U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. ____)
MAR VENTURES INC.
(Name of small business issuer in its charter)
Delaware 1330 95-4580642
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1675 Broadway, Suite 1150, Denver, CO 80202; (303) 825-3748
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(Address and telephone number of principal executive offices)
1675 Broadway, Suite 1150, Denver, CO 80202; (303) 825-3748
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(Address of principal place of business or intended principal place of business)
D. Scott Singdahlsen, 1675 Broadway, Suite 1150, Denver, CO 80202;
(303) 825-3748
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(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement
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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit price registration fee
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<S> <C> <C> <C> <C>
Common Stock,
$.001 par value 4,095,000 $1.59375 (1) $ 6,526,406 $1,978
Common Stock ,
issuable upon
exercise of Class A
Common Stock
Purchase Warrants 2,047,500 $1.25 $ 2,559,375 $ 776
Common Stock,
issuable upon
exercise of Class B
Common Stock
Purchase Warrants 2,047,500 $1.75 $ 3,583,125 $1,086
TOTAL $12,029,062 $3,840
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 based on the average of the bid and asked price of the
Company's Common Stock on the OTC Bulletin Board on October 21, 1997 which
is within five business days of the date of filing (October 23, 1997).
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Mar Ventures Inc.
Cross-reference Sheet between Registration Statement (Form SB-2) and Form
of Prospectus.
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SB-2 Reg S-B
Item Item Caption Caption In Prospectus
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<C> <C> <C> <C>
16 101 Description Of Business. Business And Properties.
18 102 Description Of Property. Business And Properties.
9 103 Legal Proceedings. Not applicable.
20 201 Market For Common Stock And Price Range Of Common Stock; Dividend
Related Stockholder Matters. Policy; Description Of Securities; Inactive Trading Of The
Common Stock.
12 202 Description Of Securities. Description Of Securities.
17 303 Management's Discussion And Management's Discussion And Analysis Of
Analysis Or Plan Of Operation. Financial Condition And Results Of
Operations.
23 304 Changes In And Disagreements Not applicable.
With Accountants On Accounting
And Financial Disclosure.
22 310 Financial Statements. Financial Information.
10 401 Directors, Executive Officers, Management.
Promoters And Control Persons.
21 402 Executive Compensation. Executive Compensation.
11 403 Security Ownership Of Certain Beneficial Owners Of Securities.
Beneficial Owners And
Management.
19 404 Certain Relationships And Related Transactions Between The Company And
Transactions. Related Parties.
15 404 Issuers Organized Within Five Transactions Between The Company And
Years. Related Parties.
1 501 Front Of Registration Statement Registration Statement Cover Page;
And Outside Front Cover Of Prospectus Cover Page; Prospectus Inside
Prospectus. Cover Page.
2 502 Inside Front And Outside Back Cover Page; Inside Cover Page; Back Cover
Cover Pages Of Prospectus. Page.
3 503 Summary Information And Risk Prospectus Summary; Risk Factors.
Factors.
4 504 Use Of Proceeds. Use Of Proceeds.
5 505 Determination Of Offering Price. Cover Page.
6 506 Dilution. Not applicable.
7 507 Selling Security Holders. Selling Security Holders.
8 508 Plan Of Distribution. Cover Page.
13 509 Interest Of Named Experts and Not applicable.
Counsel.
14 510 Disclosure Of Commission Position Securities And Exchange Commission
On Indemnification For Securities Position On Certain Indemnification.
Act Liabilities.
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[Red Ink]
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.
<PAGE>
PRELIMINARY PROSPECTUS DATED OCTOBER 24, 1997
SUBJECT TO COMPLETION
MAR VENTURES INC.
4,095,000 Shares Of Common Stock
4,095,000 Shares Of Common Stock Underlying Common Stock Purchase Warrants
This Prospectus relates to the transfer of 4,095,000 shares of common
stock, $.001 par value (the "Common Stock"), of Mar Ventures Inc. (the
"Company") by the persons named herein (the "Selling Security Holders"). See
"SELLING SECURITY HOLDERS". Those shares of Common Stock were acquired by the
Selling Security Holders pursuant to private placements exempt from registration
under federal and state securities laws (the "Private Placements").
This Prospectus also relates to the registration of the exercise of Common
Stock purchase warrants (the "Warrants") acquired by the Selling Security
Holders in the Private Placements. One-half of the Warrants entitle the
registered holders thereof to purchase an aggregate 2,047,500 shares of Common
Stock on or before January 15, 1998 at an exercise price of $1.25 per share (the
"Class A Warrants"). One-half of the Warrants entitle the registered holders
thereof to purchase an aggregate 2,047,500 shares of Common Stock on or before
April 15, 1998 at an exercise price of $1.75 per share (the "Class B Warrants").
The expiration dates of the Class A Warrants and Class B Warrants when they were
initially issued were October 31, 1997 and January 31, 1998, respectively.
Subsequent to the issuance of the Warrants, the Company extended the expiration
dates. This Prospectus also relates to the transfer of the 4,095,000 shares of
Common Stock that may be acquired by the Selling Security Holders upon the
exercise of the Warrants.
The Company will receive net proceeds of $5,651,100 if all the Warrants are
exercised, which amount includes net proceeds of $2,354,625 after paying
commissions of eight percent if all the Class A Warrants are exercised and net
proceeds of $3,296,475 after paying commissions of eight percent if all the
Class B Warrants are exercised. The Company is also responsible for other
expenses related to this offering estimated at $35,000 for filing fees, printing
costs, legal and accounting fees and miscellaneous expenses. The Company will
not receive any proceeds from the transfer of the Common Stock by the Selling
Security Holders. The transfer of the Common Stock by the Selling Security
Holders covered by this Prospectus may occur from time to time. No underwriting
arrangements have been entered into by the Selling Security Holders. The
transfer of the Common Stock by the Selling Security Holders may occur in one or
more transactions that may take place on the over-the-counter market, including
ordinary broker's transactions, privately negotiated transactions, and sales to
one or more dealers for transfer of such Common Stock as principals, at market
prices prevailing at the time of transfer, at prices related to such prevailing
market prices, or at negotiated prices. Usual and customary or specifically
negotiated brokerage fees or commissions may be paid by the Selling Security
Holders in connection with transfers of the Common Stock by Selling Security
Holders. See "SELLING SECURITY HOLDERS".
The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol "MRVI". On October 21, 1997, the closing high bid price of the Common
Stock was $1.625 per share and the closing low asked price was $1.5625 per
share. That price information is based on information obtained by the Company
from brokers who make a market in the Company's Common Stock. Certain rules of
the Securities And Exchange Commission (the "Commission") may have a negative
affect on the trading of the Common Stock. See "RISK FACTORS--Penny Stock
Regulation".
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE, AND INVESTMENT THEREIN INVOLVES A
HIGH DEGREE OF RISK. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT
IN THE COMPANY, SEE "RISK FACTORS" PAGE 3.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting
Discount And Proceeds To
Price To Public Commissions Company (2)
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<S> <C> <C> <C>
Common Stock (1) (1) (1)
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Common Stock Underlying Class A Warrants $1.25 $.10 (3) $1.15
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Common Stock Underlying Class B Warrants $1.75 $.14 (3) $1.61
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Total $6,142,500 $491,400 $5,651,100
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(1) The Company will not receive any proceeds from the transfer of the Common
Stock by the Selling Security Holders. The transfer of the Common Stock by
the Selling Security Holders may occur at market prices prevailing at the
time of transfer, at prices related to such prevailing market prices, or at
negotiated prices. Usual and customary or specifically negotiated brokerage
fees or commissions may be paid by the Selling Security Holders.
(2) These amounts represent the proceeds to the Company after deduction of
sales commissions but before deduction of other offering expenses estimated
at $35,000 for filing fees, printing costs, legal and accounting fees, and
miscellaneous expenses.
(3) The Company has agreed to pay Stonington Partners Group, the placement
agent of the Warrants, an amount equal to eight percent of the exercise
price paid in connection with the exercise of any of the Class A Warrants
or Class B Warrants.
The date of this Prospectus is October __, 1997
(ii)
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ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at
the following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York
10048. Copies of such material also can be obtained at prescribed rates by
writing to the Commission, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, materials filed electronically by the
Company with the Commission are available at the Commission's World Wide Web
site at http://www sec.gov.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS AND
CAUTIONARY STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act Of 1933, as amended (the "Securities Act"),
and section 21E of the Exchange Act. All statements other than statements of
historical fact included in this Prospectus, including without limitation the
statements under "PROSPECTUS SUMMARY", "RISK FACTORS", "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", and "BUSINESS
AND PROPERTIES" regarding the Company's financial position, business strategy,
plans and objectives of management of the Company for future operations and
capital expenditures are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct.
Additional statements concerning important factors that could cause actual
results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed in the "RISK FACTORS" section and elsewhere in this
Prospectus. All written and oral forward-looking statements attributable to the
Company or persons acting on its behalf subsequent to the date of this
Prospectus are expressly qualified in their entirety by the Cautionary
Statements.
(iii)
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus. As
used herein, the "Company" or "Mar Ventures" means Mar Ventures Inc. and its
subsidiary, PYR Energy LLC ("PYR Energy") unless the context requires otherwise.
Unless otherwise indicated, all references to annual or quarterly periods refer
to the Company's fiscal year ending August 31.
THE COMPANY
General
The Company is an independent exploration company that applies advanced 3-D
seismic and computer aided exploration ("CAEX") technology to systematically
explore for and exploit onshore domestic natural gas and oil accumulations in
the western United States. With a primary technical focus, the Company has
ongoing exploration and exploitation activities in the San Joaquin basin of
California, the Denver basin of Colorado and Nebraska, the Big Horn basin of
Wyoming, and the central Montana trough of Montana. The Company has not yet
drilled any wells, and it owns no producing acreage. The Company plans to
commence drilling on its San Joaquin basin acreage in the second quarter of
1998.
Since its inception in 1996, the Company has developed a portfolio of
exploration and exploitation projects possessing a critical mix of
high-potential, high-risk exploration targets and moderate-potential,
moderate-risk exploitation plays. The Company generates most of its exploration
projects internally, and therefore has the ability to retain a sizeable working
interest in each project based on associated project risk and financial leverage
through industry joint ventures. The Company attempts to limit financial
exposure on a project by project basis by forming industry partnerships through
which the Company's technical expertise can be complemented with the financial
resources and operating expertise of established companies. The Company does not
intend to operate the drilling of project wells.
The Company has successfully assembled a highly motivated geoscience and
management team with extensive technical experience, as well as a proven track
record of resource exploitation and business development. The Company was
founded by Scott Singdahlsen, a geologist who previously was a founder of
Interactive Earth Sciences Corporation, a 3-D seismic consulting firm in the
Rocky Mountain region, and by Robert Suydam, a geologist employed by a number of
oil and gas exploration companies for an aggregate of over 30 years. The
Company's technical/management team of goephysicists and geologists brings
together more than 110 years of combined experience in exploration,
exploitation, and the application of advanced geological and geophysical
technology. Historically, the Company's technical team has had exposure to more
than 100 3-D seismic surveys. This experience has resulted in development of
expertise in the application of seismic technology for exploration and
exploitation.
The Company's offices are located at 1675 Broadway, Suite 1150, Denver,
Colorado 80202, telephone number (303) 825-3748.
Business Strategy
The Company holds the core belief that systematic application of advanced
3-D seismic imaging and visualization can significantly reduce drilling risk and
enhance financial results. The Company's business strategy is to enhance
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shareholder value by leveraging its technical experience and expertise with 3-D
seismic to identify exploration and exploitation projects with significant
potential reserves and economic results based on the application of appropriate
technology and suitable project risk management.
The Company's exploration and exploitation activities currently are
concentrated in two mature hydrocarbon provinces: the San Joaquin basin of
California and the Rocky Mountain region where the Company's management believes
that the historical under-utilization of 3-D seismic technology creates
tremendous opportunities. The Company's strategy is to focus on applying 3-D
seismic technology to explore properties that lie within these mature basins and
offer quantities of oil and gas reserves that are materially significant to the
size of the Company.
Competitive Advantage
The Company believes that the cumulative experience of its technical and
management team, with past exposure to more than 100 3-D seismic projects
covering approximately 1,500 square miles in diverse geologic trends throughout
the world results in a strong competitive advantage relative to current
competition in these focus areas. The Company currently has four full-time
geoscientists and a landman who are specialists in a variety of technical
aspects and have extensive experience and expertise in numerous geologic
regions.
The Company's expertise in the application of advanced seismic
interpretation methods includes many of the "cutting-edge" technologies
necessary in today's competitive exploration environment. These advanced
techniques include 3-D seismic visualization, attribute analysis, geostatistical
modeling, pre-stack depth migration, and the integration of geological and
engineering data in support of reservoir characterization. These advanced
seismic interpretation methods allow the Company to leverage its 3-D seismic
experience and expertise with significant exploration and exploitation
opportunities.
The Company generates the majority of its exploration and exploitation
projects internally, and therefore is not dependent on third parties for project
flow. This results in full control of all pre-drill exploration phases including
the acreage position and application of seismic technology.
THE OFFERING
This Prospectus relates to (A) the transfer of 4,095,000 shares of the
Common Stock by the Selling Security Holders received in the Private Placements;
(B) the registration of the exercise of Class A Warrants to purchase an
aggregate 2,047,500 shares of Common Stock and the exercise of Class B Warrants
to purchase an aggregate 2,047,500 shares of Common Stock by the Selling
Security Holders; and (C) the transfer of the 4,095,000 shares of Common Stock
that may be acquired by the Selling Security Holders upon the exercise of the
Warrants. The Company has agreed to pay Stonington Partners Group, the placement
agent of the Warrants, an amount equal to eight percent of the exercise price
paid in connection with the exercise of any of the Class A Warrants or Class B
Warrants. The transfer of the Common Stock by the Selling Security Holders
covered by this Prospectus will be completed, if at all, by the Selling Security
Holders, and not by the Company. If any of these shares is transferred by a
Selling Security Holder, they will be transferred on behalf of that person and
it is anticipated that the shares may be offered pursuant to direct sales to
private persons and in open market transactions. The Selling Security Holders
may offer the shares to or through registered broker-dealers who will be paid
standard commissions or discounts by the Selling Security Holders. The Company
has no agreements with brokers to transfer any or all of the shares which may be
offered hereby.
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. BEFORE MAKING AN INVESTMENT IN THE COMPANY, PROSPECTIVE INVESTORS SHOULD
GIVE CAREFUL CONSIDERATION TO THE FOLLOWING RISK FACTORS AFFECTING THE BUSINESS
OF THE COMPANY AND ITS SECURITIES, TOGETHER WITH OTHER INFORMATION IN THIS
PROSPECTUS.
Start-Up Nature Of The Company's Oil And Gas Business; Absence Of Profits
Both the Company and PYR Energy were formed in 1996, and neither of them
has a history of sustained profit from operations. The development of the
Company's business will require substantial expenditures. The Company's future
financial results will depend primarily on its ability to locate hydrocarbons
economically in commercial quantities, to provide drilling site and target depth
recommendations resulting in profitable productive wells and on the market
prices for oil and natural gas. There can be no assurance that the Company will
achieve or sustain profitability or positive cash flows from operating
activities in the near future.
Oil And Gas Prices; Marketability Of Production
Even if the Company is able to discover or acquire oil and gas production,
of which there is no assurance, the Company's revenues, profitability and
liquidity will be highly dependent upon prevailing prices for oil and natural
gas. Oil and gas prices can be extremely volatile and in recent years have been
depressed by excess total domestic and imported supplies. There can be no
assurance that current price levels can be sustained. Prices also are affected
by actions of state and local agencies, the United States and foreign
governments, and international cartels. These external factors and the volatile
nature of the energy markets make it difficult to estimate future prices of oil
and natural gas. Any substantial or extended decline in the price of oil and/or
natural gas would have a material adverse effect on the Company's financial
condition and results of operations, including reduced cash flow and borrowing
capacity. All of these factors are beyond the control of the Company. Sales of
oil and natural gas are seasonal in nature, leading to substantial differences
in cash flow at various times throughout the year. The marketability of the
Company' s gas production, if any, will depend in part upon the availability,
proximity and capacity of gas gathering systems, pipelines and processing
facilities. Federal and state regulation of oil and gas production and
transportation, general economic conditions, changes in supply and changes in
demand all could adversely affect the Company's ability to produce and market
oil and natural gas. If market factors were to change dramatically, the
financial impact on the Company could be substantial. The availability of
markets and the volatility of product prices are beyond the control of the
Company and thus represent a significant risk.
Reliance On Significant Partners
The Company attempts to limit financial exposure on a project by project
basis by forming industry partnerships where the Company's technical expertise
can be complemented with the financial resources and operating expertise of
established companies. If the Company were not able to form these industry
partnerships, this could limit the Company's ability to fully implement its
business plan and could have a material adverse effect on the Company's
business, financial condition and results of operations.
Non-Operator Status
The Company focuses exclusively on providing 3-D imaging and analysis and
relies upon other project partners to provide and complete all other project
operations and responsibilities including land acquisition, operating, drilling,
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marketing and project administration. As a result, the Company has only a
limited ability to exercise control over a significant number of a project's
operations or the associated costs of such operations. The success of a project
is dependent upon a number of factors which are outside of the Company's area of
expertise and project responsibilities. Such factors include: (i) the
availability of favorable term leases and required permitting for projects, (ii)
the availability of future capital resources by the Company and the other
participants to the purchasing of leases and the drilling of wells, (iii) the
approval of other participants to the purchasing of leases and the drilling of
wells on the projects and (iv) the economic conditions at the time of drilling,
including the prevailing and anticipated prices for oil and gas. The Company's
reliance on other project partners and its limited ability to directly control
certain project costs could have a material adverse effect on the realization of
expected rates of return on the Company's investment in certain projects.
Ability To Discover Additional Reserves
The Company's future success is dependent upon its ability to economically
locate additional oil and gas reserves in commercial quantities. Except to the
extent that the Company acquires properties containing proved reserves or
conducts successful exploration and development activities, or both, the proved
reserves of the Company, if any, will decline as reserves are produced. The
Company's ability to do so is dependent upon a number of factors, including its
participation in multiple exploration projects and its technological capability
to locate oil and gas in commercial quantities. Because the Company may rely
upon other industry participants to develop the Company's exploration projects,
no assurances can be given that the Company will have the opportunity to
participate in projects which economically produce commercial quantities of
hydrocarbons in amounts necessary to meet its business plan or that the projects
in which it elects to participate will be successful. There can be no assurance
that the Company's planned projects will result in significant reserves or that
the Company will have future success in drilling productive wells at low reserve
replacement costs. The Company has not yet established any oil and gas
production, nor has it booked any proved reserves.
Substantial Capital Requirements And Liquidity
In order to pursue its oil and gas exploration plans fully, the Company
will need additional capital funding. The Company anticipates having adequate
short term capital funding through the exercise of its Class A and Class B
Warrants. However, there is no assurance that these Warrants will be exercised
at all or to the extend necessary to fund the Company's short term capital
requirements. At the present time, there are no additional commitments or
alternative sources for any such funding. Neither the Company nor PYR has a
steady source of revenue to provide funding to sustain operations. There is no
assurance that the Company will be able to obtain a reliable source of revenue
to sustain its operations.
Risk Of Exploratory Drilling Activities
Exploration for oil and natural gas is a speculative business involving a
high degree of risk, including the risk that no commercially productive oil and
gas reservoirs will be encountered. The cost of drilling, completing and
operating wells is often uncertain and drilling operations may be curtailed,
delayed or canceled as a result of a variety of factors including unexpected
formation and drilling conditions, pressure or other irregularities in
formations, equipment failures or accidents, as well as weather conditions,
compliance with governmental requirement and shortages or delays in the delivery
of equipment. There is no assurance that the expenditures made by the Company on
its oil and natural gas properties will result in discoveries of oil or natural
gas in commercial quantities. Some test wells, as a consequence, may not
ultimately be developed into producing wells and may be abandoned.
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Competition
The Company competes in the areas of oil and gas exploration with other
companies, many of which may have substantially larger financial and other
resources. From time to time, there may be competition for, and shortage of,
exploration, drilling and production equipment and these shortages could lead to
an increase in costs and to delays in operations that could have a material
adverse effect on the Company. The Company may therefore not be able to acquire
desirable properties or equipment required to develop its properties. Problems
of this nature also could prevent the Company from producing any oil and natural
gas it discovers at the rate it desires to do so.
General Risks Of Oil And Gas Operations
The nature of the oil and gas business involves a variety of risks,
including the risks of operating hazards such as fires, explosions, cratering,
blow-outs, and encountering formations with abnormal pressures, the occurrence
of any of which could result in losses to the Company. The Company will maintain
insurance against some, but not all, of these risks in amounts that management
believes to be reasonable in accordance with customary industry practices. The
occurrence of a significant event, however, that is not fully insured could have
a material adverse effect on the Company's financial position.
Technology Changes
The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to implement such new technologies at substantial cost. In addition,
other oil and gas finding companies may implement new technologies before the
Company, and consequently such companies may be able to provide enhanced
capabilities and superior quality compared with that which the Company is able
to provide. There can be no assurance that the Company will be able to respond
to such competitive pressures and implement such technologies on a timely basis
or at an acceptable cost. One or more of the technologies currently utilized by
the Company or implemented in the future may become obsolete. In such case, the
Company's business, financial condition and results of operations could be
materially adversely affected. If the Company is unable to utilize the most
advanced commercially available technology, the Company's business, financial
condition and results of operations could be materially and adversely affected.
Government Regulations And Environmental Risks
The production and sale of oil and gas are subject to a variety of federal,
state and local government regulations including regulation concerning the
prevention of waste, the discharge of materials into the environment, the
conservation of oil and natural gas, pollution, permits for drilling operations,
drilling bonds, reports concerning operations, the spacing of wells, the
unitization and pooling of properties, and various other matters including
taxes. Many jurisdictions have at various times imposed limitations on the
production of oil and gas by restricting the rate of flow for oil and gas wells
below their actual capacity to produce. During the past few years there has been
a significant amount of discussion by legislators and the presidential
administration concerning a variety of energy tax proposals. There can be no
certainty that any such measure will be passed or what its effect will be on oil
and natural gas prices if it is passed. In addition, many states have raised
state taxes on energy sources and additional increases may occur, although there
can be no certainty of the effect that increases in state energy taxes would
have on oil and natural gas prices. Although the Company intends to be in
substantial compliance with applicable environmental and other government laws
and regulations, there can be no assurance that significant costs for compliance
will not be incurred in the future.
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Variability Of Operating Results
The Company's operating results, as a start up company in the oil and gas
industry, may vary significantly during any financial period. These variations
may be caused by significant periods of time between each of the Company's
discoveries and developments, if any, of oil or natural gas properties in
commercial quantities. These variations may also be caused by the volatility
associated with oil and gas prices. See "Oil And Gas Prices; Marketability Of
Production".
Risks Associated With Management Of Growth
Because of its small size, the Company desires to grow extremely rapidly in
order to achieve certain economies of scale. Although there is no assurance that
this rapid growth will occur, to the extend that it does occur it will place a
significant strain on the Company's financial, technical, operational and
administrative resources. As the Company increases its services and enlarges the
number of projects it is evaluating or in which it is participating, there will
be additional demands on the Company's financial, technical and administrative
resources. The failure to continue to upgrade the Company's technical,
administrative, operating and financial control systems or the occurrence of
unexpected expansion difficulties, including the recruitment and retention of
geoscientists and engineers, could have a material adverse effect on the
Company's business, financial condition and results of operations
Dependence On Key Personnel
The Company will be highly dependent on the services of D. Scott
Singdahlsen and its other geological and geophysical staff members. The loss of
the services of any of them could have a material adverse effect on the Company.
The Company does not have an employment contract with Mr. Singdahlsen or any
other employee.
Broad Discretion Over Use Of Proceeds
The Company has broad discretion over the proceeds that the Company may
receive upon the exercise of the Warrants. The specific use of those funds, if
any, will depend upon the business judgment of management, upon which the
investors must rely, with only limited information about management's specific
intentions.
Immediate And Substantial Dilution
Significant dilution of the stockholders of the Company may occur for any
exercise of Warrants. This, however, cannot be certain because the amount of any
such dilution will depend on the future business operations and other activities
of the Company.
Concentration Of Risks; Lack Of Diverse Business Operations
The Company is currently pursuing only the oil and gas exploration
business. Although the Company is involved in other oil and gas projects, it is
concentrating the majority of its initial oil and gas exploration efforts on
approximately 22,000 exploratory net acres in the Maricopa sub- basin at the
southern end of the San Joaquin. Although the Company is involved in three
6
<PAGE>
separate and distinct projects in the San Joaquin basin, the Company's
exploration efforts are concentrated in this same general area and this lack of
diverse business operations subjects the Company to a certain degree of
concentration of risks. The future success of the Company may be dependent upon
its success in discovering and developing oil and gas in commercial quantities
on its San Joaquin properties and upon the general economic success of the oil
and gas industry.
Inactive Trading Of The Common Stock; Possible Volatility Of Stock Price
There will be no ready market for the Common Stock and an investor cannot
expect to liquidate his investment regardless of the necessity of doing so.
Investors should recognize the illiquidity of an investment in this Offering.
There is an extremely limited public market for the Common Stock, and there is
no assurance that this market will be sustained or will expand. See "INACTIVE
TRADING OF THE COMMON STOCK". The prices of the Company's securities are highly
volatile. In any event, due to the low price of the securities, many brokerage
firms may not effect transactions and may not deal with low priced securities as
it may not be economical for them to do so. This could have an adverse effect on
developing and sustaining the market for the Company's securities. Further,
there is no assurance that any investor will be in a position to borrow funds
using the Company's securities as collateral.
For the foreseeable future, trading in the Company's securities, if any,
will occur in the over-the-counter market and the securities will be quoted on
the OTC Bulletin Board. The closing quotes for the Common Stock on October 21,
1997 were $1.625 bid and $1.5625 asked. The Company does not anticipate that its
Common Stock will qualify for listing on the NASDAQ Stock market in the near
future. In addition, there is no market for the Warrants and there can be no
assurance that any trading market will develop. Accordingly, a holder of the
Company's securities may be unable to sell its securities when it wishes to do
so, if at all. In addition, the free transferability of these securities will be
dependent on the securities laws of the various states in which it is proposed
these securities be traded.
Penny Stock Regulation
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks". Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). If the
Company's securities are traded for less than $5 per security, then unless (i)
the Company's net tangible assets exceed $5,000,000 during the Company's first
three years of continuous operations or $2,000,000 after the Company's first
three years of continuous operations; or (ii) the Company has had average
revenue of at least $6,000,000 for the last three years, the respective security
will be subject to the SEC's penny stock rules unless otherwise exempt from
those rules. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prescribed by the SEC that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker-dealer and salesperson compensation
information, must be given to the customer orally or in writing before or with
the customer's confirmation. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from such rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
7
<PAGE>
of reducing the level of trading activity in the secondary market for a stock
that becomes subject to the penny stock rules. As long as the Company's Common
Stock is subject to the penny stock rules, the holders of the Company's Common
Stock may find it difficult to sell the Common Stock of the Company.
Shares Available For Future Sale Could Adversely Affect Share Price
The Company has a total of 4,386,654 shares of Common Stock issued and
outstanding that are "restricted securities". Of the outstanding shares of
restricted securities, 28,000 were issued in August 1996, 358,654 were issued in
December 1996, and 4,000,000 were issued in August 1997. Restricted securities
may be sold in a registered public offering under the Securities Act, or in
open-market transactions in compliance with Rule 144 adopted under the
Securities Act if the conditions of Rule 144 are satisfied. Generally, Rule 144
provides that, subject to current information concerning the Company being
publicly available, after a person has held the restricted securities for a
period of one year, that person may sell, in any three-month period, an amount
of up to 1% of the Company's outstanding Common Stock. Persons who have not been
affiliates of the Company for at least three months and who have held their
shares for more than two years are not subject to any limitations on the sale of
their restricted securities. Under Rule 144, the 28,000 shares of Common Stock
that were issued in August 1996 became eligible for resale in August 1997, the
358,654 shares issued in December 1996 will become eligible for resale in
December 1997, and the 4,000,000 shares that were issued in August 1997 will
become eligible for resale in August 1998. Sales under Rule 144, whenever they
are made, may have a depressive effect on the price of the Common Stock. See "
SHARES AVAILABLE FOR FUTURE SALE".
USE OF PROCEEDS
The only net proceeds that may be received by the Company pursuant to this
Prospectus are from exercise of the Warrants, if any. If all the Warrants are
exercised, of which there is no assurance, after deducting estimated expenses of
the offering, the net proceeds to the Company would be approximately $5,616,100
which amount includes (i) net proceeds of $2,354,625 after paying commissions of
eight percent if all the Class A Warrants are exercised, (ii) net proceeds of
$3,296,475 after paying commissions of eight percent if all the Class B Warrants
are exercised, and (iii) expenses related to this offering estimated at $35,000
for filing fees, printing costs, legal and accounting fees and miscellaneous
expenses.
During the fiscal year ending August 31, 1998, the Company intends to use
up to $4,500,000 to fund the Company's exploration and development program and
use approximately $750,000 for general corporate purposes, including expenses
associated with hiring additional personnel. The Company intends to use the
remainder of funds to finance similar activities during the Company's fiscal
year ending August 31, 1999. To the extent that the Company is not able to
utilize at least $750,000 of the Warrant exercise proceeds for the Company's
general and administrative expenses during the next year, the Company will need
to obtain these funds from other sources, including its current cash, because
this amount is needed for the Company to operate at its current level.
Because of the number and variability of factors that determine the
Company's use of the net proceeds of the Offering, management will retain a
significant amount of discretion over their application. There can be no
assurance that such application will not vary substantially from the Company's
plans described above. In addition, there can be no assurance that the Company
will be able to generate or raise sufficient capital to enable it to realize
fully all of its strategic objectives. See "Risk Factors - Substantial Capital
Requirements and Liquidity" and "Risk Factors Broad Discretion Over Use of
Proceeds"
Pending application of the net proceeds of the Offering, the Company
expects that it will invest such funds in interest-bearing accounts or
short-term investment grade securities.
8
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CAPITALIZATION
During the eight months ended August 31, 1997, the Company sold 2,095,000
units at $0.25 per unit ("$0.25 Unit") for gross proceeds of $523,750. The
2,095,000 $0.25 Units sold consisted in the aggregate of 2,095,000 shares of the
Company's common stock, warrants to purchase 1,047,500 shares of common stock at
$1.25 per share and warrants to purchase 1,047,500 shares of common stock at
$1.75 per share.
Also during the eight months ended August 31, 1997, the Company sold
2,000,000 units at $0.75 per unit ("$0.75 Unit") for gross proceeds of
$1,500,000. The 2,000,000 $.075 Units consist in the aggregate of 2,000,000
shares of the Company's common stock, warrants to purchase 1,000,000 shares of
common stock at $1.25 per share and warrants to purchase 1,000,000 shares of
common stock at $1.75 per share.
The warrants to purchase common stock at $1.25 per share are collectively
referred to as the "Class A Warrants" in the table below, and the warrants to
purchase common stock at $1.75 per share are collectively referred to as the
"Class B Warrants" in the table below.
The following table sets forth (i) the historical capitalization of the
Company as of August 31, 1997, (ii) the adjusted capitalization of the Company
after giving effect to the issuance of common stock from the exercise of the
Class A Warrants, and (iii) the adjusted capitalization of the Company at August
31, 1997 after giving effect to the issuance of common stock from the exercise
of both the Class A Warrants and the Class B Warrants. This table should be read
in conjunction with the Financial Statements of the Company, the notes thereto
and the other financial data.
<TABLE>
<CAPTION>
At August 31, 1997
------------------ As Adjusted
For Exercise of
The Class A
As Adjusted For Warrants And
Exercise Of The The Class B
Actual Class A Warrants (1) Warrants (2)
------ -------------------- ----------------
<S> <C> <C> <C>
Cash $1,432,281 $3,751,906 $7,048,381
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value; 30,000,000
shares authorized, 9,154,804 issued
and outstanding, historical; 11,202,304
issued and outstanding, as adjusted
for exercise of the Class A warrants and
13,249,804 issued and outstanding, as
adjusted for exercise of
the Class A and the Class B warrants 9,155 11,203 13,250
Capital in excess of par value 1,768,088 4,085,665 7,380,093
Accumulated Deficit (57,825) (57,825) (57,825)
-------- -------- --------
Total Stockholders' Equity 1,719,418 $4,039,043 $7,335,518
========= ========= =========
- ----------
(1) The amounts indicated in this column include (i) net proceeds of $2,354,625
after paying commissions of eight percent if all the Class A Warrants are
exercised, and (ii) expenses related to this offering estimated at $35,000 for
filing fees, printing costs, legal and accounting fees and miscellaneous
expenses.
(2) The amounts indicated in this column include (i) $2,354,625 after paying
commissions of eight percent if all the Class A Warrants are exercised, (ii) net
proceeds of $3,296,475 after paying commissions of eight percent if all the
Class B Warrants are exercised, and (iii) expenses related to this offering
estimated at $35,000 for filing fees, printing costs, legal and accounting fees
and miscellaneous expenses.
</TABLE>
9
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market and has
been quoted on the OTC Bulletin Board since November 1996 under the symbol
"MRVI".
The table below presents the range of high and low bid prices for the
Company's Common Stock during each of the quarters indicated. These quotations
were obtained from brokers who make a market in the Company's Common Stock and
reflect interdealer prices, without retail mark up, mark down or commission, and
may not represent actual transactions.
Bid Prices
----------
Quarter Ended High Low
------------- ---- ---
November 30, 1996 .125 .12
February 28, 1997 .0625 .0625
May 30, 1997 .1875 .125
August 31, 1997 1.6875 .25
On October 21, 1997, the closing bid price for the Company's Common Stock
was $1.625 per share.
Number Of Stockholders Of Record
On October 6, 1997, the number of stockholders of record of the Company was
approximately 710.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since its formation and does not presently anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company currently intends to
retain any future earnings to finance the expansion and continued development of
its business.
BUSINESS AND PROPERTIES
Overview
The Company is an independent oil and gas exploration company whose
strategic focus is the application of advanced seismic imaging and computer
aided exploration technologies in the systematic search for commercial
hydrocarbon reserves, primarily in the onshore western United States. The
Company's expertise is in the application of advanced interpretation methods
necessary in today's competitive exploration environment. These advanced seismic
interpretation methodologies allow the Company to leverage its collective 3-D
seismic experience and expertise with significant exploration and exploitation
opportunities.
The Company believes that its exploration focus can result in rapid growth
in reserve capture by the careful selection and participation in projects as a
non-operating working interest owner. The Company is currently focusing its 3-D
seismic activity in a limited number of proven hydrocarbon provinces where it is
convinced that the application of advanced seismic technology can dramatically
impact the finding cost of significant oil and gas reserves. By reducing
drilling risk through 3-D seismic imaging and analysis, the Company expects to
improve the expected return on investment in its oil and gas projects.
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The Company has not yet participated in drilling any wells, and it owns no
producing acreage. The Company intends to participate in drilling its first well
in early calendar1998.
Strategy
The Company's business strategy is to continue to enhance shareholder value
by leveraging its technical experience and expertise with 3-D seismic technology
to identify exploration and exploitation projects with significant potential
reserves and economic results based on the application of appropriate technology
and suitable project risk management. The Company's ongoing goal is to increase
its reserve base through a focus on mature hydrocarbon basins where it believes
that the historical under-utilization of seismic technology creates tremendous
opportunities. It is the Company' s view point that the systematic application
of advanced seismic imaging and visualization to exploration can significantly
reduce drilling risk and enhance financial results. The Company's strategy is to
focus on applying 3-D seismic technology to explore properties that lie within
these mature basins and that offer oil and gas reserves that would be materially
significant to the Company.
The Company has a three-pronged corporate approach for the application of
exploration technology in these mature basins. The three components of this
strategy are set forth below:
o Internal generation of exploration and exploitation prospects with
special emphasis on 3-D seismic application to stratigraphic play
concepts.
o Identification and exploitation of non-performing and under-utilized
existing 3-D seismic surveys and acreage positions in which the
application of technical expertise and advanced interpretation and
visualization methodologies could significantly impact drilling
results.
o Development of partnerships with exploration and production companies
that lack advanced technical resources and expertise.
Exploration and Operating Approach
The Company focuses its technical resources on obtaining the highest
quality subsurface image through advanced geological and geophysical methods,
which it believes are more likely to result in the cost effective identification
of oil and gas reserves that are materially significant. The Company is
committed to providing its technical team with access to the required tools and
support necessary to retain a competitive advantage in today's exploration
environment. The Company strives to provide its geoscientists with the most
advanced imaging and analytical technology available and provides employee
incentives to utilize for the recruitment and motivation of these technical
experts.
The Company adheres to a disciplined approach to selective project
participation. The Company participates only in those projects that it believes
are likely to maximize the return on its capital investment, have significant
reserve growth potential, and benefit from the application of advanced seismic
technology. The Company believes that these factors result in a positive impact
to the finding-cost and production economics. The Company actively and
continually manages its portfolio of exploration and exploitation projects. The
aggressive portfolio management enables the Company to maximize the investment
of available capital in a limited number of high impact geologic plays and
projects.
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The Company generates many of its exploration and exploitation projects
internally, and therefore is not dependent on outside parties for project flow.
The Company strives to control all the pre-drill exploration phases, including
the acreage position and the application of seismic technology. With the
resulting project control, the Company is in the position to fully manage the
exploration process and determine subject to its financial resources, the
appropriate level of working interest that it retains in the drilling of any
associated wells. The Company aggressively leverages its project control and
technical expertise to potential industry partners thereby maximizing return on
investment while controlling capital exposure. The Company does not intend to
operate the drilling of project wells, but intends to retain the flexibility to
maintain a sufficient working interest in projects to enhance leverage of its
technical resources and influence operator actions.
Significant Projects
The Company's exploration activities are currently focused on the southern
San Joaquin basin of California and in selective Rocky Mountain basins. Advanced
seismic imaging of the structural and stratigraphic complexities, common to
these regions, provides the Company with the ability to identify significant
hydrocarbon potential that could not be previously detected with conventional
2-D seismic technology. These projects offer multiple drilling opportunities
with individual wells having the potential capability of encountering multiple
reservoirs.
The following provides a summary of the Company's exploration areas and
significant projects. While aggressively pursuing specific exploration
activities in each of the following areas, the Company is also pursuing
additional opportunities in these and other core areas that meet certain
exploration and exploitation criteria. There is no assurance that drilling
opportunities will be identified in the current project portfolio or will be
successful if drilled.
Southern San Joaquin Basin, California
The San Joaquin basin of California has proven to be one of the most
productive hydrocarbon producing basins in the continental United States. To
date, the approximately 14,000 square mile basin has produced in excess of 12.7
billion barrels of oil equivalent, and contains 25 fields classified as giant,
with cumulative production of more than 100 MMBoe.
The San Joaquin contains six of the 25 largest oil fields in the U.S. All
six of these fields were discovered between 1890 and 1911, a full decade prior
to the discovery of the first giant Texas oil field. The basin accounts for 34
percent of California's actively producing fields, yet produces more than 75
percent of the state's total oil and gas production. Most of the production
within the basin is located along the western and southern end of Kern County.
Production figures for 1995 reported by the California Department of Oil and Gas
indicate aggregate total production of 230.9 MMBoe. Of this figure, Kern County
accounts for over 95 percent of the oil production from the San Joaquin Basin.
Exploration Opportunity. For the 100 plus years of its productive life, the
San Joaquin Basin has been dominated by major oil companies and large fee
acreage holdings. As a result of these conditions, the basin has generally been
under-explored by independent exploration and production companies, groups that
usually bring advanced technologies to their exploration efforts. The large
fields in the basin were all discovered on surface anticlines and produce mostly
heavy oil from depths of less than 5,000 feet. As a consequence, basin operators
have employed only those advanced engineering technologies related to enhanced
production practices including steam floods and most recently, horizontal
drilling.
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The basin as a whole has suffered from a lack of applied exploration
technology and deep drilling. Approximately one percent of the total basin wells
have been drilled to a depth greater than 12,000 feet, with only four out of the
1,500 wells drilled during 1995 being to a depth greater than 12,000 feet.
Additional 1995 statistics indicate that the average well depth drilled during
the year was just slightly more than 2,000 feet. Three-dimensional seismic has
been employed only in limited quantity and in certain areas of the basin.
Tenneco and ARCO shot a limited number of 3-D surveys in the mid- to
late-1980s on the Bakersfield Arch and to the south in the Yowlumne area. With
the ongoing retrenchment of majors in the basin, independents such as Torch,
Nuevo Energy, Vintage Petroleum, HarCor Energy and Enron Oil & Gas have moved
into prominent positions within the basin and are bringing applied geoscience
technologies with them. More 3-D surveys have been acquired in the last two
years than in all the previous years combined. This trend is expected to
accelerate in the upcoming years as a renewed emphasis is placed on 3-D seismic
exploitation and exploration.
With limited exploration in the San Joaquin basin since the "boom" days of
the early 1980s, the Company believes that multiple exploration opportunities
available. Deep basin targets, both structural and stratigraphic in nature,
remain largely untested with modern seismic technology and the drill bit. In
addition, retrenchment of the majors in the basin has caused many of them to
rethink their policies regarding their large fee acreage positions. For the
first time in history, many of these companies are opening up these fee acreage
positions to outside exploration by aggressive independent companies. The
Company has identified and negotiated exclusive access to three high-potential
exploration plays in the southern San Joaquin basin.
East Lost Hills. The Company has identified and is currently undertaking
technical analysis of a deep, large untested structure in the footwall of the
Lost Hills thrust. This structure represents the largest remaining untested
structural play in the San Joaquin Valley, and may contain ' world-class'
reserves in multiple horizons. This prospect lies directly east of and
structurally below the existing Lost Hills field, which has produced in excess
of 440 MMBoe from shallow pay zones in a large thrusted anticlinal feature. The
Company has entered into a joint venture with Armstrong Oil and Gas, Inc.
("Armstrong"), a private Denver-based independent exploration company that
specializes in high-potential structural plays, to develop and market the East
Lost Hills prospect to the industry. The Company holds a 30 percent working
interest in the prospect, and jointly with Armstrong, owns or controls leases on
approximately 12,500 gross acres in the play.
This unconventional deep prospect has significant structural and reservoir
risk, but the potential for large reserves makes it an attractive play. The
Company and Armstrong have analyzed and interpreted over 350 miles of
high-resolution 2-D seismic data to help refine the structural mapping of the
prospect. Advanced pre-stack depth migration and interpretation clearly defines
the deep, sub-thrust structure. Two wells drilled to the east of the prospect,
in the mid-1970s, proved the productivity potential of free oil (42 degree API)
and gas at depths below 17,000 feet. Ongoing source rock and maturation modeling
suggests that the oil generation window exists at depths between 15,000 and
17,000 feet, and that early migration of hydrocarbons should preserve reservoir
quality at East Lost Hills. It is anticipated that the prospect will be marketed
to potential industry partners during the fourth quarter of calendar 1997, with
a deep test well drilled in the first half of calendar of 1998.
School Road/Southeast Maricopa. The Company has signed a lease and seismic
option with Chevron Production, USA covering exclusive exploration rights on
approximately 22,000 acres of fee land in the Maricopa sub-basin at the southern
13
<PAGE>
end of the San Joaquin valley. The Maricopa sub-basin represents a rapidly
subsiding fore-arc basin containing more than 30,000 feet of post-Jurassic
sediments. The Maricopa area is the location of the major depo-center for
deep-water turbidite deposition in the San Joaquin. The majority of oil produced
in the Maricopa sub-basin and on the Bakersfield arch to the north has come from
the Upper Miocene Stevens and older (Eocene) turbidite sands.
Basin wide, the Stevens sands have produced in excess of 1,350 MMBbl, with
mean field size being in excess of 70 MMBbl. Stevens fields produced more than
20 MMBbl in 1995. Stevens sand production is primarily from stratigraphic traps,
and ranges in depth from 7,500 feet to over 14,000 feet. Reservoir quality is
good with porosities ranging up to the mid 20 percent range. Oil gravities range
from 28 to 55 degree API with the lighter oil occurring in deeper production to
the south. With the superior reservoir quality and light hydrocarbons, the
Stevens' reservoirs make an attractive exploration target with significant
potential reserves.
Directly surrounding the Chevron acreage position, five fields produce from
Stevens equivalent sands. These fields include Landslide (14.9 MMBoe), Paloma
(132.9 MMBoe), Rio Viejo (7.9 MMBoe), San Emido Nose (21.1 MMBoe), and Yowlumne
(117.2 MMBoe). These fields all show stratigraphic trapping mechanisms including
updip sand pinch-outs, lateral facies variation, and differential compaction.
These five fields produced over 2 MMBbls of light oil and associated natural gas
in 1995 (1995 Production Statistics, California Department of Oil and Gas), and
have cumulative aggregate historical production in excess of 294 MMBoe. Per well
cumulative production ranges from a low of 690 MBbl to 2.1 MMBbl, with a mean
value of 1.3 MMBbl.
The objective of the School Road/Southeast Maricopa exploration program
will be to apply advanced 3-D seismic technology and advanced interpretation
methods, within a detailed sequence stratigraphic framework, to identify
stratigraphic relationships and potential traps. Exploration for Stevens
stratigraphic traps with 2-D seismic data has proven to be largely unsuccessful
due to the lack of sufficient line density to resolve the stratigraphic
complexity necessary to delineate trapping mechanisms. The discovery of the
Landslide field in 1985 resulted from the application of 3-D seismic
exploration. By today's standard, that data suffered from low fold, low
frequency, short offset, and generally poor imaging of detailed stratigraphic
relationships. Advances in field acquisition, data processing, and visualization
methods since the mid-1980s should allow much more detailed seismic analysis of
complex stratigraphic geometries and trapping mechanisms.
The School Road/Southeast Maricopa exploration agreement with Chevron
involves a drill-to-earn option on more than 22,000 fee acres, a seismic license
to an existing (1992) 42-square-mile 3-D seismic survey (School Road), more than
200 miles of proprietary 2-D seismic data, a proprietary regional sequence
stratigraphic framework based on extensive, detailed palynology analysis, and
all available well file data. This unique database is anticipated to allow the
complete integration of geology and modern 3-D seismic data to identify
potential trapping opportunities within the stratigraphically complex turbidite
systems present in the sub-basin. The drill-to-earn option entitles the Company,
for each well it drills, to earn a 100 percent working interest and a 75 percent
net revenue interest in 1,280 acres in the vicinity of the well drilled. The
wells are anticipated to range in depth from 9,000 to 16,000 feet.
Preliminary regional mapping within this sequence stratigraphic framework
suggests the presence of multiple, single- and stacked-turbidite leads within
the School Road/Southeast Maricopa area. The School Road 3-D seismic survey is
currently being re-processed to enhance the frequency content and seismic image.
It is anticipated that the first test well will be drilled at School Road in the
second quarter of calendar 1998. The Company holds 100 percent working interest
(with net revenue interests ranging from 75 to 87.5 percent) in the School Road
project. At Southeast Maricopa, the Company anticipates acquiring 40 to 60
square miles of 3-D seismic data beginning in the fourth quarter of calendar
1997, with the first test well to be drilled before the end of calendar 1998.
The Company holds 100 percent working interest with net revenue interests
ranging from 75 to 87.5 percent at Southeast Maricopa, but will look for
industry support in the shooting of the seismic data and drilling.
14
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Denver Basin, Colorado and Nebraska
The Denver Basin covers approximately 60,000 square miles in parts of
Colorado, Nebraska and Wyoming. The basin was the second area in the United
States to produce oil from drilled wells, and has produced more than one billion
barrels of oil equivalent to date. Published statistical studies indicate that
an additional 150 MMBoe to 200 MMBoe of reserves remain to be discovered in this
mature basin from Cretaceous reservoirs in stratigraphic traps.
During the past 10 years, the Denver basin has been one of the most
actively drilled areas in the U.S. due to low drilling costs and low reserve
base risk. Most of the activity has centered on down-spaced drilling for
Codell/Niobrara and Sussex/Shannon/ Parkman targets in the Wattenburg area, a
basin-center gas accumulation.
As continued drilling activity has resulted in decreasing availability of
additional well locations, major Wattenburg operators (HS Resources, Patina Oil
& Gas, Prima, NARCO) are experiencing significant retreat, retrenchment and
consolidation of their operations. Decreased activity drilling for shallow gas
offers the Company an opportunity to acquire land and/or seismic options to
explore and exploit the deeper oil prone 'D' and 'J' sandstone reservoirs.
Production from these Cretaceous reservoirs results from stratigraphic trapping
in an incised valley-fill depositional system. Cretaceous D-Sand and J-Sand
reservoirs have been the traditional exploration targets within the Denver
basin. These reservoirs account for the majority of production to date in the
basin, with cumulative production from the D-Sand totaling 386.6 MMBoe and
J-Sand production totaling 743.4 MMBoe. Modern sequence stratigraphic models and
strong structural control on deposition indicate that these traps are
predictable both in geometry and orientation.
While seismic data has been employed in the basin since the mid-1950s, the
success of 2-D seismic exploration has been limited by stratigraphic trapping
and the complex nature of the reservoir systems. The emergence of 3-D seismic
technology has created exciting new exploration opportunities in the basin.
While the handful of 3-D surveys acquired to date in the basin have proven to be
economic successes, the downturn in basin-wide activity has resulted in
significant underutilization of this exploration application. The Company
proposes to capitalize on 3-D seismic exploration opportunities generated
internally, and through opportunities arising from the recent, ongoing
consolidation and retrenchment of major basin operators.
Exploration Opportunity. Historically, exploration in the Denver basin has
been dominated by small, low-cost operators employing subsurface and
"trend-ology" geological mapping methods. The lack of applied technology and the
stratigraphic reservoir complexity in the basin has resulted in low drilling
success rates and overall poor economic results. Expanded use of 3-D seismic
technology to image D-Sand and J-Sand reservoir should enhance the economic
results and expedite the discovery process. To date, less than 203-D seismic
surveys have been acquired within the Denver basin. Geoscientists employed by
the Company have been directly involved in eight of these projects. These
projects have proven the economic viability of 3-D seismic in unraveling the
stratigraphic complexity and productivity of Cretaceous incised valley-fill
reservoirs and have resulted in the identification and production of significant
incremental reserves.
15
<PAGE>
Geological and geophysical methodologies developed internally by the
Company allow for the identification and differentiation of significant economic
reserves from the background of marginal producers common in the Denver basin.
The application of these methodologies result in the potential for discovery of
significant reserves with high success rates and low finding costs. The Company
proposes to undertake a systematic exploration/exploitation effort in the Denver
basin. A regional stratigraphic framework for Cretaceous reservoirs has been
constructed leading to the identification of numerous D-Sand and J-Sand leads
and prospects. Detailed geologic work is underway to refine these leads and
prospects with regard to prospectivity, reserve potential and applicability of
3-D seismic imaging. The centerpiece of the proposed exploration/exploitation
effort will be the application of 3-D seismic to delineate and resolve
stratigraphic traps. Previous experience with 3-D seismic technology in the
Denver basin has provided a competitive advantage in risk reduction and
identification of prospective drilling locations. The Company has one
exploitation project underway in the basin, and is continuing efforts to develop
and define additional opportunities.
Peoria Unit. The Company, in partnership with Tyler-Rockies Exploration
Ltd., has developed an opportunity to redevelop the 7,000-acre Peoria (J-Sand)
Unit employing applied technology, including 3-D seismic reservoir
characterization, geostatistical analysis and modeling and possible short-radius
lateral drilling. Peoria, discovered in mid-1970, has produced 15.4 MMBoe (12.8
MMBbl and 15.86 Bcf) from a series of laterally discontinuous fluvial deposits
within an incised valley-fill sequence. The field has been developed on standard
80-acre spacing, and exhibits strong indications of significant stratigraphic
and structural compartmentalization as evidenced by reservoir correlation across
the field, multiple fluid contacts, reservoir performance, lack of response to
waterflooding and production history.
Previous experience with reservoir characterization in the basin with
valley-fill sequences suggests that stratigraphic compartmentalization occurs on
a scale of less than 40 acres. The result of this stratigraphic reservoir
compartmentalization is the potential identification of isolated, untapped or
incompletely swept reservoir pods that are inadequately sampled and produced at
standard 80-acre spacing. The Company has developed a plan to apply advanced 3-D
seismic reservoir characterization to identify and map prospective reservoir
compartments to be produced by selective infill and step-out drilling. Compared
to the production performance of surrounding fields with similar reservoir
properties, Peoria has significantly underperformed. Cumulative field production
has accounted for a 22 percent recovery of calculated original oil in place
(OOIP) of 57 MMBbl, leaving an estimated 10 percent of OOIP remaining to be
produced from selective infill and stepout drilling.
The Company and Tyler-Rockies Exploration have completed detailed
geological and engineering reservoir characterization, and have leased or
optioned approximately 2000 additional prospective acres in addition to the 7000
acres held by production within the Peoria Unit. The Company is currently
marketing the Peoria re-development project to the industry, and expects to
acquire 24.5 square miles of 3D seismic data in early 1998. After acquisition of
seismic data, the Company retains a 10 percent working interest in all wells
drilled within the project area.
Big Horn Basin, Wyoming and Montana
The Big Horn basin of Wyoming and Montana is an asymmetric intermontaine
basin of the Rocky Mountain foreland. Initial production was established in the
basin in 1906 with the discovery of Garland field. Cumulative production from
16
<PAGE>
the basin is in excess of 2.4 BBO and 1.8 TCF of gas. The vast majority of this
production has come from Paleozoic reservoirs trapped in basin-margin anticlinal
structures. The majority of major field discoveries (greater than 90 percent of
field total and cumulative production) were made prior to 1950.
Exploration Opportunity. While most of the early exploration in the basin
was the result of mapping of surface structures, recent exploration efforts have
focused on the application of detailed subsurface mapping to delineate
structural complexities not previously observed. Because most of the producing
anticlines are structurally uncomplicated at their surface expression, little
exploration effort has historically been applied to defining structural
compartmentalization and secondary culminations at depth. The advent of modern
geophysical technology, including the application of 3-D seismic, has increased
the ability to resolve the structural complexity of producing intervals. Recent
exploration and exploitation success at fields such as Gooseberry, Manderson,
Golden Eagle, and Enigma have resulted from this increased effort to understand
and delineate smaller-scaled secondary structural features.
The Company sees multiple exploration and exploitation opportunities in the
basin to identify unrecognized and untested structural culminations along
producing trends. Multiple potentially productive horizons exist on many of
these structural features creating attractive project economics and exploration
finding costs. The Company has identified a number of individual project focus
areas, and has secured a lease position, covering approximately 2,080 gross and
2,080 net acres, on its first exploration project in the basin. There are no
immediate plans to commence drilling on this prospect.
North Zimmerman Butte. The Company has developed an exploration lead, based
on subsurface geological analysis, north and west of the Zimmerman Butte field.
Zimmerman Butte field was discovered in 1945 and has produced over 1.3 MMBO from
several reservoirs. The productive area of the field covers less than 350 acres
on a surface structural feature that extends along trend for approximately five
miles. Subsurface analysis has indicated the possible presence of multiple
subsidiary structural features along this structural trend. Based on the
production potential of these structural leads, the Company acquired a lease
covering 2080 acres in the August 1997 BLM lease sale. The leasehold position
covers some but not all of the prospective acreage along trend. The Company is
currently negotiating an exploration joint venture with another independent oil
and gas company that controls the remaining prospective acreage. The Company
does not anticipate the drilling of a test well prior to the completion of
additional geological and geophysical analysis.
Geological and Geophysical Expertise
The Company's oil and gas finding capabilities are dependent upon the
effective application of 3-D seismic imaging technologies. The Company has
assembled a technically experienced staff of in-house geologists and
geophysicists with extensive experience involving the utilization of advanced
seismic data imaging and analysis, and have collectively participated in more
than 100 3-D seismic projects in diverse geological trends.
The Company also has access, both in-house and through consultants, to
state-of-the-art exploration hardware and software applications. The Company
owns one computer aided exploration workstation running the full suite of
GeoGraphix geologic mapping and analysis software. Additionally, the Company
owns one geophysical workstation employing SeisX 2-D and 3-D seismic
interpretation and analysis software. Through a strategic alliance with a
Denver-based 3-D seismic consulting firm (Interactive Earth Sciences
Corporation), the Company has full access to multiple UNIX-based seismic
interpretation workstations running the complete Schlumberger/GeoQuest seismic
analysis software package. Through this relationship, the Company also has full
access to GMA seismic modeling software as well as Paradigm Geophysical's
GeoDepth pre-stack depth migration software package.
17
<PAGE>
Drilling Activities
The Company drilled no gross or net wells in 1996. The Company does not
anticipate the drilling of any gross or net wells during the 1997 calendar year.
The Company does anticipate the drilling of an undetermined number of gross and
net wells during 1998, based on ongoing exploration efforts in California and
Colorado.
Production
The Company currently does not own any oil or gas production. The Company
has no immediate plans to acquire or purchase any production. The Company also
has no booked reserves at the current time and any near-term reserve additions
would result from successful exploration efforts.
Acreage
The Company currently controls, through lease, farmout, and option, the
following acreage position as detailed below:
State Gross Acres Net Acres
----- ----------- ---------
California 34,123 25,314
Colorado 9,000 900
Wyoming 2,080 2,080
------- ------ -------
TOTAL 45,203 28,294
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company as of and for the seven months (from inception) ended
December 31, 1996 ("1996"), and as of and for the eight months ended August 31,
1997 ("1997"). This discussion should be read in conjunction with the Company's
Financial Statements, the notes related thereto and the other financial data
included elsewhere in this Registration Statement.
Overview
The Company is an independent oil and gas exploration company whose
strategic focus is the application of advanced seismic imaging and computer
aided exploration technologies in the systematic search for commercial
hydrocarbon reserves, primarily in the onshore western United States. The
Company attempts to leverage its technical experience and expertise with 3-D
seismic to identify exploration and exploitation projects with significant
potential economic return. The Company intends to participate in selected
exploration projects as a non-operating, working interest owner, sharing both
risk and rewards with its partners. The Company was formed in May 1996 to pursue
exploration opportunities in regions where the Company believes significant
opportunity for discovery of oil and gas exists. By reducing drilling risk
through 3-D seismic technology, the Company seeks to improve the expected return
on investment in its oil and gas exploration projects.
18
<PAGE>
During 1996, the Company commenced its business operations and identified
specific initial projects for focus. The Company undertook no drilling and had
no revenues from oil and gas production during 1996.
During 1997, the Company incurred approximately $311,000 for various direct
costs and expenses relating to its identified exploration and exploitation
projects. The Company undertook no drilling and had no revenues from oil and gas
production during 1997. To finance its operations and obtain funds for
additional capital expenditures relating to its exploration projects, the
Company sold equity securities through private placement offerings raising
approximately $1,743,000 net to the Company.
The Company currently anticipates that it will participate in the drilling
of one to three gross exploratory wells during its fiscal year ending August 31,
1998 ("1998"), although the number of wells may increase as additional projects
are added to the Company's portfolio. However, there can be no assurance that
any such wells will be drilled and if drilled that any of these wells will be
successful. See "RISK FACTORS-Start-Up Nature Of The Company's Oil And Gas
Business; Absence Of Profits."
The Company's future financial results will depend primarily on (i) the
Company's ability to discover commercial quantities of hydrocarbons; (ii) the
market price for oil and gas; (iii) the Company's ability to continue to source
and screen potential projects; and (iv) the Company's ability to fully implement
its exploration and development program. There can be no assurance that the
Company will be successful in any of these respects or that the prices of oil
and gas prevailing at the time of production will be at a level allowing for
profitable production. See "RISK FACTORS - Start-Up Nature of The Company's Oil
And Gas Business; Absence Of Profits," "- Substantial Capital Requirements And
Liquidity" and "- Risks Of Exploratory Drilling Activities."
In connection with the implementation of its exploration and development
program, the Company intends to use a portion of its existing cash resources to
expand its technical and support staff. As a result, the Company anticipates
that its general and administrative expenses will increase in 1998. Further, the
Company anticipates incurring additional legal, administrative and accounting
costs in future periods as a result of being a public company.
Results of Operations
Inception (May 31, 1996) through December 31, 1996 ("1996") compared with
the eight months ended August 31, 1997 ("1997")
Oil and Gas Revenues and Expenses. At August 31, 1997 (and at the date of
this Prospectus), the Company did not own any producing or proved oil and gas
properties. No oil and gas revenues or expenses have been recorded by the
Company.
Depreciation, Depletion and Amortization. The Company recorded no depletion
expense from oil and gas properties in 1996 or 1997. At August 31, 1997 (and at
the date of this Prospectus), the Company did not own any proved reserves and
has no oil or gas production. The Company recorded nominal depreciation expense
associated with capitalized office furniture and equipment during 1996 and 1997.
The Company also recorded nominal amortization expense associated with
organization costs during 1996 and 1997.
General and Administrative Expense. The Company incurred $7,000 and
$101,000 in general and administrative expenses during 1996 and 1997,
respectively. The increase results from incurring costs associated with the
19
<PAGE>
hiring of technical personnel, leasing of office space, and legal and accounting
and other costs associated with administering and pursuing the development of
the Company's exploration and exploitation plan.
Consulting Fee Revenue. The Company generated $37,000 and $80,000 from
consulting fees in 1996 and 1997, respectively. These revenues are considered to
be ancillary to the Company's focus of generating revenues from oil and gas
production. These revenues may decrease or cease completely at any time in the
future.
Liquidity and Capital Resources
At August 31, 1997, the Company had working capital in the amount of
$1,376,000. To date, the Company has funded its oil and gas exploration
activities principally through cash provided by the sale of its equity
securities.
Cash used in investing activities during 1997 totaled $327,000. Of this
amount, $298,000 was used in conjunction with the Company's oil and gas
exploration and exploitation plan, and $29,000 was used for office furniture and
equipment.
The Company has no outstanding long-term debt and has not entered into any
commodity swap arrangements or hedging transactions. Although it has no current
plan to do so, it may incur long term debt in the future in order to fund
development of oil and gas producing properties, and it may also enter into
commodity swap and/or hedging transactions in the future in conjunction with oil
and gas production. Nevertheless, there can be no assurance that the Company
will ever have oil and gas production. See "RISK FACTORS - Risks Of Exploratory
Drilling Activities".
The future development of the Company's business will require substantial
capital expenditures. If all the outstanding Warrants are exercised, of which
there is no assurance, the Company would receive approximately $5,651,100, net
of sales commissions, from the exercise of outstanding warrants during the
fiscal year ending August 31, 1998. To the extent that these warrants expire
without being exercised, the Company will be limited or completely unable to
fund its exploration and exploitation activities until additional financing is
available. There can be no assurance such financing would be available. See
"RISK FACTORS - Substantial Capital Requirements And Liquidity". To the extent
sufficient funding is available, capital expenditures for the 12 month period
ending August 31, 1998 are expected to be up to $4,500,000. See "RISK FACTORS
Broad Discretion Over Use of Proceeds" and "USE OF PROCEEDS".
MANAGEMENT
The directors and executive officers of the Company, their respective
positions and ages, and the year in which each director was first elected, are
set forth in the following table. Each director has been elected to hold office
until the next annual meeting of stockholders and thereafter until his successor
is elected and has qualified. Additional information concerning each of these
individuals follows the table.
<TABLE>
<CAPTION>
Name Age Position with the Company Director Since
---- --- ------------------------- --------------
<S> <C> <C> <C>
D. Scott Singdahlsen 39 Chief Executive Officer, 1997
President, and Chairman
of the Board
Robert B. Suydam 59 Secretary ---
Andrew P. Calerich 33 Chief Financial Officer ---
Gregory B. Barnett 36 Director 1997
Keith F. Carney 41 Director 1997
</TABLE>
20
<PAGE>
D. Scott Singdahlsen has served as President, Chief Executive Officer, and
Chairman of the Board of the Company since August 1997. Mr. Singdahlsen
co-founded PYR Energy, LLC in 1996, and served as General Manager and
Exploration Coordinator. In 1992, Mr. Singdahlsen co-founded Interactive Earth
Sciences Corporation, a 3-D seismic management and interpretation consulting
firm in Denver, where he served as officer and lead seismic interpretation
specialist from 1992 to 1996. Prior to forming Interactive Earth Sciences
Corporation, Mr. Singdahlsen was employed as a Development Geologist for Chevron
USA in the Rocky Mountain region. At Chevron, Mr. Singdahlsen was involved in
3-D seismic reservoir characterization projects and geostatistical analysis. Mr.
Singdahlsen started his career at UNOCAL as an Exploration Geologist in Midland,
Texas. Mr. Singdahlsen earned a B.A. in Geology from Hamilton College and a M.S.
in Structural Geology from Montana State University.
Robert B. Suydam has served as Secretary of the Company since August 1997.
Mr. Suydam co-founded PYR Energy, LLC in 1996 and served as Chief Geologist.
Since 1985, Mr. Suydam served as exploration coordinator for Snyder Oil, Gerrity
Oil, and Energy Minerals in Denver. Prior to this employment, Mr. Suydam served
as Vice President of Exploration for National Oil Company, and as Exploration
Manager for Hamilton Brothers Oil Company in Denver and Calgary. Mr. Suydam
started his career as an exploration Geologist at Texaco in Denver, Calgary, and
New Orleans. Mr. Suydam earned a B.S. and M.S. in Geology from the University of
Wyoming.
Andrew P. Calerich has served as Chief Financial Officer of the Company
since August 1997. From 1993 to 1997, Mr. Calerich was a business consultant
specializing in accounting for private oil and gas producers in Denver. From
1990 to 1993, Mr. Calerich was employed as corporate Controller at Tipperary
Corporation, a public oil and gas company in Denver. Mr. Calerich began his
professional career in public accounting in the tax department at Arthur
Andersen & Company. Mr. Calerich is a Certified Public Accountant and earned
B.S. degrees in both Accounting and Business Administration at Regis College.
Gregory B. Barnett has served as a Director of the Company since August
1997. Mr. Barnett is President of EnerCOM, Inc., a Denver-based consulting firm
specializing in financial public relations for a variety of private and public
petroleum companies. From 1993 to 1994, Mr. Barnett served as Director of
Investor Relations at Gerrity Oil Corporation in Denver. From 1988 to 1993, Mr.
Barnett was employed as Director of Investor Relations at Maxus Energy
Corporation in Dallas. Mr. Barnett is past President of the Rocky Mountain
chapter of the Petroleum Investor Relations Association, a member of the
National Association of Petroleum Investment Analysts and National Investor
Relations Institute. Mr. Barnett received a B.B.A. degree from the University of
Texas-Arlington.
Keith F. Carney has served as a Director of the Company since August 1997.
Mr. Carney is Chief Financial Officer of Cheniere Energy, Inc., a Houston based
public oil and gas exploration company. From 1992 to 1996, Mr. Carney was
employed as a Securities Analyst in the oil and gas exploration/production
sector with Smith Barney, Inc. Mr. Carney began his career as an exploration
Geologist at Shell Oil after earning B.S. and M.S. degrees in Geology from
Lehigh University. Mr. Carney also received a M.B.A. from the University of
Denver in 1992.
21
<PAGE>
Other Key Employees - Other key employees of the Company include the following:
Kenneth R. Berry, Jr. has served as Land Manager for the Company since
October 1997. Mr. Berry is responsible for the management of all land issues
including leasing and permitting. Mr. Berry has 23 years of experience as an
independent landman. Prior to joining the Company, Mr. Berry served as the
managing land consultant for Swift Energy Company in the Rocky Mountain region.
Mr. Berry began his career in the land department with Tenneco Oil Company after
earning a B.A. degree in Petroleum Land Management at the University of
Texas-Austin.
Richard A. Castle has served as Senior Explorationist for the Company since
August 1997, and is currently exploration coordinator for the San Joaquin
project. Mr. Castle has 26 years of technical and management experience. Prior
to joining the Company, Mr. Castle was Project Geologist for WaveTech
Geophysical, a Denver based 3-D seismic service provider. From 1994 to 1996, Mr.
Castle was employed as a Senior Geologist for Ampolex, USA in Denver where he
served as new ventures coordinator. From 1989 to 1994, Mr. Castle was a
geological consultant in Denver. From 1974 to 1989, Mr. Castle was employed by
Union Pacific Resources Corporation where he served in various technical and
management roles including Regional Geologist and Exploration Manager for the
Pacific Division. Mr. Castle began his career at Shell Oil in Houston and Los
Angeles after earning a B.S. degree in Geology at the University of Illinois and
a M.S. degree in Geology from the Louisiana State University.
Lisa A. Mallin has served as Geologist-CAEX for the Company since August
1997. Ms. Mallin is responsible for all aspects of computer aided exploration
including mapping and geophysical workstation system administration. Prior to
joining the Company, Ms. Mallin served in various exploration and production
capacities with Amoco, Snyder Oil, Intera Information Technologies, Nicor Oil
and Gas, Louisiana Land and Exploration, and Amerada Hess. Ms. Mallin earned a
B.A. degree in Geology from the University of Northern Colorado.
Committees Of The Board Of Directors
The Board of Directors currently has a Compensation Committee. The
Compensation Committee has the authority to establish policies concerning
compensation and employee benefits for employees of the Company. The
Compensation Committee reviews and makes recommendations concerning the
Company's compensation policies and the implementation of those policies and
determines compensation and benefits for executive officers. The Compensation
Committee currently consists of Messrs. Barnett and Carney.
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
Summary Compensation Table
- --------------------------
The following table sets forth in summary form the compensation paid to the Company's current and former President during
the period from the Company's inception on May 31, 1996 until its fiscal year ended August 31, 1996, and during the fiscal year
ended August 31, 1997. No employee of the Company received total salary and bonus exceeding $100,000 during either of the fiscal
years ended August 31, 1996 and 1997.
Annual Compensation
Name and Fiscal Long-Term Other Annual
Principal Position Year Ended Salary ($)(1)(2) Bonus ($) Compensation Options Compensation ($)
- ------------------ ---------- ---------------- --------- -------------------- ----------------
<S> <C> <C> <C> <C> <C>
D. Scott Singdahlsen, 1997 $10,250 -0- -0- -0-
President 1996 $ -0- -0- -0- -0-
Buddy Young, 1997 $ -0- -0- -0- 15,800 (3)
Former President 1996 $ -0- -0- -0- 14,000 (3)
</TABLE>
22
<PAGE>
- ---------------------
(1) The dollar value of base salary (cash and non-cash) received.
(2) Includes $4,000 paid as consulting fees to Mr. Singdahlsen by PYR Energy,
LLC during the period from January 1, 1997 through August 6, 1997.
(3) The amount shown represents a consulting fee paid to Mr. Young.
The 1997 Stock Option Plan
In August 1997, the Board of Directors of the Company approved the
Company's 1997 Stock Option Plan (the "1997 Plan") which subsequently was
approved by the Company's stockholders effective as of November 12, 1997.
Pursuant to the 1997 Plan, the Company may grant options to purchase an
aggregate of 1,000,000 shares of the Company's Common Stock to key employees,
directors, and other persons who have or are contributing to the success of the
Company. The options granted pursuant to the 1997 Plan may be either incentive
options qualifying for beneficial tax treatment for the recipient or
nonqualified options. The 1997 Plan may be administered by the Board of
Directors or by an option committee that determines the terms of the options
subject to the requirements of the 1997 Plan. At October 20, 1997, options to
purchase 171,000 shares were outstanding under the 1997 Plan.
BENEFICIAL OWNERS OF SECURITIES
As of October 21, 1997, there were 9,154,804 shares of the Company's $.001
par value common stock (the "Common Stock") outstanding. The following table
sets forth certain information as of October 21, 1997, with respect to the
beneficial ownership of the Company's Common Stock by each director, by all
executive officers and directors as a group, and by each other person known by
the Company to be the beneficial owner of more than five percent of the
Company's Common Stock:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned (1) Shares Outstanding
- ---------------- ---------------------- ------------------
<S> <C> <C>
D. Scott Singdahlsen 2,000,000 21.8%
1675 Broadway, Suite 1150
Denver, Colorado 80202
Robert B. Suydam 1,300,000(2) 14.2%
1675 Broadway, Suite 1150
Denver, Colorado 80202
Gregory B. Barnett 200,000 2.2%
1675 Broadway, Suite 1150
Denver, Colorado 80202
Keith F. Carney 200,000 (3) 2.2%
915 Bay Oaks Road
Houston, Texas 77008
All Officers and Directors as a group 3,700,000 40.0%
(five persons)
PinOak Inc. 1,300,000 (2) 14.2%
5037 South Oak Court
Littleton, Colorado 80127
Greyledge LLC 889,066 (3) 9.3%
237 Park Avenue
21st Floor
New York, New York 10017
BSR Investments 880,000 (3) 9.2%
97 Avenue Henri Martin
Paris, France 75016
Bernard Young and Rebecca Young 556,988 (4) 6.1%
as trustees for the Young Family Trust
dated October 1992
5269 Amestoy Avenue
Encino, California 91316
Gail D. Forster 501,600 (3) 5.3%
237 Park Avenue
New York, New York 10017
</TABLE>
23
<PAGE>
- -----------------
(1) "Beneficial ownership" is defined in the regulations promulgated by the
U.S. Securities and Exchange Commission as having or sharing, directly or
indirectly (i) voting power, which includes the power to vote or to direct
the voting, or (ii) investment power, which includes the power to dispose
or to direct the disposition, of shares of the common stock of an issuer.
Unless otherwise indicated, the beneficial owner has sole voting and
investment power.
(2) The shares shown for Mr. Suydam are owned of record by PinOak Inc.
("PinOak"). These shares are included twice in the table. They are listed
as being held beneficially by both PinOak and by Mr. Suydam. PinOak is
owned by Mr. Suydam's wife and Mr. Suydam is the President of PinOak.
(3) The number of shares indicated includes the following number of shares
underlying warrants that currently are exercisable and held by each of the
following persons: Keith F. Carney, 100,000; Greyledge LLC, 444,533; BSR
Investments 440,000; and Gail D. Forster, 250,800.
(4) The number of shares indicated does not include 40,000 shares owned by Mr.
and Mrs. Young and an aggregate of 16,917 additional shares held by the son
and daughter of Mr. and Mrs. Young and their spouses for themselves and as
custodians for their children. Pursuant to Rule 16a-1(a)(4), Mr. and Mrs.
Young disclaim beneficial ownership of shares held by their children and
the spouses of their children.
TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES
Acquisition Of PYR Energy
The Company acquired all the ownership interest in PYR Energy on August 6,
1997 in exchange for 4,000,000 shares of the Company's Common Stock. Mr.
Singdahlsen received 2,000,000 shares of the Company's Common Stock in that
transaction in exchange for the 50 percent of PYR Energy that he owned
immediately prior to the transaction. PinOak, a company of which Mr. Suydam is
the President and whose sole shareholder is Mr. Suydam's wife, received
1,300,000 shares of the Company's Common Stock in that transaction in exchange
for PinOak's ownership of 32.5 percent of the ownership interests in PYR Energy
immediately prior to the transaction. In connection with that transaction, the
Company agreed to appoint each of Messrs. Singdahlsen, Carney and Barnett to
constitute all the members of the Company's Board Of Directors.
Loan To PYR Energy
- ------------------
In June 1997, PYR Energy borrowed $275,000 from the Company in order to
fund certain of PYR's obligations pursuant to PYR Energy's lease and seismic
option in the San Joaquin basin. See "BUSINESS AND PROPERTIES". PYR Energy
secured that loan with a pledge of PYR Energy's interest in the lease and
seismic option. The loan accrues interest at a rate of eight percent per annum.
Interest is payable at the end of each calendar quarter. The loan was
effectively eliminated upon consummation of the Company's acquisition of PYR
Energy.
24
<PAGE>
Sale Of Assets To former Director And Officer
- ---------------------------------------------
Effective as of August 6, 1997, the Company sold all the assets not related
to the Company's business of oil and gas exploration, development and
consulting, and not related to the Company's principal office in Denver,
Colorado to Buddy Young, a principal stockholder and a former director and
officer of the Company. The purchase price for the assets was $32,000, which was
paid in the form of a release from Mr. Young to the Company of the Company's
obligation to repay the $32,000 it owed to Mr. Young. The Company's approximate
$32,000 obligation to Mr. Young had been incurred through advances from Mr.
Young to the Company for working capital purposes. At August 6, 1997 there were
outstanding $17,852 of accounts receivable related to the assets that Mr. Young
obtained the right to receive. Mr. Young also assumed all liabilities related to
the assets. The Company also assigned to Mr. Young the lease for the Company's
office in Encino, California, and Mr. Young assumed the Company's obligations
under the lease. The Company obtained a release from the landlord for additional
obligations under the lease.
In addition to the accounts receivable described above, the assets sold to
Mr. Young consisted primarily of the Company's interests in three television
programs, "Heartstoppers . . . At The Movies", a two-hour television program
hosted by George Hamilton, "Christmas At The Movies", a one- hour television
program hosted by Gene Kelly, and "It's A Wonderful Life - A Personal
Remembrance", an approximately 15-minute television program hosted by Frank
Capra, Jr., and the office furniture and supplies in the Company's former office
in Encino, California. The television programs previously had been held by the
Company for licensing to various television and cable television operators.
During the year ended August 31, 1997, the Company received licensing fees of
$15,216 for the television programming assets sold to Mr. Young. The low revenue
amount was mainly due to the programs' previously having been licensed in most
major territories. Because, as a result of the Company's acquisition of PYR
Energy LLC, the Company determined to focus its activities on oil and gas
exploration, development and consulting and to locate its principal office in
Denver, Colorado, the Company determined that it was in its best interests to
sell the assets of the Company that were not related to this business and to
assign its office lease in Encino, California.
DESCRIPTION OF SECURITIES
General
The Company's authorized capital consists of 30,000,000 shares of $.001 par
value Common Stock. The Company had 9,154,804 shares of Common Stock issued and
outstanding as of October 21, 1997 which were held by approximately 710
stockholders. The Company had outstanding Class A Warrants to purchase 2,047,500
shares of Common Stock and Class B Warrants to purchase 2,047,500 shares of
Common Stock as of October 6, 1997 which were held by 33 warrant holders. The
following is a description of the Company's Common Stock and Warrants.
Common Stock
Each share of the Common Stock is entitled to share equally with each other
shares of Common Stock in dividends from sources legally available therefore,
when, as, and if declared by the Board of Directors and, upon liquidation or
dissolution of the Company, whether voluntary or involuntary, to share equally
25
<PAGE>
in the assets of the Company that are available for distribution to the holders
of the Common Stock. Each holder of Common Stock of the Company is entitled to
one vote per share for all purposes, except that in the election of directors,
each holder shall have the right to vote such number of shares for as many
persons as there are directors to be elected. Cumulative voting shall not be
allowed in the election of directors or for any other purpose, and the holders
of Common Stock have no preemptive rights, redemption rights or rights of
conversion with respect to the Common Stock. All outstanding shares of Common
Stock and all shares underlying the Warrants when issued will be fully paid and
nonassessable by the Company. The Board of Directors is authorized to issue
additional shares of Common Stock within the limits authorized by the Company's
Certificate Of Incorporation and without stockholder action.
All shares of Common Stock have equal voting rights and voting rights are
not cumulative. The holders of more than 50 percent of the shares of Common
Stock of the Company could, therefore, if they chose to do so, elect all the
directors of the Company.
Upon liquidation, dissolution or winding up of the Company, the assets of
the Company, after satisfaction of all liabilities, will be distributed pro rata
to the holders of the Common Stock.
The Company has not paid any cash dividends since its inception.
The Company has reserved a sufficient number of shares of Common Stock for
issuance in the event that all the Warrants are exercised. In addition, the
Company has reserved a sufficient number of shares of Common Stock for issuance
upon the exercise of options under the Company's 1997 Stock Option Plan.
Warrants
The Class A Warrants entitle the registered holders thereof to purchase an
aggregate 2,047,500 shares of Common Stock on or before January 15, 1998 at an
exercise price of $1.25 per share. The Class B Warrants entitle the registered
holders thereof to purchase an aggregate 2,047,500 shares of Common Stock on or
before April 15, 1998 at an exercise price of $1.75 per share.
The exercise price of the Warrants was arbitrarily established and there is
no assurance that the price of the Common Stock will be at a level at which
exercise of the Warrants would be of any economic value to a holder of the
Warrants.
The Warrants may be exercised upon the surrender of the Warrant certificate
on or prior to the expiration of the exercise period, and accompanied by payment
of the full exercise price for the number of Warrants being exercised. No rights
of a stockholder inure to a holder of Warrants until such time as a holder has
exercised Warrants and has been issued shares of Common Stock.
Delaware Anti-Takeover Law
Generally, Section 203 of the Delaware General Corporation Law ("GCL"), to
which the Company is subject, prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to the date of the business
combination, the transaction is approved by the board of directors of the
corporation, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85 percent of the outstanding voting stock, or (iii) on or after such
date the business combination is approved by the board and by the affirmative
vote of at least 66 2/3 percent of the outstanding voting stock which is not
owned by the interested stockholder. A "business combination" includes a merger,
asset sale and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15 percent or
more of the corporation's voting stock.
26
<PAGE>
Transfer Agent And Registrar
The transfer agent and registrar of the Company is U.S. Stock Transfer
Corporation.
INACTIVE TRADING OF THE COMMON STOCK
Although the Company's common stock is publicly held, there currently is
not an active trading market for the common stock. See "RISK FACTORS - Inactive
Trading Of The Common Stock; Possible Volatility Of Stock Price".
To the extend that there is trading in the Company's common stock, of which
there is not assurance, the common stock trades in the over-the-counter market
and is quoted on the OTC Bulletin Board. It is not quoted on the NASDAQ system
or any exchange. The closing quotes for the Common Stock on October 21, 1997
were $1.625 bid and $1.5625 asked. It should be assumed that even with this OTC
Bulletin Board quote, there is an extremely limited trading market - and very
little liquidity - for the Company's common stock.
SELLING SECURITY HOLDERS
The Company is registering (A) the transfer of 4,095,000 shares of Common
Stock received by the Selling Security Holders in the Private Placements, (B)
the exercise of Class A Warrants to purchase an aggregate 2,047,500 shares of
Common Stock and the exercise of Class B Warrants to purchase an aggregate
2,047,500 shares of Common Stock by the Selling Security Holders, and (C) the
transfer of the 4,095,000 shares of Common Stock that may be acquired by the
Selling Security Holders upon the exercise of their Warrants. The Selling
Security Holders may transfer their Common Stock at such prices as they are able
to obtain in the market. The Company will not receive any proceeds from the
transfer of the Common Stock by the Selling Security Holders. The following
table sets forth the name of each Selling Security Holder, the number of shares
of Common Stock underlying the Warrants held by the Selling Security Holders
before this Offering, the number of shares of Common Stock owned by the Selling
Security Holders before this Offering, the number of shares of Common Stock to
be sold by the Selling Security Holders assuming they exercise their Warrants,
and the number of shares owned by the Selling Security Holders after this
Offering. None of the Selling Security Holders has held any position or office,
or had any material relationship with the Company or its affiliates in the past
three years except for Keith F. Carney who has been a director of the Company
since August 1997.
27
<PAGE>
<TABLE>
<CAPTION>
Number Of
Shares Of
Common Stock Number Of Number Of
Owned Before Shares To Be Shares Owned
Name Offering (1) Offered (2) After Offering
- ---- ------------ ----------- --------------
<S> <C> <C> <C>
Greyledge LLC 889,066 889,066 0
Gail D. Forster 501,600 501,600 0
BSR Investments Ltd. 880,000 880,000 0
Ostis Ventures 440,000 440,000 0
Apex Investment Fund, Ltd. 400,000 400,000 0
Guildford Manor 400,000 400,000 0
Sandra J. Kessler 394,200 394,200 0
Paul L. Kessler, IRA 205,800 205,800 0
Marc Ezralow 140,000 140,000 0
Bryan Ezralow, TTEE 140,000 140,000 0
Cinco de Mayo 186,666 186,666 0
WillisWei Corp. 280,000 280,000 0
Ted Koutscubos 280,000 280,000 0
Andrew Lessman 280,000 280,000 0
Vivaldi, Ltd. 280,000 280,000 0
Peter T. Dixon, TTEE 100,000 100,000 0
Peter T. Dixon, TTEE 100,000 100,000 0
Joe Sam Robinson 200,000 200,000 0
Hugh F. Smisson, III 80,000 80,000 0
John S. Neel, Jr. 26,668 26,668 0
Ralph O. Hellmold 100,000 100,000 0
Richard Liipfert 80,000 80,000 0
Joseph F. Cullman III 136,000 136,000 0
Joe Weinberg 176,000 176,000 0
Marshall Ezralow, TTEE 64,000 64,000 0
Walter L. Williams 80,000 80,000 0
Keith F. Carney 200,000 200,000 0
G. Tyler Runnels 200,000 200,000 0
Holstem Securities 200,000 200,000 0
James E. Moore, TTEE 200,000 200,000 0
David Crockett 200,000 200,000 0
Kim Fuerst 200,000 200,000 0
Ronald Cochran 150,000 150,000 0
TOTALS 8,190,000 8,190,000 0
</TABLE>
- ----------
(1) Because the Warrants held by the Selling Security Holders currently are
exercisable, the shares issuable upon the exercise of the Warrants are
considered beneficially owned by the Selling Security Holder. The number of
shares underlying the Warrants held by each Selling Security Holder are
included in the "Number Of Shares Of Common Stock Owned Before Offering".
(2) The number of shares of Common Stock to be sold assumes that the Selling
Security Holders exercise all their Warrants and elect to sell all the
shares of Common Stock received upon the exercise of the Warrants and all
the shares of Common Stock received in the Private Placements.
PLAN OF DISTRIBUTION
This Prospectus relates to (A) the transfer of 4,095,000 shares of the
Common Stock by the Selling Security Holders received in the Private Placements;
(B) the registration of the exercise of Class A Warrants to purchase an
aggregate 2,047,500 shares of Common Stock and the exercise of Class B Warrants
to purchase an aggregate 2,047,500 shares of Common Stock by the Selling
Security Holders; and (C) the resale of the 4,095,000 shares of Common Stock
28
<PAGE>
that may be acquired by the Selling Security Holders upon the exercise of the
Warrants. The Company has agreed to pay Stonington Partners Group, the placement
agent of the Warrants, an amount equal to eight percent of the exercise price
paid in connection with the exercise of any of the Class A Warrants or Class B
Warrants. The transfer of the Common Stock by the Selling Security Holders
covered by this Prospectus will be completed, if at all, by the Selling Security
Holders, and not by the Company. If any of these shares are transferred by a
Selling Security Holder, they will be transferred on behalf of that person. It
is anticipated that those securities may be offered pursuant to direct sales to
private persons and in open market transactions. The Selling Security Holders
may offer the shares to or through registered broker-dealers who will be paid
standard commissions or discounts by the Selling Securities Holder. The Company
has no agreements with brokers to transfer any or all of the securities which
may be offered hereby.
SHARES AVAILABLE FOR FUTURE SALE
Common Stock previously issued by the Company to certain stockholders in
private offerings will be "restricted" securities ("Restricted Common Stock")
for purposes of Rule 144 ("Rule 144") promulgated under the Securities Act and
may not be sold without registration under the Securities Act unless an
exemption from registration is available, including exemptions contained in Rule
144. See "RISK FACTORS-Shares Available For Future Sale Could Adversely Affect
Share Price".
In general, under Rule 144 as currently in effect, if one year has elapsed
since the date of acquisition of Restricted Common Stock either from the Company
or from any Affiliate of the Company, whichever is later, the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares of Restricted Common Stock that does not exceed the greater of
one percent of the then outstanding Common Stock or the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 also
are subject to certain manner of sale provisions, notice requirements, and the
availability of current public information about the Company. If two years have
elapsed since the date of acquisition of Restricted Common Stock from the
Company or from any affiliate of the Company, and the acquiror or subsequent
holder thereof is deemed not to have been an affiliate of the Company at any
time during the 90 days preceding a sale, that person would be entitled to sell
those shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements of Rule 144.
No prediction can be made as to the effect, if any, that future sales of
Common Stock, or the availability of Common Stock for future sale, will have on
the market price prevailing from time to time. Sales of substantial amounts of
Common Stock, or the perception that such sales occur, could adversely affect
prevailing market prices of the Common Stock.
SECURITIES AND EXCHANGE COMMISSION POSITION
ON CERTAIN INDEMNIFICATION
Pursuant to Delaware law, the Company's Board of Directors has the power to
indemnify officers and directors, present and former, for expenses incurred by
them in connection with any proceeding they are involved in by reason of their
being or having been an officer or director of the Company. The person being
indemnified must have acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Company. The
Company's Bylaws grant this indemnification to the Company's officers and
directors.
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
29
<PAGE>
LEGAL MATTERS
Bearman Talesnick & Clowdus Professional Corporation, Denver, Colorado, has
acted as counsel for the Company in connection with this Offering, including the
validity of the issuance of the securities offered hereby.
EXPERTS
The audited financial statements of the Company appearing in this
Prospectus have been examined by Wheeler Wasoff, P.C., independent certified
public accountants, as set forth in their report appearing elsewhere herein, and
are included in reliance upon such report and upon the authority of said firm as
experts in accounting and auditing.
CERTAIN DEFINITIONS
Unless otherwise indicated in this Prospectus, natural gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located at 60(degree)Fahrenheit. Oil equivalents are determined using the ratio
of 10 Mcf of natural gas to one barrel of crude oil, condensate or natural gas
liquids so that 10 Mcf of natural gas are referred to as one barrel of oil
equivalent or "BOE".
As used in this Prospectus, the following terms have the following specific
meanings: "Mcf" means thousand cubic feet, "Bcf" means billion cubic feet, "Bbl"
means barrel, "MBbl" means thousand barrels, "MMBoe" means million barrels of
oil equivalent, "MMBbl" means million barrels, and "MMBO " means million barrels
of oil.
With respect to information concerning the Company's working interests in
wells or drilling locations, "gross" gas and oil wells or "gross" acres is the
number of wells or acres in which the Company has an interest, and "net" gas and
oil wells or "net" acres are determined by multiplying "gross" wells or acres by
the Company's working interest in those wells or acres. A "working interest" in
an oil and gas lease is an interest that gives the owner the right to drill,
produce, and conduct operating activities on the property and to receive a share
of production of any hydrocarbons covered by the lease. A working interest in an
oil and gas lease also entitles its owner to a proportionate interest in any
well located on the lands covered by the lease, subject to all royalties,
overriding royalties and other burdens, to all costs and expenses of
exploration, development and operation of any well located on the lease, and to
all risks in connection therewith.
A "development well" is a well drilled as an additional well to the same
horizon or horizons as other producing wells on a prospect, or a well drilled on
a spacing unit adjacent to a spacing unit with an existing well capable of
commercial production and which is intended to extend the proven limits of a
prospect. The latter type of development well drilling is known as "step-out
drilling". An "exploratory well" is a well drilled to find commercially
productive hydrocarbons in an unproved area, or to extend significantly a known
prospect.
"Reserves" means natural gas and crude oil, condensate and natural gas
liquids on a net revenue interest basis, found to be commercially recoverable.
"Proved developed reserves" includes proved developed producing reserves and
proved developed behind-pipe reserves. "Proved developed producing reserves"
includes only those reserves expected to be recovered from existing completion
intervals in casing of existing wells when the cost of making such reserves
available for production is relatively small compared to the cost of a new well.
"Proved undeveloped reserves" includes those reserves expected to be recovered
from new wells on proved undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
30
<PAGE>
"Infill drilling" means drilling of an additional well or additional wells
in order to more adequately drain a reservoir.
"Stratigraphic trap" means a barrier that impedes the migration of
hydrocarbons caused by either a nonporous formation sealing off the top edge of
a reservoir bed or by a change of porosity and permeability within the reservoir
bed itself. "Strategraphic play" means a prospect targeted to test a
strategraphic trap.
"API" means a measure of gravity based on standards set by the American
Petroleum Institute.
"Cretaceous D-Sand and J-Sand reservoirs" means sandstone reservoirs that
contain hydrocarbons of Cretaceous age that are found in the Denver basin of
Colorado, Wyoming and Nebraska.
"Cretaceous incised valley-filled reservoirs" means sandstone reservoirs of
Cretaceous age that were deposited in valleys carved into underlying strata
during a period of falling sea level.
"Cretaceous reservoirs" means rock reservoirs most commonly comprised of
sandstone that were deposited during the Cretaceous Period. The Cretaceous
Period occurred between 66 and 144 million years before present.
"Down-spaced drilling" means a method of development drilling whereby well
density in a given area is increased by drilling between existing wells.
"Palynology analysis" means an analysis of a rock sequence through
examination of contained spores and/or pollen. A method of age dating strata.
"Reserve capture" means the quantification of hydrocarbon reserves as a
result of drilling and testing a reservoir.
"Steam floods" means a secondary recovery technique whereby steam is
injected into a hydrocarbon reservoir in an effort to mobilize heavy (tarry)
oil.
"Subthrust structure" means a fold of strata which is found beneath a
thrust fault.
"Swept reservoir pods" means distinct sandstone units that have been
depleted of hydrocarbons through the secondary recovery method of waterflooding.
"Thrusted anticlinal feature" means a fold of geologic strata that is
bounded by a trust fault, which is a fault that results in older strata
overlying younger strata.
"Turbidite" means a stratigraphic sequence deposited by turbidity currents,
commonly associated with submarine canyons.
31
<PAGE>
MAR VENTURES INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX
PAGE
----
Independent Auditor's Report F-2
Balance Sheets
December 31, 1996 and August 31, 1997 F-3
Statements of Operations
Period from Inception (May 31, 1996) to
December 31, 1996 and Eight Months Ended
August 31, 1997 F-4
Statements of Members'/Stockholders' Equity
Period from Inception (May 31, 1996) to
December 31, 1996 and Eight Months Ended
August 31, 1997 F-5
Statements of Cash Flows
Period from Inception (May 31, 1996) to
December 31, 1996 and Eight Months Ended
August 31, 1997 F-6 - F-7
Notes To Financial Statements F-8 - F-14
F - 1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders MAR VENTURES INC.
We have audited the accompanying balance sheets of Mar Ventures Inc. (a
development stage company) as of December 31, 1996 and August 31, 1997 and the
related statements of operations, members'/stock- holders' equity and cash flows
for the period from inception (May 31, 1996) to December 31, 1996 and for the
eight months ended August 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mar Ventures Inc. as of
December 31, 1996 and August 31, 1997, and the results of its operations and its
cash flows for the period from inception (May 31, 1996) to December 31, 1996 and
for the eight months ended August 31, 1997 in conformity with generally accepted
accounting principles.
WHEELER WASOFF, P.C.
Denver, Colorado
September 23, 1997
F - 2
<PAGE>
MAR VENTURES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
December 31, August 31,
1996 1997
----------- ------------
CURRENT ASSETS
Cash $ 11,536 $ 1,432,281
Accounts Receivable 527 10,000
Prepaid expenses -- 4,196
----------- -----------
Total Current Assets 12,063 1,446,477
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Furniture and equipment, net -- 28,540
Undeveloped oil and gas prospects -- 311,007
----------- -----------
-- 339,547
----------- -----------
OTHER ASSETS, net 427 3,642
----------- -----------
$ 12,490 $ 1,789,666
=========== ===========
LIABILITIES AND MEMBERS'/STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 527 $ 60,064
Accrued payroll taxes -- 10,184
----------- -----------
Total Current Liabilities 527 70,248
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
MEMBERS'/STOCKHOLDERS' EQUITY
Members equity 11,963 --
Common stock, $.001 par value
Authorized 30,000,000 shares
Issued and outstanding 9,154,804 shares -- 9,155
Capital in excess of par value -- 1,768,088
Deficit accumulated during the development stage -- (57,825)
----------- -----------
11,963 1,719,418
----------- -----------
$ 12,490 $ 1,789,666
=========== ===========
The accompanying notes are an integral part of the
financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
MAR VENTURES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Inception Eight Months Cumulative
(May 31, 1996) Ended from
to December 31, August 31, Inception to
1996 1997 August 31, 1997
---------------- -------------- ----------------
REVENUES
<S> <C> <C> <C>
Consulting fees $ 37,528 $ 80,000 $ 117,528
Interest -- 5,596 5,596
----------- ----------- -----------
37,528 85,596 123,124
----------- ----------- -----------
OPERATING EXPENSES
General and administrative 6,518 101,161 107,679
Interest -- 351 351
Depreciation and amortization 47 1,004 1,051
----------- ----------- -----------
6,565 102,516 109,081
----------- ----------- -----------
30,963 (16,920) 14,043
INCOME APPLICABLE TO PREDECESSOR LLC
(Note 1) (30,963) (40,905) (71,868)
----------- ----------- -----------
NET (LOSS) $ -- $ (57,825) $ (57,825)
=========== =========== ===========
PRO FORMA NET INCOME (LOSS) PER
COMMON SHARE (NOTE 2) $ .008 $ (.004) $ .003
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (NOTE 2) 4,000,000 4,644,351 4,343,654
=========== =========== ===========
The accompanying notes are an integral part of the
financial statements.
F - 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAR VENTURES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF MEMBERS'/STOCKHOLDERS' EQUITY
PERIOD FROM INCEPTION (MAY 31, 1996) TO DECEMBER 31, 1996
AND EIGHT MONTHS ENDED AUGUST 31, 1997
Deficit
Common Stock Accumulated
------------------------ Capital in During the
Members' Excess of Development
Equity Shares Amount Par Value Stage
<S> <C> <C> <C> <C> <C> <C> <C>
Inception, May 31, 1996 $ -- -- $ -- $ -- $ --
Initial member contributions 5,000 -- -- -- --
Distributions to members (24,000) -- -- -- --
Net income 30,963 -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 11,963 -- -- -- --
Member contributions 23,000 -- -- -- --
Distributions to members (42,000) -- -- -- --
Net income - January 1, 1997 to August 5, 1997 40,905 -- -- -- --
Issuance of common stock to members of PYR
Energy, LLC upon merger ($.008 per share) (33,868) 4,000,000 4,000 29,868 --
Recapitalization of shares issued by Mar prior
to merger -- 1,059,804 1,060 (724) --
Sale of common stock pursuant to private placement
at $.25 per share -- 2,095,000 2,095 521,655 --
Sale of common stock pursuant to private placement
at $.75 per share -- 2,000,000 2,000 1,498,000 --
Costs of private placement offerings -- -- -- (280,711)
Net (loss) August 6, 1997 to August 31, 1997 -- -- -- -- (57,825)
----------- ----------- ----------- ----------- -----------
Balance, August 31, 1997 $ -- 9,154,804 $ 9,155 $ 1,768,088 $ (57,825)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F - 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAR VENTURES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Inception Eight Months
(May 31, 1996) Ended Cumulative
to December 31, August 31, Amounts from
1996 1997 Inception
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 30,963 $ (16,920) $ 14,043
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 47 1,004 1,051
Changes in assets and liabilities
(Increase) in accounts receivable (527) (9,473) (10,000)
(Increase) in prepaids -- (2,591) (2,591)
Increase in accounts payable 527 45,103 45,630
Increase in accrued expenses -- 10,183 10,183
Other (474) (3,277) (3,751)
----------- ----------- -----------
Net cash provided by operating activities 30,536 24,029 54,565
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for furniture and equipment -- (29,481) (29,481)
Cash paid for undeveloped oil and gas properties -- (298,178) (298,178)
----------- ----------- -----------
Net cash (used) in investing activities -- (327,659) (327,659)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Members capital contributions 5,000 23,000 28,000
Distributions to members (24,000) (42,000) (66,000)
Cash from short-term borrowings -- 285,000 285,000
Repayments of short-term borrowings -- (285,000) (285,000)
Proceeds from sale of common stock -- 2,023,750 2,023,750
Cash paid for offering costs -- (280,711) (280,711)
Cash received upon recapitalization and merger -- 336 336
----------- ----------- -----------
Net cash (used) provided by financing activities (19,000) 1,724,375 1,705,375
----------- ----------- -----------
NET INCREASE IN CASH 11,536 1,420,745 1,432,281
CASH, BEGINNING OF PERIODS -- 11,536 --
----------- ----------- -----------
CASH, END OF PERIODS $ 11,536 $ 1,432,281 $ 1,432,281
=========== =========== ===========
The accompanying notes are an integral part of the
financial statements.
F - 6
</TABLE>
<PAGE>
MAR VENTURES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
PERIOD FROM INCEPTION (MAY 31, 1996) TO DECEMBER 31, 1996
AND EIGHT MONTHS ENDED AUGUST 31, 1997
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the eight months ended August 31, 1997 the Company paid cash for interest
on short-term borrowings of $351.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
In August 1997, 4,000,000 shares of common stock were issued to the members of
PYR Energy, LLC ("PYR") in exchange for 100 percent of the ownership interests
in PYR, for which the net members equity in PYR was $33,868. These shares were
issued pursuant to a plan of reorganization and merger effective August 6, 1997
(Notes 1 and 3).
F - 7
<PAGE>
MAR VENTURES INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and August 31, 1997
NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION
Mar Ventures Inc. ("Mar" or the "Company") was incorporated under the laws
of the State of Delaware on March 27, 1996 for the purpose of producing and
marketing traditional television programming and marketing its film
library. Mar is a public company which had no significant operations as of
July 31, 1997. On August 6, 1997 the Company acquired all the interests in
PYR Energy LLC ("PYR") (a Colorado Limited Liability Company organized on
May 31, 1996), a development stage company as defined by Statement of
Financial Accounting Standards (SFAS) No. 7. PYR, an independent
exploration company, is engaged in the acquisition of oil and gas
properties for exploration and exploitation in the Rocky Mountain region
and California. As of August 31, 1997 PYR had only acquired non-producing
leases and acreage and no exploration had been commenced on the properties.
Effective August 6, 1997, Mar transferred to its former president
substantially all its assets and liabilities that were related to its film
library operations. The net assets of Mar exchanged pursuant to the
transaction with PYR are as follows:
Cash $ 336
Assets 1,605
Liabilities (1,605)
-------
$ 336
=======
Upon completion of the acquisition of PYR by Mar, PYR ceased to exist as a
separate entity. Mar remained as the legal surviving entity. For financial
reporting purposes, the business combination was accounted for as an
additional capitalization of Mar (a reverse acquisition with PYR as the
acquirer). The accompanying financial statements as of December 31, 1996
and August 31, 1997 and for the periods then ended are those of PYR. The
operations of PYR will be the only continuing operations of the Company.
Prior to the business combination, Mar loaned $275,000 to PYR for amounts
owed by PYR with respect to its oil and gas operations. The loan was
eliminated in conjunction with the successful completion of the combination
of PYR and Mar.
The Company's fiscal year end is August 31.
F - 8
<PAGE>
MAR VENTURES INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and August 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Furniture and equipment is recorded at cost. Depreciation is provided by
use of the straight-line method over the estimated useful lives of the
related assets of three to five years.
Expenditures for replacements, renewals, and betterments are capitalized.
Maintenance and repairs are charged to operations as incurred. Depreciation
expense for 1997 was $941.
Undeveloped oil and gas properties consists of leases and acreage acquired
by the Company for its exploration and development activities. The cost of
these nonproducing leases is recorded at the lower of cost or fair market
value.
The Company has adopted SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of" which
requires that long-lived assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS
121 has not had an impact on the Company's financial statements, as the
Company has determined that no impairment loss for 1997 need to be
recognized for applicable assets of continuing operations.
ORGANIZATION COSTS
Costs related to the organization of the Company have been capitalized and
are being amortized over a period of five years.
INCOME TAXES
The Company has adopted the provisions of SFAS No. 109, "Accounting for
Income Taxes". SFAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
PYR was taxed as a Limited Liability Company until August 6, 1997, and as
such was not subject to federal and state income tax. Earnings and losses
through that date were included in the personal tax returns of its members,
and PYR did not record an income tax provision.
F - 9
<PAGE>
MAR VENTURES INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and August 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
At August 31, 1997, the Company had a net operating loss carryforward of
approximately $33,000 that may be offset against future taxable income
through 2012.
The Company has fully reserved the tax benefits of these operating losses
because the likelihood of realization of the tax benefits cannot be
determined.
The $6,300 tax benefit of the loss carryforward has been offset by a
valuation allowance of the same amount. The total tax benefit is
attributable to 1997.
Temporary differences between the time of reporting certain items for
financial and tax reporting purposes are not considered significant by
management of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
INCOME (LOSS) PER SHARE
Income (loss) per common share at August 31, 1997 is computed based on the
weighted average number of common shares outstanding during the period then
ended. Common shares issued to the members of PYR upon completion of Mar's
merger with PYR (Note 1) are considered outstanding for all periods
presented. Common stock equivalents at August 31, 1997, consisting of
warrants and options, are not considered in the calculation of net loss per
share as their inclusion would be antidilutive.
Pro forma income (loss) per share has been computed based on the income
(loss) of PYR for the period from inception to December 31, 1996 and the
eight months ended August 31, 1997 as if PYR was a corporation and not a
limited liability company, which distributes its earnings and losses to its
members.
SHARE BASED COMPENSATION
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued. This new standard defines a fair value based method of accounting
for an employee stock option or similar equity instrument. This statement
F - 10
<PAGE>
MAR VENTURES INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and August 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
gives entities a choice of recognizing related compensation expense by
adopting the new fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principles Board (APB)
Opinion No. 25. The Company has elected to utilize APB No. 25 for
measurement; and will, pursuant to SFAS No. 123, disclose supplementally
the pro forma effects on net income and earnings per share of using the new
measurement criteria. During the eight months ended August 31, 1997, the
Company issued options to purchase shares of its common stock (Note 4). The
effect of this issuance on pro forma net income and earnings per share it
not material.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers as cash
equivalents all highly liquid investments with a maturity of three months
or less at the time of purchase. At August 31, 1997, there were no cash
equivalents.
NOTE 3 - COMMON STOCK
Effective August 6, 1997 Mar completed a merger with PYR (Note 1). In
conjunction with the merger, the members of PYR received 4,000,000 shares
of common stock of Mar. These shares were recorded at the net member equity
of PYR as of that date of $33,868. The 1,059,804 Mar shares outstanding as
of the date of merger were recapitalized to the net assets of Mar of $336.
For financial statement reporting purposes, this was treated as a reverse
acquisition whereby PYR was considered the surviving and reporting entity.
For legal purposes, however, Mar remained as the surviving entity,
therefore the capital structure of the Company was accordingly restated.
In July 1997, the Company completed the sale of common stock and warrants
pursuant to a private placement as follows:
o 2,095,000 units, as a price of $.25 per unit, consisting of 2,095,000
shares of common stock, warrants to purchase 1,047,500 shares of
common stock at an exercise price of $1.25 per share before October
31, 1997, and warrants to purchase 1,047,500 shares of common stock at
an exercise price of $1.75 per share before January 31, 1998.
Subsequent to the offering, the warrant expiration date of October 31,
1997 was extended to January 15, 1998, and the warrant expiration date
of January 31, 1998 was extended to April 15, 1998.
F - 11
<PAGE>
MAR VENTURES INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and August 31, 1997
NOTE 3 - COMMON STOCK (CONTINUED)
In August 1997, the Company completed the sale of common stock and warrants
pursuant to a private placement as follows:
o 2,000,000 units, at a price of $.75 per unit, consisting of 2,000,000
shares of common stock, warrants to purchase 1,000,000 shares of
common stock at an exercise price of $1.25 per share before October
31, 1997, and warrants to purchase 1,000,000 shares of common stock at
an exercise price of $1.75 per share before January 31, 1998.
Subsequent to the offering, the warrant expiration date of October 31,
1997 was extended to January 15, 1998, and the warrant expiration date
of January 31, 1998 was extended to April 15, 1998.
Proceeds from these offerings were $523,750 and $1,500,000, respectively,
before costs of the offerings of $280,711.
NOTE 4 - STOCK OPTION PLAN
In August 1997, the Board of Directors approved the 1997 Stock Option Plan
(the "1997 Plan"). Pursuant to the 1997 Plan, the Company may grant options
to purchase 1,000,000 shares of the Company's common stock to key employees
and other persons who have or are contributing to the success of the
Company. The options granted pursuant to the 1997 Plan may be either
incentive options qualifying for beneficial tax treatment for the recipient
or non-qualified options. The 1997 Plan will be administered by the Option
Committee, which may consist of either (i) the Company's Board of
Directors, or (ii) a Committee, appointed by the Board of Directors, of two
or more non-employee directors. No option may be exercisable more than ten
years after the granting of the option, and no options may be granted under
the 1997 Plan after August 13, 2007. The exercise price of incentive
options granted can not be less than the fair market value of the
underlying common stock on the date the options are granted. No options
granted under the 1997 Plan may be exercised until approval of the 1997
Plan by the Company's stockholders has become effective, which will be on
or about November 12, 1997.
At August 31, 1997 the status of outstanding options granted pursuant to
the 1997 Plan was as follows:
<TABLE>
<CAPTION>
Unvested
Grant Options Options Options Exercise
Date Granted Vested Outstanding Price
<S> <C> <C> <C> <C> <C>
Executive Officer Aug. 13, 1997 75,000 - 75,000 $1.50
Employees Aug. 13, 1997 96,000 - 96,000 $1.50
F - 12
</TABLE>
<PAGE>
MAR VENTURES INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and August 31, 1997
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has entered into a non-cancelable lease, as amended, for office
facilities. Minimum payments due under this lease are as follows:
Years ending August 31,
1998 $ 35,515
1999 38,685
2000 38,685
2001 38,685
Rent expense was $0 and $8,694 for the period from inception to December
31, 1996 and for the eight months ended August 31, 1997, respectively.
The Company has acquired leases covering 2,080 acres in Wyoming from the
Bureau of Land Management ("BLM"). In order to maintain its rights to
explore these properties, the Company is obligated to pay the BLM a maximum
aggregate $3,120 annually for the undeveloped acres under lease. The amount
due has been paid for the lease period October 1, 1997 to September 30,
1998.
The Company entered into an agreement with Chevron U.S.A. Production
Company ("Chevron") for the Company to farm-in oil and gas prospects
located in the San Joaquin basin of California. The Company paid $275,000
upon execution of the agreement for certain rights including access to
certain proprietary 2D and 3D seismic data. The agreement provides for
exclusive rights to undertake oil and gas drilling and development
operations on lands owned in fee by Chevron. As part of the agreement, the
Company has an option to undertake the acquisition of additional 3D seismic
data and has agreed to drill a test well on a portion of the prospect
areas. In addition, as part of the agreement, the Company has agreed to
drill an additional test well on another portion of the prospect areas. The
Company has notified Chevron of its intent to undertake the acquisition of
additional 3D seismic data and in September 1997 the Company paid $10,000
to Chevron as an earnest money deposit in conjunction with the agreement.
The Company may be subject to various possible contingencies which are
primarily from interpretations of federal and state laws and regulations
affecting the oil and gas industry. Although management believes it has
complied with the various laws and regulations, new rulings and
interpretations may require the Company to make adjustments.
F - 13
<PAGE>
MAR VENTURES INC.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996 and August 31, 1997
NOTE 6 - RELATED PARTY TRANSACTIONS
In 1997 the Company paid an aggregate $14,000 in consulting fees to its
President and an entity owned by an officer of the Company; and borrowed an
aggregate $8,000 from two officers of the Company. The amount borrowed was
repaid with interest, at 8%, of $280 by August 31, 1997.
NOTE 7 - FINANCIAL INSTRUMENTS
FAIR VALUE
The carrying amount reported in the balance sheet for cash, prepaid
expenses, accounts payable and accrued liabilities approximates fair value
because of the immediate or short-term maturity of these financial
instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash. The Company maintains cash
accounts at one financial institution. At August 31, 1997, cash on deposit
at this financial institution exceeded federally insured amounts by
approximately $1,332,000. The Company periodically evaluates the credit
worthiness of financial institutions, and maintains cash accounts only in
large high quality financial institutions, thereby minimizing exposure for
deposits in excess of federally insured amounts.
F - 14
<PAGE>
======================================== ====================================
NO DEALER , SALESMAN OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE MAR VENTURES INC.
COMPANY. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE 4,095,000 Shares Of Common Stock
UNLAWFUL PRIOR TO REGISTRATION OR 4,095,000 Shares Of Common Stock
QUALIFICATION UNDER THE SECURITIES LAWS Underlying Common Stock
OF ANY SUCH STATE. Purchase Warrants
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY.................. 1
RISK FACTORS........................ 3
USE OF PROCEEDS..................... 8
CAPITALIZATION...................... 9
PRICE RANGE OF COMMON STOCK......... 10
DIVIDEND POLICY..................... 10
BUSINESS AND PROPERTIES............. 10
MANAGEMENT'S DISCUSSION AND PROSPECTUS
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......... 18
MANAGEMENT.......................... 20
EXECUTIVE COMPENSATION.............. 22
BENEFICIAL OWNERS OF SECURITIES..... 23
TRANSACTIONS BETWEEN THE
COMPANY AND RELATED PARTIES....... 24
DESCRIPTION OF SECURITIES........... 25
INACTIVE TRADING OF THE
COMMON STOCK...................... 27
SELLING SECURITY HOLDERS............ 27
PLAN OF DISTRIBUTION................ 29
SHARES AVAILABLE FOR FUTURE SALE.... 29
SECURITIES AND EXCHANGE
COMMISSION POSITION ON
CERTAIN INDEMNIFICATION........... 30
LEGAL MATTERS....................... 30 October , 1997
EXPERTS............................. 30
CERTAIN DEFINITIONS................. 30
FINANCIAL INFORMATION............... F-1
========================================= ===================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification Of Directors And Officers.
The Delaware General Corporation Law provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action, suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner that the person reasonably believed to be in or not
opposed to the best interests of the corporation.
In addition to the general indemnification section, Delaware law provides
further protection for directors under Section 102(b)(7) of the General
Corporation Law of Delaware. This section was enacted in June 1986 and allows a
Delaware corporation to include in its Certificate Of Incorporation a provision
that eliminates and limits certain personal liability of a director for monetary
damages for certain breaches of the director's fiduciary duty of care, provided
that any such provision does not (in the words of the statute) do any of the
following:
"eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under
section 174 of this Title [dealing with willful or negligent violation
of the statutory provision concerning dividends, stock purchases and
redemptions], or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate
or limit the liability of a director for any act or omission occurring
prior to the date when such provision becomes effective. . ."
The Board Of Directors is empowered to make other indemnification as
authorized by the Certificate Of Incorporation, Bylaws or corporate resolution
so long as the indemnification is consistent with the Delaware General
Corporation Law. Under the Company's Bylaws, the Company is required to
indemnify its directors, officers, and other representatives of the Company for
costs incurred by each of them in connection with any action, suit, or
proceeding brought by reason of their position as a director, officer, or
representative.
Item 25. Other Expenses Of Issuance And Distribution.
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the registration of the securities being offered. The Selling Security Holders
will not pay any of the following expenses.
Registration and filing fee................................ $ 3,840
Printing(1)................................................ $ 5,000
Accounting fees and expenses(1)............................ $ 5,000
Legal fees and expenses(1)................................. $17,000
Miscellaneous(1)........................................... $ 4,160
Total(1) $35,000
=======
- -----------
(1) Estimated
<PAGE>
Item 26. Recent Sales Of Unregistered Securities.
The Company was organized as a wholly owned subsidiary of Bexy
Communications, Inc., a Delaware corporation ("Bexy"). The Company issued
452,000 shares of Common Stock to Bexy in April 1996 in exchange for certain
assets of Bexy valued at approximately $110,000. The Company also assumed
certain liabilities of Bexy valued at approximately $84,000 in that transaction.
Those shares were issued in reliance on an exemption from registration under ss.
4(2) of the Securities Act of 1933, as amended (the "Securities Act").
The Company issued 28,000 shares of Common Stock in August, 1996 to a
limited number of persons for services rendered to the Company valued at $2,800.
These shares were issued in reliance on an exemption from registration
underss.4(2) of the Securities Act.
The Company issued 358,654 shares of Common Stock in December 1996 to a
former president and principal stockholder in satisfaction of a $46,625
liability owed by the Company to that former president. These shares were issued
in reliance on an exemption from registration underss.4(2) of the Securities Act
of 1933, as amended (the "Securities Act").
The Company completed an offering to a limited number of offerees in July
1997 pursuant to an exemption from registration in accordance with Rule 506 of
Regulation D under the Securities Act. The Company sold in that offering an
aggregate of 2,095,000 units at $.25 per unit, with each unit consisting of one
share of Common Stock, a Class A Warrant, and a Class B Warrant.
The Company completed an offering to a limited number of offerees in August
1997 pursuant to an exemption from registration in accordance with Rule 506 of
Regulation D under the Securities Act. The Company sold in that offering an
aggregate of 2,000,000 units at $.75 per unit, with each unit consisting of one
share of Common Stock, a Class A Warrant, and a Class B Warrant.
Item 27. Exhibits.
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Number Description
3.1 Certificate Of Incorporation filed with the Delaware Secretary
Of State on March 27, 1996 (1)
3.2 Bylaws (1)
4.1 Specimen Common Stock Certificate
4.2 Specimen Class A Warrant
4.3 Specimen Class B Warrant
5.1 Opinion of Bearman Talesnick & Clowdus Professional Corporation
concerning the legality of the securities being registered
10.1 Asset Transfer, Assignment and Assumption Agreement dated April 16,
1996 between the Registrant and Bexy Communications, Inc. (2)
<PAGE>
10.2 Form of Purchase And Sale Agreement dated as of July 31, 1997 between
the Registrant and a member of PYR Energy, LLC ("PYR")
10.3 Purchase And Sale Agreement effective as of August 6, 1997 between the
Registrant and Buddy Young
10.4 1997 Stock Option Plan (3)
23.1 Consent of Bearman Talesnick & Clowdus Professional Corporation
(included in Opinion in Exhibit 5.1)
23.2 Consent of Wheeler Wasoff, P.C.
27.1 Financial Data Schedule
- --------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
10-SB filed with the Securities And Exchange Commission ("SEC") on June 18,
1996, File No. 0-20879.
(2) Incorporated by reference from the Company's Amendment No. 1 to
Registration Statement and Form 10-SB filed with the SEC on July 3, 1996,
File No. 0-20879.
(3) Incorporated by reference from the Company's Preliminary Information
Statement filed with the SEC on October 8, 1997.
Item 28. Undertakings.
1. The Company hereby undertakes:
(a) to file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) to reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information
in Registration Statement (or the most recent post-effective amendment
thereof); and
(3) to include any additional or changed material information on the
plan of distribution.
(b) That for determining liability under the Securities Act of 1933, each
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering thereof;
(c) To file a post-effective amendment to remove from registration any of
the securities being registered which remain unsold at the end of the offering.
3. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
<PAGE>
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the option 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 Company of expenses
incurred or paid by a director, officer or a controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or a controlling person in connection with the securities
being registered, the Company 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.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Denver,
State of Colorado, on October 23, 1997.
MAR VENTURES INC.
By: /s/ D. Scott Singdahlsen
----------------------------------------------------
D. Scott Singdahlsen, Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ D. Scott Singdahlsen Chief Executive Officer; President October 23, 1997
- ---------------------------------- and Chairman Of The Board
D. Scott Singdahlsen
/s/ Keith F. Carney Director October 23, 1997
- -----------------------------------
Keith F. Carney
/s/ Gregory B. Barnett Director October 23, 1997
- -----------------------------------
Gregory B. Barnett
/s/ Robert B. Suydam Secretary October 23, 1997
- -----------------------------------
Robert B. Suydam
/s/ Andrew P. Calerich Chief Financial Officer October 23, 1997
- -----------------------------------
Andrew P. Calerich
</TABLE>
<PAGE>
EXHIBIT INDEX
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Number Description
- ------ -----------
3.1 Certificate Of Incorporation filed with the Delaware Secretary Of State
on March 27, 1996 (1)
3.2 Bylaws (1)
4.1 Specimen Common Stock Certificate
4.2 Specimen Class A Warrant
4.3 Specimen Class B Warrant
5.1 Opinion of Bearman Talesnick & Clowdus Professional Corporation
concerning the legality of the securities being registered
10.1 Asset Transfer, Assignment and Assumption Agreement dated April 16,
1996 between the Registrant and Bexy Communications, Inc. (2)
10.2 Form of Purchase And Sale Agreement dated as of July 31, 1997 between
the Registrant and a member of PYR Energy, LLC ("PYR")
10.3 Purchase And Sale Agreement effective as of August 6, 1997 between the
Registrant and Buddy Young
10.4 1997 Stock Option Plan (3)
23.1 Consent of Bearman Talesnick & Clowdus Professional Corporation
(included in Opinion in Exhibit 5.1)
23.2 Consent of Wheeler Wasoff, P.C.
27.1 Financial Data Schedule
- --------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
10-SB filed with the Securities And Exchange Commission ("SEC") on June 18,
1996, File No. 0-20879.
(2) Incorporated by reference from the Company's Amendment No. 1 to
Registration Statement and Form 10-SB filed with the SEC on July 3, 1996,
File No. 0-20879.
(3) Incorporated by reference from the Company's Preliminary Information
Statement filed with the SEC on October 8, 1997.
NUMBER SHARES
MV _____ -______-
CUSIP 55261N 107
SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
MAR VENTURES, INC.
Authorized capital stock 30,000,000 Shares $.001 Par Value Per Share
THIS IS TO CERTIFY
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001
EACH OF THE CAPITAL STOCK OF
MAR VENTURES, INC.
transferable only on the books of the Corporation in person or by duly
authorized Attorney on surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
SECRETARY CHAIRMAN OF THE BOARD
[Corporate Seal]
<PAGE>
[REVERSE SIDE]
TEN COM - as tenants in common UNIF GIFT MIN ACT ..Custodian..
(Cust) Minor
TEN ENT - as tenants by the entireties under Uniform Gifts To Minors
JT TEN - as joint tenants with right Act
of survivorship and not as (State)
Tenants in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Common Shares
- -----------------------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated
X
------------------------------------------
------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
---------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION,
(BANKS, STOCKHOLDERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO
SEC RULE 17A8-15.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT
TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE SECURITIES MAY NOT
BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT.
W __________ Warrants
MAR VENTURES INC.
A Delaware Corporation
Class A Common Stock Purchase Warrant Certificate
Expires January 15, 1998
Warrant Shares
This Warrant Certificate certifies that ______________________ (the
"Warrant Holder") is the registered owner of the above-indicated number of Class
A Common Stock Purchase Warrants (the "Warrants) exercisable in the manner set
forth in this Warrant Certificate. Each two Warrants entitle the Warrant Holder
thereof to purchase from Mar Ventures Inc., a Delaware corporation (the
"Company"), during the period set forth in the section entitled "Warrant
Exercise Period" below, one fully paid and nonassessable share (the "Share") of
the $.001 par value common stock of the Company (the "Common Stock") at the
purchase price of $1.25 per Share (the "Exercise Price"), upon surrender of this
Warrant Certificate with the exercise form hereon duly completed and executed,
with the payment of the Exercise Price at the office of the Company, Mar
Ventures Inc., 1675 Broadway, Suite 1150, Denver, Colorado 80202. The Company in
its sole discretion may reduce the Exercise Price, but the Company is not
required or otherwise committed to do so.
Warrant Exercise Period
Warrant Holders may exercise the Warrants during the period (the "Warrant
Exercise Period") beginning on the date of this Certificate and ending at 5:00
p.m., Denver, Colorado time, on January 15, 1998; provided however, that at the
time of exercise of the Warrants by a Holder, such exercise and the issuance of
shares of Common Stock upon such exercise must be made pursuant to an effective
registration under federal and state securities laws, or pursuant to exemptions
from registration pursuant to federal and state securities laws, which
exemptions are deemed satisfactory by the Company.
Other Exercise Provisions
The Exercise Price, the number of Shares purchasable upon exercise of each
Warrant, the number of Warrants outstanding and the Expiration Date are subject
to adjustments upon the occurrence of certain events. The Warrant Holder may
exercise all or any number of Warrants resulting in the purchase of a whole
number of Shares. The Company shall not be required to issue fractions of
Warrants upon the reissue of Warrants, or pursuant to any adjustments as
described in this Warrant Certificate or otherwise; but the Company, in lieu of
issuing any such fractional interest, shall round up, if the fractional share is
greater than one-half, or down, if the fractional share is less than or equal to
one-half, to the nearest full Warrant. If the total Warrants surrendered by
exercise would result in the issuance of a fractional share, the Company shall
not be required to issue a fractional share but rather the aggregate number of
shares issuable will be rounded up, if the fractional share is greater than
one-half, or down, if the fractional share is less than or equal to one-half, to
the nearest full share.
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any number of such Warrants during the period
and in the manner stated hereon. The Exercise Price shall be payable in lawful
money of the United States of America and in cash or by good check or bank draft
payable to the order of the Company. If, upon any exercise of any Warrants
evidenced by this Warrant Certificate, the number of Warrants exercised shall be
less than the total number of Warrants so evidenced, there shall be issued to
the Warrant Holder a new Warrant Certificate evidencing the number of Warrants
not so exercised.
<PAGE>
If prior to the exercise of any Warrants the Company shall have effected
one or more stock splits or subdivisions of shares, stock dividends, or
reclassifications or recapitalizations involving its common stock, the number of
Shares subject to the Warrant granted shall, (i) if a net increase shall have
been effected in the number of outstanding shares of the Company's common stock,
be proportionately increased, and the Exercise Price shall be proportionately
reduced, and, (ii) if a net reduction shall have been effected in the number of
outstanding shares of the Company's common stock, be proportionately reduced and
the Exercise Price shall be proportionately increased. No adjustment shall be
made for any other dividends on any Shares issued upon exercise of this Warrant.
No Warrant may be exercised after expiration of the Warrant Exercise
Period. Any Warrant not exercised by such time shall become void.
THE WARRANTS ARE NOT TRANSFERABLE AND ANY ATTEMPT TO DO SO SHALL VOID THE
WARRANTS.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its President and by its Secretary.
MAR VENTURES INC.
Date: , 1997 By:
---------- -------------------------------
D. Scott Singdahlsen, President
By:
------------------------------
Robert B. Suydam, Secretary
<PAGE>
NOTICE OF EXERCISE
(Form of Notice Of Exercise to be Executed if the Warrant Holder desires to
exercise Warrants evidenced hereby)
MAR VENTURES INC.
1675 Broadway, Suite 1150
Denver, Colorado 80202
The undersigned hereby irrevocably elects to exercise __________ Warrants
represented by this Warrant Certificate and to purchase thereunder the full
Shares issuable upon exercise of said Warrants and requests that certificates
for such Shares shall be issued in the following name:
(name in which stock certificates are to be issued)
- --------------------------- -------------------------------
___________________________ (Please insert social security
___________________________ or other identifying number)
(Please print name and
address, including zip code)
and, if said number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the unexercised number
of Warrants evidenced by this Warrant Certificate be delivered to the Warrant
Holder. Payment of the Exercise Price in accordance with the terms of the
Warrant Certificate accompanies this Notice Of Exercise.
Date:
-------------------------- ------------------------------------
(Signature - must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT
TERM IS DEFINED IN RULE 144 UNDER THE ACT. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT.
W Warrants
---------
MAR VENTURES INC.
A Delaware Corporation
Class B Common Stock Purchase Warrant Certificate
Expires April 15, 1998
Warrant Shares
This Warrant Certificate certifies that ______________________ (the
"Warrant Holder") is the registered owner of the above-indicated number of Class
B Common Stock Purchase Warrants (the "Warrants) exercisable in the manner set
forth in this Warrant Certificate. Each two Warrants entitle the Warrant Holder
thereof to purchase from Mar Ventures Inc., a Delaware corporation (the
"Company"), during the period set forth in the section entitled "Warrant
Exercise Period" below, one fully paid and nonassessable share (the "Share") of
the $.001 par value common stock of the Company (the "Common Stock") at the
purchase price of $1.75 per Share (the "Exercise Price"), upon surrender of this
Warrant Certificate with the exercise form hereon duly completed and executed,
with the payment of the Exercise Price at the office of the Company, Mar
Ventures Inc., 1675 Broadway, Suite 1150, Denver, Colorado 80202. The Company in
its sole discretion may reduce the Exercise Price, but the Company is not
required or otherwise committed to do so.
Warrant Exercise Period
Warrant Holders may exercise the Warrants during the period (the "Warrant
Exercise Period") beginning on the date of this Certificate and ending at 5:00
p.m., Denver, Colorado time, on April 15, 1998; provided however, that at the
time of exercise of the Warrants by a Holder, such exercise and the issuance of
shares of Common Stock upon such exercise must be made pursuant to an effective
registration under federal and state securities laws, or pursuant to exemptions
from registration pursuant to federal and state securities laws, which
exemptions are deemed satisfactory by the Company.
Other Exercise Provisions
The Exercise Price, the number of Shares purchasable upon exercise of each
Warrant, the number of Warrants outstanding and the Expiration Date are subject
to adjustments upon the occurrence of certain events. The Warrant Holder may
exercise all or any number of Warrants resulting in the purchase of a whole
number of Shares. The Company shall not be required to issue fractions of
Warrants upon the reissue of Warrants, or pursuant to any adjustments as
described in this Warrant Certificate or otherwise; but the Company, in lieu of
issuing any such fractional interest, shall round up, if the fractional share is
greater than one-half, or down, if the fractional share is less than or equal to
one-half, to the nearest full Warrant. If the total Warrants surrendered by
exercise would result in the issuance of a fractional share, the Company shall
not be required to issue a fractional share but rather the aggregate number of
shares issuable will be rounded up, if the fractional share is greater than
one-half, or down, if the fractional share is less than or equal to one-half, to
the nearest full share.
The Warrant Holder of the Warrants evidenced by this Warrant Certificate
may exercise all or any number of such Warrants during the period and in the
manner stated hereon. The Exercise Price shall be payable in lawful money of the
United States of America and in cash or by good check or bank draft payable to
the order of the Company. If, upon any exercise of any Warrants evidenced by
this Warrant Certificate, the number of Warrants exercised shall be less than
the total number of Warrants so evidenced, there shall be issued to the Warrant
Holder a new Warrant Certificate evidencing the number of Warrants not so
exercised.
<PAGE>
If prior to the exercise of any Warrants the Company shall have effected
one or more stock splits or subdivisions of shares, stock dividends, or
reclassifications or recapitalizations involving its common stock, the number of
Shares subject to the Warrant granted shall, (i) if a net increase shall have
been effected in the number of outstanding shares of the Company's common stock,
be proportionately increased, and the Exercise Price shall be proportionately
reduced, and, (ii) if a net reduction shall have been effected in the number of
outstanding shares of the Company's common stock, be proportionately reduced and
the Exercise Price shall be proportionately increased. No adjustment shall be
made for any other dividends on any Shares issued upon exercise of this Warrant.
No Warrant may be exercised after expiration of the Warrant Exercise
Period. Any Warrant not exercised by such time shall become void.
THE WARRANTS ARE NOT TRANSFERABLE AND ANY ATTEMPT TO DO SO SHALL VOID THE
WARRANTS.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by its President and by its Secretary.
MAR VENTURES INC.
Date: , 1997 By:
----------- ----------------------------------
D. Scott Singdahlsen, President
By:
----------------------------------
Robert B. Suydam, Secretary
<PAGE>
NOTICE OF EXERCISE
(Form of Notice Of Exercise to be Executed if the Warrant Holder
desires to exercise Warrants evidenced hereby)
MAR VENTURES INC.
1675 Broadway, Suite 1150
Denver, Colorado 80202
The undersigned hereby irrevocably elects to exercise __________ Warrants
represented by this Warrant Certificate and to purchase thereunder the full
Shares issuable upon exercise of said Warrants and requests that certificates
for such Shares shall be issued in the following name:
(name in which stock certificates are to be issued)
- --------------------------- ---------------------------------
___________________________ (Please insert social security
___________________________ or other identifying number)
(Please print name and
address, including zip code)
and, if said number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the unexercised number
of Warrants evidenced by this Warrant Certificate be delivered to the Warrant
Holder. Payment of the Exercise Price in accordance with the terms of the
Warrant Certificate accompanies this Notice Of Exercise.
Date:
---------------------------- ------------------------------------
(Signature - must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate)
BEARMAN TALESNICK & CLOWDUS
Professional Corporation
Attorneys at Law
1200 Seventeenth Street, Suite 2600
Denver, Colorado 80202-5826
(303) 572-6500
Fax (303) 572-6511
E-Mail: [email protected]
Alan L. Talesnick
Robert M. Bearman
W. Michael Clowdus
Martha S. Nachman
Francis B. Barron
Andrew J. Creighton
Andrea Bloom, Special Counsel
October 23, 1997
Mar Ventures Inc.
1675 Broadway, Suite 1150
Denver, Colorado 80202
Gentlemen and Ladies:
We have acted as counsel for Mar Ventures Inc., a Delaware corporation (the
"Company"), in connection with the registration on Form SB-2 under the
Securities Act of 1933, as amended, of (a) the transfer of 4,095,000 shares of
the Company's $.001 par value common stock ("Common Stock") by certain
stockholders of the Company (the "Selling Security Holders"); (b) the exercise
of Class A Warrants to purchase an aggregate 2,047,500 shares of Common Stock
and the exercise of Class B Warrants to purchase an aggregate of 2,047,500
shares of Common Stock by the Selling Security Holders (collectively, the
"Warrants"); and (c) the transfer of the aggregate 4,095,000 shares of Common
Stock that may be acquired by the Selling Security HOlders upon the exercise of
the Warrants.
We have examined the Certificate Of Incorporation and the Bylaws of the
Company and the record of the Company's corporate proceedings concerning the
registration described above. In addition, we have examined such other
certificates, agreements, documents and papers, and we have made such other
inquiries and investigations of law as we have deemed appropriate and necessary
in order to express the opinion set forth in this letter. In our examinations,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, photostatic, or conformed copies and the
authenticity of the originals of all such latter documents. In addition, as to
certain matters we have relied upon certificates and advice from various state
authorities and public officials, and we have assumed the accuracy of the
material and the factual matters contained herein.
Subject to the foregoing and on the basis of the aforementioned
examinations and investigations, it is our opinion that (i) the shares of Common
Stock being transferred by the Selling Security Holders have been legally issued
and are fully paid and non-assessable, and (ii) the shares of Common Stock to be
issued upon the exercise of the Warrants, if and when sold and delivered as
described in the Company's Registration Statement on Form SB-2 (the
"Registration Statement"), will have been legally issued, and will constitute
fully paid and nonassessable shares of the Company's Common Stock. Further, each
of the Class A Warrants and Class B Warrants represent the right to purchase
shares of the Company's Common Stock, all as set forth in the Registration
Statement.
<PAGE>
We hereby consent (a) to be named in the Registration Statement and in the
prospectus that constitutes a part of the Registration Statement as acting as
counsel in connection with the offering, including with respect to the issuance
of securities offered in the offering; and (b) to the filing of this opinion as
an exhibit to the Registration Statement.
This opinion is to be used solely for the purpose of the registration of
the Common Stock and Warrants and may not be used for any other purpose.
Very truly yours,
/s/ Bearman Talesnick & Clowdus
Professional Corporation
BEARMAN TALESNICK & CLOWDUS
Professional Corporation
BTC:ns
PURCHASE AND SALE AGREEMENT
---------------------------
THIS PURCHASE AND SALE AGREEMENT, dated as of July 31, 1997 (this
"Agreement"), is between ................... (the "Seller") and Mar Ventures
Inc., a Delaware corporation (the "Purchaser").
WHEREAS, the Seller is a member (a "Member") and is the holder of a
membership interest (the "Interest") in Pyr Energy, LLC, a Colorado limited
liability company (the "LLC") whose principal asset is certain rights under that
certain Letter Agreement dated March 15, 1997 between Chevron U.S.A. Production
Company, a division of Chevron U.S.A. Inc., a Pennsylvania corporation, and the
LLC, as amended by letters dated May 12, 1997 (as amended by notation thereto
dated May 30, 1997), May 28, 1997, and May 30, 1997, and as further amended by
that certain Seismic License and Confidentiality Agreement dated March 30, 1997
by and between the LLC and Seismic Exchange, Inc. (the "Chevron Agreement"),
attached hereto as Exhibit A; and
WHEREAS, the Seller desires to sell and the Purchaser desires to
purchase the Interest in exchange for shares of Common Stock, par value $.001,
of the Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
I. PURCHASE AND SALE OF THE INTEREST
----------------------------------
A. The Seller hereby agrees to sell, convey, transfer and deliver to the
Purchaser, free and clear of any claims, liens, charges or other encumbrances,
and the Purchaser hereby agrees to purchase from the Seller, the Interest, upon
the terms and conditions set forth in this Agreement.
B. As payment in full for the Interest, the Purchaser shall
issue ............. shares of Common Stock, par value $.001 per share, of the
Purchaser (the "Shares"), which shall be fully paid and non-assessable, to the
Seller.
II. REPRESENTATIONS AND WARRANTIES OF THE SELLER
--------------------------------------------
The Seller hereby represents and warrants to the Purchaser that:
A. The Seller is the holder and sole beneficial owner of the Interest and
the Interest is free and clear of any claim, lien, pledge, option, charge,
security interest or encumbrance of any nature whatsoever.
B. The Seller has not entered into any agreement to sell, assign, pledge,
convey, grant, confer or award the Interest or any option, warrant, conversion
right or other right to acquire the Interest.
<PAGE>
C. The LLC is a duly organized limited liability company, is validly
existing and in good standing under the laws of the State of Colorado, has full
power and authority to conduct its business as presently conducted and is
qualified and in good standing under the laws of each jurisdiction where such
qualification is required. The LLC has no subsidiaries or equity interests in
any entities.
D. The Seller has delivered to the Purchaser complete and accurate copies
of its Articles of Organization, membership interest transfer records and
minutes or other official proceedings (or equivalent documents), or any other
corporate documents or agreements governing the relationship among the Members
of the LLC, each of which certified as such by a Member of the LLC, all of which
are listed on Schedule A to this Agreement.
E. The Seller has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement has been duly
authorized (if the Seller is a corporation), executed and delivered and is a
legal and binding obligation of the Seller, subject to applicable bankruptcy,
insolvency, moratorium, or other similar laws relating to creditors' rights and
general principles of equity.
F. There are no consents, approvals or authorizations required by the
Seller or the LLC in connection with the execution or delivery of, the Seller's
performance of its obligations under, or the consummation of the transactions
contemplated by this Agreement, other than those disclosed on Schedule B as
having been obtained by Seller, or which will be obtained prior to the Closing
(as hereinafter defined).
G. Attached hereto as Schedule C is a complete and accurate list containing
each and every Member of the LLC and their percentage ownership interest in the
LLC. There are no other persons, corporations, partnerships or any other
entities with an ownership or other interest in the LLC. No person, corporation,
partnership or any other entity has any right under any option plan (or any
option granted thereunder) or other plan, program or arrangement to acquire any
equity or other interests in the LLC.
H. The execution of this Agreement and consummation of the transactions
contemplated hereby will not (i) violate the organizational documents of the
Seller (if the Seller is a corporation) or any law, regulation or other
restriction applicable to the Seller; or (ii) conflict with, result in a breach
of, or cause a default under any instrument, contract, license or other
arrangement to which the Seller is a party or any of its assets are subject.
I. The execution of this Agreement and consummation of the transactions
contemplated hereby will not (i) violate the organizational documents of the LLC
or, to the best of Seller's knowledge, any law, regulation or other restriction
applicable to the LLC; or (ii) conflict with, result in a breach of, or cause a
default under the Chevron Agreement or any other instrument, contract, license
or other arrangement to which the LLC or a Member is a party or any of its
assets are subject.
<PAGE>
J. To the best of Seller's knowledge, neither the Seller nor the LLC is in
default under or in violation of any law, rule or regulation. Neither the Seller
nor the LLC is in default under or in violation of any instrument, contract,
license or other arrangement to which the Seller or the LLC is a party or any of
its respective assets are subject. To the best of Seller's knowledge, the LLC
has complied with all laws, rules and regulations relating to the Chevron
Agreement, the carrying on of its business and the ownership of the property or
assets of the LLC.
K. The Chevron Agreement, a true and correct copy of which is attached
hereto as Exhibit A, is a legal, valid and binding obligation of the parties
thereto and is in full force and effect. The LLC has made all payments required
to be made in connection with the Chevron Agreement, and has received all
payments to which it is entitled under the Chevron Agreement. Neither party to
the Chevron Agreement is in breach or default by any such party, and no event
has occurred which with notice or lapse of time would constitute a breach or
default, under the Chevron Agreement. Neither party has repudiated any provision
of the Chevron Agreement or given notice of any action to terminate, cancel,
rescind, renegotiate or procure a judicial reformation of the Chevron Agreement.
L. Other than the Chevron Agreement, the LLC has no other contracts or
other agreements relating to the business, operation, assets and liabilities of
the LLC, except as listed on Schedule D to this Agreement. Each such agreement
is identified on Schedule D and is a legal, valid and binding obligation of the
parties thereto and is in full force and effect. The LLC has made all payments
required to be made in connection with all such agreements, and has received all
payments to which it is entitled under all such agreements. No party to any such
agreement is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default by any such party, under
such agreement. No party has repudiated any provision of any such agreement or
given notice of any action to terminate, cancel, rescind, renegotiate or procure
a judicial reformation of any such agreement.
M. Other than as set forth on Schedule E, the LLC does not have any
liabilities to any party which would have a material adverse effect on the LLC
or its financial situation, business or prospects.
N. There are no actions, suits or proceedings pending (or, to the best of
Seller's knowledge after due inquiry, threatened) which affect the business or
operation of the LLC, the Chevron Agreement, any other property or assets of the
LLC, the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
O. The LLC has obtained, and has been in compliance with the terms of, all
permits and licenses necessary or appropriate in connection with the Chevron
Agreement and the business, operation or ownership of any other assets of the
LLC. Such permits and licenses are in full force and effect, and no material
violation exists with respect to any such permits and licenses.
<PAGE>
P. The LLC has (i) filed all tax returns and reports required to be filed,
including withholding tax returns, if required, and all such returns and reports
were in all material respects true, complete and correct and filed on a timely
basis and (ii) within the time and in the manner prescribed by law (subject to
any extensions allowed by law), paid all taxes due and payable.
Q. None of the Members is a person other than a United States person within
the meaning of the Internal Revenue Code of 1986, as amended.
R. The LLC has no employees, except those employees whose identity and
compensation is set forth on Schedule F. The LLC has no "employee pension
benefit plans" (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA), bonus, stock option, stock bonus, stock
purchase, phantom equity, deferred compensation or other plans or arrangements,
social security and other employee fringe benefit plans, domestic and foreign,
maintained (or required to be maintained under any governmental law or
regulation), or contributed to, by the LLC for the benefit of its employees.
S. Set forth on Schedule G are all the assets, property, interests and
investments held directly or indirectly, in whole or in part, by the LLC, other
than the Chevron Agreement, all of such assets, property or interests are in
good operating condition and repair. Except for the assets listed on Schedule G
and the Chevron Agreement, the LLC does not have any interests, directly or
indirectly, in any other interest, investment, partnership, joint venture,
business, trust entity, property or assets.
T. The Seller is acquiring the Shares for its own account for investment
purposes only and not with a view towards the resale or distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act") or of
any applicable state securities laws, and with no present intention of dividing
or allowing others to participate in this investment.
U. If the Seller is a corporation or other entity, it was not organized for
the specific purpose of acquiring the Shares.
V. The Seller has such knowledge, sophistication and experience in
business, tax and financial matters that the Seller is capable of evaluating,
and is familiar with, the merits and risks of an investment in the Shares and
can bear the substantial economic risk of an investment in the Shares for an
indefinite period of time and can afford a complete loss of such investment.
W. The Seller represents that its overall commitment to investments which
are not readily marketable is not disproportionate to the Seller's net worth,
and the Seller's investment in the Shares will not cause such overall commitment
to become excessive.
<PAGE>
X. If the Seller is an individual, the Seller has adequate means of
providing for his current needs and personal and family contingencies and has no
need for liquidity in his investment in the Shares.
Y. All subsequent offers and sales of the Shares by the Seller shall be
made pursuant to registration of such securities under the Securities Act and
applicable state securities laws or pursuant to a valid exemption from such
registration requirements.
Z. The Seller understands that the Shares are being offered to it in
reliance on specific exemptions from the registration requirements of United
States federal and state securities laws and that the Purchaser is relying upon
the truth and accuracy of, and the Seller's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Seller set forth herein in order to determine the availability of such
exemptions and the eligibility of the Seller to acquire such securities. The
Seller agrees that, if any of the representations, warranties, agreements,
acknowledgements or understandings deemed to have been made by it in connection
with its investment in the Shares is no longer accurate, it shall promptly
notify the Purchaser and consult with the Purchaser in order to determine an
appropriate course of action.
AA. The Seller has carefully read this Agreement and, to the extent that
the Seller believed necessary, has discussed the representations, warranties and
agreements which the Seller makes by signing this Agreement and the applicable
limitations upon the Seller's resale of the Shares with the Seller's counsel.
BB. The Seller and its advisors have been afforded the opportunity to ask
questions of the Purchaser, and have received complete and satisfactory answers
to any and all such inquiries and have had access to such financial and other
information concerning the Purchaser and the Shares as it has deemed necessary
in connection with its decision as to whether to make its investment. Without
limiting the generality of the foregoing, the Seller has obtained and reviewed
(i) the Purchaser's Annual Report on Form 10-KSB for the fiscal year ended
August 31, 1996, (ii) the Purchaser's Quarterly Report on Form 10-QSB for the
period ended November 30, 1996, (iii) the Purchaser's Quarterly Report on Form
10-QSB for the period ended February 28, 1997 and (iv) a certain memorandum
prepared by the LLC describing the business of the LLC. The Seller specifically
acknowledges that it does not require and has not requested to see any
information with respect to the Purchaser or this investment other than the
information described in clauses (i), (ii), (iii) and (iv) of this Section
II.AB. The Seller understands that its investment in the Shares involves a high
degree of risk, and the Seller is relying solely upon its own knowledge and
experience in business, tax and financial matters in making its decision to
purchase such securities.
CC. The Seller acknowledges that (i) none of the Purchaser, any affiliate
thereof or any person representing the Purchaser or any affiliate thereof has
made any representation to it with respect to the Purchaser or the offering or
sale of the Shares other than the information concerning the Purchaser contained
in the documents described in clauses (i), (ii), (iii) and (iv) of Section
<PAGE>
II.AB. above, (ii) in making its investment decision the Seller is not relying
upon any information given by the Purchaser or any affiliate thereof or any
person representing the Purchaser or any affiliate thereof other than the
information concerning the Purchaser contained in the documents described in
clauses (i), (ii), (iii) and (iv) of Section II.AB. above and (iii) no
representation has been made, and no information has been furnished, to the
Seller in connection with the offering or sale of the Shares that was in any way
inconsistent with any other information with which the Seller has been provided.
DD. The Seller understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Shares.
EE. The representations and warranties of the Seller in this Agreement do
not contain any untrue statement of a material fact or omit any material fact
necessary to make the statements and information contained in this Agreement not
false or misleading. The Seller has disclosed to the Purchaser any and all
material liabilities relating to the business, operation and assets of the LLC.
The Seller has no knowledge of any matter which materially and adversely affects
or may materially and adversely affect the operation, prospects or condition of
the LLC or the LLC's interest in the Chevron Agreement which has not been
disclosed to the Purchaser. The Seller will indemnify the Purchaser and hold it
harmless against and in respect of any claim, charge, cost, expense, loss,
damage or liability arising out of or related to any such untrue statement,
omission, or failure to disclose.
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
------------------------------------------------
Purchaser represents and warrants to and agrees with Seller that:
A. The Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has full corporate power
and authority to carry on its business as now conducted, is authorized to enter
into all of the transactions contemplated hereby, and is qualified and in good
standing under the laws of each jurisdiction where such qualification is
required.
B. The Purchaser has the requisite corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
consummation by the Purchaser of the transactions contemplated hereby has been
duly authorized by all requisite corporate action. This Agreement is a legal and
binding obligation of Purchaser, subject to applicable bankruptcy, insolvency,
moratorium, or other similar laws relating to creditors' rights and general
principles of equity.
C. The execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement will not (i) violate the Certificate
of Incorporation or the By-Laws of the Purchaser, or to the best of Purchaser's
knowledge any law, regulation or other restriction applicable to Purchaser, or
(ii) conflict with, result in a breach of or cause a default under any
instrument, contract, license or other arrangement to which the Purchaser is a
party or any of its assets is subject.
<PAGE>
D. The Shares, when issued and delivered in accordance with this Agreement,
will be duly and validly authorized and issued, fully paid and nonassessable.
There are no preemptive rights of any stockholder of the Company, as such, to
acquire the Shares.
E. The Purchaser (i) is acquiring the Interest for its own account for
investment purposes and not with a view to, or for a sale in connection with, a
distribution in violation of the Securities Act of 1933, as amended (the
"Securities Act"), or any applicable state securities or "blue sky" laws and
(ii) it understands that the Interest has not been registered under the
Securities Act or any applicable state securities or "blue sky" laws and that
the Interest may not be offered for sale, sold or otherwise disposed of for
value unless a registration statement has become effective with respect to the
Interest under the Securities Act and such state securities or "blue sky" laws
or there is an applicable exemption from the registration requirements of the
Securities Act and applicable state securities or "blue sky" laws.
F. The Purchaser has delivered to the LLC complete and accurate copies of
its Articles of Corporation, By-Laws, stock transfer records and minutes or
other official proceedings (or equivalent documents), or any other corporate
documents or agreements concerning Purchaser, its officers, directors or
stockholders.
G. There are no consents, approvals or authorizations required by the
Purchaser in connection with the execution or delivery of the Purchaser's
performance of its obligations under, or the consummation of the transactions
contemplated by, this Agreement, other than those disclosed on Schedule BP as
having been obtained by Purchaser, or which will be obtained prior to the
Closing (as hereinafter defined).
H. Purchaser's entire authorized capital stock consists of 30 million
shares of Common Stock, par value U.S.$.001 per share, and no shares of
preferred stock. As of the date of this Agreement there were, and as of the
Closing there will be, 3,059,804 shares of Purchaser's Common Stock issued and
outstanding. Purchaser has no stock option plans or other obligations to issue
common stock. Except for (i) 2,000,000 warrants which have previously been
issued pursuant to subscription agreements and (ii) any warrants issued in
connection with the offer and sale of at least $1.5 million of equity interests
in Purchaser as described in Section VII.B. below, Purchaser has granted no
warrant, call, opinion, convertible security or other agreement or right
(contingent or otherwise) to purchase or acquire any Common Stock or any other
capital stock of Purchaser. Purchaser has no commitment to issue any such
warrant, call, option, convertible security or other right, and Purchaser has no
obligation, contingent or otherwise, to purchase, redeem, or otherwise acquire
any shares of Purchaser's capital stock or any interest therein or to pay any
dividend or to make any other distribution in respect thereof.
I. To the best of the Purchaser's knowledge, the Purchaser is not in
default under, or in violation of, any law, rule or regulation. The Purchaser is
<PAGE>
not in default under, or in violation of, any instrument, contract, license or
other arrangement to which the Purchaser is a party or any of its respective
assets are subject. To the best of Purchaser's knowledge, the Purchaser has
complied with all laws, rules and regulations relating to the carrying on of its
business and the ownership of the property or assets of the Purchaser.
J. The Purchaser has no contracts or other agreement relating to the
business, operation, assets and liabilities of the Purchaser, except as listed
on Schedule DP to this Agreement. Each such agreement is identified on Schedule
DP and is a legal, valid and binding obligation on the parties thereto and is in
full force and effect. The Purchaser has made all payments required to be made
in connection with all such agreements, and has received all payments to which
it is entitled under all such agreements, and has received all payments to which
it is entitled under all agreements. No party to any such agreement is in breach
or default, and no event has occurred which with notice or lapse of time would
constitute a breach or default by any such party, under such agreement. No party
has repudiated any provision of any such agreement or given notice of any action
to terminate, cancel, rescind, renegotiate or procure a judicial reformation of
any such agreement.
K. Other than as set forth on Schedule EP, the Purchaser does not have any
liabilities to any party which would have a material adverse effect on the
Purchaser or its financial situation, business or prospects.
L. There are no actions, suits or proceedings pending (or, to the best of
Purchaser's knowledge after due inquiry, threatened) which affect the business
or operation of the Purchaser, any other property or assets of the Purchaser,
the execution and delivery of this Agreement, or the consummation of the
transactions contemplated hereby.
M. The Purchaser has obtained, and has been in compliance with, the terms
of all permits and licenses necessary or appropriate in connection with the
business, operation or ownership of any assets of the Purchaser. Such permits
and licenses are in full force and effect, and no material violation exists with
respect to any such permits and licenses.
N. The Purchaser has no employees, except those employees whose identity
and compensation is set forth on Section HP. The Purchaser has no "employee
pension benefit plans" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), "employee welfare benefit
plans" (as defined in Section 3(1) of ERISA), bonus, stock option, stock bonus,
stock purchaser, phantom equity, deferred compensation or other plans or
agreements, social security and other employee fringe benefit plans, domestic
and foreign, maintained (or required to be maintained under any governmental law
or regulation), or contributed to, by the Purchaser for the benefit of its
employees.
<PAGE>
O. Set forth on Schedule IP are all the assets, property, interests and
investments held directly or indirectly, in whole or in part, by the Purchaser.
All of such assets, property or interests are in good operating condition and
repair. Except for the assets listed on Schedule IP, ----------- the Purchaser
does not have any interests, directly or indirectly, in any other interest,
investment, partnership, joint venture, business, trust entity, property or
assets.
P. The Purchaser has such knowledge, sophistication and experience in
business, tax and financial matters that the Purchaser is capable of evaluating,
and is familiar with, the merits and risks of its investment in the Interest and
can bear the substantial economic risk of an investment in the Interest for an
indefinite period of time and can afford a complete loss of such investment.
Q. The Purchaser has carefully read this Agreement and, to the extent that
the Purchaser believed necessary, has discussed the representations, warranties
and agreements which the Purchaser makes by signing this Agreement with the
Purchaser's counsel.
R. The Purchaser and its advisors have been afforded the opportunity to ask
questions of the Seller and of the LLC, and have received complete and
satisfactory answers to any and all such inquiries and have access to such
financial and other information concerning the LLC and the Interest as it has
deemed necessary in connection with its decision as to whether to make its
investment. The Purchaser specifically acknowledges that it does not require and
has not requested to see any information with respect to the LLC or this
investment other than the information that it has obtained. The Purchaser
understands that its investment in the Interest involves a high decree of risk,
and the Purchaser is relying solely upon its own knowledge and experience in
business, tax and financial matters in making its decision to purchase such
securities.
S. The Purchaser acknowledges that (i) none of the Seller, the LLC, any
affiliate thereof or any person representing the LLC or any affiliate thereof
has made any representation to it with respect to the business or prospects of
the LLC or the Chevron Agreement other than the information contained in the
Memorandum prepared by the LLC and in this Agreement, (ii) in making its
investment decision the Purchaser is not relying upon any information given by
the Seller or LLC or any affiliate thereof or any person representing the Seller
or LLC or any affiliate thereof other than the information contained in the
Memorandum prepared by the LLC, and (iii) no representation has been made, and
no information has been furnished, to the Purchaser in connection with the sale
of the Interest that was in any way inconsistent with any other information with
which the Purchaser has been provided.
T. The Purchaser understands that no United States federal or state agency
or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Interest.
<PAGE>
U. The representations and warranties of the Purchaser in this Agreement do
not contain any untrue statement of a material fact or omit any material fact
necessary to make the statements any information contained in this Agreement not
false or misleading. The Purchaser has disclosed to the Seller any and all
material liabilities relating to the business, operations and assets of the
Purchaser. The Purchaser has no knowledge of any matter which materially and
adversely affects or may materially and adversely affect the operation,
prospects or condition of the Purchaser which has not been disclosed to the
Seller. The Purchaser will indemnify the Seller and hold it harmless against and
in respect of any claim, charge, cost, expense, loss, damage or liability
arising out of or related to any such untrue statement, omission or failure to
disclose.
IV. TRANSFER RESTRICTIONS
---------------------
A. The Seller acknowledges that (i) the Shares to be issued to it hereunder
have not been and are not being registered under the provisions of the
Securities Act or any applicable state securities laws, and none of such
securities may be offered, sold, pledged or otherwise transferred unless (A)
such securities are subsequently registered under the Securities Act and all
applicable state securities laws or (B) the Seller shall have reasonably
satisfied the Purchaser that such securities may be sold pursuant to a valid
exemption from the registration requirements, including - if requested by
Purchaser - the delivery to the Purchaser of an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Purchaser to the effect that
such securities may be sold or transferred pursuant to a valid exemption from
such registration requirements; (ii) the Shares are "restricted securities" (as
defined in Rule 144 promulgated under the Securities Act); (iii) any sale of the
Shares made in reliance on Rule 144 promulgated under the Securities Act may be
made only in accordance with the terms of said Rule and further, if said Rule is
not applicable, any resale of such securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the Securities Act, may require compliance
with some other exemption under the Securities Act or the rules and regulations
of the Securities and Exchange Commission (the "SEC") thereunder; and (iv)
neither the Purchaser nor any other person is under any obligation to register
the Shares under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder.
B. The Seller acknowledges and agrees that "stop transfer" instructions
shall be placed against the Shares on the transfer books of the Purchaser and
that the certificate(s) evidencing the Shares shall bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE DISPOSED OF FOR VALUE UNLESS A REGISTRATION
STATEMENT HAS BECOME EFFECTIVE WITH RESPECT TO SUCH SECURITIES UNDER
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS
AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS HAS BEEN
ESTABLISHED TO THE REASONABLE SATISFACTION OF THE CORPORATION, IN
WHICH CASE THE CORPORATION MAY REQUEST AN OPINION OF SELLER'S COUNSEL.
<PAGE>
V. THE CLOSING
-----------
Subject to the satisfaction or waiver of the conditions set forth in
Sections VII and VIII hereof, the purchase and sale provided for in this
Agreement (the "Closing") shall take place on July 31, 1997, at [the offices of
the Purchaser], at [10:00 a.m.], or at such other place, time and date as the
parties hereto may mutually agree.
VI. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
-----------------------------------------------------
All obligations of the Purchaser under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions:
A. Representations and Warranties. Each and every representation and
warranty of the Seller under this Agreement shall be true and accurate as of the
date when made and shall be deemed to be made again at and as of the Closing and
shall then be true and accurate in all respects.
B. Chevron Agreement. The Chevron Agreement, a true and correct copy of
which is attached hereto as Exhibit A, is a legal, valid and binding obligation
of the parties thereto and is in full force and effect. ---------
C. Covenants, Agreements and Conditions. The Seller shall have performed
and complied with each and every covenant, agreement and condition required by
this Agreement to be performed or complied with by the Seller prior to or at the
Closing, and the LLC shall not have taken any action or done anything or
suffered any act or thing to be taken or done or to exist which would result in
(i) an inaccuracy in any representation or breach of any warranty of the Seller
under this Agreement or (ii) any failure by the Seller to perform or to observe
any term, provision, covenant, agreement or condition set forth or provided for
in this Agreement.
D. No Adverse Affect. The LLC's interest in the Chevron Agreement or any
other property or assets of the LLC shall not have been materially and adversely
affected as of the Closing in any way as a result of any casualty of disaster,
accident, labor disputes, exercise of power of eminent domain or other
governmental event or Act of God or the public enemy, and there shall not have
occurred any change in the financial condition, business or operations of the
LLC that would have or would be reasonably likely to have a material adverse
effect on the LLC.
<PAGE>
E. No Suit, Action or Other Proceeding. No suit, action or other proceeding
shall be pending or threatened before any court or governmental agency seeking
to restrain, to prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated hereby, and
there shall have been no investigation or inquiry made or commenced by any
governmental agency in connection with this Agreement or the transactions
contemplated hereby.
F. Simultaneous Purchase of All Other Interests. The Purchaser shall, at
the time of Closing, have acquired the membership interests of all other Members
of the LLC, such that upon Closing, the Purchaser will be the holder of 100% of
the membership interests in the LLC.
G. Certificate of Non-Foreign Status. Each Seller shall have furnished to
the Purchaser a certification of the Seller's non-foreign status as provided in
Treasury regulations section 1.1445-2(b)(2)(i) and (iii) (which certification
form will be provided by Purchaser to each Seller for completion prior to the
Closing).
H. Security Agreement. The Seller and the Purchaser shall have entered into
a security and pledge agreement with respect to the Shares pursuant to Section
X. of this Agreement.
The Purchaser may, in its sole discretion, waive any of the foregoing
conditions by delivering written notice to such effect to the Seller.
VII. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
--------------------------------------------------
All obligations of the Seller under this Agreement are subject, at the
Seller's option, to the fulfillment prior to or at the Closing of each of the
following conditions:
A. Representations and Warranties. Each and every representation and
warranty of the Purchaser under this Agreement shall be true and accurate in all
respects as of the date when made and shall be deemed to be made again and as of
the Closing and shall then be true and accurate in all respects, except as to
changes therein specifically contemplated by this Agreement.
B. Sale of Equity of the Purchaser. The Purchaser shall have entered into
subscription agreements, and all funds shall have been deposited in escrow, for
the sale of equity interests in the Purchaser for gross proceeds, in the
aggregate, of at least $1,500,000. All conditions to closing in connection with
such subscription agreements shall have been fulfilled, including the receipt of
$1.5 million of cleared funds, except the condition that the transactions
contemplated by this Agreement have been consummated, and the escrow
arrangements entered into in connection with such subscription agreements shall
provide that $1.5 million of the proceeds received in connection with such
subscription agreements shall be released from escrow upon the consummation of
the transactions contemplated by this Agreement. The funds received at the time
of closing by Purchaser from the sale of units of Purchaser's common stock and
warrants shall be considered interrelated with and interdependent on the
purchase of the Interest, together with the purchase of all interests in the
LLC, by Purchaser.
<PAGE>
C. Covenants, Agreements and Conditions. The Purchaser shall have performed
and complied with each and every covenant, agreement and condition required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
D. No Suit, Action or Other Proceeding. No suit, action or other proceeding
shall be pending or threatened before any court or governmental agency seeking
to restrain, prohibit or obtain damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, and there
shall have been no investigation or inquiry made or commenced by any
governmental agency in connection with this Agreement or the transactions
contemplated hereby.
E. Stock Ownership. At the time of the Closing, the ownership of common
stock and warrants of the Purchaser, including ownership of common stock and
warrants issued in the private placement of equity interests to be consummated
at the Closing, shall confirm to the requirements for stock ownership set forth
in the Memorandum dated June 23, 1997 to Scott Singdahlsen from Alan Talesnick,
a copy of which is attached hereto as Exhibit SO.
F. State Securities Laws. Purchaser shall have delivered to Seller, to the
reasonable satisfaction of Seller, evidence of compliance with all applicable
state securities laws with respect to the offer and sale of $1.5 million of
equity interests in Purchaser as described in Section VII.B. above.
G. Opinion of Counsel. Seller shall have received an opinion from
Purchaser's legal counsel, dated the date of Closing to the effect that:
(i) The incorporation, existence and good standing of Purchaser are as
stated in this Agreement; the authorized shares of Purchaser are as stated
in this Agreement; and all outstanding shares of Purchaser's Common Stock
are duly and validly authorized and issued, fully paid and nonassessable
and have not been issued in violation of any preemptive right of any
stockholders.
(ii) Purchaser has full corporate power and authority to execute,
deliver and perform this Agreement and this Agreement has been duly
authorized, executed and delivered by Purchaser, and constitutes the legal,
valid and binding agreement of Purchaser, except that (a) the enforcement
of certain rights and remedies created by this Agreement is subject to
bankruptcy, insolvency, reorganization and similar laws of general
application affecting the rights and remedies of parties, (b) the
enforceability of any particular provision of this Agreement under
principles of equity or the availability of equitable remedies, such as
specific performance, injunctive relief, waiver or other equitable
remedies, is subject to the discretion of courts of competent jurisdiction,
and (c) any court or administrative body may refuse to enforce the
indemnification provisions of this Agreement.
<PAGE>
(iii) The execution and performance by Purchaser of this Agreement
will not violate the Certificate of Incorporation or By-Laws of Purchaser,
and, to the knowledge of such counsel, will not violate, result in a breach
of or constitute a default under any material lease, mortgage, contract,
agreement, instrument, law, rule, regulation, judgment, order or decree to
which purchaser is a party or by which it or any of its assets may be
bound.
(iv) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental agency or body which
has not been obtained is required on behalf of Purchaser for the
consummation of the transactions contemplated by this Agreement.
(v) To the knowledge of such counsel, there is no existing option,
warrant, right, call, subscription or other agreement or commitment
obligating the Purchaser to issue or sell, or to purchase or redeem, any
shares of its capital stock other than as stated in this Agreement.
(vi) To the knowledge of such counsel, there are no actions, suits or
proceedings pending or threatened against or affecting Purchaser.
(vii) The shares of Purchaser's Common Stock to be issued pursuant to
this Agreement will be, when so issued, duly authorized, validly issued and
outstanding, fully paid and nonassessable.
The Seller may, in its sole discretion, waive any of the foregoing
conditions by delivering written notice to such effect to the Purchaser.
VIII. FURTHER ACTIONS AND ASSURANCES
------------------------------
A. At the time of Closing, the Board of Directors of Purchaser shall
replace itself with a Board of Directors consisting of D. Scott Singdahlsen,
Greg Barnett, and Keith P. Carney.
B. At any time or from time to time, on and after the Closing, the Seller
shall execute and deliver, or cause to be executed and delivered, to Purchaser,
all additional consents, endorsements, documents, transfer orders and
instruments and take or cause to be taken all actions that Purchaser may deem
necessary or desirable to effect the transactions contemplated by this Agreement
and to otherwise carry out the intents and purposes of this Agreement. The
Seller shall promptly deliver, or cause to be delivered, to Purchaser any
notices, payments or demands relating to the Chevron Agreement which they
receive or become aware of after the Closing.
C. In its federal and state income tax returns, the Purchaser shall report
the transactions contemplated by this Agreement in a manner consistent with, and
intended to obtain qualification for tax-free treatment under, Section 351 of
the Internal Revenue Code.
<PAGE>
D. After the Closing and prior to consummation of the sale of Purchaser's
assets from its prior entertainment and other business, Purchaser shall have
obtained an opinion of legal counsel, reasonably satisfactory to Seller, that
approval of the stockholders of Purchaser is not required for Purchaser to sell
all the remaining assets from its prior entertainment and other business.
E. The Seller hereby acknowledges that in connection with the sale of
equity interests of the Purchaser as contemplated by Section VII.B. above and in
accordance with the escrow arrangements with respect to such sale of equity
interests, the Purchaser will, at the time of closing of such sale of equity
interests, compensate certain third parties for strategic business consulting
services, services in connection with the placement and sale of the equity
interests and other professional services.
IX. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
All covenants, agreements, representations and warranties of the Seller
under this Agreement shall survive after the Closing and shall remain effective
without regard to any investigation at any time made by or on behalf of
Purchaser, or of any information Purchaser may have with respect thereto.
X. INDEMNIFICATION
---------------
A. The Seller hereby agrees to indemnify, defend and hold harmless the
Purchaser (and its directors, officers, employees, Affiliates, successors and
assigns), on an after-tax basis, from and against any losses, liabilities,
damages, costs or expenses, including, without limitation, interest, penalties
and reasonable fees and expenses of counsel (collectively, "Losses"), based
upon, arising out of or otherwise resulting from (1) any inaccuracy in any
representation or breach of any warranty of the Seller contained in this
Agreement or in any schedule or certificate delivered pursuant hereto or thereto
or (2) the breach or nonfulfillment of any covenant, agreement or other
obligation of the Seller under this Agreement. The obligations of the Seller
under this Section X shall survive for a period of one year from Closing. Prior
to Closing, the Seller hereby agrees to pledge the Shares as security for any
obligations of the Seller which may arise under this Section X for a period of
one year after Closing. Such pledge and security shall be satisfactory to the
Purchaser. The liability of the Seller under this Section X shall be limited to
the pledged Shares.
B. The Purchaser hereby agrees to indemnify, defend and hold harmless the
Seller (and its affiliates, successors and assigns), on an after-tax basis, from
and against any losses, liabilities, damages, costs or expenses, including,
without limitation, interest, penalties and reasonable fees and expenses of
counsel (collectively, "Losses"), based upon, arising out of or otherwise
resulting from (1) any inaccuracy in any representation or breach of any
<PAGE>
warranty of the Purchaser contained in this Agreement or in any schedule or
certificate delivered pursuant hereto or thereto or (2) the breach or
non-fulfillment of any covenant, agreement or other obligation of the purchaser
under this Agreement. The obligations of the Purchaser under this Section X
shall survive for a period of one year from Closing.
XI. NOTICES
-------
A. All notices, consents, approvals, requests, demands and other
communications required or permitted to be given hereunder or in connection with
the transactions contemplated hereby shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by telecopy or prepaid
telegram, or mailed first class, postage prepaid, registered or certified mail,
to the parties at the addresses shown below:
To Seller:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
To Purchaser:
Attn: Mr. Buddy Young, President
Mar Ventures Inc.
17337 Ventura Boulevard
Encino, California 91316
Telephone: 818-784-0040
Facsimile: 818-784-8660
Any such notice shall be deemed to have been received when delivered or, if
mailed or sent by courier, on the fifth business day after the mailing or
couriering thereof or, if sent by telecopy or similar written and immediate
means, on the day of transmission if sent prior to 3:00 pm (recipient local
time) on a business day and if not then on the next business day of the
recipient, provided that the original of such notice is promptly sent by mail or
courier.
B. Either the Purchaser or the Seller may change the address, telephone, or
facsimile numbers to which such communications are to be directed to it by
giving written notice to the others in the manner provided for in Section XI.A.
XII. TERMINATION
-----------
A. Causes for Termination. This Agreement may be abandoned or terminated on
or before the Closing by the agreement of the Purchaser and the Seller.
<PAGE>
B. Termination by Lapse. If the Closing has not taken place on or before
[December 31, 1997], either party hereto may terminate this Agreement by
delivering written notice of such termination to the other party.
C. Termination for Breach. In addition, either the Purchaser or the Seller
may terminate this Agreement at any time prior to the Closing by giving the
other party written notice thereof if:
1. there is any material breach or failure to perform by the other
party of any of the warranties, representations, commitments,
covenants and conditions under this Agreement; or
2. there exists any material error, misstatement or omission of a
material fact on the part of the other party which renders an
exhibit, representation of fact or document or schedule delivered
in connection herewith misleading and materially prejudicial to
the party terminating this Agreement.
Such notice shall clearly specify the material breach or failure of the
notified party to perform any of its warranties, representations, commitments,
covenants and conditions, or the material error, misstatement or omission of the
notified party.
D. Effect of Termination. If this Agreement is abandoned or terminated as
provided in Section XII.A. or B., above, this Agreement shall forthwith become
wholly void and of no effect and there shall be no liability hereunder on the
part of any of the parties hereto to the other party. If this Agreement is
abandoned or terminated as provided in Section XII.C., above, this Agreement
shall forthwith become wholly void and of no effect; provided, however, that
this provision shall not relieve the breaching or non-performing party from any
liability for any damages, costs or losses incurred by the other party arising
as a result of such breach or default.
XIII. MISCELLANEOUS PROVISIONS
------------------------
A. Choice of Law. The parties acknowledge that this Agreement shall be
governed, construed and enforced in accordance with the laws of the State of New
York, excluding any conflicts-of-laws provisions thereof.
B. Delivery of Records, Etc.. The Seller hereby covenants that the Seller
will deliver all originals as maintained by the LLC in the normal course of the
LLC's business to Purchaser at the Closing of all records affecting or relating
to the Chevron Agreement, title materials, any and all instruments creating
encumbrances, liens or burdens on any property or assets of the LLC, tax
documents, insurance policies and related documentation, and all other
agreements, permits, easements, licenses, and orders in any way relating to the
property, assets, interests or operation of the LLC. If this Agreement is
terminated by the Purchaser, Purchaser shall return to the LLC all items which
the LLC has delivered to the Purchaser pursuant to this Section XIII.B., and
neither party will have any further obligation to the other in respect thereto.
<PAGE>
C. Entire Agreement. This Agreement and the Schedules attached hereto, set
forth the entire agreement and understanding of the parties hereto in respect to
the transactions contemplated hereby and supersede all prior agreements,
arrangements and understandings relating to the subject matter hereof. No
representation, promise, inducement or statement of intention has been made by
the Seller or the Purchaser which is not embodied in this Agreement or in the
documents referred to herein, and neither the Seller nor the Purchaser shall be
bound by or liable for any alleged representation, promise, inducement or
statement of intention not so set forth.
D. Modification. Neither the Seller (nor any officer, director, employee or
agent of the Seller if the Seller is a Corporation) nor any officer, director,
employee or agent of the Purchaser may amend, alter, supplement, change or
modify this Agreement except by a written instrument executed by a duly
authorized officer of Purchaser and the Seller (or a duly authorized officer of
the Seller if the Seller is a corporation). Any attempted oral modification or
written modification, except as specifically set forth herein shall be void, ab
initio, and shall not be construed as, nor shall it be, a modification of this
Agreement.
E. Binding Agreement. All of the terms, covenants, representations,
warranties and conditions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns and other legal representatives.
F. Waiver. No waiver by any party of any condition or of any breach of any
term, covenant, representation or warranty contained in this Agreement, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or waiver of any other
condition or of any breach of any other term, covenant, representation or
warranty.
G. Headings. The Section headings contained in this Agreement are for
convenient reference only and shall not in any way affect the meaning or
interpretation of this Agreement.
H. Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and such transactions shall be paid by the party incurring such expenses except
as expressly provided herein.
<PAGE>
I. Counterparts. This Agreement may be executed simultaneously in two
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this instrument as of
the date first above written.
PURCHASER:
MAR VENTURES INC.
By:
------------------------------------
Buddy Young
President
SELLER:
----------------------------------------
, individually
-------------------------
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into between
Buddy Young (the "Purchaser") and Mar Ventures Inc., a Delaware corporation (the
"Seller"), effective as of August 6, 1997 (the "Effective Date"). For purposes
of this Agreement, each of Purchaser and Seller shall be referred to
individually as a "Party" and both of them shall be referred to collectively as
the "Parties".
Recitals
--------
A. The Seller has purchased a company engaged in the business of oil and
gas exploration, development, and consulting and Seller intends for its entire
business to be oil and gas exploration, development, and consulting. Seller also
has changed the location of its principal office from Encino, California to
Denver, Colorado.
B. Seller wishes to sell certain assets to Purchaser that are not related
to the Seller's oil and gas business or to Seller's principal office in Denver,
Colorado, and Purchaser wishes to purchase these assets from Seller, according
to the terms and conditions of this Agreement.
Agreement
---------
In consideration of the premises and of the mutual covenants contained in
this Agreement, the Parties agree as follows:
1. Definitions. As used in this Agreement, the following terms have the
meanings indicated:
1.1 "Assets" refers to all right, title and interest of Seller in, to
and under (a) the Programs (as "Programs" is defined below), and all the
tangible and intangible assets of the Seller related to the Programs, including
but not limited to all of Seller's interest in licenses, licensing fees and
accounts receivable, copyrights, intellectual property rights related to the
Programs and to video tape or film reproductions of the Programs, and (b) the
office supplies and office furniture located at the Seller's former office (the
"California Office") located at 17337 Ventura Boulevard, Suite 224, Encino,
California 91316.
1.2 "Assignment And Release" refers to the form of Assignment,
Assumption And Release Agreement to be executed and delivered by Purchaser to
Seller in payment of the Purchase Price in accordance with Section 2.4 of this
Agreement, a form of which Assignment And Release is attached to and made a part
of this Agreement as Exhibit A.
1.3 "Landlord" means Terrace Tower U.S.A. Inc.
1.4 "Lease" means the Lease dated December 31, 1996, between Landlord
and Seller concerning the California Office.
1.5 "Liabilities" means all liabilities and obligations of Seller,
regardless of whether incurred or accrued before or after the Effective Date,
related to or concerning or arising out of (a) the Assets, (b) the Service
Agreements, (c) the Whitman Claim (except with respect to any services requested
by Seller after the Effective Date), and (d) the Lease. Without limiting the
foregoing, Liabilities shall include accounts payable related to the Assets. The
Liabilities are being assumed by Purchaser pursuant to this Agreement.
1
<PAGE>
1.6 "Programs" refers to the following television programs: (a)
"Heartstoppers. . . At The Movies", a two-hour television program hosted by
George Hamilton, (b) "Christmas At The Movies", a one-hour television program
hosted by Gene Kelly, and (c) "It's A Wonderful Life - A Personal Remembrance",
an approximately 15-minute television program hosted by Frank Capra, Jr.
1.7 "Purchaser" refers to Buddy Young, an individual.
1.8 "Seller" refers to Mar Ventures Inc., a Delaware corporation.
1.9 "Service Agreements" shall have the meaning set forth in Section
4(e).
1.10 "Whitman Claim" shall have the meaning set forth in Section 4(f).
2. Sale And Purchase.
-----------------
2.1 Sale Of Assets. Subject to the terms and conditions of this
Agreement and upon receipt of the payment of the Purchase Price in the manner
described in Section 2.4 of this Agreement, effective as of the Effective Date,
Purchaser shall purchase, and Seller shall sell, transfer, convey, assign, and
deliver to Purchaser, all of Seller's right, title and interest in, to, and
under the Assets. THE ASSETS ARE TRANSFERRED "AS IS" AND THE SELLER MAKES NO
WARRANTY AS TO THE SUITABILITY OF THE ASSETS FOR ANY PARTICULAR PURPOSE.
2.2 Assumption Of Liabilities. Effective as of Effective Date,
Purchaser shall assume the Liabilities. Without limiting the foregoing,
Purchaser agrees to assume and perform all obligations of Seller with respect to
the Assets and to pay or discharge all liabilities and obligations that have
been or will be incurred or accrued at any time with respect to the Assets. Each
of the Parties acknowledges and agrees that Seller shall have no further rights
or obligations related to the Assets or related to any liabilities or other
obligations that have been or will be incurred or accrued in connection with or
otherwise with respect to the Assets at any time prior or subsequent to the
Effective Date. Purchaser hereby agrees to indemnify and hold harmless Seller
and its officers, directors, representatives and agents from and against any and
all loss, damage, or liability due to, arising out of, or in any manner related
to (a) the Assets, or (b) the Liabilities, or (c) the failure of Purchaser to
perform Purchaser's obligations pursuant to this Section 2.2, or (d) a breach by
Purchaser of any representation, warranty, or certification contained in this
Agreement.
2.3 Purchase Price. Purchaser shall pay to Seller for all the Assets
aggregate consideration of $32,000 (the "Purchase Price"), payable in accordance
with Section 2.4(a) below.
2.4 Closing. The closing of the purchase and sale of the Assets
pursuant to this Agreement (the "Closing") shall be held at the Seller's offices
at 1675 Broadway, Suite 1150, Denver, Colorado 80202 on October 3, 1997 at 10:00
a.m. Notwithstanding the above, the Closing shall be held at such other time and
place to which the Seller and the Purchaser may agree. The date of Closing shall
be referred to as the "Closing Date". At the Closing, the following will occur:
2
<PAGE>
(a) Purchaser shall pay the Purchase Price by delivering to the
Seller a counterpart of the Assignment And Release signed by Purchaser; and
(b) Seller shall deliver to Purchaser (i) the Assets that are in
the possession or control of Seller, and (ii) a counterpart of the
Assignment And Release signed on behalf of Seller; and
(c) Purchaser shall deliver to Seller (i) payment of an amount
equal to the aggregate amount of Security Deposits in accordance with
Section 5.3 below, (ii) a copy of the Landlord Consent signed by Landlord
and Purchaser, and (iii) the amount of the Bank Account in accordance with
Section 5.4 below.
3. Representations Of Seller. Seller represents, warrants and agrees to and
with Purchaser as follows as of the Effective Date and as of the Closing Date:
3.1 Seller has full power, authority, and legal right to sell the
Assets;
3.2 This Agreement constitutes a legal and binding obligation of the
Seller, and is valid and enforceable against the Seller and Seller's successors
in accordance with its terms except as enforcement may be limited by applicable
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and except that the remedies of specific performance, injunction and
the forms of equitable relief may be subject to equitable defenses and to the
equitable discretion of the court before which any proceeding therefor may be
brought; and
3.3 There are no restrictions on Seller's right or ability to sell the
Assets to Purchaser.
4. Representations Of Purchaser. Purchaser hereby represents, warrants, and
agrees to and with Seller as follows:
4.1 Purchaser has full power, authority, and legal right to purchase
the Assets from Seller, and the execution of this Agreement by Purchaser does
not require the consent of, or notice to, any party not previously obtained or
given;
4.2 This Agreement constitutes a legal and binding obligation of the
Purchaser, and is valid and enforceable against Purchaser and Purchaser's
successors in accordance with its terms except as enforcement may be limited by
applicable bankruptcy, insolvency or other similar laws affecting creditors'
rights generally and except that the remedies of specific performance,
injunction and the forms of equitable relief may be subject to equitable
defenses and to the equitable discretion of the court before which any
proceeding therefor may be brought; and
4.3 Purchaser is a former officer and director of Seller and is
familiar with the Assets and the Liabilities. Purchaser understands that the
Assets are being transferred to Purchaser pursuant to the terms of this
Agreement in "AS IS" condition. NO REPRESENTATIONS OR WARRANTIES ARE MADE BY
SELLER TO PURCHASER CONCERNING THE SUITABILITY OF THE ASSETS FOR ANY PARTICULAR
PURPOSE.
3
<PAGE>
4.4 As of the Effective Date, Seller was indebted to Purchaser in an
aggregate amount of at least $32,000 for advances made by the Purchaser to the
Seller, which amount represents the valid and binding obligation of the Seller
for which the Seller received adequate consideration and which amount was
properly documented as an obligation of the Seller in accordance with generally
accepted accounting principles.
4.5 Purchaser has terminated all contracts and agreements concerning
telephone service, long distance telephone service, courier service, and other
services provided to the Seller at the California Office, including but not
limited to those with AT&T, Federal Express, and Pacific Bell (the "Service
Agreements"), and, as of the date of the signing of this Agreement by Purchaser,
the Seller has no obligations under the Service Agreements.
4.6 Purchaser has settled and caused to be discharged all amounts
claimed by or owed to Whitman, Breed & Abbott from the Seller at any time on or
before the date of the signing of this Agreement by Purchaser (the "Whitman
Claim") and, as of the date of the signing of this Agreement by Purchaser, the
Seller has no obligations to Whitman, Breed & Abbott.
5. Additional Covenants.
--------------------
5.1 Brokerage Commissions And Finders' Fees. Purchaser shall indemnify
and hold harmless Seller from any loss, cost or expense arising out of any claim
for brokerage commissions, finders' fees or other like payment with respect to
this Agreement or other transfer of the Assets if such claim is based upon any
agreement or understanding with Purchaser or any of Purchaser's representatives
or agents. Seller shall indemnify and hold harmless Purchaser from any loss,
cost, or expense arising out of a claim for brokerage commissions, finders' fees
or other like payment with respect to this Agreement or the transfer of the
Assets if such claim is based upon any agreement or understanding with Seller or
any of Seller's representatives or agents.
5.2 Expenses. Each respective Party will pay all expenses and fees of
his or its legal counsel, accountants, and other agents and advisers incurred
pursuant to this Agreement regardless of whether the transactions contemplated
in this Agreement are consummated.
5.3 California Office Lease. Seller agrees to pay to Purchaser at the
Closing $2,900 to reimburse Purchaser for the rental due pursuant to the Lease
from August 6, 1997 through September 30, 1997. Purchaser shall assume and
perform all obligations of Seller accruing on and after August 6, 1997 pursuant
to the Lease. Prior to the Closing, Purchaser shall obtain the written consent
(the "Landlord Consent") of Landlord to the assignment of the Lease to
Purchaser, which Landlord Consent shall contain a release of all of Seller's
obligations pursuant to the Lease arising after August 6, 1997 and which
Landlord Consent shall be in a form reasonably acceptable to Seller. At the
Closing, Purchaser shall pay to Seller an amount equal to all security deposits
(the "Security Deposits") held by the Landlord, pursuant to the Lease, which
consist of $1,605 in the aggregate, and, pursuant to the Landlord Consent,
Purchaser shall have the right to receive the return of the Security Deposits at
the expiration of the initial term of the Lease on February 28, 2000.
5.4 Bank Accounts. Purchaser shall deliver to Seller at the Closing
all amounts held in Bank Account No. 03928-08371 (the "Bank Account") at Bank of
America, Encino Branch 0392, which consists of approximately $336.20 as of the
date of Purchaser's signing of this Agreement. Prior to the Closing, Purchaser
shall cause the Bank Account to be closed and will provide Seller with
reasonable evidence of the closing of the Bank Account.
4
<PAGE>
5.5 Additional Documentation. Within 30 days of the receipt of a
request from Purchaser, Seller shall execute and deliver to Purchaser all such
additional agreements, assignments, instruments, and other documents reasonably
necessary to effectuate the transactions contemplated by this Agreement.
6. Miscellaneous.
--------------
6.1 Entire Agreement. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof.
6.2 Notice. All notices, requests, demands, directions and other
communications ("Notices") provided for in this Agreement shall be in writing
and shall be mailed or delivered personally or sent by telecopier or facsimile
to the applicable Party at the address of such Party set forth below in this
Section 6.2. When mailed, each such Notice shall be sent by first class,
certified mail, return receipt requested, enclosed in a postage prepaid wrapper,
and shall be effective on the third business day after it has been deposited in
the mail. When delivered personally, each such Notice shall be effective when
delivered to the address for the respective Party set forth in this Section 6.2.
When sent by telecopier or facsimile, each such Notice shall be effective on the
first business day on which or after which it is sent. Each such Notice shall be
addressed to the Party to be notified as shown below:
Purchaser: Buddy Young
17337 Ventura Boulevard, Suite 224
Encino, California 91316
Facsimile No.: (818) 784-8660
Seller: Mar Ventures Inc.
1675 Broadway, Suite 1150
Denver, Colorado 80202
Facsimile No.: (303) 825-3768
Either Party may change his or its respective address for purposes of
this Section 6.2 by giving the other Party Notice of the new address in the
manner set forth above.
6.3 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, and if any provision of this Agreement shall be or become
prohibited or invalid in whole or in part for any reason whatsoever, that
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remaining portion of that provision or the
remaining provisions of this Agreement.
6.4 Non-Waiver. The waiver of any Party of a breach or a violation of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach or violation of any provision of this Agreement.
6.5 Amendment. No amendment or modification of this Agreement shall be
deemed effective unless and until it has been executed in writing by the Parties
to this Agreement. No term or condition of this Agreement shall be deemed to
have been waived, nor shall there by any estoppel to enforce any provision of
this Agreement, except by a written instrument that has been executed by the
Party charged with such waiver or estoppel.
5
<PAGE>
6.6 Inurement. This Agreement shall be binding upon both of the
Parties, and it shall benefit, respectively, each of the Parties, and their
respective successors and assigns. This Agreement shall not be assignable by any
Party. There are no third party beneficiaries to this Agreement.
6.7 Headings. The headings to this Agreement are for convenience only;
they form no part of this Agreement and shall not affect its interpretation.
6.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute a single instrument.
6.9 Survival Of Representations And Warranties. Each covenant,
agreement, representation and warranty of the Parties under this Agreement shall
survive for one year the execution of this Agreement and the performance of each
respective Party's obligations pursuant to this Agreement.
IN WITNESS WHEREOF, this Agreement is executed on the dates set forth below
to be effective as of the Effective Date.
PURCHASER:
Date: 15 Oct. 1997 /s/ Buddy Young
--------------------------------- -----------------------------
Buddy Young, individually
SELLER:
Mar Ventures Inc.
Date: 14 Oct 1997 By: /s/ D. Scott Singdahlsen
--------------------------------- -----------------------------
D. Scott Singdahlsen,
President
6
INDEPENDENT AUDITOR'S CONSENT
We consent to the use of this Registration Statement of Mar Ventures Inc. on
Form SB-2 of our report dated September 23, 1997 relating to the financial
statements of Mar Ventures Inc. appearing in the Prospectus, which is part of
this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
WHEELER WASOFF, P.C.
Denver, Colorado
October 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM SB-2.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 7-MOS 8-MOS
<FISCAL-YEAR-END> DEC-31-1996 AUG-31-1997
<PERIOD-END> DEC-31-1996 AUG-31-1997
<CASH> 11,536 1,432,281
<SECURITIES> 0 0
<RECEIVABLES> 527 10,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 4,196
<PP&E> 0 340,488
<DEPRECIATION> 0 941
<TOTAL-ASSETS> 12,490 1,789,666
<CURRENT-LIABILITIES> 527 70,248
<BONDS> 0 0
0 0
0 0
<COMMON> 0 9,155
<OTHER-SE> 0 1,710,263
<TOTAL-LIABILITY-AND-EQUITY> 12,490 1,789,666
<SALES> 37,528 80,000
<TOTAL-REVENUES> 37,528 85,596
<CGS> 0 0
<TOTAL-COSTS> 6,565 143,421
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 30,963 (40,905)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 30,963 (40,905)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 30,963 (40,905)
<EPS-PRIMARY> .008 (.003)
<EPS-DILUTED> .008 (.003)
</TABLE>
