucks) Butane tank truck) No person is authorized to give any information or to make any representation other than those contained in this Pros- pectus, and if given or made 600,000 Shares of Common Stock such information or represen- 600,000 Redeemable Warrants tation must not be relied upon as having been authorized. This Prospectus does not con- stitute an offer to sell or a METEOR INDUSTRIES, INC. solicitation of an offer to buy any securities other than the securities offered by this Pros- pectus or an offer to sell or a solicitation of an offer to buy the securities in any jurisdic- tion to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. TABLE OF CONTENTS Page Prospectus Summary.............. Risk Factors.................... The Company..................... Price Range of Common Stock..... __________________ Dividend Policy................. Selected Financial Information.. PROSPECTUS Pro Forma Consolidated State- __________________ ment of Operations............. Management's Discussion and Analysis of Financial Condi- tion and Results of Operations. Use of Proceeds................. Business........................ Management...................... Westport Resources Security Ownership of Manage- Investment Services, Inc. ment and Principal Shareholders Certain Transactions............ Description of Securities....... Underwriting.................... ________, 1997 Selling Shareholders............ Legal Matters................... Experts......................... Index to Financial Statements... PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The estimated expenses of the offering, all of which are to be borne by the Registrant, are as follows: SEC Filing Fee . . . . . . . . . . . . . . . . . . . . . $ 2,950 AMEX Initial Listing Fees. . . . . . . . . . . . . . . . 32,500 NASD Filing Fee. . . . . . . . . . . . . . . . . . . . . 1,355 Underwriter's Non-Accountable Expense Allowance. . . . . 91,800 Printing Expenses. . . . . . . . . . . . . . . . . . . . 25,000 Accounting Fees and Expenses . . . . . . . . . . . . . . 40,000 Legal Fees and Expenses. . . . . . . . . . . . . . . . . 40,000 Registrar and Transfer Agent Fees. . . . . . . . . . . . 1,000 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . 4,395 Total . . . . . . . . . . . . . . . . . . . . . . . $239,000 ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The only statute, charter provision, bylaw, contract, or other arrangement under which any controlling person, Director or Officer of the Registrant is insured or indemnified in any manner against any liability which he may incur in his capacity as such, is as follows: As permitted by Colorado law, the Company's Articles of Incorporation provide that the Company will indemnify its directors and officers against expenses and liabilities they incur to defend, settle, or satisfy any civil or criminal action brought against them on account of their being or having been Company directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or willful misconduct. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. Pursuant to the provisions of the Colorado Business Corporation Act, the Company's Articles of Incorporation exclude personal liability for its directors for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, acts in violation of Section 7-108-403 of the Colorado Business Corporation Act, or any transactions from which a director receives an improper personal benefit. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. During its past three fiscal years, the Company issued securities which were not registered under the Securities Act of 1933, as amended (the "Act"), as follows. The numbers of shares of Common Stock stated give retroactive effect to an 8% stock dividend which was effected in June 1995. During the period from April 15, 1993 through August 16, 1993, the Company issued 635,000 shares of its Common Stock to 27 persons who were officers, directors and sophisticated investors (includes the conversion of Series A Preferred Stock into Common Stock) as follows:
Amount and Type Name Number of Shares of Consideration Edward J. Names 325,000 $12,500 Cash $ 300 Services Dennis R. Staal 105,000 $17,000 Cash $ 300 Services Almo Industries 50,000 $ 6,250 Cash $ 300 Services John D. Bellino 2,000 $ 2,000 Cash John E. Bradley 2,000 $ 2,000 Cash Richard B. Cutforth 5,000 $ 5,000 Cash Michael J. Derrick 2,500 $ 2,500 Cash Donald A. French 5,000 $ 5,000 Cash Geraldine Gibson 3,000 $ 3,000 Cash John A. Gould 5,000 $ 5,000 Cash Gerald M. Greenberg 10,000 $10,000 Cash H. Wayne Hoover 2,500 $ 2,500 Cash Kim E. Hensley 30,000 $30,000 Cash C. Thomas Houseman 5,000 $ 5,000 Cash Lear 171 Inc. 10,000 $10,000 Cash James L. Lewis 2,500 $ 2,500 Cash Phil & Barbara Minnis 10,000 $10,000 Cash C.L. Nordstrom 5,000 $ 5,000 Cash Sandra L. Schlueter 3,000 $ 3,000 Cash Michael Skurich 5,000 $ 5,000 Cash ENS Family Partnership 10,000 $10,000 Cash John & Dinah Sullivan, TTEE 10,000 $10,000 Cash TBT Family Partners, Ltd. 5,000 $ 5,000 Cash Gary R. Tice 5,000 $ 5,000 Cash Daniel J. Vogl 5,000 $ 5,000 Cash Pamela J. Wilkinson 2,500 $ 2,500 Cash ITEN 10,000 $10,000 Cash Includes shares issued to Mr. Names' wife. II-2 Includes shares issued to a corporation controlled by Mr. Staal.
In connection with these issuances, the Company relied on Section 4(2) of the Securities Act of 1933, as amended. The shares were offered for investment only and not for the purpose of resale or distribution, and the transfer thereof was appropriately restricted by the Company. During January 1994, the Company sold 200,000 shares of Common Stock for an aggregate of $1,000,000 in cash. The Company paid a commission of $100,000 to VTR Capital, Inc. for its services as underwriter, and issued it Underwriter's Warrants to purchase 30,250 shares of the Company's Common Stock. In March 1996, the Company renegotiated the terms of the Underwriter's Warrants to reduce the exercise price and reduce the number of shares issuable to 17,000. With respect to these sales, the Company relied on Section 3(b) of the Securities Act of 1933, as amended, and Regulation A promulgated thereunder. Each investor was given a copy of an Offering Circular containing complete information concerning the Company, an Offering Statement on Form 1-A was filed with the SEC and the Company complied with the other applicable requirements of Regulation A. In June 1995, the Company sold 396,360 shares of its Common Stock to four sophisticated investors for an aggregate of $734,000 in cash as follows: Amount and Type Name Number of Shares of Consideration Capco Resources, Inc.* 378,000 $700,000 in cash C. Thomas Houseman 2,160 $ 4,000 in cash Charles R. Gwirtsman 10,800 $ 20,000 in cash Sawyer Family Partners 5,400 $ 10,000 in cash __________________ * The shares sold to Capco Resources, Inc. were subsequently resold to Adres Chaudhary. Also in June 1995, the Company issued 5,803 shares of its Common Stock to employees of its Graves subsidiary under Graves' 401(k) plan. The shares issued were valued at $4.63 per share. In October 1995, the Company sold 7,000 shares of its Common Stock to two sophisticated investors for the consideration set forth as follows: Amount and Type Name Number of Shares of Consideration C. Thomas Houseman 2,000 $4,000 in cash Paul Greaves 5,000 $6,000 in cash and $4,000 in services In connection with the issuances made in June and October 1995, the Company relied on Section 4(2) of the Securities Act of 1933, as amended. The shares were II-3 offered for investment only and not for the purpose of resale or distribution, and the transfer thereof was appropriately restricted by the Company. In November 1995, the Company issued 1,745,000 shares of its Common Stock in exchange for all of the outstanding stock of Capco Resources, Inc., a Delaware corporation. The shares of the Company's Common Stock issued in this transaction were issued to a U.S. subsidiary of Capco Resources Ltd., an Alberta corporation, which is listed on the Alberta Stock Exchange. In connection with this issuance, the Company relied on Section 4(2) of the Securities Act of 1933, as amended. The shares were offered for investment only and not for the purpose of resale or distribution, and the transfer thereof was appropriately restricted by the Company. In May and June 1996, the Company sold shares of the Company's Common Stock to 21 accredited investors and 3 unaccredited investors in a private offering. A total of 270,000 shares of Common Stock were sold in this offering for an aggregate of $704,700 in cash. The Company paid no commissions in connection with this offering. In February and March of 1997, the Company sold shares and warrants to purchase the Company's Common Stock to 16 accredited investors in a private offering. A Total of 130,000 shares of Common Stock and 130,000 warrants were sold in this offering for an aggregate of $520,000 in cash. The Company paid no commissions in connection with this offering. Each warrant allows the holder to purchase one share of Common Stock at $5.00 per share from March 28, 1998 until March 27, 1999. With respect to these sales, the Company relied on Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. Each investor was given a copy of a Private Placement Memorandum containing information concerning the Registrant, a Form D was filed with the SEC and the Company complied with the other applicable requirements of Rule 506. Each investor signed a subscription agreement in which he represented that he was purchasing the shares for investment only and not for the purpose of resale or distribution. The appropriate restrictive legends were placed on the certificates and stop transfer instructions were issued to the transfer agent. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following Exhibits are filed as part of this Registration Statement pursuant to Item 601 of Regulation S-K: Exhibit Sequential No. Description Location 1.1 Form of Underwriting Agreement Included with Amendment No. 2 1.2 Form of Selected Dealers Agree- Included with Amendment No. 2 ment 1.3 Form of Agreement Among Under- Included with Amendment No. 2 writers II-4 3.1 Articles of Incorporation, Incorporated by reference as amended to Exhibit 2.1 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 3.2 Bylaws Incorporated by reference to Exhibit 2.2 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 4.1 Form of Warrant Agreement with Filed herewith electroncially American Securities Transfer & Trust, Inc. 4.2 Form of Representative's Warrant Included with Amendment No. 2 5 Opinion of Krys Boyle Freedman Included with Amendment No. 2 Scott & Sawyer, P.C. 10.1 Stock Option Plan Incorporated by reference to Exhibit 6.1 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.2 Stock Purchase Agreement Incorporated by reference among Registrant, Graves to Exhibit 6.2 to Regis- Oil & Butane Co., Inc. and trant's Form 1-A Offering Theron J. Graves dated Statement (SEC File No. June 23, 1993, Amendment 24D-3802 SML) dated August 23, 1993, and Closing Memorandum dated September 28, 1993 10.3 $2,350,000 Promissory Note Incorporated by reference Payable to Theron J. Graves to Exhibit 6.3 to Regis- and Security Agreement trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.4 Notes Receivable ($550,000 Incorporated by reference and $100,000) from Theron J. to Exhibit 6.4 to Regis- Graves trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.5 Registration Agreement re- Incorporated by reference garding Subsidiary's Pre- to Exhibit 6.5 to Regis- ferred Stock trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) II-5 10.6 Security Agreement regarding Incorporated by reference Subsidiary's Preferred Stock to Exhibit 6.6 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.7 Consulting Agreement with Incorporated by reference Theron J. Graves to Exhibit 6.7 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.8 Lease regarding corporate Incorporated by reference Offices and storage yard to Exhibit 6.11 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.9 Lease regarding Albuquerque Incorporated by reference warehouse to Exhibit 6.12 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.10 Lease regarding East Main Incorporated by reference Properties to Exhibit 6.13 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.11 Norwest Credit and Security Incorporated by reference Agreement to Exhibit 6.14 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.12 $4,000,000 Note Payable to Incorporated by reference Norwest (partially drawn upon) to Exhibit 6.15 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.13 Meteor Corporate Guarantee Incorporated by reference as regarding Norwest to Exhibit 6.16 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.14 Employment Agreement with Incorporated by reference Edward J. Names to Exhibit 6.17 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) II-6 10.15 Leases regarding Cortez Incorporated by reference truck stop to Exhibit 6.18 to Regis- trant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.16 Agreement between the Incorporated by reference Registrant and Hillger Oil to Exhibit 10.16 to Regis- Co., Inc. trant's Registration State- ment on Form 10 (SEC File No. 0-27968) 10.17 Lease Agreement between Incorporated by reference Hillger Oil Co., Inc. and to Exhibit 10.17 to Regis- Hillco, Inc. trant's Registration State- ment on Form 10 (SEC File No. 0-27968) 10.18 Credit and Security Agree- Incorporated by reference ment between Hillger Oil to Exhibit 10.18 to Regis- Co., Inc. and Norwest trant's Registration State- Business Credit, Inc. ment on Form 10 (SEC File No. 0-27968) 10.19 Project Development and Incorporated by reference Shareholders' Agreement to Exhibit 10.19 to Regis- for Pakistan Power Project trant's Registration State- ment on Form 10 (SEC File No. 0-27968) 10.20 Amended and Restated Share Incorporated by reference Exchange and Reorganization to Exhibit 10.20 to Regis- Agreement trant's Registration State- ment on Form 10 (SEC File No. 0-27968) 10.21 Amendment to Employment Incorporated by reference Agreement with Edward J. to Exhibit 10.21 to Regis- Names trant's Registration State- ment on Form 10 (SEC File No. 0-27968) 10.22 Amended and Restated Incorporated by reference Promissory Note from Saba to Exhibit 10.22 to Regis- Petroleum Company to Capco trant's Registration State- Resources, Inc. ment on Form 10 (SEC File No. 0-27968) 10.23 Amendment to Project Incorporated by reference Development and Shareholders' to Exhibit 10.23 to Regis- Agreement for Pakistan Power trant's Registration State- Project ment on Form 10 (SEC file No. 0-27968) 10.24 Agreement between Capco Incorporated by reference Resources, Inc. and Saba to Exhibit 10.24 to Regis- Petroleum Company dated trant's Registration State- April 24, 1996 ment on Form 10 (SEC File No. 0-27968) II-7 10.25 Amended and Restated Agree- Included in initial filing ment between Capco Resources, Inc. and Saba Petroleum Company dated August 1, 1996 10.26 Employment Agreement between Included with Amendment No. 1 Pyramid Stores, Inc. and Paul W. Greaves 10.27 1997 Incentive Plan Incorporated by reference to Exhibit 10.23 to Registrant's Form 10-K for the year ended December 31, 1996 (SEC File No. 0-27968) 10.28 Second Amended and Restated Incorporated by reference to Agreement between Meteor Exhibit 10.24 to Registrant's Industries, Inc., Capco Form 10-K for the year ended Resources, Inc. and Saba December 31, 1996(SEC File No. Petroleum Company 0-27968) 10.29 Shareholder's Agreement among Incorporated by reference to Cogen Technologies Saba Capital Exhibit 10.25 to Registrant's Company, LLC, Capco Resources, Form 10-K for the year ended Inc., et al December 31, 1996(SEC File No. 0-27968) 10.30 Letter Agreement with Western Incorporated by reference to Energy Resources Limited Exhibit 10.26 to Registrant's Form 10-K for the year ended December 31, 1996(SEC File No. 0-27968) 10.31 Letter Agreement between Meteor Incorporated by reference to Industries, Inc. and Capco Exhibit 10.27 to Registrant's Resources, Ltd. dated April Form 10-K for the year ended 23, 1996 December 31, 1996(SEC File No. 0-27968) 11 Computation of per Share Incorporated by reference to earnings of Common Stock Exhibit 11 to Registrant's Form 10-K for the year ended December 31, 1996(SEC File No. 0-27968) 21 Subsidiaries of the Incorporated by reference to Registrant Exhibit 21 to Registrant's Form 10-K for the year ended December 31, 1996(SEC File No. 0-27968) 23.1 Consent of Krys Boyle Included in Exhibit 5 Freedman Scott & Sawyer, PC 23.2 Consent of Coopers & Lybrand Filed herewith electronically L.L.P. II-8 23.3 Consent of Squire & Woodward Filed herewith electronically P.C. 23.4 Consent of Price Waterhouse Filed herewith electronically All financial statement schedules have been omitted, as the required information is inapplicable or the information is presented in the financial statements or the notes thereto. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Director, Officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Director, Officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: (1) For purpose of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the Registration Statement. II-9 (4) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-10 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Denver, State of Colorado, on the 23rd day of May, 1997. METEOR INDUSTRIES, INC. By /s/ Ilyas Chaudhary Ilyas Chaudhary, Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Ilyas Chaudhary Chairman, Chief May 23,1997 Ilyas Chaudhary Executive Officer and Director /s/ Edward J. Names President and May 23, 1997 Edward J. Names Director /s/ Dennis R. Staal Secretary, Treasurer May 23, 1997 Dennis R. Staal (Principal Financial and Accounting Officer) and Director II-11 EX-4.1 2 EXHIBIT 4.1 WARRANT AGREEMENT METEOR INDUSTRIES, INC. AND AMERICAN SECURITIES TRANSFER & TRUST, INC. WARRANT AGENT ------------, 1996 THIS AGREEMENT (the "Agreement") is dated as of ------------, 1996, between Meteor Industries, Inc., a Colorado corporation (the "Company"), and American Securities Transfer & Trust, Inc., Lakewood, Colorado (the "Warrant Agent"). WHEREAS, the Company proposes to offer to the public up to 690,000 shares of common stock, $.001 par value (the "Common Stock") of the Company and 690,000 Redeemable Common Stock Purchase Warrants (the "Warrants"), with each such Warrant entitling the holder to purchase one share of Common Stock; WHEREAS, the Company desires to provide for issuance of warrant certificates (the "Warrant Certificates") representing the Warrants; and WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing so to act, in connection with the issuance, registration, transfer and exchange of Warrant Certificates and exercise of the Warrants, NOW, THEREFORE, in consideration of the promises and the mutual agreements hereinafter set forth, it is agreed that: 1. WARRANTS/WARRANT CERTIFICATES. Each Warrant shall entitle the holder (the "Registered Holder" or, in the aggregate, the "Registered Holders") in whose name the Warrant Certificate shall be registered on the books maintained by the Warrant Agent to purchase one share of Common Stock of the Company on exercise thereof, subject to modification and adjustment as provided in Section 8. A copy of the form of Warrant Certificate is attached hereto as Exhibit A. Warrant Certificates representing the right to purchase Warrant Shares shall be executed by the Company's President and attested to by the Company's Secretary or Assistant Secretary and delivered to the Warrant Agent upon execution of this Agreement. Subject to the provisions of Sections 3, 5, 6 and 7, the Warrant Agent shall deliver Warrant Certificates in required whole number denominations to Registered Holders in connection with any transfer or exchange permitted under this Agreement. Except as provided in Section 6 hereof, no Warrant Certificates shall be issued except (i) Warrant Certificates initially issued hereunder, (ii) Warrant Certificates issued on or after the initial issuance date, upon the exercise of any Warrants, to evidence the unexercised Warrants held by the exercising Registered holder, and (iii) Warrant Certificates issued after the initial issuance date, upon any transfer or exchange of Warrant Certificates or replacements of lost or mutilated Warrant Certificates. 2. FORM AND EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates shall be substantially in the form attached as Exhibit A. The Warrant Certificates shall be dated as of the date of their issuance, whether on initial issuance, transfer or exchange or in lieu of mutilated, lost, stolen or destroyed Warrant Certificates. Each such Warrant Certificate shall be numbered serially in accordance with the Common Stock initially attached thereto with the letter "W" appearing on each Warrant Certificate. The Warrant Certificates may be detached immediately, and, in such event, the Warrant Certificates may be issued by number preceded by the letter "W" without regard to the number of the certificate representing the Common Stock initially attached thereto. The Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In the event any officer of the Company who executed the Warrant Certificates shall cease to be an officer of the Company before the date of issuance of the Warrant Certificates or before countersignature and delivery by the Warrant Agent, such Warrant Certificates may be countersigned, issued and delivered by the Warrant Agent with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be an officer of the Company. 3. EXERCISE. Subject to the provisions of Sections 4, 7 and 8, each Warrant may be exercised to purchase one share of Common Stock at a price (the "Exercise Price") of $---- at any time during the period (the "Exercise Period") commencing on the date (the "Initial Exercise Date") of the Company's Prospectus (therefore, commencing on ----------, 1996) and terminating on a date (the "Expiration Date") two (2) years after the date of the Company's Prospectus (therefore, terminating on ------------, 1998), unless extended by a majority vote of the Company's Board of Directors at its discretion. The Company shall promptly notify the Warrant Agent of any extension of the Exercise Period of the Warrants. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date (the "Exercise Date") of the surrender for exercise of the Warrant Certificate. The exercise form shall be executed by the Registered Holder thereof or his attorney duly authorized in writing and will be delivered together with payment to the Warrant Agent at American Securities Transfer & Trust, Inc., 938 Quail Street, No. 101, Lakewood, Colorado 80216 (the "Corporate Office"), in cash or by official bank or certified check, of an amount equal to the aggregate applicable Exercise Price, in lawful money of the United States of America. Unless Warrant Shares may not be issued as provided herein, the person entitled to receive the number of Warrant Shares deliverable on such exercise shall be treated for all purposes as the holder of such Warrant Shares as of the close of business on the Exercise Date. In addition, the Warrant Agent shall also, at such time, verify that all of the conditions precedent to the issuance of Warrant Shares set forth in Section 4 have been satisfied as of the Exercise Date. If any one of the conditions precedent set forth in Section 4 are not satisfied as of the Exercise Date, the Warrant Agent shall request written instructions from the Company as to whether to return the Warrant and Exercise Price to the exercising Registered Holder or to hold the same until all such conditions have been satisfied. The Company shall not be obligated to issue any fractional share interests in Warrant Shares issuable or deliverable on the exercise of any Warrant or scrip or cash therefore and such fractional shares shall be of no value whatsoever. If more than one Warrant shall be exercised at one time by the same Registered Holder, the number of full Shares which shall be issuable on exercise thereof shall be computed on the basis of the aggregate number of full shares issuable on such exercise. Within thirty days after the Exercise Date, and in any event prior to the applicable Expiration Date, pursuant to a Stock Transfer Agreement between the Company and Warrant Agent, the Warrant Agent shall cause to be issued and delivered to the person or persons entitled to receive the same, a certificate -2- or certificates for the number of Warrant Shares deliverable on such exercise. No adjustment shall be made in respect of cash dividends on Warrant Shares delivered on exercise of any Warrant. The Warrant Agent shall promptly notify the Company in writing of any exercise and of the number of Warrant Shares delivered and shall cause payment of an amount in cash equal to the Exercise Price to be promptly made to the order of the Company. Upon the exercise of any Warrant, the Warrant Agent shall promptly deposit the payment into an escrow account established by mutual agreement of the Company and the Warrant Agent at a federally insured commercial bank. All funds deposited in the escrow account will be disbursed on a weekly basis to the Company once they have been determined by the Warrant Agent to be collected funds. Once the funds are determined to be collected, the Warrant Agent shall cause the share certificate(s) representing the exercised Warrants to be issued. Expenses incurred by American Securities Transfer & Trust, Inc. while acting in the capacity as Warrant Agent will be paid by the Company. These expenses, including delivery of exercised share certificates to the shareholder, will be deducted from the exercise fee submitted prior to distribution of funds to the Company. A detailed accounting statement relating to the number of shares exercised and the net amount of exercised funds remitted will be given to the Company with the payment of each exercise amount. This will serve as an interim accounting for the Company's use during the Exercise Period. A complete accounting will be made by the Warrant Agent to the Company concerning all persons exercising Warrants, the number of shares issued and the amounts paid at the completion of the Exercise Period. The Company may deem and treat the Registered Holder of the Warrants at any time as the absolute owner thereof for all purposes, and the Company shall not be affected by any notice to the contrary. The Warrants shall not entitle the holder thereof to any of the rights of shareholders or to any dividend declared on the Common Stock unless the holder shall have exercised the Warrants and purchased the shares of Common Stock prior to the record date fixed by the Board of Directors of the Company for the determination of holders of Common Stock entitled to such dividend or other right. 4. RESERVATION OF SHARES AND PAYMENT OF TAXES. The Company covenants that it will at all times reserve and have available from its authorized Common Stock such number of shares as shall then be issuable on the exercise of all outstanding Warrants. The Company covenants that all Warrant Shares which shall be so issuable shall be duly and validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. The Company and the Warrant Agent acknowledge that the Company will be required, pursuant to the Securities Act of 1933, as amended (the "Act"), to deliver to each Registered Holder, upon the exercise of Warrants and delivery of Warrant Shares, a prospectus covering the issuance of the Warrant Shares which meets the requirements of the Act, which prospectus must be a part of an effective registration statement under the Act at the time that the Warrant is exercised. No Warrants may be exercised nor may Warrant shares be issued by the Company's transfer agent or delivered by the Warrant Agent unless, on the pertinent Exercise Date: (i) the Company has an effective registration statement covering the issuance of the Warrant Shares under the Act; (ii) the Warrant Agent has copies of the prospectus which is a part of such effective registration statement and which the Warrant Agent -3- hereby agrees to deliver with the Warrant Shares; and (iii) the Warrant Shares may legally be issued and delivered to the exercising Registered Holder under the securities laws of the state in which such Registered Holder resides. The Company agrees to use its best efforts to maintain, to the extent required by the Act, an effective registration statement under the Act covering the issuance of the Warrant Shares during the period the Warrants are exercisable. The Company further agrees, from time to time, to furnish the Warrant Agent with copies of the Company's prospectus to be delivered to exercising Registered Holders, as set forth above. If any shares of Common Stock to be reserved for the purpose of exercise of Warrants hereunder require any other registration with or approval of any government authority under any federal or state law before such shares may be validly issued or delivered, then the Company covenants that it will in good faith and as expeditiously as possible endeavor to secure such registra- tion or approval, as the case may be. No Warrant Shares shall be issued unless and until any such registration requirements have been satisfied. The Registered Holder shall pay all documentary, stamp or similar taxes and other government charges that may be imposed with respect of the issuance of the Warrants, or the issuance, transfer or delivery of any Warrant Shares on exercise of the Warrants. In the event the Warrant Shares are to be delivered in a name other than the name of the Registered Holder of the Warrant Certificate, no such delivery shall be made unless the person requesting the same has paid to the Warrant Agent the amount of any such taxes or charges incident thereto. In the event the Warrant Agent ceases to also serve as the stock transfer agent for the Company, the Warrant Agent is irrevocably authorized to requisition the Company's new transfer agent from time to time for Certificates of Warrant Shares required upon exercise of the Warrants, and the Company will authorize such transfer agent to comply with all such requisi- tions. The Company will file with the Warrant Agent a statement setting forth the name and address of its new transfer agent, for shares of Common Stock or other capital stock issuable upon exercise of the Warrants and of each successor transfer agent. 5. REGISTRATION OF TRANSFER. The Warrant Certificates may be transferred in whole or in part. Warrant Certificates to be exchanged shall be surrendered to the Warrant Agent at its Corporate Office. The Company shall execute and the Warrant Agent shall countersign, issue and deliver in exchange therefor the Warrant Certificate or Certificates which the holder making the transfer shall be entitled to receive. The Warrant Agent shall keep transfer books at its Corporate Office which shall register Warrant Certificates and the transfer thereof. On due presentment for registration of transfer of any Warrant Certificate at such office, the Company shall execute and the Warrant Agent shall issue and deliver to the transferee or transferees a new Warrant Certificate or Certificates representing an equal aggregate number of Warrants. All Warrant Certificates presented for registration of transfer or exercise shall be duly endorsed or be accompanied by a written instrument or instruments or transfer in form satisfactory to the Company and the Warrant Agent. At the time of exercise, the transfer fee shall be paid by the Holder. The Company may require payment of a sum sufficient to cover any tax or other government charge that may be imposed in connection therewith. -4- All Warrant Certificates so surrendered, or surrendered for exercise, or for exchange in case of mutilated Warrant Certificates, shall be promptly cancelled by the Warrant Agent and thereafter retained by the Warrant Agent until termination of the agency created by this Agreement. Prior to due presentment for registration of transfer thereof, the Company and the Warrant Agent may treat the Registered Holder of any Warrant Certificate as the absolute owner thereof (notwithstanding any notations of ownership or writing thereon made by anyone other than the Company or the Warrant Agent), and the parties hereto shall not be affected by any notice to the contrary. 6. LOSS OR MUTILATION. On receipt by the Company and the Warrant Agent of evidence satisfactory as to the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate, the Company shall execute, and the Warrant Agent shall countersign and deliver in lieu thereof, a new Warrant Certificate representing an equal aggregate number of Warrants. In the case of loss, theft or destruction of any Warrant Certificate, the individual requesting issuance of a new Warrant Certificate shall be required to indemnify the Company and Warrant Agent in an amount satisfactory to each of them. In the event a Warrant Certificate is mutilated, such Certificate shall be surrendered and cancelled by the Warrant Agent prior to delivery of a new Warrant Certificate. Applicants for a new Warrant Certificate shall also comply with such other regulations and pay such other reasonable charges as the Company may prescribe. 7. CALL OPTION. Following issuance of the Warrants, in the event that the trading price of the Company's Common Stock exceeds $--- for 10 consecutive trading days ending not more than ten days prior to the mailing of the notice of redemption, the Company shall have the right and option, upon 30 days' written notice to each Registered Holder, to call, redeem and acquire all of the Warrants remaining outstanding and unexercised at the date fixed for such redemption in such notice (the "Redemption Date"), which Redemption Date shall be 30 days after the date of such notice, for an amount equal to $.10 per Warrant; provided, however, that the Registered Holders shall in any event have the right during the 30-day period immediately following the date of such notice to exercise the Warrants being called for redemption in accordance with the provisions of Section 3 hereof. For the purposes of determining the daily trading price of the Company's Common Stock, if the Common Stock is listed on a national securities exchange, is admitted to unlisted trading privileges on a national securities exchange, or is on NASDAQ, then the last reported sale price of the Common Stock on such exchange or NASDAQ each day shall be used. If the Common Stock is not so listed on such exchange or system or admitted to unlisted trading privileges then the average of the last reported bid prices reported by the OTC Bulletin Board each day shall be used to determine such daily trading price. In the event that any Warrants called for redemption are exercised during the 30-day period following the notice of redemption, this call option shall be deemed not to have been exercised by the Company as to the Warrants so exercised by the holders thereof. Said notice of redemption shall require each Registered Holder to surrender to the Company, on the Redemption Date, at the Corporate Office of the Warrant Agent (or its successor), his certificate or certifi- cates representing the Warrants to be redeemed. Notwithstanding the fact that any Warrants called for redemption have not been surrendered for redemption and cancellation on the Redemption Date, after the Redemption Date, such Warrants shall be deemed to be expired and all rights of the holders of such unsurrendered Warrants shall cease and terminate, other than the right to receive the redemption price of $.10 per Warrant for such Warrants, without interest, provided, however, that such right to receive the redemption price of $.10 per Warrant for such Warrants shall itself expire two years from the -5- Redemption Date. The Company shall notify the Warrant Agent verbally, with confirmation in writing, of the call of the Warrants and of the Redemption Date and the Company shall instruct the Warrant Agent accordingly as to the procedures to be followed by the Warrant Agent in connection with the redemption of such Warrants. 8. ADJUSTMENT OF EXERCISE PRICE AND SHARES. After each adjustment of the Exercise Price(s) pursuant to this Section 8, the number of shares of Common Stock purchasable upon the exercise of each Warrant shall be the number receivable upon exercise thereof prior to such adjustment multiplied by a fraction, the numerator of which shall be the original Exercise Price as defined in Section 3 above and the denominator of which shall be such adjusted Exercise Price. The Exercise Price of the Warrants shall be subject to adjustment as set forth below: (a)(i) If the Company subdivides its outstanding shares of Common Stock into a greater number of shares of Common Stock, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced. Conversely, if the Company combines its outstanding shares of Common Stock into a lesser number of shares of Common Stock, the Exercise Price in effect immediately prior to such combination shall be proportionately increased. In case of a subdivision or combination, the adjustment of the Exercise Price shall be made as of the effective date of the applicable event. A distribution on shares of Common Stock, including a distribution of Convertible Securities, to shareholders of the Company on a pro rata basis shall be considered a subdivision of shares of Common Stock for the purposes of this subsection (a)(i) of this Section 8, except that the adjustment will be made as of the record date for such distribution and any such distribution of Convertible Securities shall be deemed to be a distribution of the shares of Common Stock underlying such Convertible Securities. (ii) If the Company shall at any time distribute or cause to be distributed to its shareholders, on a pro rata basis, cash or assets of the Company, or cash, assets, or securities of any entity other than the Company including a subsidiary of the Company, then the Exercise Price in effect immediately prior to such distribution shall automatically be reduced by an amount determined by dividing (x) the amount (if cash) or the value (if assets or securities) of the holders' of Warrants pro rata share of such distribution determined assuming that all holders of Warrants had exercised their Warrants on the day prior to such distribution, by (y) the number of shares of Common Stock issuable upon the exercise of this Warrant by the Holder on the day prior to such distribution. (b) Anything in this Section 8 to the contrary notwithstanding, the Company shall not be required to give effect to any adjustment in the Exercise Price unless and until the net effect of one or more adjustments, determined as above provided, shall have required a change of the Exercise Price by at least one cent, but when the cumulative net effect of more than one adjustment so determined shall be to change the actual Exercise Price by at least one cent, such change in the Exercise Price shall thereupon be given effect. (c) Upon any adjustment of the Exercise Price, the Holder of this Warrant shall thereafter (until another such adjustment) be entitled to purchase, at the new Exercise Price, the number of shares, calculated to the nearest full share, obtained by multiplying the number of shares of Common Stock initially issuable upon exercise of this Warrant by the Exercise Price specified in the first paragraph hereof and dividing the product so obtained by the new Exercise Price. -6- (d)(i) Whenever reference is made in this Section 8 to the distribution of shares of Common Stock, the term "Common Stock" shall mean the Common Stock of the Company authorized as of the date hereof and any other class of stock ranking on a parity with such Common Stock. However, subject to the provisions of subsection (e) of this Section 8, shares issuable upon exercise hereof shall include only shares of the class designated as Common Stock of the Company as of the date hereof. (ii) Whenever reference is made in this Section 8 to the distribution of Convertible Securities, the term "Convertible Securities" shall mean options or warrants or rights for the purchase of Common Stock of the Company or for the purchase of any stock or other securities convertible into or exchangeable for Common Stock of the Company. (e) In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the Company (other than a change in par value or from par value to no par value, or from no par value to par value, or as a result of an issuance of Common Stock by way of dividend or other distribution or of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares of Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the Company shall cause effective provision to be made so that the Holder shall have the right thereafter, by exercising this Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this subsection (e) shall similarly apply to successive reclassifications, capital reorganizations and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event the Company spins off a subsidiary by distributing to the shareholders of the Company as a dividend or otherwise the stock of the subsidiary, the Company shall reserve for the life of this Warrant, shares of the subsidiary to be delivered to the Holders of the Warrants upon exercise to the same extent as if they were owners of record of the Warrant Stock on the record date for payment of the shares of the subsidiary. (f) Before taking any action which could cause an adjustment reducing the Exercise Price below the then par value of the shares of Common Stock issuable upon exercise of any Warrants, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassess- able shares of such Common Stock at such adjusted Exercise Price. (g)(i) Upon any adjustment of the Exercise Price required to be made pursuant to this Section 8, the Company within 30 days thereafter shall (A) cause to be filed with the Warrant Agent a certificate of a firm of independent accountants setting forth the Exercise Price after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, which certificate shall be conclusive evidence of the correctness of such adjustment, and (B) cause to be mailed to -7- each of the Registered Holders of the Warrants written notice of such adjustment. Where appropriate, such notice may not be given in advance and included as a part of the notice required to be mailed under the provisions of subsection 8(d)(ii). (ii) In case at any time: (A) The Company shall declare any dividend upon its Common Stock payable otherwise than in cash or in Common Stock of the Company; or (B) The Company shall offer for subscription to the holders of its Common Stock any additional shares of stock of any class or any other securities convertible into shares of stock or any rights to subscribe thereto; or (C) There shall be any capital reorganization or reclassification of the capital stock of the Company, or a sale of all or substantially all of the shares of the assets of the Company, or a consolidation or merger of the Company with another corporation (other than a merger with a Subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the Warrants other than a change in par value or from par value to no par value or from no par value to par value); or (D) There shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of said cases, the Company shall cause to be mailed to each of the Registered Holders of the Warrants, at the earliest practicable time (and, in any event, not less than 20 days before any record date or other date set for definitive action), written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or such reorganization, reclassification, sale, consolidation, merger, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the kind and amount of the shares of stock and other securities and property deliverable upon exercise of the Warrants. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, sale, consolidation, merger, dissolution, liquidation or winding up, as the case may be (on which date, in the event of voluntary or involuntary dissolution, liquidation or winding up of the Company, the right to exercise the Warrants shall terminate). (iii) Without limiting the obligation of the Company to provide notice to the Registered Holders of the Warrants of corporate actions hereunder, is agreed that failure of the Company to give notice shall not invalidate such corporate action of the Company. 9. REDUCTION IN EXERCISE PRICE AT COMPANY'S OPTION. Except for any adjustments made to the Exercise Price pursuant to Section 8, the Company shall not reduce the Exercise Price of the Warrants. -8- 10. DUTIES, COMPENSATION AND TERMINATION OF WARRANT AGENT. The Warrant Agent shall act hereunder as agent and in a ministerial capacity for the Company, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrant Certificates or by any other act hereunder, be deemed to make any representations as to the validity, value or authorization of the Warrant Certificates or the Warrants represented thereby or of the Common Stock or other property delivered on exercise of any Warrant. The Warrant Agent shall not at any time be under any duty or responsibility to any holder of the Warrant Certificates to make or cause to be made any adjustment of the Exercise Price or to determine whether any fact exists which may require any such adjustments. The Warrant Agent shall not (i) be liable for any recital or statement of fact contained herein or for any action taken or omitted by it in reliance on any Warrant Certificate or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Agreement except for its own negligence or willful misconduct, or (iii) be liable for any act or omission in connection with this Agreement except for its own negligence or willful misconduct. The Company agrees to indemnify the Warrant Agent against any and all losses, expenses and liabilities which the Warrant Agent may incur in connection with the delivery of copies of the Company's prospectus to exercising Registered Holders upon the exercise of any Warrants as set forth in Section 4. The Warrant Agent may at any time consult with counsel satisfactory to it (which may be counsel for the Company) and shall incur no liability or responsibility for any action taken or omitted by it in good faith in accordance with the opinion or advice of such counsel. Any notice, statement, instruction, request, direction, order or demand of the Company shall be sufficiently evidenced by an instrument signed by its President and attested by its Secretary or Assistant Secretary. The Warrant Agent shall not be liable for any action taken or omitted by it in accordance with such notice, statement, instruction, request, order or demand. The Company agrees to pay the Warrant Agent reasonable compensation for its services hereunder and to reimburse the Warrant Agent for its reasonable expenses as per the fee schedule attached hereto as Exhibit B. The Company further agrees to indemnify the Warrant Agent against any and all losses, expenses and liabilities, including judgments, costs and counsel fees, for any action taken or omitted by the Warrant Agent in the execution of its duties and powers hereunder, excepting losses, expenses and liabilities arising as a result of the Warrant Agent's negligence or willful misconduct. The Warrant Agent may resign its duties or the Company may terminate the Warrant Agent and the Warrant Agent shall be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own negligence or willful misconduct), on 30 days' prior written notice to the other party. At least 15 days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Registered Holder of each Warrant Certificate. On such resignation or termination the Company shall appoint a new warrant agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing -9- of the resignation by the Warrant Agent, then the registered holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new warrant agent. After acceptance in writing of an appointment of a new warrant agent is received by the Company, such new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; provided, however, if it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed. The Company shall file a notice of appointment of a new warrant agent with the resigning Warrant Agent and shall forthwith cause a copy of such notice to be mailed to the Registered Holder of each Warrant Certificate. Any corporation into which the Warrant Agent or any new warrant agent may be converted or merged, or any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent shall be a successor Warrant Agent under this Agreement, provided that such corporation is eligible for appointment as a successor to the Warrant Agent under the provisions of the preceding paragraph. Any such successor Warrant Agent shall promptly cause notice of its succession as Warrant Agent to be mailed to the Company and to the Registered Holder of each Warrant Certificate. No further action shall be required for establishment and authorization of such successor warrant agent. The Warrant Agent, its officers or directors and its subsidiaries or affiliates may buy, hold or sell Warrants or other securities of the Company and otherwise deal with the Company in the same manner and to the same extent and with like effect as though it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. 11. MODIFICATION OF AGREEMENT. The Warrant Agent and the Company may by supplemental agreement make any changes or corrections in this Agreement (i) that they shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or mistake or error herein contained; or (ii) that they may deem necessary or desirable and which shall not adversely affect the interests of the holders of Warrant Certificates; provided, however, this Agreement shall not otherwise be modified, supplemented or altered in any respect except with the consent in writing of the Registered Holders of Warrant Certificates representing not less than 51% of the Warrants outstanding. Additionally, except as provided in Section 8, no change in the number or nature of the Warrant Shares purchasable on exercise of a Warrant, increase the purchase price therefor, or the acceleration of the Expiration Date of a Warrant shall be made without the consent in writing of the Registered Holder of the Warrant Certificate representing such Warrant, other than such changes as are specifically prescribed or allowed by this Agreement. 12. NOTICES. All notices, demands, elections, opinions or requests (however characterized or described) required or authorized hereunder shall be deemed given sufficiently if in writing and sent by registered or certified mail, return receipt requested and postage prepaid, or by tested telex, telegram or cable to, in the case of the Company: -10- Meteor Industries, Inc. 216 Sixteenth Street, Suite 730 Denver, Colorado 80202 with a copy to: Jon D. Sawyer Krys Boyle Freedman Scott & Sawyer, P.C. 600 Seventeenth Street, Suite 2700, South Tower Denver, Colorado 80202 and in the case of the Warrant Agent: American Securities Transfer & Trust, Inc. 938 Quail Street, No. 101 Lakewood, Colorado 80215 and if to the Registered Holder of a Purchase Warrant Certificate, at the address of such holder as set forth on the books maintained by the Warrant Agent. 13. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the Company, the Warrant Agent and their respective successors and assigns, and the holders from time to time of Purchase Warrant Certificates. Nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim or to impose on any other person any duty, liability or obligation. 14. FURTHER INSTRUMENTS. The parties shall execute and deliver any and all such other instruments and shall take any and all other actions as may be reasonably necessary to carry out the intention of this Agreement. 15. SEVERABILITY. If any provision of this Agreement shall be held, declared or pronounced void, voidable, invalid, unenforceable, or inoperative for any reason by any court of competent jurisdiction, government authority or otherwise, such holding, declaration or pronouncement shall not affect adversely any other provision of this Agreement, which shall otherwise remain in full force and effect and be enforced in accordance with its terms, and the effect of such holding, declaration or pronouncement shall be limited to the territory or jurisdiction in which made. 16. WAIVER. All the rights and remedies of either party under this Agreement are cumulative and not exclusive of any other rights and remedies as provided by law. No delay or failure on the part of either party in the exercise of any right or remedy arising from a breach of this Agreement shall operate as a waiver of any subsequent right or remedy arising from a subsequent breach of this Agreement. The consent of any party where required hereunder to act or occurrence shall not be deemed to be a consent to any other action or occurrence. 17. GENERAL PROVISIONS. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of Colorado. Except as otherwise expressly stated herein, time is of the essence in performing hereunder. This Agreement embodies the entire agreement and understanding between the parties and supersedes all prior agreements and understandings relating to the subject matter hereof, and this Agreement may not be modified or amended or any term or provisions hereof waived or dis- charged except in writing signed by the party against whom such amendment, modification, waiver or discharge is sought to be enforced. The headings of -11- this Agreement are for convenience in reference only and shall not limit or otherwise affect the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. METEOR INDUSTRIES, INC. ATTEST: By - ---------------------------- ------------------------------------------ Dennis R. Staal, Secretary Edward J. Names, President THE WARRANT AGENT: AMERICAN SECURITIES TRANSFER & TRUST, INC. By ------------------------------------------ Authorized Officer Title: -------------------------------------- -12- EXHIBIT A METEOR INDUSTRIES, INC. Incorporated Under the Laws of the State of Colorado No. W- ----- Common Stock Purchase Warrants CUSIP ----------- CERTIFICATE FOR REDEEMABLE (See Reverse COMMON STOCK PURCHASE WARRANTS For Certain Definitions) This Warrant Certificate certifies that -------------------, or regis- tered assigns ("the Warrant Holder"), is the registered owner of the above indicated number of Redeemable Common Stock Purchase Warrants (the "Warrants") expiring on -------------, 1998 (the "Expiration Date"). Each Warrant entitles the Warrant Holder to purchase one (1) share of common stock, $.001 par value ("Share") from Meteor Industries, Inc., a Colorado corporation (the "Company"), at a purchase price of $---- (the "Exercise Price"), commencing on - ----------, 1996, and terminating on the Expiration Date ("Exercise Period"), upon surrender of this Warrant Certificate with the exercise form hereon duly completed and executed with payment of the Exercise Price at the office of American Securities Transfer & Trust, Inc. (the "Warrant Agent"), but only subject to the conditions set forth herein and in a Warrant Agreement dated as of -----------, 1996 (the "Warrant Agreement"), between the Company and the Warrant Agent. The Exercise Price, the number of shares purchasable upon exercise of each Warrant, the number of Warrants outstanding and the Expiration Date are subject to adjustments upon the occurrence of certain events. The Warrantholder may exercise all or any number of Warrants. Reference hereby is made to the provisions on the reverse side of this Warrant Certificate and to the provisions of the Warrant Agreement, all of which are incorporated by reference in and made a part of this Warrant Certificate and shall for all purposes have the same effect as though fully set forth at this place. Upon due presentment for transfer of this Warrant Certificate at the office of the Warrant Agent, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants, sub- ject to any adjustments made in accordance with the provisions of the Warrant Agreement, shall be issued to the transferee in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, upon payment of $------ per Warrant Certificate and any tax or governmental charge imposed in connection with such transfer. The Warrantholder of the Warrants evidenced by this Warrant Certificate may exercise all or any whole number of such Warrants during the period and in the manner stated hereon. The Exercise Price shall be payable in lawful money of the United States of America and in cash or by certified or bank cashier's check or bank draft payable to the order of the Company. If upon exercise of any Warrants evidenced by this Warrant Certificate the number of Warrants exercised shall be less than the total number of Warrants so evidenced, there shall be issued to the Warrantholder a new Warrant Certificate evidencing the number of Warrants not so exercised. -13- Subject to the following paragraph, no Warrant may be exercised after 5:00 p.m. Mountain Time on the Expiration Date and any Warrant not exercised by such time shall become void, unless extended by the Company. In the event that the trading price of the Company's Common Stock exceeds $---- for 10 consecutive trading days ending not more than ten days prior to the mailing of the notice of redemption, the Company shall have the right to call all or a portion of the Warrants for redemption upon 30 days' written notice, at a price of $.10 per Warrant. During the 30-day period immediately following the giving of such notice, the Warrantholders shall have the right to exercise the Warrants so held by them. Upon expiration of such 30-day period, all rights of the Warrantholders shall terminate, other than the rights to receive the redemption price of $.10 per Warrant therefor, without interest, and the right to receive the redemption price of $.10 per Warrant shall itself expire on the Warrant Expiration Date. This Warrant Certificate shall not be valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its President and by its Secretary, each by a facsimile of his/her signature, and has caused a facsimile of its corporate seal to be imprinted hereon. Dated:-------------- METEOR INDUSTRIES, INC. By - ---------------------------- ------------------------------------------ AMERICAN SECURITIES TRANSFER & TRUST, INC., Warrant Agent By ------------------------------------------ Authorized Officer -14- TRANSFER FEE $---- PER CERTIFICATE METEOR INDUSTRIES, INC. The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - TEN ENT - as tenants by the entireties Custodian JT TEN - as joint tenants with right (Cust) (Minor) of survivorship and not as Under Uniform Gifts tenants in common to Minors Act ------- (State) Additional abbreviations may also be used though not in the above list. FORM OF ASSIGNMENT (To Be Executed by the Registered Holder if He Desires to Assign Warrants Evidenced by the Within Warrant Certificate) FOR VALUE RECEIVED ----------------------- hereby sells, assigns and transfers unto -------------------------- Redeemable Warrants, evidenced by the within Warrant Certificate, and does hereby irrevocably constitute and appoint ---------------------- Attorney to transfer the said Warrants evidenced by the within Warrant Certificate on the books of the Company, with full power of substitution. Dated: ----------------- -------------------------------------- Signature NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever. Signature Guaranteed: - ----------------------------- -15- FORM OF ELECTION TO PURCHASE (To be Executed by the Holder if he Desires to Exercise Warrants Evidenced by the Within Warrant Certificate) To Meteor Industries, Inc.: The undersigned hereby irrevocably elects to exercise ---------- Redeemable Warrants, evidenced by the within Warrant Certificate for, and to purchase thereunder, ---------- full shares of Common Stock issuable upon exercise of said Warrants and delivery of $-------- and any applicable taxes. The undersigned requests that certificates for such shares be issued in the name of: PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER - ------------------------------------ ------------------------------------ (Please print name and address) - ------------------------------------ - ------------------------------------ If said number of Redeemable Warrants shall not be all the Redeemable Warrants evidenced by the within Warrant Certificate, the undersigned requests that a new Warrant Certificate evidencing the Redeemable Warrants not so exercised be issued in the name of and delivered to: ------------------------------------ (Please print name and address) ------------------------------------ ------------------------------------ Dated:------------------- Signature:------------------------------ NOTICE: The above signature must correspond with the name as written upon the face of the within Warrant Certificate in every particular, without alteration or enlargement or any change whatsoever, or if signed by any other person the Form of Assignment hereon must be duly executed and if the certificate representing the shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which the within Warrant Certificate is registered, the signature of the holder hereof must be guaranteed. Signature Guaranteed: - ------------------------------- SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS, AND CREDIT UNITS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO SEC RULE 17Ad-15. -16- EX-5 3 KRYS BOYLE FREEDMAN SCOTT & SAWYER, P.C. 600 17th Street, Suite 2700 South Tower Denver, Colorado 80202 (303) 893-2300 FAX (303) 893-2882 April 30, 1997 Meteor Industries, Inc. 216 Sixteenth Street, Suite 730 Denver, Colorado 80202 RE: SEC Registration Statement on Form S-1 Ladies and Gentlemen: We are counsel for Meteor Industries, Inc., a Colorado corporation (the "Company") in connection with its proposed public offering under the Securities Act of 1933, as amended, of 600,000 shares of Common Stock (690,000 shares if the over-allotment option is exercised in full) and 600,000 Redeemable Warrants (690,000 Redeemable Warrants if the over-allotment option is exercised in full) through a Registration Statement on Form S-1 as to which this opinion is a part, to be filed with the Securities and Exchange Commission (the "Commission"). In connection with rendering our opinion as set forth below, we have reviewed and examined originals or copies identified to our satisfaction of the following: (1) Articles of Incorporation of the Company as filed with the Secretary of State of the State of Colorado, as amended. (2) Minute book containing the written deliberations and resolutions of the Board of Directors and Shareholders of the Company. (3) The Registration Statement and the Preliminary Prospectus contained within the Registration Statement. (4) The other exhibits to the Registration Statement to be filed with the Commission. We have examined such other documents and records, instruments and certificates of public officials, officers and representatives of the Company, and have made such other investigations as we have deemed necessary or appropriate under the circumstances. Based upon the foregoing and in reliance thereon, it is our opinion that: (I) 690,000 shares of Common Stock, $.001 par value, (ii) the 690,000 Redeemable Warrants; (iii) the 690,000 shares of Common Stock, $.001 par value, issuable upon exercise of the Redeemable Warrants; (iv) the Underwriter's Warrants to purchase 60,000 shares of Common Stock and 60,000 Redeemable Warrants; (v) the Underwriter's Redeemable Warrants to purchase up to 60,000 shares of Common Stock; and (vi) the 120,000 shares of Common Stock, $.001 par value, issuable upon the exercise of the Underwriter's Warrants and the Underwriter's Redeemable Warrants, will upon the purchase, receipt of full payment, issuance and delivery in accordance with the terms of the offering described in such Registration Statement, be duly and validly authorized, legally issued, fully paid and non-assessable. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus constituting a part thereof. Very truly yours, KRYS BOYLE FREEDMAN SCOTT & SAWYER, P.C. By /s/ Jon D. Sawyer Jon D. Sawyer EX-23.2 4 EXHIBIT 23.2 COOPERS & LYBRAND Coopers & Lybrand L.L.P. 370 17th Street, Suite 3300 Denver, Colorado 80202-5633 telephone 303/573-2800 facsimile 303/573-2902 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion of this registration statement on Form S-1 (File No. 333-12557) of our report dated April 24, 1997, on our audits of the consolidated financial statements of Meteor Industries, Inc. as of December 31, 1996 and 1995 and for the years then ended. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Denver, Colorado May 23, 1997 EX-23.3 5 EXHIBIT 23.3 SQUIRE & WOODWARD, P.C. Bruce W. Squire, C.P.A. Marc A. Woodward, C.P.A. 2730 San Pedro NE., Suite D Albuquerque, New Mexico 98110 Tel: (505) 881-3408 fax: (505) 881-6507 - ------------------------------ American Institute of Certified Public Accountants CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. 333-12557) of our report dated November 22, 1995, on our audits of the consolidated financial statements of Meteor Industries, Inc. as August 31, 1995 and 1994 and for the years then ended. We also consent to the reference to our firm under the caption "Experts." /s/ Squire & Woodward, P.C. SQUIRE & WOODWARD, P.C. Albuquerque, New Mexico May 23, 1997 EX-23.4 6 EXHIBIT 23.4 PRICE WATERHOUSE Chartered Accountants 1200 425 - 1st Street, S.W. Calgary, Alberta T2P 3V7 403/267-100 telecopier: 403/233-0883 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Amendment No. 2 to the Registration Statement on Form S-1 of our report dated May 17, 1995, except for Notes 3,5,10(b),10(c) and 10(d) which are as of September 15, 1995 for Notes 3(a) and 10(c), December 1, 1995, for Notes 3(b) and 10(b) and December 29, 1995 for Notes 5 and 10(d) relating to the financial statements of CAPCO Resources Inc., which appears in such Prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ Price Waterhouse Chartered Accountants May 23, 1997 -----END PRIVACY-ENHANCED MESSAGE-----