As Filed: May 14, 1996 SEC File No. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Registration Statement on Form S-3
Under the Securities Act of 1933
FORELAND CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 1070 87-0422812
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
12596 West Bayaud, Suite 300, Lakewood, Colorado 80228-2019 (303) 988-3122
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
N. Thomas Steele, 12596 West Bayaud, Suite 300, Lakewood, Colorado 80228-2019
(303) 988-3122
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
James R. Kruse
KRUSE, LANDA & MAYCOCK, L.L.C.
50 West Broadway, Eighth Floor
Salt Lake City, Utah 84101
Telephone: (801) 531-7090
Telecopy: (801) 359-3954
CompuServe E-Mail 72204,1417
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. "
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. x
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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Amount Proposed Maxi- Proposed Maxi- Amount of
Title of Each Class of to be mum Offering mum Aggregate Registration
Securities Being Registered Registered Price Per Unit(1) Offering Price Fee
- --------------------------- --------------- -------------- -------------------- ----------
Common Stock(2) 6,461,814 $1.47 $9,490,789 $3,273
- ------------------------------------------------------------------------------
(1) Bona fide estimate of maximum offering price solely for the purpose of
calculating the registration fee. The offering price for the common stock
being sold by selling stockholders is based on the closing sales price, as
quoted on the Nasdaq SmallCapSM Market for the Registrant's Common Stock of
$1.47 as of May 10, 1996 (rule 457(c)).
(2) Consists of shares held by selling stockholders and shares to be held
following the conversion of preferred stock of the Registrant and on exercise
of common stock purchase warrants. Pursuant to rule 416, there are also
being registered such additional securities as may become issuable as a
result of the "antidilution" provisions of the preferred stock and warrants.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
FORELAND CORPORATION
Cross Reference Sheet
Cross reference between items of part I of form S-3 and the prospectus
filed by Foreland Corporation as part of the Registration Statement.
REGISTRATION STATEMENT ITEM NUMBER AND HEADING PROSPECTUS CAPTION
1. Forepart of the Registration Statement Front Cover
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover
Pages of Prospectus and Outside Back
Cover
3. Summary Information, Risk Factors and PROSPECTUS SUMMARY
Ratio of Earnings to Fixed Charges and RISK FACTORS
4. Use of Proceeds USE OF PROCEEDS
5. Determination of Offering Price PLAN OF
DISTRIBUTION
6. Dilution DILUTION
7. Selling Security Holders SELLING
STOCKHOLDERS
8. Plan of Distribution PLAN OF
DISTRIBUTION
9. Description of Securities DESCRIPTION OF
SECURITIES
10. Interest of Named Experts and Counsel EXPERTS and LEGAL
MATTERS
11. Material Changes n/a
12. Incorporation of Certain Information by Inside Front Cover
Reference
13. Disclosure of Commission Position on n/a
Indemnification for Securities Act
Liabilities
Preliminary Prospectus
Dated May 14, 1996
FORELAND CORPORATION
6,461,814 Shares of Common Stock
This Prospectus relates to the public offer and sale by certain
shareholders (the "Selling Stockholders") of an aggregate of 6,461,814 shares of
common stock, par value $0.001 per share (the "Common Stock"), of Foreland
Corporation, a Nevada corporation (the "Company"), (See "SELLING STOCKHOLDERS"
and "DESCRIPTION OF SECURITIES").
The Selling Stockholders will offer their Common Stock through or to
securities brokers or dealers designated by them in the over-the-counter market
or in other transactions negotiated by the Selling Stockholders. Any such sale
of Common Stock by Selling Stockholders must be accompanied by, or follow the
delivery of, a prospectus filed with a current registration statement relating
to the Common Stock being offered, unless a Selling Stockholder elects to rely
on Rule 144 or another exemption from the registration requirements in
connection with a particular transaction. The Selling Stockholders and any
broker, dealer, or agent that participates with the Selling Stockholders in the
sale of the Common Stock offered hereby may be deemed "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any commissions or discounts received by them and any profit on the resale of
the Common Stock purchased by them may be deemed to be underwriting commissions
under the Securities Act. (See "SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION.")
The Company's Common Stock is included on the Nasdaq SmallCapSM Market
("Nasdaq") under the symbol "FORL." On May 10, 1996, the closing sales price
for the Company's Common Stock on Nasdaq was $1.47.
THE ACQUISITION AND OWNERSHIP OF THE COMMON STOCK INVOLVE A HIGH DEGREE OF RISK.
THE COMMON STOCK SHOULD BE PURCHASED ONLY BY INVESTORS WHO ARE ABLE TO AFFORD
THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT. (SEE "RISK FACTORS.")
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER REGULATORY AUTHORITY, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR REGULATORY AUTHORITY PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offering Proceeds to
Price to Commissions Selling Proceeds to
Public(1) (2) Stockholders Company(3)
By Selling
Stockholders
Per Share $ 1.47 -- $ 1.47 --
Total $9,490,789 -- $9,490,789 --
(1)The price per share for the securities offered by the Selling Stockholders
is estimated at the closing sales price quoted by Nasdaq for the Common
Stock at $1.47 on May 10, 1996. The Common Stock may be offered at the
current market price, which may vary through the period during which the
securities may be offered, or at such other prices as may be negotiated by
the Selling Stockholder and the purchaser at the time of sale. (See
"LIMITED MARKET FOR COMMON STOCK" in the Company's 1995 10-K.)
(2)The securities to be sold by Selling Stockholders may be sold by them
through or to securities brokers or dealers, which sales may involve the
payment of commissions by the Selling Stockholders.
(3)Does not reflect expenses of this offering payable by the Company estimated
at $20,000. (See "PLAN OF DISTRIBUTION" below.)
The date of this Prospectus is May , 1996.
--
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. However, the Company would receive proceeds upon the
exercise of options and warrants held by Selling Stockholders prior to the sale
of Common Stock issuable on such exercise. (See "USE OF PROCEEDS.") In
connection with this offering, the Company estimates that it will incur costs of
approximately $20,000 for legal, accounting, printing, and other costs. Any
separate costs of the Selling Stockholders will be borne by them. Commissions
or discounts paid in connection with the sale of securities by the Selling
Stockholders will be determined by negotiations between them and the broker-
dealer through or to which the securities are to be sold and may vary depending
on the broker-dealers' commission or mark up schedule, the size of the
transaction, and other factors. (See "PLAN OF DISTRIBUTION" below.)
The Selling Stockholders and any broker, dealer, or agent that participates
with the Selling Stockholders in the sale of the Common Stock offered hereby may
be deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions or discounts received by
them and any profit on the resale of the Common Stock purchased by them may be
deemed to be underwriting commissions under the Securities Act. (See "SELLING
STOCKHOLDERS" and "PLAN OF DISTRIBUTION" below.)
All dollar amounts in this Prospectus are expressed in United States
dollars unless otherwise indicated.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's annual report on Form 10-K for the year ended December 31,
1995 ("1995 10-K"), is incorporated herein by reference.
All documents subsequently filed by the Company pursuant to section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934 prior to termination
of the offering shall be deemed to be incorporated by reference into this
Prospectus. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus, other than certain exhibits to
such documents. Requests for such copies should be directed to Shareholder
Relations, Foreland Corporation, Union Terrace Office Bldg., 12596 West Bayaud,
Suite 300, Lakewood, Colorado 80228-2019; telephone (303) 988-3122.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied
at the public reference facilities of the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; Suite 1400, Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661; and 7 World Trade Center (13th
Floor), 26 Federal Plaza, New York, New York 10048. Copies of such materials
can be obtained from the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Additional information regarding the Company and the securities offered
hereby is contained in the registration statement and exhibits thereto, of which
this Prospectus forms a part, filed with the Commission under the Securities
Act. This Prospectus omits certain information contained in the registration
statement. For further information, reference is made to the registration
statement and to the exhibits and other schedules filed therewith. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and where such contract or
other document is an exhibit to the registration statement, each such statement
is deemed to be qualified and amplified in all respects by the provisions of the
exhibit. Copies of the complete registration statement, including exhibits, may
be examined at, or copies obtained from the offices of, the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, on the payment of prescribed fees
for reproduction.
No person is authorized to give any information or make any representation
not contained in this prospectus and, if given or made, such information or
representation should not be relied on as having been authorized.
SUMMARY AND INTRODUCTION
The following summary is qualified in its entirety by the more detailed
information, including the financial statements and notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference herein.
Each prospective investor is urged to read this Prospectus in its entirety,
particularly the matters set forth under "RISK FACTORS."
The Company
The Company is engaged in the exploration for oil in the Great Basin and
Range geologic province in Nevada (the "Great Basin"), an area that management
believes is one of the most promising unexplored onshore domestic areas with
potential for the discovery of major oil reserves. In continuing to advance
this exploration since its organization in 1985, the Company's strategy is to
generate exploration prospects with the most recent generally available
scientific techniques, expand and improve the Company's strategic land position,
and establish arrangements with other oil exploration firms active in Nevada to
obtain additional scientific data, leases, and funding. To date, the Company
has confirmed its exploration concepts through the discovery of the North Willow
Creek and Tomera Ranch Fields in Pine Valley, both of which are in the early
stages of evaluation with limited oil production and limited proved reserves.
The Company has access to a large geophysical and geological data base
generated by its own efforts and that of others, including Gulf Oil Corporation
("Gulf"), Exxon USA, Inc. ("Exxon"), Parker & Parsley Petroleum Company
(successor-in-interest to Santa Fe Energy Resources, Inc.) ("P&P "), Mobil
Exploration and Producing USA, Inc. ("Mobil"), Chevron USA, Inc. ("Chevron"),
and Enserch Exploration, Inc., and Berry Petroleum Company ("Enserch/Berry").
This data base includes over 1,400 line miles of two dimensional ("2-D") seismic
data, much of it reprocessed with new analytical computer programs, newly
acquired high resolution three dimensional ("3-D") seismic surveys, and gravity
data, all of which are being integrated with subsurface data obtained through
drilling.
With a continuous leasing program since 1986, the Company has established
what management believes to be one of the larger property positions in Nevada's
most promising prospect areas, with approximately 209,000 gross acres under
lease. The leasing program continues as the Company acquires leases in
favorable new prospect areas and relinquishes leases with less potential. In
addition, the Company has the exclusive right to develop prospects and market
approximately 434,000 gross acres of mineral lands owned by P&P.
Effective in March 1993 the Company entered into an agreement with
Enserch/Berry that designates the Company as operator to undertake a three-year,
six-well joint exploration program on approximately 91,000 gross acres in four
separate prospect areas in Pine, Diamond, Little Smoky, and Antelope Valleys of
northeastern Nevada. Both the Company and Enserch/Berry contributed acreage and
data and provide 50% of the required funds for drilling and acquiring additional
acreage and data.
In July 1993, the Company acquired an approximately 2,800 gross acre lease
in Railroad Valley, Nevada, which included a portion of the Eagle Springs field
with nine wells, then shut in, and one water injection well. In September 1994,
the Company, with Plains Petroleum Operating Company, which was acquired in
August 1995 by Barrett Resources Corporation (together, "Barrett"), acquired
from Kanowa Petroleum, Inc., its interest in a 240-acre lease on the remainder
of the Eagle Springs field with three wells with limited intermittent production
and related equipment. Since the Company acquired the Eagle Springs field, it
has reworked eight wells to return them to production, drilled a new water
injection well, and replaced and improved surface equipment to handle increased
production and to lower long term operating costs. Under the agreement with
Barrett, the company drilled and placed into production three wells in the Eagle
Springs field in 1994 and early 1995. Five additional wells, for a total of
eight new wells, were drilled and placed into production by the Company and
Barrett in 1995. As of December 31, 1995, the Eagle Springs Field had estimated
net remaining proved reserves of 1,989,300 barrels of oil with future net cash
flows discounted at 10% to present value of $6,148,500. (See "BUSINESS: Eagle
Springs" in the Company's 1995 10-K.)
In August 1994, the Company entered into an agreement with Barrett under
which it agreed to provide, in successive phases, approximately $1,920,000 of
the next $2,400,000 in drilling to earn a 40% interest in the Company's Eagle
Springs producing properties and obtained the right to participate in other
specified Company exploration projects under agreed terms. Barrett has elected
to earn an interest in the Company's acreage in an area of mutual interest in
the North Humbolt prospect, but has declined further participation in the Dixie
Flats prospect in Huntington Valley and in the Pine Valley 3-D survey. (See
"BUSINESS: Barrett Agreement" in the Company's 1995 10-K.)
In January 1996, the Company entered into a revised agreement with Hugoton
Energy Corporation and Maxwell Petroleum, Inc. ("Hugoton/Maxwell"), respecting
exploration of the Pine Creek prospect in Pine Valley, Nevada. Under the
agreement, the Company and Hugoton/Maxwell each agreed to assign to the other
certain acreage to consolidate the Company's position in the prospect area;
Hugoton/Maxwell agreed to pay for a one-year extension of the leasehold assigned
by it; the Company agreed to initiate a well on the federal acreage assigned, in
order to obtain a two-year extension; and Hugoton/Maxwell agreed to complete and
pay for a 3-D seismic study in the area or pay the Company $75,000 as liquidated
damages.
As indicated above, during 1995, the Company and Barrett drilled five wells
in the Eagle Springs field. The first four wells are in regular continuous
production and the fifth well is being completed for production. The sixth and
seventh wells originally scheduled for the 1995 drilling program will be
included in the planned 1996 Eagle Springs drilling. In November 1995, the
Company drilled to a depth of 4,523 feet and plugged and abandoned the Eldorado
#15-1 test in Little Smokey Valley, the fifth test drilled under the Company's
agreement with Enserch/Berry. The Company has tied onto an existing production
string and is testing the Deadman Creek #44-13 well drilled in Toano Draw on
acreage on which the Company holds certain marketing and exploration rights
under its agreement with P&P.
The Company's management and technical team consists of individuals with a
broad mix of formal education and over 70 years of combined Nevada exploration
experience, including positions with major oil companies such as Gulf, Mobil,
and Chevron, all Nevada oil exploration pioneers. (See "MANAGEMENT" in the
Company's 1995 10-K.)
The Company's principal executive offices are located at 12596 West Bayaud,
Suite 300, Lakewood, Colorado 80228-2019 and its telephone number is (303) 988-
3122.
Prior Sale of Preferred Stock
1994 Private Placement. In July 1994, the Company issued 1,316,210 shares
of preferred stock designated as the 1994 Convertible Redeemable Preferred Stock
(the "1994 Preferred Stock") and 658,105 C Warrants for net proceeds of
$2,341,370. The preferred stock and warrants were sold as units at $4.00 per
unit, such units consisting of two shares of 1994 Preferred Stock and one C
Warrant. The Company issued to the placement agent in this offering warrants to
purchase 65,811 units which are exercisable before July 8, 1999, at an exercise
price of $4.40 per unit.
At the election of the holder, each share of 1994 Preferred Stock may be
converted at any time into one share of common stock. Holders of 1994 Preferred
Stock elected to convert 74,000, 808,524, and 189,046 shares into shares of
Common Stock in 1994, 1995, and the first quarter of 1996, respectively. The
1994 Preferred Stock is redeemable at any time after March 31, 1996, at $4.00
per share at the Company's option, and has a liquidation preference of $2.00 per
share.
Each C Warrant originally entitled the holder to purchase, at any time
between October 31, 1994, and July 1, 1995, for an exercise price of $3.00, one
share of Common Stock. During September 1995, the Company amended the exercise
price of the C warrants from $3.00 per share to $1.50 per share, and extended
the expiration date from September 30, 1995, to October 10, 1995. In October
1995, the Company received $191,749 in cash and a $137,500 note receivable for
the exercise of 219,500 C warrants. The remaining C Warrants, including the
65,811 C Warrants included in the units issuable to the placement agent on
exercise of warrants, have expired.
This Prospectus relates to the resale of 1,316,210 shares of Common Stock
issued and issuable by the Company on the conversion of the 1994 Preferred
Stock, 219,500 shares of Common Stock issued on the exercise of the C Warrants
and 131,622 shares of Common Stock issuable on the conversion of the shares of
1994 Preferred Stock that are issuable on exercise of the placement agent
warrant.
1995 Private Placement. Between March and September 1995, the Company
completed the sale of 507,666 non-transferable units for $3.00 per unit. Each
such unit consisted of two shares of preferred stock designated as the 1995
Series Preferred Stock (the "1995 Preferred Stock") and one M warrant. At the
election of the holder, each share of 1995 Preferred Stock may be converted into
one share of Common Stock. The 1995 Preferred Stock has a liquidation
preference of $1.50 per share.
Each M warrant entitles the holder to purchase, at any time through
December 31, 1998, one share of Common Stock at an exercise price of $4.00 per
share. M Warrants not exercised by December 31, 1998, will expire. The M
Warrants may be redeemed by the Company on at least 30 days' notice at a
redemption price of $.10 per M Warrant if the average closing price for the
Company's Common Stock is at least $6.00 per share for 20 consecutive trading
days prior to the redemption notice, subject to certain other conditions.
This Prospectus relates to the resale of shares of Common Stock issuable by
the Company on the conversion of the 1995 Preferred Stock and the exercise of
the M Warrants.
1996 Private Placement. The Company issued 500 shares of preferred stock
designated as the 1996 Series 6% Convertible Preferred Stock (the "1996
Preferred Stock") in a private placement completed in March 1996 for which the
Company received net proceeds of approximately $472,500. The Company issued to
the placement agent in such offering 25 shares of 1996 Preferred Stock and
warrants to purchase 54,700 shares of Common Stock at an exercise price equal to
$1.50, subject to adjustment in certain circumstances based on the market price
of the Common Stock at the time of exercise.
Each share of 1996 Preferred Stock is convertible at any time after 60 days
from the issuance thereof and before March 31, 1998, into that number of shares
of Common Stock equal to $1,000 divided by $1.50, subject to adjustment in
certain circumstances based on the market price of the Common Stock at the time
of conversion.
This Prospectus relates to the resale of shares of Common Stock issuable by
the Company on the conversion of the 1996 Preferred Stock and the exercise of
the placement agent warrant. For purposes of this Prospectus, a stock price of
$1.25 is assumed and, as agreed by the Company, to account for a possible
decrease in the price for the Common Stock, the Company is registering twice the
number of shares that would be issuable on conversion of the 1996 Preferred
Stock based on that price of the Common Stock.
1996-2 Private Placement. The Company issued 1,700 shares of 1996-2
Preferred Stock in a private placement completed in May 1996 for which the
Company received net proceeds of approximately $1,640,500. Up to one-third of
the 1996-2 Preferred Stock is convertible at any time after the issuance thereof
and all of the 1996-2 Preferred Stock is automatically convertible on the date
that is six months from the date of issuance, into that number of shares of
Common Stock equal to $1,000 divided by $0.91, subject to adjustment in certain
circumstances based on the market price of the Common Stock at the time of
conversion.
This Prospectus relates to the resale of shares of Common Stock issuable by
the Company on the conversion of the 1996-2 Preferred Stock.
(See "DESCRIPTION OF SECURITIES" below.)
Capitalization
The following table shows the capitalization of the Company as of December
31, 1995, and as adjusted to give effect to the subsequent issuance of 525
shares of 1996 Preferred Stock for net proceeds of approximately $472,500 and
1,700 shares of 1996-2 Preferred Stock for net proceeds of approximately
$1,640,500 and the application of the net proceeds therefrom, and the subsequent
conversion of 189,046 shares of 1994 Preferred Stock and 22,000 shares of 1995
Preferred Stock into shares of Common Stock:
December 31, 1995
----------------------------
Historical As Adjusted
------------ -------------
Current portion of long term debt $ 404,237 $ 4,237
----------- -------------
Long term debt, net of current portion 23,091 23,091
----------- -------------
Stockholders' Equity
Preferred Stock, par value $0.001 per share, 5,000,000 shares authorized
1991 Convertible Preferred Stock, 40,000 shares issued and
outstanding 40 40
1994 Convertible Redeemable Preferred Stock, 433,686 and 244,640
shares issued and outstanding, respectively 434 245
1995 Convertible Redeemable Preferred Stock, 1,015,334 and
993,334 shares issued and outstanding, respectively 1,015 993
1996 Series 6% Convertible Preferred Stock, 0 and 525 shares issued
and outstanding, respectively(1) -- 1
1996-2 Series 6% Convertible Preferred Stock, 0 and 1,700 shares
issued and outstanding, respectively -- 2
Common Stock, par value $0.001 per share, 50,000,000 shares
authorized, 14,489,401 and 14,700,447 shares outstanding
issued and outstanding, respectively 14,489 14,700
Additional paid in capital 23,301,858 25,414,856
Less note and stock subscriptions receivable (1,092,622) (1,092,622)
Accumulated deficit (19,212,342) (19,212,342)
-------------- ------------
Total stockholders' equity 3,012,872 5,125,873
----------- -------------
Total capitalization $ 3,440,200 $ 5,153,201
=========== =============
The Offering
Securities offered by Selling Stockholders 6,461,814 shares of Common Stock(1)
Common Stock outstanding before the offering 14,700,447 shares
Common Stock outstanding after the offering 20,674,715 shares(1)
Common Stock reserved for issuance 3,313,000 shares(2)
Fully diluted Common Stock 23,987,715 shares(2)
Nasdaq Symbols:
Common Stock FORL
L Warrants FORLL
(1)Of the 6,461,814 shares of Common Stock offered by Selling Stockholders,
487,546 shares are currently issued and outstanding and the remaining
5,974,268 are issuable on conversion or exercise of Preferred Stock, options
or warrants for gross proceeds to the Company if all such options and
warrants in this offering were exercised of $3,787,014.
(2)Consists of (i) up to 2,793,000 shares of Common Stock issuable on the
exercise of outstanding options and warrants at a weighted average exercise
price of $4.58 per share; (ii) up to 64,000 shares of Common Stock issuable
on the exercise of outstanding options subject to vesting requirements at an
exercise price of $3.00 per share; (iii) 40,000 shares of Common Stock
issuable on conversion of the same number of shares of 1991 Preferred Stock;
and (iv) 416,000 shares of Common Stock on exercise of underwriter and
placement agent warrants and the conversion and/or exercise of securities
issuable on such exercise at a weighted average exercise price of $2.97 per
share. (See "MANAGEMENT: Executive Compensation," "PRINCIPAL
STOCKHOLDERS," and "CERTAIN TRANSACTIONS," in the Company's 1995 10-K, and
"DESCRIPTION OF SECURITIES: Preferred Stock, Warrants, and Options
Outstanding" below)
The board of directors has authority to authorize the offer and sale of
additional securities without the vote of or notice to existing shareholders,
and it is likely that additional securities will be issued to provide future
financing. The issuance of additional securities could dilute the percentage
interest and per share book value of existing shareholders, including persons
purchasing securities in this offering. (See "DESCRIPTION OF SECURITIES" below)
Use of Proceeds
The issued and outstanding shares of Preferred Stock and warrants held by
Selling Stockholders must be converted or exercised into shares of Common Stock
prior to the resale of the Common Stock offered by the Selling Stockholders
pursuant to this offering. The Company will receive no net proceeds from the
conversion of the Preferred Stock or from the sale by the Selling Stockholders
of the Common Stock currently issued or issuable on such conversion or exercise.
Proceeds received by the Company on the exercise of outstanding warrants,
aggregating $3,787,014, if all warrants held by Selling Stockholders are
exercised, will be used by the Company to pay general and administrative
expenses, to the extent not funded from operating revenue, and for additional
drilling, geological and geophysical data gathering, or lease acquisition. If
all options and warrants held by persons other than the Selling Stockholders
were exercised to acquire 3,273,000 shares of Common Stock, the Company would
receive proceeds of $14,231,580. There can be no assurance that any of the
outstanding options or warrants will be exercised to provide any proceeds
therefrom to the Company.
Risk Factors
Offerees should not purchase these securities without carefully reading and
considering the risks involved and unless they are willing and able to accept
the complete loss of their investment. The securities offered hereby are
speculative and involve an unusually high degree of risk. (See "Risk Factors"
below.)
Summary Financial Information
Year Ended December 31,
--------------------------------------------
1993 1994 1995
----------- ------------ ------------
Statement of Operations Data:
Revenues ............................ $ 98,244 $ 542,991 $ 1,115,876
Net (loss) .......................... (3,578,254) (4,453,718) (2,275,565)
Net (loss) per share ............... . (0.34) (0.34) (0.16)
Weighted average number of shares
outstanding ..................... 10,405,000 12,989,000 14,271,000
December 31,
---------------------------
1994 1995
----------- ------------
Balance Sheet Data:
Working capital (deficit) ........... $ 47,629 $(2,005,407)
Total assets ........................ 5,197,414 5,601,098
Long-Term Debt ...................... 400,000 23,091
Current Portion of Long-Term Debt ... -- 404,237
Stockholders' equity ................ 3,708,472 3,012,872
No Dividends
The Company has not paid dividends. The Company seeks growth and expansion
of its business through the reinvestment of profits, if any, and does not
anticipate that it will pay dividends in the foreseeable future.
RISK FACTORS
The purchase of the Common Stock involves certain risks. Prospective
purchasers should consider, in addition to the negative implications of the
other information set forth herein, the following risk factors:
Risks Related to the Business of the Company
Company's Ability to Continue as a Going Concern/Shortages of Working
Capital and Continuing Losses
As of December 31, 1995, the Company had a working capital deficit and no
credit lines or significant source of ongoing revenues. The Company has
incurred losses of $19,212,342 since its inception in 1985 and expects that its
accumulated deficit will increase. During 1994 the Company experienced a net
loss of $4,453,718. These losses continued into 1995, with a loss of $2,275,565
for the year ended December 31, 1995. The Company anticipates continuing losses
through the second quarter of 1996 and will require cash from external sources
of approximately $70,000 to $90,000 per quarter for ongoing fixed and recurring
operating costs (which include general and administrative expenses, exploration
consisting of an allocation of employee salaries and other overhead to the
exploration function, and interest on outstanding debt), and approximately
$32,000 per quarter to meet annual lease rental and other costs on its
properties, which exceeds the Company's net revenue from oil production. Based
on current production and oil prices and giving effect to reworking several
existing Eagles Springs Wells to be accomplished during the second quarter of
1996, management believes that its production revenue will be sufficient to meet
its fixed and recurring operating costs for the second quarter of 1996 and
thereafter. However, there can be no assurance that Eagle Springs development
will result in material additional production. The Company will also incur
substantial additional exploration costs, depending on the level of its drilling
activity, which may vary dramatically from quarter to quarter. The Company's
independent auditor's report on the financial statements for the year ended
December 31, 1995, as for preceding fiscal years, contains an explanatory
paragraph as to the Company's ability to continue as a going concern. (See
"FINANCIAL STATEMENTS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" in the Company's 1995 10-K.)
Additional Possible Expenses Related to Capitalized Costs
The Company includes in oil and gas properties on its balance sheets costs
of wells in progress, which are capitalized until a decision is made to plug and
abandon or, if the well is still being evaluated, until one year after reaching
total depth, at which time such costs are charged to expense, even though the
well may subsequently be placed into production. The Company also charges to
expense the amount by which the total capitalized cost of proved oil and gas
properties exceeds the total undiscounted net present value of related reserves.
As a result of the foregoing policies, the Company expects that from time to
time capitalized costs will be charged to expense based on management's
evaluation of specific wells or properties or the disposition, through sales or
conveyances of fractional interests in connection with industry sharing
arrangements, of property interests for consideration in amounts that have the
effect of reducing the Company's total undiscounted net present value of oil and
gas properties below the total capitalized cost of proved oil and gas reserves.
As part of the Company's evaluation of its oil and gas properties in connection
with the preparation of the Company's annual financial statements, the Company
obtains an engineering evaluation of its reserves based on current engineering
information, oil and gas prices, and production costs, which may result in
material changes in the total undiscounted net present value of the Company's
oil and gas reserves. The Company would be required to charge to expense the
amount by which the total capitalized cost of proved oil and gas properties
exceeds the amount of such undiscounted net present value of the Company's oil
and gas reserves. (See "BUSINESS: Oil Properties" in the Company's 1995 10-K.)
Dependence on Joint Exploration Arrangements with Industry Participants
The Company has entered into a number of joint exploration agreements with
industry participants to obtain leases, scientific data, and funds for drilling
and other exploration. These agreements typically set forth obligations that
the Company must perform timely in order to earn specified property interests,
permit funding participants to terminate their participation at specified points
during the exploration program, and condition continuation of joint efforts on
obtaining satisfactory results. In the case of the Company's agreement with
Barrett, Barrett had the right after the first three wells at Eagle Springs were
completed to terminate its commitment to participate in funding the remaining 11
of the planned 14 well Eagle Springs drilling program. After the first three
Eagle Springs wells were placed into production, Barrett elected to continue to
participate in Eagle Springs, subject to the right to make individual elections
respecting participating in future wells proposed by the Company. If Barrett
elects not to continue with respect to any well, the Company would be required
to fund all of the costs of such well, in which case it would be dependent on
proceeds from the sale of securities and production revenue, which would delay
or limit planned Eagle Springs drilling. (See "BUSINESS: Barrett Agreement" in
the Company's 1995 10-K.)
Limited Production Revenue
The Company has only recently established revenue from oil production from
its Eagle Springs, Nevada, property acquired during 1993. Production from
current wells is inadequate to meet the Company's ongoing expenses or to cover
any costs of exploration. However, based on current production and oil prices
and giving effect to reworking several existing Eagles Springs Wells to be
accomplished during the second quarter of 1996, management believes that its
production revenue will be sufficient to meet its fixed and recurring operating
costs for the second quarter of 1996 and thereafter. There can be no assurance
that Eagle Springs development will result in material additional production,
that ongoing oil production in commercial quantities will be established or that
oil reserves will be proved as a result of the Company's exploration efforts.
(See "BUSINESS" in the Company's 1995 10-K.)
Limited Commercial Drilling Success to Date
Despite the expertise of management, the significant amount of data that
the Company has collected with respect to Nevada, and the expenditure of several
million dollars in property acquisition, data collection, and exploration since
1985, the Company has established only limited reserves and developed limited
ongoing production as a result of its drilling program. The oil production from
the Eagle Springs Field was acquired by the Company in 1993 and did not result
from its exploration or drilling activities. Of the 37 wells drilled to date,
22 were plugged and abandoned, 8 were completed for production in the Eagle
Springs Field and, together with the other wells in the Eagle Springs Field, are
producing approximately 200 barrels of oil per day, 4 were completed for
production and are now producing a limited amount of oil per day, 1 is awaiting
completion, 1 is awaiting further testing, and 1 was converted to a water
disposal well. Although the Company began to receive oil production revenue
from the Eagle Springs Field in early 1994, the Company's success will continue
to depend on the results of drilling, evaluation, and testing of its various
prospects. (See "BUSINESS" and "FINANCIAL STATEMENTS" in the Company's 1995 10-
K.)
Need for Additional Funds
The nature, extent, and cost of exploring prospects in the Great Basin
province over several years cannot be predicted, but the total cost could amount
to tens of millions of dollars. Because of the size of the total exploration
possibilities and the Company's limited resources, it is likely that the
interest of the Company's shareholders in the Company and the interest of the
Company in its drilling prospects will continue to be diluted substantially as
the Company continues to obtain funding through the sale of additional
securities or through sharing arrangements with industry participants. There
can be no assurance that exploration funds will be available to the Company when
required or, if available, that such funds can be obtained on terms acceptable
or favorable to the Company. (See "FINANCIAL STATEMENTS" and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the
Company's 1995 10-K.)
Concentration of Activities in Frontier Area
Management of the Company has focused its efforts on acquiring lease
positions, developing data, and exploring and drilling in the Great Basin area
of Nevada, a largely unproved and unexplored geological province. While the
Company holds exploration rights to a significant number of acres, its holdings
are insignificant when compared to the size of the potential geological area.
Other than in the Eagle Springs Field, no significant ongoing commercial
production of oil has been established on the Company's properties. In
addition, the areas targeted by the Company, other than the Eagle Springs Field,
have geological, geophysical, drilling, completion, and production problems
which to date have prevented the Company and others with larger exploration
budgets from developing or establishing significant production or reserves.
There is no assurance that these problems can be overcome or that the Company's
drilling program will be commercially successful. (See "BUSINESS" in the
Company's 1995 10-K.)
Dependence on Key Employees
The business of the Company is dependent on its management and technical
team and their substantial Nevada exploration experience, the loss of any one of
whom could adversely affect the Company's proposed activities. The Company does
not have and does not intend to acquire key man life insurance on any of its
executives. (See "DIRECTORS AND EXECUTIVE OFFICERS" in the Company's 1995 10-
K.)
Speculative Nature of Oil and Gas Industry
Exploration for oil is a highly speculative business. There is no way to
know in advance of drilling and testing whether any prospect will yield oil in
sufficient quantities to be economically feasible. The completion of a well for
production or the initiation of production in paying quantities does not
necessarily mean that the well will be economic because it may not produce
sufficient revenues to recover related costs and generate a financial return to
the Company.
High Operating Costs
The costs of exploring, drilling, producing, and transporting are higher in
the geological province targeted by management than they would be in a more
fully developed oil producing area. Access roads to drilling targets over
relatively long distances frequently have to be completed, drilling equipment
and services typically must be brought in from considerable distances, and there
is no collection pipeline so that any oil that is produced must be trucked to a
refinery, the nearest of which is in Salt Lake City, Utah, a distance of several
hundred miles. (See "BUSINESS: Oil Properties" in the Company's 1995 10-K.)
Dependence on Oil Prices
The Company's oil exploration and production activities are dependent on
the prevailing price for oil, which is beyond the Company's control or
influence, and there is no assurance that the Company's wells can be produced at
levels in excess of related production costs. In an effort to limit the adverse
effects of extreme declines in oil prices, the Company has entered into
agreements with Crysen Refining, Inc. ("Crysen"), Salt Lake City, Utah, to sell
oil from its currently producing fields through August 1996 at minimum fixed
prices. Notwithstanding these agreements, if oil prices in general
substantially decline, it may become more difficult, if not impossible, for the
Company to obtain funding for its oil exploration program. (See "BUSINESS: Oil
Properties" in the Company's 1995 10-K.)
Operating Risks and Uninsured Hazards
Oil drilling involves hazards such as fire, explosion, pipe failure, cave
in, collapse, encountering unusual or unexpected formations, pressures, and
other conditions, environmental damage, personal injury, and other occurrences
that could result in the Company incurring substantial losses and liabilities to
third parties. As is customary in exploration arrangements with other energy
companies under which specified drilling is to be conducted, the operator is
required to purchase and pay for insurance against risks customarily insured
against in the oil and gas industry by others conducting similar activities.
(See "BUSINESS: Operational Hazards and Insurance" in the Company's 1995 10-K.)
Nevertheless, the Company may not be insured against all losses or liabilities
that may arise from all hazards because such insurance is unavailable at
economic rates, because the operator has not fulfilled its obligation to
purchase such insurance, or because of other factors. Any uninsured loss could
have a material adverse effect on the Company.
Risks of Adverse Weather
The Company's activities are subject to periodic interruptions due to
weather conditions, which may be quite severe at various times of the year.
Periods of heavy precipitation make travel to exploration or drilling locations
difficult and/or impossible, while extremely cold temperatures limit or
interrupt drilling, pumping, and/or production activities or increase operating
costs.
Intense Competition in Oil and Gas Industry
The acquisition and exploration of oil and gas prospects are highly
competitive. Many of the Company's current and potential competitors engaged in
oil exploration in the Great Basin of Nevada have greater financial resources,
broader exploration programs, and a greater number of managerial and technical
personnel. Because the Company's resources will be limited even on successful
completion of this offering, there can be no assurance that it will be able to
compete effectively in the exploration for oil in Nevada. (See "BUSINESS:
Competition and Markets" in the Company's 1995 10-K.)
Environmental and Other Governmental Regulation
Oil and gas operations are subject to comprehensive federal, state, and
local laws and regulations controlling the exploration for and sale of oil and
the possible effects of such activities on the environment. To date, the
Company has not been required to expend significant resources in order to
satisfy applicable environmental laws and regulations respecting its own
activities. Although management believes that the Company has substantially
completed certain remediation work that it agreed to undertake in connection
with the acquisition of the Eagle Springs Field, there can be no assurance that
additional work may not be required. In addition, present as well as future
legislation and regulations could cause additional expenditures, restrictions,
and delays in the Company's business, the extent of which cannot be predicted,
and may require the Company to curtail specific activities in some circumstances
or subject the Company to various governmental controls. Because federal energy
policies are subject to constant revisions, no prediction can be made as to the
ultimate effect of such governmental policies and controls on the Company. (See
"BUSINESS: Government Regulation" in the Company's 1995 10-K.)
Proposed Energy Tax
In recent months the Clinton Administration has proposed and Congress has
considered a broad based energy tax that may reduce the economic return to
producers of oil or otherwise adversely affect the oil industry. (See
"BUSINESS: Government Regulation" in the Company's 1995 10-K.)
General Risks Relating to Offering
Substantial Warrants and Options Outstanding
The Company has issued to employees, officers, directors, and others
providing services to the Company vested options to purchase up to 1,213,000
shares of Common Stock with exercise prices ranging from $1.15 to $3.00 per
share. Options to purchase a total of 957,000 shares contain a provision that,
on exercise, the holder is granted a new option covering the number of shares
for which the prior option was exercised, with the exercise price of the new
option fixed at the then fair market value of the Common Stock. In addition,
the Company has outstanding options held by unrelated third parties to purchase
530,000 shares of Common Stock at prices ranging from $1.15 per share to $3.00
per share and warrants to purchase a total of 2,442,366 shares of Common Stock
at a weighted average exercise price of $5.36 per share, including warrants held
by Selling Stockholders to purchase 862,366 shares. The existence of such
options and warrants may prove to be a hindrance to future financing by the
Company, and the exercise of options and warrants may further dilute the
interests of the stockholders. The possible future sale of Common Stock
issuable on the exercise of such options and warrants could adversely affect the
prevailing market price of the Company's Common Stock. Further, the holders of
options may exercise them at a time when the Company would otherwise be able to
obtain additional equity capital on terms more favorable to the Company. (See
"DESCRIPTION OF SECURITIES: Preferred Stock, Warrants, and Options Outstanding"
below and "PRINCIPAL SHAREHOLDERS" in the Company's 1995 10-K.)
Issuance of Additional Common Stock
The Company has authorized 5,000,000 shares of Preferred Stock, par value
$0.001 per share, and 50,000,000 shares of Common Stock, par value $0.001 per
share. As of the date of this prospectus, 14,700,447 shares of Common Stock
were issued and outstanding, and 9,287,268 additional shares were reserved for
issuance on the exercise or conversion of options, warrants, and shares of
Preferred Stock issued and outstanding or issuable on exercise of placement
agent warrants. The Company's board of directors also has authority, without
action or vote of the shareholders, percentage ownership of shareholders and may
further dilute the book value of the Company's Common Stock.
Preferential Rights of Preferred Stock Outstanding
The Company has 40,000 shares of 1991 Preferred Stock, 244,640 shares of
1994 Preferred Stock, 993,334 shares of 1995 Preferred Stock, 525 shares of 1996
Preferred Stock, and 1,700 shares of 1996-2 Preferred Stock issued and
outstanding. The 1991 Preferred Stock has a liquidation preference of $1.25 per
share, the 1994 Preferred Stock has a liquidation preference of $2.00 per share,
the 1995 Preferred Stock has a liquidation preference of $1.50 per share, and
the 1996 and 1996-2 Preferred Stock has a liquidation preference of $1,000 per
share. On liquidation or termination of the Company, an aggregate of $4,254,281
in assets would be distributed to the holders of the currently issued and
outstanding Preferred Stock, after payment of all of the Company's obligations,
prior to any distribution to the holders of Common Stock. The 1991, 1994 and
1995 Preferred Stock vote as a single class with the Common Stock, and the 1996
and 1996-2 Preferred Stock do not vote, except as otherwise required by the
corporate statutes of Nevada. If the Company seeks to amend its certificate of
incorporation to change the provisions relating to the Preferred Stock or to
approve a merger containing provisions that would require a class vote if they
were contained in an amendment to the certificate of incorporation, the approval
of each class of Preferred Stock affected thereby, voting as a separate class,
will be required. Consequently, the holders of a relatively minor number of
shares of Preferred Stock may be able to block such proposals, even in
circumstances where they would be in the best interests of the holders of Common
Stock. (See "DESCRIPTION OF SECURITIES: Preferred Stock, Warrants, and Options
Outstanding" below.)
No Shareholder Meetings or Reports
Since its formation, the Company has not held a meeting of its shareholders
for purposes of electing directors or for any other purpose and has not
distributed any annual report or financial information to its stockholders.
Under Nevada law, the Company has been required since inception to have an
annual shareholders' meeting for the election of directors, but has not done so
because of the costs involved in the preparation and mailing of required proxy
materials and holding meetings. In any year in which the Company has not held
or does not hold a shareholders' meeting, a shareholder may force the Company to
call such a meeting for the election of directors and such other purposes as may
come before the shareholders for consideration. This could result in a change
in management.
Determination of Purchase and Exercise Price
The conversion ratio of the Preferred Stock, the exercise prices of the
options and warrants, and the sales price of stock to be offered by the Company,
were determined by the Company, taking into account the history of, and recent
prices for, the Common Stock as quoted on Nasdaq at the time the Preferred
Stock, Options, and Warrants were issued, the business history and prospects of
the Company, the number of securities to be offered, and the general condition
of the securities market, all as assessed by the Company's management. Such
prices bear no relationship to the assets, earnings, or net tangible book value
of the Company or any other traditional criteria of value. (See "PLAN OF
DISTRIBUTION" and "DESCRIPTION OF SECURITIES" below.)
Substantial and Immediate Dilution
Persons purchasing the Common Stock will suffer a substantial and immediate
dilution to the net tangible book value below the purchase price of such Common
Stock. (See "DILUTION" below.)
No Dividends
The Company has not paid dividends in the past and does not plan to pay
dividends in the foreseeable future, even if it were profitable. Earnings, if
any, are expected to be used to advance the Company's exploration activities and
for general corporate purposes, rather than to make distributions to
shareholders.
Registration Rights of Existing Shareholders
The Company has previously granted to existing shareholders and holders of
options and warrants, including officers and directors, registration rights that
require the Company to include securities in future registration statements
filed by the Company, subject to the approval of the managing underwriter in
such future offerings and, in some cases, to file registration statements with
respect to the resale, exercise, or conversion of the securities held by the
holders of such registration rights, all at the expense of the Company. The
Company has obtained the effectiveness of a registration statement respecting
all of its registration obligations, subject to the requirement for updating
through supplements or post-effective amendments. (See "DESCRIPTION OF
SECURITIES: Registration Rights" below.)
NO NET PROCEEDS
The issued and outstanding shares of Preferred Stock and warrants held by
Selling Stockholders must be converted or exercised into shares of Common Stock
prior to the resale of the Common Stock offered by the Selling Stockholders
pursuant to this offering. The Company will receive no net proceeds from the
conversion of the Preferred Stock or from the sale by the Selling Stockholders
of the Common Stock currently issued or issuable on such conversion or exercise.
Proceeds received by the Company on the exercise of outstanding warrants,
aggregating $3,787,014, if all warrants held by Selling Stockholders are
exercised, will be used by the Company to pay general and administrative
expenses, to the extent not funded from operating revenue, and for additional
drilling, geological and geophysical data gathering, or lease acquisition. If
all options and warrants held by persons other than the Selling Stockholders
were exercised to acquire an additional 3,273,000 shares of Common Stock, the
Company would receive proceeds of $14,231,580. There can be no assurance that
any of the outstanding options or warrants will be exercised to provide any
proceeds therefrom to the Company.
THE COMPANY
For information regarding the Company, reference is made to the Company's
annual report on Form 10-K for the year ended December 31, 1995, and all
documents subsequently filed by the Company pursuant to section 13(a), 13(c),
14, or 15(d) of the Exchange Act.
DILUTION
Immediately prior to this offering, the Company had a pro forma net
tangible book value of $7,093,598, with 14,700,447 shares of Common Stock issued
and outstanding, or approximately $0.48 per share. The pro forma net tangible
book value per share decreases to $0.19 after deducting liquidation preferences
of an aggregate of $4,254,281 with respect to the shares of outstanding 1991,
1994, 1995, 1996 and 1996-2 Preferred Stock. The pro forma net tangible book
value is determined by adjusting the net tangible book value of the Company as
of December 31, 1995, to give pro forma effect to the subsequent issuance of 525
shares of 1996 Preferred Stock for net proceeds of approximately $472,500, 1,700
shares of 1996-2 Preferred Stock for net proceeds of approximately $1,020,000,
and 211,046 shares of Common Stock on the conversion of shares of 1994 Preferred
Stock and 1995 Preferred Stock. (See "FINANCIAL STATEMENTS" in the Company's
1995 10-K.)
Purchasers of shares of Common Stock from Selling Stockholders will likely
suffer substantial and immediate dilution in the adjusted net tangible book
value per share of the Common Stock they purchase below the purchase price for
such shares. Similarly, holders of Preferred Stock Warrants will suffer
dilution in the adjusted net tangible book value per share received on
conversion or exercise below their effective purchase price per share. Based on
the Company's net tangible book value immediately prior to this offering, after
giving further effect to the conversion of all outstanding shares of Company
Preferred Stock and the exercise of all Warrants owned by all Selling
Stockholders to acquire the 5,974,268 shares of Common Stock to be sold in this
offering, the Company would have a net tangible book value of $10,830,612, or
approximately $0.52 per share, which represents a reduction of $0.95 per share
from the closing sales price of $1.47 for the Company's Common Stock on Nasdaq
on May 10, 1996.
SELLING STOCKHOLDERS
The following table provides certain information, as of the date of this
Prospectus, respecting the Selling Stockholders, the shares of Common Stock held
by them, to be sold, and to be held following the offering, assuming the sale by
such Selling Stockholders of all shares of Common Stock offered.
Securities Owned Prior to the Offering(1) Shares
-------------------------------------------------------------------- Owned After
1994 1995 M 1996 1996-2 Warrants Shares Offering
Common Preferred Preferred Warrants Preferred Preferred and to be -------------
Selling Stockholders Stock(2) Stock(3) Stock(4) (5) Stock(6) Stock(7) Options(8) Offered Number %
- -------------------------------- ---------- --------- --------- --------- --------- --------- ---------- -------- ---------------
Steve and Isabelle A. Aiello -- 30,000 -- -- -- -- -- 30,000 -- --
Lawrence R. Albert -- -- 26,666 13,333 -- -- -- 39,999 -- --
Van Henry Archer -- -- 62,564 31,282 -- -- -- 93,846 -- --
Van Henry Archer, Jr. (9) 70,124 -- 33,000 16,500 -- -- -- 57,000 62,624 *
Harry J. Aretakis, MDPC, Profit
Sharing Plan & Trust -- 25,500 -- -- -- -- -- 25,500 -- --
Joe L. and Karen G. Baker
JTWROS(10) 20,769 -- 20,000 10,000 -- -- -- 30,000 20,769 *
Yakov Barber -- -- -- -- 853,334 -- -- 853,334 -- --
Brault & Associated 401k Plan
FBO Jean-Pierre Brault(11) -- -- 40,000 20,000 -- -- -- 60,000 -- --
Jean-Pierre Brault(11) 24,000 -- -- -- -- -- -- 24,000 -- --
Nancy B. Burghardt 15,000 -- -- -- -- -- -- 15,000 -- --
Barney J. Cacioppo -- -- 30,000 15,000 -- -- -- 45,000 -- --
Wayne Canale 22,000 -- -- -- -- -- -- 22,000 -- --
Capital Relations Group, Inc. -- -- -- -- -- -- 500,000 500,000 -- --
CapitalPro International(12) -- -- -- -- -- -- 200,000 200,000 -- --
Ben J. Chilcutt 15,500 -- -- -- -- -- -- 15,500 -- --
Jennifer Craig(13) 17,000 -- -- 5,000 -- -- -- 15,000 7,000 *
Jennifer Craig and Jennie L.
Cage(13) -- -- 4,000 2,000 -- -- -- 6,000 -- --
Jerry and Patricia Crater JTWROS -- -- 2,000 1,000 -- -- -- 3,000 -- --
Kenneth W. Dietz -- 6,000 -- -- -- -- -- 6,000 -- --
Jimmy Dean Dowda -- -- -- -- -- 61,538 -- 61,538 -- --
Harry Doyle 6,000 -- -- -- -- -- -- 6,000 -- --
George E. Dullnig & Co. -- 131,622 -- -- -- -- -- 131,622 -- --
Robert Elliot -- -- 31,000 15,500 -- -- -- 46,500 -- --
Jay W. Enyart -- -- -- -- -- -- 25,000 25,000 -- --
Dr. William G. Field 18,000 -- 10,000 5,000 -- -- -- 33,000 -- --
First Geneva Holdings, Inc. -- -- -- -- 53,333 -- 54,700 108,033 -- --
Fondo de Adquisiciones e
Inversiones Internacionales
XL, S.A. -- -- -- -- -- 800,000 -- 800,000 -- --
Brian R. and Deborah H. Forcey -- -- 40,000 20,000 -- -- -- 60,000 -- --
Glick Enterprises -- -- -- -- 213,333 -- -- 213,333 -- --
Barry J. and Lynn K. Gross(14) 37,500 -- -- -- -- -- -- 37,500 -- --
Barry J. Gross IRA(14) 37,530 -- -- -- -- -- -- 37,530 -- --
Barry J. Gross, D.O. P.C., Money
Purchase Plan(14) 133,388 -- -- -- -- -- -- 133,388 -- --
Barry J. Gross, D.O. P.C. Profit
Sharing Plan (14) 30,788 -- -- -- -- -- -- 30,788 -- --
Barry J. Gross, custodian FBO
Lydia R. Gross, UGMA(14) 15,000 -- -- -- -- -- -- 15,000 -- --
Lynn K. Gross IRA(14) 11,340 -- -- -- -- -- -- 11,340 -- --
Custodian under IRA Rollover of
Howard S. Gross -- -- 27,000 13,500 -- -- -- 40,500 -- --
Robert M. Herber, Trustee 3,000 -- -- -- -- -- -- 3,000 -- --
Lawrence M. Hjermstad 6,000 12,000 -- -- -- -- -- 18,000 -- --
Adam S. Holtzman -- -- 18,600 9,300 -- -- -- 27,900 -- --
Donald Holtzman(15) 48,146 147,140 15,500 7,750 -- -- -- 170,390 48,146 *
Elisa Holtzman(15) 84,512 -- 22,000 11,000 -- -- -- 33,000 84,512 *
Dennis Hoover -- -- -- -- -- -- 30,000 30,000 -- --
Edward & Shari K. Hoppenrath 12,000 -- -- -- -- -- -- 12,000 -- --
Howard Beiles Evelyn Hambleton
Investment Club(10) -- -- 16,667 8,333 -- -- -- 25,000 -- --
Robert Howard -- -- 10,000 5,000 -- -- -- 15,000 -- --
Scott G. Howard 12,000 -- -- 6,000 -- -- -- 18,000 -- --
Donald G. Hunter 115,000 -- 60,000 30,000 -- -- -- 90,000 115,000 *
Emil Inama(16) 8,816 -- 10,000 5,000 -- -- -- 15,000 8,816 *
Edward V. Kazazian(17) -- -- 30,000 15,000 -- -- -- 45,000 -- --
Edward V. Kazazian, Trustee,
Haig H. Kazazian Living Trust
U/A dated 12/18/83(17) -- -- 20,000 10,000 -- -- -- 30,000 -- --
Linda R. Kazazian -- -- 25,000 12,500 -- -- -- 37,500 -- --
Nina H. Kazazian -- -- 6,000 3,000 -- -- -- 9,000 -- --
Josphine A. Kerr 40,000 -- -- -- -- -- -- 40,000 -- --
Bruce R. Knox -- -- -- -- -- 61,538 -- 61,538 -- --
Hans-Udo Kurr -- -- 20,000 10,000 -- -- -- 30,000 -- --
David LaPorte 5,000 -- -- -- -- -- -- 5,000 -- --
Joe and David LaPorte 5,000 -- -- -- -- -- -- 5,000 -- --
Lisa K. Lauterbach -- -- 6,000 3,000 -- -- -- 9,000 -- --
Fred Lenz -- -- -- -- -- 61,538 -- 61,538 -- --
Allan M. Lipman, Jr. -- -- 30,000 15,000 -- -- -- 45,000 -- --
Patricia D. Livingston Jan E. and
Todd L. Flood, JTWROS -- -- 6,670 3,335 -- -- -- 10,005 -- --
Christopher Lloyd -- 12,000 -- -- -- -- -- 12,000 -- --
Albert H. McWhirr -- -- 10,000 5,000 -- -- -- 15,000 -- --
John Mitchell -- -- -- -- -- 61,538 -- 61,538 -- --
New Concepts, L.L.C. -- -- -- -- -- 1,046,154 1,046,154
Ned F. Parson(18) 30,854 -- 40,000 20,000 -- -- -- 60,000 30,854 *
Thomas F. Poop -- -- 10,000 5,000 -- -- -- 15,000 -- --
Thomas K. Poulakidas 55,000 -- 10,000 5,000 -- -- -- 15,000 55,000 *
Bruce E. and Pnina I. Sabel(19) 15,000 -- 6,000 3,000 -- -- -- 9,000 15,000 *
Donald C. Seibert 15,000 -- 20,000 10,000 -- -- -- 30,000 15,000 *
Kevin L. Spencer IRA -- -- -- -- -- -- 75,000 75,000 -- --
Mike Steele 63,372 -- 30,000 15,000 -- -- -- 45,000 63,372 *
Ronald C. and Joy L. Tepner 9,000 -- -- -- -- -- -- 9,000 -- --
The Pinnacle Fund, LP, Barry
Kitt, General Partner of The
Pinnacle Fund -- -- 200,000 100,000 -- -- -- 300,000 -- --
Malcolm G. Thomas -- -- 6,667 3,333 -- -- -- 10,000 -- --
Don & Elaine Treece(20) -- -- 2,000 1,000 -- -- -- 3,000 -- --
Steven Tsengas 12,000 -- -- -- -- -- -- 12,000 -- --
Donal G. & M. Joan Waddell -- -- 20,000 10,000 -- -- -- 30,000 -- --
Steven T. Walker -- -- 16,000 8,000 -- -- -- 24,000 -- --
Paul R. Yoder -- 12,000 -- -- -- -- -- 12,000 -- --
Total 1,013,639 376,262 993,334 507,666 1,120,000 2,092,306 884,700 6,461,814 526,093 2.6
*Less than one percent.
(1) Shares owned prior to the offering include all shares of Common Stock and
underlying securities convertible or exercisable into shares of Common
Stock owned by the Selling Stockholder. Shares owned after the offering
assume the sale of all shares of Common Stock offered pursuant to this
offering. Percentage figures respecting the securities owned after the
offering give effect to the conversion of all shares of Preferred Stock and
the exercise of all Warrants and Options by all Selling Stockholders.
(2) Includes 526,093 shares of Common Stock held by Selling Stockholders not
offered in this offering, 246,046 shares of Common Stock issued on
conversion of a like number of 1994 Preferred Stock, 219,500 shares of
Common Stock issued on exercise of a like number of C Warrants, and 22,000
shares of Common Stock issued on conversion of a like number of 1995
Preferred Stock.
(3) Includes 244,640 shares of 1994 Preferred Stock issued and outstanding and
131,622 shares issuable to the placement agent in the 1994 Preferred Stock
offering on exercise of a placement agent warrant. Each share of 1994
Preferred Stock is convertible into shares of Common Stock at the rate of
one share of Common Stock for each share of 1994 Preferred Stock held.
Such shares of 1994 Preferred Stock must be converted into shares of Common
Stock before the resale of the Common Stock offered by the Selling
Stockholder pursuant to this offering.
(4) Each share of 1995 Preferred Stock is convertible into shares of Common
Stock at the rate of one share of Common Stock for each share of 1995
Preferred Stock held. Such shares of 1995 Preferred Stock must be
converted into shares of Common Stock before the resale of the Common Stock
offered by the Selling Stockholder pursuant to this offering.
(5) The M Warrants are exercisable into shares of Common Stock at an exercise
price of $4.00 per share. Such Warrants must be exercised to purchase
shares of Common Stock before the resale of the Common Stock offered by the
Selling Stockholder pursuant to this offering.
(6) Each share of 1996 Preferred Stock is convertible at any time after May 14,
1996, and before March 31, 1998, into that number of shares of Common Stock
equal to $1,000 divided by $1.50, subject to adjustment in certain
circumstances based on the market price of the Common Stock at the time of
conversion. (See "DESCRIPTION OF SECURITIES" below.) For purposes of this
Prospectus, a stock price of $1.25 is assumed and twice the number of
shares are registered to account for a possible decrease in the price for
the Common Stock. The figures shown reflect the number of shares of Common
Stock into which the 1996 Preferred Stock is convertible and not the actual
number of shares of 1996 Preferred Stock issued and outstanding. Such
shares of 1996 Preferred Stock must be converted into shares of Common
Stock before the resale of the Common Stock offered by the Selling
Stockholder pursuant to this offering.
(7)One-third of the 1996-2 Preferred Stock is convertible at any time after
issuance, and all of the 1996-2 Preferred Stock is automatically
convertible on the date that is six-months after the date of issuance, into
that number of shares of Common Stock equal to $1,000 divided by $0.91,
subject to adjustment in certain circumstances based on the market price of
the Common Stock at the time of conversion. (See "DESCRIPTION OF
SECURITIES" below.) For purposes of this Prospectus, a stock price of
$1.25 is assumed. The figures shown reflect the number of shares of Common
Stock into which the 1996-2 Preferred Stock is convertible and not the
actual number of shares of 1996-2 Preferred Stock issued and outstanding.
Such shares of 1996-2 Preferred Stock must be converted into shares of
Common Stock before the resale of the Common Stock offered by the Selling
Stockholder pursuant to this offering.
(8) Consists of (i) warrants to purchase 200,000 shares of Common Stock at an
exercise price of $2.00 per share by an unrelated third party issued in
connection with a loan to the Company in the amount of $400,000; (ii)
warrants to purchase 54,700 shares of Common Stock by the placement agent
in the 1996 Preferred Stock offering at an exercise price of $1.50, subject
to adjustment in certain circumstances based on the market price of the
Common Stock at the time of exercise; (iii) warrants to purchase 100,000
shares of Common Stock at an exercise price of $1.50 per share by two
individuals; (iv) options to purchase 30,000 shares of Common Stock at an
exercise price of $1.25 per share by an unrelated third party; and (v)
options to purchase 500,000 shares of Common Stock at exercise prices
ranging from $1.15 per share to $2.30 per share by an unrelated third
party. Such warrants and options must be exercised to purchase shares of
Common Stock before the resale of the Common Stock offered by the Selling
Stockholder pursuant to this offering.
(9) Mr. Archer is also deemed to be the beneficial owner of 5,000 shares of
Common Stock held by his spouse, Edna Myrick Archer and 2,000 shares of
Common Stock held by his minor son, Stephen Stanton Archer.
(10)Joe Baker also holds 500 shares of Common Stock as custodian for Brad Baker
under a Uniform Gift to Minors Act.
(11)Jean-Pierre Brault is deemed to be the beneficial owner of the shares held
by Brault & Associated, of which Mr. Brault is a principal.
(12)CapitalPro International also holds an option to purchase 200,000 shares of
Common Stock through June 6, 1996, at an exercise price of $1.50 per share.
(13)Ms. Craig also holds 4,000 shares of 1995 Preferred Stock and 2,000 M
Warrants jointly with Jennie L. Cage. Ms. Craig is the spouse of N. Thomas
Steele and is deemed to be the beneficial owner of 277,741 shares of Common
Stock and options to purchase 422,000 shares of Common Stock at an average
weighted exercise price of $1.78 per share held by Mr. Steele.
(14)Mr. Gross is also deemed to be the beneficial owner of the shares held in
the Barry J. Gross IRA, in the Barry J. Gross, D.O. P.C., Money Purchase
Plan, in the Barry J. Gross, D.O. P.C., Profit Sharing Plan, and by Mr.
Gross as custodian under a Uniform Gift to Minors Act for the benefit of
Lydia R. Gross, his daughter. In addition, Mr. Gross is deemed to be the
beneficial owner of the shares held in the IRA account of his spouse, Lynn
K. Gross. Likewise, Ms. Gross is deemed to be the beneficial owner of all
of the foregoing shares held or deemed to be held by Mr. Gross.
(15)Mr. Holtzman also holds 100 shares of Common Stock as custodian for Lisa
Holtzman under a Uniform Gift to Minors Act. In addition, Mr. Holtzman and
his spouse, Elisa Holtzman, are deemed to be the beneficial owners of the
shares held by the other. Ms. Holtzman also holds 22,705 shares of Common
Stock as custodian for Adam Scott Holtzman under a Uniform Gift to Minors
Act.
(16)Mr. Inama also holds 7,000 shares of Common Stock jointly with Ann Mary
Inama.
(17)Mr. Kazazian is also deemed to be the beneficial owner of the shares he
holds as trustee of the Haig H. Kazazian Living Trust.
(18)Mr. Parson also holds 15,000 shares of Common Stock jointly with Marilyn M.
Parson and is deemed to be the beneficial owner of 10,000 shares of Common
Stock owned by Ned F. Parson Limited Partnership of which Mr. Parson is
general partner.
(19)Mr. Sabel also owns 3,225 shares of Common Stock solely in his name.
(20)Mr. Treece is currently employed by the Company as chief financial officer
and controller.
MANAGEMENT
For information regarding management of the Company, reference is made to
the Company's annual report on Form 10-K for the year ended December 31, 1995.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $0.001 per share, and 50,000,000 shares of Common Stock, par value $0.001
per share.
Common Stock
The holders of the Company's Common Stock are entitled to one vote per
share on each matter submitted to vote at any meeting of shareholders. Shares
of Common Stock do not carry cumulative voting rights, and therefore, a majority
of the shares of outstanding Common Stock is able to elect the entire board of
directors, and if they do so, minority shareholders would not be able to elect
any persons to the board of directors. The Company's bylaws provide that one-
third of the issued and outstanding shares of the Company shall constitute a
quorum for shareholders' meetings, except with respect to certain matters for
which a greater percentage quorum is required.
Shareholders of the Company have no preemptive right to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the event of
liquidation of the Company, the shares of Common Stock are entitled to share
equally in corporate assets after satisfaction of all liabilities. The shares
of Common Stock, when issued, are fully paid and nonassessable.
Holders of Common Stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available for
the payment of dividends. The Company seeks growth and expansion of its
business through the reinvestment of profits, if any, and does not anticipate
that it will pay dividends in the foreseeable future.
The board of directors has the authority to issue the authorized but
unissued shares without action by the shareholders. The issuance of such shares
would reduce the percentage ownership held by persons purchasing stock in this
offering and may dilute the book value of the then existing shareholders.
Preferred Stock, Warrants and Options Outstanding
As of the date of this Prospectus, the Company had the following Preferred
Stock, options and warrants outstanding as discussed in detail below.
Number of Price Per
Shares of Share of
Common Stock Common Stock
Description or or
Common Stock Common Stock
Equivalent Equivalent
Preferred Stock
1991 Series 40,000 $1.25
1994 Series 244,640 $2.00
1995 Series 993,334 $1.50
1996 Series 560,000 (1) $1.50 (2)
1996-2 Series 2,092,306 (1) $0.91 (2)
Warrants to purchase Common Stock 300,000 $1.50
138,000 $1.60
200,000 $2.00
507,666 $4.00
1,242,000 $6.00
54,700 $0.94
Options to purchase Common Stock 100,000 $1.15
30,000 $1.25
100,000 $1.38
68,000 $1.31
384,000 $1.50
100,000 $1.61
25,000 $1.81
100,000 $1.84
650,000 $2.125
100,000 $2.30
20,000 $2.50
105,000 $3.00
25,000 $3.38
(1)Based on an assumed current price for the Common Stock of $1.25.
(2)Subject to adjustment in certain circumstances based on the market price of
the Common Stock at the time of conversion
Preferred Stock
The Company has 40,000 shares designated as 1991 Series Convertible
Preferred Stock, 244,640 shares designated as 1994 Series Convertible Redeemable
Preferred Stock, 993,334 shares designated as the 1995 Series Convertible
Preferred Stock, 525 shares designated as the 1996 Series 6% Convertible
Preferred Stock, and 1,700 shares designated as the 1996-2 Series 6% Convertible
Preferred Stock issued and outstanding as of the date of this Prospectus. The
Company has no current plans to issue any additional Preferred Stock, except
70,000 shares of 1993 Preferred Stock to be issued on the exercise of the
outstanding 1993 Placement Agent Warrants and 131,622 shares of 1994 Preferred
Stock to be issued on the exercise of the outstanding 1994 Placement Agent
Warrants. The Company's articles of incorporation provide that the board of
directors of the Company has authority, without action by the shareholders, to
issue the authorized but unissued Preferred Stock in one or more series, and to
determine the voting rights, preferences as to dividends and liquidation,
conversion rights, and other rights of such series.
The 1991, 1994 and 1995 Preferred Stock is convertible, at the election of
the holder, into the Company's Common Stock at the rate of one share of
Preferred Stock for one share of Common Stock. The 1993 Preferred Stock issuable
on the exercise of the 1993 Placement Agent Warrants is convertible, at the
election of the holder, into the Company's Common Stock at the rate of two
shares of Common Stock for one share of Preferred Stock. The 1996 Preferred
Stock is convertible, at the election of the holder, into the Company's Common
Stock at the rate of one share of 1996 Preferred Stock for the number of shares
of Common Stock determined by dividing $1,000 by the lesser of $1.50 or 75% of
the closing bid price of the Common Stock as reported on Nasdaq on the day
preceding the date of conversion. The 1996-2 Preferred Stock is convertible, at
the election of the holder, into the Company's Common Stock at the rate of one
share of 1996-2 Preferred Stock for the number of shares of Common Stock
determined by dividing $1,000 by the lesser of $0.91 or 65% of the average
closing bid price of the Common Stock as reported on Nasdaq for the five days
preceding the date of conversion.
The 1991 Preferred Stock carries a preference of $1.25 per share on
dissolution and liquidation of the Company, the 1994 Preferred Stock carries a
preference of $2.00 per share, the 1995 Preferred Stock carries a liquidation
preference of $1.50 per share, and the 1996 and 1996-2 Preferred Stock carries a
liquidation preference of $1,000 per share. The 1991, 1994 and 1995 Preferred
Stock votes as a single class with the Common Stock except as otherwise provided
by the corporate laws of the state of Nevada. Shares of 1991, 1994 and 1995
Preferred Stock are entitled to one vote per share. The 1996 and 1996-2
Preferred Stock are not entitled to vote except as required by the corporate
laws of the state of Nevada and on certain specific matters. Except for the
1996 and 1996-2 Preferred Stock, none of the issued and outstanding Preferred
Stock is entitled to preferential dividends, but participates with the Common
Stock in the unlikely event that a dividend is declared. The 1996 and 1996-2
Preferred Stock are entitled to a 6% dividend payable in cash in the event the
1996 and/or 1996-2 Preferred Stock is redeemed or in additional shares of Common
Stock upon the conversion of the 1996 and/or 1996-2 Preferred Stock.
The 1991 Preferred Stock is redeemable at $1.25 per share at any time after
December 31, 1995, the 1994 Preferred Stock is redeemable at $4.00 per share at
any time after March 31, 1996, the 1995 Preferred Stock is redeemable at $3.00
per share at any time after December 31, 1995, and the 1996 Preferred Stock is
redeemable at $1,330 per share at any time after April 1, 1997. The 1996-2
Preferred Stock is not redeemable by the Company, but will automatically convert
into shares of Common Stock at the rate indicated above on the date that is six
months from the date of issuance. In each case the Preferred Stock can be
converted prior to the redemption date fixed in the notice.
This prospectus relates to the resale of Common Stock issued or issuable on
conversion of the 1994, 1995, 1996 and 1996-2 Preferred Stock.
Warrants
The Company has issued and outstanding the following warrants to purchase
Common Stock and has reserved an equivalent number of shares of Common Stock for
issuance on exercise of such warrants. Each of the warrants described below is
governed by a warrant agreement between the Company and the warrant agent. The
following summary is subject to the detailed provisions of the warrant agreement
governing such warrants.
Holders of warrants are deemed to be shareholders of the Company only to
the extent of the shares of Common Stock held by them. Holders of warrants, as
such, are not entitled to vote with respect to matters submitted to the
shareholders of the Company, are not entitled to participate in dividends, if
any, and do not have ownership rights on termination or liquidation of the
Company.
$1.50 Warrants. The Company has issued and outstanding 300,000 warrants to
purchase Common Stock at an exercise price of $1.50 per share, 200,000 of which
expire June 6, 1996, and the remaining 100,000 of which expire in June 2000.
$2.00 Warrants. The Company has issued and outstanding 200,000 warrants to
purchase Common Stock at an exercise price of $2.00 per share (the "$2.00
Warrants") through April 30, 1997.
A, B and L Warrants. Prior to October 30, 1994, the Company had issued and
outstanding 1,242,000 B Warrants ("B Warrants") to purchase one share of Common
Stock at an exercise price of $3.90 at any time prior to October 30, 1994. On
October 30, 1994, the B Warrants expired pursuant to their terms without any
Warrants being exercised. In October 1994, the Company issued L Warrants to the
holders of record of the B Warrants on October 30, 1994, at the rate of one L
Warrant for each B Warrant held. Each L Warrant entitles the holder to purchase
one share of Common Stock at $6.00 through December 31, 1995, or at $8.00
thereafter through December 31, 1996.
The L Warrants are subject to redemption by the Company at a price of $0.10
per L Warrant on 30 days' prior written notice if the closing bid price of the
Common Stock of the Company as quoted on Nasdaq exceeds the L Warrant exercise
price by at least 20% for 20 of 30 trading days during a period ending within 10
days of the notice of redemption. All L Warrants in any class must be redeemed
if any L Warrant in that class is redeemed. L Warrants may be exercised during
the 30 day period after notice of redemption has been given.
The underwriter in the offering in which the B Warrants were sold has an
option to acquire 400 Units, entitling the underwriter to purchase up to 108,000
shares of Common Stock, 108,000 A Warrants, and 108,000 B Warrants at a price of
$2.04. The underwriter warrants were subsequently adjusted pursuant to their
terms so that they are now exercisable at $552 per unit and entitle the
underwriter to purchase 138,000 shares of Common Stock, 138,000 A Warrants and
138,000 B Warrants at an equivalent exercise price of $1.60 per share of Common
Stock. The underwriter's A and B Warrants are not redeemable and are
exercisable only between October 30, 1992, and October 30, 1996, at an exercise
price of $2.25 and $3.90, respectively, to acquire one share of Common Stock for
each A and B Warrant exercised.
M Warrants. The Company has issued and outstanding 507,666 M Warrants.
Each M Warrant entitles the holder to purchase one share of Common Stock $4.00
at any time through December 1, 1998. The M Warrants are subject to redemption
by the Company at a redemption price of $0.10 per Warrant if the average closing
price of the Common Stock is at least $6.00 per share for 20 consecutive trading
days preceding the date of notice of redemption, subject to certain other
conditions. Such Warrants may be exercised during the period after notice of
redemption has been given and prior to the redemption date.
1996 Placement Agent Warrants. The placement agent in the offering in
which the 1996 Preferred Stock was sold has an option to acquire 54,700 shares
of Common Stock at a price equal to the lesser of $1.50 or 75% of the closing
bid price of the Common Stock as reported on Nasdaq on the day preceding the
date of exercise. The placement agent's warrants are exercisable before March
25, 2001.
Options
The Company has issued and outstanding options to purchase up to 1,807,000
shares of Common Stock at a weighted average exercise price of $1.89 per share,
including options to purchase 1,277,000 shares of Common Stock at a weighted
average exercise price of $1.99 per share of Common Stock issued to executive
officers, directors and employees of the Company.
General
Each of the foregoing warrants and options contain provisions that protect
the holders thereof against dilution by adjustment in the number of shares of
Common Stock purchasable on exercise of the warrants and options in certain
events such as stock splits or stock dividends. In the event the number of
warrant or option shares purchasable is increased, through the operation of the
anti-dilution provisions, the exercise price will be reduced proportionately.
Conversely, if the number of warrant or option shares purchasable is decreased,
the exercise price will be increased proportionately.
Registrar and Transfer Agent
The registrar and transfer agent of the Company's securities is Atlas Stock
Transfer Corporation, 5899 South State Street, Salt Lake City, Utah 84107,
telephone (801) 266-7151.
PLAN OF DISTRIBUTION
General
This Prospectus relates to the public offer and sale by certain
shareholders (the "Selling Stockholders") of an aggregate of 6,461,814 shares of
Common Stock of the Company (i) issued or issuable on conversion of 490,686
shares of 1994 Preferred Stock; (ii) issued on exercise of C Warrants to
purchase 219,500 shares; (iii) issuable on exercise by the placement agent in
the 1994 Preferred Stock offering of placement agent warrants to purchase
131,622 shares at an exercise price of $2.20 per share; (iv) issued or issuable
on conversion of 1,015,334 shares of 1995 Preferred Stock; (v) issuable on
exercise of 507,666 M Warrants at an exercise price of $4.00 per share; (vi)
issuable on conversion of 525 shares of 1996 Preferred Stock to acquire
1,120,000 shares of Common Stock, subject to adjustment depending on the trading
price of the Common Stock at the time of conversion; (vii) issuable on exercise
by the placement agent in the 1996 Preferred Stock offering of placement agent
warrants to purchase 54,700 shares; (viii) issuable on conversion of 1,700
shares of 1996-2 Preferred Stock to acquire 2,092,306 shares of Common Stock,
subject to adjustment depending on the trading price of the Common Stock at the
time of conversion; and (ix) issuable on exercise of warrants and options to
purchase 830,000 shares of Common Stock at an average weighted exercise price of
$1.71 per share. (See "SELLING STOCKHOLDERS" and "DESCRIPTION OF SECURITIES"
above.)
Sale of Common Stock
The Common Stock to be sold by the Selling Stockholders may be sold by them
from time to time directly to purchasers. Alternatively, the Selling
Stockholders may, from time to time, offer the Common Stock for sale in the
over-the-counter market through or to securities brokers or dealers that may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Stockholders and/or the purchasers of Common Stock for whom they may
act as agent. Any such sale of Common Stock by Selling Stockholders must be
accompanied by, or follow the delivery of, a prospectus filed with a current
registration statement relating to the Common Stock being offered, unless a
Selling Stockholder elects to rely on Rule 144 or another exemption from the
registration requirements in connection with a particular transaction. The
Selling Stockholders, and any dealers or brokers that participate in the
distribution of the Common Stock, may be deemed to be "underwriters" as that
term is defined in the Securities Act, and any profit on the sale of Common
Stock by them and any discounts, commissions, or concessions received by any
such dealers or brokers may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Common Stock may be sold by the Selling Stockholders from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at prices that may vary through the period during which the securities may be
offered, or at such other prices as may be negotiated by the Selling Stockholder
and the purchaser at the time of sale. The Company does not intend to enter into
any arrangement with any securities dealer concerning solicitation of offers to
purchase the Common Stock.
The Company estimates that it will incur costs of approximately $20,000 in
connection with this offering for legal, accounting, printing, and other costs.
Any separate costs of the Selling Stockholders will be borne by them.
Commissions or discounts paid in connection with the sale of securities by the
Selling Stockholders will be determined by negotiations between them and the
broker-dealer through or to which the securities are to be sold and may vary
depending on the broker-dealers' commission or mark up schedule, the size of the
transaction, and other factors.
LEGALITY OF SECURITIES
The validity under the Nevada Revised Statutes of the issuance of the
Common Stock have been passed on for the Company by Kruse, Landa & Maycock,
L.L.C.
EXPERTS
The consolidated financial statements and the related supplemental
schedules incorporated in this Prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, have been audited by
Hein + Associates LLP, certified public accountants, as stated in their reports,
which are incorporated herein by reference, and have been so incorporated in
reliance upon such reports given on the authority of that firm as experts in
accounting and auditing.
The year end independent reserve dated December 31, 1995, incorporated by
reference into this Prospectus by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, has been prepared by the firm of
Malkewicz Hueni Associates, Inc., Golden, Colorado, as stated in its report,
which is incorporated by reference and has been so incorporated by reference in
reliance and upon such report given on the authority of that firm as experts in
mining engineering.
- -------------------------------------
TABLE OF CONTENTS
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Section Page
FORELAND CORPORATION
SUMMARY AND INTRODUCTION....3
RISK FACTORS................9
NO NET PROCEEDS............14
THE COMPANY ...............14
DILUTION ..................15
SELLING STOCKHOLDERS ......15
MANAGEMENT ................18
DESCRIPTION OF SECURITIES .18
PLAN OF DISTRIBUTION ......22 SHARES OF COMMON STOCK
LEGALITY OF SECURITIES ....23
EXPERTS ...................23
No dealer, salesman, or other
person has been authorized in
connection with this offering to give
any information or to make any
representation other than as
contained in this Prospectus and, if PROSPECTUS
made, such information or
representation must not be relied on
as having been authorized by the
Company. This Prospectus does not May , 1996
constitute an offer to sell or the ---
solicitation of an offer to buy any
securities covered by this Prospectus
in any state or other jurisdiction to
any person to whom it is unlawful to
make such offer or solicitation in
such state or jurisdiction.
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the securities
being registered:
Securities and Exchange Commission registration fee $ 3,273
Attorneys' fees 11,000
State "blue sky" fees and expenses (including
attorneys' fees) 2,000
Printing expenses 2,000
Miscellaneous 1,727
---------
Total 20,000
========
All expenses with the exception of the Securities and Exchange Commission
registration fee are estimates.
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
There is no statute, charter provision, bylaw, contract, or other
arrangement under which controlling persons, directors, or officers are insured
or indemnified in any manner against liability.
ITEM 16. EXHIBITS
Exhibit Index
The following exhibits are included as part of this registration statement:
SEC
Exhibit Reference
No. No. Title of Document Location
Item 3. Articles of Incorporation and Bylaws
3.01 3 Articles of Incorporation Incorporated by
Reference(4)
3.02 3 Bylaws Incorporated by
Reference(4)
Instruments Defining the Rights of
Security Holders, Including
Item 4. Indentures
4.01 4 Specimen Common Stock Certificate Incorporated by
Reference(1)
4.02 4 Designation of Rights, Privileges, Incorporated by
and Preferences of 1991 Series Reference(1)
Preferred Stock
4.03 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1994 Series Reference(8)
Convertible Preferred Stock
4.04 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1995 Series Reference(13)
Convertible Preferred Stock
4.05 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1996 Series 6% Reference(14)
Convertible Preferred Stock
4.06 4 Designation of Rights, Privileges This Filing
and Preferences of
1996-2 Series 6% Convertible
Preferred Stock
4.07 4 Form of Underwriter's Warrant to Incorporated by
Purchase Units Reference(10)
4.08 4 Warrant Agreement between the Incorporated by
Company and Atlas Stock Transfer Reference(3)
Corporation relating to X and Y
Warrants
4.09 4 Amendment to Warrant Agreement Incorporated by
between the Company and Atlas Stock Reference(9)
Transfer Corporation relating to X
and Y Warrants
4.10 4 Amendment to Warrant Agreement Incorporated by
between the Company and Atlas Stock Reference(10)
Transfer Corporation relating to X
and Y Warrants
4.11 4 Form of Warrant Agreement between Incorporated by
the Company and Atlas Stock Transfer Reference(10)
Corporation relating to L Warrants
4.12 4 Warrant relating to $2.00 Warrants Incorporated by
Reference(10)
4.13 4 Form of Warrant Agreement between Incorporated by
the Company and Atlas Stock Transfer Reference(13)
Corporation relating to M Warrants
4.14 4 Form of Warrants to Kevin L. Spencer This Filing
and Jay W. Enyart
4.15 4 Warrant to First Geneva Holdings, This Filing
Inc., relating to offering of 1996
Preferred Stock
Item 5. Opinion re Legality
5.01 5 Opinion and Consent of Kruse, Landa & This Filing
Maycock, L.L.C.
Item 10. Material Contracts
10.01 10 Option Agreement between N. Thomas Incorporated by
Steele and Foreland Corporation, Reference(12)
dated June 24, 1985**
10.02 10 Option Agreement between Kenneth L. Incorporated by
Ransom and Foreland Corporation, Reference(12)
dated June 24, 1985**
10.03 10 Option Agreement between Grant Incorporated by
Steele and Foreland Corporation, Reference(12)
dated June 24, 1985**
10.04 10 Form of Options to directors dated Incorporated by
April 30, 1991 with respect to Reference(1)
options previously granted 1986**
10.05 10 Agreement Regarding Oil and Gas Incorporated by
Investments, dated May 15, 1991, Reference(6)
between the Company and Santa Fe
Energy Resources, Inc.
10.06 10 Agreement Regarding Oil and Gas Incorporated by
Investments, dated May 15,1991, Reference(6)
between the Company and Santa Fe
Operating Partners, Ltd.
10.07 10 Exploration Agreement, dated Incorporated by
December 1, 1992, entered into by Reference(2)
and between Santa Fe Energy
Resources, Inc., Santa Fe Energy
Operating Partners, L.P., and the
Company
10.08 10 Form of Placement Agent Warrant Incorporated by
Agreement, dated February 4, 1993, Reference(9)
between the Company and George E.
Dullnig & Co.
10.09 10 Form of Executive Employment Incorporated by
Agreement between the Company and Reference(9)
executive officers, with form of
letter and related schedule**
10.10 10 Form of Stock Appreciation Rights Incorporated by
Agreement between the Company and Reference (9)
officers, with related schedule**
10.11 10 Form of Nonqualified Stock Option Incorporated by
between the Company and unrelated Reference(9)
third parties, with related schedule
10.12 10 Operating Agreement between the Incorporated by
Company and Enserch Exploration, Reference(9)
Inc., and Berry Petroleum Company
dated June 17, 1993 (as revised June
22, 1993)
10.13 10 Crude Oil Purchase Agreement between Incorporated by
the Company and Crysen Refining, Reference(8)
Inc., dated September 1, 1993 (Nye
County, Nevada)
10.14 10 Crude Oil Purchase Agreement between Incorporated by
the Company and Crysen Refining, Reference(8)
Inc., dated September 1, 1993
(Eureka County, Nevada)
10.15 10 Loan Agreement by and among Foreland Incorporated by
Corporation together with its two Reference(8)
subsidiaries Krutex Energy
Corporation and Eagle Springs
Production Limited Liability Company
and CapitalPro International, Inc.,
dated April 30, 1994
10.16 10 Letters from Executive Officers re: Incorporated by
Salary deferrals** Reference (13)
10.17 10 Conditional Letter of Acceptance Incorporated by
dated June 22, 1994, and related Reference(8)
Farmout Letter Agreement between
Yates Petroleum Corporation and
Trail Mountain, Inc.
10.18 10 Lease Agreement dated June 7, 1993, Incorporated by
by and between Ulster Joint Venture Reference(8)
and the Company regarding Union
Terrace Office, as amended
10.19 10 Agreement dated August 9, 1994, Incorporated by
between Plains Petroleum Operating Reference(8)
Company and the Company
10.20 10 Letter Agreement dated September 29, Incorporated by
1994, between the Company, Kanowa Reference (10)
Petroleum, Inc., and D&R Investments
relating to interest in Eagle
Springs lease.
10.21 10 Letter Agreement dated October 1, Incorporated by
1994, between Krutex Energy Reference (10)
Corporation and Caldera & Clements
Minerals regarding Lulling Farmout
Agreement.
10.22 10 Letter Agreement dated September 28, Incorporated by
1994, between the Company and Mobil Reference (10)
Exploration & Producing U.S., Inc.
regarding the Rustler Prospect
Farmout Agreement.
10.23 10 Form of Options to employees, with Incorporated by
related schedule Reference (10)
10.24 10 Form of Promissory Notes relating to Incorporated by
certain options exercised by Reference (10)
officers, with related schedule
10.25 10 Form of Option granted pursuant to Incorporated by
reload provisions of previously Reference (10)
granted options with related
schedule
10.26 10 Letter dated January 25, 1995 from Incorporated by
Plains Petroleum Operating Company Reference (13)
regarding Plains' election under the
Agreement dated August 9, 1994.
10.27 10 Form of Letter Agreement dated March Incorporated by
8, 1995 between the Company and Reference (13)
Parsley & Parsley Development, L.P.
regarding Exploration Agreement.
10.28 10 Form of Letter Agreement dated March Incorporated by
24, 1995 between the Company and Reference (13)
Mobil Exploration & Producing U.S.,
Inc., regarding the Rustler Prospect
Farmout Agreement
10.29 10 Form of Registration Agreement Incorporated by
relating to Units consisting of 1995 Reference (13)
Series Preferred Stock and M
Warrants
10.30 10 Crysen Refining, Inc., document Incorporated by
respecting extension of Crude Oil Reference (13)
Purchase Agreement
10.31 10 Form of Registration Agreement This Filing
relating to 1996 Series Convertible
Preferred Stock
Item 23. Consents of Experts and Counsel
23.01 23 Consent of Kruse, Landa & Maycock, L.L.C., See Item 5
counsel to Registrant
23.02 23 Consent of Hein + Associates LLP, This Filing
certified public accountants
23.03 23 Consent of Malkewicz Hueni Associates, Inc. This Filing
Item 24. Power of Attorney
24.01 24 Power of Attorney See Signature
Page
(1) Incorporated by reference from the Company's registration statement on form
S-2, SEC file number 33-42828.
(2) Incorporated by reference from the Company's annual report on form 10-K for
the fiscal year ended December 31, 1992.
(3) Incorporated by reference from the Company's quarterly report on form 10-Q
for the period ending March 31, 1993.
(4) Incorporated by reference from the Company's registration statement on form
S-1, SEC file number 33-19014.
(5) Incorporated by reference from the Company's registration statement on form
S-2, SEC file number 33-34970.
(6) Incorporated by reference from the Company's annual report on form 10-K for
the fiscal year ended December 31, 1991.
(7) Incorporated by reference from the Company's annual report on form 10-K for
the fiscal year ended December 31, 1993.
(8) Incorporated by reference from the Company's registration statement on form
S-1, SEC file number 33-81538.
(9) Incorporated by reference from the Company's registration statement on form
S-2, SEC file number 33-64756.
(10)Incorporated by reference from the Company's registration statement
on form S-2, , SEC file number 33-86076.
(11)Incorporated by reference from the Company's quarterly report on
form 10-Q for the period ending March 31, 1993.
(12)Incorporated by reference from the Company's annual report on form
10-K for the fiscal year ended December 31, 1985.
(13)Incorporated by reference from the Company's annual report on form
10-K for the fiscal year ended December 31, 1994.
(14)Incorporated by reference from the Company's annual report on form
10-K for the fiscal year ended December 31, 1995.
** Identifies each management contract or compensatory plan or arrangement
required to be filed as an exhibit.
ITEM 17. UNDERTAKINGS
Filings Incorporating Subsequent Exchange Act Documents by Reference (Regulation
S-K, Item 512(b))
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Incorporated Annual and Quarterly Reports (Regulation S-K, Item 512(e))
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of rule 14a-3 or rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
article 3 of regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
Rule 415 Offerings: Post-Effective Amendments (Regulation S-K, Item 512(a))
The undersigned Registrant will:
(1) File, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to include any
additional or changed material information on the plan of distribution.
(2) For the purpose of determining liability under the Securities
Act, treat each such post-effective amendment as a new registration
statement of the securities offered, and the offering of such securities at
that time to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the offering.
Indemnification (Regulation S-B, Item 512(h))
Insofar are indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer, or controlling person of the small business issuer
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Lakewood, state of Colorado, on the 14th day of May,
1996.
FORELAND CORPORATION
(Registrant)
By /s/ N. Thomas Steele
----------------------------
N. Thomas Steele, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints N. Thomas Steele and Bruce C. Decker, and each of
them, with power of substitution, as his attorney-in-fact for him, in all
capacities, to sign any amendments to this Registration Statement and to file
the same with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitutes may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the 14th day of May, 1996.
/s/ N. Thomas Steele
- -----------------------------
N. Thomas Steele, Director and President
(Principal Executive, Financial and
Accounting Officer)
/s/ Grant Steele
- -----------------------------
Dr. Grant Steele, Director
/s/ Kenneth L. Ransom
- -----------------------------
Kenneth L. Ransom, Director
- -----------------------------
Bruce C. Decker, Director
/s/ Dennis J. Gustafson
- -----------------------------
Dennis J. Gustafson, Director