-----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, CfK1Dh8upAWXZ4IK1QAZKcd8xJ6mYnXyM3CK+EGWznMbiYSrrBkS7LltPrypnA/7 M5hHKMwNp+8HuQIIF0DWDA== 0000948830-98-000077.txt : 19980409 0000948830-98-000077.hdr.sgml : 19980409 ACCESSION NUMBER: 0000948830-98-000077 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980408 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: 10-K SEC ACT: SEC FILE NUMBER: 001-12401 FILM NUMBER: 98589970 BUSINESS ADDRESS: STREET 1: 216 16TH ST STE 730 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3035721137 MAIL ADDRESS: STREET 1: 216 16TH ST STREET 2: STE 730 CITY: DENVER STATE: CO ZIP: 80202 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED For the Year ended December 31, 1997 Commission File Number: 0-27968 METEOR INDUSTRIES, INC. -------------------------------------------------- (Exact Name of Issuer as Specified in its Charter) COLORADO 84-1236619 - ------------------------------- --------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 216 SIXTEENTH STREET, SUITE 730, DENVER, COLORADO 80202 -------------------------------------------------------- (Address of Principal Executive Offices) Issuer's telephone number including area code: (303)572-1135 Securities registered under to Section 12(b) of the Exchange Act: None. Securities registered under to Section 12(g) of the Exchange Act: COMMON STOCK, $.001 PAR VALUE Title of Class Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] At March 30, 1998, 4,130,228 shares of Common Stock (the Registrant's only class of voting stock) were outstanding. The aggregate market value of the Common Stock on that date held by non-affiliates was approximately $6,200,000. DOCUMENTS INCORPORATED BY REFERENCE: None. ITEM 1. BUSINESS. GENERAL Meteor Industries, Inc. ("Meteor") owns and operates and acquires independent refined petroleum product distribution companies. These marketing companies sell gasoline, diesel fuel, lubricants, propane and convenience store items. Meteor has grown through the acquisition of profitable companies in this consolidating industry. Management of Meteor has determined that the petroleum marketing industry is ready for a well financed independent public company to "roll up" privately held distributors. Management believes that Meteor has become a leading consolidator of such distributors in the Rocky Mountain Region and Western United States. Since 1993, Meteor has completed seven acquisitions, five of which have been acquisitions of petroleum distributors. HISTORY Meteor was incorporated in Colorado on December 22, 1992, to purchase all the outstanding common stock of Graves Oil & Butane Co., Inc. ("Graves"). The two companies and Graves' then sole shareholder entered into a Purchase Agreement in June, 1993 and finalized the purchase in September, 1993. In January 1994, Meteor completed an initial public offering of 200,000 shares of its Common Stock pursuant to Regulation A under the Securities Act of 1933. The net proceeds of this offering to the Company was approximately $800,000. In June 1995, Meteor purchased all of the outstanding shares of Hillger Oil Company ("Hillger") headquartered in Las Cruces, New Mexico. Hillger is predominantly an operator of convenience stores but also sells fuels on a wholesale and commercial basis. In connection with the acquisition of Hillger, Meteor sold 365,000 shares of its common stock for $730,000 in cash. In June 1995, Meteor declared an 8% stock dividend to the shareholders of record as of June 30, 1995. In October 1995, Meteor formed Meteor Marketing, Inc., formerly Pyramid Stores, Inc., a Colorado corporation, as a wholly owned subsidiary to hold the stock of its petroleum distribution subsidiaries and operate those companies separately from Meteor's other activities. In November 1995, Meteor issued 1,745,000 shares of its common stock in exchange for all of the outstanding stock of Capco Resources, Inc. ("CRI"), a Delaware corporation. The shares of the Company's common stock issued in this transaction were issued to a U.S. subsidiary of Capco Resources Ltd. ("Capco"), an Alberta corporation, which is listed on the Alberta Stock Exchange. As a result of this transaction, there was a change in control of the Company. Accordingly, the transaction was considered a reverse acquisition for accounting purposes and the assets of Meteor, including the assets of Graves and Hillger have been revalued to their fair value at the date of the transaction. The major assets of CRI when acquired by Meteor included: (i) an interest in Saba Power Company Ltd., which is building a power plant in Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a California environmental services firm which was sold in 1997; and (iii) a $1,516,000 promissory note receivable from Saba Petroleum Company which was collected in 1997; and other miscellaneous assets. Graves owns 50% of a limited liability company which in June 1996, acquired a convenience store for $610,000 using financing through Phillips Performance Fund. 2 At about the same time the Company purchased all of the inventory, dealer business and lubricant customers of Duke City Distributing Company (Albuquerque, New Mexico). In February 1997, Graves acquired certain assets of Tedken Oil Co, a convenience store and a 24-hour automated fueling facility. Tedken Oil Co. was located in Farmington, New Mexico. In connection with this acquisition, Meteor raised $520,000 in cash through the sale of 130,000 shares of common stock and 130,000 warrants with an exercise price of $5.00 per share. In June 1997, Meteor completed a public offering of 690,000 shares of its common stock and 690,000 warrants. Net proceeds from this offering totaled approximately $3,139,000. Upon completion of this offering, Meteor's shares and warrants were listed on the American Stock Exchange. In August 1997, Meteor acquired all of the common stock of Fleischli Oil Company, Inc. ("Fleischli") for $4,888,000. Fleischli is a petroleum marketing and distribution company doing business in Colorado, Wyoming, South Dakota, Nevada, Utah, Montana, Nebraska and Idaho. Fleischli sells large volumes of fuel and lubricants to industrial users throughout these states, concentrating on the mining industry. Meteor's headquarters are located at 216 Sixteenth Street, Suite 730, Denver, Colorado 80202, and its telephone number is (303) 572-1135. THE PETROLEUM DISTRIBUTION INDUSTRY The Petroleum Marketers Association of American ("PMAA") estimates that in 1996 the total volume of refined petroleum products sold in the United States was approximately 27 million gallons per day. Refined petroleum products are distributed by three types of entities: pipeline companies that distribute directly to large end-users, such as utilities and airports; major oil companies that often supply their own retail outlets and are normally restricted to urban areas; and independently-owned wholesale petroleum distributors. According to PMAA there are over 10,000 independent petroleum distributors in the United States that distribute approximately 35% of all refined petroleum products sold in the United States. Due to these industry characteristics, as well as the absence of other significant industry consolidators, the owners of independent petroleum businesses, a majority of which are relatively small owner-operators, have limited alternatives to sell their operations. The Company believes these factors create an opportunity for it to consolidate this industry and accomplish additional acquisitions in its existing region and in additional market areas. PETROLEUM MARKETING OPERATIONS Meteor operates its petroleum marketing and convenience store business primarily from its Colorado, New Mexico and Wyoming offices. The Company operates this business through Meteor Marketing, Inc. and its two New Mexico subsidiaries, Hillger Oil Company and Graves Oil & Butane Co., Inc. and one Wyoming subsidiary, Fleischli Oil Company, Inc. (hereinafter collectively referred to as the "Company"). The commercial/wholesale operations are the largest part of the Company's business. This operation has fuel delivery agreements with customers that include truck stops, retail gasoline service stations, convenience stores, construction companies, commercial fleet distribution centers, the federal government, mining companies, and utilities. The commercial/wholesale operation has distributor agreements with Phillips Petroleum Company, Sun Lubricants, Conoco, Inc., Exxon Lubricants, Inc., Diamond Shamrock Corp., Sinclair Oil Company and Fina Oil Company. These distributor 3 agreements allow the Company to purchase petroleum products at wholesale prices directly from distribution centers, pipeline terminals and refineries controlled by these large oil producer/refiners. The Company is then authorized to resell those products to its customers. The Company's distribution agreements generally have three-year terms. The primary distribution agreements are with Sinclair Oil Company, Phillips 66, Sun Lubricants Company and Conoco, Inc. The Phillips distribution agreement expires in June, 1998 and the Conoco agreement expires in April, 1999. The distribution agreements do not provide for an exclusive territory and can be terminated by either party upon 30 days notice. There can be no assurance that these agreements will not have to be renegotiated or that they will be renewed. Although the Company is a large and long standing distributor of Sinclair, Conoco and Phillips products in the states where the Company operates, it is possible the Company could lose such contracts. In such an event, the Company's operations may be adversely impacted. If such contracts were lost, management would attempt to persuade the Company's customers to switch to other oil company brands with which it has a contract. The Company could also buy and sell fuel as an unbranded independent, however sales volumes and/or margins could decrease materially if the Company did not have access to branded products. Many of the Company's wholesale customers operate retail gasoline service stations under the banners of various large oil companies. The banner arrange- ments require that a retail operator purchase fuel exclusively from a distributor, such as the Company, who is authorized to sell branded products. On occasion the Company has supplied new signage and other improvements to retailers so they would switch to a Company brand. The Company's suppliers may subsidize such improvements by providing discounts to the Company or by forgiving certain obligations based on the volume of product sold to such retailer. The Company also markets its products to commercial and governmental accounts. The marketing department consists of 14 people. The marketing department is primarily responsible for the direct selling efforts of the Company and for ensuring that customer's accounts are properly serviced. The majority of the Company's revenues come from repeat telephone orders from existing customers. The Company also advertises in trade journals and attends industry trade shows in its market. The Company's wholesale transactions and most of its commercial sales are very straightforward. The distribution channel begins with the loading of the Company's trucks at pipeline terminals or refineries. When delivered in transport quantities, the trucks deliver the inventory directly to the customer with no intermediate storage of fuel. The distribution process for bulk fuel products, from pick-up to delivery to customers, is typically completed in less than two days. The Company's wholesale/commercial customers in New Mexico are in three major regional markets; Farmington, Las Cruces and Albuquerque and have been with the Company for many years. Fleischli's market area is in the states of Wyoming, Colorado, South Dakota, Nebraska, Utah, Montana, and Idaho. No customer accounts for more than 10% of the Company's sales. The loss of one or more major customers could have a significant impact on the Company's revenues. The Company's retail operations consist of ownership or leasehold interests in 20 retail outlets which include service stations, convenience stores and lube pits. Fifteen outlets are operated by the Company and five are leased or subleased to third parties. Hillger operates nine convenience stores and supplies 2 branded dealers in New Mexico. Graves operates six retail sites and supplies 2 branded dealers. Fleischli supplies 1 branded dealer. 4 The retail outlets sell gasoline, propane and other petroleum products directly to the general public. The services provided are those that would generally be expected to be provided at this type of facility. The retail outlets also sell food and tobacco products as a convenience to their customers. Other than at the convenience stores, non-petroleum products sales are not a material part of retail revenues. The Company's highest volume convenience stores are located in the Las Cruces and Albuquerque areas. The Company intends to continue to expand its convenience store base mostly by acquisition and in some cases new construction. The Company has nine automated cardlock facilities. The cardlock systems provide 24-hour-per-day access to fuel dispensing facilities for commercial fleet customers and customers with automated debit cards. The cardlock systems do not require that a Company employee be present to process the fuel purchase. The cardlock facilities are primarily used by commercial fleet operators in order to take advantage of automated transaction process technology which allows a user to insert a "user card" activating the fuel dispenser and records the transaction. The Company's strategy contemplates increasing the number of cardlock facilities that the Company owns or controls. The Company also has wholesale, retail and commercial propane operations. In November 1993, Graves reentered the residential propane markets in Farmington, New Mexico. Graves' management and employees have significant experience in the propane industry and the Company had a substantial amount of propane equipment that was underutilized. A significant percentage of the homes and commercial buildings in the rural areas around Farmington do not have access to natural gas lines and must rely on propane for heating. Management of the Company believes that the residential propane market provides a significant opportunity for growth. As of the date of this Annual Report, Graves has over 641 residential and over 15 commercial propane customers and continues to actively market this product and service. More recently, Graves became a 33% owner of a residential propane company in Albuquerque, New Mexico. Management of the Company is actively seeking other propane opportunities in its market areas. SABA POWER COMPANY LTD. Saba Power Company Ltd. ("Saba Power") is a limited liability corporation in Pakistan which was established in early 1995 to pursue development of a power plant project in Pakistan. The Company has an interest in Saba Power, which has a power plant project under construction 40 miles from Lahore, Pakistan. The Company has two unrelated joint venture partners, Cogen Technologies of Houston, Texas ("Cogen") and Coastal Saba Power Ltd. ("Coastal"). Estimated costs for the 125 megawatt plant are approximately $150,000,000. Construction activity is underway and although there can be no assurances, the project is expected to be completed in the spring of 1998. At December 31, 1997, the Company, had invested $690,200 in Meteor Holdings LLC ("MHL") MHL owns an equity interest in Saba Power Company, Ltd. (the "Power Project"). The investment in the Power Project is reported using the cost method. The Company also entered into an agreement with Saba Petroleum Company ("Saba") whereby Saba, a related party, participated in the Power Project. Saba invested $250,000 in MHL resulting in MHL's total investment of $940,200 in the Power Project. Saba owns a .5% interest in the Power Project through its ownership of 27% of MHL. The Company owns 1.5% of the Power Project through its ownership of 73% of MHL. Saba's .5% interest in the project is subject to the same terms and conditions as the Company's 1.5% interest. These percentages, however, could be 5 reduced in the event that other shareholders of Saba Power are required to make additional contributions to equity. No such additional equity contributions have been requested. MHL had the right to sell its interest in Saba Power to an affiliate of one of the other shareholders for approximately the amount of its contribution subject to Pakistan Government approval. While the Company is continuing its efforts to sell its interest in the Power Project, government approval has not been obtained and there can be no assurance that such approvals will be obtained in the future. The Company is not required to invest any additional capital related to the Power Project. If costs of the project exceed budget and capital is required, then the Company will have the choice of investing more capital or suffering ordinary dilution to its ownership interest without incurring any penalties. ENVIRONMENTAL CONSULTING In August of 1996, the Company acquired Innovative Solutions and Technologies, Inc. ("IST"), a small Colorado corporation, which provides environmental consulting services. IST was acquired for a nominal cash consideration. Through its president and sole employee, IST provides consulting services to outside clients as well as Meteor and its affiliates. INSURANCE The Company has a commercial liability policy and an umbrella policy, as well as other policies covering damage to its properties. These policies cover Company facilities, employees, equipment, inventories, and vehicles in all states of operation. While management believes the Company's insurance coverage is adequate for most foreseeable problems, and is comparable with the coverage of other companies in the same business and of similar size, its coverage does not protect the Company for most liabilities relating to damage of the environment. Such environmental related coverage is generally unavailable or available only at a prohibitive cost. COMPETITION AND MARKETS The petroleum marketing business is highly competitive. The Company competes on the basis of price, service and corporate capabilities. In all phases of its operations, the Company encounters strong competition from a number of companies, including some very large companies. Many of these larger competitors possess and employ financial and personnel resources substantially in excess of those which are available to the Company. The Company's marketing division alsocompetes with integrated oil companies which in some cases own or control a majority of their own marketing facilities. These major oil companies may offer their products to the Company's competitors on more favorable terms than those available to the Company from its suppliers. A significant number of companies, including integrated oil companies and petroleum products distribution companies, distribute petroleum products through a larger number of facilities than the Company. The wholesale and commercial distribution of petroleum products is a highly competitive industry. This competition generally comes from other privately held petroleum jobbers operating in the same geographic region as the Company. The competition is primarily focused on the government contract and commercial fleet segments of the business. The government contract business is awarded via a lowest sealed bid process and the Company competes heavily with several wholesale 6 distributors. Competition also occurs for the gasoline service station customers. In competing for this segment of the business, a customer must be convinced to change the "brand" of the station (i.e., convert a station or store from Texaco to Phillips 66). A change of brands can be expensive and disruptive to the operations of the gasoline service station and therefore does not occur frequently. Competition in the retail segment of the gasoline distribution industry is severe and highly decentralized. Competition comes from numerous gasoline service stations that have different brands and from many independent unbranded stations. The Company competes for retail customers based on brand loyalty and price. The Company attempts to develop brand loyalty as a result of the friendly service it provides to its customers. To the extent that the customer does not have brand loyalty, then the Company competes on price and service. The gasoline retail industry is highly competitive, fragmented and regionalized. It is characterized by a few large companies, some medium-sized companies, and many small independent companies. Several competitors are substantially larger and have greater resources than the Company. The Company's largest competitors include Seven-Eleven, Diamond Shamrock, and Giant Industries and other major oil companies that own and operate their own stores in the Company's market areas such as Texaco and Phillips 66. The Company also competes with other convenience stores, small supermarkets, grocery stores and major and independent gasoline distributors who have converted units to convenience stores. The Company also will encounter competition in attempting to acquire sites for new stores and existing groups of convenience stores. GOVERNMENTAL REGULATIONS ENVIRONMENTAL MATTERS Various federal and state statutes are designed to identify environmental damage, identify hazardous material and operations, regulate operations engaged in hazardous activities, and establish procedures for remedial action. The Company is inspected on a regular basis by both federal and state environmental authorities. The Environmental Protection Agency ("EPA") and the States of New Mexico, Colorado and Wyoming have instituted environmental compliance regulations designed to prevent leakage and contamination from underground storage tanks. The Company continually expends capital when complying with changing environmental regulations and expects to spend about $70,000 a year on environmental compliance. The States of New Mexico, Colorado and Wyoming have established Trust Funds for the clean up of contaminated underground sites. Under most circumstances, the Company's exposure is limited to $10,000 per location, beyond which the state clean-up fund assumes responsibility. Assistance is not available to repair or replace underground tanks or equipment. The law specifies requirements which must have been met for an applicant to be eligible, includes a provision that payments will be made in accordance with regulations (which have not yet been issued) and states that payment from the Trust Funds are limited to amounts in that fund. There can be no assurance that the Trust Funds will have sufficient capital, or will agree, to fund remediation of any particular problem. In connection with Company's purchase of the Graves' common stock, the Seller agreed to indemnify the Company for seven years against environmental related problems which may arise from activities conducted prior to the acquisition. The indemnification is not effective unless damages exceed a minimum of $25,000 per 7 year and the maximum aggregate indemnification responsibility of Seller over the seven years is $8,000,000. ENVIRONMENTAL COMPLIANCE. The Company's Regulated Environmental Activities are subject to an extensive variety of evolving federal, state and local laws, rules and regulations governing the storage, transportation, manufacture, use, discharge, release and disposal of product and contaminants into the environment, or otherwise relating to the protection of the environment. A non-exclusive listing of the environmental laws which potentially impact the Company's Regulated Environmental Activities is set out below: RESOURCE CONSERVATION AND RECOVERY ACT OF 1976, AS AMENDED IN 1984 ("RCRA"). The United States Congress enacted RCRA in 1976 and amended it in 1984. RCRA established a comprehensive regulatory framework for the management of hazardous wastes at active facilities. RCRA creates a "cradle to grave" system for managing hazardous wastes. Those who generate, transport, treat, store or dispose of waste above certain quantities are required to undertake certain performance, testing and record keeping. The 1984 amendments to RCRA known as "HSWA" increased the scope of RCRA to regulate small quantity hazardous waste generators and waste oil handlers and recyclers as well as require the identification and regulation of underground storage tanks in which liquid petroleum or hazardous substances were stored. HSWA and its implementing regulations require the notification to designated state agencies of the existence and condition of regulated underground storage tanks and impose design, construction and installation requirements; leak detection, presentation, reporting, and cleanup requirements; tank closure and removal requirements; and fiscal responsibility requirements. COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980 ("CERCLA" OR "SUPERFUND") AS AMENDED IN 1982. CERCLA established the Superfund program to clean up inactive sites at which hazardous substances had been released. Superfund has been interpreted to create strict, joint and several liability for the costs of removal and remediation, other necessary response costs and damages for injury to natural resources. Superfund liability extends to generators of hazardous substances, as well as to (i) the current owners and operators of a site at which hazardous substances were disposed; (ii)any prior owner or operator of the site at the date of disposal; and (iii)waste transporters who selected such facilities for treatment or disposal of hazardous substances. CERCLA allows the EPA to investigate and remediate contaminated sites and to recover the costs of such activities (response costs), as well as damages to natural resources, from parties specified as liable under the statute. CERCLA also authorizes private parties who incur response costs to seek recovery from statutorily liable parties. CERCLA was amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"). SARA provides a separate funding mechanism for the clean up of underground storage tanks. CERCLA excludes petroleum including crude oil or any fraction thereof, with certain limitations from the definition of "hazardous substances" for which liability for clean up of a contaminated site will attach. This exclusion also applies to those otherwise hazardous substances which are inherent in petroleum, but not to those added to or mixed with petroleum products. THE CLEAN WATER ACT OF 1972, AS AMENDED (THE "CLEAN WATER ACT"). The Clean Water Act establishes water pollutant discharge standards applicable to many basic types of manufacturing facilities and imposes standards on municipal sewage treatment plants. The Clean Water Act requires states to set water quality standards for significant bodies of water within their boundaries and to ensure attainment and/or maintenance of those standards. Many industrial and govern 8 mental facilities must apply for and obtain discharge permits, monitor pollutant discharges and under certain conditions reduce certain discharges. The Clean Water Act also requires pre-treatment of certain discharges prior to release into a publicly owned treatment works. FEDERAL OIL POLLUTION ACT OF 1990 ("OPA"). The OPA amends the Clean Water Act and expands the liability for the discharge of oil into navigable waters. Liability is triggered by discharge or substantial threat of a discharge of oil into navigable waters. OPA defines three classes of parties subject to liability: (1) owners, operators, and persons chartering vessels; (2) lessees and permits of areas where off-shore facilities are located; and (3) owners and operators of on-shore facilities. THE CLEAN AIR ACT OF 1970, AS AMENDED (THE "CLEAN AIR ACT"). The Clean Air Act required the EPA to establish and ensure compliance with national ambient air quality standards ("NAAQS") for certain pollutants. The NAAQS generally are to be achieved by the individual states through state implementation plans ("SIPs"). SIPs typically attempt to meet the NAAQS by, among other things, regulating the quantity and quality of emissions from specific industrial sources. As required by the Clean Air Act, the EPA also has established regulations that limit emissions of specified hazardous air pollutants and has established other regulations that limit emissions from new industrial sources within certain source categories. The Clean Air Act was amended extensively in 1990, to, among other things, impose additional emissions standards that must be implemented by the EPA through regulations. THE TOXIC SUBSTANCES CONTROL ACT OF 1976 ("TSCA"). TSCA authorizes the EPA to gather information on the risks of chemicals, and to monitor and regulate the manufacture, distribution, processing, use and disposal of many chemicals. THE EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT ("EPCRA"). EPCRA was passed as a part of the Superfund Amendments and Reauthorization Act (SARA). EPCRA requires emergency planning notification, emergency release notification, and reports with respect to the storage and release of specified chemicals. Industry must provide information to communities regarding the presence of hazardous and extremely hazardous substances at facilities within those communities. THE OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION ACT ("OSHA"). OSHA regulates exposure to toxic substances and other forms of workplace pollution. The Department of Labor administers OSHA. OSHA specifies maximum levels of toxic substance exposure. OSHA also sets out a "right-to-know" rule which requires that workers be informed of, and receive training relating to, the physical and health hazards posed by hazardous materials in the workplace. OTHER STATE AS WELL AS LOCAL GOVERNMENT REGULATION. Many states have been authorized by the EPA to enforce regulations promulgated under various federal statutes. In addition, there are numerous other state as well as local authorities that regulate the environment, some of which impose more stringent environmental standards than Federal laws and regulations. The penalties for violations of state laws vary but typically include injunctive relief, recovery of damages for injury to air, water or property, and fines for non-compliance. REGULATORY STATUS AND POTENTIAL ENVIRONMENTAL LIABILITY. The operations and facilities of the Company are subject to numerous federal, state and local environmental laws and regulations including those described above, as well as associated permitting and licensing requirements. The Company regards compliance 9 with applicable environmental regulations as a critical component of its overall operation and devotes significant attention to protecting the health and safety of its employees and to protecting the Company's facilities from environmental problems. Management believes that the Company has obtained or applied for all permits and approvals required under existing environmental laws and regulations to operate its current business. In light of coverage of the state reimbursement funds and the indemnification of the Company by the Seller, Management does not believe that any pending or threatened environmental litigation or enforcement action(s) could materially and adversely affect the Company's business. While the Company has implemented, where appropriate, operating procedures at each of its facilities designed to assure compliance with environmental laws and regulation, given the nature of its business, the Company always is subject to environmental risks and the possibility remains that the Company's ownership of its facilities and its operations and activities could result in civil or criminal enforcement and public as well as private action(s) against the Company, which may necessitate or generate mandatory clean up activities, revocation of required permits or licenses, denial of application for future permits, or significant fines, penalties or damages, any and all of which could have a material adverse effect on the Company. EMPLOYEES The Company employs approximately 273 people, none of whom are represented by any collective bargaining organizations. Management considers its employee relations to be satisfactory at the present time. ITEM 2. PROPERTIES The Company owns a 4,300 square foot office building in Farmington, New Mexico. This office building plus a 4,400 square foot truck repair shop, two warehouses totaling 15,800 square feet and an 1,855 square foot three bay service station are located on a 4.7 acre site. While the above-mentioned buildings are owned by the Company, they are located on property leased from an affiliated party. The Company pays rent of $550 per month on this land and the lease terminates on September 30, 2018, with two ten year options to extend. The Company owns an additional 2.5 acres adjacent to this property where it stores moveable above ground fuel tanks. Also, in Farmington, New Mexico, the Company owns two additional gasoline stations, two quick lube pits, one car wash, and two cardlock locations. The lube pits and car wash are leased to an unaffiliated third party, the Company operates two additional cardlock/retail locations on leased property. In Albuquerque, New Mexico, the Company owns one bulk petroleum storage facility which includes a 7,200 square foot warehouse on five acres with a rail spur. Also, the Company owns a 2,400 square foot convenience store, with a car wash and quick lube pit in a separate 6,300 square foot building and a propane distribution and cardlock facility. The carwash and quick lube pit are leased to an unaffiliated third party. This convenience store and related facilities are located on 1.6 acres of land. Also, in Albuquerque, the Company leases two warehouses and a service station and cardlock facility. Through joint ventures, the Company owns 50% of a 1,800 square foot convenience store and a one acre undeveloped convenience store site. In the Las Cruces area, the Company leases an office building, warehouse and bulk plant and seven retail outlets. The lease relating to such properties is a ten (10) year lease with three five (5) year options to renew. The Company owns one 10 retail outlet in Truth or Consequences, New Mexico that it leases to an unaffiliated third party. The Company owns a 3,000 square foot convenience store located in Hatch, New Mexico. In the Fleischli geographic area, the Company owns three properties which are leased to unaffiliated parties. The first property in Casper, Wyoming includes a certain building, grounds and facilities including a loading dock on approximately 4.5 acres. The term of this lease is approximately two years and expires July, 1999. The second property also in Casper, Wyoming, includes a certain building, grounds and facilities with the ground area being approximately 29,450 feet and total building area including loading dock of approximately 12,000 feet. The lease expired in January, 1997 but was renewed on a 3 year term and will expire in January, 2000. The third property in Rock Springs, Wyoming, is comprised of a 6,375 square foot building. This lease was signed in January, 1998 and is for one year and will expire in January, 1999. Fleischli leases two properties in Cheyenne, Wyoming from an affiliated party. The first property includes a warehouse building. The lease commenced in July, 1995 and has a term of 120 consecutive months which expires in June, 2005. The second property is a commercial office building on a parcel of 1.48 acres. The term of the lease commenced in July, 1995 and has a term of 120 consecutive months which will expire in June, 2005. Fleischli also leases two properties from two unaffiliated parties. The first is in Commerce City, Colorado and contains warehousing for bulk goods equipment and bulk storage tanks on an approximately 16,850 square feet parcel of land. This lease commenced on January 1, 1997 and expires on December 21, 2001. The second lease is in Beowawe, Nevada and includes the land and track for use in storage and handling of engine and hydraulic oils and propane and other purposes incidental thereto. The area is 117,286 square feet. The term of the lease commenced in March 1994 and is automatically renewed on a year-to-year basis. The Company leases a truck stop in Cortez, Colorado from an affiliated party and subleases the property to an unaffiliated truck stop operator. The Company owns a substantial amount of personal property, including above and below ground tanks located at its bulk plants, service stations and lube pits described above. It also owns approximately 700 portable above ground commercial fuel tanks, and propane tanks, 13 automobiles and 42 trucks, 67 tractors/trucks, 95 trailers and 14 forklifts. ITEM 3. LEGAL PROCEEDINGS The Company is a party to certain litigation that has arisen in the normal course of its business and that of its subsidiaries. In the opinion of management, none to this litigation is likely to have a material effect on the Company's financial position or results of operation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fiscal year covered by this Annual Report, no matter was submitted to a vote of the Company's shareholders through the solicitation of proxies or otherwise. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK Prices for the Common Stock are quoted on the American Stock Exchange. Bid Period High Low Quarter Ended March 31, 1996. . . . . . $3.75 $2.00 Quarter Ended June 30, 1996 . . . . . . $4.25 $1.75 Quarter Ended September 30, 1996. . . . $4.25 $2.87 Quarter Ended December 31, 1996 . . . . $5.87 $3.62 Quarter Ended March 31, 1997. . . . . . $5.63 $3.50 Quarter Ended June 30,1997. . . . . . . $7.63 $4.25 Quarter Ended September 30, 1997. . . . $7.75 $5.13 Quarter Ended December 31, 1997 . . . . $5.50 $3.81 __________________ As of March 26, 1998, there were approximately 40 record holders of the Company's Common Stock. Based on securities position listings, the Company believes that there are approximately 600 beneficial holders of the Company's Common Stock. DIVIDENDS The Company has paid no cash dividends on its Common Stock and has no present intention of paying cash dividends in the foreseeable future. It is the present policy of the Board of Directors to retain all earnings to provide for the growth of the Company. Payment of cash dividends in the future will depend, among other things, upon the Company's future earnings, requirements for capital improvements and financial condition. The Company's ability to pay any cash dividends on the Company's Common Stock in the future will be limited by the dividend requirements of the Preferred Stock of a Subsidiary. PRIVATE SALES OF SECURITIES During the year ended December 31, 1996, and during the quarter ended March 31, 1997, the Company sold shares of its Common Stock which were not registered under the Securities Act of 1933, as amended, as follows: In May and June, 1996, the Company sold shares of the Company's Common Stock to 21 accredited investors and 3 unaccredited investors in a private offering. A total of 270,000 shares of Common Stock were sold in this offering for an aggregate of $704,700 in cash. The Company paid no commissions in connection with this offering. In February and March of 1997, the Company sold shares and warrants to purchase the Company's Common Stock to 16 accredited investors in a private offering. A total of 130,000 shares of Common Stock and 130,000 warrants were sold in this offering for an aggregate of $520,000 in cash. The Company paid no commissions in connection with this offering. Each warrant allows the holder to purchase one share of Common Stock at $5.00 per share from March 28, 1998 until March 27, 1999. 12 With respect to these sales, the Company relied on section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder. Each investor was given a copy of a Private Placement Memorandum containing information concerning the Registrant, a Form D was filed with the SEC and the Company complied with the other applicable requirements of Rule 506. Each investor signed a subscription agreement in which he represented that he was purchasing the shares for investment only and not for the purpose of resale or distribution. The appropriate restrictive legends were placed on the certificates and stop transfer instructions were issued to the transfer agent. ITEM 6. SELECTED FINANCIAL DATA Effective November 2, 1995, Meteor Industries, Inc., acquired 100% of the issued and outstanding common stock of Capco Resources Inc. ("CRI") in exchange for 1,745,000 shares of Meteor common stock. The acquisition was treated as a reverse acquisition of Meteor by CRI. Accordingly, the results of operations of CRI are included in the following financial information since inception of CRI. The results of operations of Meteor for 1995 are included in the following financial information since November 2, 1995, the effective date of the acquisition. BALANCE SHEET DATA: (In Thousands) At December 31 1997 1996 1995 1994 1993 ------ ------- ------ ------ ------ Current Assets $15,826 $ 8,488 $6,708 $ 126 $ -- Property and Equipment 13,940 8,277 8,568 250 -- Other Assets 2,175 3,669 3,273 164 -- Discontinued Operations -- -- -- 572 660 Total Assets 31,941 20,434 18,549 1,112 660 Current Liabilities 12,935 8,943 6,921 403 -- Long-term Debt 2,912 446 2,195 -- -- Deferred Tax Liability 2,288 1,773 1,894 -- -- Minority Interest 4,515 4,152 3,615 -- -- Stockholders' Equity 9,291 5,120 3,924 709 660 STATEMENT OF OPERATIONS DATA: (In Thousands, Except Per Share Data) For the Years Ended December 31, 1997 1996 1995 1994 1993 --------- ------- --------- -------- -------- Sales $ 88,440 $59,984 $ 9,828 $ 473 $ -0- Cost of sales 75,439 49,644 7,373 -0- -0- Operating Expenses 11,814 9,119 2,395 602 2 Other income (Expense) 397 (79) (71) -0- -0- Income (loss) from continuing operations 601 462 (74) (129) (2) Income from discontinued operations -0- -0- 1,871 179 690 Net income 601 462 1,796 49 688 Earnings per common share and equivalent: Basic Continuing Operations $ .16 $ .15 $ (.15) $(1295.32) $ (22.82) 13 Discontinued Operations -- -- 3.82 1785.27 6906.24 Net Income .16 .15 3.67 489.95 6883.42 Diluted: Continuing operations $ .16 $ 0.14 $ (.15) $(1295.32) $ (22.82) Discontinued operations -- -- 3.80 1785.27 6906.24 Net Income $ .16 $ 0.14 $ 3.65 489.95 6883.42 Weighted average number of common shares and common share equivalents: Basic 3,821,061 3,184,397 489,035 100 100 Diluted 3,862,826 3,227,496 492,535 100 100 Cash dividends $ -0- $ -0- $ -0- $ -0- $ -0- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Report contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements. Effective November 2, 1995, Meteor acquired CRI. The acquisition was treated as a reverse acquisition of Meteor by CRI. Accordingly, the historical accounts of CRI are reflected in the financial statements prior to November 2, 1995, so comparisons with prior years are not very meaningful. The consolidated statement of operations should be read in conjunction with the historical financial statements and notes thereto of Meteor, included elsewhere in this document. The Company is engaged in the distribution and marketing of refined petroleum products including gasoline, diesel fuel, propane and lubricants. The Company's growth, since its inception in 1992, has been primarily through the acquisition of businesses in the petroleum marketing industry. The Company's strategy is to continue to pursue acquisitions in the fragmented petroleum marketing industry. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities totaled $1,158,646 for the year ended December 31, 1997 compared to $841,953 for the year ended December 31, 1996 and $2,101,092 for the year ended December 31, 1995. The increase in cash provided in 1997 is primarily related to the Fleischli acquisition. As of December 31, 1997, the Company had working capital of $2,891,493 compared to a working capital deficit of $454,976 at December 31, 1996. The increase in the working capital is due primarily to a public offering of stock in 1997. Net cash used by investing activities totaled $2,575,560 for the year ended December 31, 1997, compared to cash used of $922,615 for the year ended December 31, 1996 and 1,378,593 for the year ended December 31, 1995. The Company collected loans to related parties of $2,150,000 in 1997. This was offset by purchases of property and equipment and the acquisition of Fleischli. 14 Because of the Company's continued expansion and development efforts, the Company's liquidity requirements have increased and are expected to continue to increase as a result of the need to reduce the Company's existing debt related to prior acquisitions. Net cash provided by financing activities totaled $1,490,616 for the year ended December 31, 1997 compared to a provision of $137,504 for the year ended December 31, 1996 and a sue of $628,626 for the year ended December 31, 1995. The increase in 1997 is primarily related to a public offering of stock in 1997, partially offset by payments on debts. The Company has three revolving bank credit facilities with Norwest Business Credit, Inc. - one for $3,000,000, one for $1,500,000 and one for $5,000,000. The credit lines are subject to the borrowing base of the Company's subsidiaries, as defined and on December 31, 1997, $779,501, 507,127 and $2,546,944 were borrowed against the facilities which are recorded as current liabilities. The Company has been in default on timely filing of information with the lender. The Company was also in default of the net worth and net income requirements for two of the subsidiaries. The lender waived these defaults. The Company has various loans with banks which require payments of $592,000 in 1998. At December 31, 1996, the Company owned 50% of a limited liability company which in June, 1996, acquired a convenience store for $610,000 using financing from Phillips 66. The balance of the loan at December 31, 1997 was $467,000. The Company is a co-signer on this loan which has a term of 10 years. The Company records its investment using the equity method, which reflects only the Company's share of the net worth of the LLC. A subsidiary of the Company has preferred stock outstanding which requires no periodic payments but accrues an 8% dividend and must be redeemed for $3,543,000 plus accrued dividends at the holder's request any time after September 15, 2000 unless earlier converted into common stock pursuant to its terms. This preferred stock is treated as a minority interest on the balance sheet and recorded at its discounted value. The Company is obligated to pay lease costs of approximately $893,000 in 1998 for land, building, facilities, and equipment. In order to pay its obligations, the interest on such obligations and other expenses, the Company must generate cash flows from operations which exceed that which has been achieved in the past. In addition, even if historical cash flow is exceeded throughout the terms of its obligations, the Company will probably be required to raise capital or refinance its existing debt in order to pay its obligations as they become due. The Company utilizes underground tanks at various locations to store petroleum products and is therefore subject to various federal and state statutes concerning environmental protection, as well as the New Mexico Ground Water Protection Act. The various federal and state statutes are designed to identify environmental damage, identify hazardous material and/or operations, regulate operations engaged in hazardous activities, and establish procedures for remedial action as necessary. The states the Company operates in have recognized the potential cleanup costs resulting from regulations, and have included the establishment of corrective 15 action funds. The purpose of the funds are to provide monetary assistance in both assessing site damage and correcting the damage. Assistance is not available to repair or replace underground tanks or equipment. The law specifies requirements which must have been met for an applicant to be eligible, including a provision that payments will be made in accordance with regulations (which have not yet been issued), and states that payment from the corrective action fund are limited to amounts in that fund. The Company maintains detailed inventory records and performs tank and line tightness tests on a regular basis on all underground storage tanks. Management has assessed the environmental contingencies and does not anticipate any potential liabilities that will have a material adverse effect on the consolidated financial position, results of operation, or liquidity of the Company. The Company is responsible for any contamination of land it owns or leases. However, the Company may have limitations on any potential contamination liabilities as well as claims for reimbursement from third parties. During the period ended December 31, 1997, 1996 and 1995, the Company expended $118,745, $31,167, and $5,876 respectively, for site assessment, related cleanup costs, and regulatory compliance. Included in other assets at December 31, 1997 and 1996, are unreimbursed costs from the States of $20,047 and $125,761, respectively. The Company as accrued $296,940, discounted at 10%, for environmental remediation which management believes is adequate to cover known remediation problems. Meteor and its subsidiaries have checked with the manufacturers of their various software packages and have been told that new versions addressing the year 2000 will be available between mid-year through end of 1998. At this time we have no reason to believe that there will be any problems with our various software packages. The Company is required to adopt SFAS No. 130, "Reporting Comprehensive Income," in the first quarter of 1998. Upon adoption of SFAS No. 130, the Company will present a new Statement of Comprehensive Income which will report all changes in the Company's stockholders' equity other than transactions with stockholders. Comprehensive income pursuant to SFAS No. 130 would include net income, as reported in the Statement of Operations, plus the net changes in the foreign currency translation, liabilities components, and unrealized gains and losses on certain investments in debt and equity securities. The Company is required to adopt SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," in the fourth quarter of 1998. SFAS No. 131 will supersede the business segment disclosure requirements currently in effect under SFAS No. 14. SFAS No. 131, among other things, establishes standards regarding the information a company is required disclose about its operating segments and provides guidance regarding what constitutes a reportable operating segment. The Company currently believes segment disclosures pursuant to SFAS No. 131 will not be materially different from the current disclosures pursuant to SFAS No. 14. RESULTS OF OPERATIONS COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996 The Company is primarily engaged in the business of marketing and distributing refined petroleum products and related products employing wholesale and retail 16 operations and environmental services. The Company had sales of $88,440,000 in 1997 compared to $59,984,000 in 1996, a $28,456,000 (47.4%) increase. The increase is primarily attributable to the Company's acquisition of Fleischli on August 1, 1997, and partially offset by lower rack prices during the current period resulting in lower net sales. Fuel sales gallons increased to 92,888,000, compared to 62,405,000 in 1996, a 30,483,000 (48.9%) increase. The increase is primarily the result of the Fleischli acquisition. Gross profits for 1997 and 1996 were $13,000,000 and $10,340,000 respectively, an increase of $2,660,000 (26.0%). The increase is primarily attributable to the Company's acquisition of Fleischli, and partially offset by a decline in retail gasoline margins during the current period resulting in lower gross margin. Retail margins are dictated by competition in a given area and the Company has no control over such margins. The Company's selling, general, and administrative expenses were $10,858,000 for the year ended December 31, 1997, compared to $8,269,000 for the period ended December 31, 1996, an increase of $2,569,000 (31.2%). The increase is related to the Fleischli acquisition which added $2,904,000 in expenses, while existing operations reduced expenses by $324,000 (3.9%). As a percentage of sales, selling, general and administrative expenses declined from 14% to 12% reflecting benefits of combining the companies. The Company's depreciation and amortization for the year ended December 31, 1997, was $956,000 compared to $850,000 for the period ending December 31, 1996. The increase in depreciation and amortization is primarily due to the Fleischli acquisition. The Company's other income or expense for the year ended December 31, 1997, was $397,000 in income compared to in $79,000 expense for the period of December 31, 1996. The reason for the increase is a lawsuit settlement received in the current period. This is an unusual item that the Company does not expect to recur in the future. The Company's provision for income taxes for the year ended December 31, 1997 was $583,000 compared to $395,000 for the period ended December 31, 1996. The increase is due to higher income. The expected federal tax provision based upon statutory rates would have been $538,000. The Company's net income for the year ended December 31, 1997, was $601,000 compared to $462,000 for the period ended December 31, 1996 due to the above described items. COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO DECEMBER 31, 1995 The following discussion for comparisons is limited because the historical accounts for 1995 reflect only two months of revenue and expense for Meteor due to the reverse acquisition by CRI in November, 1995, while 1996 reflects a full year of operations for Meteor. The Company's sales for the year ended December 31, 1996, were $59,984,000 compared to $9,828,000 for the comparable period ending December 31, 1995. In addition to the fact that the historical accounts for 1995 reflect only two months of revenue and expense, the increase in revenues is partially due to increases in gasoline volumes and prices at the retail level. 17 The Company's cost of sales for the year ended December 31, 1996, were $49,644,000 compared to $7,373,000 for the comparable period ended December 31, 1995. The increase in costs of sales is due to the increased level of sales discussed above. The increase in the percentage of sales is due to no cost of sales for CRI in either 1996 or 1995, however, due to the reverse acquisition, a full year of CRI sales are included. Excluding CRI the cost of sales in 1995 would be 83.1%. The Company's gross profit for the year ended December 31, 1996, was $10,340,000 compared to $2,455,000 for the period ended December 31, 1995. The increase is partially related to higher sales as described above and increased margins for gasoline at the retail level. Retail gasoline margins are dictated by competition in a given area and the Company has no control over such margins. The Company's selling, general and administrative expenses were $8,269,000 for the year ended December 31, 1996, compared to $2,244,000 for the period ended December 31, 1995. The increase in expenses is related to combining the oper- ations of Hillger, Graves and CRI. As a percentage of sales general and administrative expenses declined from 23% to 14% reflecting benefits of combining the companies. The Company's depreciation for the year ended December 31, 1996, was $850,000 compared to $152,000 for the period ended December 31, 1995. In addition to the fact that the historical accounts for 1995 reflect only two months of revenue and expense, the increase in depreciation expense is due primarily to acquisition of buildings and equipment. The Company's other expenses for the year ended December 31, 1996 was $79,000 compared to $71,000 for the period ended December 31, 1995. The reasons for the decrease are primarily related to an increase in interest income, a increase in interest expense, and sales of assets this year. The Company's provision for income taxes for the year ended December 31, 1996, was $395,000 compared to $(1,470)for the period ended December 31, 1995. This increase is due to more income. The expected tax provision based on statutory rates would have been $446,000. The variance from the effective rate is principally due to the benefit of loss carryforwards. The Company's income from continuing operations for the year ended December 31, 1996, was $462,000 compared to a loss from continuing operations of $74,000 in the prior year due to the above described items. DISCONTINUED OPERATIONS CRI had been involved in the production of oil and gas prior to the transaction with the Company. Those operations were discontinued and will have no impact on future operations. CRI had these operations in subsidiaries. In 1995, CRI sold the shares of Saba de Colombia, Inc., a U.S. subsidiary engaged in the exploration and development of petroleum and natural gas in Colombia, to a third party. In 1995, CRI transferred to Capco Resources, Ltd. and CAPCO Acquisub, Inc., a wholly-owned subsidiary of CAPCO Resources Ltd., all of its holdings of Saba Petroleum Company and certain other assets and liabilities. The income from discontinued operations was $441,197 and the gain on disposition, 18 net of taxes was $1,429,256 for the year ended December 31, 1995. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Included at F-1 through F-25. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Directors and Executive Officers of the Company are as follows: Name Age Positions and Offices Held --------------- --- ---------------------------------------------- Edward J. Names 46 President and Director Ilyas Chaudhary 50 Chairman, Chief Executive Officer and Director Dennis R. Staal 49 Secretary/Treasurer and Director Paul W. Greaves 45 President of Subsidiaries Irwin Kaufman 61 Director Rafiq Sayed 45 Director Robert K. Jensen 41 President of a Subsidiary There is no family relationship between any Director or Executive Officer of the Company. Capco Acquisub, Inc. has the right to appoint two directors, however only one, Ilyas Chaudhary, is currently representing Capco Acquisub, Inc. On August 5, 1997, a special meeting of the board of directors was held. Two additional directors were appointed to the board. They are Irwin Kaufman and Rafiq Sayed. At that same meeting, the Company established an audit committee and appointed Edward Names, Irwin Kaufman and Rafiq Sayed to that committee. Set forth below are the names of all Directors and Executive Officers of the Company and its major subsidiaries, all positions and offices with the Company held by each such person, the period during which he has served as such, and the principal occupations and employment of such persons during at least the last five years: EDWARD J. NAMES - President and Director. Mr. Names has been President and a Director of Meteor since it was incorporated in 1993. Mr. Names has extensive experience in mergers and asset acquisitions as well as small business matters such as business planning, financing, management and contract negotiation. Mr. Names was President of Alfa Resources, Inc. and its subsidiaries from 1983 to 1995. Mr. Names resigned as President of Alfa Resources, Inc. as of the closing of the CRI acquisition and resigned as a director in 1997. In 1987, Mr. Names became Special Counsel to the law firm of Wills and Sawyer, P.C., Denver, Colorado, and maintained that relationship until December 1992. Mr. Names was associated with the firm of Nelson & Harding, Denver, Colorado, from 1980 to 1981, and the law firm of Schmidt, Elrod & Wills, Denver, Colorado, where he practiced corporate and securities law and became a Partner in October 1982. Mr. Names received a Bachelor of Arts Degree in Economics from the University of Colorado in 1973, and a Juris Doctorate from the University of Denver College of Law in 1980. He devotes his full time to the business of the Company and its subsidiaries. ILYAS CHAUDHARY - Chairman of the Board, Chief Executive Officer and Director. 20 Mr. Chaudhary has been Chairman of the Board, Chief Executive Officer and a Director of the Company since November 1995. He has also been an officer and director of Capco Resources, Inc. ("CRI"), which is now a wholly-owned subsidiary of the Company, since October 1993. He has also been a director of Saba Petroleum Company, a publicly held oil and gas company listed on the American Stock Exchange, since 1985, and has served as its Chairman of the Board since 1993. He has been Saba Petroleum Company's Chief Executive Officer since 1993 and its President since 1994. Mr. Chaudhary is a director and controlling shareholder of Capco Resources Ltd., the Company's majority shareholder. Mr. Chaudhary has 24 years of experience in various capacities in the oil and gas industry, including eight years of employment with Schlumberger Well Services from 1972 to 1979. Mr. Chaudhary received a Bachelor of Science degree in Electrical Engineering from the University of Alberta, Canada. DENNIS R. STAAL - Secretary and Treasurer and Director. Mr. Staal has been Secretary and Treasurer and a Director of the Company since July 1993. He also serves as an officer and director of several of the Company's wholly-owned subsidiaries. Mr. Staal is a graduate of the University of Nebraska, where he received a Bachelor of Science degree in Business Administration in 1970. From 1970 through 1973, he was a CPA with Arthur Andersen & Co. From 1973 through 1976, he was Controller for the Health Planning Council of Omaha. From 1977 through 1981, he served as a Director of Wulf Oil Corporation and as President of such company from 1979 to 1981. From 1979 through 1982, he served as a Director of Chadron Energy Corporation, and as Director of the First National Bank of Chadron. From 1982 through 1984, he was Chief Financial Officer of High Plains Genetics, Inc. From 1986 to 1991, Mr. Staal was Director and President of Saba Petroleum Company. Mr. Staal is currently Treasurer of Alfa Resources, Inc. and an officer and director of its subsidiaries. He devotes approximately 80% of his time to the business of the Company and its subsidiaries. IRWIN KAUFMAN - Mr. Kaufman has been a director of the Company since August 1997. Mr. Kaufman is a financial consultant facilitating contacts with the investment community. Mr. Kaufman helps arrange financing for small and mid-sized companies and consults with management to enhance shareholder value. He has worked as a financial consultant for the last several years. Mr. Kaufman has also been a principal consultant for Computer and Mathematics Education for the Sherman Fairchild Foundation. RAFIQ SAYED - Mr. Sayed has been a director of the Company since August 1997. Mr. Sayed is a customer focused technology executive and consultant with experience in the global telecommunications industry. Mr. Sayed has 22 years experience with STC LTD U.K. and Northern Telecom in technical and executive positions. In his most recent position with Nortel, Mr. Sayed managed the development and re-architecture and re-engineering of the DMS-100 Common layer and was also responsible for release management, process definition, customer and employee satisfaction, quality of technical definition, product integration, validation, test automation and global support. Mr. Sayed completed H.N.D. in Electrical/Electronic Engineering (Equivalent of BSEE), Southbank College, London, England with emphasis on Power Distribution in 1975. PAUL W. GREAVES - President and Chief Executive Officer of the subsidiaries. Mr. Greaves has been the President and Chief Executive Officer of the following subsidiaries: Meteor Marketing, Inc. (formerly Pyramid Stores, Inc.) and its subsidiaries, Graves Oil & Butane Co., Inc. and Hillger Oil Company since in April, 1996. Mr. Greaves has also acts as Chief Executive Officer of Fleischli since August, 1997. Prior to working for the Company, Mr. Greaves held the position of Regional Manager, Rocky Mountain Region, for Propane Continental of 21 Overland Park, Kansas, from April 1994 to April 1996. From 1989 until 1994, Mr. Greaves was Director of Business Development for the Wescourt Group of Denver, Colorado, a petroleum marketing and distribution holding company. Mr. Greaves devotes his full time to the business of the Company's subsidiaries described above. ROBERT JENSEN - President of Fleischli, a subsidiary of Meteor. Mr. Jensen started with Fleischli in the early 1970's as a laborer and held several management and non-management positions including warehouse/delivery person, assistant manager of several retail gasoline stations and regional sales representative. Mr. Jensen became President of Fleischli in 1993. Mr. Jensen graduated from the University of Wyoming in 1981. He is involved in numerous industry organizations having earned Salesman of the Year awards from both the Wyoming Contractors Associations and the Wyoming Mining Association. Mr. Jensen is a board member of the Wyoming Chapter of the National Multiple Sclerosis Society, Cheyenne LEADS economic development group and Chairman of the Cheyenne, Laramie County Economic Development Joint Powers Board. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Based solely on a review of Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year, and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year and certain representations, no persons who were either a director, officer, or beneficial owner of more than 10% of the Company's common stock, failed to file on a timely basis reports required by section 16(a) of the Exchange Act during the most recent fiscal year. ITEM 11. EXECUTIVE COMPENSATION The following information regarding the executive compensation for the Company's Chief Executive Officer and President for the fiscal years ended December 31, 1997, 1996, and 1995. No other executive officer received compensation in excess of $100,000 during such periods. SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards Payouts Securities Other Underlying All Annual Restrict- Options/ Other Name and Principal Compen- ed Stock SARs LTIP Compen- Position Year Salary Bonus sation Award(s)(Number) Payouts sation - ---------------- ---- -------- ----- ------ --------- ------- --------- ------ Ilyas Chaudhary 1997 $ -0- -- -- -- -- -- -- Chairman of 1996 $ -0- -- -- -- -- -- -- Board and Chief 1995 $ -0- -- -- -- -- 100,000 -- Executive Officer Edward J. Names 1997 $105,000 -- -- -- -- -- $5,500* President 1996 $101,250 -- -- -- -- -- $5,040* 1995 $ 78,000 -- -- -- -- 100,000 $4,512*
___________________ 22 * Represents premiums paid on health insurance policies for Mr. Names. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Securities Underlying Value of Unexer- Shares Unexercised cised in-the Acquired Options SARs Money Options/ On At FY-end SARs AT FY-end Exercise Value Exercisable/ Exercisable/ Name (Number) Realized Unexercisable Unexercisable - ---------------- --------- -------- ------------- ---------------- Ilyas Chaudhary -0- -0- 66,667/33,333 $-0-/$-0- Edward J. Names -0- -0- 66,667/33,333 $-0-/$-0- EMPLOYMENT ARRANGEMENTS EDWARD J. NAMES, President of the Company, entered into a five-year employment agreement with the Company which became effective in January 1994, which provides that Mr. Names is required to devote substantially all his work time to the Company. The agreement was amended in November 1995 to provide for an annual salary of $105,000. Pursuant to his employment agreement, Mr. Names is allowed to devote up to 10 hours per month to other business operations including his duties as a director or officer in other companies. Absent notice to the contrary from the Company or Mr. Names, the five-year term of the employment agreement will renew automatically each year. The Company can terminate his employment, however, at any time without cause and be obligated only for one year's salary. The employment agreement includes a covenant not to compete which is effective for two years after termination of employment. ILYAS CHAUDHARY, Chairman of the Board and Chief Executive Officer of the Company, presently receives no salary. DENNIS R. STAAL, Secretary/Treasurer of the Company, presently receives an annual salary totaling $65,020 per year from the Company and a subsidiary. He devotes approximately 80% of his time to the business of the Company and its subsidiaries. PAUL W. GREAVES entered into a three year employment agreement with the Company's subsidiary, Meteor Marketing, Inc. which became effective in April of 1996. Mr. Greaves is required to devote full time to the business of Pyramid and its subsidiaries; Graves Oil & Butane Co., Inc., Hillger Oil Company, and Fleischli Oil Company, Inc. The agreement calls for a base salary of $80,000 per year plus an annual bonus based upon the financial performance of Meteor and its subsidiaries. The Company may terminate Mr. Greaves's employment at any time, without cause and be obligated for six months base salary and accrued but unpaid bonuses. The employment agreement includes a covenant not to compete which is effective for two years after termination of employment. STOCK OPTION PLAN A stock option plan providing for the issuance of incentive stock options and non-qualified stock options to Meteor's employees was approved by Meteor's shareholders on April 15, 1993. Pursuant to the Plan, 500,000 shares of Meteor's $.001 par value Common Stock have been reserved for issuance. As of March 31, 1998, and after reducing the number of expired options, 495,300 options were 23 issued and outstanding under the Plan. On October 1, 1993, options were granted to employees. As of December 31, 1997, out of these options, options to purchase 21,500 shares were outstanding (after deducting options which expired as a result of termination of employment). These options are exercisable at $3.00 per share and vest in five equal installments each year following the date of grant. They expire ten years after the date of grant. On February 1, 1994, additional incentive stock options were granted to employees. As of December 31, 1997, out of these options, options to purchase 16,800 shares were outstanding (after deducting options which expired as a result of termination of employment). These options are exercisable at $5.25 per share and vest in three equal installments each year following the date of grant. They expire ten years after the date of grant. On August 4, 1995, incentive stock options to purchase 10,000 shares each of Common Stock were granted to Dennis R. Staal, Secretary/Treasurer of Meteor, and C. Thomas Houseman, a former Director of Meteor, and an incentive stock option to purchase 1,000 shares was granted to an employee. These options are exercisable at $3.00 per share and vest over three years on a pro rata annual basis following the date of grant. They expire five years after the date of grant. On November 30, 1995, the Board of Directors granted options to Edward J. Names, President of the Company, and Ilyas Chaudhary, Chairman and Chief Executive Officer, each to purchase 100,000 shares of Meteor's Common Stock, and Dennis R. Staal, Secretary/Treasurer of the Company, to purchase 15,000 shares of Common Stock. These options are exercisable at $3.50 per share and vest over a period of three years on a pro rata annual basis following the date of grant. In May of 1996, the Board of Directors granted options to Paul W. Greaves to purchase 50,000 shares of Meteor's Common Stock. These options are exercisable at $3.50 per share and vest on a pro rata annual basis over five years. These options expire five years after the date of grant. As of December 31, 1997, of these options, only options to purchase 5,000 shares remain outstanding. In May of 1996, stock options were granted to two employees to purchase an aggregate of 55,000 shares of Meteor's Common Stock at $3.50 per share. The options vest in five equal installments each year following the date of grant. These options expire five years after the date of grant. On January 2, 1997, Meteor granted options to four employees to purchase an aggregate of 20,000 shares of Common Stock at $5.07 per share. These options vest over five years and expire on January 2, 2002. On February 14, 1997, Meteor granted an option to Dennis R. Staal, Secretary and Treasurer of Meteor, to purchase 25,000 shares of Common Stock at $3.50 per share. Also on February 14, 1997, Meteor granted an option to the president of IST, one of Meteor's subsidiaries, to purchase 5,000 shares of Common Stock at $3.50 per share. These options vest over three years on a annual basis and expire five years from the date of grant. In October 1997, Meteor granted options to Robert Jensen, Fleischli's President, to purchase 15,000 shares at an exercise price of $5.50 per share. These options vest over three years and expire in October 2003. In March 1998 Meteor granted 24 5,000 options to Mr. Jensen at an exercise price of $4.25. Such options vest over five years and expire in March of 2008. In March 1998 Meteor granted 5,000 options to each of two Directors. One half of such options vest immediately and one half vest in March of 1999. The exercise price is $4.25 per share. Also in March Meteor issued a total of 33,500 options to certain employees of the Company. Such options vest over five years and expire in March 2008. CONSULTANTS' OPTIONS On February 14, 1997, Meteor granted options to three consultants to purchase an aggregate of 130,000 shares of Meteor's Common Stock with an exercise price of $3.50 per share to acquire restricted stock. Of the 130,000 options, 50,000 of such options expired in February 1998; 50,000 of such options were exchanged for the 85,000 options expiring on December 31, 1998 exercisable at $3.81 per share; and 30,000 shares of such options expire in February 2000. In September, 1997, Meteor granted options to Irwin Kaufman to purchase 50,000 shares of Meteor's common stock exercisable at $5.77. These options were canceled and 27,500 were issued on March 11, 1998, pursuant to the 1993 Plan and such options had an exercise price of $4.25. Such options expire in March of 2001. On January 27, 1998, Meteor granted options to one consultant to purchase 50,000 shares of Meteor's Common stock. These options are exercisable at $4.00 per share and expire on December 31, 1998. INCENTIVE EQUITY PLAN The Board of Directors adopted the 1997 Incentive Equity Plan of the Company (the "Incentive Plan") on January 2, 1997, subject to approval by the Stockholders of the Company at the next Annual Meeting. The purpose of the Incentive Plan is to enable the company to attract officers and other key employees and consultants and to provide them with appropriate incentives and rewards for superior performance. The Incentive Plan affords the Company the ability to respond to changes in the competitive and legal environments by providing the Company with greater flexibility in key employee and executive compensation than was available through the previously approved plan or individual stock option agreements. This plan is designed to be an omnibus plan allowing the Company to grant a wide range of compensatory awards including stock options, stock appreciation rights, restricted stock, deferred stock and performance shares or units. The Incentive Plan is intended to encourage stock ownership by recipients by providing for or increasing their proprietary interests in the Company, thereby encouraging them to remain in the Company's employment. The Incentive Plan has been prepared to comply with all applicable tax and securities laws, including Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and state and federal tax laws. Subject to adjustment as provided in the Incentive Plan, the number of shares of Common Stock that may be issued or transferred, plus the amount of shares of common Stock covered by outstanding awards granted under the Incentive Plan, shall not in the aggregate exceed 750,000. The number of Performance Units granted under the Incentive Plan shall not in the aggregate exceed 200,000. The number of shares of Common Stock granted under the Incentive Plan to any 25 individual in any calendar year shall not in the aggregate exceed 100,000. To the date of this report, no options, awards or other benefits have been granted under the Incentive Plan. DIRECTOR COMPENSATION Directors of the Company do not receive any fees for their services in such capacity. However, each Director is reimbursed for all reasonable and necessary costs and expenses incurred as a result of being a Director of the Company. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 30, 1998, the stock ownership of each person known by the Company to be the beneficial owner of five percent or more of the Company's Common Stock, all Directors individually and all Directors and Officers of the Company as a group. Except as noted, each person has sole voting and investment power with respect to the shares shown.
NAME AND ADDRESS AMOUNT OF BENEFICIAL PERCENTAGE OF BENEFICIAL OWNER OWNERSHIP OF CLASS Capco Resources Ltd. 1,825,000 44.2% #950, 444 - 5th Avenue, S.W. Calgary, Alberta Canada TOP 2T8 Edward J. Names 373,907 8.9% 216 - 16th Street, Suite 730 Denver, CO 80202 Ilyas Chaudhary 1,891,667 45.1% #950, 444 - 5th Avenue, SW Calgary, Alberta Canada TOP 2T8 Dennis R. Staal 107,599 2.6% 216 - 16th Street, Suite 730 Denver, CO 80202 Irwin Kaufman 43,600 1.0% 8224 Paseo Vista Drive Las Vegas, NV 89128 Rafiq Sayed 21,500 .05% 102 Avenue of the Estates Cary, NC 27511 Theron J. Graves 1,178,548 22.0% 761 South Miller Farmington, NM 87499 All Executive Officers and 2,460,273 56.8% Directors as a Group (7 Persons) __________________ 26 Excludes 75,000 shares which have been pledged to Capco Resources Ltd. to secure certain guarantees made to it by NFF, Ltd. and PAMDEN, Ltd. Represents 40,240 shares held directly by Mr. Names, 265,000 shares held by NFF, Ltd., a limited partnership of which he served as general partner; 2,400 shares held by his wife of which he disclaims beneficial ownership, and 66,667 shares underlying stock options exercisable within 60 days by Mr. Names. Of the shares held by NFF, Ltd., 55,000 have been pledged to Capco Resources Ltd. to secure a guarantee made by NFF, Ltd. Includes shares of the Company held by Capco Resources Ltd. of which Mr. Chaudhary is Chairman of the Board, Chief Executive Officer and beneficially owns over 50% of its outstanding stock and 66,667 shares underlying stock options exercisable within 60 days by Mr. Chaudhary. Includes 5,400 shares held by Mr. Staal; 71,500 shares held by PAMDEN, Ltd., a limited partnership of which Mr. Staal is general partner; 8,432 shares held by Mystique Resources Company which is wholly owned by PAMDEN, Ltd.; 600 shares held by an IRA and 21,667 shares underlying stock options exercisable within 60 days by Mr. Staal. Of the shares held by PAMDEN, Ltd., 20,000 have been pledged to Capco Resources Ltd. to secure a guarantee made by PAMDEN, Ltd. Consists of 30,000 shares underlying stock options exercisable within 60 days by Mr. Kaufman and 13,600 shares owned by Mr. Kaufman directly . Consists of 2,500 shares underlying stock options exercisable within 60 days by Mr. Sayed and 19,000 shares owned by Mr. Sayed directly. 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. Includes 6,300 shares held directly and 20,000 shares underlying stock options exercisable within 60 days held by Paul W. Greaves, who is President and Chief Executive Officer of certain of the Company's subsidiaries. Includes 2,000 shares held directly by Robert Jensen, who is President of Fleischli Oil Company, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS INVOLVING THE COMPANY'S OFFICERS AND DIRECTORS During 1993, Edward J. Names, Dennis R. Staal, Daniel B. Matter and C. Thomas Houseman, the Company's founders, purchased a total of 475,500 shares of the Company's Common Stock for total consideration of $30,750 cash and $800 in interest expense and services rendered. In addition, these persons have advanced funds to the Company from time to time. Edward J. Names, President of Meteor, has personally guaranteed debt due to Norwest Business Credit, Inc., as described above, up to a maximum of $250,000 related to the Graves acquisition and $250,000 related to the Hillger acquisition and $250,000 related to the Fleischli acquisition. Mr. Names and Dennis R. 27 Staal, who is Secretary and Treasurer of Meteor, each have agreed to personally guarantee the debts of Graves and Hillger to its major suppliers. Capco Resources Ltd. has agreed to indemnify Edward Names and Dennis Staal relating to such guarantees. TRANSACTIONS INVOLVING GRAVES On September 28, 1993, the Company acquired all of the issued and outstanding common stock of Graves Oil & Butane Co., Inc. from its sole shareholder, Theron J. Graves. As a result of the transaction, Theron J. Graves retired as the Company's chief executive officer but agreed to provide consulting services for a period of seven years. Mr. Graves continues his investment by holding 1,000,000 shares of convertible cumulative preferred stock of Graves. The convertible preferred stock has a total liquidation preference of $3,543,500 and accruing dividends at a rate of 8% per annum until the date of redemption, which shall be no earlier than September 15, 2000 (the "Convertible Securities"). In the event of a default under the promissory note issued to purchase the Graves common stock, the holders of the Graves Series A Preferred have the ability to elect all the Graves directors. The Company's preferred stock obligations are secured by the unencumbered fixed assets of Graves. These securities are convertible into common stock of Graves or the Company at the bid price on the date of conversion or a maximum of 22.2% of the Company, whichever calculation yields fewer shares. The preferred stock, on conversion, also carries certain piggy-back registration rights. Theron Graves has agreed to indemnify the Company until September 2000 against all losses and expenses exceeding $25,000 per year up to a cumulative total of $8,000,000 relating to environmental liabilities associated with the properties of the Company as of the closing date or any inaccuracies in the representations and warranties in the purchase agreement. The Company leases real estate in Colorado from Mr. Theron Graves and subleases the property to a truck stop operator. Graves pays property taxes and insurance expense on the property. In addition, the Company leases land from Mr. Graves on which a yard, warehouses and offices are located. The parties have entered into an agreement which provides for regular payments of $500 per month beginning September 1, 1993. The rent escalates at 5% per annum, the lease term is 25 years, and the Company has two ten year options to extend such lease. TRANSACTIONS INVOLVING CAPCO RESOURCES LTD. In June 1995, Capco Resources, Inc. ("CRI") purchased 378,000 (as adjusted for the 8% stock dividend) shares of the Company's Common Stock for $700,000 in cash. As a result of this transaction, CRI's parent, Capco Resources Ltd. ("Capco"), became a principal shareholder of the Company. Immediately prior to the acquisition of CRI by the Company, CRI sold all 378,000 shares held by it to Adres Chaudhary (who is not related to Ilyas Chaudhary) for the forgiveness of debt in the amount of approximately $700,000. CRI offered Adres Chaudhary this asset to reduce its debt to him. Adres Chaudhary has since transferred such shares to two individuals in a private transaction. Neither individual owns more than 5% of the Company's common stock. In November 1995, the Company issued 1,745,000 shares of its Common Stock in exchange for all of the outstanding stock of CRI. The shares of the Company's Common Stock issued in this transaction, which represented approximately 53% of the shares now outstanding, were issued to a U.S. subsidiary of Capco. As a result of this transaction, there was a change in control of the Company and one 28 of the Company's three directors was replaced by a Capco representative. The major assets of CRI included: (i) an interest in Saba Power Company Ltd., which is involved in the development of a power plant in Pakistan; (ii) all of the stock of Capco Analytical Services, Inc., a California environmental services firm; and (iii) a $1,516,000 promissory note from Saba Petroleum Company and other miscellaneous assets. Saba Petroleum Company is a publicly-held company of which Ilyas Chaudhary, the Company's Chief Executive Officer, is an officer, director and principal shareholder. The promissory note has been paid in full. Capco has agreed to guarantee the prepayment of such note prior 2006 and has agreed to pay an additional 2% interest until the note is fully paid. Subsequent to November 1995, all of the assets of CRI, except its interest in Saba Power Company Ltd., have been transferred to the Company. In connection with the agreement with Capco, NFF, Ltd. and PAMDEN, Ltd., limited partnerships which are controlled by Edward J. Names and Dennis R. Staal, respectively, guaranteed on a limited recourse basis the representations and warranties of the Company in the agreement. To collateralize these guarantees, NFF, Ltd. and PAMDEN, Ltd. pledged 55,000 and 20,000 shares, respectively, to Capco. Also in connection with this agreement a subsidiary of Capco agreed to indemnify Edward J. Names and Dennis R. Staal against any liability they may incur as a result of the personal guarantees they have given in order to assist the Company and its subsidiaries. TRANSACTION WITH SABA PETROLEUM COMPANY On December 27, 1996, the Company entered into an agreement with Saba Petroleum Company concerning the ownership of Meteor Holdings LLC. The terms for this agreement are set forth in this report under "ITEM 1. DESCRIPTION OF BUSINESS -- SABA POWER COMPANY LTD." Ilyas Chaudhary is President, Chief Executive Officer and a Director of Saba Petroleum Company, which is listed on the American Stock Exchange. Mr. Chaudhary is also a principal shareholder of Capco Resources, Ltd., which owns a majority of the stock of Saba Petroleum Company and Meteor Industries, Inc. CONFLICTS OF INTEREST All of the Company's Officers and Directors have been in the past and may continue to be active in other business with other companies and on their own behalf. These activities could give rise to potential conflicts with the interests of the Company. The Company's officers, directors, and other management personnel are subject to the doctrine of corporate opportunities only insofar as it applies to business opportunities in which the Company has indicated an interest, either through its proposed business plan or by way of an express statement of interest contained in the Company' minutes. Pursuant to a resolution of the Board of Directors of the Company, the Officers are required to make available to the Company any business opportunity relating to the wholesale and retail distribution of refined petroleum products which comes to the attention of any such Officer, and the Company shall have a right of first refusal with regard to such opportunity. A second resolution of the Board of Directors sets forth that if a business opportunity relating to the wholesale and retail distribution of refined petroleum comes to the attention of a Director and specifically is presented to the Director in his capacity as such, it must be disclosed to the Company and made available to it. No Officer or Director owes a fiduciary duty to another entity similar to the duty owed to the Company 29 regarding business opportunities related to services and products provided by the Company. A majority of the disinterested Directors may reject a corporate opportunity for various reasons. If the Company rejects an opportunity, then any Director or Officer may avail himself or themselves of such opportunity. In addition, if an opportunity is presented to the Company, and one or more of the Company's Officers or Directors has an interest in the opportunity, the opportunity will be reviewed at a meeting of the Board of Directors and the interested Director(s) will not vote on issues relating to such opportunity. The Board of Directors has not yet adopted any resolutions related to other aspects of the Company's business. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following statements are filed as part of this Report: Page(s) Report of Independent Accountants ................................ F-1 Consolidated Balance Sheets - December 31, 1997 and 1996 ......... F-2 Consolidated Statements of Operations - December 31, 1997, 1996 and 1995..................................................... F-4 Consolidated Statement of Shareholders' Equity - December 31, 1997 1996 and 1995................................................ F-5 Consolidated Statements of Cash Flow - December 31, 1997, 1996 and 1995.................................................... F-6 Notes to Consolidated Financial Statements ....................... F-9 Financial Statement Schedule Report of Independent Accountants................................. S-1 Schedule 2 - Valuation and Qualifying Accounts.................... S-2 (b) Exhibit Number Description Location - ------- -------------------------- ------------------------------------ 3.1 Articles of Incorporation, Incorporated by reference to Exhibit as amended 2.1 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 3.2 Bylaws Incorporated by reference to Exhibit 2.2 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.1 Stock Option Plan Incorporated by reference to Exhibit 6.1 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.2 Stock Purchase Agreement Incorporated by reference to Exhibit among Registrant, Graves 6.2 to Registrant's Form 1-A Offer- Oil & Butane Co., Inc. and ing Statement (SEC File No. 24D-3802 Theron J. Graves dated June SML) 23,1993, Amendment dated August 23, 1993 and Closing Memorandum dated September 28, 1993 30 10.3 $2,350,000 Promissory Note Incorporated by reference to Exhibit payable to Theron J. Graves 6.3 to Registrant's Form 1-A Offering and Security Agreement Statement (SEC File No. 24D-3802 SML) 10.4 Notes Receivable ($550,000 Incorporated by reference to Exhibit and $100,000) from Theron 6.4 to Registrant's Form 1-A Offer- J. Graves ing Statement (SEC File No. 24D-3802 SML) 10.5 Registration Agreement Incorporated by reference to Exhibit regarding Subsidiary's 6.5 to Registrant's Form 1-A Offering Preferred Stock Statement (SEC File No. 24D-3802 SML) 10.6 Security Agreement regard- Incorporated by reference to Exhibit ing Subsidiary's Preferred 6.6 to Registrant's Form 1-A Offering Stock Statement (SEC File No. 24D-3802 SML) 10.7 Consulting Agreement with Incorporated by reference to Exhibit Theron J. Graves 6.7 to Registrant's Form 1-A Offering Statement (SEC File No. 24D-3802 SML) 10.8 Lease regarding corporate Incorporated by reference to Exhibit offices and storage yard 6.11 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML) 10.9 Lease regarding Albuquerque Incorporated by reference to Exhibit warehouse 6.12 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML) 10.10 Lease regarding East Main Incorporated by reference to Exhibit Properties 6.13 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML) 10.11 Norwest Credit and Security Incorporated by reference to Exhibit Agreement 6.14 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML) 10.12 $4,000,000 Note Payable to Incorporated by reference to Exhibit Norwest (partially drawn 6.15 to Registrant's Form 1-A Offer- upon) ing Statement (SEC File No. 24D-3802 SML) 10.13 Meteor Corporate Guarantee Incorporated by reference to Exhibit as regarding Norwest 6.16 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML) 10.14 Employment Agreement with Incorporated by reference to Exhibit Edward J. Names 6.17 to Registrant's Form 1-A Offer- ing Statement (SEC File No. 24D-3802 SML) 10.15 Leases regarding Cortez Incorporated by reference to Exhibit truck stop 6.18 to Registrant's Form 1-A Offer- 31 ing Statement (SEC File No. 24D-3802 SML) 10.16 Agreement between the Incorporated by reference to Exhibit Registrant and Hillger Oil 10.16 to Company's Registration Statement on Form 10 (SEC File No. 0-27986) 10.17 Lease Agreement between Incorporated by reference to Exhibit Hillger Oil Co., Inc. and 10.17 to Company's Registration Hillco, Inc. Statement on Form 10 (SEC File No. 0-27968) 10.18 Credit and Security Agree- Incorporated by reference to Exhibit ment between Hillger Oil 10.18 to Company's Registration Co., Inc. and Norwest Statement on Form 10 (SEC File No. Business Credit, Inc. 0-27968) 10.19 Project Development and Incorporated by reference to Exhibit Shareholders' Agreement 10.19 to Company's Registration for Pakistan Power Project Statement on Form 10 (SEC File No. 0-27968) 10.20 Amended and Restated Share Incorporated by reference to Exhibit Exchange and Reorganization 10.20 to Company's Registration Agreement Statement on Form 10 (SEC File No. 0-27968) 10.21 Amendment to Employment Incorporated by reference to Exhibit Agreement with Edward J. 10.21 to Company's Registration Names Statement on Form 10 (SEC File No. 0-27968) 10.22 Amended and Restated Incorporated by reference to Exhibit Promissory Note from Saba 10.22 to Company's Registration Petroleum Company to Capco Statement on Form 10 (SEC File No. Resources, Inc. 0-27968) 10.23 1997 Incentive Plan Incorporated by reference to Exhibit 10.23 to Company's Form 10-K dated 12/31/96 (SEC File No. 0-27968) 10.24 Second Amended and Restated Incorporated by reference to Exhibit Agreement between Meteor 10.24 to Company's Form 10-K dated Industries, Inc., Capco 12/31/96 (SEC File No. 0-27968) Resources, Inc. and Saba Petroleum Company 10.25 Shareholder's Agreement Incorporated by reference to Exhibit among Cogen Technologies, 10.25 to Company's Form 10-K dated Saba Capital Company, LLC, 12/31/96 (SEC File No. 0-27968) Capco Resources, Inc., et al 10.26 Letter Agreement with Incorporated by reference to Exhibit Western Energy Resources 10.26 to Company's Form 10-K dated Limited 12/31/96 (SEC File No. 0-27968) 32 10.27 Letter Agreement between Incorporated by reference to Exhibit Meteor Industries, Inc. 10.27 to Company's Form 10-K dated and Capco Resources, Ltd. 12/31/96 (SEC File No. 0-27968) dated April 23, 1996 10.28 Meteor Corporate Guaranty Filed herewith electronically with Norwest Business Credit, Inc. 10.29 Revolving Note with Nor- Filed herewith electronically west Business Credit, Inc. 10.30 Credit and Security Filed herewith electronically Agreement 21 Subsidiaries of the Filed herewith electronically Registrant 27.1 Financial Data Schedule for Filed herewith electronically fiscal year ending December 31, 1997 33 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Meteor Industries, Inc.: We have audited the consolidated financial statements of Meteor Industries, Inc. as of December 31, 1997 and 1996 and for each of the three years in the period ending December 31, 1997, as listed in Item 14(a) of this Form 10-K. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Meteor Industries, Inc. as of December 31, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ending December 31, 1997, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Denver, Colorado March 31, 1998 F-1 METEOR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS ASSETS December 31 December 31 1997 1996 CURRENT ASSETS Cash $ 225,694 $ 151,992 Restricted cash 1,150,266 928,355 Accounts receivable-trade, net of allowance of $455,067 and $242,246 respectively 9,745,318 5,134,276 Accounts receivable, related party 91,919 109,149 Notes receivable, net 106,031 736,045 Inventory 3,818,332 1,221,729 Deferred tax asset 404,970 -- Other current assets 283,604 206,401 Total current assets 15,826,134 8,487,947 Property, plant and equipment, net 13,939,783 8,277,368 Other assets Notes receivable, net 179,110 1,598,430 Investments in closely held businesses 1,395,045 1,285,407 Other assets 601,279 784,579 Total other assets 2,175,434 3,668,416 TOTAL ASSETS $31,941,351 $20,433,731 Continued on next page F-2 METEOR INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND SHAREHOLDERS' EQUITY December 31 December 31 1997 1996 CURRENT LIABILITIES Accounts payable, trade $ 5,655,272 $ 3,512,257 Accounts payable, related party 26,407 -- Bank overdraft 327,734 170,308 Current portion, long-term debt 592,195 2,176,357 Accrued expenses 826,875 212,940 Taxes payable 1,672,586 730,034 Revolving credit facility 3,833,572 2,141,027 Total current liabilities 12,934,641 8,942,923 Long-term debt 2,912,183 445,774 Deferred tax liability 2,288,349 1,773,240 Minority interest in subsidiaries 4,515,010 4,151,903 Total liabilities 22,650,183 15,313,840 Commitments and contingencies (Notes 11, 12 and 13) SHAREHOLDERS' EQUITY Common stock, $.001 par value; authorized 10,000,000 shares, 4,130,228 and 3,310,138 shares issued and outstanding, respectively 4,130 3,310 Paid-in capital 6,319,071 2,660,973 Treasury stock, at cost, 18,500 and 0 shares held respectively (88,694) -- Retained earnings 3,056,661 2,455,608 Total shareholders' equity 9,291,168 5,119,891 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $31,941,351 $20,433,731 The accompanying notes are an integral part of the financial statements. F-3 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31 1997 1996 1995 Net sales $ 88,439,730 $ 59,984,499 $ 9,828,092 Cost of sales 75,439,269 49,644,010 7,373,304 Gross profit 13,000,461 10,340,489 2,454,788 Selling, general and administrative expenses 10,858,086 8,269,292 2,243,612 Depreciation and amortization 956,101 849,607 151,709 Total expenses 11,814,187 9,118,899 2,395,321 Income from operations 1,186,274 1,221,590 59,467 Other income and (expenses) Interest income 376,463 361,271 28,047 Interest expense (603,903) (474,136) (91,621) Other 480,482 -- -- Gain (loss)on sale of assets 143,909 34,323 (7,460) Total other income and (expenses) 396,951 (78,542) (71,034) Income (loss) from continuing oper- ations before income taxes and minority interest 1,583,225 1,143,048 (11,567) Income tax (expense) benefit (582,627) (394,745) 1,470 Minority interest expense (399,545) (286,505) (63,544) Income (loss) from continuing operations $ 601,053 $ 461,798 (73,641) Discontinued operations: Income from discontinued operations (net of applicable income taxes of $452,620) -- -- 441,197 Gain on disposal of discontinued operations (net of applicable income taxes of $100,000) -- -- 1,429,256 Net income $ 601,053 $ 461,798 $ 1,796,812 Earnings (loss) per common share and equivalent: Basic Continuing operations $ .16 $ .15 $ (.15) Discontinued operations -- -- 3.82 Net income $ .16 $ .15 $ 3.67 Diluted Continuing operations $ .16 $ .14 $ (.15) Discontinued operations -- -- 3.80 Net income $ .16 $ .14 $ 3.65 Weighted average common share and common share equivalents: Basic 3,821,061 3,184,397 489,035 Diluted 3,862,826 3,227,496 492,535 The accompanying notes are an integral part of the financial statements. F-4 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 1997, 1996 and 1995 Additional Common Stock Paid-In Retained Treasury Shares Amount Capital Earnings Stock Total Balance - January 1, 1995 100 $ 100 $ 511,920 $ 196,998 -- $ 709,018 Stock issued and restated for reverse acquisition 3,022,803 2,923 1,411,420 -- -- 1,414,343 Stock issued during the year 2,000 2 3,998 -- -- 4,000 Net income -- -- -- 1,796,812 -- 1,796,812 Balance - December 31, 1995 3,024,903 $3,025 $1,927,338 $1,993,810 $ -- $3,924,173 Stock issued dur- ing the year 285,235 285 733,635 -- -- 733,920 Net income -- -- -- 461,798 -- 461,798 Balance - December 31, 1996 3,310,138 $3,310 $2,660,973 $2,455,608 -- $5,119,891 Stock issued dur- ing the year 820,090 820 3,597,709 -- -- 3,598,529 Warrants issued during the year -- -- 60,389 -- -- 60,389 Treasury stock acquisition -- -- -- -- (88,694) (88,694) Net income -- -- -- 601,053 -- 601,053 Balance - December 31, 1997 4,130,228 $4,130 $6,319,071 $3,056,661 $(88,694) $9,291,168 The accompanying notes are an integral part of the financial statements. F-5 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Ended December 31 1997 1996 1995 Cash flows from operating activities Net income $ 601,053 $ 461,798 $ 1,796,812 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 956,101 849,607 159,416 Loss (gain) on disposal of property & equipment (143,909) (34,323) 7,460 Deferred income taxes (249,457) 35,269 (1,470) Minority interest 399,545 286,505 63,544 Other 0 (11,486) 0 (Increase)/decrease in accounts receivable 1,815,430 (1,073,621) (314,741) Increase/(decrease) in bad debt reserve 212,821 55,267 186,979 (Increase)/decrease in inventories (363,556) 110,913 (32,022) (Increase)/decrease in other current assets (77,203) (55,298) 22,297 Increase/(decrease)accounts payable (2,321,095) 642,212 289,544 Increase/(decrease) in accrued liabilities (743,950) 10,247 (113,889) Increase/(decrease) in taxes payable 930,154 (216,068) 60,115 (Increase)/decrease in other assets 142,712 (219,069) 8,207 Discontinued operations -- -- (31,160) Net cash provided by operating activities 1,158,646 841,953 2,101,092 Cash flows from investing activities Acquisition of Fleischli, net of acquired cash (3,525,608) 0 0 Cash proceeds from sale of property 178,143 116,885 0 Purchases of property and equipment (1,230,148) (253,202) (57,003) Loans to related parties 0 (68,220) (1,516,000) Net cash from reverse acquisition 0 0 537,853 Investment in closely held business (109,638) (876,266) (401,999) Note receivable payments 2,111,691 158,188 58,556 Net cash (used) by investing activities (2,575,560) (922,615) (1,378,593) Continued on next page F-6 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the Year Ended December 31 1997 1996 1995 Cash flows from financing activities Borrowings on revolving credit facilities $76,864,675 $56,203,123 $ 7,734,473 Payments on revolving credit facilities (77,272,130) (56,337,608) (7,922,104) Increase in bank overdraft 157,426 98,651 71,657 Borrowings on long-term debt 1,560,261 133,727 82,215 Sale of minority interests in subsidiary 37,387 250,000 -- Distribution to minority interest (73,825) -- -- Payments on long-term debt (3,131,491) (582,417) (56,903) Proceeds from common stock issued 3,658,918 733,920 4,000 Purchase of treasury stock (88,694) -- -- Restricted cash (221,911) (386,391) (541,964) Insurance proceeds -- 24,499 -- Net cash provided (used) by financing activities 1,490,616 137,504 (628,626) Net increase in cash and equivalents 73,702 56,842 93,873 Cash and equivalents, beginning of period 151,992 95,150 1,277 Cash and equivalents, end of period $ 225,694 $ 151,992 $ 95,150 NON CASH INVESTING AND FINANCING ACTIVITIES Acquisition of CRI by issuance of stock accounted for as a reverse acquisition Property, plant and equipment $ -- $ -- $2,066,503 Deferred taxes $ -- $ -- $ (805,936) Stockholders' equity $ -- $ -- $1,260,567 Acquisition of property with debt $ 701,955 $ 315,000 $ -- Capital lease assets and obligations assumed $1,094,811 $ 13,308 $ -- Accounts receivable replaced with note receivable $ -- $ 55,000 $ -- Other operating cash flow information: Cash paid for taxes $ 703,755 $ 537,600 $ 34,152 Cash paid for interest $ 641,894 $ 485,531 $ 53,005 F-7 METEOR INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) For the Year Ended December 31 1997 1996 1995 ACQUISITION OF FLEISCHLI OIL COMPANY Accounts receivables, net 6,622,063 -- -- Notes receivable 62,357 -- -- Inventory 2,233,047 -- -- Deferred tax asset 262,055 -- -- Property, plant and equipment 4,934,957 -- -- Accounts payable, trade (4,490,517) -- -- Current portion, long term debt (460,195) -- -- Accrued expenses (1,357,885) -- -- Taxes payable (12,398) -- -- Revolving credit facility (2,100,000) -- -- Long term debt (1,291,327) -- -- Deferred tax liability (876,549) -- -- Total $3,525,608 $ -- $ -- The accompanying notes are an integral part of the financial statements. F-8 METEOR INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Meteor Industries, Inc.("Meteor" or "Company") was incorporated on December 22, 1992, as a Colorado based holding company. Graves Oil & Butane Co., Inc. ("Graves"), which was acquired effective September 1, 1993, is a wholesale and retail distributor of petroleum products primarily in northern New Mexico, Colorado, Arizona and Utah. Graves also operates retail gasoline and convenience stores in northern New Mexico in its own account and through limited liability companies, El Boracho, Inc., which was acquired September 1, 1993, holds a liquor license for use by an Albuquerque, New Mexico convenience store. Hillger Oil Company ("Hillger"), which was acquired effective April 1, 1995, is a wholesale and retail distributor of petroleum products primarily in southern New Mexico and Arizona in its own account and through limited liability companies. Capco Resources, Inc. ("CRI"), is a holding Company involved in the development of a power project in Pakistan. The acquisition of CRI was accounted for as a reverse acquisition with CRI treated as the acquirer. In 1996 the Company transferred its ownership of CRI to Meteor Holdings LLC ("MHL"). Innovative Solutions and Technologies, Inc. ("IST") is involved in providing environmental consulting. Fleischli Oil Company, Inc. ("Fleischli"), which was acquired effective August 1, 1997, is a wholesale distributor of petroleum products primarily in Wyoming, Colorado, Utah and Nebraska. PRINCIPLES OF CONSOLIDATION AND ORGANIZATION - The consolidated financial statements include the accounts of Meteor Industries, Inc., and its wholly owned subsidiaries, Graves, including its wholly owned subsidiary, El Boracho, Inc., its wholly owned subsidiary Bloomfield Pyramid L.L.C., Hillger, including its 75% owned subsidiary Hatch Pyramid LLC and its wholly owned subsidiary Socorro Pyramid L.L.C., Fleischli, and IST and Meteor's 73% owned subsidiary, Meteor Holdings LLC. All significant intercompany transactions and balances have been eliminated in consolidation. USE OF ESTIMATES - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these financial statements. Actual results may differ from these estimates. RESTRICTED CASH - The Company has revolving bank credit facilities which require the use of depository accounts from which collected funds are transferred to the lender. The lender then applies these collections to the revolving credit facilities. These accounts are controlled by the lender. FAIR VALUE OF FINANCIAL INSTRUMENTS - Accounts receivable, accounts payable and accrued expenses are stated in fair value due to their short-term nature. The carrying value of notes receivable approximates fair value. The carrying value of notes payable approximates fair value since the notes are either very recent or have variable interest rates. INVENTORIES - Inventories are stated at the lower of cost or market. Inventories of petroleum products, greases and oils, and related products are stated at weighted average cost for Hillger and the last in first out (LIFO) basis for Graves and Fleischli. Sundries inventories are valued by the retail method and stated on the first in, first out (FIFO) basis which is lower than market. The amount of inventory valued using the LIFO method is $3,095,132 and F-9 $543,122 at December 31, 1997 and 1996, respectively. The LIFO reserve at December 31, 1997 and 1996 is $403,065 and $348,382, respectively. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost; major renewals and improvements are charged to the property and equipment accounts; while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets, are expensed currently. At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements or sales are credited or charged to operations. REVENUE RECOGNITION - Revenue from product sales is recognized when the product is delivered. Revenue from services is recognized when the services are performed and billable. DEPRECIATION - Depreciation is recorded principally on the straight-line method at rates based on the estimated useful lives of the assets. The estimated useful lives are as follows: DESCRIPTION LIVES Buildings and improvements 5 to 40 years Equipment 5 to 20 years COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES - The Company periodically evaluates its costs in excess of net assets acquired (goodwill) and its other intangibles to determine whether any impairment of these assets has occurred, in accordance with Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. In In making such determination with respect to goodwill, the Company evaluates the performance using cash flows, on an undiscounted basis, of the underlying businesses which gave rise to such amount. With respect to other intangibles, which include the cost of license agreements, covenants not to compete and organization costs, the Company bases its determination on the performance using cash flows, on an undiscounted basis, of the related products. The Company's goodwill results from the acquisition of Hillger. Any impairments are recognized using discounted cash flows. The assets acquired in these transactions continue to contribute a significant portion of the Company's net revenues and earnings. Substantially all costs in excess of net assets (goodwill) of subsidiaries acquired are being amortized on the straight-line method over fifteen years. Other intangibles, which include the costs of license agreements, covenants not to compete and organization costs, are being amortized over five years using the straight-line method. INCOME TAXES - Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of certain assets and liabilities for financial and tax reporting. The deferred taxes represent the future consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. ENVIRONMENTAL EXPENDITURES - Expenditures that relate to current operations are F-10 expended or capitalized as appropriate for each expenditure. Whenever an expenditure relates to an existing condition caused by past operations and does not contribute to future revenues, and is not subject to recovery, the expenditure is expensed currently. Liabilities are recorded when remedial efforts are probable and the cost can be reasonably estimated. The recoverability of expenditures is recognized when the expenditure is incurred. The estimated future expenditures are discounted at 10% to present value. EARNINGS PER SHARE - The Company retroactively adapted SFAS No. 128, "Earnings Per Share" in 1997. Earnings per common and common equivalent share are computed by dividing the net income by the weighted average number of common shares outstanding. A reconciliation of the denominator used in the calculation of basic and diluted earnings per share is presented below. Antidilutive stock options and warrants 849,300, 0, 28,200 for the years ended December 31, 1997, 1996 and 1995, respectively, are omitted from the denominator. The numerator is unchanged. The shares available upon exchange of a subsidiary's preferred stock 1,122,864, 854,989, 863,147 for the years ended December 31, 997, 1996 and 1995, respectively, are omitted as they are antidilutive. 1997 1996 1995 ---- ---- ---- Denominator: Average common shares outstanding 3,821,061 3,184,397 489,035 Average dilutive stock options and warrants 41,765 43,099 3,500 Diluted shares 3,862,826 3,227,496 492,535 NOTE 2 -- PROPERTY AND EQUIPMENT The major classifications of property and equipment are as follows: 1997 1996 DESCRIPTION AMOUNT AMOUNT Land $ 2,313,992 $ 1,326,349 Buildings and improvements 3,859,672 1,378,282 Equipment 9,564,469 6,512,753 15,738,133 9,217,384 Accumulated depreciation (1,798,350) (940,016) Net property and equipment $13,939,783 $ 8,277,368 NOTE 3 -- NOTES RECEIVABLE The Company had two outstanding notes receivable from its minority interest shareholder (100% preferred stockholder of Graves) in the amounts of $550,000 and $100,000, which became due in October 1997 and were paid. Accrued interest receivable at December 31, 1996 totaled $45,793. The Company had a note receivable from another subsidiary of Capco Resources Ltd. (a 44% owner of the Company) in the amount of $1,516,000, which was paid in 1997. The Company has a note receivable from a former subsidiary in the amount of F-11 $132,293. Interest and principle is receivable monthly The interest rate is 8%. $22,411 is classified as current and $109,882 is long term. The Company also has various notes receivable created through its operations. The notes have varying interest rates and terms. At December 31, 1997, the total of the notes are $152,848, of which $83,620 is classified as current and $69,228 is long term. NOTE 4 -- INVESTMENTS IN CLOSELY HELD BUSINESSES The Company owns 50% of the Graves Rio Rancho No. 1 Ltd. Co. The investment was acquired in May 1994. The Company reports its investment in this limited liability company using the equity method. The carrying value was $216,052 at December 31, 1997. This investment is not publicly traded. The Company owns 50% of the Coors Pyramid L.L.C. The investment was acquired in June, 1996. The Company reports its investment in this limited liability company using the equity method. The carrying value was $173,491 at December 31, 1997. This investment is not publicly traded. The Company owns 33% of American L.P., Ltd. The investment was acquired in December 1995, for $100,014. The Company reports its investment in this limited liability Company using the equity method. This investment is not publicly traded. The carrying value was $65,302 at December 31, 1997. At December 31, 1997, the Company had invested $690,200 in Meteor Holdings LLC ("MHL") MHL owns an interest in Saba Power Company, Ltd. (the "Power Project"). The investment in the Power Project is reported using the cost method. The Company also entered into an agreement with Saba Petroleum Company ("Saba") whereby Saba, a related party, participated in the Power Project. Saba invested $250,000 in MHL resulting in MHL's total investment of $940,200 in the Power Project. Saba owns approximately .5% interest in the Power Project through its ownership of 27% of MHL. The Company owns approximately 1.5% of the Power Project through its ownership of 73% of MHL. Saba's .5% interest in the project is subject to the same terms and conditions as the Company's 1.5% interest. These percentages, however, could be reduced in the event that other shareholders of Saba Power are required to make additional contributions to equity. The Company is not required to invest any additional capital related to the Power Project. If costs of the project exceed budget and capital is required then the Company will have the choice of investing more capital or suffering ordinary dilution to its ownership interest without incurring any penalties. NOTE 5 -- REVOLVING CREDIT FACILITY Revolving Credit Facility at December 31, consisted of the following: 1997 1996 $3,000,000 revolving bank credit facility, payable to Norwest Business Credit, Inc., bearing interest at Norwest Bank Minnesota, N.A., base rate plus 1.5% (10.0% and 10.25% at December 31, 1997 and 1996, respectively), due June 30, 1999. Collateralized by trade accounts receivable and inventory of Graves. $ 779,501 $1,861,189 F-12 $1,500,000 revolving bank credit facility, payable to Norwest Business Credit, Inc., bearing interest at Norwest Bank Minnesota, N.A., base rate plus 1.5% (10.0% and 10.25% at December 31, 1997 and 1996, respectively), due June 30, 1999. Collateralized by trade accounts receivable and inventory of Hillger $ 507,127 $ 279,838 $5,000,000 revolving bank credit facility, pay- able to Norwest Business Credit, Inc., bearing interest at Norwest Bank Minnesota, N.A., base rate plus 1.5% (10.0% at December 31, 1997), due June 30, 1999. Collateralized by trade accounts receivable and inventory of Fleischli $ 2,546,944 $ -- Total $ 3,833,572 $2,141,027 The revolving bank credit facility agreements require the Company to maintain certain net worth and performance ratio levels and meet certain financial reporting requirements. As discussed in Note 1, payments on these loans are made through collateral cash accounts in the name of the lender. The unused borrowing base at December 31, 1997, was $1,075,334. Hillger was in default of its net worth and net income requirement, as well as its requirements regarding liens, indebtedness and investments in subsidiaries, in December, 1997, however Hillger received a waiver of these defaults. Fleischli was in default of its covenant regarding capital expenditures in December, 1997, for which a waiver was obtained. Graves, Hillger and Fleischli were in default of certain financial reporting requirements for which waivers were obtained. NOTE 6 -- LONG-TERM DEBT Long-term debt at December 31, consisted of the following: 1997 1996 Note payable to Theron Graves, semiannual payments of $200,000 including interest at prime plus 2% (10.25% at December 31 1996), collateralized by half of Graves common stock, matured in October 1997. $ -0- $1,759,139 Note payable to First National Bank of Farmington, monthly payments of $19,000 including interest at prime plus 2% (10.25% at December 31, 1996) collateralized by mortgage on buildings and land, paid in December 1997. -0- 211,872 Note payable to Norwest Business Credit, Inc., monthly payments of $10,417 plus interest at Norwest Bank of Minnesota, N.A. base rate plus 3.0% in 1996 and base rate plus 2.5% in 1997 (11.0% and 11.25% at December 31, 1997 and 1996, respectively), collateralized by property and equipment, due June 1998. 62,490 187,494 F-13 Note payable to The Spot, quarterly payments of $14,326 plus interest at 7.00%, collateralized by mortgage on building and land, matures December, 2003. 278,817 315,000 Note payable to unaffiliated third party annual payment of $20,000 with no interest and no collateral, matures June, 2000. 40,000 60,000 Note payable to Ford Motor Credit, monthly payments of $329 including interest at 11.9%, collateralized by equipment, matures December, 1999. 6,996 9,919 Note payable to GMAC, monthly payments of $257, including interest at 9.95%, collateralized by equipment, matures April, 2000. 6,246 8,533 Note payable to GMAC, monthly payments of $387, including interest at 9.95%, collateralized by equipment. Paid in 1997. -0- 9,330 Note payable to GMAC, monthly payments of $604, including interest at 10.12%, collateralized by equipment, Paid in 1997. -0- 18,681 Note payable to unaffiliated third party monthly payment of $1,772 including interest at 8.5%, collateralized by land and building, matures October, 2011. 178,700 -0- Note payable to Phillips Performance Fund, monthly payments of $7,863 including interest at commercial paper rate plus 1.8%, collater- alized by mortgage on building and land, matures July, 2007. 648,083 -0- Note payable to Norwest Bank, Albuquerque, monthly payments of $13,098 including interest at 9.65%, collateralized by mortgage on building and land, matures November, 2002, the agreement requires the company to maintain certain net worth and cashflow levels. 1,000,000 -0- Notes payable to American National Bank, due in monthly installments of $6,259, including interest at the Wall Street Journal prime, currently 8.5%, plus .5% collateralized by real estate, due November, 2002. 350,792 -0- Note payable to Sun Company, Inc., monthly payments of $4,853 including interest at 8.0%, not collateralized, due December, 2006. 360,652 -0- Note payable to American National Bank, monthly payments of $851 including interest F-14 at New York Citibank prime, currently 8.5%, plus 0.5%, collateralized by equipment, due April, 2000. 21,389 -0- Note payable to American National Bank, monthly payments of $696 including interest at New York Citibank prime, currently 8.5%, plus 0.5%, collateralized by equipment, due April, 2000. 17,489 -0- Note payable to American National Bank, monthly payments of $696 including interest at New York Citibank prime, currently 8.5%, plus 0.5%, collateralized by equipment, due April, 2000. 17,489 -0- Leases payable (Note 14) 515,235 42,163 Total 3,504,378 2,622,131 Current portion (592,195) (2,176,357) Long-term debt $2,912,183 $ 445,774 The following is a schedule by years of the repayment of long-term debt: PERIOD ENDING DECEMBER 31, AMOUNT 1998 $ 592,195 1999 538,496 2000 322,786 2001 301,224 2002 941,435 Remaining 808,242 Total $3,504,378 NOTE 7 -- MINORITY INTEREST IN SUBSIDIARIES The Series A Convertible Preferred Stock of Graves is limited voting stock and is entitled to cumulative annual dividends at a rate of 8% of the liquidation value. These securities are convertible into common stock of Graves or Meteor at the bid price on the date of conversion or 22.2% of Meteor based on whichever calculation yields fewer shares. The record holder has the right to vote on matters which affect the rights of the class and to elect two of the seven members of Graves' board of directors. In the event of default under the Meteor promissory note issued to purchase the Graves common stock, the holder of the Series A Convertible Preferred Stock has the ability to elect all of the Graves directors. The Company may at any time redeem all or any portion of the Series A Convertible Preferred Stock outstanding at an amount equal to the liquidation value plus all accrued and unpaid dividends. At any time after September 15, 2000, the record holder shall have the right to have the Company redeem all or any portion of the shares outstanding at the price stated above. No dividends have been declared by the board of directors. Dividends in arrears amount to $1,228,673 and $945,192 as of December 31, 1997 and 1996, respectively. The minority interest is recorded at its discounted value in the amount of $4,227,623. Dividends and accretion of the preferred stock discount are F-15 reflected in minority interest on the income statement. The Company owns 73% of MHL which owns 100% of Capco Resources, Inc. The minority interest of 27% is recorded at its cost basis of $250,000. The Company owns 75% of Hatch Pyramid L.L.C. The minority interest of 25% is recorded at its cost basis of $37,387. NOTE 8 -- INCOME TAXES The provision for income taxes from continuing operations consists of the following components: 1997 1996 1995 Current tax expense $ 832,084 $359,476 $ 0 Deferred tax expense (benefit) (249,457) 35,269 (1,470) Total provision $ 582,627 $394,745 $ (1,470) The following reconciles the tax provision with the expected provision obtained by applying federal and state statutory rates to pretax income (loss) from continuing operations: 1997 1996 1995 Expected tax provision $ 538,296 $ 445,789 $ (3,933) Nondeductible expenses 8,893 4,407 2,425 Benefit of operating loss carryforwards -- (40,107) -- State income taxes, net of federal benefit 35,438 (15,344) 38 Total provision $ 582,627 $ 394,745 $ (1,470) The deferred tax asset (liability) in the accompanying balance sheet includes the following components: 1997 1996 Current: Deferred tax asset(liability), federal $ 353,051 $ (5,042) Deferred tax asset(liability), state 51,919 (742) Net current deferred asset (liability) $ 404,970 $ (5,784) Noncurrent: Deferred tax liability, federal $(1,994,971) $(1,535,934) Deferred tax liability, state (293,378) (237,306) Net noncurrent deferred tax liability $(2,288,349) $(1,773,240) Net deferred tax liability $(1,883,379) $(1,779,024) Components of deferred income taxes at December 31, were as follows: F-16 1997 1996 Deferred tax asset: Accounts receivable $ 188,213 $ 82,776 Inventory 35,239 7,712 Other 59,231 16,052 Accrued environmental costs 122,287 -- Total deferred tax asset 404,970 106,540 Deferred tax liability: Depreciation and amortization $(2,288,349) $(1,773,240) Other -- (112,324) Total deferred tax liability (2,288,349) (1,885,564) Net deferred tax liability (1,883,379) (1,779,024) NOTE 9 -- DEFINED CONTRIBUTION PLAN Graves adopted a 401(k) Profit-Sharing Plan effective January 1, 1994. Excluded from the plan are employees whose employment is governed by a collective bargaining agreement that includes retirement benefits. Contributions to the plan are voluntary through a salary reduction agreement up to a maximum of 15% of compensation. Matching contributions and other additional contributions may be made by the employer at the employer's discretion. Contributions and fees for the years ended December 31, 1997, 1996, and 1995, were $2,665, $17,014 and $-0-, respectively. Hillger adopted a 401(k) Profit Sharing Plan effective April 1, 1994. No employees are excluded from the plan. Contributions to the plan are voluntary through a salary reduction agreement up to a maximum of 15% compensation. Matching contributions and other additional contributions may be made by the employer at the employer's discretion. For the years ended December 31, 1997, 1996 and 1995, Hillger's contribution and fees were $28,451, $13,056, and $4,346 respectively. Fleischli has a 401(k) Profit-Sharing Plan with eligibility requirements of 21 years of age and one year of service. The Plan provides for employee contributions not to exceed legal limitations, a discretionary employer matching contribution, and a discretionary profit-sharing contribution. The Company did not make any contributions to the Plan for the year ended December 31, 1997. NOTE 10 -- RELATED PARTY TRANSACTIONS The following are transactions that occurred with the minority interest (100% preferred stockholder) in Graves Oil & Butane Co., Inc.: The Company leases certain real estate from the preferred stockholder. For the years ended December 31, 1997, 1996 and 1995, rents paid were $54,600, $54,600, and $9,102, respectively. The Company has land, buildings, and equipment in Springerville, Arizona, and equipment in St. Johns, Arizona, which were used by a relative of the referred stockholder. The Company did not charge for the use of its properties but received revenue from the sale of its products. During the years ended December 31, 1997, 1996 and 1995, revenues reported amounted to $-0-, $56,612 and $56,864, respectively. The properties are now closed and F-17 the Company is in the process of selling the land, buildings, and equipment. The Company sells its products to other entities controlled by the preferred stockholder. During the years ended December 31, 1997, 1996 and 1995, revenues reported amounted to $532,781, $1,018,928 and $224,425, respectively. The preferred stockholder was indebted to the Company on two notes totaling $650,000. Interest receivable at December 31, 1996, was $45,793. Interest earned during the years ended December 31, 1997, 1996 and 1995, was $54,302, $66,790, and $11,677, respectively. The Company was indebted to the preferred stockholder for $1,759,139. Interest payable at December 31, 1996, was $45,078. Interest expense during the years ended December 31, 1997, 1996 and 1995 for this note was $127,225, $193,369, and $36,602, respectively. The Company has entered into a consulting agreement with the preferred stockholder which provides for payments of $1,500 per month and the use of a vehicle; fuel for such vehicle; a personal automobile; health, life, disability, and automobile insurance; and reimbursement of various expenses including club dues. During the years ended December 31, 1997, 1996 and 1995, the fees paid were $22,192, $27,232 and $3,570, respectively. The Company leases a commercial office building for $2,700 per month from a corporation controlled by a director of one of the Company's subsidiaries, see Note 13. The Company leases rolling stock from various related parties under capital lease agreements. The total obligation under these agreements at December 31, 1997 was $204,669, and interest expense for the period ended December 31, 1997 was $12,401. The Company has accounts payable to related parties, including employees and corporations controlled by directors of one of the Company's or its subsidiaries, in the amount of $26,407 at December 31 1997. The Company has accounts receivables to related parties, including employees and corporations controlled by directors of one of the Company's or its subsidiaries, in the amount of $91,919 at December 31, 1997. NOTE 11 -- ENVIRONMENTAL PROTECTION EXPENDITURES The Company utilizes underground tanks at various locations to store petroleum products and is therefore subject to various federal and state statutes concerning environmental protection. The various federal and state statutes are designed to identify environmental damage, identify hazardous material and/or operations, regulate operations engaged in hazardous activities, and establish procedures for remedial action as necessary. The states the Company operates in have recognized the potential cleanup costs resulting from regulations, and have included the establishment of corrective action funds. The purpose of the funds are to provide monetary assistance in both assessing site damage and correcting the damage. Assistance is not available to repair or replace underground tanks or equipment. The law specifies requirements which must have been met for an applicant to be eligible, including a provision that payments will be made in accordance with regulations F-18 (which have not yet been issued), and states that payment from the corrective action fund are limited to amounts in that fund. The Company is responsible for any contamination of land it owns or leases. However, the Company may have limitations on any potential contamination liabilities as well as claims for reimbursement from third parties. During the years ended December 31, 1997, 1996 and 1995, the Company expended $118,745, $31,167, and $5,876 respectively, for site assessment, related cleanup costs, and regulatory compliance. Included in other assets at December 31, 1997 and 1996, are unreimbursed costs from the States of $20,047 and $125,761, respectively. The Company has accrued $296,940, discounted to present value at 10%, for environmental remediation which management believes is adequate to cover known remediation problems. It is anticipated these expenditures will occur over the next 10 years. NOTE 12 -- COMMITMENTS AND CONTINGENCIES The Company is contingently liable for certain costs associated with leasehold improvements made by a supplier on property of customers of Graves. The liability for the costs is amortized over a five-year period with the Company becoming responsible for payment to the supplier if fuel purchases fail to meet certain volumes. At December 31, 1997 and 1996, the Company was contingently liable for $6,516 and $11,462, respectively, in unamortized costs. Future losses, if any, cannot be estimated at this time. The Company has in escrow 400,000 shares in a Canadian corporation and a $150,000 cash deposit related to the sale of a subsidiary in 1995. Both the deposit and the shares are subject to reduction depending on various factors related to the subsidiary sale. The Company has not recognized any gain or asset related to the escrow items. The Company is a co-signer on a Phillips Performance Fund, Inc. note for $467,025 for its 50% owned equity investment in Coors Pyramid LLC. NOTE 13 -- OPERATING LEASES The Company has entered into various noncancelable leases for land, buildings and equipment with terms ranging from 3 to 15 years. Under most leasing arrangements, the Company pays the property taxes, insurance, maintenance, and expenses related to the leased property. Total rent expense under operating leases for the years ended December 31, 1997, 1996 and 1995, was $843,634, $771,716, and $123,723, respectively. Minimum future obligations on leases in effect at December 31, 1997, are: December 31, 1998 $ 892,641 December 31, 1999 $ 839,160 December 31, 2000 $ 802,958 December 31, 2001 $ 798,312 December 31, 2002 $ 645,828 Thereafter $1,743,915 Annual minimum future rental payments have not been reduced by $42,000 of sublease rentals to be received in the future under non-cancelable subleases. NOTE 14 -- CAPITAL LEASES F-19 As of December 31, leased property under capital leases by major classes was as follows: 1997 1996 Buildings and improvements $ 18,141 $ 18,141 Equipment 1,214,411 119,600 Accumulated amortization (660,824) (69,492) Net leased property $ 571,728 $ 68,249 The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of December 31, 1997: December 31, 1998 $275,000 December 31, 1999 256,596 December 31, 2000 41,961 December 31, 2001 2,875 Total minimum lease payments 576,432 Less: amount representing interest 61,197 Present value of minimum lease payments $515,235 NOTE 15 -- STOCK OPTION AND INCENTIVE EQUITY PLANS The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Pro forma disclosures as if the Company adopted the expense recognition requirements under SFAS No. 123 in 1997 are presented below. A stock option plan providing for the issuance of incentive stock options and non-qualified stock options to the Company's key employees was approved by the Company's stockholders on April 15, 1994. Pursuant to the plan, 500,000 shares of the Company's $.001 par value common stock have been reserved for issuance. Options must be granted at prices not less than 100% of fair market value at the time the option is granted. Options issued to each employee vest in equal installments on the anniversary dates of the date the options were granted. No options have been exercised. The Company's common stock options were granted at exercise prices equal to, or in excess of, market prices on the grant dates, and therefore no compensation cost was recognized. The options were granted with maximum terms of between one and ten years. The majority of the options outstanding at December 31, 1997 will vest by December 31, 1998. A summary of the status of the Company's stock option plans as of December 31, 1997 and 1996, is presented below: F-20 1997 1996 1995 ------------------ --------------------- ----------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE SHARES EXERCISE EXERCISE EXERCISE PRICE SHARES PRICE SHARES PRICE ------ ---------- ------- -------- ------ --------- Outstanding at beginning of year 363,300 $ 3.57 312,400 $ 3.60 108,000 $ 3.90 Granted at market 215,000 $ 3.77 -- $ -- 21,000 $ 3.00 Granted ex- ceeding market 65,000 $ 5.71 105,000 $ 3.50 215,000 $ 3.50 Exercised -- $ -- -- $ -- -- -- Forfeited (44,000) $(4.22) (54,100) $ 3.63 (31,600) $ 3.54 Outstanding at end of year 599,300 $ 3.82 363,300 $ 3.57 312,400 $ 3.60 Options exer- cisable at Year-End 214,834 $ 3.69 123,934 $ 3.66 28,400 $ 3.95 Options Avail- able for Future Grant 115,700 N/A 136,700 N/A 187,600 N/A NUMBER OF EXERCISE PRICE DATE OPTIONS GRANTED OPTIONS PER SHARE VESTING PERIOD - -------------------- --------- -------------- -------------- October 1, 1993 41,000 $ 3.00 5 years February 1, 1994 31,300 $ 5.25 3 years August 4, 1995 21,000 $ 3.00 3 years November 30, 1995 215,000 $ 3.50 3 years May 31, 1996 105,000 $ 3.50 5 years January 2, 1997 20,000 $ 5.07 5 years February 14, 1997 30,000 $ 3.50 5 years February 14, 1997 50,000 $ 3.50 1 year February 14, 1997 30,000 $ 3.50 3 years September 12, 1997 50,000 $ 5.77 Immediately October 31, 1997 15,000 $ 5.50 3 years November 10, 1997 85,000 $ 3.8125 1 year The following table summarizes information about stock options outstanding at December 31, 1997: F-21 OPTIONS WEIGHTED AVERAGE OPTIONS EXERCISABLE OUTSTANDING AT REMAINING CON- EXERCISABLE AT PRICE DECEMBER 31, 1997 TRACTUAL LIFE DECEMBER 31, 1997 - ----------- ----------------- ---------------- ----------------- 3.00 21,500 6 17,200 5.25 16,800 7 16,800 3.00 21,000 3 14,000 3.50 215,000 3 143,334 3.50 55,000 4 11,000 5.07 10,000 5 -0- 3.50 30,000 5 -0- 3.50 50,000 1 -0- 3.50 30,000 3 -0- 5.77 50,000 1 12,500 5.50 15,000 3 -0- 3.8125 85,000 1 -0- Had compensation cost been determined based on the fair value at grant dates for stock option awards consistent with the SFAS No. 123, the Company's net income and earnings per share for the years ended December 31, 1997, 1996 and 1995, would have been reduced to the pro forma amounts indicated below: 1997 1996 1995 Net Income: As reported $ 601,053 $ 461,798 $1,796,812 Pro Forma $ 408,457 $ 368,367 $1,720,406 Earnings per share: Basic As reported $ .16 $ .15 $ 3.67 Pro Forma $ .11 $ .12 $ 3.52 Diluted As reported $ .16 $ .14 $ 3.65 Pro Forma $ .11 $ .11 $ 3.49 The pro forma compensation expense based on the fair value of the options is estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used for grants: no dividends both years; one expected life of 5 years for 1996 and 2.96 for 1997, expected volatility of 60% and 95% for 1997 and 1996, respectively, and a risk free rate of return of 5.87 and 6.40 percent, respectively. The weighted average fair value of those purchase rights granted in 1997 and 1996 was $1.78 and $2.54 respectively. SFAS No. 123 does not apply to awards prior to 1995. In November 1995, Meteor granted an option to a consultant to purchase a total of 100,000 shares of Meteor's Common Stock. This option was exercisable at $2.50 per share, but expired unexercised on January 31, 1997. NOTE 16 - WARRANTS REDEEMABLE WARRANTS In June 1997 the Company sold redeemable warrants to purchase up to 690,000 shares of Common Stock as part of a public offering. The warrants are exercisable until June 3, 1999. The Redeemable Warrants may only be redeemed if a current registration statement is in effect. Any Warrant holder who does not exercise prior to the redemption F-22 date, as set forth in the Company's notice of redemption, will forfeit the right to purchase the shares of Common Stock underlying the Redeemable Warrants and, after the redemption date, any outstanding Redeemable Warrants will become void and be of no further force or effect. If the Company does not redeem the Redeemable Warrants, such Warrants will expire, become void and be of no further force or effect on conclusion of the exercise period. All of the Redeemable Warrants must be redeemed if any are to be redeemed. The Redeemable Warrants have been issued pursuant to a Warrant Agreement between the Company and the Warrant Agent. The Company has authorized and reserved for issuance the shares of Common Stock issuable upon exercise of the Redeemable Warrants. When delivered, all shares of Common Stock issued upon exercise of the Redeemable Warrants will be duly and validly authorized and issued, fully paid and nonassessable, and no preemptive rights or rights of first refusal will exist with respect hereto. PRIOR UNDERWRITING WARRANTS In connection with the Company's initial public offering, the Company issued to the managing underwriter 17,000 warrants to purchase shares of Common Stock at $1.00 per share. 10,000 warrants have been exercised and 7,000 remain outstanding. The warrants are exercisable until January 13, 1999. PRIVATE PLACEMENT WARRANTS In February and March 1997, the Company sold warrants to purchase up to 130,000 shares of Common Stock as part of a private placement. These warrants are exercisable at $5.00 during the period from March 28, 1998 and March 27, 1999. NOTE 17 - NEW ACCOUNTING PRINCIPLES NOT YET ADOPTED The Company is required to adopt SFAS No. 130, "Reporting Comprehensive Income," in the first quarter of 1998. Upon adoption of SFAS No. 130, the Company will present a new Statement of Comprehensive Income which will report all changes in the Company's stockholders' equity other than transactions with stockholders. Comprehensive income pursuant to SFAS No. 130 would include net income, as reported in the Statement of Operations, plus the net changes in the foreign currency translation, liabilities components, and unrealized gains and losses on certain investments in debt and equity securities. The Company is required to adopt SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," in the fourth quarter of 1998. SFAS No. 131 will supersede the business segment disclosure requirements currently in effect under SFAS No. 14. SFAS No. 131, among other things, establishes standards regarding the information a company is required to disclose about its operating segments and provides guidance regarding what constitutes a reportable operating segment. The Company currently believes segment disclosures pursuant to SFAS No. 131 will not be materially different from the current disclosures pursuant to SFAS No. 14. NOTE - 18 BUSINESS COMBINATION Effective November 2, 1995, Meteor Industries, Inc. acquired 100% of the issued and outstanding common stock of Capco Resources Inc. ("CRI") in exchange for 1,745,000 shares of Meteor common stock. The shares were valued at $2.51 each for a total consideration of $4,379,950. The $2.51 value was determined using the market price of the Company's stock at the date of the transaction and F-23 averaging that with a recent private placement. The acquisition was treated as a reverse acquisition of Meteor by CRI. Accordingly, the results of operations of CRI are included in the accompanying financial statements since January 1, 1995. The results of operations of Meteor are included in the accompanying financial statements since the date of the acquisition. The total cost of the acquisition by CRI exceeded the book value of Meteor by $2,066,503. The excess was allocated to property and equipment based on appraised value and will be depreciated over the estimated remaining useful lives of the assets. NOTE 19 - DISCONTINUED OPERATIONS On September 15, 1995, CRI sold the shares of Saba de Colombia, Inc., a U.S. subsidiary engaged in the exploration and development of petroleum and natural gas in Colombia, to a third party for consideration of $2,601,719, and realized a gain net of taxes on the sale of the shares of $1,429,256. The consideration received was in the form of: Cash $2,401,719 400,000 cumulative, convertible, redeemable first preferred shares of PetroSantander Inc. bearing dividends at 8.5% 200,000 $2,601,719 Cash of $150,000 and the preferred shares remain in escrow pending review by Colombian taxing authorities. In 1995, CRI transferred all of its holdings of Saba Petroleum Company and certain assets and liabilities to CRL and to CAPCO Acquisub, Inc., a wholly-owned subsidiary of CAPCO Resources Ltd. This transaction was recorded at book value. The net assets transferred had a book value of approximately $(400,114). The Company has been indemnified by Capco Resources Ltd. with respect to certain tax liabilities. The Company has recorded a receivable for $48,000 which was received prior to the issuance of the financial statements. The discontinued operations results for 1995 are as follows: F-24 YEAR ENDED DECEMBER 31, 1995 Income ----------------- Oil and gas sales (net of royalties) $14,197,860 Other income 843,793 15,041,653 Expenses Production and operating 8,695 733 General and administrative 1,986,967 Interest and bank charges 1,065,011 Depreciation, depletion and amortization 2,413,743 14,161,454 Operating income 880,199 Income tax expense 452,620 Foreign exchange (gain) loss 51,237 Minority interest 114,655 Dilution gain (179,510) 439,002 Net Income $ 441,197 Gain on disposition, net of tax of $100,000 $ 1,429,256 NOTE 20 - FLEISCHLI ACQUISITIONS On August 11, 1997, Meteor closed on its acquisition of all of the outstanding common stock of Fleischli. The purchase price for the common stock was $4,888,000 paid in the form of cash. The following unaudited pro forma combined information for the twelve months ended December 31, 1997 and 1996 combines the historical financial information for the Company and Fleischli assuming the acquisition was consummated at the beginning of the periods presented. The pro forma information includes the results of operations of the Company and Fleischli, along with adjustments which give effect to events that are directly attributable to the transaction and which are expected to have a continuing impact. This unaudited pro forma financial information does not purport to represent the results of operations that actually would have resulted had the purchase occurred on the date specified, nor should it be taken as indicative of the future results of operations. 1997 1996 Sales $135,894,308 $146,793,103 Net income $ 820,822 $ 931,913 Net income per common share Basic $ .21 $ .29 Diluted $ .21 $ .29 The summarized quarterly financial data presented below reflects all adjustments which, in the opinion of management, are of a normal and recurring nature necessary to present fairly the results of operations for the periods presented. F-25 1997 Total Fourth Third Second First - ------------- ----------- ----------- ----------- ----------- ----------- Sales $88,439,730 $32,998,622 $27,280,844 $14,307,724 $13,852,540 Gross profit $13,000,461 $ 4,617,514 $ 3,828,705 $ 2,330,173 $ 2,224,069 Income before income taxes and minority taxes $ 1,583,225 $ 482,832 $ 415,724 $ 167,972 $ 516,697 Net income $ 601,053 $ 228,928 $ 155,337 $ 2,033 $ 214,755 Net income per share Basic $ 0.16 $ 0.06 $ 0.04 $ -- $ 0.06 Diluted $ 0.16 $ 0.06 $ 0.04 $ -- $ 0.06 1996 - ------------- Sales $59,984,499 $14,453,616 $16,152,325 $15,993,019 $13,385,539 Gross profit $10,340,489 $ 2,544,851 $ 2,677,440 $ 2,562,582 $ 2,555,616 Income before income taxes and minority taxes $ 1,143,048 $ 100,149 $ 389,019 $ 322,297 $ 331,583 Net income $ 461,798 $ 111,578 $ 141,985 $ 34,947 $ 173,288 Net income per share Basic $ 0.15 $ 0.04 $ 0.04 $ 0.01 $ 0.06 Diluted $ 0.14 $ 0.03 $ 0.04 $ 0.01 $ 0.06 F-26 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Meteor Industries, Inc.: Our report on the consolidated financial statements of Meteor Industries, Inc. as of December 31, 1997 and 1996 and for each of three years in the period ending December 31, 1997 is included on page F-1 of this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed in the index in Item 14 of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Denver, Colorado March 31, 1998 S-1 SCHEDULE 2 VALUATION AND QUALIFYING ACCOUNTS Balance Charged Balance beginning Charged to other end Description of the year to costs accounts of year - ----------- ------------ -------- -------- -------- 1997 ---- Inventory reserve $ 7,500 $ 30,347 $ -0- $ 37,847 Bad debt reserve - Accounts receivable $ 242,246 $ 221,209 $ (8,468)(a)$ 455,067 Bad debt reserve - Notes receivable $ -0- $ 23,087 $ 77,467 (b)$ 100,554 1996 ---- Inventory reserve $ 15,000 $ (7,500) $ -0- $ 7,500 Bad debt reserve - Accounts receivable $ 206,979 $ 57,431 $ (22,164)(c)$ 242,246 Bad debt reserve - Notes receivable $ -0- $ -0- $ -0- $ -0- 1995 ---- Inventory reserve $ -0- $ -0- $ 15,000 (d)$ 15,000 Bad debt reserve - Accounts receivable $ -0- $ 21,248 $ 185,731 (d)$ 206,979 Bad debt reserve - Notes receivable $ -0- $ -0- $ -0- $ -0- (a) Acquisition of Fleischli Oil Company, net of reclassification (b) Reclassification (c) Reclassification (d) Reverse acquisition step up S-2 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. METEOR INDUSTRIES, INC. Dated: March 31, 1998 By: /s/ Edward J. Names Edward J. Names, President Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dated indicated. Dated: March 31, 1998 By: /s/ Ilyas Chaudhary Ilyas Chaudhary, Chief Executive Officer and Director Dated: March 31, 1998 By: /s/ Edward J. Names Edward J. Names, President and Director Dated: March 31, 1998 By: /s/ Dennis R. Staal Dennis R. Staal, Secretary/ Treasurer (Principal Financial and Accounting Officer) and Director Dated: March 31, 1998 By: /s/ Irwin Kaufman Irwin Kaufman, Director Dated: March 31, 1998 By: /s/ Rafiq Sayed Rafiq Sayed, Director EX-10.28 2 This Guaranty, dated as of August 13, 1997, is made by Meteor Industries, Inc., a Colorado corporation (the "Guarantor") for the benefit of Norwest Business Credit, Inc., a Minnesota corporation (with its participants, successors and assigns, the "Lender"). The Lender and Fleischli Oil Company, Inc., a Wyoming corporation (the "Borrower"), are parties to a Credit and Security Agreement of even date herewith pursuant to which the Lender may make advances and extend other financial accommodations to the Borrower. As a condition to extending such credit to the Borrower, the Lender has required the execution and delivery of this Guaranty. ACCORDINGLY, the Guarantor, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby agrees as follows: 1. Definitions. All terms defined in the Credit Agreement that are not otherwise defined herein shall have the meanings given them in the Credit Agreement. 2. Guaranty. The Guarantor hereby absolutely and unconditionally guarantees to the Lender the full and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of (i) the Obligations and (ii) each and every other sum now or hereafter owing to the Lender by the Borrower, including but not limited to, debts, liabilities and obligations arising out of loans, credit transactions, financial accommodations, discounts, purchases of property or other transactions with the Borrower or for the Borrower's account or out of any other transaction or event, owed to the Lender or owed to others by reason of participations granted to or interests acquired or created for or sold to them by the Lender, in each case whether now existing or hereafter arising, whether arising directly in a transaction or event involving the Lender or acquired by the Lender from another by purchase or assignment or as collateral security, whether owed by the Borrower as drawer, maker, endorser, accommodation party, guarantor, principal, surety or as a member of any partnership, syndicate, association or group or in any other capacity, whether absolute or contingent, direct or indirect, primary or secondary, sole, joint, several or joint and several, secured or unsecured, due or not due, contractual, tortious or statutory, liquidated or unliquidated, arising by agreement or imposed by law or otherwise (all of said sums being hereinafter called the "Indebtedness"). 3. Guarantor's Representations and Warranties. The Guarantor represents and warrants to the Lender that: i) the Guarantor is a corporation, duly organized and existing in good standing and has full power and authority to make and deliver this Guaranty; ii) the execution, delivery and performance of this Guaranty by the Guarantor have been duly authorized by all necessary action of its directors and shareholders and do not and will not violate the provisions of, or constitute a default under, any presently applicable law or its articles of incorporation and bylaws or any agreement presently binding on it; iii) this Guaranty has been duly executed and delivered by the authorized officer of the Guarantor and constitutes its lawful, binding and legally enforceable obligation; and iv) the authorization, execution, delivery and performance of this Guaranty do not require notification to, registration with, or consent or approval by, any federal, state or local regulatory body or administrative agency. The Guarantor represents and warrants to the Lender that the Guarantor has a direct and substantial economic interest in the Borrower and expects to derive substantial benefits therefrom and from any loans, credit transactions, financial accommodations, discounts, purchases of property and other transactions and events resulting in the creation of the Indebtedness guarantied hereby, and that this Guaranty is given for a business purpose. The Guarantor agrees to rely exclusively on the right to revoke this Guaranty prospectively as to future transactions, in accordance with paragraph 4, if at any time, in the opinion of the directors or officer, the benefits then being received by the Guarantor in connection with this Guaranty are not sufficient to warrant the continuance of this Guaranty as to the future Indebtedness of the Borrower. Accordingly, so long as this Guaranty is not revoked prospectively in accordance with paragraph 4, the Lender may rely conclusively on a continuing warranty, hereby made, that the Guarantor continues to be benefitted by this Guaranty and the Lender shall have no duty to inquire into or confirm the receipt of any such benefits, and this Guaranty shall be effective and enforceable by the Lender without regard to the receipt, nature or value of any such benefits. 4. Unconditional Nature. No act or thing need occur to establish the Guarantor's liability hereunder, and no act or thing, except full payment and discharge of all of the Indebtedness, shall in any way exonerate the Guarantor hereunder or modify, reduce, limit or release the Guarantor's liability hereunder. This is an absolute, unconditional and continuing guaranty of payment of the Indebtedness and shall continue to be in force and be binding upon the Guarantor, whether or not all of the Indebtedness is paid in full, until this Guaranty is revoked prospectively as to future transactions, by written notice actually received by the Lender, and such revocation shall not be effective as to the amount of Indebtedness existing or committed for at the time of actual receipt of such notice by the Lender, or as to any renewals, extensions, refinancings or refundings thereof. 5. Dissolution or Insolvency of Guarantor. The dissolution or adjudication of bankruptcy of the Guarantor shall not revoke this Guaranty, except upon actual receipt of written notice thereof by the Lender and only prospectively, as to future transactions, as herein set forth. If the Guarantor shall be dissolved or shall be or become insolvent (however defined), then the Lender shall have the right to declare immediately due and payable, and the Guarantor will forthwith pay to the Lender, the full amount of all of the Indebtedness whether due and payable or unmatured. If the Guarantor voluntarily commences or there is commenced involuntarily against the Guarantor a case under the United States Bankruptcy Code, the full amount of all Indebtedness, whether due and payable or unmatured, shall be immediately due and payable without demand or notice thereof. 6. Subrogation. The Guarantor will not exercise or enforce any right of contribution, reimbursement, recourse or subrogation available to the Guarantor as to any of the Indebtedness, or against any person liable therefor, or as to any collateral security therefor, unless and until all of the Indebtedness shall have been fully paid and discharged. 7. Enforcement Expenses. The Guarantor will pay or reimburse the Lender for all costs, expenses and attorneys' fees paid or incurred by the Lender in endeavoring to collect and enforce the Indebtedness and in enforcing this Guaranty. 8. Lender's Rights. The Lender shall not be obligated by reason of its acceptance of this Guaranty to engage in any transactions with or for the Borrower. Whether or not any existing relationship between the Guarantor and the Borrower has been changed or ended and whether or not this Guaranty has been revoked, the Lender may enter into transactions resulting in the creation or continuance of the Indebtedness and may otherwise agree, consent to or suffer the creation or continuance of any of the Indebtedness, without any consent or approval by the Guarantor and without any prior or subsequent notice to the Guarantor. The Guarantor's liability shall not be affected or impaired by any of the following acts or things (which the Lender is expressly authorized to do, omit or suffer from time to time, both before and after revocation of this Guaranty, without consent or approval by or notice to the Guarantor): i) any acceptance of collateral security, guarantors, accommodation parties or sureties for any or all of the Indebtedness; ii) one or more extensions or renewals of the Indebtedness (whether or not for longer than the original period) or any modification of the interest rates, maturities, if any, or other contractual terms applicable to any of the Indebtedness or any amendment or modification of any of the terms or provisions of any loan agreement or other agreement under which the Indebtedness or any part thereof arose; iii) any waiver or indulgence granted to the Borrower, any delay or lack of diligence in the enforcement of the Indebtedness or any failure to institute proceedings, file a claim, give any required notices or otherwise protect any of the Indebtedness; iv) any full or partial release of, compromise or settlement with, or agreement not to sue, the Borrower or any guarantor or other person liable in respect of any of the Indebtedness; v) any release, surrender, cancellation or other discharge of any evidence of the Indebtedness or the acceptance of any instrument in renewal or substitution therefor; vi) any failure to obtain collateral security (including rights of setoff) for the Indebtedness, or to see to the proper or sufficient creation and perfection thereof, or to establish the priority thereof, or to preserve, protect, insure, care for, exercise or enforce any collateral security; or any modification, alteration, substitution, exchange, surrender, cancellation, termination, release or other change, impairment, limitation, loss or discharge of any collateral security; vii) any collection, sale, lease or disposition of, or any other foreclosure or enforcement of or realization on, any collateral security; viii) any assignment, pledge or other transfer of any of the Indebtedness or any evidence thereof; ix) any manner, order or method of application of any payments or credits upon the Indebtedness; and x) any election by the Lender under Section 1111(b) of the United States Bankruptcy Code. The Guarantor waives any and all defenses and discharges available to a surety, guarantor or accommodation co-obligor. 9. Waivers by Guarantor. The Guarantor waives any and all defenses, claims, setoffs and discharges of the Borrower, or any other obligor, pertaining to the Indebtedness, except the defense of discharge by payment in full. Without limiting the generality of the foregoing, the Guarantor will not assert, plead or enforce against the Lender any defense of waiver, release, discharge or disallowance in bankruptcy, statute of limitations, res judicata, statute of frauds, anti-deficiency statute, fraud, incapacity, minority, usury, illegality or unenforceability which may be available to the Borrower or any other person liable in respect of any of the Indebtedness, or any setoff available against the Lender to the Borrower or any other such person, whether or not on account of a related transaction. The Guarantor expressly agrees that the Guarantor shall be and remain liable for any deficiency remaining after foreclosure of any mortgage or security interest securing the Indebtedness, whether or not the liability of the Borrower or any other obligor for such deficiency is discharged pursuant to statute or judicial decision. The liability of the Guarantor shall not be affected or impaired by any voluntary or involuntary liquidation, dissolution, sale or other disposition of all or substantially all of the assets, marshalling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of, or other similar event or proceeding affecting, the Borrower or any of its assets. The Guarantor will not assert, plead or enforce against the Lender any claim, defense or setoff available to the Guarantor against the Borrower. The Guarantor waives presentment, demand for payment, notice of dishonor or nonpayment and protest of any instrument evidencing the Indebtedness. The Lender shall not be required first to resort for payment of the Indebtedness to the Borrower or other persons, or their properties, or first to enforce, realize upon or exhaust any collateral security for the Indebtedness, before enforcing this Guaranty. 10. If Payments Set Aside, etc. If any payment applied by the Lender to the Indebtedness is thereafter set aside, recovered, rescinded or required to be returned for any reason (including, without limitation, the bankruptcy, insolvency or reorganization of the Borrower or any other obligor), the Indebtedness to which such payment was applied shall for the purpose of this Guaranty be deemed to have continued in existence, notwithstanding such application, and this Guaranty shall be enforceable as to such Indebtedness as fully as if such application had never been made. 11. No Duties Owed by Lender. The Guarantor acknowledges and agrees that the Lender i) has not made any representations or warranties with respect to, ii) does not assume any responsibility to the Guarantor for, and iii) has no duty to provide information to the Guarantor regarding, the enforceability of any of the Indebtedness or the financial condition of the Borrower or any guarantor. The Guarantor has independently determined the creditworthiness of the Borrower and the enforceability of the Indebtedness and until the Indebtedness is paid in full will independently and without reliance on the Lender continue to make such determinations. 12. Additional Obligation of Guarantor. The Guarantor's liability under this Guaranty is in addition to and shall be cumulative with all other liabilities of the Guarantor to the Lender as guarantor, surety, endorser, accommodation co-obligor or otherwise of any of the Indebtedness or obligation of the Borrower, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary. 13. Miscellaneous. This Guaranty shall be effective upon delivery to the Lender, without further act, condition or acceptance by the Lender, shall be binding upon the Guarantor and the successors and assigns of the Guarantor and shall inure to the benefit of the Lender and its participants, successors and assigns. Any invalidity or unenforceability of any provision or application of this Guaranty shall not affect other lawful provisions and application thereof, and to this end the provisions of this Guaranty are declared to be severable. This Guaranty may not be waived, modified, amended, terminated, released or otherwise changed except by a writing signed by the Guarantor and the Lender. This Guaranty shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of Colorado. The Guarantor hereby i) consents to the personal jurisdiction of the state and federal courts located in the State of Colorado in connection with any controversy related to this Guaranty; ii) waives any argument that venue in any such forum is not convenient, iii) agrees that any litigation initiated by the Lender or the Guarantor in connection with this Guaranty shall be venued in either the District Court of the City and County of Denver, Colorado, or the United States District Court, District of Colorado; and iv) agrees that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. 14. Waiver of Jury Trial. THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF, BASED ON OR PERTAINING TO THIS GUARANTY. IN WITNESS WHEREOF, this Guaranty has been duly executed by the Guarantor the date first written above. METEOR INDUSTRIES, INC. By /s/ Dennis R. Staal Its Address: 216 Sixteenth Street Suite 730 Denver, Colorado 80202 STATE OF COLORADO ) ) COUNTY OF DENVER ) The foregoing instrument was acknowledged before me this 13th day of August, April 8, 1998 by Dennis R. Staal, the Treasurer of Meteor Industries, Inc., a Colorado corporation, on behalf of the corporation. /s/ Notary Public Notary Public EX-10.29 3 REVOLVING NOTE $5,000,000 Denver, Colorado August 13, 1997 For value received, the undersigned, FLEISCHLI OIL COMPANY, INC., a Wyoming corporation (the "Borrower"), hereby promises to pay on the termination Date under the Credit Agreement (defined below), to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in Minneapolis, Minnesota, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of Five Million Dollars ($5,000,000) or, if less, the aggregate unpaid principal amount of all Revolving Advances made by the Lender to the Borrower under the Credit Agreement (defined below) together with interest on the principal amount hereunder remaining unpaid from time to time, computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate from time to time in effect under the Credit and Security Agreement of even date herewith (as the same may hereafter be amended, supplemented or restated from time to time, the "Credit Agreement") by and between the Lender and the Borrower. The principal hereof and interest accruing thereon shall be due and payable as provided in the Credit Agreement. This Note may be prepaid only in accordance with the Credit Agreement. This Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among other things, for acceleration hereof. This Note is the Revolving Note referred to in the Credit Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the Security Documents as therein defined, and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements. The Borrower hereby agrees to pay all costs of collection, including attorneys' fees and legal expenses in the event this Note is not paid when due, whether or not legal proceedings are commenced. Presentment or other demand for payment, notice of dishonor and protest are expressly waived. FLEISCHLI OIL COMPANY, INC. By /s/ Dennis R. Staal Dennis R. Staal Its Treasurer EX-10.30 4 CREDIT AND SECURITY AGREEMENT BY AND BETWEEN FLEISCHLI OIL COMPANY, INC. AND NORWEST BUSINESS CREDIT, INC. Dated as of: August 13, 1997 TABLE OF CONTENTS ARTICLE I DEFINITIONS Section 1.1 Definitions Section 1.2 Cross References ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY Section 2.1 Revolving Advances Section 2.2 Interest; Minimum Interest Charge; Default Interest; Participations; Usury Section 2.3 Fees Section 2.4 Computation of Interest and Fees; When Interest Due and Payable Section 2.5 Capital Adequacy Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line; Termination of the Credit Facility by the Borrower Section 2.7 Termination, Line Reduction and Prepayment Fees; Waiver of Termination, Prepayment and Line Reduction Fees. Section 2.8 Mandatory Prepayment Section 2.9 Payment Section 2.10 Payment on Non-Banking Days Section 2.11 Use of Proceeds Section 2.12 Liability Records ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF Section 3.1 Grant of Security Interest Section 3.2 Notification of Account Debtors and Other Obligors Section 3.3 Assignment of Insurance Section 3.4 Occupancy Section 3.5 License Section 3.6 Financing Statement Section 3.7 Setoff ARTICLE IV CONDITIONS OF LENDING Section 4.1 Conditions Precedent to the Initial Revolving Advance Section 4.2 Conditions Precedent to All Advances ARTICLE V REPRESENTATIONS AND WARRANTIES Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Tax Identification Number Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements Section 5.3 Legal Agreements Section 5.4 Subsidiaries Section 5.5 Financial Condition; No Adverse Change Section 5.6 Litigation Section 5.7 Regulation U Section 5.8 Taxes Section 5.9 Titles and Liens Section 5.10 Plans Section 5.11 Default Section 5.12 Environmental Matters Section 5.13 Submissions to Lender Section 5.14 Financing Statements Section 5.15 Rights to Payment Section 5.16 Financial Solvency ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS Section 6.1 Reporting Requirements Section 6.2 Books and Records; Inspection and Examination Section 6.3 Account Verification Section 6.4 Compliance with Laws Section 6.5 Payment of Taxes and Other Claims Section 6.6 Maintenance of Properties Section 6.7 Insurance Section 6.8 Preservation of Existence Section 6.9 Delivery of Instruments, etc Section 6.10 Lockbox Section 6.11 Collateral Account Section 6.12 Performance by the Lender Section 6.13 Minimum Book Net Worth Section 6.14 Minimum Net Income Section 6.15 New Covenants ARTICLE VII NEGATIVE COVENANTS Section 7.1 Liens Section 7.2 Indebtedness Section 7.3 Guaranties Section 7.4 Investments and Subsidiaries Section 7.5 Dividends Section 7.7 Consolidation and Merger; Asset Acquisitions Section 7.8 Sale and Leaseback Section 7.9 Restrictions on Nature of Business Section 7.10 Capital Expenditures Section 7.11 Accounting Section 7.12 Discounts, etc Section 7.13 Defined Benefit Pension Plans Section 7.14 Other Defaults Section 7.15 Place of Business; Name Section 7.16 Organizational Documents Section 7.17 Salaries Section 7.18 Change in Ownership ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES Section 8.1 Events of Default Section 8.2 Rights and Remedies Section 8.3 Certain Notices ARTICLE IX MISCELLANEOUS Section 9.1 No Waiver; Cumulative Remedies Section 9.2 Amendments, Etc Section 9.3 Addresses for Notices, Etc Section 9.4 Further Documents Section 9.5 Collateral Section 9.6 Costs and Expenses Section 9.7 Indemnity Section 9.8 Participants Section 9.9 Execution in Counterparts Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging Information Section 9.11 Severability of Provisions Section 9.12 Headings Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial CREDIT AND SECURITY AGREEMENT Dated as of August 13, 1997 FLEISCHLI OIL COMPANY, INC., a Wyoming corporation (the "Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as follows: ARTICLE I Definitions Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; and (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP. "Accounts" means all of the Borrower's accounts, as such term is defined in the UCC, including without limitation the aggregate unpaid obligations of customers and other account debtors to the Borrower arising out of the sale or lease of goods or rendition of services by the Borrower on an open account or deferred payment basis. "Advance" means a Revolving Advance. "Affiliate" or "Affiliates" means Meteor Industries, Inc., Hillger Oil Company, Graves Oil & Butane Co., Inc., and any other Person controlled by, controlling or under common control with the Borrower, including (without limitation) any Subsidiary of the Borrower. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Credit and Security Agreement, as amended, supplemented or restated from time to time. "Banking Day" means a day other than a Saturday, Sunday or other day on which banks are generally not open for business in Minneapolis, Minnesota. "Base Rate" means the rate of interest publicly announced from time to time by Norwest Bank Minnesota, National Association as its "base rate" or, if such bank ceases to announce a rate so designated, any similar successor rate designated by the Lender. "Book Net Worth" means the aggregate of the common and preferred stockholders' equity in the Borrower, determined in accordance with GAAP. "Borrowing Base" means, at any time and subject to change from time to time in the Lender's sole discretion, the lesser of: (a) (i) the Maximum Line; or (b) (i) the sum of (A) 80% of Eligible Accounts that do not constitute Eligible GASCARD Accounts, plus (B) 75% of Eligible GASCARD Accounts, plus (C) the lesser of (1) 50% of Eligible Inventory or (2) $1,500,000; less (ii) the sum of (A) the Fuel Tax Reserve plus (B) the GASCARD Fee Reserve. "Capital Expenditures" for a period means any expenditure of money for the lease, purchase or other acquisition of any capital asset, or for the lease of any other asset whether payable currently or in the future. "Collateral" means all of the Borrower's Equipment, General Intangibles, Inventory, Receivables, all sums on deposit in any Collateral Account, and any items in any Lockbox; together with (i) all substitutions and replacements for and products of any of the foregoing; (ii) proceeds of any and all of the foregoing; (iii) in the case of all tangible Collateral, all accessions; (iv) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any such Collateral; and (v) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such Collateral. "Collateral Account" has the meaning given in the Collateral Account Agreement. "Collateral Account Agreement" means the Collateral Account Agreement of even date herewith by and among the Borrower, Norwest Bank Colorado, National Association and the Lender. "Commitment" means the Lender's commitment to make Advances to or for the Borrower's account pursuant to Article II. "Credit Facility" means the credit facility being made available to the Borrower by the Lender pursuant to Article II. "Default" means an event that, with giving of notice or passage of time or both, would constitute an Event of Default. "Default Period" means any period of time beginning on the first day of any month during which a Default or Event of Default has occurred and ending on the date the Lender notifies the Borrower in writing that such Default or Event of Default has been cured or waived. "Default Rate" means an annual rate equal to two percent (2%) over the Floating Rate, which rate shall change when and as the Floating Rate changes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Eligible Accounts" means all unpaid Accounts, net of any credits, except the following shall not in any event be deemed Eligible Accounts: (i) That portion of Accounts unpaid 90 days or more after the invoice date; (ii) That portion of Accounts that is disputed or subject to a claim of offset or a contra account; (iii) That portion of Accounts not yet earned by the final delivery of goods or rendition of services, as applicable, by the Borrower to the customer; (iv) Accounts owed by any unit of government, whether foreign or domestic (provided, however, that there shall be included in Eligible Accounts that portion of Accounts owed by such units of government for which the Borrower has provided evidence satisfactory to the Lender that (A) the Lender has a first priority perfected security interest and (B) such Accounts may be enforced by the Lender directly against such unit of government under all applicable laws); (v) Accounts owed by an account debtor located outside the United States and Canada which are not (A) backed by a bank letter of credit naming the Lender as beneficiary or assigned to the Lender, in the Lender's possession and acceptable to the Lender in all respects, in its sole discretion, or (B) covered by a foreign receivables insurance policy acceptable to the Lender in its sole discretion; (vi) Accounts owed by an account debtor that is insolvent, that is the subject of bankruptcy proceedings or that has gone out of business; (vii) Accounts owed by a shareholder, Subsidiary, Affiliate, officer or employee of the Borrower; (viii) Accounts not subject to a duly perfected security interest in the Lender's favor or which are subject to any lien, security interest or claim in favor of any Person other than the Lender including without limitation any payment or performance bond; (ix) That portion of Accounts that has been restructured, extended, amended or modified; (x) That portion of Accounts that constitutes advertising, finance charges, service charges or sales or excise taxes; (xi) That portion of Accounts that are on a cash or COD basis; (xii) Accounts owed by an account debtor, regardless of whether otherwise eligible, if 10% or more of the total amount due under Accounts from such debtor is ineligible under clauses (i), (ii) or (ix) above; (xiii) Accounts owed by an account debtor, regardless of whether otherwise eligible, to the extent the amount due under Accounts from such debtor is greater than 15% of the Borrower's total Accounts (provided, however, that this clause (xiii) shall not apply to Accounts owed by Barrick Gold Corporation, Barrick Goldstrike Mines, Inc., or Barrick Bullfrog, Inc.); and (xiv) Accounts, or portions thereof, otherwise deemed ineligible by the Lender in its sole discretion. "Eligible GASCARD Accounts" means Eligible Accounts that are owed to the Borrower as a result of a purchase of fuel through the GASCARD System, which system is operated by GASCARD, Inc., a Delaware corporation, or any successor thereto. "Eligible Inventory" means all Inventory of the Borrower consisting of canned and bulk motor oil and oil additives, grease, gear oil, hydraulic oil, antifreeze, transmission fluid, white oil, methanol, filters, solvents, kerosene, and fuel hardware, at the lower of cost or market value as determined in accordance with GAAP; provided, however, that the following shall not in any event be deemed Eligible Inventory: (i) Inventory that is: in-transit; located at any warehouse, job site or other premises not approved by the Lender in writing; located outside of the states, or localities, as applicable, in which the Lender has filed financing statements to perfect a first priority security interest in such Inventory; covered by any negotiable or non-negotiable warehouse receipt, bill of lading or other document of title; on consignment from or to any Person or subject to any bailment; (ii) Inventory that is damaged, obsolete, slow moving or not currently saleable in the normal course of the Borrower's operations; (iii) Inventory that the Borrower has returned, has attempted to return, is in the process of returning or intends to return to the vendor thereof; (iv) Inventory that is subject to a security interest in favor of any Person other than the Lender; (v) Inventory that is at a location other than one listed on Exhibit D hereto; and (vi) Inventory otherwise deemed ineligible by the Lender in its sole discretion. "Environmental Laws" has the meaning specified in Section 5.12. "Equipment" means all of the Borrower's equipment, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts, tools, supplies, and including specifically (without limitation) the goods described in any equipment schedule or list herewith or hereafter furnished to the Lender by the Borrower. "Event of Default" has the meaning specified in Section 8.1. "Floating Rate" means an annual rate equal to the sum of the Base Rate plus one and one-half percent (1.5%), which annual rate shall change when and as the Base Rate changes. "Fuel Tax Reserve" initially means $60,000, which amount may be modified by the Lender in its sole discretion. "Funding Date" has the meaning given in Section 2.1. "GAAP" means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described in Section 5.5. "GASCARD Fee Reserve" initially means $20,000, which amount may be modified by the Lender in its sole discretion. "General Intangibles" means all of the Borrower's general intangibles, as such term is defined in the UCC, whether now owned or hereafter acquired, including (without limitation) all present and future patents, patent applications, copyrights, trademarks, trade names, trade secrets, customer or supplier lists and contracts, manuals, operating instructions, permits, franchises, the right to use the Borrower's name, and the goodwill of the Borrower's business. "Guarantors" means the Individual Guarantor and the Organizational Guarantor. "Hazardous Substance" has the meaning given in Section 5.12. "Individual Guarantor" means Edward J. Names. "Inventory" means all of the Borrower's inventory, as such term is defined in the UCC, whether now owned or hereafter acquired, whether consisting of whole goods, spare parts or components, supplies or materials, whether acquired, held or furnished for sale, for lease or under service contracts or for manufacture or processing, and wherever located. "Loan Documents" means this Agreement, the Note and the Security Documents. "Lockbox" has the meaning given in the Lockbox Agreement. "Lockbox Agreement" means the Lockbox Agreement by and among the Borrower, Norwest Bank Colorado, National Association, and the Lender, of even date herewith. "Maturity Date" means June 30, 2000. "Maximum Line" means $5,000,000, unless said amount is reduced pursuant to Section 2.6, in which event it means the amount to which said amount is reduced. "Minimum Interest Charge" has the meaning given in Section 2.2(b). "Net Income" means fiscal year-to-date after-tax net income, decreased by the sum of any extraordinary, non-operating or non-cash income recorded by the Borrower and increased by any extraordinary, non-cash or non-operating expense or loss recorded by the Borrower, as determined in accordance with GAAP. "Note" means the Revolving Note. "Obligations" means the Note and each and every other debt, liability and obligation of every type and description which the Borrower may now or at any time hereafter owe to the Lender, whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it arises in a transaction involving the Lender alone or in a transaction involving other creditors of the Borrower, and whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several, and including specifically, but not limited to, all indebtedness of the Borrower arising under this Agreement, the Note or any other loan or credit agreement or guaranty between the Borrower and the Lender, whether now in effect or hereafter entered into. "Organizational Guarantor" means Meteor Industries, Inc. "Permitted Lien" has the meaning given in Section 7.1. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Plan" means an employee benefit plan or other plan maintained for the Borrower's employees and covered by Title IV of ERISA. "Premises" means all premises where the Borrower conducts its business and has any rights of possession, including (without limitation) the premises legally described in Exhibit C attached hereto. "Receivables" means each and every right of the Borrower to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property, out of a rendering of services, out of a loan, out of the overpayment of taxes or other liabilities, or otherwise arises under any contract or agreement, whether such right to payment is created, generated or earned by the Borrower or by some other person who subsequently transfers such person's interest to the Borrower, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens and security interests) which the Borrower may at any time have by law or agreement against any account debtor or other obligor obligated to make any such payment or against any property of such account debtor or other obligor; all including but not limited to all present and future accounts, contract rights, loans and obligations receivable, chattel papers, bonds, notes and other debt instruments, tax refunds and rights to payment in the nature of general intangibles. "Reportable Event" shall have the meaning assigned to that term in Title IV of ERISA. "Revolving Advance" has the meaning given in Section 2.1. "Revolving Note" means the Borrower's revolving promissory note, payable to the order of the Lender in substantially the form of Exhibit A hereto and any note or notes issued in substitution therefor, as the same may hereafter be amended, supplemented or restated from time to time. "Security Documents" means this Agreement, the Collateral Account Agreement, the Lockbox Agreement, and any other document delivered to the Lender from time to time to secure the Obligations, as the same may hereafter be amended, supplemented or restated from time to time. "Security Interest" has the meaning given in Section 3.1. "Subsidiary" means any corporation of which more than 50% of the outstanding shares of capital stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such corporation, irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency, is at the time directly or indirectly owned by the Borrower, by the Borrower and one or more other Subsidiaries, or by one or more other Subsidiaries. "Termination Date" means the earliest of (i) the Maturity Date, (ii) the date the Borrower terminates the Credit Facility, or (iii) the date the Lender demands payment of the Obligations after an Event of Default pursuant to Section 8.2. "UCC" means the Uniform Commercial Code as in effect from time to time in the state designated in Section 9.13 as the state whose laws shall govern this Agreement, or in any other state whose laws are held to govern this Agreement or any portion hereof. Section 1.2 Cross References. All references in this Agreement to Articles, Sections and subsections, shall be to Articles, Sections and subsections of this Agreement unless otherwise explicitly specified. ARTICLE II Amount and Terms of the Credit Facility Section 2.1 Revolving Advances. The Lender agrees, on the terms and subject to the conditions herein set forth, to make advances to the Borrower from time to time from the date all of the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to the Termination Date, on the terms and subject to the conditions herein set forth (the "Revolving Advances"). The Lender shall have no obligation to make a Revolving Advance if, after giving effect to such requested Revolving Advance, the sum of the outstanding and unpaid Revolving Advances would exceed the Borrowing Base. The Borrower's obligation to pay the Revolving Advances shall be evidenced by the Revolving Note and shall be secured by the Collateral as provided in Article III. Within the limits set forth in this Section 2.1, the Borrower may borrow, prepay pursuant to Section 2.6 and reborrow. The Borrower agrees to comply with the following procedures in requesting Revolving Advances under this Section 2.1: (a) The Borrower shall make each request for a Revolving Advance to the Lender before 11:00 a.m. (Denver time) of the day of the requested Revolving Advance. Requests may be made in writing or by telephone, specifying the date of the requested Revolving Advance and the amount thereof. Each request shall be by (i) any officer of the Borrower; or (ii) any person designated as the Borrower's agent by any officer of the Borrower in a writing delivered to the Lender; or (iii) any person whom the Lender reasonably believes to be an officer of the Borrower or such a designated agent. (b) Upon fulfillment of the applicable conditions set forth in Article IV, the Lender shall disburse the proceeds of the requested Revolving Advance by crediting the same to the Borrower's demand deposit account maintained with Norwest Bank Wyoming, N.A. unless the Lender and the Borrower shall agree in writing to another manner of disbursement. Upon the Lender's request, the Borrower shall promptly confirm each telephonic request for an Advance by executing and delivering an appropriate confirmation certificate to the Lender. The Borrower shall repay all Advances even if the Lender does not receive such confirmation and even if the person requesting an Advance was not in fact authorized to do so. Any request for an Advance, whether written or telephonic, shall be deemed to be a representation by the Borrower that the conditions set forth in Section 4.2 have been satisfied as of the time of the request. Section 2.2 Interest; Minimum Interest Charge; Default Interest; Participations; Usury. Interest accruing on the Note shall be due and payable in arrears on the first day of each month. (a) Revolving Note. Except as set forth in Sections 2.2(c) and 2.2(e), the outstanding principal balance of the Revolving Note shall bear interest at the Floating Rate. (b) Minimum Interest Charge. Notwithstanding the interest payable pursuant to Section 2.2(a), each calendar quarter the Borrower shall pay to the Lender interest according to the table below of not less than the amount set forth opposite such quarter (the "Minimum Interest Charge") during the term of this Agreement beginning the quarter ending December 31, 1997: Quarter Amount January 1 to March 31 $10,000 April 1 to June 30 $25,000 July 1 to September 30 $25,000 October 1 to December 31 $25,000 The Borrower shall pay any deficiency between the Minimum Interest Charge and the amount of interest otherwise calculated under Section 2.2(a) on the date and in the manner provided in Section 2.4. (c) Default Interest Rate. At any time during any Default Period, in the Lender's sole discretion and without waiving any of its other rights and remedies, the principal of the Advances outstanding from time to time shall bear interest at the Default Rate, effective for any periods designated by the Lender from time to time during that Default Period. (d) Participations. If any Person shall acquire a participation in the Advances under this Agreement, the Borrower shall be obligated to the Lender to pay the full amount of all interest calculated under Section 2.2(a), along with all other fees, charges and other amounts due under this Agreement, regardless if such Person elects to accept interest with respect to its participation at a lower rate than the Floating Rate, or otherwise elects to accept less than its prorata share of such fees, charges and other amounts due under this Agreement. (e) Usury. In any event no rate change shall be put into effect which would result in a rate greater than the highest rate permitted by law. Notwithstanding anything to the contrary contained in any Loan Document, all agreements which either now are or which shall become agreements between the Borrower and the Lender are hereby limited so that in no contingency or event whatsoever shall the total liability for payments in the nature of interest, additional interest and other charges exceed the applicable limits imposed by the usury laws of the State of Colorado. If any payments in the nature of interest, additional interest and other charges made under any Loan Document are held to be in excess of the applicable limits imposed by the usury laws of the State of Colorado, it is agreed that any such amount held to be in excess shall be considered payment of principal hereunder, and the indebtedness evidenced hereby shall be reduced by such amount so that the total liability for payments in the nature of interest, additional interest and other charges shall not exceed the applicable limits imposed by the usury laws of the State of Colorado, in compliance with the desires of the Borrower and the Lender. This provision shall never be superseded or waived and shall control every other provision of the Loan Documents and all agreements between the Borrower and the Lender, or their successors and assigns. Section 2.3 Fees. (a) Origination Fee. The Borrower hereby agrees to pay the Lender a fully earned and non-refundable origination fee of $50,000, due and payable upon the execution of this Agreement. (b) Unused Line Fee. For the purposes of this Section 2.3(b), "Unused Amount" means the Maximum Line reduced by outstanding Revolving Advances. The Borrower agrees to pay to the Lender an unused line fee at the rate of one-quarter percent (0.25%) per annum on the average daily Unused Amount from the date of this Agreement to and including the Termination Date, due and payable monthly in arrears on the first day of the month and on the Termination Date. (c) Audit Fees. The Borrower hereby agrees to pay the Lender, on demand, audit fees in connection with any audits, appraisals or inspections conducted by or for the Lender of any Collateral or the Borrower's operations or business at the rates established from time to time by the Lender as its audit fees (which fees are currently $60 per hour per auditor), together with all actual out-of-pocket costs, fees and expenses incurred in conducting any such audit, appraisal or inspection. Section 2.4 Computation of Interest and Fees; When Interest Due and Payable. Interest accruing on the outstanding principal balance of the Advances and fees hereunder outstanding from time to time shall be computed on the basis of actual number of days elapsed in a year of 360 days. Interest shall be payable in arrears on the first day of each month and on the Termination Date. Section 2.5 Capital Adequacy. If any Related Lender determines at any time that its Return has been reduced as a result of any Rule Change, such Related Lender may require the Borrower to pay it the amount necessary to restore its Return to what it would have been had there been no Rule Change. For purposes of this Section 2.5: (a) "Capital Adequacy Rule" means any law, rule, regulation, guideline, directive, requirement or request regarding capital adequacy, or the interpretation or administration thereof by any governmental or regulatory authority, central bank or comparable agency, whether or not having the force of law, that applies to any Related Lender. Such rules include rules requiring financial institutions to maintain total capital in amounts based upon percentages of outstanding loans, binding loan commitments and letters of credit. (b) "Related Lender" includes (but is not limited to) the Lender, any parent corporation of the Lender and any assignee of any interest of the Lender hereunder and any participant in the loans made hereunder. (c) "Return," for any period, means the return as determined by a Related Lender on the Advances based upon its total capital requirements and a reasonable attribution formula that takes account of the Capital Adequacy Rules then in effect and amounts received or receivable under this Agreement or the Notes with respect to any Advance. Return may be calculated for each calendar quarter and for the shorter period between the end of a calendar quarter and the date of termination in whole of this Agreement. (d) "Rule Change" means any change in any Capital Adequacy Rule occurring after the date of this Agreement, but the term does not include any changes in applicable requirements that at the Closing Date are scheduled to take place under the existing Capital Adequacy Rules or any increases in the capital that any Related Lender is required to maintain to the extent that the increases are required due to a regulatory authority's assessment of the financial condition of such Related Lender. The Lender will promptly notify the Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle the Lender to compensation pursuant to this Section 2.5. Certificates of any Related Lender sent to the Borrower from time to time claiming compensation under this Section 2.5, stating the reason therefor and setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to the Related Lender hereunder to restore its Return shall be conclusive absent manifest error. In determining such amounts, the Related Lender may use any reasonable averaging and attribution methods. Notwithstanding any provision of this Agreement to the contrary, if the Lender requires the Borrower to make any payments pursuant to this Section 2.5, the Borrower may prepay the Advances in whole, but not in part, and terminate the Commitment upon 30 days' prior written notice to the Lender without penalty or premium. Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line; Termination of the Credit Facility by the Borrower. Except as otherwise provided herein, the Borrower may prepay the Revolving Advances in whole at any time or from time to time in part. The Borrower may terminate the Credit Facility or reduce the Maximum Line at any time if it (i) gives the Lender at least 30 days' prior written notice and (ii) pays the Lender the prepayment, termination or line reduction fees in accordance with Section 2.7. Any reduction in the Maximum Line must be in an amount not less than $500,000 or an integral multiple thereof. If the Borrower reduces the Maximum Line to zero, all Obligations shall be immediately due and payable. Upon termination of the Credit Facility and payment and performance of all Obligations, the Lender shall release or terminate the Security Interest and the Security Documents to which the Borrower is entitled by law. Section 2.7 Termination, Line Reduction and Prepayment Fees; Waiver of Termination, Prepayment and Line Reduction Fees. (a) Termination and Line Reduction Fees. If the Credit Facility is terminated for any reason as of a date other than the Maturity Date, or the Borrower reduces the Maximum Line, the Borrower shall pay the Lender a fee in an amount equal to a percentage of the Maximum Line (or the reduction, as the case may be) as follows: (i) two percent (2%) if the termination or reduction occurs on or before June 30, 1998; and (ii) one percent (1%) if the termination or reduction occurs after June 30, 1998. (b) Waiver of Termination and Line Reduction Fees. The Borrower will not be required to pay the termination or line reduction fees otherwise due under this Section 2.7 if such termination or line reduction is made (i) using increased cash flow generated from the Borrower's operations, (ii) by refinancing of the Borrower by an affiliate of the Lender, or (iii) if following the termination, the Borrower does not obtain debt financing for working capital purposes from any other source for a period of at least six months. Section 2.8 Mandatory Prepayment. Without notice or demand, if the outstanding principal balance of the Revolving Advances shall at any time exceed the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances to the extent necessary to eliminate such excess. Any payment received by the Lender under this Section 2.8 or under Section 2.6 may be applied to the Obligations, in such order and in such amounts as the Lender, in its discretion, may from time to time determine. Section 2.9 Payment. All payments to the Lender shall be made in immediately available funds and shall be applied to the Obligations upon receipt by the Lender. The Lender may hold all payments not constituting immediately available funds for a maximum of three (3) days before applying them to the Obligations. Notwithstanding anything in Section 2.1, the Borrower hereby authorizes the Lender, in its discretion at any time or from time to time without the Borrower's request and even if the conditions set forth in Section 4.2 would not be satisfied, to make a Revolving Advance in an amount equal to the portion of the Obligations from time to time due and payable. Section 2.10 Payment on Non-Banking Days. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Banking Day, such payment may be made on the next succeeding Banking Day, and such extension of time shall in such case be included in the computation of interest on the Advances or the fees hereunder, as the case may be. Section 2.11 Use of Proceeds. The Borrower shall use the proceeds of Advances in accordance with Schedule 2.11. Section 2.12 Liability Records. The Lender may maintain from time to time, at its discretion, liability records as to the Obligations. All entries made on any such record shall be presumed correct until the Borrower establishes the contrary. Upon the Lender's demand, the Borrower will admit and certify in writing the exact principal balance of the Obligations that the Borrower then asserts to be outstanding. Any billing statement or accounting rendered by the Lender shall be conclusive and fully binding on the Borrower unless the Borrower gives the Lender specific written notice of exception within 30 days after receipt. ARTICLE III Security Interest; Occupancy; Setoff Section 3.1 Grant of Security Interest. The Borrower hereby pledges, assigns and grants to the Lender a security interest (collectively referred to as the "Security Interest") in the Collateral, as security for the payment and performance of the Obligations. Section 3.2 Notification of Account Debtors and Other Obligors. The Lender may at any time (whether or not a Default Period then exists) notify any account debtor or other person obligated to pay the amount due that such right to payment has been assigned or transferred to the Lender for security and shall be paid directly to the Lender. The Borrower will join in giving such notice if the Lender so requests. At any time after the Borrower or the Lender gives such notice to an account debtor or other obligor, the Lender may, but need not, in the Lender's name or in the Borrower's name, (a) demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of the Borrower's mail to any address designated by the Lender, otherwise intercept the Borrower's mail, and receive, open and dispose of the Borrower's mail, applying all Collateral as permitted under this Agreement and holding all other mail for the Borrower's account or forwarding such mail to the Borrower's last known address. Section 3.3 Assignment of Insurance. As additional security for the payment and performance of the Obligations, the Borrower hereby assigns to the Lender any and all monies (including, without limitation, proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the Borrower with respect to, any and all policies of insurance now or at any time hereafter covering the Collateral or any evidence thereof or any business records or valuable papers pertaining thereto, and the Borrower hereby directs the issuer of any such policy to pay all such monies directly to the Lender. At any time, whether or not a Default Period then exists, the Lender may (but need not), in the Lender's name or in the Borrower's name, execute and deliver proof of claim, receive all such monies, endorse checks and other instruments representing payment of such monies, and adjust, litigate, compromise or release any claim against the issuer of any such policy. Section 3.4 Occupancy. (a) The Borrower hereby irrevocably grants to the Lender the right to take possession of the Premises at any time during a Default Period. (b) The Lender may use the Premises only to hold, process, manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of goods that are Collateral and for other purposes that the Lender may in good faith deem to be related or incidental purposes. (c) The Lender's right to hold the Premises shall cease and terminate upon the earlier of (i) payment in full and discharge of all Obligations and termination of the Commitment, and (ii) final sale or disposition of all goods constituting Collateral and delivery of all such goods to purchasers. (d) The Lender shall not be obligated to pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises; provided, however, that if the Lender does pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises, the Borrower shall reimburse the Lender promptly for the full amount thereof. In addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees, duties, imposts, charges and expenses at any time incurred by or imposed upon the Lender by reason of the execution, delivery, existence, recordation, performance or enforcement of this Agreement or the provisions of this Section 3.4. Section 3.5 License. The Borrower hereby grants to the Lender a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all trademarks, franchises, trade names, copyrights and patents of the Borrower for the purpose of selling, leasing or otherwise disposing of any or all Collateral during any Default Period. Section 3.6 Financing Statement. A carbon, photographic or other reproduction of this Agreement or of any financing statements signed by the Borrower is sufficient as a financing statement and may be filed as a financing statement in any state to perfect the security interests granted hereby. For this purpose, the following information is set forth: Name and address of Debtor: Fleischli Oil Company, Inc. 2350 West Lincoln Way P.O. Box 487 Cheyenne, Wyoming 82003 Federal Tax Identification No. 83-0206526 Name and address of Secured Party: Norwest Business Credit, Inc. 1740 Broadway Denver, Colorado 80274-8625 Federal Tax Identification No. 41-1237652 Section 3.7 Setoff. The Borrower agrees that the Lender may at any time or from time to time, at its sole discretion and without demand and without notice to anyone, setoff any liability owed to the Borrower by the Lender, whether or not due, against any Obligation, whether or not due. In addition, each other Person holding a participating interest in any Obligations shall have the right to appropriate or setoff any deposit or other liability then owed by such Person to the Borrower, whether or not due, and apply the same to the payment of said participating interest, as fully as if such Person had lent directly to the Borrower the amount of such participating interest. ARTICLE IV Conditions of Lending Section 4.1 Conditions Precedent to the Initial Revolving Advance. The Lender's obligation to make the initial Revolving Advance hereunder shall be subject to the condition precedent that the Lender shall have received all of the following, each in form and substance satisfactory to the Lender: (a) This Agreement, properly executed by the Borrower. (b) The Note, properly executed by the Borrower. (c) For all locations listed on Exhibit D, a true and correct copy of any and all leases pursuant to which the Borrower is leasing such Premises, together with a landlord's disclaimer and consent with respect to each such lease. (d) For all locations listed on Exhibit D, a true and correct copy of any and all mortgages pursuant to which the Borrower has mortgaged such Premises, together with a mortgagee's disclaimer and consent with respect to each such mortgage. (e) The Collateral Account Agreement, properly executed by the Borrower and Norwest Bank Colorado, National Association. (f) The Lockbox Agreement, properly executed by the Borrower and Norwest Bank Colorado, National Association. (g) Current searches of appropriate filing offices showing that (i) no state or federal tax liens have been filed and remain in effect against the Borrower, (ii) no financing statements have been filed and remain in effect against the Borrower except those financing statements relating to Permitted Liens or to liens held by Persons who have agreed in writing that upon receipt of proceeds of the Advances, they will deliver UCC releases and/or terminations satisfactory to the Lender, and (iii) the Lender has duly filed all financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing. (h) A certificate of the Borrower's secretary or assistant secretary certifying as to (i) the resolutions of the Borrower's directors and if required, shareholders, authorizing the execution, delivery and performance of the Loan Documents, (ii) the Borrower's articles of incorporation and bylaws, and (iii) the signatures of the Borrower's officers or agents authorized to execute and deliver the Loan Documents and other instruments, agreements and certificates, including Advance requests, on the Borrower's behalf. (i) A current certificate issued by the Secretary of State of Wyoming, certifying that the Borrower is in compliance with all applicable organizational requirements of the State of Wyoming. (j) Evidence that the Borrower is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. (k) A certificate of an officer of the Borrower confirming to the best of his knowledge, in his personal capacity, the representations and warranties set forth in Article V. (l) An opinion of counsel to the Borrower, addressed to the Lender. (m) Certificates of the insurance required hereunder, with all hazard insurance containing a lender's loss payable endorsement in the Lender's favor and with all liability insurance naming the Lender as an additional insured. (n) A separate guaranty, properly executed by each Guarantor, pursuant to which each Guarantor unconditionally guarantees the full and prompt payment of all Obligations to the extent of each such guaranty. (o) A waiver of interest, properly executed by the spouse of the Individual Guarantor, waiving any and all interest such spouse may have in the assets disclosed to the Lender in the financial statements of the Individual Guarantor and in any future earnings or assets acquired by the Individual Guarantor. (p) A certificate of the secretary or assistant secretary of Meteor Industries, Inc. certifying as to (i) the resolutions of the directors and, if required, shareholders, of that company authorizing the execution, delivery and performance of the guaranty executed and delivered to the Lender by it; (ii) the company's articles of incorporation and bylaws; and (iii) the signatures of the officer or agents authorized to execute and deliver such guaranty on behalf of such company. (q) An opinion of counsel to Meteor Industries, Inc., addressed to the Lender. (r) Payment of the fees, costs and expenses due through the date of the initial Advance under Section 2.3 and expenses incurred by the Lender through such date and required to be paid by the Borrower under Section 9.6, including all legal expenses incurred through the date of this Agreement. (s) A letter addressed to the Lender executed by the Organizational Guarantor and by Graves Oil & Butane Co., Inc. ("Graves"), certifying that Graves owes the Organizational Guarantor no more than $400,000. (t) A letter addressed to the Lender executed by the Organizational Guarantor and by Hillger Oil Company ("Hillger"), certifying that Hillger owes no amount of money to the Organizational Guarantor. (u) Such other documents as the Lender in its sole discretion may require. Section 4.2 Conditions Precedent to All Advances. The Lender's obligation to make each Advance shall be subject to the further conditions precedent that on such date: (a) the representations and warranties contained in Article V are correct on and as of the date of such Advance as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date; and (b) no event has occurred and is continuing, or would result from such Advance which constitutes a Default or an Event of Default. ARTICLE V Representations and Warranties The Borrower represents and warrants to the Lender as follows: Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Tax Identification Number. The Borrower is a corporation , duly organized, validly existing and in good standing under the laws of the State of Wyoming and is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. No dissolution or termination of the Borrower has occurred, and no notice of dissolution or articles of termination have been filed with respect to the Borrower. The Borrower has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents. During its existence, the Borrower has done business solely under the names set forth in Schedule 5.1 hereto. The Borrower's chief executive office and principal place of business is located at the address set forth in Schedule 5.1 hereto, and all of the Borrower's records relating to its business or the Collateral are kept at that location. All Inventory and Equipment is located at that location or at one of the other locations set forth in Schedule 5.1 hereto. The Borrower's tax identification number is correctly set forth in Section 3.6 hereto. Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements. The execution, delivery and performance by the Borrower of the Loan Documents and the borrowings from time to time hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Borrower's shareholders; (ii) require any authorization, consent or approval by, or registration, declaration or filing with, or notice to, any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any third party, except such authorization, consent, approval, registration, declaration, filing or notice as has been obtained, accomplished or given prior to the date hereof; (iii) violate any provision of any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or of the Borrower's articles of incorporation and bylaws; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (v) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature (other than the Security Interest) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower. Section 5.3 Legal Agreements. This Agreement constitutes and, upon due execution by the Borrower, the other Loan Documents will constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. Section 5.4 Subsidiaries. The Borrower has no Subsidiaries. Section 5.5 Financial Condition; No Adverse Change. The Borrower has heretofore furnished to the Lender audited financial statements as of February 28, 1997 and unaudited financial statements for the fiscal year-to-date period ended May 31, 1997 and those statements fairly present the Borrower's financial condition on the dates thereof and the results of its operations and cash flows for the periods then ended and were prepared in accordance with generally accepted accounting principles. Since the date of the most recent financial statements, there has been no material adverse change in the Borrower's business, properties or condition (financial or otherwise). Section 5.6 Litigation. There are no actions, suits or proceedings pending or, to the Borrower's knowledge, threatened against or affecting the Borrower or any of its Affiliates or the properties of the Borrower or any of its Affiliates before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower or any of its Affiliates, would have a material adverse effect on the financial condition, properties or operations of the Borrower or any of its Affiliates. Section 5.7 Regulation U. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by each of them. The Borrower and its Affiliates have filed all federal, state and local tax returns which to the knowledge of the officers of the Borrower or any Affiliate, as the case may be, are required to be filed, and the Borrower and its Affiliates have paid or caused to be paid to the respective taxing authorities all taxes as shown on said returns or on any assessment received by any of them to the extent such taxes have become due. Section 5.9 Titles and Liens. The Borrower has good and absolute title to all Collateral described in the collateral reports provided to the Lender and all other Collateral, properties and assets reflected in the latest financial statements referred to in Section 5.5 and all proceeds thereof, free and clear of all mortgages, security interests, liens and encumbrances, except for Permitted Liens. No financing statement naming the Borrower as debtor is on file in any office except to perfect only Permitted Liens. Section 5.10 Plans. Except as disclosed to the Lender in writing prior to the date hereof, neither the Borrower nor any of its Affiliates maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has received any notice or has any knowledge to the effect that it is not in full compliance with any of the requirements of ERISA. No Reportable Event or other fact or circumstance which may have an adverse effect on the Plan's tax qualified status exists in connection with any Plan. Neither the Borrower nor any of its Affiliates has: (a) Any accumulated funding deficiency within the meaning of ERISA; or (b) Any liability or knows of any fact or circumstances which could result in any liability to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than accrued benefits which or which may become payable to participants or beneficiaries of any such Plan). Section 5.11 Default. The Borrower is in compliance with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a material adverse effect on the Borrower's financial condition, properties or operations. Section 5.12 Environmental Matters. (a) Definitions. As used in this Agreement, the following terms shall have the following meanings: (i) "Environmental Law" means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment. (ii) "Hazardous Substances" means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials listed in, regulated by or identified in any Environmental Law. (b) Except as disclosed in Schedule 5.12, to the Borrower's best knowledge, there are not present in, on or under the Premises any Hazardous Substances in such form or quantity as to create any liability or obligation for either the Borrower or the Lender under common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled, leaked, discharged, emitted or released in, on or under the Premises in such a way as to create any such liability. (c) Except as disclosed in Schedule 5.12, to the Borrower's best knowledge, the Borrower has not disposed of Hazardous Substances in such a manner as to create any liability under any Environmental Law. (d) Except as disclosed in Schedule 5.12, there are not and there never have been any requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation, relating in any way to the Premises or the Borrower, alleging liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto. To the Borrower's best knowledge, no such matter is threatened or impending. (e) Except as disclosed in Schedule 5.12, to the Borrower's best knowledge, the Borrower's businesses are and have in the past always been conducted in accordance with all Environmental Laws and all licenses, permits and other authorizations required pursuant to any Environmental Law and necessary for the lawful and efficient operation of such businesses are in the Borrower's possession and are in full force and effect. No permit required under any Environmental Law is scheduled to expire within 12 months and there is no threat that any such permit will be withdrawn, terminated, limited or materially changed. (f) Except as disclosed in Schedule 5.12, to the Borrower's best knowledge, the Premises are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database. (g) The Borrower has delivered to Lender all environmental assessments, audits, reports, permits, licenses and other documents describing or relating in any way to the Premises or Borrower's businesses. Section 5.13 Submissions to Lender. All financial and other information provided to the Lender by or on behalf of the Borrower in connection with the Borrower's request for the credit facilities contemplated hereby is true and correct in all material respects and, as to projections, valuations or proforma financial statements, present a good faith opinion as to such projections, valuations and proforma condition and results. Section 5.14 Financing Statements. The Borrower has provided to the Lender signed financing statements sufficient when filed to perfect the Security Interest and the other security interests created by the Security Documents. To the best of Borrower's knowledge, when such financing statements are filed in the offices noted therein, the Lender will have a valid and perfected security interest in all Collateral and all other collateral described in the Security Documents which is capable of being perfected by filing financing statements. None of the Collateral or other collateral covered by the Security Documents is or will become a fixture on real estate, unless a sufficient fixture filing is in effect with respect thereto. Section 5.15 Rights to Payment. Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral or other collateral covered by the Security Documents is (or, in the case of all future Collateral or such other collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, setoff or counterclaim, of the account debtor or other obligor named therein or in the Borrower's records pertaining thereto as being obligated to pay such obligation. Section 5.16 Financial Solvency. Both before and after giving effect to the acquisition of the common stock of the Borrower by Meteor Industries, Inc. and all of the transactions contemplated in the Loan Documents, none of the Borrower or its Affiliates: (a) was or will be insolvent, as that term is used and defined in Section 101(32) of the United States Bankruptcy Code and Section 2 of the Uniform Fraudulent Transfer Act; (b) has unreasonably small capital or is engaged or about to engage in a business or a transaction for which any remaining assets of the Borrower or such Affiliate are unreasonably small; (c) by executing, delivering or performing its obligations under the Loan Documents or other documents to which it is a party or by taking any action with respect thereto, intends to, nor believes that it will, incur debts beyond its ability to pay them as they mature; (d) by executing, delivering or performing its obligations under the Loan Documents or other documents to which it is a party or by taking any action with respect thereto, intends to hinder, delay or defraud either its present or future creditors; and (e) at this time contemplates filing a petition in bankruptcy or for an arrangement or reorganization or similar proceeding under any law any jurisdiction, nor, to the best knowledge of the Borrower, is the subject of any actual, pending or threatened bankruptcy, insolvency or similar proceedings under any law of any jurisdiction. ARTICLE VI Borrower's Affirmative Covenants So long as the Obligations shall remain unpaid, or the Credit Facility shall remain outstanding, the Borrower will comply with the following requirements, unless the Lender shall otherwise consent in writing: Section 6.1 Reporting Requirements. The Borrower will deliver, or cause to be delivered, to the Lender each of the following, which shall be in form and detail acceptable to the Lender: (a) as soon as available, and in any event within 90 days after the end of each fiscal year of the Borrower and the Organizational Guarantor, audited financial statements of the Borrower and the Organizational Guarantor with the unqualified opinion of independent certified public accountants selected by the Borrower or the Organizational Guarantor, as the case may be, and reasonably acceptable to the Lender, which annual financial statements shall include the balance sheet of the Borrower or the Organizational Guarantor, as the case may be, as at the end of such fiscal year and the related statements of income, retained earnings and cash flows of the Borrower or the Organizational Guarantor, as the case may be, for the fiscal year then ended, all in reasonable detail and prepared in accordance with GAAP (provided, however, that the Borrower may satisfy the above requirements by delivering to the Lender audited consolidated financial statements for the Organizational Guarantor and unaudited financial statements showing the Borrower's performance independent from that of the Organizational Guarantor, which statements must meet all of the requirements of this Section 6.1(a) other than the requirement that such statements be audited) together with, in the case of the Borrower, (i) a report signed by such accountants stating that in making the investigations necessary for said review they obtained no knowledge, except as specifically stated, of any Default or Event of Default hereunder and all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the requirements set forth in Sections 6.12 through 6.15 and 7.10 hereof; and (ii) a certificate of the Borrower's chief financial officer stating that such financial statements have been prepared in accordance with generally accepted accounting principles applied on a basis consistent with the accounting practices applied in the financial statements referred to in Section 5.5 hereof and whether or not such officer has knowledge of the occurrence of any Default or Event of Default hereunder and, if so, stating in reasonable detail the facts with respect thereto; (b) as soon as available and in any event within 25 days after the end of each month, an unaudited/internal balance sheet and statements of income and retained earnings of the Borrower as at the end of and for such month and for the year to date period then ended, prepared, if the Lender so requests, on a consolidating and consolidated basis to include any Affiliates, in reasonable detail and stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with GAAP, subject to year-end audit adjustments; and accompanied by a certificate of the Borrower's chief financial officer, substantially in the form of Exhibit B hereto stating (i) that such financial statements have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly represent the Borrower's financial position and the results of its operations, (ii) whether or not such officer has knowledge of the occurrence of any Default or Event of Default hereunder not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto, and (iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the requirements set forth in Sections 6.13, 6.14, and 7.10; (c) within 15 days after the end of each month, agings of the Borrower's accounts receivable and its accounts payable, an inventory certification report, and a calculation of the Borrower's Accounts, Eligible Accounts, Inventory and Eligible Inventory as at the end of such month or shorter time period; (d) at least 30 days before the beginning of each fiscal year of the Borrower, the projected balance sheets and income statements for each month of such year, each in reasonable detail, representing the Borrower's good faith projections and certified by the Borrower's chief financial officer as being the most accurate projections available and identical to the projections used by the Borrower for internal planning purposes, together with such supporting schedules and information as the Lender may in its discretion require; (e) each Banking Day, an assignment, sales, and collection report certified by the chief financial officer or other responsible financial officer of the Borrower, which report shall include notice of (i) any disputes or claims by customers of the Borrower, (ii) any goods returned to or recovered by the Borrower, and (iii) any change in the persons constituting the officers or directors of the Borrower. (f) immediately after the commencement thereof, notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting the Borrower of the type described in Section 5.12 or which seek a monetary recovery against the Borrower in excess of $25,000; (g) as promptly as practicable (but in any event not later than five business days) after an officer of the Borrower obtains knowledge of the occurrence of any breach, default or event of default under any Security Document or any event which constitutes a Default or Event of Default hereunder, notice of such occurrence, together with a detailed statement by a responsible officer of the Borrower of the steps being taken by the Borrower to cure the effect of such breach, default or event; (h) as soon as possible and in any event within 30 days after the Borrower knows or has reason to know that any Reportable Event with respect to any Plan has occurred, the statement of the Borrower's chief financial officer setting forth details as to such Reportable Event and the action which the Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event to the Pension Benefit Guaranty Corporation; (i) as soon as possible, and in any event within 10 days after the Borrower fails to make any quarterly contribution required with respect to any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended, the statement of the Borrower's chief financial officer setting forth details as to such failure and the action which the Borrower proposes to take with respect thereto, together with a copy of any notice of such failure required to be provided to the Pension Benefit Guaranty Corporation; (j) promptly upon knowledge thereof, notice of (i) any disputes or claims by the Borrower's customers exceeding $25,000 individually or $50,000 in the aggregate during any fiscal year; (ii) credit memos; (iii) any goods returned to or recovered by the Borrower; and (iv) any change in the persons constituting the Borrower's officers and directors; (k) promptly upon knowledge thereof, notice of any loss of or material damage to any Collateral or other collateral covered by the Security Documents or of any substantial adverse change in any Collateral or such other collateral or the prospect of payment thereof; (l) promptly upon their distribution, copies of all financial statements, reports and proxy statements which the Borrower shall have sent to its stockholders; (m) promptly after the sending or filing thereof, copies of all regular and periodic reports which the Borrower shall file with the Securities and Exchange Commission or any national securities exchange; (n) promptly upon knowledge thereof, notice of the Borrower's violation of any law, rule or regulation, the non-compliance with which could materially and adversely affect the Borrower's business or its financial condition; (o) promptly upon payment thereof, evidence of payment of any gasoline or special fuels taxes; (p) from time to time, with reasonable promptness, any and all receivables schedules, collection reports, deposit records, equipment schedules, copies of invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other material, reports, records or information as the Lender may request; and (q) as soon as available, and in any event by not later than February 28 of each year, an updated personal financial statement of each Individual Guarantor as at December 31 of the previous year. Section 6.2 Books and Records; Inspection and Examination. The Borrower will keep accurate books of record and account for itself pertaining to the Collateral and pertaining to the Borrower's business and financial condition and such other matters as the Lender may from time to time request in which true and complete entries will be made in accordance with GAAP and, upon the Lender's request, will permit any officer, employee, attorney or accountant for the Lender to audit, review, make extracts from or copy any and all corporate and financial books and records of the Borrower at all times during ordinary business hours, to send and discuss with account debtors and other obligors requests for verification of amounts owed to the Borrower, and to discuss the Borrower's affairs with any of its directors, officers, employees or agents. The Borrower will permit the Lender, or its employees, accountants, attorneys or agents, to examine, inspect or have appraised any Collateral, other collateral covered by the Security Documents or any other property of the Borrower at any time during ordinary business hours. Section 6.3 Account Verification. The Lender may at any time and from time to time send or require the Borrower to send requests for verification of accounts or notices of assignment to account debtors and other obligors. The Lender may also at any time and from time to time telephone account debtors and other obligors to verify accounts. Section 6.4 Compliance with Laws. (a) The Borrower will (i) comply with the requirements of applicable laws and regulations, the non-compliance with which would materially and adversely affect its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance. (b) Without limiting the foregoing undertakings, the Borrower specifically agrees that it will comply with all applicable Environmental Laws and obtain and comply with all permits, licenses and similar approvals required by any Environmental Laws, and will not generate, use, transport, treat, store or dispose of any Hazardous Substances in such a manner as to create any liability or obligation under the common law of any jurisdiction or any Environmental Law. Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including, without limitation, the Collateral) or upon or against the creation, perfection or continuance of the Security Interest, prior to the date on which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon any properties of the Borrower; provided, that the Borrower shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made. Section 6.6 Maintenance of Properties. (a) The Borrower will keep and maintain the Collateral, the other collateral covered by the Security Documents and all of its other properties necessary or useful in its business in good condition, repair and working order (normal wear and tear excepted) and will from time to time replace or repair any worn, defective or broken parts; provided, however, that nothing in this Section 6.6 shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the Lender's judgment, desirable in the conduct of the Borrower's business and not disadvantageous in any material respect to the Lender. (b) The Borrower will defend the Collateral against all claims or demands of all persons (other than the Lender) claiming the Collateral or any interest therein. (c) The Borrower will keep all Collateral and other collateral covered by the Security Documents free and clear of all security interests, liens and encumbrances except Permitted Liens. Section 6.7 Insurance. The Borrower will obtain and at all times maintain insurance with insurers believed by the Borrower to be responsible and reputable, in such amounts and against such risks as may from time to time be required by the Lender, but in all events in such amounts and against such risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which the Borrower operates. Without limiting the generality of the foregoing, the Borrower will at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of motor vehicles) and such other risks and in such amounts as the Lender may reasonably request, with any loss payable to the Lender to the extent of its interest, and all policies of such insurance shall contain a lender's loss payable endorsement for the Lender's benefit acceptable to the Lender. All policies of liability insurance required hereunder shall name the Lender as an additional insured. Section 6.8 Preservation of Existence. The Borrower will preserve and maintain its existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly, efficient and regular manner. Section 6.9 Delivery of Instruments, etc. Upon request by the Lender, the Borrower will promptly deliver to the Lender in pledge all instruments, documents and chattel papers constituting Collateral, duly endorsed or assigned by the Borrower. Section 6.10 Lockbox. The Borrower shall irrevocably direct all present and future Account debtors and other Persons obligated to make payments on Receivables to make such payments directly to a special lockbox (the "Lockbox") under the Lender's control. (a) All of the Borrower's invoices, account statements and other written or oral communications directing, instructing, demanding or requesting payment of any Receivable or any other amount constituting Collateral shall conspicuously direct that all payments be made to the Lockbox and shall include the Lockbox address. All payments received in the Lockbox shall be processed to the Collateral Account. (b) The Borrower agrees to deposit in the Collateral Account or, at the Lender's option, to deliver to the Lender all collections on Receivables and all other proceeds of Collateral, which the Borrower may receive directly notwithstanding its direction to Account debtors and other obligors to make payments to the Lockbox, immediately upon receipt thereof, in the form received, except for the Borrower's endorsement when deemed necessary. Until delivered to the Lender or deposited in the Collateral Account, the Borrower shall hold all proceeds or collections of Collateral in trust for and as the property of the Lender and shall not commingle them with any other funds or property of the Borrower. All such collections shall constitute proceeds of Collateral and shall not constitute payment of any Obligation. Section 6.11 Collateral Account. (a) If, notwithstanding the instructions to debtors to make payments to the Lockbox, the Borrower receives any payments on Receivables, the Borrower shall deposit such payments into the Collateral Account. Until so deposited, the Borrower shall hold all such payments in trust for and as the property of the Lender and shall not commingle such payments with any of its other funds or property. (b) Amounts deposited in the Collateral Account shall not bear interest and shall not be subject to withdrawal by the Borrower, except after full payment and discharge of all Obligations. (c) All deposits in the Collateral Account shall constitute proceeds of Collateral and shall not constitute payment of the Obligations. The Lender from time to time at its discretion may, after allowing two Banking Days, apply deposited funds in the Collateral Account to the payment of the Obligations, in any order or manner of application satisfactory to the Lender, by transferring such funds to the Lender's general account. (d) All items deposited in the Collateral Account shall be subject to final payment. If any such item is returned uncollected, the Borrower will immediately pay the Lender, or, for items deposited in the Collateral Account, the bank maintaining such account, the amount of that item, or such bank at its discretion may charge any uncollected item to the Borrower's commercial account or other account. The Borrower shall be liable as an endorser on all items deposited in the Collateral Account, whether or not in fact endorsed by the Borrower. Section 6.12 Performance by the Lender. If the Borrower at any time fails to perform or observe any of the foregoing covenants contained in this Article VI or elsewhere herein, and if such failure shall continue for a period of ten calendar days after the Lender gives the Borrower written notice thereof (or in the case of the agreements contained in Sections 6.5, 6.7 and 6.11, immediately upon the occurrence of such failure, without notice or lapse of time), the Lender may, but need not, perform or observe such covenant on behalf and in the name, place and stead of the Borrower (or, at the Lender's option, in the Lender's name) and may, but need not, take any and all other actions which the Lender may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens or encumbrances, the performance of obligations owed to account debtors or other obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments); and the Borrower shall thereupon pay to the Lender on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Lender in connection with or as a result of the performance or observance of such agreements or the taking of such action by the Lender, together with interest thereon from the date expended or incurred at the Floating Rate. To facilitate the Lender's performance or observance of such covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender, or the Lender's delegate, acting alone, as the Borrower's attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of the Borrower any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by the Borrower under this Section 6.12. Section 6.13 Minimum Book Net Worth. The Borrower will maintain, at the end of each month listed below, its Book Net Worth at an amount not less than the amount set forth opposite such month: Month Minimum Book Net Worth July 1997 $3,795,000 August 1997 3,835,000 September 1997 3,900,000 October 1997 3,975,000 November 1997 3,950,000 December 1997 3,950,000 January 1998 3,915,000 February 1998 3,850,000 March 1998 3,895,000 April 1998 3,895,000 May 1998 3,925,000 June 1998 3,975,000 July 1998 4,015,000 August 1998 4,050,000 September 1998 4,135,000 October 1998 4,235,000 November 1998 4,175,000 December 1998 and each month thereafter 4,110,000 If at any time the Borrower shall receive any additional equity from any source other than the Borrower's earnings, the Minimum Book Net Worth covenant for that date and for each date thereafter shall be increased by the amount of such additional equity received. Section 6.14 Minimum Net Income. The Borrower will achieve during each period described below, Net Income of not less than the amount set forth opposite such period: Period Minimum Net Income Two months ended September 30, 1997 $ 0 Five months ended December 31, 1997 55,000 Three months ended March 31, 1998 (184,000) Six months ended June 30, 1998 (82,000) Nine months ended September 30, 1998 72,000 Twelve months ended December 31, 1998 50,000 Section 6.15 New Covenants. On or before April 30, 1999, the Borrower and the Lender shall agree on new covenant levels for Sections 6.13, 6.14, and 7.10 for periods after December 31, 1998. The new covenant levels will be based on the Borrower's projections for such periods and shall be no less stringent than the present levels. ARTICLE VII Negative Covenants So long as the Obligations shall remain unpaid, or the Credit Facility shall remain outstanding, the Borrower agrees that, without the Lender's prior written consent: Section 7.1 Liens. The Borrower will not create, incur or suffer to exist any mortgage, deed of trust, pledge, lien, security interest, assignment or transfer upon or of any of its assets, now owned or hereafter acquired, to secure any indebtedness; excluding, however, from the operation of the foregoing, the following (collectively, "Permitted Liens"): (a) in the case of any of the Borrower's property which is not Collateral or other collateral described in the Security Documents, covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with the Borrower's business or operations as presently conducted; (b) mortgages, deeds of trust, pledges, liens, security interests and assignments in existence on the date hereof and listed in Schedule 7.1 hereto, securing indebtedness for borrowed money permitted under Section 7.2; (c) the Security Interest and liens and security interests created by the Security Documents; and (d) purchase money security interests relating to the acquisition of machinery and equipment of the Borrower not exceeding the lesser of cost or fair market value thereof so long as no Default Period is then in existence and none would exist immediately after such acquisition. Section 7.2 Indebtedness. The Borrower will not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness for borrowed money or letters of credit issued on the Borrower's behalf, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, except: (a) indebtedness arising hereunder; (b) indebtedness of the Borrower in existence on the date hereof and listed in Schedule 7.2 hereto; and (c) indebtedness relating to liens permitted in accordance with Section 7.1. In addition, the Borrower will not make any payment on any indebtedness owed to any Person other than the Lender other than scheduled payments of principal and interest in accordance with the schedules attached to Schedule 7.2 hereto. Section 7.3 Guaranties. The Borrower will not assume, guarantee, endorse or otherwise become directly or contingently liable in connection with any obligations of any other Person, except: (a) the endorsement of negotiable instruments by the Borrower for deposit or collection or similar transactions in the ordinary course of business; and (b) guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons, in existence on the date hereof and listed in Schedule 7.2 hereto. Section 7.4 Investments and Subsidiaries. (a) The Borrower will not purchase or hold beneficially any stock or other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, including specifically but without limitation any partnership or joint venture, except: (i) investments in direct obligations of the United States of America or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America having a maturity of one year or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or "P-2" by Moody's Investors Service or certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of deposit or bankers' acceptances are fully insured by the Federal Deposit Insurance Corporation); (ii) travel advances or loans to the Borrower's officers and employees not exceeding at any one time an aggregate of $5,000; and (iii) advances in the form of progress payments, prepaid rent or security deposits. (b) The Borrower will not create or permit to exist any Subsidiary. Section 7.5 Dividends. The Borrower will not declare or pay any dividends (other than dividends payable solely in stock of the Borrower) on any class of its stock or make any payment on account of the purchase, redemption or other retirement of any shares of such stock or make any distribution in respect thereof, either directly or indirectly. Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations. The Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of its assets, or (iii) any Collateral or any interest therein (whether in one transaction or in a series of transactions) to any other Person other than the sale of Inventory in the ordinary course of business and will not liquidate, dissolve or suspend business operations. The Borrower will not in any manner transfer any property without prior or present receipt of full and adequate consideration. Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower will not consolidate with or merge into any Person, or permit any other Person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any other Person. Section 7.8 Sale and Leaseback. The Borrower will not enter into any arrangement, directly or indirectly, with any other Person whereby the Borrower shall sell or transfer any real or personal property, whether now owned or hereafter acquired, and then or thereafter rent or lease as lessee such property or any part thereof or any other property which the Borrower intends to use for substantially the same purpose or purposes as the property being sold or transferred. Section 7.9 Restrictions on Nature of Business. The Borrower will not engage in any line of business materially different from that presently engaged in by the Borrower and will not purchase, lease or otherwise acquire assets not related to its business. Section 7.10 Capital Expenditures. The Borrower will not incur or contract to incur Capital Expenditures of more than $450,000 in the aggregate during the remainder of its fiscal year ending December 31, 1997, or of more than $850,000 in the aggregate during any fiscal year. Section 7.11 Accounting. The Borrower will not adopt any material change in accounting principles other than as required by GAAP. The Borrower will not adopt, permit or consent to any change in its fiscal year. Section 7.12 Discounts, etc. The Borrower will not, after notice from the Lender, grant any discount, credit or allowance to any customer of the Borrower or accept any return of goods sold, or at any time (whether before or after notice from the Lender) modify, amend, subordinate, cancel or terminate the obligation of any account debtor or other obligor of the Borrower. Section 7.13 Defined Benefit Pension Plans. The Borrower will not adopt, create, assume or become a party to any defined benefit pension plan, unless disclosed to the Lender pursuant to Section 5.10. Section 7.14 Other Defaults. The Borrower will not permit any breach, default or event of default to occur under any note, loan agreement, indenture, lease, mortgage, contract for deed, security agreement or other contractual obligation binding upon the Borrower. Section 7.15 Place of Business; Name. The Borrower will not transfer its chief executive office or principal place of business, or move, relocate, close or sell any business location. The Borrower will not permit any tangible Collateral or any records pertaining to the Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. The Borrower will not change its name. Section 7.16 Organizational Documents. The Borrower will not amend its articles of incorporation and bylaws. The Borrower will not become an S Corporation within the meaning of the Internal Revenue Code of 1986, as amended. Section 7.17 Salaries. The Borrower will not pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation; or increase the salary, bonus, commissions, consultant fees or other compensation of any directors, shareholders or consultants, or any member of their families, by more than 10% in any fiscal year, either individually or for all such persons in the aggregate, or pay any such increase from any source other than profits earned in the year of payment; provided, however, that the above 10% restriction shall not apply to directors Robert Jensen and Paul Greaves. Section 7.18 Change in Ownership. The Borrower will not issue or sell any stock of the Borrower so as to change the percentage of voting and non-voting stock owned by each of the Borrower's shareholders, and the Borrower will not permit or suffer to occur the sale, transfer, assignment, pledge or other disposition of any or all of the issued and outstanding shares of stock of the Borrower. Notwithstanding the foregoing, the Borrower may issue or sell shares of its stock in a public or private offering provided that after the sale or issuance of its stock in such an offer, (i) at least 51% of such stock is owned by the Corporate Guarantor; and (ii) Edward J. Names and Dennis Staal continue to manage the day-to-day affairs of the Corporate Guarantor. ARTICLE VIII Events of Default, Rights and Remedies Section 8.1 Events of Default. "Event of Default", wherever used herein, means any one of the following events: (a) Default in the payment of the Obligations when they become due and payable; (b) Default in the payment of any fees, commissions, costs or expenses required to be paid by the Borrower under this Agreement; (c) Default in the performance, or breach, of any covenant or agreement of the Borrower contained in this Agreement; (d) The Borrower or any Guarantor shall be or become insolvent, or admit in writing its or his inability to pay its or his debts as they mature, or make an assignment for the benefit of creditors; or the Borrower or any Guarantor shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it or him or for all or any substantial part of its or his property; or such receiver, trustee or similar officer shall be appointed without the application or consent of the Borrower or such Guarantor, as the case may be; or the Borrower or any Guarantor shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it or him under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against the Borrower or any such Guarantor; or any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of the Borrower or any Guarantor; (e) A petition shall be filed by or against the Borrower or any Guarantor under the United States Bankruptcy Code naming the Borrower or such Guarantor as debtor; (f) Any representation or warranty made by the Borrower in this Agreement, by any Guarantor in any guaranty delivered to the Lender, or by the Borrower (or any of its officers) or any Guarantor in any agreement, certificate, instrument or financial statement or other statement contemplated by or made or delivered pursuant to or in connection with this Agreement or any such guaranty shall prove to have been incorrect in any material respect when deemed to be effective; (g) The rendering against the Borrower of a final judgment, decree or order for the payment of money in excess of $25,000 and the continuance of such judgment, decree or order unsatisfied and in effect for any period of 30 consecutive days without a stay of execution; (h) A default under any bond, debenture, note or other evidence of indebtedness of the Borrower owed to any Person other than the Lender, or under any indenture or other instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any lease of any of the Premises, and the expiration of the applicable period of grace, if any, specified in such evidence of indebtedness, indenture, other instrument or lease; (i) Any Reportable Event, which the Lender determines in good faith might constitute grounds for the termination of any Plan or for the appointment by the appropriate United States District Court of a trustee to administer any Plan, shall have occurred and be continuing 30 days after written notice to such effect shall have been given to the Borrower by the Lender; or a trustee shall have been appointed by an appropriate United States District Court to administer any Plan; or the Pension Benefit Guaranty Corporation shall have instituted proceedings to terminate any Plan or to appoint a trustee to administer any Plan; or the Borrower shall have filed for a distress termination of any Plan under Title IV of ERISA; or the Borrower shall have failed to make any quarterly contribution required with respect to any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended, which the Lender determines in good faith may by itself, or in combination with any such failures that the Lender may determine are likely to occur in the future, result in the imposition of a lien on the Borrower's assets in favor of the Plan; (j) An event of default shall occur under any Security Document or under any other security agreement, mortgage, deed of trust, assignment or other instrument or agreement securing any obligations of the Borrower hereunder or under any note; (k) The Borrower shall liquidate, dissolve, terminate or suspend its business operations or otherwise fail to operate its business in the ordinary course, or sell all or substantially all of its assets, without the Lender's prior written consent; (l) The Borrower shall fail to pay, withhold, collect or remit any tax or tax deficiency when assessed or due (other than any tax deficiency which is being contested in good faith and by proper proceedings and for which it shall have set aside on its books adequate reserves therefor) or notice of any state or federal tax liens shall be filed or issued; (m) Default in the payment of any amount owed by the Borrower to the Lender other than any indebtedness arising hereunder; (n) Any Guarantor shall repudiate, purport to revoke or fail to perform any such Guarantor's obligations under such Guarantor's guaranty in favor of the Lender, any individual Guarantor shall die or any other Guarantor shall cease to exist; or (o) Any breach, default or event of default by or attributable to any Affiliate under any agreement between such Affiliate and the Lender. Section 8.2 Rights and Remedies. During any Default Period, the Lender may exercise any or all of the following rights and remedies: (a) the Lender may, by notice to the Borrower, declare the Commitment to be terminated, whereupon the same shall forthwith terminate; (b) the Lender may, by notice to the Borrower, declare the Obligations to be forthwith due and payable, whereupon all Obligations shall become and be forthwith due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which the Borrower hereby expressly waives; (c) the Lender may, without notice to the Borrower and without further action, apply any and all money owing by the Lender to the Borrower to the payment of the Obligations; (d) the Lender may exercise and enforce any and all rights and remedies available upon default to a secured party under the UCC, including, without limitation, the right to take possession of Collateral, or any evidence thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Borrower hereby expressly waives) and the right to sell, lease or otherwise dispose of any or all of the Collateral, and, in connection therewith, the Borrower will on demand assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties; (e) the Lender may exercise and enforce its rights and remedies under the Loan Documents; and (f) the Lender may exercise any other rights and remedies available to it by law or agreement. Notwithstanding the foregoing, upon the occurrence of an Event of Default described in subsections (d) or (e) of Section 8.1, the Obligations shall be immediately due and payable automatically without presentment, demand, protest or notice of any kind. Section 8.3 Certain Notices. If notice to the Borrower of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 9.3) at least ten calendar days before the date of intended disposition or other action. ARTICLE IX Miscellaneous Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by the Lender in exercising any right, power or remedy under the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under the Loan Documents. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. Section 9.2 Amendments, Etc. No amendment, modification, termination or waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom or any release of a Security Interest shall be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly provided herein, all notices, requests, demands and other communications provided for under the Loan Documents shall be in writing and shall be (a) personally delivered, (b) sent by first class United States mail, (c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case addressed or telecopied to the party to whom notice is being given at its address or telecopier number as set forth below: If to the Borrower: Fleischli Oil Company, Inc. c/o Meteor Industries, Inc. 216 Sixteenth Street, Suite 730 Denver, Colorado 80202 Telecopier: 303-572-1803 Attention: Edward J. Names If to the Lender: Norwest Business Credit, Inc. 1740 Broadway Denver, Colorado 80274-8625 Telecopier: 303/863-4904 Attention: Pamela Klempel or, as to each party, at such other address or telecopier number as may hereafter be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall be deemed to have been given on (a) the date received if personally delivered, (b) when deposited in the mail if delivered by mail, (c) the date sent if sent by overnight courier, or (d) the date of transmission if delivered by telecopy, except that notices or requests to the Lender pursuant to any of the provisions of Article II shall not be effective until received by the Lender. Section 9.4 Further Documents. The Borrower will from time to time execute and deliver or endorse any and all instruments, documents, conveyances, assignments, security agreements, financing statements and other agreements and writings that the Lender may reasonably request in order to secure, protect, perfect or enforce the Security Interest or the Lender's rights under the Loan Documents (but any failure to request or assure that the Borrower executes, delivers or endorses any such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents and the Security Interest, regardless of whether any such item was or was not executed, delivered or endorsed in a similar context or on a prior occasion). Section 9.5 Collateral. This Agreement does not contemplate a sale of accounts, contract rights or chattel paper, and, as provided by law, the Borrower is entitled to any surplus and shall remain liable for any deficiency. The Lender's duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and the Lender need not otherwise preserve, protect, insure or care for any Collateral. The Lender shall not be obligated to preserve any rights the Borrower may have against prior parties, to realize on the Collateral at all or in any particular manner or order or to apply any cash proceeds of the Collateral in any particular order of application. Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand all costs and expenses, including (without limitation) attorneys' fees incurred by the Lender in connection with the Obligations, this Agreement, the Loan Documents, and any other document or agreement related hereto or thereto, and the transactions contemplated hereby, including without limitation all such costs, expenses and fees incurred in connection with the negotiation, preparation, execution, amendment, administration, performance, collection and enforcement of the Obligations and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest. Section 9.7 Indemnity. In addition to the payment of expenses pursuant to Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the Lender, and any of its participants, parent corporations, subsidiary corporations, affiliated corporations, successor corporations, and all present and future officers, directors, employees, attorneys and agents of the foregoing (the "Indemnitees") from and against any of the following (collectively, "Indemnified Liabilities"): (i) any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents or the making of the Advances; (ii) any claims, loss or damage to which any Indemnitee may be subjected if any representation or warranty contained in Section 5.12 proves to be incorrect in any respect or as a result of any violation of the covenant contained in Section 6.4(b); and (iii) any and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel) in connection with the foregoing and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party thereto, which may be imposed on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances and the Loan Documents or the use or intended use of the proceeds of the Advances. If any investigative, judicial or administrative proceeding arising from any of the foregoing is brought against any Indemnitee, upon such Indemnitee's request, the Borrower, or counsel designated by the Borrower and satisfactory to the Indemnitee, will resist and defend such action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at the Borrower's sole costs and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If the foregoing undertaking to indemnify, defend and hold harmless may be held to be unenforceable because it violates any law or public policy, the Borrower shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The Borrower's obligation under this Section 9.7 shall survive the termination of this Agreement and the discharge of the Borrower's other obligations hereunder. Section 9.8 Participants. The Lender and its participants, if any, are not partners or joint venturers, and the Lender shall not have any liability or responsibility for any obligation, act or omission of any of its participants. All rights and powers specifically conferred upon the Lender may be transferred or delegated to any of the Lender's participants, successors or assigns. Section 9.9 Execution in Counterparts. This Agreement and other Loan Documents may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging Information. The Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights thereunder or any interest therein without the Lender's prior written consent. This Agreement, together with the Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. Without limiting the Lender's right to share information regarding the Borrower and its Affiliates with the Lender's participants, accountants, lawyers and other advisors, the Lender, Norwest Corporation, and all direct and indirect subsidiaries of Norwest Corporation, may exchange any and all information they may have in their possession regarding the Borrower and its Affiliates, and the Borrower waives any right of confidentiality it may have with respect to such exchange of such information. Section 9.11 Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Section 9.12 Headings. Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of Colorado. The parties hereto hereby (i) consent to the personal jurisdiction of the state and federal courts located in the State of Colorado in connection with any controversy related to this Agreement; (ii) waive any argument that venue in any such forum is not convenient; (iii) agree that any litigation initiated by the Lender or the Borrower in connection with this Agreement or the other Loan Documents shall be venued in either the District Court of the City and County of Denver, Colorado, or the United States District Court, District of Colorado; and (iv) agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. NORWEST BUSINESS CREDIT, INC. By /s/ Pamela Klempel Pamela Klempel Its Assistant Vice President FLEISCHLI OIL COMPANY, INC. By /s/ Dennis R. Staal Dennis R. Staal Its Treasurer Table of Exhibits and Schedules Exhibit A Form of Revolving Note Exhibit B Compliance Certificate Exhibit C Premises Exhibit D Eligible Inventory Locations ___________________ Schedule 2.11 Sources and Uses of Funds Schedule 5.1 Trade Names, Chief Executive Office, Principal Place of Business, and Locations of Collateral Schedule 5.12 Hazardous Substances Matters Schedule 7.1 Permitted Liens Schedule 7.2 Permitted Indebtedness and Guaranties Exhibit A to Credit and Security Agreement REVOLVING NOTE $5,000,000 Denver, Colorado August 13, 1997 For value received, the undersigned, FLEISCHLI OIL COMPANY, INC., a Wyoming corporation (the "Borrower"), hereby promises to pay on the Termination Date under the Credit Agreement (defined below), to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in Minneapolis, Minnesota, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of Five Million Dollars ($5,000,000) or, if less, the aggregate unpaid principal amount of all Revolving Advances made by the Lender to the Borrower under the Credit Agreement (defined below) together with interest on the principal amount hereunder remaining unpaid from time to time, computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate from time to time in effect under the Credit and Security Agreement of even date herewith (as the same may hereafter be amended, supplemented or restated from time to time, the "Credit Agreement") by and between the Lender and the Borrower. The principal hereof and interest accruing thereon shall be due and payable as provided in the Credit Agreement. This Note may be prepaid only in accordance with the Credit Agreement. This Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among other things, for acceleration hereof. This Note is the Revolving Note referred to in the Credit Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the Security Documents as therein defined, and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements. The Borrower hereby agrees to pay all costs of collection, including attorneys' fees and legal expenses in the event this Note is not paid when due, whether or not legal proceedings are commenced. Presentment or other demand for payment, notice of dishonor and protest are expressly waived. FLEISCHLI OIL COMPANY, INC. By /s/ Dennis R. Staal Dennis R. Staal Its Treasurer Exhibit B to Credit and Security Agreement Compliance Certificate To: Pamela Klempel Norwest Business Credit, Inc. Date: __________________, 199___ Subject: Fleischli Oil Company, Inc. Financial Statements In accordance with our Credit and Security Agreement dated as of August 13, 1997 (the "Credit Agreement"), attached are the financial statements of Fleischli Oil Company, Inc. (the "Borrower") as of and for ________________, 19___ (the "Reporting Date") and the year-to-date period then ended (the "Current Financials"). All terms used in this certificate have the meanings given in the Credit Agreement. I certify that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly present the Borrower's financial condition and the results of its operations as of the date thereof. Events of Default. (Check one): - The undersigned does not have knowledge of the occurrence of a Default or Event of Default under the Credit Agreement. - The undersigned has knowledge of the occurrence of a Default or Event of Default under the Credit Agreement and attached hereto is a statement of the facts with respect to thereto. I hereby certify to the Lender as follows: - The Reporting Date does not mark the end of one of the Borrower's fiscal quarters, hence I am completing only paragraphs 1 and 3 below. - The Reporting Date marks the end of one of the Borrower's fiscal quarters, hence I am completing all paragraphs below. - The Reporting Date marks the end of the Borrower's fiscal year, hence I am completing all paragraphs below. Financial Covenants. I further hereby certify as follows: 1. Minimum Book Net Worth. Pursuant to Section 6.13 of the Credit Agreement, as of the Reporting Date, the Borrower's Book Net Worth was $____________ which satisfies/does not satisfy the requirement that such amount be not less than $_____________ on the Reporting Date as set forth in table below (as such table may be modified in accordance with Section 6.13): Month Minimum Book Net Worth July 1997 $3,795,000 August 1997 3,835,000 September 1997 3,900,000 October 1997 3,975,000 November 1997 3,950,000 December 1997 3,950,000 January 1998 3,915,000 February 1998 3,850,000 March 1998 3,895,000 April 1998 3,895,000 May 1998 3,925,000 June 1998 3,975,000 July 1998 4,015,000 August 1998 4,050,000 September 1998 4,135,000 October 1998 4,235,000 November 1998 4,175,000 December 1998 and each month thereafter 4,110,000 2. Minimum Net Income. Pursuant to Section 6.14 of the Credit Agreement, the Borrower's Net Income for the period ending on the Reporting Date was $____________, which satisfies/does not satisfy the requirement that such amount be not less than $_____________ during such period as set forth in table below: Period Minimum Net Income Two months ended September 30, 1997 $ 0 Five months ended December 31, 1997 55,000 Three months ended March 31, 1998 (184,000) Six months ended June 30, 1998 (82,000) Nine months ended September 30, 1998 72,000 Twelve months ended December 31, 1998 50,000 3. Capital Expenditures. Pursuant to Section 7.10 of the Credit Agreement, for the year-to-date period ending on the Reporting Date, the Borrower has expended or contracted to expend, for Capital Expenditures, $__________________ in the aggregate, which satisfies/does not satisfy the requirement that such expenditures not exceed $_________________ in the aggregate during such year. 4. Salaries. As of the Reporting Date, the Borrower is/is not in compliance with Section 7.17 of the Credit Agreement concerning salaries. Attached hereto are all relevant facts in reasonable detail to evidence, and the computations of the financial covenants referred to above. These computations were made in accordance with GAAP. FLEISCHLI OIL COMPANY, INC. By /s/ Dennis R. Staal Its Treasurer Exhibit C to Credit and Security Agreement Premises The Premises referred to in the Credit and Security Agreement are described as follows: Administrative Headquarters: 2350 Lincolnway Cheyenne, Wyoming 82001 Cheyenne Location: 2302 Lincolnway Cheyenne, Wyoming 82001 Casper Location #1: 6000 E. Yellowstone Evansville, Wyoming 82636 Casper Location #2: 515 Walnut Casper, Wyoming 82601 Casper Location #3: 6050 E. Yellowstone Evansville, Wyoming 82636 Gillette Location: 3002 Conestoga Gillette, Wyoming 82718 Craig Location: 666 West 1st Street Craig, Colorado 80625 Denver Location: 6395 E. 80th Avenue DuPont, Colorado 80002 Rock Springs Location: 151 N. Industrial Drive Rock Springs, Wyoming 82901 Carlin Location: 923 Spruce Street Carlin, Nevada 89822 Beowawe Location: _____________________ Beowawe, Nevada ____________ Exhibit D to Credit and Security Agreement Eligible Inventory Premises The Premises where Eligible Inventory may be located are described as follows: Administrative Headquarters: 2350 Lincolnway Cheyenne, Wyoming 82001 Cheyenne Location: 2302 Lincolnway Cheyenne, Wyoming 82001 Casper Location #1: 6000 E. Yellowstone Evansville, Wyoming 82636 Casper Location #2: 515 Walnut Casper, Wyoming 82601 Rock Springs Location: 151 N. Industrial Drive Rock Springs, Wyoming 82901 Denver Location: 6395 E. 80th Avenue DuPont, Colorado 80002 Beowawe Location: _____________________ Beowawe, Nevada ____________ Carlin Location: 923 Spruce Street Carlin, Nevada 89822 Schedule 2.11 to Credit and Security Agreement Uses of Funds To pay off the American National Bank revolving line of credit and one of two term loans; for ongoing working capital purposes; and for acquisition financing as may be approved from time to time by the Lender in its sole discretion. Schedule 5.1 to Credit and Security Agreement Trade Names, Chief Executive Office, Principal Place of Business, and Locations of Collateral Trade Names: Trailblazer Oil Co. Chief Executive Office/Principal Place of Business Fleischli Oil Company, Inc. 2350 West Lincoln Way P.O. Box 487 Cheyenne, Wyoming 82003 Other Inventory and Equipment Locations: None Schedule 5.12 to Credit and Security Agreement Hazardous Substances on Premises: Disposal of Hazardous Substances: Requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation: Listings in National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System, etc.: Schedule 7.1 to Credit and Security Agreement Permitted Liens Creditor Collateral Jurisdiction Filing Date Filing No. Century 2 Bulk Grease Sweetwater 11/1/96 U227908 Lubricants Co. Tanks County, WY Caterpillar 1 Caterpillar Laramie 12/7/92 U424309 Financial Lift Truck County, WY Services Corp. Norwest Equip- Various pieces Laramie 12/20/93 U506165 ment Finance, of computer County, WY Inc. equipment Key Corp Leasing 1 Polar, 1 FET Laramie 10/9/95 U529904 County, WY Key Corp Leasing 1 Polar, 1 FET Laramie 10/17/95 U530211 County, WY Key Corp Leasing New 1996 Laramie 11/8/95 U530976 Freightliner County, WY Key Corp Leasing New 1996 Laramie 11/17/95 U531268 Freightliner County, WY Key Corp Leasing 1996, Aluminum Laramie 11/27/95 U531529 Semi Trailer County, WY Key Corp Leasing 1996, Aluminum Laramie 12/11/95 U532036 Semi Trailer County, WY American Nat- 1 1997 Ford Laramie 5/1/97 U550518 ional Bank Expedition County, WY American Nat- 1 1997 Chevrolet Laramie 5/12/97 U550916 ional Bank County, WY American Nat- 1 1997 Chevrolet Laramie 5/12/97 U550917 ional Bank County, WY Schedule 7.2 to Credit and Security Agreement Permitted Indebtedness and Guaranties Indebtedness: Principal Maturity Monthly Creditor Amount Date Payment Collateral American National $368,569 11/16/02 $6,259.24 Real Estate located Bank at 6000 E. Yellowstone, Evansville, Natrona County, Wyoming Sun Company, Inc. $400,000 12/31/06 $4,853.10 None Guaranties: Amount and Description Primary Obligor of Obligation Guaranteed Beneficiary of Guaranty None EX-21 5 SUBSIDIARIES OF REGISTRANT JURISDICTION OF OTHER NAMES UNDER INCORPORATION OR WHICH SUBSIDIARY NAME (AND % OWNED) ORGANIZATION DOES BUSINESS - ------------------------------------- ---------------- ----------------- Pyramid Stores, Inc. (100%) Colorado None Graves Oil & Butane Co., Inc.(100% by New Mexico None Pyramid Stores, Inc.) El Boracho, Inc. (100% by Graves) New Mexico None Hillger Oil Company (100% by Pyramid) New Mexico None Hatch Pyramid LLC (75%) New Mexico None Capco Analytical Services, Inc.(100%) California None Innovative Solutions and Technologies, Inc. (100%) Colorado None Meteor Holdings LLC (73%) Colorado None Capco Resources, Inc. (100% by Meteor Delaware None Holdings LLC) Bloomfield Pyramid LLC (100%) New Mexico None Graves Rio Rancho LLC (50%) New Mexico None Coors Pyramid, LLC (50%) New Mexico None Fleischli Oil Company, Inc. (100%) Wyoming None American LP Ltd. Co. (33%) New Mexico None Socorro Pyramid L.L.C. (100%) New Mexico None /TEXT> EX-27.1 6 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of operations found on pages F-2 through F-4 of the Company's Form 10-K for the year to date, and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1997 DEC-31-1997 1,375,960 0 10,319,834 (482,597) 3,818,332 15,826,134 15,738,133 (1,798,350) 31,941,351 12,934,641 0 4,130 0 0 9,287,038 31,941,351 88,439,730 88,439,730 75,439,269 11,814,187 0 0 603,903 1,583,225 582,627 601,053 0 0 0 601,053 .16 .16
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