As Filed: January 16, 1997 SEC File No. 333-19063
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
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 (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
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(2)
- ---------------------------------------------------------------------------------------------
Common Stock(3) 1,159,651 $4.875 $5,653,299 $1,736
- ---------------------------------------------------------------------------------------------
[FN]
(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 $4.875 as of January 10, 1996 (rule 457(c)).
(2) The Company has previously paid a registration fee of $1,734 relating to
the sale of 1,158,151 shares of Common Stock at an estimated price of
$4.94, for a total of $5,721,266.
(3) Consists of 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.
Page 1 of pages.
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Exhibit index appears on consecutive page number .
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Subject to Completion - Preliminary Prospectus Dated January 15, 1997
FORELAND CORPORATION
Common Stock
This Prospectus relates to the public offer and sale by certain
stockholders (the "Selling Stockholders") of an aggregate of up to 971,519
shares of common stock, par value $0.001 per share (the "Common Stock"), of
Foreland Corporation, a Nevada corporation (the "Company"), plus up to an
additional 188,132 shares of Common Stock that may be issued as a result of a
decrease in the market price of the Common Stock and other factors. (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 a Selling Stockholder 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 January 10, 1996, the closing sales
price for the Company's Common Stock on Nasdaq was $4.875.
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" on page 8.)
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.
Proceeds to
Price to Offering Selling Proceeds to
Public(1) Commissions(2) Stockholders Company(3)
By Selling Stockholders
Per Share $ 4.875 -- $ 4.875 --
Total(4) $4,736,155 -- $4,736,155 --
[FN]
(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 $4.875 on January 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 "ITEM
5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS" in
the Company's 1995 Form 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. There is no agreement
between the Company and any broker or dealer respecting such sales.
(3) Does not reflect expenses of this offering payable by the Company estimated
at $20,000. (See "PLAN OF DISTRIBUTION" below.)
(4) The total figures reflect an aggregate of 971,519 shares of Common Stock
issuable by the Company on conversion of the 1996-4 Preferred Stock and
exercise of warrants as if currently convertible and exercisable and based
on the current market price of the Common Stock. An additional 188,132
shares of Common Stock are being registered to cover any additional shares
issuable due to a decrease in the market price of the Common Stock at the
conversion date and other factors.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation, or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
The date of this Prospectus is , 1997.
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The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. However, the Company will receive proceeds upon the
exercise of 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.)
ADJUSTMENTS FOR RECENT STOCK SPLIT
All share and per share data in this Prospectus have been adjusted to
reflect a 3-for-1 reverse stock split of the Common Stock effective on June 15,
1996.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's annual report on Form 10-K for the year ended December 31,
1995 ("1995 Form 10-K"), quarterly reports on Form 10-Q for the quarters ended
March 31, 1996 ("March 1996 Form 10-Q"), June 30, 1996 ("June 1996 Form 10-Q"),
and September 30, 1996 ("September 1996 Form 10-Q"), and current reports on Form
8-K dated November 16, 1996, as amended January 8, 1997, and dated December 27,
1996, are 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 Building, 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"). The Company has filed with the Securities and Exchange
Commission a Registration Statement on Form S-3 under the Securities Act of
1933, as amended. For the purposes hereof, the term "Registration Statement"
means the original Registration Statement and any and all amendments thereto.
This prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, to which reference hereby is
made. Each statement made in this prospectus concerning a document filed as an
exhibit to the Registration Statement is qualified in its entirety by reference
to such exhibit for a complete statement of its provisions. Any interested
party may inspect the Registration Statement and its exhibits, as well as the
other reports and information filed by the Company, without charge, at the
public reference facilities of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at its regional offices at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, Suite 1300,
New York, New York 10048. Any interested party may obtain copies of all or any
portion of the Registration Statement and its exhibits we well as the other
reports and information filed by the Company at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In addition, the SEC
maintains an internet site that contains reports, proxy and information
statements and other information regarding the Company and other registrants
that file electronically with the SEC at http://www.sec.gov.
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.
Unless otherwise indicated, all information herein relating to oil and gas
reserves has been calculated in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC").
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, and the Ghost Ranch field in
Railroad Valley, all 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 1,500 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 165,800 gross acres under
lease. The leasing program continues as the Company acquires leases in
favorable new prospect areas and relinquishes leases with less potential.
Effective in March 1993 the Company entered into an agreement with
Enserch/Berry that designated 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 provided 50% of the required funds for drilling and acquiring
additional acreage and data. In July 1996, the Company negotiated an agreement
to terminate the exploration agreement with Enserch/Berry. The new agreement
requires Enserch/Berry to assign to the Company all of their interest in 46,400
gross acres in Pine, Little Smoky, and Antelope Valleys. The Company also
received all of the right, title and interest to over 57 line miles of jointly
acquired seismic data in those valleys, a license to over 61 miles of
Enserch/Berry proprietary seismic, and an option to acquire an additional 100
miles of seismic in Pine Valley, Nevada.
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 its agreement with
Barrett, as discussed below, 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 "ITEM 1. BUSINESS-Eagle Springs" in the Company's 1995 Form 10-K.)
In August 1994, the Company entered into an agreement with Barrett under
which Barrett 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 elected to
earn an interest in the Company's acreage in an area of mutual interest in the
North Humbolt prospect, but declined further participation in the Dixie Flats
prospect in Huntington Valley and in the Pine Valley 3-D survey. (See "ITEM 1.
BUSINESS-Barrett Agreement" in the Company's 1995 Form 10-K.) On November 15,
1996, the Company acquired the 40% interest in the Eagle Springs field then held
by Barrett, resulting in the Company owning 100% of the Eagle Springs field.
The source of the $2.4 million purchase price was approximately $1.4 million
from net proceeds received from the sale of equity securities during November
1996, and $1 million drawn under the Company's recently established bank credit
facility with Colorado National Bank, Denver, Colorado.
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.
The Company has tied onto an existing production string and has completed
testing the Deadman Creek #44-13 well drilled in Toano Draw on acreage on which
the Company holds a lease under an agreement with P&P. Oil has been tested at
rates of 20 to 40 barrels per day. The oil is high gravity and low pour point.
Based on the test results, the Company is acquiring the surface equipment
required to place this well into production, which should commence by May 1997.
The Ghost Ranch #48-35 discovery well that reached total depth in late July
1996, has been tested at an average of approximately 700 barrels of oil per day
during simulated production testing, which included hot diesel injection and
swabbing. During September 1996, while awaiting the installation of surface
production equipment, the well was free flow tested at a continuously increasing
rate from 160 to nearly 500 barrels of oil per day. Tank battery construction
was completed in mid-November and the well is now flowing at a rate of 200 to
250 barrels of oil per day. The Ghost Ranch #58-35 well, the first offset to
the Ghost Ranch #48-35 discovery well, initially demonstrated excellent fluid
deliverability, with test rates in excess of 5,000 barrels of fluid per day.
However, after testing the heavy, viscous oil and water from the well, the
Company determined that the water cut was too high to economically produce and
the well was plugged. Future drilling is planned to evaluate this reservoir in
an updip position. The Ghost Ranch #38-35 well has been permitted west of the
Ghost Ranch #48-35 discovery well to test the same reservoir that produces at
the discovery well. The Company began drilling the Ghost Ranch #38-35 well in
mid-January 1997. The Company has a 60% working interest in the Ghost Ranch
field and is the operator. Barrett continues to hold the remaining 40% working
interest.
The Pine Creek exploration well encountered oil and gas shows in several
zones and the Devonian carbonates and Tertiary sections to a depth of
approximately 9,700 feet. A high gravity, low pour point oil was recovered from
the well, but the water cut was too high to economically produce the well. The
Company and each other owner of the working interests have agreed to obtain 3-D
seismic data of a 16.75 square mile area which will be used to locate further
drill sites. The Company has a 56.25% working interest in this project.
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, Amoco,
and Chevron, all Nevada oil exploration pioneers. (See "ITEM 10. DIRECTORS AND
EXECUTIVE OFFICERS OF REGISTRANT" in the Company's 1995 Form 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.
Recent Sale of Securities
1996 Preferred Stock. The Company issued 500 shares of preferred stock
designated as the 1996 Series 6% Convertible Preferred Stock (the "1996
Preferred Stock") in an offering completed in March 1996 for which the Company
received net proceeds of approximately $448,000. The Company issued to the
placement agent in such offering 25 shares of 1996 Preferred Stock and warrants
to purchase 18,234 shares of Common Stock at an exercise price of $4.50, after
giving effect to the reverse stock split, subject to adjustment in certain
circumstances based on the market price of the Common Stock at the time of
exercise. All but 12.5 shares of the 1996 Preferred Stock were subsequently
converted into 197,945 shares of Common Stock (including accrued dividends).
The 12.5 shares of 1996 Preferred Stock remaining outstanding, with an aggregate
liquidation preference of $12,500, are convertible at any time before March 31,
1998, into 3,333 shares of Common Stock, after giving effect to the reverse
stock split, subject to adjustment in certain circumstances based on the market
price of the Common Stock at the time of conversion.
1996-2 Preferred Stock. The Company issued 1,700 shares of 1996-2
Preferred Stock in an offering completed in May 1996 for which the Company
received net proceeds of approximately $1,640,500. All of the shares of 1996-2
Preferred Stock were subsequently converted into 708,590 shares of Common Stock
(including accrued dividends).
1996-3 Preferred Stock. The Company issued 2,775 shares of 1996-3
Preferred Stock in an offering completed in July 1996 for which the Company
received net proceeds of approximately $2,509,000. All of the shares of 1996-3
Preferred Stock were subsequently converted into 815,936 shares of Common Stock
(including accrued dividends).
1996-4 Preferred Stock. The Company issued 255 shares of 1996-4 Preferred
Stock in an offering completed in November 1996 for which the Company received
net proceeds of approximately $2,310,000. The 1996-4 Preferred Stock becomes
convertible 15% on March 20, 1997, and 15% each month thereafter; provided that,
until September 20, 1997, no more than 20% of the aggregate number of shares may
be converted during any 30 day period. All of the 1996-4 Preferred Stock will
be automatically converted on November 20, 1998. Each share of 1996-4 Preferred
Stock is convertible into 1,333 shares of Common Stock, plus an accretion at 8%
per annum, subject to adjustment in certain circumstances based on the market
price of the Common Stock at the time of conversion. The Company will issue to
each holder of 1996-4 Preferred Stock who converts his or her shares after
November 20, 1997, a warrant (the "Investor Warrants") to purchase a number of
shares of Common Stock, depending on the dates on which such shares of 1996-4
Preferred Stock are converted. Each share of 1996-4 Preferred Stock converted
on November 20, 1997, will entitle the holder thereof to receive an Investor
Warrant to purchase 1,111 shares of Common Stock at an exercise price of $9.00
per share. The number of shares and the exercise price of the Investor Warrants
issued thereafter shall be adjusted ratably each day until November 20, 1998,
when each share of 1996-4 Preferred Stock converted on such date will entitle
the holder thereof to receive an Investor Warrant to purchase 1,333 shares of
Common Stock at an exercise price of $7.50 per share.
The Company issued to the placement agent in the 1996-4 Preferred Stock
offering warrants (the "Placement Agent Warrants") to purchase 29,353 shares of
Common Stock at an exercise price of $7.50 per share, subject to adjustment in
certain circumstances based on the market price of the Common Stock at each
anniversary date of the issuance of the Placement Agent Warrants.
This Prospectus relates to the resale of the Common Stock issuable by the
Company on the conversion of the 1996-4 Preferred Stock and on exercise of the
Investor Warrants and the Placement Agent Warrants.
(See "DESCRIPTION OF SECURITIES" below.)
Capitalization
The following table shows the capitalization of the Company as of September
30, 1996, and as adjusted to give effect to the issuance of 40,528 shares of
Common Stock on conversion of outstanding shares of Preferred Stock, the
issuance of 1,500 shares of Common Stock for services rendered to the Company,
the issuance of 194,594 shares of Common Stock on exercise of warrants for net
proceeds of approximately $858,000 and the application of the net proceeds
therefrom, and the issuance of 255 shares of 1996-4 Preferred Stock for net
proceeds of approximately $2,310,000 and the application of the proceeds
therefrom:
September 30, 1996
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Historical As Adjusted
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Current portion of long term debt $ 4,684 $ 4,684
============ ===========
Long term debt, net of current portion $ 19,539 $ 19,539
------------ -----------
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, 177,140 and 165,140
shares issued and outstanding, respectively 177 165
1995 Convertible Redeemable Preferred Stock, 713,334 and 613,334
shares issued and outstanding, respectively 713 613
1996 Series 6% Convertible Preferred Stock, 25 and 12.5 shares
issued and outstanding, respectively -- --
1996-4 Series Preferred Stock, 0 and 255 shares issued and
outstanding, respectively -- --
Common Stock, par value $0.001 per share, 50,000,000 shares
authorized, 7,003,055 and 7,238,177 shares outstanding
issued and outstanding, respectively 7,003 7,240
Additional paid in capital 28,673,875 31,868,957
Less note and stock subscriptions receivable (1,144,434) (1,144,434)
Accumulated deficit (20,700,021) (20,700,021)
------------ ------------
Total stockholders' equity 6,837,353 10,032,560
------------ -----------
Total capitalization $ 6,856,892 $10,052,099
============ ===========
The Offering
Securities offered by Selling Stockholders............. 971,519 shares of Common Stock(1)
Common Stock outstanding before the offering........... 7,239,677 shares
Common Stock outstanding after the offering............ 8,209,696 shares(1)
Common Stock reserved for issuance..................... 2,576,036 shares(2)
Fully diluted Common Stock............................. 10,785,732 shares(2)
Nasdaq Symbols:
Common Stock ......................................... FORL
[FN]
(1) Of the 971,519 shares of Common Stock offered by Selling Stockholders,
970,019 shares, plus up to an additional 188,132 shares that may be issued
in certain circumstances, are issuable on conversion of the 1996-4
Preferred Stock or exercise of the Investor Warrants and the Placement
Agent Warrants. The figures in the table assume that all of the 1996-4
Preferred Stock is converted at a conversion price equal to the current
market price of the Common Stock and that Investor Warrants were issued as
if all of the 1996-4 Preferred Stock were converted on November 20, 1997.
If all of the 1996-4 Preferred Stock is converted into Common Stock on or
after November 20, 1997, and all Investor Warrants and Placement Agent
Warrants in this offering are exercised, the Company would receive gross
proceeds of $2,770,145.
(2) Consists of (i) up to 276,157 shares of Common Stock issuable on the
conversion of outstanding shares of Preferred Stock; (ii) up to 1,775,549
shares of Common Stock issuable on the exercise of outstanding options and
warrants at a weighted average exercise price of $10.27 per share; and
(iii) up to 524,330 shares of Common Stock issuable on the exercise of
outstanding options subject to vesting requirements at a weighted average
exercise price of $4.94 per share. (See "ITEM 11. EXECUTIVE
COMPENSATION," "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT," and "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS," in the Company's 1995 Form 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 1996-4 Preferred Stock and warrants
held by or to be issued to 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 Prospectus. The Company will receive
no net proceeds from the conversion of the 1996-4 Preferred Stock or from the
sale by the Selling Stockholders of the Common Stock issuable on such conversion
or exercise. Proceeds received by the Company on the exercise of warrants,
aggregating $2,770,145 if all 1996-4 Preferred Stock is converted on or after
November 20, 1997, and all warrants held by or to be issued to 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 2,299,879 shares of Common Stock, the
Company would receive proceeds of $20,818,711. 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.)
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 and financial data set forth herein or incorporated herein by
reference, the following risk factors before making an investment in the Common
Stock.
This document and all Company disclosures, including periodic reports filed
with the Commission, contain certain forward-looking statements and information
relating to the Company that are based on the beliefs of Company management as
well as assumptions made by and information currently available to Company
management. When used herein and in other Company disclosures, the words
"anticipate," "believe," "estimate," "expect," "intend," and similar
expressions, as they relate to the Company or Company management, are intended
to identify forward-looking statements. Such statements reflect the current
views of the Company with respect to future events and are subject to certain
risks, uncertainties and assumptions, including the risk factors described
below. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, or intended. The Company does not intend to update these forward-
looking statements.
Risks Related to the Business of the Company
Concentration of Risks Resulting From Barrett Acquisition
Prior to the acquisition of the 40% interest in the Eagle Springs field
from Barrett, the Company diversified the economic risks associated with
drilling and the other activities in the Eagle Springs field because, as a 40%
working interest owner, Barrett was responsible for 40% of all costs. As a
result of the acquisition of Barrett's interest in November 1996, the Company
assumed the cost and associated risk of 100% of operations in the Eagle Springs
field.
Company's Ability to Continue as a Going Concern/Shortages of Working
Capital and Continuing Losses
The Company has incurred losses of $20,700,021 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, with a loss of
$2,275,565 for the year ended December 31, 1995, and a loss of $1,426,544 for
the first nine months of 1996. The Company anticipates continuing losses
through the balance of 1996. Based on current production and oil prices,
management believes that its production revenue is now sufficient to meet its
fixed and recurring operating costs. 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
"ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" and "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION" in the Company's 1995 Form 10-K and March, June, and September 1996
Form 10-Qs.)
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. At September 30, 1996, oil and
gas properties included approximately $450,000 related to a well in progress
that was subsequently evaluated as a dry hole. Accordingly, these costs will be
charged to operations in the fourth quarter of 1996. 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 "ITEM 1. BUSINESS-Oil Properties" in the Company's 1995
Form 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. If such a participant 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 drilling.
Limited Production Revenue
The Company has only recently established revenue from oil production from
its Eagle Springs, Nevada, property acquired during 1993, and its Ghost Ranch
field. Production from current wells is inadequate to cover any costs of
exploration. However, based on current production and oil prices, management
believes that its production revenue is now sufficient to meet its current fixed
and recurring operating costs. There can be no assurance, however, that ongoing
oil production in commercial quantities will continue, that oil prices will not
decrease dramatically, or that oil reserves will be proved as a result of the
Company's exploration efforts. (See "ITEM 1. BUSINESS" in the Company's 1995
Form 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 Ghost Ranch
discovery well, which was placed into production recently, is the first
exploration test by the Company that has resulted in significant ongoing
production. The oil production from the Eagle Springs field was acquired by the
Company in 1993 and, except for the increased production resulting from certain
reworking of existing wells and the development wells drilled by the Company,
did not result from the Company's exploration or drilling activities. Although
the Company began to receive oil production revenue from the Eagle Springs field
in early 1994 and from the Ghost Ranch well in mid-1996, the Company's success
will continue to depend on the results of drilling, evaluation, and testing of
its various prospects. (See "ITEM 1. BUSINESS" in the Company's 1995 Form 10-K
and "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" in the Company's 1995
Form 10-K and March, June, and September 1996 Form 10-Qs.)
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 "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION" in the Company's 1995 Form 10-K
and March, June, and September 1996 Form 10-Qs.)
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 and Ghost Ranch 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 and Ghost Ranch 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 "ITEM 1. BUSINESS" in the Company's 1995 Form
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 "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT" in
the Company's 1995 Form 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 "ITEM 1. BUSINESS-Oil Properties" in the Company's 1995
Form 10-K.)
Uncertainty of Reserve Estimates and Future Net Revenues
There are numerous uncertainties inherent in estimating quantities of
proved oil reserves. The estimates in the 1995 Form 10-K which are incorporated
into this Prospectus are based on various assumptions relating to rates of
future production, timing and amount of development expenditures, oil prices and
the results of planned development work. Actual future production rates and
volumes, revenues, taxes, operating expenses, development expenditures and
quantities of recoverable oil reserves may vary substantially from those assumed
in the estimates. Any significant change in these assumptions, including
changes that result from variances between projected and actual results, could
materially and adversely affect future reserve estimates. In addition, such
reserves may be subject to downward or upward revision based upon production
history, results of future development, prevailing oil prices and other factors.
(See "ITEM 2. PROPERTIES" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION-Liquidity and Capital Resources" in
the 1995 Form 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. Oil prices have increased
materially during 1996, but there can be no assurance that such prices will
continue. Oil and gas prices have been and are likely to continue to be
volatile and subject to wide fluctuations in response to any of the following
factors: relatively minor changes in the supply of and demand for oil and gas;
market uncertainty; political conditions in international oil producing regions;
the extent of domestic production and importation of oil; the level of consumer
demand; weather conditions; the competitive position of oil or gas as a source
of energy as compared with coal, nuclear energy, hydroelectric power, and other
energy sources; the refining capacity of prospective oil purchasers; the effect
of federal and state regulation on the production, transportation and sale of
oil; and other factors, all of which are beyond the control or influence of the
Company. In an effort to limit the adverse effects of extreme declines in oil
prices, the Company has entered into agreements with Crysen Refining, Inc., Salt
Lake City, Utah, to sell oil from its currently producing fields through August
1997 at minimum fixed prices, and with Petro Source Corporation, Salt Lake City,
Utah, to sell oil from a portion of the Ghost Ranch field through August 1997.
Notwithstanding these agreements, adverse changes in the market or regulatory
environment would likely have an adverse effect on the Company's ability to
obtain funding from lending institutions, industry participants, the sale of
additional securities, and other sources. (See "ITEM 1. BUSINESS-Oil
Properties" in the Company's 1995 Form 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 "ITEM 1. BUSINESS-Operational Hazards and Insurance" in the Company's 1995
Form 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 "ITEM 1.
BUSINESS-Competition and Markets" in the Company's 1995 Form 10-K.)
Environmental and Other Governmental Regulation
Oil and gas exploration and production are subject to comprehensive
federal, state, and local laws and regulations controlling the exploration for
and production and sale of oil and gas 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 which may require the Company to limit
substantially, delay or cease operations in some circumstances or subject the
Company to various governmental controls. From time to time, regulatory
agencies have proposed or imposed price controls and limitations on production
by restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. Because federal energy
and taxation 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 "ITEM 1. BUSINESS-Government Regulation" in the Company's 1995
Form 10-K.)
General Risks Relating to Offering
Volatility of Common Stock
The market price for the Common Stock has been volatile in the past and
could fluctuate significantly in response to the results of specific exploration
drilling tests, variations in quarterly operating results, and changes in
recommendations by securities analysts. Further, the trading volume of the
Common Stock is relatively small, and the market for the Common Stock may not be
able to efficiently accommodate significant trades on any given day.
Consequently, sizable sales or purchases of the Common Stock have in the past,
and may in the future, cause volatility in the market price of the Common Stock
to a greater extent than in other more actively traded securities. Until more
trading volume develops, larger transactions may not be able to be closed at the
then current market price for the Common Stock. In addition, the securities
markets regularly experience significant price and volume fluctuations that are
often unrelated or disproportionate to the results of operations of particular
companies. These broad fluctuations may adversely affect the market price of
the Common Stock. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS" in the Company's 1995 Form 10-K.
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 957,670
shares of Common Stock with exercise prices ranging from $3.93 to $9.00 per
share. Options to purchase a total of 94,000 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
126,666 shares of Common Stock at prices ranging from $3.75 per share to $9.75
per share and warrants to purchase a total of 630,025 shares of Common Stock at
a weighted average exercise price of $19.47 per share, including warrants held
by Selling Stockholders to purchase 29,353 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 and warrants 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 "ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" in the Company's 1995 Form 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, 7,239,677 shares of Common Stock were
issued and outstanding, and 3,734,187 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, to issue all or part of the authorized but
unissued shares. Any such issuance will dilute the 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, 165,140 shares of
1994 Preferred Stock, 613,334 shares of 1995 Preferred Stock, 12.5 shares of
1996 Preferred Stock, and 255 shares of 1996-4 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, the
1996 Preferred Stock has a liquidation preference of $1,000 per share and the
1996-4 Preferred Stock has a liquidation preference of $10,000 per share. On
liquidation or termination of the Company, an aggregate of $3,862,781 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 Preferred Stock
and 1996-4 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. Shareholders of the Company would have the right to
nominate their own candidates for election as directors at such meeting in
addition to the nominees of the Company for election as directors. Other
business could also be acted on at such a meeting as the shareholders may
determine. As a result, it is possible that the current directors and
management could be replaced and Company policies changed. The Company has
agreed to hold an annual meeting of shareholders on or before June 30, 1997.
Determination of Purchase and Exercise Price
The conversion ratio of the outstanding Preferred Stock and the exercise
prices of the outstanding options and warrants 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
or to be issued to 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 issuable on such conversion or
exercise. Proceeds received by the Company on the exercise of warrants,
aggregating $2,770,145, if all warrants held by or to be issued to 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 2,299,879 shares of Common
Stock, the Company would receive proceeds of $20,818,711. 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, the Company's
quarterly report on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996, and September 30, 1996, 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 $10,025,132, with 7,239,677 shares of Common Stock issued
and outstanding, or approximately $1.38 per share. The pro forma net tangible
book value per share decreases to $0.85 after deducting liquidation preferences
of an aggregate of $3,862,781 with respect to the shares of outstanding 1991,
1994, 1995, 1996, and 1996-4 Preferred Stock. The pro forma net tangible book
value is determined by adjusting the net tangible book value of the Company as
of September 30, 1996, to give pro forma effect to the subsequent issuance of
40,528 shares of Common Stock on conversion of outstanding shares of Preferred
Stock, 1,500 shares of Common Stock for services rendered to the Company,
194,594 shares of Common Stock on exercise of Warrants for net proceeds of
approximately $858,000, and 255 shares of 1996-4 Preferred Stock for net
proceeds of approximately $2,310,000. (See "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" in the Company's 1995 Form 10-K and March, June, and
September 1996, Form 10-Qs.)
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 and 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 970,019 shares of Common Stock to be sold in this
offering (without giving effect to the issuance of an additional 188,132 shares
that may be issued in certain circumstances), the Company would have a net
tangible book value of $11,482,495, or approximately $1.40 per share, which
represents a reduction of $3.475 per share from the closing sales price of
$4.875 for the Company's Common Stock on Nasdaq on January 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.
The Selling Stockholders named below confirmed at the time they acquired
the Preferred Stock and the Warrants that such securities were acquired for
investment purposes only and without a view toward their resale and acknowledged
the existence of restrictions on resale applicable to such securities. Such
Selling Stockholders can sell such securities only in limited circumstances.
The Company is not aware of any intention by any Selling Stockholder to sell
such Preferred Stock or Warrants prior to their conversion or exercise. This
offering relates only to the sale of shares of Common Stock held or to be held
by the Selling Stockholders named in the following table. If a Selling
Stockholder sells the Preferred Stock or Warrants held by such Selling
Stockholder prior to converting or exercising such securities into shares of
Common Stock, such shares of Common Stock will not be registered and may not be
resold pursuant to this offering.
Shares Owned
Securities Owned Prior to the Offering(1) After Offering
1996-4
1996-4 1996-4 Placement Shares
Common Preferred Investor Agent to be
Selling Stockholders Stock Stock(2) Warrants(3) Warrants(4) Offered Number %
Glenn A. Adams -- -- -- 1,500 1,500 -- --
Banque Scandinave en Suisse -- 103,111 44,444 -- 147,555 -- --
Barrow Street Research, Inc. 1,500 -- -- -- 1,500 -- --
Dunwoody Brokerage Services, Inc. -- -- -- 1,500 1,500 -- --
Enigma Investments, Ltd. -- -- -- 2,067 2,067 -- --
Global Bermuda, L.P. -- 154,667 66,667 -- 221,334 -- --
P. Bradford Hathorn -- -- -- 1,000 1,000 -- --
Davis C. Holden -- -- -- 500 500 -- --
Kendrick Family Partnership, L.P. -- -- -- 9,893 9,893 -- --
Lakeshore International, Ltd. -- 103,111 44,444 -- 147,555 -- --
Legong Investments, N.V. -- 128,889 55,556 -- 184,445 -- --
The Matthew Fund, N.V. -- 103,111 44,444 -- 147,555 -- --
Otato Limited Partnership -- 64,444 27,778 -- 92,222 -- --
Swartz Family Partnership, L.P. -- -- -- 9,893 9,893 -- --
Bruce Tate -- -- -- 2,000 2,000 -- --
Charles Whiteman -- -- -- 1,000 1,000 -- --
Total 1,500 657,333 283,333 29,353 971,519 -- --
===== ======= ======= ====== ======= == ==
[FN]
(1) Shares owned prior to the offering include all shares of Common Stock, if
any, and underlying securities convertible or exercisable into shares of
Common Stock owned by or issuable to 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 by all Selling
Stockholders.
(2) The 1996-4 Preferred Stock becomes convertible 15% on March 20, 1997, and
15% each month thereafter; provided that, until September 20, 1997, no more
than 20% of the aggregate number of shares may be converted during any 30
day period. All of the 1996-4 Preferred Stock will be automatically
converted on November 20, 1998. Each share of 1996-4 Preferred Stock is
convertible into 1,333 shares of Common Stock, plus an accretion at 8% per
annum, 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.) The figures shown in the table reflect the shares of
Common Stock issuable by the Company on conversion of the 1996-4 Preferred
Stock as if currently convertible and based on the current market price of
the Common Stock. An additional 131,466 shares of Common Stock are
registered to satisfy the Company's obligation to register twice the number
of shares issuable on conversion at an assumed $7.50 per share conversion
price. The figures shown reflect the number of shares of Common Stock into
which the 1996-4 Preferred Stock is convertible and not the actual number
of shares of 1996 Preferred Stock issued and outstanding. Such shares of
1996-4 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.
(3) Consists of Investor Warrants issuable to holders of 1996-4 Preferred Stock
who convert their shares on or after November 20, 1997. The number of
shares of Common Stock subject to such Investor Warrants will depend on the
dates on which the holders convert their shares of 1996-4 Preferred Stock.
Each holder who converts his or her 1996-4 Preferred Stock on November 20,
1997, shall be entitled to receive Investor Warrants to purchase 1,111
shares of Common Stock at an exercise price of $9.00 per share for each
share of 1996-4 Preferred Stock converted on that date. The number of
Investor Warrants issuable and the exercise price shall be adjusted ratably
each day over the following year until November 20, 1998, at which time
each holder of 1996-4 Preferred Stock who converts his or her shares on
such date shall receive Investor Warrants to purchase 1,333 shares of
Common Stock at an exercise price of $7.50 per share for each share of
1996-4 Preferred Stock converted on such date. The figures shown in the
table reflect the shares of Common Stock issuable by the Company on
exercise of the Investor Warrants as if all 1996-4 Preferred Stock were
converted on November 20, 1997. An additional 56,666 shares of Common Stock
are registered to provide sufficient shares in the event all of the 1996-4
Preferred Stock were converted on November 20, 1998. The Investor 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.
(4) Consists of warrants to purchase 29,353 shares of Common Stock by the
designees of the placement agent in the 1996-4 Preferred Stock Offering at
an exercise price of $7.50, subject to adjustment in certain circumstances
based on the market price of the Common Stock at each anniversary date of
the issuance of the Placement Agent Warrants. Such Placement Agent
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.
CERTAIN RECENT EVENTS
Reverse Stock Split
Effective June 15, 1996, the Company effected a three-to-one reverse stock
split of the Company's issued and outstanding stock. All share and per-share
amounts in this prospectus have been adjusted to give effect to such stock
split.
Sale of Additional Securities
Since September 30, 1996, the Company has received an aggregate of
approximately $2,310,000 in net proceeds from the sale of additional securities
consisting of 255 shares of 1996-4 Preferred Stock. The resale of the Common
Stock issuable upon the conversion of the 1996-4 Preferred Stock has been
registered for resale in this offering.
Establishment of Credit Facility
In November 1996, the Company established a credit facility with Colorado
National Bank, Denver, Colorado, for a total loan amount of $10,000,000, with
the maximum amount that can be outstanding at any one time determined twice
yearly by the bank based on its analysis of the Company's cash flows and proved
producing reserves. The initial commitment amount is $2,000,000. Amounts due
under this credit facility are secured by the Company's Eagle Springs field.
The Company drew $1,000,000 under the credit facility in November 1996 to
provide a portion of the funds required to acquire Barrett's 40% interest in the
Eagle Springs field. The remainder of such funds required for such acquisition
were provided from a portion of the net revenues from the sale of the 1996-4
Preferred Stock.
Acquisition of 40% Interest in Eagle Springs Field
On November 15, 1996, the Company acquired the 40% interest in the Eagle
Springs field then held by Barrett, resulting in the Company owning 100% of the
Eagle Springs field. The source of the $2.4 million purchase price was
approximately $1.4 million from net proceeds received from the sale of equity
securities during November 1996, and $1 million drawn under the Company's
recently established bank credit facility with Colorado National Bank, Denver,
Colorado.
Certain Accounting Treatment
In connection with the sales of Preferred Stock in 1996, the Company
expects to report a noncash charge against earnings (loss) available to common
stockholders of approximately $1,700,000 during 1996. This charge relates to
the discounted price for the shares of Common Stock issuable on conversion of
the Preferred Stock, and will only impact the calculation of earnings per share
related to the Common Stock.
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 Shares of Price Per Share of
Common Stock or Common Stock or
Common Stock Common Stock
Description Equivalent Equivalent
Preferred Stock
1991 Series 13,334 $3.75
1994 Series 55,047 $6.00
1995 Series 204,443 $4.50
1996 Series 3,333 * $3.75 *
1996-4 Series 657,333 * $4.50 *
Warrants to purchase Common Stock 17,450 $4.50
29,353 $7.50
169,222 $12.00
414,000 $24.00
Options to purchase Common Stock 10,000 $3.75
22,667 422,000 $3.93
128,000 $4.00
150,000 $4.50
1,667 $5.00
216,667 $5.63
100,000 $6.375
6,666 $6.90
3,333 $7.50
20,000 $7.88
3,333 $9.00
$9.75
[FN]
*Based on an assumed trading price of the Common Stock of $5.00 per share,
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, 165,140 shares designated as 1994 Series Convertible Redeemable
Preferred Stock, 613,334 shares designated as the 1995 Series Convertible
Preferred Stock, 12.5 shares designated as the 1996 Series 6% Convertible
Preferred Stock, and 255 shares designated as the 1996-4 Series 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 Common
Stock for each three shares of Preferred Stock, after giving effect to the 3-
for-1 reverse stock split of the 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 each three shares 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
$4.50 or 75% of the closing bid price of the Common Stock as reported on Nasdaq
on the day preceding the date of conversion. The 1996-4 Preferred Stock is
convertible, at the election of the holder, into the Company's Common Stock at
the rate of one share of 1996-4 Preferred Stock for the number of shares of
Common Stock determined by dividing $10,000, plus an accretion at 8% per annum,
by the lesser of $7.50 or a percentage of the average closing bid price of the
Common Stock as reported on Nasdaq for the five days preceding the date of
conversion. Such percentage is 90% of the 1996-4 Preferred Stock if converted
after March 20, 1997, and before May 20, 1997, 85% if after May 20, 1997, and
before November 20, 1997, and 82.5% if after November 20, 1997.
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, the 1996 Preferred Stock carries a liquidation
preference of $1,000 per share and the 1996-4 Preferred Stock carries a
liquidation preference of $10,000 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 Preferred Stock
and 1996-4 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 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 Preferred Stock is
entitled to a 6% dividend payable in cash in the event the 1996 Preferred Stock
is redeemed or in additional shares of Common Stock upon the conversion of the
1996 Preferred Stock. The 1996-4 Preferred Stock is entitled to an 8% accretion
payable in additional shares of Common Stock upon the conversion of the 1996-4
Preferred Stock or in cash if the 1996-4 Preferred Stock is redeemed.
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 1996-4
Preferred Stock is redeemable at $13,000 per share at any time after November
20, 1997, through May 20, 1998, and at $12,500 thereafter. The 1996-4 Preferred
Stock will automatically convert into shares of Common Stock on November 20,
1998. 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 issuable on
conversion of the 1996-4 Preferred Stock. Additional shares of Common Stock
above the number of shares issuable at a conversion price equal to the current
market value of the Common Stock have been registered to cover any potential
decrease in such market price at the conversion date.
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.
$4.50 Warrants. The Company has issued and outstanding warrants to
purchase 8,333 shares of Common Stock at an exercise price of $4.50 per share
which expire in June 2000.
L Warrants. The Company intends to issue to the record holders of the
class L Warrants on December 12, 1996, on which date such warrants expired
pursuant to their terms, warrants to purchase 414,000 shares of Common Stock at
$12.00 per share. The warrants will become exercisable through December 31,
1998, contemporaneous with the effectiveness of a registration statement
covering the issuance of shares of Common Stock upon such exercise. The
warrants may only be exercised pursuant to a prospectus relating to an effective
registration statement covering such exercise.
M Warrants. The Company has issued and outstanding 507,666 M Warrants.
Giving effect to the reverse stock split, the M Warrants entitle the holder to
purchase one share of Common Stock for each three M Warrants held at $12.00 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 $12.00 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 warrants to acquire 9,117 shares of
Common Stock at a price equal to the lesser of $4.50 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.
1996-4 Investor Warrants. The Company will issue to each holder of 1996-4
Preferred Stock who converts his or her shares after November 20, 1997, an
Investor Warrant to purchase a number of shares of Common Stock, depending on
the dates on which such shares of 1996-4 Preferred Stock are converted. Each
share of 1996-4 Preferred Stock converted on November 20, 1996, will entitle the
holder thereof to receive an Investor Warrant to purchase 1,111 shares of Common
Stock at an exercise price of $9.00 per share. The number of shares and the
exercise price of the Investor Warrants issued thereafter shall be adjusted
ratably each day until November 20, 1998, when each share of 1996-4 Preferred
Stock converted on such date will entitle the holder thereof to receive an
Investor Warrant to purchase 1,333 shares of Common Stock at an exercise price
of $7.50 per share. This Prospectus relates to the resale of Common Stock
issuable on exercise of the Investor Warrants.
1996-4 Placement Agent Warrants. The designees of the placement agent in
the 1996-4 Preferred Stock offering have warrants to purchase an aggregate of
29,353 shares of Common Stock at an exercise price equal to the lesser of $7.50
or 125% of the average closing price of the Common Stock as reported on Nasdaq
for the five days preceding each anniversary of the issuance of such warrants.
Such warrants are exercisable at any time prior to November 8, 2001. This
Prospectus relates to the resale of Common Stock issuable on exercise of the
Placement Agent Warrants.
Options
The Company has issued and outstanding options to purchase up to 1,084,333
shares of Common Stock at a weighted average exercise price of $5.08 per share,
including options to purchase 957,667 shares of Common Stock at a weighted
average exercise price of $4.55 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 up to 971,519
shares of Common Stock of the Company, plus an additional 188,132 shares of
Common Stock issuable in certain circumstances, as follows: (i) 1,500 shares of
Common Stock issued for services rendered to the Company (ii) 657,333 shares of
Common Stock issuable on conversion of 255 shares of 1996-4 Preferred Stock,
assuming a conversion price equal to the current market price of the Common
Stock of $4.875 per share, plus up to 131,466 additional shares that may be
issued on such conversion in the event of a lesser conversion price; (iii)
283,333 shares of Common Stock issuable on exercise of 1996-4 Investor Warrants,
plus up to 56,666 additional shares, depending on the date on which such
Investor Warrants are issued, at exercise prices between $7.50 and $9.00 per
share; and (iv) 29,353 shares of Common Stock issuable on exercise of the 1996-4
Placement Agent Warrants at an exercise price of $7.50 per share, subject to
adjustment depending on the trading price of the Common Stock at the anniversary
dates of the issuance of such Warrants. (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 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 report, which are incorporated herein by
reference, and have been so incorporated in reliance upon such report 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 FORELAND CORPORATION
- ------------------------------
Section Page
SUMMARY AND INTRODUCTION . .3 SHARES OF COMMON STOCK
RISK FACTORS ...............8
NO NET PROCEEDS ...........14
THE COMPANY ...............15
DILUTION ..................15
SELLING STOCKHOLDERS ......16
CERTAIN RECENT EVENTS .....17
DESCRIPTION OF SECURITIES .18
PLAN OF DISTRIBUTION ......22
LEGALITY OF SECURITIES ....22 ----------------------
EXPERTS ...................23
PROSPECTUS
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 made,
such information or
representation must not be
relied on as having been
authorized by the Company.
This Prospectus does not
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. January _____, 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses in connection with the
distribution of the securities being registered:
Securities and Exchange Commission registration fee $ 1,734
Legal fees 12,000
State "blue sky" fees and expenses 1,000
(including attorneys' fees)
Accounting fees and expenses 3,000
Printing expenses 1,000
Listing fees 1,266
-------
Total $20,000
=======
All expenses, except the SEC fees, are estimates.
The Selling Shareholder will not bear any portion of the foregoing
expenses, but will pay fees in connection with the sale of the Common Stock
offered hereby in those transactions completed to or through securities broker
and/or dealers in the form of markups, markdowns, or commissions.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 78.037 and 78.751 of the Nevada Revised Statutes and "ARTICLE VII.
INDEMNIFICATION OF DIRECTORS AND OFFICERS" of the Registrant's articles of
incorporation provide for indemnification of the Registrant's directors and
officers in a variety of circumstances, which may include liabilities under the
Securities Act of 1933, as amended.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons pursuant to the
foregoing provisions, the Registrant has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is contrary to
public policy as expressed in the Securities Act and, therefore, is
unenforceable. (See "ITEM 17. UNDERTAKINGS.")
ITEM 16. EXHIBITS
Copies of the following documents are included as exhibits to this
Registration Statement, pursuant to item 601 of regulation S-K.
Exhibits
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 Indentures
Item 4.
4.01 4 Specimen Common Stock Certificate Incorporated by
Reference(1)
4.02 4 Designation of Rights, Privileges, Incorporated by
and Preferences of 1991 Reference(1)
Series Preferred Stock
4.03 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1994 Reference(8)
Series Convertible Preferred Stock
4.04 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1995 Reference(13)
Series Convertible Preferred Stock
4.05 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1996 Reference(14)
Series 6% Convertible Preferred
Stock
4.06 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1996-2 Series 6% Reference(15)
Convertible Preferred Stock
4.07 4 Designation of Rights, Privileges Incorporated by
and Preferences of 1996-3 Series 8% Reference(15)
Convertible Preferred Stock
4.08 4 Certificate of Designation of 1996-4 Incorporated by
Series Preferred Stock Reference(16)
4.09 4 Form of Underwriter's Warrant to Incorporated by
Purchase Units Reference(10)
4.10 4 Warrant Agreement between the Incorporated by
Company and Atlas Stock Transfer Reference(3)
Corporation relating to X and Y
Warrants
4.11 4 Amendment to Warrant Agreement Incorporated by
between the Company and Atlas Stock Reference(9)
Transfer Corporation relating to
X and Y Warrants
4.12 4 Amendment to Warrant Agreement Incorporated by
between the Company and Atlas Reference(10)
Stock Transfer Corporation relating
to X and Y Warrants
4.13 4 Form of Warrant Agreement between Incorporated by
the Company and Atlas Stock Transfer Reference(10)
Corporation relating to L Warrants
4.14 4 Warrant relating to $2.00 Warrants Incorporated by
Reference(10)
4.15 4 Form of Warrant Agreement between Incorporated by
the Company and Atlas Stock Transfer Reference(13)
Corporation relating to M Warrants
4.16 4 Form of Warrants to Kevin L. Spencer Incorporated by
and Jay W. Enyart Reference(15)
4.17 4 Warrant to First Geneva Holdings, Incorporated by
Inc., relating to offering Reference(15)
of 1996 Preferred Stock
4.18 4 Form of Warrant to placement agent Incorporated by
and assigns relating to offer of Reference(16)
1996-4 Series Preferred Stock, with
related schedule
Item 5. Opinion re Legality
5.01 5 Opinion and Consent of Kruse, Landa Original 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 Incorporated by
between the Company and Crysen Reference(8)
Refining, Inc., dated
September 1, 1993 (Nye County,
Nevada)
10.14 10 Crude Oil Purchase Agreement Incorporated by
between the Company and Crysen Reference(8)
Refining, Inc., dated
September 1, 1993 (Eureka County,
Nevada)
10.15 10 Loan Agreement by and among Incorporated by
Foreland Corporation together with Reference(8)
its two subsidiaries Krutex Energy
Corporation and Eagle Springs
Production Limited Liability
Company and CapitalPro
International, Inc., dated
April 30, 1994
10 Letters from Executive Officers Incorporated by
re: Salary deferrals** Reference(13)
10.16
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 Incorporated by
September 29, 1994, between the Reference(10)
Company, Kanowa Petroleum, Inc.,
and D&R Investments
relating to interest in Eagle
Springs lease.
10.21 10 Letter Agreement dated Incorporated by
October 1, 1994, between Krutex Reference(10)
Energy Corporation and Caldera &
Clements Minerals regarding
Lulling Farmout Agreement.
10.22 10 Letter Agreement dated Incorporated by
September 28, 1994, between the Reference(10)
Company and Mobil 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 Incorporated by
to certain options exercised by Reference(10)
officers, with related schedule
10.25 10 Form of Option granted pursuant Incorporated by
to reload provisions of Reference(10)
previously 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 Incorporated by
March 8, 1995 between the Company Reference(13)
and Parsley & Parsley Development,
L.P. regarding Exploration
Agreement.
10.28 10 Form of Letter Agreement dated Incorporated by
March 24, 1995 between the Company Reference(13)
and 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 Reference(13)
1995 Series Preferred Stock and
M Warrants
10.30 10 Crysen Refining, Inc., document Incorporated by
respecting extension of Reference(13)
Crude Oil Purchase Agreement
10.31 10 Form of Registration Agreement Incorporated by
relating to 1996 Series Reference(15)
Convertible Preferred Stock
10.32 10 Amendment and Replacement of Incorporated by
Acreage Exchange and Seismic Reference(15)
Agreement dated September 1, 1995,
between Foreland Corporation,
Hugoton Energy Corporation and
Maxwell Petroleum, Inc.
10.33 10 Form of Revised Executive Incorporated by
Employment Agreement between the Reference(16)
Company and executive officers,
with related schedule**
10.34 10 Form of Nonqualified Stock Options Incorporated by
granted to executive Reference(16)
officers dated July 18, 1996,
with related schedule**
10.35 10 Form of Nonqualified Stock Options Incorporated by
granted to executive officers in Reference(16)
connection with employment
agreements, with related schedule**
10.36 10 Form of Nonqualified Stock Options Incorporated by
granted to employees in connection Reference(16)
with employment agreements,
with related schedule
10.37 10 Form of Registration Rights Incorporated by
Agreement relating to offer Reference(16)
of 1996-4 Series Preferred Stock,
with related schedule
10.38 10 Purchase and Sale Agreement dated Incorporated by
November 14, 1996, between Plains Reference(17)
Petroleum Operating Company and
Eagle Springs Production Limited
Liability Company, respecting the
purchase of Plains' interest in
the Eagle Springs Field, with
related Assignment, Conveyance,
and Bill of Sale
10.39 10 Purchase Contract Confirmation Amendment No. 1
dated September 1, 1996,
between Foreland Corporation and
Petro Source Refining Partners
Item 23. Consents of Experts and Counsel
23.01 23 Consent of Kruse, Landa & Maycock, See Item 5
L.L.C., counsel to Registrant
23.02 23 Consent of Hein + Associates LLP, Original Filing
certified public accountants
23.03 23 Consent of Malkewicz Hueni Original Filing
Associates, Inc.
Item 24. Power of Attorney
24.01 24 Power of Attorney See Signature
Page
[FN]
(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.
(15) Incorporated by reference from the Company's registration statement on form
S-3, SEC file number 333-3779.
(16) Incorporated by reference from the Company's quarterly report on form 10-Q
for the period ending September 30, 1996.
(17) Incorporated by reference from the Company's interim report on form 8-K
dated November 15, 1996.
** Identifies each management contract or compensatory plan or arrangement
required to be filed as an exhibit.
ITEM 17. UNDERTAKINGS
Rule 415 Offerings: Post-Effective Amendments. [Regulation S-K, Item 512(a)]
The undersigned Registrant will:
(1) File, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material change
to such information in the Registration Statement.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new Registration Statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
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.
Indemnification. [Regulation S-K, Item 512(h)]
Insofar as indemnification for liabilities arising under the Securities 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 Securities 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 Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Lakewood, state of
Colorado, on the 15th day of January, 1997.
FORELAND CORPORATION
(Registrant)
By /s/ N. Thomas Steele
N. Thomas Steele, President
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed below by the following persons in the
capacities indicated and on the 15th day of January, 1997.
N. Thomas Steele, Director
and President (Principal
Executive Officer)
Dr. Grant Steele, Director
/s/ N. Thomas Steele
By N. Thomas Steele,
Kenneth L. Ransom, Director Attorney-in-Fact
and Vice-President of
Exploration
Bruce C. Decker, Director and
Vice-President of
Operations (Principal
Financial and Accounting
Officer)