Registration Number 333-_______
U.S. Securities And Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PYR ENERGY CORPORATION
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(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)
With a copy to:
Alan L. Talesnick, Esq.
Francis B. Barron, Esq.
Patton Boggs LLP
1660 Lincoln Street
Suite 1900
Denver, Colorado 80264
(303) 830-1776
D. Scott Singdahlsen, 1675 Broadway, Suite 1150,
Denver, CO 80202; (303) 825-3748
--------------------------------
(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 any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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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<CAPTION>
CALCULATION OF REGISTRATION FEE
-------------------------------
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
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 4,593,866 $2.34375 (1) $10,766,873 $2,994
Common Stock that
may be issued upon
exercise of warrants
to purchase Common
Stock 437,500 $2.50 $1,093,750 $304
TOTAL 5,031,366 $11,860,623 $3,298
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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 high and low prices of the
Company's Common Stock on the OTC Bulletin Board on June 16, 1999, which is
within five business days of the date of filing (June 21, 1999)
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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The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
PROSPECTUS DATED JUNE 21, 1999
SUBJECT TO COMPLETION
SELLING STOCKHOLDER
PROSPECTUS
PYR ENERGY CORPORATION
5,031,366 Shares Of Common Stock
This Prospectus relates to the transfer of up to 5,031,366 shares of Common
Stock of PYR Energy Corporation by the selling stockholders identified in this
Prospectus. The Company will not receive any of the proceeds from the sale of
these shares by the selling stockholders. The Company will receive proceeds from
the exercise, if any, of warrants to purchase common stock held by all but one
of the selling stockholders. The shares consist of the following:
o 4,375,000 shares that were purchased by selling stockholders in a
private placement transaction pursuant to exemptions from federal and
state registration requirements.
o Up to 437,500 shares that may be issued to selling stockholders when
they exercise warrants to purchase Common Stock that were purchased in
the same private placement transaction as the 4,375,000 shares
described in the preceding sentence.
o 218,866 shares of Common Stock that were issued to a selling
stockholder as part of the purchase price paid by the Company for
working interests in three oil and gas exploration prospects.
The selling stockholders have not entered into any underwriting
arrangements. The prices at which the selling stockholders sell the Common Stock
may be the market prices prevailing at the time of transfer, prices related to
the prevailing market prices, or negotiated prices. Brokerage fees or
commissions may be paid by the selling stockholders in connection with sales of
the Common Stock.
The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol "PYRX". On June 17, 1999, the closing price of the Common Stock was
$2.031 per share.
Investing in the Common Stock involves certain risks. See the "RISK
FACTORS" section beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is June __, 1999
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PROSPECTUS SUMMARY
The following summary highlights information contained in this prospectus.
It may not be complete and may not contain all the information that you should
consider before investing in the Common Stock. You should read this entire
prospectus carefully, including the "RISK FACTORS" section, the financial
statements and the notes to the financial statements.
The Company The Company is an independent exploration company that applies
advanced three-dimensional ("3-D") seismic and computer aided
exploration technology to systematically explore for and exploit
onshore domestic natural gas and oil accumulations in the western
United States. The Company's exploration activities are primarily
focused on the southern San Joaquin Basin of California. The
Company does not own any producing or proved oil or gas
properties, and no oil or gas pro the Company. See below,
"BUSINESS AND PROPERTIES".
Recent
Developments During fiscal 1998, the Company and other working interest owners
commenced drilling on the Company's first two test wells: the
Bellevue #1-17 on the Company's East Lost Hills prospect, which
commenced drilling in May 1998, and the Federal #67X-30, on the
Company's School Road prospect, which commenced drilling in July
1998. The School Road test well was plugged and abandoned on
September 18, 1998, although the Company is evaluating the
results in order to determine a possibilities at its School Road
acreage.
On November 23, 1998, the East Lost Hills prospect well suffered
a blowout after reaching a depth of approximately 17,600 feet out
of a targeted total depth of 19,000 feet. The operator of the
well, Bellevue Resources, Inc., a subsidiary of Elk Point
Resources, Ltd., worked with well control experts to contain the
well blowout. Surface containment facilities had been installed,
and all liquid and gas production from the well were contained
and transported to processin well began drilling on December 18,
1998. The relief well was drilled to 16,668 feet, where it
intersected the original well bore. On May 29, 1999, the original
well bore was killed by pumping heavy mud and cement into the
well bore. The original well bore has been plugged back and
abandoned, and the relief well will be used to sidetrack a
replacement well into the targeted Trembler Zone. It is
anticipated that the drilling of the replacement well will be
completed BUSINESS AND PROPERTIES--Southern San Joaquin Basin,
California".
In May 1999, the Company issued 4,375,000 shares of Common Stock
as well as warrants to purchase up to an aggregate of 437,500
shares of Common Stock in a private placement. This prospectus
will be used by selling stockholders to sell the Common Stock
that they received in the private placement or that they may
receive upon exercise of the warrants.
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In April 1999, the Company entered into an agreement to acquire
an interest in approximately 20,100 gross acres, and participate
in drilling three additional deep exploration projects, in the
San Joaquin Basin of California. These three projects are in
addition to the deep Temblor exploration program initiated by the
recent drilling at East Lost Hills, and all are located outside
the East Lost Hills joint venture area. The first exploration
well in the program began d paid $656,000 and issued 218,866
shares of Common Stock in connection with this acquisition. This
prospectus will be used by the seller of those interests to sell
the 218,866 shares. See "BUSINESS AND PROPERTIES--Southern San
Joaquin Basin, California".
In October and November 1998, the Company issued $2.5 million of
convertible promissory notes in a private placement. These notes
were converted into the Company's Series A convertible preferred
stock in April 1999. The Series A preferred stock is convertible
into Common Stock. Also in October 1998, the Company issued
266,666 shares of Common Stock in exchange for oil and gas leases
and seismic data.
The Offering The selling stockholders may sell a total of 5,031,366 shares of
Common Stock. These shares consist of the following:
o 4,375,000 shares that were purchased by selling
stockholders in a private placement transaction
pursuant to exemptions from federal and state
registration requirements.
o Up to 437,500 shares that may be issued to selling
stockholders when they exercise warrants to purchase
Common Stock that were purchased in the same private
placement transaction described in the preceding
sentence.
o 218,866 shares of Common Stock that were issued to a
selling stockholder as part of the purchase price paid
by the Company for working interests in three oil and
gas exploration prospects.
The Common Stock may be sold at market prices or other negotiated
prices. The selling stockholders have not entered into any
underwriting arrangements for the sale of the shares. See,
"SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION".
The Company will not receive any proceeds from the sale of Common
Stock by the selling stockholders. The Company will receive
proceeds of $2.50 per share upon the exercise, if any, by selling
stockholders of warrants to purchase up to 437,500 shares of
Common Stock.
Company
Offices The Company's offices are located at 1675 Broadway, Suite 1150,
Denver, Colorado 80202, telephone number (303) 825-3748.
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RISK FACTORS
THE PURCHASE OF SHARES OF COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
BEFORE PURCHASING COMMON STOCK, YOU SHOULD READ THIS ENTIRE PROSPECTUS AND
CONSIDER THE FOLLOWING FACTORS CONCERNING THE COMPANY IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS.
Start-Up Nature Of The Company's Oil And Gas Business; No Profits
The Company was formed in 1996 and has not had any 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 oil and gas and other hydrocarbons economically in commercial quantities,
on its ability 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 its operating activities.
Oil And Gas Prices
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 as a result of reduced cash flow
and borrowing capacity. All of these factors are beyond the control of the
Company.
Marketability Of Production
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 negatively 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 because the Company would
incur expenses without receiving revenues from sales of production. The
availability of markets and the volatility of product prices are beyond the
control of the Company and represent a significant risk to the Company.
Reliance On Industry Participants
The Company attempts to limit financial exposure on a project-by-project
basis by forming industry alliances 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
alliances, the Company's ability to fully implement its business plan could be
limited. This will have a material, negative effect on the Company's business,
financial condition and results of operations.
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Non-Operator Status
The Company focuses primarily on providing 3-D imaging and analysis and
relies upon other project participants to provide and complete all other project
operations and responsibilities including operating, drilling, marketing and
project administration. As a result, the Company has only a limited ability to
exercise control over a significant portion of a project's operations or the
associated costs of those operations. The success of a project is dependent upon
a number of factors that are outside of the Company's area of expertise and
project responsibilities. These factors include: (1) the availability of
favorable term leases and required permitting for projects, (2) the availability
of future capital resources by the Company and the other participants for the
purchasing of leases and the drilling of wells, (3) the approval of other
participants to the purchasing of leases and the drilling of wells on the
projects, and (4) 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 participants and its limited ability to directly control certain
project costs could have a material negative effect on the Company's receipt of
expected rates of return on the Company's investment in certain projects.
Ability To Discover Reserves
The Company's future success is dependent upon its ability to economically
locate 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 locate reserves 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. No assurances can be given that
the Company will have the opportunity to participate in projects that
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, and has not
booked any proved reserves.
Substantial Capital Requirements; Lack of Operating Revenue
In order to continue its oil and gas exploration plans fully, the Company
anticipates that it will need additional funding. In May 1999, the Company
closed a private placement resulting in a capital infusion of $7,000,000 from
some of the selling stockholders. Although management believes that these funds
provide the Company with adequate short term capital, the Company does not have
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. These include
unexpected formation and drilling conditions, pressure or other irregularities
in formations, equipment failures or accidents, as well as weather conditions,
compliance with governmental requirements 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 or all of its test wells, as a
consequence, may not ultimately be developed into producing wells and may be
abandoned. If this is the case, the Company will have incurred expenses for the
abandoned well without receiving any revenues from that well.
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General Risks Of Oil And Gas Operations
The nature of the oil and gas business involves a variety of risks. These
include the risks of operating hazards such as fires, explosions, cratering,
blowouts, such as the blowout at the exploratory well in which the Company has
an interest in East Lost Hills, and encountering formations with abnormal
pressures. The occurrence of any of these risks could result in losses to the
Company. The Company expects to 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. See "BUSINESS AND PROPERTIES--Significant
Properties--Southern San Joaquin Basin, California" for information concerning
the blowout at the East Lost Hills exploratory well.
Competition
The Company competes in the areas of oil and gas exploration with other
companies. Many of these competitors may have substantially larger financial and
other resources than the Company. From time to time, there may be competition
for, and shortage of, exploration, drilling and production equipment. 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.
Technology Changes
The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services using
new technologies. As new technologies develop, the Company may be placed at a
competitive disadvantage, and competitive pressures may force the Company to
implement those new technologies at a substantial cost to the Company. If other
oil and gas finding companies implement new technologies before the Company,
those companies may be able to provide enhanced capabilities and superior
quality compared with what the Company is able to provide. There can be no
assurance that the Company will be able to respond to these competitive
pressures and implement new 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. If this occurs, 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 regulations 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. Although the Company intends to be in
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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. The recent blowout of the East Lost Hills
exploratory well in which the Company has an interest raises a number of these
risks. Although the Company currently believes that costs related to the blowout
and the release of potential pollutants into the atmosphere are covered by
insurance, there is no assurance that this is the case. See "BUSINESS AND
PROPERTIES--Significant Properties--Southern San Joaquin Basin, California".
Variability Of Operating Results
As a start up company in the oil and gas industry, the Company's operating
results 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 also may be caused by the volatility
associated with oil and gas prices. See "--Oil And Gas Prices" and
"--Marketability Of Production".
Risks Associated With Management Of Growth
Because of its small size, the Company desires to grow rapidly in order to
achieve certain economies of scale. Although there is no assurance that this
rapid growth will occur, to the extent that it does occur it will place a
significant strain on the Company's financial, technical, operational and
administrative resources. As the Company expands its activities and increases
the number of projects it is evaluating or in which it is participating, there
will be additional demands on the Company' 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.
Concentration Of Risks; Lack Of Diverse Business Operations
The Company currently is pursuing only the oil and gas exploration
business. Although the Company is pursuing other oil and gas projects, it is
concentrating the majority of its initial oil and gas exploration efforts on
approximately 91,500 gross and 42,600 net exploratory acres in the San Joaquin
Basin. Although the Company is involved in nine 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 may 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.
Historically, there has been an extremely limited public market for the Common
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Stock. There is no assurance that the market will be sustained or will expand.
See "INACTIVE TRADING OF THE COMMON STOCK". The prices of the Company's
securities are highly volatile. 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. In addition, there is no assurance that an 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 price for the Common Stock on June 17, 1999
was $2.031. The Company does not anticipate that its Common Stock will qualify
for listing on the NASDAQ Stock market in the near future. 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". Generally, penny stocks 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). If the Company's shares are traded for less than $5 per share as they
currently are, the shares will be subject to the SEC's penny stock rules unless
(1) 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 (2) the Company has had average
revenue of at least $6,000,000 for the last three years. 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. In addition, the penny stock rules require that prior to
a transaction in a penny stock not otherwise exempt from those 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 requirements may have the effect 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 Common Stock may find it
difficult to sell the Common Stock of the Company. As a result of the Company's
May 1999 private placement and the April 1999 conversion of convertible
promissory notes into convertible preferred stock, the Company's net tangible
assets will be significantly in excess of the amount needed to be exempt from
the definition of "penny stocks". Accordingly, upon presentation of an updated
balance sheet showing the private placement funding, the Company's common stock
will no longer be defined as a "penny stock". Therefore, open market
transactions in the stock will not be subject to the brokers' sales practice
requirements for low-priced securities.
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. Effective as of
November 12, 1997, the Company's trading symbol was changed from "MRVI" to
"PYRX".
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The table below presents the range of high and low sales 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.
Sales Prices
------------
Quarter Ended High Low
------------- ---- ---
November 30, 1996 .125 .12
February 28, 1997 .0625 .0625
May 31, 1997 .1875 .1875
August 31, 1997 1.6875 .25
November 30, 1997 2.00 1.4375
February 28, 1998 1.875 .6875
May 31, 1998 1.4375 .70
August 31, 1998 1.1875 .41
November 30, 1998 3.5625 .4375
February, 28, 1999 5.00 1.375
May 31, 1999 3.00 1.75
On June 17, 1999, the closing sale price for the Company's Common Stock was
$2.031 per share.
Number Of Stockholders Of Record
On June 15, 1999, the number of Common stockholders of record of the
Company was approximately 1,200, and the number of preferred stockholders of
record was 55.
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 is obligated to pay
dividends at the rate of 10 percent per year on the $2,500,000 face amount of
its outstanding Series A Preferred Stock. These dividends are required to be
paid on January 1 and July 1 of each year. At the election of the Company,
dividends may be paid by issuing shares of common stock. See, "DESCRIPTION OF
SECURITIES--Series A Preferred Stock".
BUSINESS AND PROPERTIES
Overview
The Company is an independent oil and gas exploration company whose
strategic focus is the application of advanced three-dimensional ("3-D") seismic
imaging and computer aided exploration technology in the systematic search for
commercial hydrocarbon reserves, primarily in the onshore western United States.
The Company attempts to use its technical experience and expertise with 3-D
seismic technology 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 project participants. The Company has
pursued, and will continue to pursue, exploration opportunities in regions where
the Company believes significant opportunity for discovery of oil and gas
exists. By attempting to reduce drilling risk through 3-D seismic technology,
the Company seeks to improve the expected return on investment in its oil and
gas exploration projects.
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During fiscal 1998, the Company incurred approximately $439,000 for costs
related to continued leasing and optioning of acreage predominately in
California, $2,046,000 for costs relating to 3-D seismic acquisition over its
Southeast Maricopa acreage, and $118,000 in drilling costs associated with
drilling the deep exploration well at East Lost Hills. The Company had no
revenues from oil and gas production during 1998.
During fiscal 1997, the Company incurred approximately $311,000 for
acquisition of acreage and exclusive rights to undertake exploration activities
with respect to its 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 at least two exploratory wells during its fiscal year ending August 31, 1999
("1999"), 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; No Profits".
The Company's future financial results continue to depend primarily on (1)
the Company's ability to discover commercial quantities of hydrocarbons; (2) the
market price for oil and gas; (3) the Company's ability to continue to obtain
and screen potential projects; and (4) 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; No Profits", "- Substantial Capital Requirements; Lack Of
Operating Revenue" and "- Risks Of Exploratory Drilling Activities".
Strategy
The Company's business strategy is to continue to enhance shareholder value
by using 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 viewpoint 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.
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o Development of alliances 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 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
Company believes that this aggressive portfolio management will enable the
Company to maximize the investment of available capital in a limited number of
high impact geologic plays and projects.
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 exploration phases prior to drilling,
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 in an attempt to maximize
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 primarily focused on the southern
San Joaquin Basin of California. The Company also has projects identified in
selective Rocky Mountain basins. Advanced seismic imaging of the structural and
stratigraphic complexities, common to these regions, provides the Company with
enhanced ability to identify significant hydrocarbon potential. A number of
these projects, especially in the San Joaquin Basin, offer multiple drilling
opportunities with individual wells having the potential capability of
encountering multiple reservoirs.
The following provides a summary and status of the Company's exploration
areas and significant projects. While actively pursuing specific exploration
activities in each of the following areas, the Company is continually reviewing
additional opportunities in these core areas and in other areas that meet
certain exploration and exploitation criteria. There is no assurance that
drilling opportunities will continue to be identified in the current project
portfolio or will be successful if drilled.
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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 million barrels of oil equivalent
("MMBoe"). In calculating barrels of oil equivalent, the Company uses the ratio
of six thousand cubic feet ("Mcf" of gas for one barrel of oil.
The San Joaquin Basin 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.
San Joaquin Basin production totals for 1997 reported by the California
Department of Oil and Gas for all producers in the aggregate indicate total
production of 246.9 MMBoe. Of this figure, Kern County accounts for over 90
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.
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. Additional 1998
statistics indicate that the average well depth drilled during the year was just
slightly more than 1,800 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
are 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 East Lost Hills prospect is a deep, large untested
structure in the footwall of the Lost Hills thrust that lies directly east of
and structurally below the existing Lost Hills field. The Lost Hills thrust has
produced in excess of 350 MMBoe from shallow pay zones in a large thrusted
anticlinal feature. This unconventional deep prospect has significant structural
and reservoir risk, but the potential for large reserves makes it an attractive
play.
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In a joint effort with Denver-based Armstrong Resources LLC ("Armstrong"),
the Company 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 a 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.
In early 1998, the Company and Armstrong entered into an exploration
agreement with a number of established Canadian partners concerning
approximately 30,000 gross acres over this prospect. Initially the partners will
participate in the drilling of an exploratory well to further evaluate the
feature. Bellevue Resources, Inc., a subsidiary of Elk Point Resources, Ltd., is
operator of the well. Currently, other participants in the well are Berkley
Petroleum Corporation, Ceniarth Inc., Paramount Resources, Ltd., Richland
Petroleum Corporation, Westminister Resources, Ltd., Kookaburra Resources, and
Hilton Petroleum Company. PYR received cash consideration for its share of
acreage in this play and a carried 6.475% working interest through the tanks in
the initial exploration well. PYR owns an additional 4.1% working interest for a
total before payout working interest of 10.575%, which reduces to 9.253% after
payout in the initial exploration well. The Company owns a total working
interest of 10.575% in the six township area of mutual interest, subject to a
back-in interest after payout on 900 acres that would reduce the Company's
working interest on those 900 acres to 9.255%.
On May 15, 1998, the Bellevue Resources et al. #1-17 East Lost Hills well,
located in SE1/4. Sec 17, T26S, R21E, Kern County, California, commenced
drilling. The well was designed to test prospective Miocene sandstone reservoirs
in the Temblor Formation. During September 1998, the well was sidetracked in an
attempt to gain better structural position and delineate potential uphole pay.
On November 23, 1998, the well was drilling at 17,600 feet toward a total depth
of 19,000 feet when it blew out and ignited. No personal injuries resulted, and
an expert well control team was engaged to contain the fire. Significant
progress has been made on well control operations at the Bellevue #1-17. Surface
containment facilities had been installed and all liquid and gas production from
that well were contained and were transported to processing and disposal
facilities. A snubbing unit was deployed to attempt a surface control kill of
the Bellevue #1-17, but was not successful. A relief well, the Bellevue #1-17R,
began drilling on December 18, 1998. It was initially expected to intersect the
wellbore of the Bellevue #1-17 at a depth of about 13,500 feet. However, as
drilling continued and the characteristics of the blowout were examined, it was
determined to attempt to intersect the wellbore below 16,000 feet. The relief
well was drilled to 16,668 feet, where it intersected the original well bore. On
May 29, 1999, the original well bore was killed by pumping heavy mud and cement
into the well bore. The original well bore has been plugged back and abandoned
and the relief well will be used to sidetrack a replacement well into the
targeted Trembler Zone. It is anticipated that the drilling of the replacement
well will be completed by the end of August 1999.
At the time that the #1-17 East Lost Hills well was sidetracked, one of the
participants (the "Declining Participant") claimed that it had the right to
decline to participate in the sidetracking operations and still maintain its
interest in the well, subject to a "non-consent" penalty. The operator and the
other participants objected, and they continue to dispute the right of the
Declining Participant to maintain its interest in the well on this basis, and
proceeded with the sidetracking operation while denying the Declining
Participant's right to maintain its interest. Although the Company believes its
position on this matter is correct, if it loses this dispute, the after-payout
working interest of the Company in the well and in the other acreage subject to
the related exploration agreement could be reduced to approximately 9.085% in
the initial exploration well and to approximately 9.2625% in the other acreage.
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Deep Temblor Exploration Program. In April 1999, the Company and Armstrong
agreed to participate in three additional deep exploration projects in the San
Joaquin Basin of California. These three projects are in addition to the
exploration program initiated by the recent deep drilling at East Lost Hills,
and all three lay outside the East Lost Hills joint venture area. Pursuant to
the agreement, the Company paid Armstrong $656,000 cash and 218,866 shares of
common stock in exchange for a working interest, ranging from 3.00% to 3.75%, in
each of the three exploration prospect areas. The Company's interest will be
carried in the initial test well in each of the three separate exploration
prospects.
The first exploration well in the program began drilling on June 15, 1999
and is operated by Berkley Petroleum Corporation ("Berkley"). The three
exploration prospects in this program, targeting the Temblor Formation at depths
ranging from 15,000 to 18,000 feet, are expected to be drilled in sequence with
the same rig. Berkley will operate the other exploration projects in the
Armstrong program as well as assume operations at East Lost Hills, effective
July 1, 1999.
Armstrong may use this prospectus to transfer the 218,866 shares it
received from the Company as partial consideration for the working interests.
School Road/Southeast Maricopa. In 1998 the Company 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 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.
During 1998 and early 1999, the Company acquired and interpreted
approximately 52 square miles of 3-D seismic data over its Southeast Maricopa
exploration project. Western Geophysical Company acted as the Company's seismic
contractor for the data acquisition. The Company intends to sell an appropriate
portion of its interest in this project in order to receive a cash consideration
and/or a carried interest in the drilling of one or more exploration wells. The
Company intends to drill at least one exploration well on this prospect during
calendar year 1999 or 2000. No drilling commitments have been made or received.
Basin wide, the Stevens sands have produced in excess of 1,350 MMBbl, with
mean field size being in excess of 70 MMBbl. 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 porosites 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 Emidio 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 1.77 MMBbls of light oil and associated natural
gas in 1997 (1997 Production Statistics, California Department of Oil and Gas),
and have cumulative aggregate historical production in excess of 300 MMBoe. Per
well cumulative production ranges from a low of 690 MBbl to 2.1 MMBbl, with a
mean value of 1.3 MMBbl.
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The objective of the School Road/Southeast Maricopa exploration program is
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.
On June 1, 1998, the Company executed a participation agreement with
Houston based Seneca Resources for the Company's School Road acreage. The drill
to earn agreement provided PYR with a prospect fee and a carried
through-the-tanks working interest in an initial exploration well. PYR would
ultimately retain a 40% working interest in the School Road acreage. Drilling
operations on the Federal #67X-30 located in SE1/4, SEC 30, T32S, R25E were
commenced on July 28, 1998. The well was drilled to a total depth of 12,508 feet
and although hydrocarbons were encountered, detailed log analysis of the well
indicated that the reservoir was tight and incapable of sustaining commercial
production. The well was plugged and abandoned on September 18, 1998. PYR is
currently evaluating the results of the well and incorporating the new well
control into the seismic model in order to determine any potential future
exploration opportunities at its School Road acreage.
San Emidio. In November 1998, the Company exchanged 266,666 shares of its
common stock for 39 square miles of 3-D seismic data and oil and gas leases
covering approximately 5,400 acres adjacent to the Company's Southeast Maricopa
exploration project. The Company intends to incorporate this 3-D seismic data
with the newly acquired data at its Southeast Maricopa acreage in order to
further understand the complex stratigraphic geometries and trapping mechanisms.
After interpretation and evaluation, there have been two prospective areas
identified within the acreage position. The Company may present this project to
potential industry partners in conjunction with its Southeast Maricopa project
or may create an independent project for presentation. The Company's approach
will be to attempt to obtain industry partner participation in order to receive
a carried interest in the drilling of one or more exploration wells. The Company
expects to drill an exploration well here in calendar year 1999 or 2000. No
drilling commitments have been made or received.
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
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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 reservoirs should enhance the economic
results and expedite the discovery process. To date, less than 20 3-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.
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 is continuing
efforts to develop and define opportunities in this area.
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Big Horn Basin, Wyoming and Montana
The Big Horn Basin of Wyoming and Montana is an asymmetric intermountain
basin of the Rocky Mountain foreland. Initial production was established in the
basin in 1906 with the discovery of Garland field. Cumulative production from
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 begin 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 renewed a BLM lease
covering 2080 acres. The leasehold position covers some but not all of the
prospective acreage along the trend. The Company intends to undertake additional
geological and geophysical analysis before drilling a test well. There are no
immediate plans to commence drilling on this project.
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 two in-house geologists in addition
to Mr. Singdahlsen, who is both a geologist and geophysicist. All these persons
have 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
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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.
Drilling Activities
During 1998, the Company commenced the drilling of an initial exploration
well at its East Lost Hills Prospect. On November 23, 1998, a blowout occurred
on this well. The well was killed in May 1999. See above "- Significant Projects
- - Southern San Joaquin Basin, California East Lost Hills". The Company also
drilled one unsuccessful exploratory well at its School Road project. See above
"- Significant Projects - Southern San Joaquin Basin, California - School
Road/Southeast Maricopa". In June 1999, the Company began drilling a deep
exploration well, also in the Southern San Joaquin Basin. See above "-
Significant Projects - Southern San Joaquin Basin - Deep Temblor Exploration
Program". The Company anticipates the drilling of at least two additional
exploratory wells during calendar 1999, depending 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 91,530 42,575
Rocky Mountains 58,075 51,265
------- ------
TOTAL 149,605 93,840
======= ======
Farmout agreements require the Company to drill one or more wells in a
specific time-period in order for the Company to earn its interest in acreage.
Option agreements require the Company to enter into a lease agreement and to
make lease payments within a specific time-period, usually six to 12 months, in
order to obtain a leasehold interest in acreage.
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 three 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.
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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.
Available Information
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), the Company files reports, proxy statements and
other information with the SEC. These reports, proxy statements and other
information can be read and copied at the Public Reference Room maintained by
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at the
following Regional Offices of the SEC: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, New York, New York
10048. Copies of these materials also can be obtained at prescribed rates by
writing to the SEC, Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information concerning the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition,
materials filed electronically by the Company with the SEC are available at the
SEC's Internet web site at http://www.sec.gov.
This prospectus is part of the Registration Statement on Form SB-2
(together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
that the Company filed with the SEC. The Registration Statement contains
information that is not included in this prospectus.
Statements contained in this prospectus as to the contents of any contract
or other document are not necessarily complete, and, in each instance, reference
is made to the copy of the particular contract or document filed as an exhibit
to the Registration Statement. Each statement concerning a document that is
filed as an exhibit is qualified in all respects by reference to the copy of the
document filed as an exhibit. For further information with respect to the
Company, reference is made to the Registration Statement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is a discussion and comparison of the financial condition and
results of operations of the Company as of and for the twelve months ended
August 31, 1998 ("1998"), and as of and for the eight months ended August 31,
1997 ("1997"). Also included is a similar discussion and comparison as of and
for the six month periods ended February 28, 1998 and February 28, 1999. These
discussions should be read in conjunction with the Company's Financial
Statements, the notes related thereto, and the other financial data included
elsewhere in this prospectus.
19
<PAGE>
Results of Operations
The quarter ended February 28, 1999 compared with the quarter ended
February 28, 1998.
- --------------------------------------------------------------------------------
Operations during the quarter ended February 28, 1999 resulted in a net
loss of ($251,834) compared to a net income of $380,746 for the quarter ended
February 28, 1998. The difference is attributed to a gain from the sale of oil
and gas properties reported during the quarter ended February 28, 1998 of
$556,000 and to an increase in interest expense in 1999 associated with the
Company's convertible debentures.
Oil and Gas Revenues and Expenses. The Company has not owned any producing
or proved oil and gas properties. Accordingly, 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 for the quarters ended February 28, 1999 or
1998. The Company has not owned any proved reserves and had no oil or gas
production. The Company recorded $6,407 and $6,427 in depreciation expense
associated with capitalized office furniture and equipment during the quarters
ended February 28, 1999 and 1998, respectively.
General and Administrative Expense. The Company incurred $174,299 and
$173,373 in general and administrative expenses during the quarters ended
February 28, 1999 and 1998, respectively.
Interest Expense. The Company recorded $82,204 in interest expense for the
quarter ended February 28, 1999 primarily associated with the Company's
convertible debentures. The Company had nominal interest expense for the quarter
ended February 28, 1998.
The six months ended February 28, 1999 compared with the six months ended
February 28, 1998.
- --------------------------------------------------------------------------------
Operations during the six months ended February 28, 1999 resulted in a net
loss of ($421,302) compared to a net income of $215,235 for the six months ended
February 28, 1998. The difference is attributed to a gain from the sale of oil
and gas properties reported during the six months ended February 28, 1998 of
$556,000 and to an increase in interest expense in 1999 associated with the
Company's convertible debentures.
Oil and Gas Revenues and Expenses. The Company has not owned any producing
or proved oil and gas properties. Accordingly, 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 for the six months ended February 28, 1999
or 1998. The Company has not owned any proved reserves and had no oil or gas
production. The Company recorded $12,793 and $9,760 in depreciation expense
associated with capitalized office furniture and equipment during the six months
ended February 28, 1999 and 1998, respectively.
General and Administrative Expense. The Company incurred $312,074 and
$361,290 in general and administrative expenses during the six months ended
February 28, 1999 and 1998, respectively.
Interest Expense. The Company recorded $112,036 in interest expense for the
six months ended February 28, 1999 primarily associated with the Company's
convertible debentures. The Company had nominal interest expense for the six
months ended February 28, 1998.
20
<PAGE>
Consulting Fee Revenue. The Company generated $10,000 from consulting fees
during the six months February 28, 1998. These revenues have ceased and are not
expected to occur in the future.
The twelve months ended August 31, 1998 ("1998") compared with the eight
months ended August 31, 1997 ("1997")
- --------------------------------------------------------------------------------
Oil and Gas Revenues and Expenses. At August 31, 1998 (and at December 2,
1998), the Company did not own any producing or proved oil and gas properties.
No oil and gas production revenues or expenses have been recorded by the
Company. The Company recorded a dry hole impairment of $15,000 associated with
its unsuccessful exploration well drilled in 1998 on its "School Road" acreage.
Consulting Fee Revenue. The Company generated $10,000 and $80,000 from
consulting fees in 1998 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 have ceased completely and are not expected to occur
at any time in the future.
Depreciation, Depletion and Amortization. The Company recorded no depletion
expense from oil and gas properties in 1998 or 1997. At August 31, 1998 (and at
December 2,1998), the Company did not own any proved reserves and has no oil or
gas production. The Company recorded $22,000 and $1,000 in depreciation expense
associated with capitalized office furniture and equipment during 1998 and 1997,
respectively. The Company also recorded nominal amortization expense associated
with organization costs during 1998 and 1997.
General and Administrative Expense. The Company incurred $675,000 and
$125,000 in general and administrative expenses during 1998 and 1997,
respectively. The increase results from incurring costs associated with the
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. In addition, there is a natural
disparity occurring from comparing a twelve month period (1998) to an eight
month period (1997).
Gain On Sale of Oil and Gas Properties. During 1998, the Company sold down
a portion of its East Lost Hills project to industry partners for a total of
$850,000, resulting in a net gain to the Company of $556,000. The Company has
retained a working interest in this property.
During the fiscal year ended August 31, 1998, the Company's carrying costs
for undeveloped oil and gas properties increased by a net amount of
approximately $2,180,000. This net increase is comprised of expenditures on
undeveloped oil and gas prospects of approximately $2,689,000, a reduction in
carrying costs in the prospects charged to the full cost pool of approximately
$494,000 from the sale of partial interests in two of the Company's exploration
projects and a dry hole impairment of $15,000.
During 1998, the Company incurred $1,936,000 for the 3D seismic acquisition
project at the Company's Southeast Maricopa project, $549,000 for additional
leasing and outside seismic consulting, $118,000 for the Company's share of
drilling costs at the East Lost Hills project, $54,000 in seismic reprocessing
costs associated with the Company's School Road project and $32,000 for outside
geological expenses.
During 1998, the Company sold interests in two of its prospects, School
Road and East Lost Hills. Proceeds of $200,000 from the sale of a partial
interest in the School Road prospect were charged against the full cost pool as
21
<PAGE>
this sale did not materially alter the Company's full cost pool as of the date
of sale. Proceeds of $850,000 were received from the sale of part of the
Company's interest in its East Lost Hills project. As the sale of this interest
in East Lost Hills was greater than 25% of the Company's undeveloped oil and gas
prospects as of the date of sale, gain was recognized in the financial
statements for the year ended August 31, 1998 in the amount of $556,000 and the
Company's carrying cost of undeveloped oil and gas prospects was reduced by the
basis in the interest sold of $294,000.
Liquidity and Capital Resources
At February 28, 1999, the Company had a negative working capital amount of
($1,774,000).
During the quarter ended November 30, 1998, the Company completed a private
placement which provided a total of $2,500,000 to the Company. The private
placement securities issued were 10% convertible notes that automatically
converted to 10% convertible preferred stock on April 16, 1999, when the
stockholders of PYR approved the convertible preferred shares. The preferred
stock is convertible into common stock at a conversion price of $.60 per common
share. The Company incurred costs of approximately $75,000 in connection with
this issuance of the notes. To date, the Company has funded its oil and gas
exploration activities principally through cash provided by the sale of its
securities.
Cash used in investing activities during 1998 totaled $400,000. Of this
amount, $1,407,000 was used in conjunction with the Company's oil and gas
exploration and exploitation plan and $43,000 was used for office furniture and
equipment. The Company offset these expenditures by generating $1,050,000 in
proceeds from the sale of oil and gas properties.
The Company had no outstanding long-term debt at February 28, 1999 other
than a capital lease obligation and has not entered into any commodity swap
arrangements or hedging transactions. Although it has no current plans to do so,
it may 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.
It is anticipated that the future development of the Company's business
will require additional capital expenditures. The Company is currently in the
process of interpreting and evaluating 3-D seismic data on two of its California
exploration projects and is in the process of drilling and evaluating an
exploration well at East Lost Hills. Depending upon the extent of industry
participation in the two seismic generated exploration projects and the ultimate
results at East Lost Hills, the Company may require as much as $4,800,000 for
capital expenditures through its fiscal year ending August 31, 2000. The Company
intends to limit capital expenditures by forming industry alliances and
exchanging an appropriate portion of its interest for cash and/or a carried
interest in its exploration projects. Currently there are no commitments for
additional funding.
In May 1999, the Company completed a private placement of Units, with each
Unit consisting of ten shares of Common Stock and a warrant to purchase one
share Common Stock. This private placement resulted in gross proceeds to the
Company of $7,000,000. Although these proceeds should be adequate to meet the
Company's anticipated capital requirements for the next 12 months, the Company
may need to raise additional funds to cover capital expenditures. In addition,
the exploratory well at East Lost Hills experienced a blowout on November 23,
1998, which was killed in May 1999. Although the Company currently believes that
costs related to the blowout and the release of potential pollutants into the
atmosphere are covered by insurance, there is no assurance that all of the costs
will be covered. See "BUSINESS AND PROPERTIES-- Disclosure Regarding
Forward-Looking Statements And Cautionary Statements--Cautionary Statements" and
"--Significant Properties--Southern San Joaquin Basin, California".
22
<PAGE>
Year 2000 Compliance
Year 2000 compliance is the ability of computer hardware and software to
respond to the problems posed by the fact that computer programs traditionally
have used two digits rather than four digits to define an applicable year. As a
consequence, any of the Company's computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
interruption of operations, including temporary inability to perform 3-D seismic
analysis and to perform accounting functions and delays in the receipt of
payments from purchasers of oil and gas production, if any. The Company
currently is reviewing the Company's computers and software as well as other
equipment that utilizes imbedded computer chips, such as facsimile machines and
telephone systems. The Company believes that its review will be completed prior
to August 31, 1999. The Company has confirmed with the maker of its accounting
software that it is Year 2000 compliant.
Until the Company's Year 2000 review has been completed, the Company has no
estimate of the cost to correct any potential deficiency in Year 2000 compliance
for its computers and equipment. Upon the completion of the Company's Year 2000
review, the Company intends to develop a contingency plan to address potential
Year 2000 problems.
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.
Name Age Position with the Company Director Since
---- --- ------------------------- --------------
D. Scott Singdahlsen 40 Chief Executive Officer, 1997
President, and Chairman
of the Board
Robert B. Suydam 60 Vice President--Geology and Director 1998
Andrew P. Calerich 34 Chief Financial Officer and Secretary ---
Keith F. Carney 43 Director 1997
S.L. Hutchison 66 Director 1999
Bryce W. Rhodes 45 Director 1999
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
23
<PAGE>
Sciences Corporation, a 3-D seismic management and interpretation consulting
firm in Denver, where he served as vice president and president 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 a Director of the Company since October
1998. Mr. Suydam has served as Vice-President - Geology of the Company since
August 1997 and was Secretary of the Company from August 1997 until May 1998.
Mr. Suydam co-founded PYR Energy, LLC in 1996 and served as Chief Geologist.
From 1985 until 1996, 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 and as Secretary of the Company since May 1998. 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.
Keith F. Carney has served as a Director of the Company since August 1997.
Since October 1997, Mr. Carney has been Executive Vice-President of Cheniere
Energy, Inc., a Houston based public oil and gas exploration company. From July
1997 until October 1997, Mr. Carney served as Chief Financial Officer of
Cheniere Energy. After earning his M.B.A. degree from the University of Denver
in 1992, 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.
S. L. Hutchison has been a Director of the Company since April 1999, when
he was nominated and elected to the Board in connection with the sale by the
Company of convertible promissory notes issued in a private placement
transaction in October and November 1998. Since 1979, Mr. Hutchison has served
as Vice President and Chief Financial Officer of Victory Oil Company, an oil and
gas production company based in California, and other companies in the Victory
Group of Companies. Also during that period, Mr. Hutchison has served as
Vice-President and Chief Financial Officer and a Director of Crail Capital, a
real estate investment company that is owned by Victory Oil Company, and Victex,
Inc., a real estate and oil and gas company. Mr. Hutchison also serves as Chief
Financial Officer and a director of each of the Crail Johnson Foundation and the
Independent Oil Producers Agency, and the Treasurer and a director of the Los
Angeles Maritime Institute. Mr. Hutchison received a Bachelor's degree in
accounting from the University of Washington in 1954.
Bryce W. Rhodes has been a Director of the Company since April 1999, when
he was nominated and elected to the Board in connection with the sale by the
Company of convertible promissory notes issued in a private placement
24
<PAGE>
transaction in October and November 1998. Since 1996, Mr. Rhodes has served as
Vice President of Whittier Energy Company ("WEC"), an oil and gas investment
company. Mr. Rhodes served as Investment Manager of WEC from 1990 until 1996.
Mr. Rhodes received B.A. degrees in Geology and Biology from the University of
California, Santa Cruz, in 1976 and an MBA degree from Stanford University in
1979.
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.
Gordon T. Vaskey has served as an exploration geologist/geophysicist for
the Company since March 1999. Mr. Vaskey is responsible for the technical
evaluation and interpretation of many of the Company's ongoing projects. Prior
to joining the Company, Mr. Vaskey served as an exploration project leader with
Chevron in Houston. Mr. Vaskey began his career with Gulf Oil in Casper after
receiving his B.A. in Geology from the University of Montana and his M.S. in
Geology from the University of Oregon
Lisa A. Mallin has served as a Geologist 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.
Board And Committee Meetings
The Board of Directors met seven times during the fiscal year ended August
31, 1998 and all directors were present at each of those meetings.
The Board of Directors has a Compensation Committee, which met one time
during the fiscal year ended August 31, 1998 and both members of the
Compensation Committee participated in that meeting. 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. Effective April 16, 1999, the Compensation Committee
consists of Messrs. Carney, Hutchison and Rhodes.
In connection with the private placement of the Notes, the Company
nominated, and the stockholders subsequently elected, S.L. Hutchison and Bryce
W. Rhodes as directors of the Company. See, "TRANSACTIONS BETWEEN THE COMPANY
AND RELATED PARTIES-- 1998 Private Placement Of Notes".
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
25
<PAGE>
The Company believes that during the year ended August 31, 1998, its officers,
directors and holders of more than 10% of the Company's common stock complied
with all Section 16(a) filing requirements. In making these statements, the
Company has relied upon the written representations of its directors and
officers and the Company's review of the monthly statements of changes filed
with the Company by its officers and directors.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth in summary form the compensation
received during each of the Company's last three successive completed fiscal
years by D. Scott Singdahlsen, the Chief Executive Officer, President and
Chairman Of The Board of the Company. No executive officer of the Company,
including the Chief Executive Officer and the Chairman Of The Board, received
total salary and bonus exceeding $100,000 during any of the last three fiscal
years.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term Compensation
---------------------------
Annual Compensation Awards Payouts
----------------------------------- ------ -------
Restricted
Other Annual Stock LTIP All other
Name and Principal Position Fiscal Salary Bonus Compensation Awards ($) Options Payouts Compensation
Year ($)(1) ($)(2) ($)(3) (#) ($)(4) ($)(5)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Scott Singdahlsen 1998 $75,000 $-0- -0- -0- -0- -0- -0-
Chief Executive Officer,
President and Chairman 1997 $10,250 -0- -0- -0- -0- -0- -0-
Of the Board
1996 -- -- -- -- -- -- --
- ----------
(1) The dollar value of base salary (cash and non-cash) received during the
year indicated. 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.
(2) The dollar value of bonus (cash and non-cash) received during the year
indicated.
(3) During the period covered by the Summary Compensation Table, the
Company did not pay any other annual compensation not properly categorized as
salary or bonus, including perquisites and other personal benefits, securities
or property.
(4) The Company does not have in effect any plan that is intended to serve
as incentive for performance to occur over a period longer than one fiscal year
except for the Company's 1997 Stock Option Plan.
(5) All other compensation received that the Company could not properly
report in any other column of the Summary Compensation Table including annual
Company contributions or other allocations to vested and unvested defined
contribution plans, and the dollar value of any insurance premiums paid by, or
on behalf of, the Company with respect to term life insurance for the benefit of
the named executive officer, and, the full dollar value of the remainder of the
premiums paid by, or on behalf of, the Company.
26
</TABLE>
<PAGE>
1997 Stock Option Plan
In August 1997, the Company's 1997 Stock Option Plan (the "1997 Plan") was
adopted by the Board of Directors of the Company and subsequently approved by
the Company's stockholders. 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 contributed 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. Administration
of the 1997 Plan includes determination of the terms of options granted under
the 1997 Plan. At August 31, 1998, options to purchase 246,000 shares were
outstanding under the 1997 Plan. Options to purchase 555,000 additional shares
subsequently were granted and options to purchase 7,500 shares subsequently
terminated. As of June 15, 1999, options to purchase 206,500 shares were
available to be granted pursuant to the 1997 Plan.
Compensation Of Outside Directors
On May 26, 1998, each Director of the Company who is not also an employee
of the Company ("Outside Director") was granted options to purchase 10,000
shares of Common Stock. The Options are exercisable for $1.28 per share, which
was the average of closing bid and ask price of the Common Stock on the date of
grant. Options to purchase 2,500 shares became exercisable on each of September
1, 1998 and December 1, 1998, and options to purchase 2,500 shares become
exercisable on each of March 1, 1999 and June 1, 1999 if the person continues to
be an Outside Director through each of those dates. All the options expire on
May 26, 2001. Directors also are reimbursed for expenses incurred in attending
meetings and for other expenses incurred on behalf of the Company.
Employment Contracts And Termination Of Employment And Change-In-Control
Arrangements
The Company does not have any written employment contracts with respect to
any of its officers or other employees. The Company has no compensatory plan or
arrangement that results or will result from the resignation, retirement, or any
other termination of an executive officer's employment with the Company or from
a change-in-control of the Company or a change in an executive officer's
responsibilities following a change-in-control, except that the 1997 Plan
provides for vesting of all outstanding options in the event of the occurrence
of a change-in-control.
BENEFICIAL OWNERS OF SECURITIES
As of June 15, 1999, there were 14,068,462 shares of the Company's Common
Stock outstanding. The following table sets forth certain information as of June
15, 1999, with respect to the beneficial ownership of the Company's Common Stock
by each director and nominee for 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:
27
<PAGE>
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned (1) Shares Outstanding
- ---------------- ---------------------- ------------------
D. Scott Singdahlsen 2,000,000 14.2%
1675 Broadway, Suite 1150
Denver, Colorado 80202
Robert B. Suydam 1,300,000 (2) 9.2%
1675 Broadway, Suite 1150
Denver, Colorado 80202
Keith F. Carney 141,400 (3) 1.0%
915 Bay Oaks Road
Houston, Texas 77008
S.L. Hutchison 3,032,083 (4) 19.0%
c/o Victory Oil Company
222 West Sixth Street, Suite 1010
San Pedro, California 90731
Bryce W. Rhodes 246,292 (5) 1.7%
c/o Whittier Energy Company
1600 Huntington Drive
South Pasadena, California 91030
All Executive Officers and Directors 6,817,375 (2)(3)(4)(5)(6) 42.4%
as a group (six persons)
PinOak, Inc. 1,300,000 (2) 9.2%
287 W. Morrison Ct.
Grand Junction, Colorado 81503
Victory Oil Company 2,904,583 (7) 18.3%
222 West Sixth Street, Suite 1010
San Pedro, California 90731
Whittier Trust Company 833,333 (8) 5.6%
1600 Huntington Drive
South Pasadena, California 91030
Thomas E. Claugus 1,038,125 (9) 7.3%
2100 RiverEdge Parkway, Suite 840
Atlanta, Georgia 30328
- ----------
(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.
28
<PAGE>
(3) Includes options to purchase 7,500 shares at $1.28 per share until May 26,
2001 that currently are exercisable or that will become exercisable within the
next 60 days.
(4) Includes 100,000 shares of Common Stock that may be issued upon the
conversion of Series A Preferred Stock held by Mr. Hutchison. Also includes
currently exercisable warrants to purchase 2,500 shares at $2.50 per share until
May 14, 2004. Also includes the shares shown as beneficially owned by Victory
Oil Company as described in note (7) below. Mr. Hutchison is the Vice President
and Chief Financial Officer of Victory Oil Company. Mr. Hutchison disclaims
beneficial ownership of the shares beneficially owned by Victory Oil Company.
(5) Includes 66,667 shares of Common Stock that may be issued upon the
conversion of Series A Preferred Stock held by a company owned by Mr. Rhodes.
Also includes 158,750 shares and currently exercisable warrants to purchase
7,845 shares for $2.50 per share until May 14, 2004 that are held by Whittier
Energy Company. Mr. Rhodes is a Vice President of Whittier Energy Company.
(6) Includes 2,500 shares of Common Stock and options to purchase 62,500 shares
of Common Stock that currently are exercisable or that will become exercisable
within the next 60 days that are held by Andrew P. Calerich, the Chief Financial
Officer and Secretary of the Company, and 31,000 shares and currently
exercisable warrants to purchase 1,600 shares for $2.50 per share until May 14,
2004 held by Mr. Calerich's wife's individual retirement account.
(7) Includes 1,666,667 shares of Common Stock that may be issued upon the
conversion of Series A Preferred Stock held by Victory Oil Company. Also
includes 100,000 shares owned by Crail Fund, a partnership that is owned by the
shareholders of Victory Oil Company. See "TRANSACTIONS BETWEEN THE COMPANY AND
RELATED PARTIES-- 1998 Private Placement Of Notes". Also includes currently
exercisable warrants to purchase 93,750 shares for $2.50 per share until May 14,
2004.
(8) This beneficial ownership was reported in the Schedule 13D filed by Victory
Oil Company, Whittier Trust Company and other filing parties on November 5,
1998. These shares consist of shares of Common Stock that may be issued upon the
conversion of Series A Preferred Stock held by various holders for whom Whittier
Trust Company serves as trustee and/or agent. See "TRANSACTIONS BETWEEN THE
COMPANY AND RELATED PARTIES-- 1998 Private Placement Of Notes".
(9) This beneficial ownership was reported in the Schedule 13D filed on May 28,
1999 by Thomas E. Claugus, GMT, Inc., Bay Resource Partners Offshore Fund, Ltd.,
and Bay Resource Partners, L.P. (collectively, the "Claugus Group"). Includes an
aggregate of 943,750 shares and currently exercisable warrants to purchase
94,375 shares for $2.50 per share until May 14, 2004 that are held by the
Claugus Group.
TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES
Acquisition Of PYR Energy, LLC
- ------------------------------
The Company acquired all the ownership interest in PYR Energy, LLC 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, LLC 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
29
<PAGE>
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,
LLC immediately prior to the transaction. In connection with that transaction,
the Company agreed to appoint each of Messrs. Singdahlsen, Carney and Gregory B.
Barnett to constitute all the members of the Company's Board Of Directors.
Loan To PYR Energy, LLC
- -----------------------
In June 1997, PYR Energy, LLC borrowed $275,000 from the Company in order
to fund certain of PYR Energy, LLC's obligations pursuant to PYR Energy, LLC's
lease and seismic option in the San Joaquin Basin. PYR Energy, LLC secured that
loan with a pledge of PYR Energy, LLC's interest in the lease and seismic
option. The loan accrued interest at a rate of eight percent per annum, with
interest payable at the end of each calendar quarter. The loan was effectively
eliminated upon consummation of the Company's acquisition of PYR Energy, LLC.
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 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.
1998 Private Placement Of Notes
- -------------------------------
In November 1998, the Company completed the sale of convertible promissory
notes (the "Notes") in the total amount of $2,500,000 in a private placement
transaction pursuant to exemptions from federal and state registration
requirements. Victory Oil Company ("Victory") purchased $1.0 million of Notes,
and parties related to Whittier Energy Company ("WEC") purchased $500,000 of
Notes. The remaining $1.0 million of Notes were sold to other investors. For a
description of the Notes and the Series A Preferred stock into which the Notes
may be converted, see below, "DESCRIPTION OF SECURITIES".
30
<PAGE>
In connection with the sale of the Notes, the Company agreed to add, and
the stockholders of the Company subsequently approved the election of, S.L.
Hutchison and Bryce W. Rhodes to the Board of Directors. Mr. Hutchison is the
Chief Financial Officer of Victory and Mr. Rhodes is a Vice President of WEC.
As a condition to the sale of the Notes, D. Scott Singdahlsen and Robert B.
Suydam, who are directors and officers of the Company, entered into a voting
agreement (the "Voting Agreement") with the purchasers of the Notes. Pursuant to
the Voting Agreement, Mr. Singdahlsen and Mr. Suydam each agreed, respectively,
that he will vote all the shares of Common Stock of the Company owned by him in
favor of the election of two nominees of the investors to serve on the Board of
Directors of the Company and for the re-election of those nominees or other
nominees at any time that the aggregate percentage ownership of common equity of
the Company underlying the Notes or Series A Preferred owned by the investors is
20 percent or more of the outstanding Common Stock. At the annual meeting of
stockholders held on April 16, 1999, all of Mr. Singdahlsen's and Mr. Suydam's
shares were voted in favor of the two nominees. Mr. Singdahlsen and Mr. Suydam
are required to vote for only one nominee at any time after the aggregate
percentage ownership of common equity of the Company owned by the investors is
less than 20 percent and greater than or equal to 10 percent of the outstanding
Common Stock. The obligation of Mr. Singdahlsen and Mr. Suydam to vote for any
nominees of the investors terminates at any time after the percentage ownership
of common equity of the Company owned by the investors is less than 10 percent
of the outstanding Common Stock. Mr. Singdahlsen and Mr. Suydam are not required
to vote for the designated board members at any time that the holders of the
Series A Preferred have the right voting separately as a class to elect those
designated board members.
Also as a condition to the investors' purchase of the Notes, the Company
entered into an agreement with Victory, WEC, and Catalina Properties Corporation
("Catalina") pursuant to which Victory, WEC and Catalina contributed their
interests in approximately 5,400 gross acres of leasehold as well as access to
39 square miles of existing of 3-D seismic data adjoining the Company's
Southeast Maricopa "Stevens" Exploration Project in California. As consideration
for these interests, the Company issued 106,666 shares to Victory, 80,000 to
WEC, and 80,000 to Catalina, for an aggregate of 266,666 shares.
The Company was introduced to Victory and WEC by William Forster. In
connection with Mr. Forster's introduction, the Company paid Mr. Forster a
finder's fee of $45,000 and issued to two of the selling stockholders, as
designated by Mr. Forster, warrants to purchase up to 175,000 shares of the
Company's Common Stock at an exercise price of $.75 per share. For a description
of these warrants, see below, "DESCRIPTION OF SECURITIES".
May 1999 Private Placement Of Units
- -----------------------------------
In May 1999, the Company completed a private placement of $7,000,000 of
Units at $16 per Unit, with each Unit consisting of 10 shares of Common Stock
and a warrant to purchase one share of Common Stock at an exercise price of
$2.50 per share until May 14, 2004. The private placement was made pursuant to
exemptions from federal and state registration requirements. Mr. Hutchison
purchased 2,500 Units for $40,000 and Mr. Carney purchased 2,400 Units for
$38,400. Messrs. Hutchison and Carney are directors of the Company. An
additional 93,750 Units for $1,500,000 and 7,875 Units for $126,000 were
purchased by Victory and WEC, respectively. This prospectus may be used to sell
the Common Stock received in the private placement of Units and the Common Stock
that may be received upon exercise of the warrants.
31
<PAGE>
Except as described above, during the fiscal year ended August 31, 1998,
there were no transactions between the Company and its directors, executive
officers or known holders of greater than five percent of the Company's Common
Stock in which the amount involved exceeded $60,000 and in which any of the
foregoing persons had or will have a material interest.
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 30,000,000 shares of $.001 par
value Common Stock and 1,000,000 shares of $.001 par value preferred stock. The
Company had 14,068,462 shares of Common Stock issued and outstanding as of June
15, 1999, and these outstanding shares were held by approximately 1,200
stockholders. The Company also had outstanding 24,479 shares of Series A
Preferred Stock held by 55 holders. There also are outstanding warrants to
purchase 175,000 shares of Common Stock that are held by two holders and
additional warrants to purchase 437,500 shares of Common Stock held by 51
holders. The following is a description of the Company's securities.
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
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 and unless subject
to a voting agreement to the contrary, elect all the directors of the Company.
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 upon the exercise of options under the Company's 1997 Stock Option
Plan.
Notes
In November 1998, the Company completed the sale of convertible promissory
notes (the "Notes") in the total amount of $2,500,000 in a private placement
transaction pursuant to exemptions from federal and state registration
requirements.
The Notes were automatically converted into shares of Series A Preferred
Stock (the "Series A Preferred") at the rate of one share for each $100
principal amount of Notes upon approval by the stockholders of the Series A
Preferred on April 16, 1999. As a result, no Notes currently are outstanding.
For a description of the Series A Preferred, see below "- Series A Preferred
Stock".
32
<PAGE>
Upon conversion of the Notes into Series A Preferred, the Company paid
accrued interest on the Notes with Common Stock at a rate based on the weighted
average trading price of the Common Stock for 45 days prior to the interest
payment date. The aggregate number of shares issued as payment of accrued
interest on the Notes was 53,326.
Series A Preferred Stock
The following is a summary of the rights of the Series A Preferred:
o Each share of Series A Preferred has a face value of $100 per share.
o An annual dividend of 10% is payable on the Series A Preferred
semi-annually. The payment will be made either in cash or in Common
Stock, at the option of the Company. If paid with Common Stock, the
Common Stock will be issued at a rate based on the weighted average
trading price of the Common Stock.
o The Series A Preferred is convertible, in whole or in part, into
Common Stock at the rate of one share of Common Stock for each $.60 of
face value of Series A Preferred (or 166.67 shares of Common Stock for
each $100 face amount share of Series A Preferred). The conversion
right may be exercised at any time and from time to time.
o The Company has the right to require holders to convert their Series A
Preferred into Common Stock in the following circumstances:
o The Company has the right to require that one-third of the
outstanding Series A Preferred be converted at any time after
October 26, 1999, provided that the market value of the Company's
Common Stock is at least $2.40 per share, based on a 45-day
weighted average trading price.
o The Company has the right to require that two-thirds of the
outstanding Series A Preferred be converted at any time after
October 26, 2000, provided that the market value of the Common
Stock is at least $3.60 per share.
o The Company has the right to require all of the outstanding
Series A Preferred be converted beginning at any time after
October 26, 2000, provided that the market value of the Common
Stock is at least $4.80 per share.
o The Company shall have the right, beginning October 26, 2000, to
require that all the outstanding Series A Preferred be converted
if the Corporation has accumulated retained earnings equal to or
greater than $3,750,000.
o In a vote of stockholders, other than for the election of directors of
the Company, the holders of the Series A Preferred are entitled to
vote the number of votes equal to the number of shares into which the
Series A Preferred may be converted, or 167 votes for each share of
Series A Preferred.
o The holders of the Series A Preferred, as a separate class, have the
right to elect two members of the Board of Directors of the Company
when 10,000 or more shares of Series A Preferred are outstanding. If
33
<PAGE>
the Board of Directors is increased to a number greater than six, the
holders of the Series A Preferred may elect one-third of the total
number of directors when 10,000 or more shares are outstanding. When
more than 5,000 shares but less than 10,000 shares of Series A
Preferred are outstanding, the holders of Series A Preferred have the
right to elect one member of the Board of Directors. If the Board of
Directors is increased to a number greater than six, the holders of
the Series A Preferred may elect one-sixth of the total number of
directors when more than 5,000 shares but less an 10,000 shares are
outstanding.
Warrants
In connection with the sale of the Notes, the Company issued warrants to
purchase up to 175,000 shares of the Company's Common Stock at an at an exercise
price of $.75 per share. All of the warrants currently are exercisable and all
of them expire on October 26, 2003. The Company has the right to repurchase some
or all of the warrants before that time, depending on whether the trading price
of the Company's Common Stock meets or exceeds certain goals. See also,
"TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES - 1998 Private Placement
Of Notes".
The Company also has outstanding warrants to purchase up to an aggregate of
437,500 shares of Common Stock that were issued in the May 1999 private
placement. The warrants are exercisable at $2.50 per share until May 14, 2004.
Delaware Anti-Takeover Law
Generally, Section 203 of the Delaware General Corporation Law, 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.
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 historically
has not been an active trading market for the Common Stock. See "RISK FACTORS -
Inactive Trading Of The Common Stock; Possible Volatility Of Stock Price".
To the extent that there is trading in the Company's Common Stock, of which
there is no 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 sale price for the Common Stock on June 17, 1999
was $2.031. It should be assumed that even with this OTC Bulletin Board price
quote, there is an extremely limited trading market - and very little liquidity
- - for the Company's Common Stock.
34
<PAGE>
SELLING SECURITY HOLDERS AND PLAN OF DISTRIBUTION
This prospectus concerns the transfer by the selling stockholders of up to
5,031,366 shares of Common Stock. These shares consist of the following:
o 4,375,000 shares that were purchased by selling stockholders in a
private placement transaction pursuant to exemptions from federal and
state registration requirements.
o Up to 437,500 shares that may be issued to selling stockholders when
they exercise warrants to purchase Common Stock that were purchased in
the private placement transaction described in the preceding sentence.
o 218,866 shares of Common Stock that were issued to a selling
stockholder as part of the purchase price paid by the Company for
working interests in three oil and gas exploration plays.
The selling stockholders may sell their Common Stock at those prices that
they are able to obtain in the market or as otherwise negotiated. The Company
will not receive any proceeds from the transfer of the Common Stock by the
selling stockholders. The Company will receive proceeds of $2.50 per share upon
the exercise, if any, of warrants held by selling stockholders to purchase up to
an aggregate of 437,500 shares of Common Stock.
It is anticipated that the selling stockholders will offer the Common Stock
in direct sales to private persons and in open market transactions. The selling
stockholders may offer the shares to or through registered broker-dealers who
will be paid standard commissions or discounts or other compensation by the
selling stockholders. The selling stockholders also may pledge as collateral for
loans their Common Stock, warrants, and/or Common Stock to be issued upon
exercise of their warrants. This prospectus may be used by the lender to
receives the pledge of those securities to sell shares of Common Stock if a loan
is not repaid. The selling stockholders have informed the Company that they have
not entered into any underwriting arrangement or other agreements with brokers
to transfer any or all of the Common Stock offered under this prospectus.
The following table sets forth the name of each selling stockholder, the
number of shares of Common Stock held by each selling stockholder before this
offering (including shares issuable upon the exercise of the warrants), the
number of shares of Common Stock to be sold by each selling stockholder, and the
number of shares owned by each selling stockholder after this offering. None of
the selling stockholders has held any position or office, or had any material
relationship with the Company or its affiliates in the past three years, except
as disclosed in "TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES". For
additional information concerning the beneficial ownership of shares by certain
of the selling stockholders, see "BENFICIAL OWNERS OF SECURITIES".
35
<PAGE>
<TABLE>
<CAPTION>
Number Of
Shares Of
Common Stock Number Of Number Of
Owned Before Shares To Shares Owned
Name Offering (1) Be Offered After Offering
- ---- ------------ ---------- --------------
<S> <C> <C> <C>
Victory Oil Company (2) 2,904,583 1,031,250 (1) 1,873,333
The Profit Group, Inc.
Profit Sharing Plan & Trust 171,875 171,875 -0-
James E. Moore Revocable Trust
Dated July 28, 1994 255,000 165,000 90,000
Crown Hill Trusts 691,667 275,000 416,667
The Common Fund 68,750 68,750 -0-
David M. Knott 34,375 34,375 -0-
Trinkaus & Burkhardt International 11,000 11,000 -0-
Knott Partners, L.P. 170,500 170,500 -0-
GAM Knott Hedge Fund, Inc. 34,375 34,375 -0-
Matterhorn Offshore Fund Ltd. 24,750 24,750 -0-
Whittier Energy Co. 166,625 86,625 80,000
Crown Oaks, Inc.
Profit Sharing Plan & Trust 68,750 68,750 -0-
Sergei J. Hillery, Jr. 16,500 16,500 -0-
George W. Voelker 34,375 34,375 -0-
Victor Frandsen II 201,042 34,375 166,667
Daniel T. Reiner 760,417 343,750 416,667
Rubar Colorado Inc. 194,167 27,500 166,667
S.L. Hutchison (3) 127,500 27,500 100,000
Mary Ione Berry, Trustee MIB
Revocable Living Trust UA DTD 3-16-92 16,500 16,500 -0-
GMT, Inc. 240,625 240,625 -0-
Bay Resource Partners Offshore Fund, Ltd. 206,250 206,250 -0-
Bay Resource Partners, L.P. 481,250 481,250 -0-
D. Craig Walker 171,875 171,875 -0-
Keith F. Carney (4) 131,400 26,400 105,000
Douglas W. Brandrup 34,375 34,375 -0-
Victor Frandsen IRA 34,375 34,375 -0-
Loren C. McPhillips and
Susan L. Sanchez JTWROS 8,250 8,250 -0-
Thomas E. Claugus 110,000 110,000 -0-
KRBS Revocable Living Trust
DTD March 16, 1992 16,500 16,500 -0-
Leslie A. Berry Custodian for Katherine I.
Berry Under The Uniform Gifts to Minors Act 16,500 16,500 -0-
Estancia Petroleum Corporation 34,375 34,375 -0-
Ann B. Sakowitz 24,200 24,200 -0-
Paula L. Santoski 27,500 27,500 -0-
Susan Hall Forster 6,875 6,875 -0-
John M. Forster 11,000 11,000 -0-
Ralph O. Hellmold 140,000 110,000 30,000
William D. Forster 30,657 30,657 -0-
36
<PAGE>
Gail D. Forster 29,700 29,700 -0-
Efram Zimbalist III 6,875 6,875 -0-
Patricia M. Baehr Residual Trust DTD 3/26/97 34,375 34,375 -0-
Robert I. Israel 34,375 34,375 -0-
Joe Sam Robinson Jr. 220,318 120,318 100,000
Douglas W. Kessler 17,193 17,193 -0-
US Trust Company, N.A., Trustee
FBO Charles Richard Knowles, Jr. 68,750 68,750 -0-
John S. Neel 82,084 68,750 13,334
Hugh F. Smisson 125,932 85,932 40,000
Joseph F. Cullman III 102,375 34,375 68,000
Fidelity Management Trust Co.,
Trustee FBO Janelle K. Calerich Roth IRA 32,600 17,600 15,000
Eric L. Olofsen 22,000 22,000 -0-
Ronald W. Cochran 46,000 11,000 35,000
Francis B. Barron 5,200 2,200 3,000
Alan L. Talesnick 28,425 18,425 10,000
George E. Case III 6,875 6,875 -0-
Armstrong Resources, LLC 218,866 218,866 -0-
TOTAL SHARES TO BE OFFERED 5,031,366
- ----------
(1) The number of shares to be sold by the selling stockholders assumes that
they exercise all of their warrants to purchase Common Stock, and that they
sell all the shares of Common Stock received from the exercise of the
warrants. If the selling stockholders sell all the shares that may be sold
under this prospectus and all the shares that may be sold under the
Company's prospectus dated April 2, 1999 and its prospectus dated April 14,
1999, no selling stockholder will then own more than one percent of the
Company's outstanding Common Stock. See also footnote 2, below.
(2) 1,773,333 shares that may be issued to Victory Oil Company may be sold
under the Company's prospectus dated April 14, 1999. If Victory Oil Company
sells all of its shares that may be sold under the April 14, 1999
prospectus and all of its shares that may be sold under this prospectus, it
will then own less than one percent of the Company's outstanding Common
Stock. For further information regarding beneficial ownership by Victory
Oil Company of the Company's securities, see "BENEFICIAL OWNERSHIP OF
SECURITIES".
(3) Mr. Hutchison is a director of the Company. For further information
regarding beneficial ownership by Mr. Hutchison of the Company's
securities, see "BENEFICIAL OWNERSHIP OF SECURITIES".
(4) Mr. Carney is a director of the Company. For further information regarding
beneficial ownership by Mr. Carney of the Company's securities, see
"BENEFICIAL OWNERSHIP OF SECURITIES".
</TABLE>
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.
37
<PAGE>
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.
LEGAL MATTERS
Patton Boggs LLP, Denver, Colorado, acted as counsel for the Company in
connection with this offering, including the validity of the issuance of the
securities offered hereby. Attorneys employed by that firm beneficially own
31,750 shares of the Company's Common Stock and warrants to purchase 1,875
shares of Comon Stock.
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.
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 the forward-looking statements and
the assumptions upon which the forward-looking statements are based 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.
FINANCIAL INFORMATION
38
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Index To Financial Statements
Annual Financial Statements
---------------------------
Independent Auditor's Report F-2
Balance Sheets
August 31, 1997 and 1998 F-3
Statements of Operations
Period from Inception (May 31, 1996) to
December 31, 1996, Eight Months Ended
August 31, 1997 and Year Ended August 31, 1998 F-4
Statements of Members'/Stockholders' Equity
Period from Inception (May 31, 1996) to
December 31, 1996, Eight Months Ended
August 31, 1997 and Year Ended August 31, 1998 F-5
Statements of Cash Flows
Period from Inception (May 31, 1996) to
December 31, 1996, Eight Months Ended
August 31, 1997 and Year Ended August 31, 1998 F-6 - F-7
Notes to Financial Statements F-8 - F-17
Quarterly Financial Statements
- ------------------------------
Balance Sheets as of February 28, 1999 (Unaudited)
and August 31, 1998 FQ-1
Statements of Operations for the Quarter Ended and
Six Months Ended February 28, 1999 (Unaudited)
and February 28, 1998 (Unaudited) FQ-2
Statements of Cash Flows for the Six Months Ended
February 28, 1999 (Unaudited) and
February 28, 1998 (Unaudited) FQ-3
Notes to Financial Statements FQ-4
Summary of Significant Accounting Policies FQ-4
F - 1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
PYR ENERGY CORPORATION
We have audited the accompanying balance sheets of PYR Energy Corporation (a
development stage company) as of August 31, 1997 and 1998 and the related
statements of operations, members'/stockholders' equity and cash flows for the
period from inception (May 31, 1996) to December 31, 1996, for the eight months
ended August 31, 1997 and for the year ended August 31, 1998. 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 audits 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 PYR Energy Corporation as of
August 31, 1997 and 1998, and the results of its operations and its cash flows
for the period from inception (May 31, 1996) to December 31, 1996, for the eight
months ended August 31, 1997 and for the year ended August 31, 1998 in
conformity with generally accepted accounting principles.
WHEELER WASOFF, P.C.
Denver, Colorado
October 26, 1998, except for Note 10(c)
as to which the date is November 23, 1998.
F - 2
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
ASSETS
August 31, August 31,
1997 1998
---- ----
CURRENT ASSETS
Cash $ 1,432,281 $ 373,100
Accounts receivable 10,000 --
Prepaid expenses 4,196 16,897
----------- -----------
Total Current Assets 1,446,477 389,997
----------- -----------
PROPERTY AND EQUIPMENT, at cost 339,547 2,546,059
----------- -----------
OTHER ASSETS 3,642 3,546
----------- -----------
$ 1,789,666 $ 2,939,602
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 60,064 $ 44,389
Accrued property exploration and seismic costs 10,184 1,282,500
Current portion of capital lease obligation -- 1,441
----------- -----------
Total Current Liabilities 70,248 1,328,330
----------- -----------
CAPITAL LEASE OBLIGATION -- 2,661
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
Authorized 30,000,000 shares
Issued and outstanding 9,154,804 shares 9,155 9,155
Capital in excess of par value 1,768,088 1,768,088
Deficit accumulated during the development stage (57,825) (168,632)
----------- -----------
1,719,418 1,608,611
----------- -----------
$ 1,789,666 $ 2,939,602
=========== ===========
The accompanying notes are an integral part of the financial statements.
F - 3
<PAGE>
<TABLE>
<CAPTION>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
Inception Eight Months Year from
(May 31, 1996) Ended Ended Inception to
to December 31, August 31, August 31, August 31,
1996 1997 1998 1998
---- ---- ---- ----
REVENUES
<S> <C> <C> <C> <C>
Consulting fees $ 37,528 $ 80,000 $ 10,000 $ 127,528
Interest -- 5,596 36,145 41,741
----------- ----------- ----------- -----------
37,528 85,596 46,145 169,269
----------- ----------- ----------- -----------
OPERATING EXPENSES
General and administrative 18,518 125,161 675,245 818,924
Dry hole impairment -- -- 15,000 15,000
Interest -- 351 488 839
Depreciation and amortization 47 1,004 22,416 23,467
----------- ----------- ----------- -----------
18,565 126,516 713,149 858,230
----------- ----------- ----------- -----------
OTHER INCOME
Gain on sale of oil and gas prospects -- -- 556,197 556,197
----------- ----------- ----------- -----------
18,963 (40,920) (110,807) (132,764)
INCOME APPLICABLE TO
PREDECESSOR LLC (Note 1) (18,963) (16,905) -- (35,868)
----------- ----------- ----------- -----------
NET (LOSS) $ -- $ (57,825) $ (110,807) $ (168,632)
=========== =========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE - BASIC AND DILUTED (Note 2) $ .005 $ (.009) $ (.012) $ (.026)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (Note 2) 4,000,000 4,644,351 9,154,804 6,481,943
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F - 4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF MEMBERS'/STOCKHOLDERS' EQUITY
PERIOD FROM INCEPTION (MAY 31, 1996) TO DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997 AND YEAR ENDED AUGUST 31, 1998
Deficit
Accumulated
Common Stock Capital in During the
Members' ------------------------- Excess of Developmental
Equity Shares Amount Par Value Stage
------ ------ ------ --------- -----
<S> <C> <C> <C> <C> <C>
Inception, May 31, 1996 $ -- -- $ -- $ -- $ --
Initial member contributions - cash 5,000 -- -- -- --
Member contribution- services 12,000 -- -- -- --
Distributions to members (24,000) -- -- -- --
Net income 18,963 -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 11,963 -- -- -- --
Member contributions - cash 23,000 -- -- -- --
Member contribution - services 24,000 -- -- -- --
Distributions to members (42,000) -- -- -- --
Net income - January 1, 1997 to August 5, 1997 16,905 -- -- -- --
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) --
Sales 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 placements 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)
Net (loss) -- -- -- -- (110,807)
----------- ----------- ----------- ----------- -----------
Balance, August 31, 1998 $ -- 9,154,804 $ 9,155 $ 1,768,088 $ (168,632)
=========== =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F - 5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Inception Eight Months Year
(May 31, 1996) Ended Ended Cumulative
to December 31, August 31, August 31, Amounts from
1996 1997 1998 Inception
---- ---- ---- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ 18,963 $ (40,920) $ (110,807) $ (132,764)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization 47 1,004 22,416 23,467
Contributed services 12,000 24,000 -- 36,000
Gain on sale of oil and gas prospects -- -- (556,197) (556,197)
Dry hole impairment -- -- 15,000 15,000
Changes in assets and liabilities
(Increase) decrease in accounts receivable (527) (9,473) 10,000 --
(Increase) in prepaids -- (2,591) (12,700) (15,291)
Increase (decrease) in accounts payable 527 45,103 (15,675) 29,955
Increase (decrease) in accrued expenses -- 10,183 (10,183) --
Other (474) (3,277) -- (3,751)
----------- ----------- ----------- -----------
Net cash provided (used) by operating activities 30,536 24,029 (658,146) (603,581)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for furniture and equipment -- (29,481) (43,407) (72,888)
Cash paid for undeveloped oil and gas properties -- (298,178) (1,406,613) (1,704,791)
Proceeds from sale of oil and gas properties -- -- 1,050,078 1,050,078
----------- ----------- ----------- -----------
Net cash (used) in investing activities -- (327,659) (399,942) (727,601)
----------- ----------- ----------- -----------
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
Proceeds from sale of common stock -- (285,000) -- (285,000)
Cash paid for offering costs -- 2,023,750 -- 2,023,750
Cash paid for offering costs -- (280,711) -- (280,711)
Cash received upon recapitalization and merger -- 336 -- 336
Payments on capital lease -- -- (1,093) (1,093)
----------- ----------- ----------- -----------
Net cash (used) provided by financing activities (19,000) 1,724,375 (1,093) 1,704,282
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 11,536 1,420,745 (1,059,181) 373,100
CASH, BEGINNING OF PERIODS -- 11,536 1,432,281 --
----------- ----------- ----------- -----------
CASH, END OF PERIODS $ 11,536 $ 1,432,281 $ 373,100 $ 373,100
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements
F - 6
</TABLE>
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (CONTINUED)
PERIOD FROM INCEPTION (MAY 31, 1996) TO DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997 AND YEAR ENDED AUGUST 31, 1998
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.
During the year ended August 31, 1998 the Company paid cash for interest of
$488 on a capital lease.
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 LLC") in exchange for 100 percent of the ownership
interests in PYR LLC, for which the net members' equity in PYR LLC was
$33,868. These shares were issued pursuant to a plan of reorganization and
merger effective August 6, 1997 (Notes 1 and 3).
During 1996 and 1997 the President of the Company performed services for
PYR LLC valued at $12,000 and $24,000, respectively. The value of these
services was charged to members' equity as a non-cash capital contribution.
During the year ended August 31, 1998, the Company entered into a capital
lease obligation of $5,195 for office equipment.
F - 7
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION
PYR Energy Corporation (the "Company"), is an independent energy company
engaged in the exploration and acquisition of crude oil and natural gas
reserves in the Western United States, including California, and is
considered a development stage company as defined by Statement of Financial
Accounting Standards (SFAS) No. 7. The Company's predecessor, Mar Ventures
Inc. ("Mar"), 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 was a public
company which had no significant operations as of July 31, 1997. On August
6, 1997 Mar acquired all the interests in PYR Energy LLC ("PYR LLC") (a
Colorado Limited Liability Company organized on May 31, 1996), a
development stage company as defined by SFAS No. 7. PYR LLC, an independent
exploration company, was 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 LLC had acquired only
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 LLC are as follows:
Cash $ 336
Assets 1,605
Liabilities (1,605)
-------
$ 336
=======
Upon completion of the acquisition of PYR LLC by Mar, PYR LLC ceased to
exist as a separate entity. Mar remained as the legal surviving entity and,
effective November 12, 1997, Mar changed its name to PYR Energy
Corporation. For financial reporting purposes, the business combination was
accounted for as an additional capitalization of Mar (a reverse acquisition
with PYR LLC 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 LLC. The operations of PYR LLC will be the only continuing
operations of the Company.
Prior to the business combination, Mar loaned $275,000 to PYR LLC for
amounts owed by PYR LLC with respect to its oil and gas operations. The
loan was eliminated in conjunction with the successful completion of the
combination of PYR LLC and Mar.
The Company is an exploration stage oil and gas company and as of August
31, 1998, has not earned any production revenue nor found proved reserves
on any of its properties. The Company's efforts, since August 1997, have
been in financing activities and the acquisition of unproven properties and
related seismic data. The Company has entered into participation and
farm-in agreements with industry partners on certain of its properties
pursuant to which these partners have acquired, for cash, interests in the
Company's properties. During the year ended August 31, 1998, drilling of
two test wells was commenced, with one well being plugged and abandoned and
the other suffering a blowout. (See Note 10 (c)).
F - 8
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)
The Company's ability to continue operations is dependent on finding proved
reserves, achieving positive cash flow from production revenue, conversion
of notes to Series A Preferred Stock (See Note 10 (a)) and/or obtaining
additional financing and the continuation of entering into agreements with
industry partners for the exploration and ultimate development of the
Company's oil and gas prospects. Although cash received from the sale of
convertible debt in October 1998 (See Note 10 (a)) may be sufficient to
sustain operations for the fiscal year ended August 31, 1999, management
intends to obtain additional funding for corporate operations and
exploration of properties by entering into agreements with industry
partners for sale and purchase of interests in the Company's oil and gas
prospects and participation in the exploration of these prospects.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Furniture and equipment is recorded at cost. Depreciation and amortization
of assets under capital lease 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.
OIL AND GAS PROPERTIES
The Company follows the full cost method to account for its oil and gas
exploration and development activities. Under the full cost method, all
costs incurred which are directly related to oil and gas exploration and
development are capitalized and subjected to depreciation and depletion.
Depletable costs also include estimates of future development costs of
proved reserves. Costs related to undeveloped oil and gas properties may be
excluded from depletable costs until such properties are evaluated as
either proved or unproved. The net capitalized costs are subject to a
ceiling limitation. Gains or losses upon disposition of oil and gas
properties are treated as adjustments to capitalized costs, unless the
disposition represents a significant portion of the Company's proved
reserves. A separate cost center is maintained for expenditures applicable
to each country in which the Company conducts exploration and/ or
production activities.
Undeveloped oil and gas prospects consist of leases and acreage acquired by
the Company for its' exploration and development activities, including the
cost of seismic data acquisition and evaluation, and drilling costs for
exploration wells. The cost of these non-producing leases is recorded at
the lower of cost or fair market value.
F - 9
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1998 needs 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 LLC 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 LLC did not record an income tax provision.
At August 31, 1998, the Company had a net operating loss carryforward of
approximately $85,000 that may be offset against future taxable income
through 2013.
The Company has fully reserved the $21,000 tax benefit of operating loss
carryforwards, by a valuation allowance of the same amount, because the
likelihood of realization of the tax benefit cannot be determined. The
total tax benefit is attributable to 1997.
Temporary differences between the time of reporting certain items for
financial and tax reporting purposes consist primarily of exploration costs
on oil and gas properties.
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.
F - 10
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME (LOSS) PER SHARE
(Loss) per common share at August 31, 1998 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 LLC upon completion of
Mar's merger with PYR LLC (Note 1) are considered outstanding for all
periods presented. Convertible equity instruments, such as stock options
and warrants, are not considered in the calculation of net loss per share
as their inclusion would be antidilutive.
Income (loss) per share has been computed on a pro forma basis based on the
income (loss) of PYR LLC for the period from inception to December 31, 1996
and the eight months ended August 31, 1997 as if PYR LLC 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
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 is
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. On occasion, the Company has cash in banks
in excess of federally insured amounts. At August 31, 1997 and 1998, there
were no cash equivalents.
NEW TECHNICAL PRONOUNCEMENTS
In February 1997 SFAS No. 128, "Earnings Per Share" was issued effective
for periods ending after December 15, 1997. There is no impact on the
Company's financial statements from adoption of SFAS No. 128.
In February 1997 SFAS No. 129, "Disclosure of Information about Capital
Structure" was issued effective for periods ending after December 15, 1997.
The Company has adopted the disclosure provisions of SFAS No. 129 effective
with the fiscal year ended August 31, 1998.
In June 1997 SFAS No. 130, "Reporting Comprehensive Income", was issued for
fiscal years beginning after December 31, 1997, with earlier application
permitted. The Company has elected to adopt SFAS No. 130 effective with the
fiscal year ending August 31, 1999. Adoption of SFAS No. 130 is not
expected to have a material impact on the Company's financial statements.
F - 11
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1997 SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued effective for fiscal years beginning after
December 31, 1997, with earlier application permitted. The Company has
elected to adopt SFAS No. 131 effective with the fiscal year ending August
31, 1999. Adoption of SFAS No. 131 is not expected to have a material
impact on the Company's financial statements.
In February 1998 SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits", was issued effective for fiscal years
beginning after December 15, 1997, with earlier application encouraged. The
Company has elected to adopt SFAS No. 132 effective with the fiscal year
ending August 31, 1999. Adoption of SFAS No. 132 is not expected to have a
material impact on the Company's financial statements.
In June 1998 SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued for fiscal years beginning after June 15,
1999. Adoption of SFAS No. 133 is not expected to have a material impact on
the Company's financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
August 31, August 31,
1997 1998
---- ----
Furniture and equipment $ 29,481 $ 72,888
Asset under capital lease -- 5,195
----------- -----------
29,481 78,083
Less accumulated depreciation
and amortization (941) (23,262)
----------- -----------
28,540 54,821
Undeveloped oil and gas prospects 311,007 2,491,238
----------- -----------
$ 339,547 $ 2,546,059
=========== ===========
During the year ended August 31, 1998, the Company charged to operations
$15,000 as an allocation of its cost basis in a dry hole in which it had a
carried working interest. This allocation was based on the Company's
estimate that this drill location had no future value. The Company reviews
and determines the cost basis of drilling prospects on a drilling location
basis.
Depreciation expense for the years ended August 31, 1997 and August 31,
1998 was $941 and $22,321, respectively.
F - 12
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 4 - CAPITAL LEASE OBLIGATION
Capitalized lease obligation at August 31, 1998 consists of a lease for
office equipment, repayable in monthly installments of $150 with interest
at 10.5%.
Maturity of this obligation is as follows:
Year ending August 31,
1999 $1,441
2000 1,616
2001 1,045
Future minimum payments on capitalized leases are as follows:
Year ending August 31,
1999 $1,803
2000 1,803
2001 1,062
------
4,668
Less amount representing interest 566
------
Present value of net minimum lease payments 4,102
Less current maturity 1,441
------
Long-term portion $2,661
======
NOTE 5 - COMMON STOCK
Effective August 6, 1997 Mar completed a merger with PYR LLC (Note 1). In
conjunction with the merger, the members of PYR LLC received 4,000,000
shares of common stock of Mar. These shares were recorded at the net member
equity of PYR LLC 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 LLC 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:
* 2,095,000 units, at 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, each of the warrant expiration dates was
extended one or more times, and all the warrants ultimately expired
without having been exercised.
F - 13
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 5 - COMMON STOCK (CONTINUED)
In August 1997, the Company completed the sale of common stock and warrants
pursuant to a private placement as follows:
* 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, each of the warrant expiration dates was
extended one or more times, and all the warrants ultimately expired
without having been exercised.
Proceeds from these offerings were $523,750 and $1,500,000, respectively,
before costs of the offerings of $280,711.
NOTE 6 - 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.
The status of outstanding options granted pursuant to the 1997 Plan was as
follows:
Number Weighted Weighted
of Average Average
Shares Exercise Price Fair Value
------ -------------- ----------
Options Outstanding - Inception -- -- --
Granted 171,000 $1.50 --
-------
Options Outstanding - August 31, 1997 171,000 $1.50 --
(None exercisable)
Expired (60,000)
Granted 135,000 $1.40 $ .31
-------
Options Outstanding - August 31, 1998 246,000 $1.46 $ .26
(37,000 exercisable) =======
F - 14
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 6 - STOCK OPTION PLAN (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS No. 123. Had
compensation cost for the Company's stock option plan been determined based
on the fair value at the grant date consistent with the provisions of SFAS
No. 123, the Company's net loss and loss per share for 1998 would have been
increased to the pro forma amounts indicated below:
Net (loss) applicable to common stockholders - as reported $ (110,807)
===========
Net (loss) applicable to common stockholders - pro forma $ (124,555)
===========
(Loss) per share - as reported $ (.01)
===========
(Loss) per share - pro forma $ (.01)
===========
Weighted average fair value of options granted in 1998 $ .31
===========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: dividend yield of 0%; expected volatility of
25% to 75%; discount rate of 5.50%; and expected lives of 3 to 5 years.
At August 31, 1998 the number of options exercisable was 37,000, the
weighted average exercise price of these options was $1.50, the weighted
average contractual life of the options was 5 years and the exercise price
was $1.50 per share.
NOTE 7 - 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,
1999 $39,768
2000 39,768
2001 39,768
Rent expense was $0, $8,694 and $35,539 for the period from inception to
December 31, 1996, for the eight months ended August 31, 1997 and for the
year ended August 31, 1998, 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, 1998 to September 30,
1999.
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
F - 15
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 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.
NOTE 8 - RELATED PARTY TRANSACTIONS
In 1996 and 1997 the President of the Company performed services for PYR
LLC valued at $12,000 and $24,000, respectively. The value ascribed to
these services was charged to members' equity during each of the periods
ended December 31, 1996 and August 6, 1997 as a capital contribution.
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.
In 1998 the Company paid $43,530 for services provided to the Company by an
entity controlled by a former director of the Company.
NOTE 9 - 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, 1998, cash on deposit
at this financial institution exceeded federally insured amounts by
approximately $270,000. 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.
NOTE 10 - SUBSEQUENT EVENTS
(a) In October 1998 the Company completed the sale of $2,300,000, of a
maximum $2,500,000, 10% convertible notes, due October 1999. The notes
are convertible into an aggregate 23,000 shares of a newly designed
Series A Preferred Stock of the Company. The Company must obtain
F - 16
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 10 - SUBSEQUENT EVENTS (CONTINUED)
shareholder approval for authorization of the Series A Preferred
Stock. If authorization is not obtained by April 1999, the note
holders may demand payment of principal and interest of the note, or
elect to convert the principal balance of the notes into shares of the
Company's common stock, at the rate of $.30 per share. In conjunction
with the sale of $1,500,000 of the notes, the Company agreed to pay a
finders fee consisting of $45,000 and warrants to purchase 175,000
shares of the Company's common stock at an exercise price of $.75 per
share for a period of five years.
(b) In October 1998 the Company issued an aggregate of 266,666 shares of
its common stock for assignment to the Company of certain undeveloped
oil and gas prospects in California, including oil and gas leases,
seismic data and intellectual property.
(c) On November 23, 1998, the Company's test well being drilled on its
East Lost Hills prospect suffered a blowout. The operator of the well
is attempting to get the blowout under control. If and when this is
achieved, the Company and the other working interest owners will
evaluate the situation and determine the manner for proceeding. The
financial accounting impact of this blowout, and any potential
environmental implications, will be reflected, pursuant to the
Company's accounting policies for oil and gas properties, during the
fiscal year ended August 31, 1999.
F - 17
<PAGE>
<TABLE>
<CAPTION>
PYR ENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS
ASSETS
2/28/99 8/31/98
(UNAUDITED)
CURRENT ASSETS
<S> <C> <C>
Cash $ 711,367 $ 373,100
Deposits and prepaid expenses 128,128 16,897
----------- -----------
Total Current Assets 839,495 389,997
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Furniture and equipment, net 44,503 54,821
Undeveloped oil and gas prospects 3,060,053 2,491,238
----------- -----------
3,104,556 2,546,059
----------- -----------
OTHER ASSETS, net 58,120 3,546
----------- -----------
$ 4,002,171 $ 2,939,602
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,856 $ 44,389
Accrued and other liabilities 11,000 --
Interest payable 84,603 --
Current portion of capital lease obligation 1,543 1,441
Convertible Debentures 2,500,000 --
Accrued seismic and exploration costs -- 1,282,500
----------- -----------
Total Current Liabilities 2,613,002 1,328,330
----------- -----------
Capital lease obligation 1,860 2,661
----------- -----------
Total Liabilities 2,614,862 1,330,991
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.001 par value
Authorized 30,000,000 shares
Issued and outstanding - 9,421,470 shares
at 2/28/99 and 9,154,804 shares at 8/31/98 9,421 9,155
Capital in excess of par value 1,967,821 1,768,088
Retained earnings/(accumulated deficit) (589,933) (168,632)
----------- -----------
1,387,309 1,608,611
----------- -----------
$ 4,002,171 $ 2,939,602
=========== ===========
FQ-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Three Six Six
Months Months Months Months Inception
Ended Ended Ended Ended Through
2/28/99 2/28/98 2/28/99 2/28/98 2/28/99
------- ------- ------- ------- -------
REVENUES
<S> <C> <C> <C> <C> <C>
Consulting Fees $ -- $ -- $ -- $ 10,000 $ 127,528
Interest 11,076 10,806 15,601 26,545 57,342
Gain on asset sale 556,197 556,197 556,197
----------- ----------- ----------- ----------- -----------
11,076 567,003 15,601 592,742 741,067
OPERATING EXPENSES
General and administrative 174,299 173,373 312,074 361,290 1,130,998
Dry hole impairment -- -- -- -- 15,000
Interest 82,204 217 112,036 217 112,875
Depreciation and amortization 6,407 6,427 12,793 9,760 36,260
----------- ----------- ----------- ----------- -----------
262,910 180,017 436,903 371,267 1,295,133
NET INCOME BEFORE INCOME TAXES (251,834) 386,986 (421,302) 221,475 (554,066)
Income Taxes -- 6,240 -- 6,240 --
(251,834) 380,746 (421,302) 215,235 (554,066)
INCOME APPLICABLE TO
PREDECESSOR LLC -- -- -- -- (35,868)
----------- ----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (251,834) $ 380,746 $ (421,302) $ 215,235 $ (589,934)
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON
SHARE -BASIC AND DILUTED $ (.027) $ .042 $ (.045) $ .024 $ (.089)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,421,470 9,154,804 9,288,139 9,154,804 6,658,899
FQ-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Cumulative
Six Months Six Months from Inception
Ended 2/28/99 Ended 2/28/98 to 2/28/99
------------- ------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (421,302) $ 215,235 $ (554,066)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Gain on sale of assets -- (556,197) (556,197)
Depreciation and amortization 12,793 9,760 36,260
Amortization of deferred financing costs 27,224 -- 27,224
Contributed services -- -- 36,000
Dry hole impairment -- -- 15,000
Changes in assets and liabilities
(Increase)/decrease in receivables -- (383,047) --
(Increase)/decrease in deposits and prepaids (111,231) (17,482) (126,522)
Increase/(decrease) in accounts payable (28,533) (24,855) 1,422
Increase/(decrease) in accrued and other liabilities 95,603 (2,564) 95,603
Other -- -- (3,751)
----------- ----------- -----------
Net cash provided/(used) by operating activities (425,446) (759,150) (1,029,027)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of oil and gas interests -- 850,078 1,050,078
Cash paid for furniture and equipment (2,563) (48,602) (75,451)
Cash paid for undeveloped oil and gas properties (1,651,227) 396,925) (3,356,018)
----------- ----------- -----------
Net cash provided/(used) in investing activities (1,653,790) 404,551 (2,381,391)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Members capital contributions -- -- 28,000
Distributions to members -- -- (66,000)
Cash from short-term borrowings -- -- 285,000
Repayments of short-term borrowings -- -- (285,000)
Proceeds from sale of common stock -- -- 2,023,750
Cash paid for offering costs -- -- (280,711)
Proceeds from convertible debentures 2,500,000 -- 2,500,000
Cash paid for deferred financing costs (81,798) -- (81,798)
Payments on capital lease (699) -- (1,792)
Cash received upon recapitalization and merger -- -- 336
----------- ----------- -----------
Net cash (used) provided by financing activities 2,417,503 3,281 4,121,785
----------- ----------- -----------
NET INCREASE/(DECREASE) IN CASH 338,267 (351,318) 711,367
CASH, BEGINNING OF PERIODS 373,100 1,432,281 --
----------- ----------- -----------
CASH, END OF PERIODS $ 711,367 $ 1,080,963 $ 711,367
=========== =========== ===========
FQ-3
</TABLE>
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
February 28, 1999
The accompanying interim financial statements of PYR Energy Corporation (the
"Company") are unaudited. In the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results for the interim period.
The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
Management believes the disclosures made are adequate to make the information
not misleading and recommends that these condensed financial statements be read
in conjunction with the financial statements and notes included in the Company's
Form 10-KSB/A1 as of August 31, 1998.
PYR Energy Corporation (formerly known as Mar Ventures Inc. ("Mar")) was
incorporated under the laws of the State of Delaware on March 27, 1996. Mar had
been a public company which had no significant operations as of July 31, 1997.
On August 6, 1997 Mar acquired all the interests in PYR Energy LLC ("PYR LLC")
(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 LLC, an independent oil and gas exploration company, had been engaged
in the acquisition of undeveloped oil and gas interests for exploration and
exploitation in the Rocky Mountain region and California. As of August 6, 1997
PYR LLC had acquired only non-producing leases and acreage and no exploration
had been commenced on the properties. Upon completion of the acquisition of PYR
LLC by Mar, PYR LLC ceased to exist as a separate entity. Mar remained as the
legal surviving entity and, effective November 12, 1997, Mar changed its name to
PYR Energy Corporation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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 February 28, 1999,
there were no cash equivalents.
FQ-4
<PAGE>
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.
OIL AND GAS PROPERTIES - The Company follows the full cost method to
account for its oil and gas exploration and development activities. Under
the full cost method, all costs incurred which are directly related to oil
and gas exploration and development are capitalized and subjected to
depreciation and depletion. Depletable costs also include estimates of
future development costs of proved reserves. Costs related to undeveloped
oil and gas properties may be excluded from depletable costs until such
properties are evaluated as either proved or unproved. The net capitalized
costs are subject to a ceiling limitation. Gains or losses upon disposition
of oil and gas properties are treated as adjustments to capitalized costs,
unless the disposition represents a significant portion of the Company's
proved reserves. A separate cost center is maintained for expenditures
applicable to each country in which the Company conducts exploration and/or
production activities.
Undeveloped oil and gas properties consists primarily of leases and acreage
acquired by the Company for its exploration and development activities. The
cost of these non-producing 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 through February 28, 1999
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.
FQ-5
<PAGE>
___________________________
Dealer Prospectus Delivery Obligation
Until (insert date), all dealers that
effect transactions in these securities,
whether or not participating in this
offering, may be required to deliver a
prospectus. This is in addition to the
dealers' obligation to deliver a
prospectus when acting as underwriters
and with respect to their unsold PYR ENERGY CORPORATION
allotments or subscriptions. 5,031,366 Shares of Common Stock
___________________________
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.................. 2
RISK FACTORS........................ 4 _________________________
PRICE RANGE OF COMMON STOCK......... 8
DIVIDEND POLICY..................... 9 SELLING STOCKHOLDER
BUSINESS AND PROPERTIES............. 9 PROSPECTUS
MANAGEMENT'S DISCUSSION AND _________________________
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......... 19
MANAGEMENT.......................... 23
EXECUTIVE COMPENSATION.............. 26
BENEFICIAL OWNERS OF SECURITIES..... 27
TRANSACTIONS BETWEEN THE
COMPANY AND RELATED PARTIES....... 29
DESCRIPTION OF SECURITIES........... 32
INACTIVE TRADING OF THE
COMMON STOCK...................... 34 June __, 1999
SELLING SECURITY HOLDERS AND PLAN OF
DISTRIBUTION...................... 35
SECURITIES AND EXCHANGE
COMMISSION POSITION ON
CERTAIN INDEMNIFICATION........... 37
LEGAL MATTERS....................... 38
EXPERTS............................. 38
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 stockholders will
not pay any of the following expenses.
Registration and filing fee..................................... $ 3,298
Printing (1).................................................... $ 5,000
Accounting fees (1)............................................. $ 1,000
Legal fees (1).................................................. $ 7,500
Miscellaneous (1)............................................... $ 202
-------
Total (1) $17,000
=======
- ----------
(1) Estimated
II-1
<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
Section 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
under Section 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 under Section 4(2) of 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.
The Company completed an offering to a limited number of offerees in
November 1998 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 $2,500,000 of convertible promissory notes which were
subsequently converted into shares of Series A Preferred Stock, which in turn
are convertible into shares of Common Stock.
The Company completed an offering to a limited number of offerees in May
1999 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 437,500 units at $16.00 per unit, with each unit consisting of ten
shares of Common Stock and a warrant to purchase one share of Common Stock.
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)
II-2
<PAGE>
3.2 Certificate Of Amendment to the Certificate of Incorporation effective
as of November 12, 1997 filed with the Delaware Secretary Of State (5)
3.3 Bylaws (1)
4.1 Specimen Common Stock Certificate (4)
4.2 Specimen Series A Preferred Stock Certificate
4.3 Certificate Of Designation concerning Series A Preferred Stock filed
with the Delaware Secretary Of State on April 16, 1999
5.1 Opinion of Patton Boggs LLP 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 (4)
10.3 Purchase And Sale Agreement effective as of August 6, 1997 between the
Registrant and Buddy Young (4)
10.4 1997 Stock Option Plan (3)
10.5 Convertible Note Purchase Agreement dated October 26, 1998 between the
Registrant and various investors(6)
23.1 Consent of Patton Boggs LLP (included in Opinion in Exhibit 5.1)
23.2 Consent of Wheeler Wasoff, P.C.
24.1 Power of Attorney (included in Part II of Registration Statement)
- ----------
(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 on 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.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 filed with the SEC on October 24, 1997, File No. 333-38665.
(5) Incorporated by reference from the Registrant's Form 10-KSB/A1 for the year
ended August 31, 1997.
(6) Incorporated by reference from Exhibit 2 to the Schedule 13D filed by
Victory Oil Company and other filing parties on November 5, 1998.
II-3
<PAGE>
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
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.
II-4
<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 June 21, 1999.
PYR ENERGY CORPORATION
By: /s/ D. Scott Singdahlsen
------------------------------------
D. Scott Singdahlsen,
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors
of the Registrant, by virtue of their signatures appearing below to this
Registration Statement hereby constitute and appoint D. Scott Singdahlsen or
Andrew P. Calerich, and each or either of them, with full power of substitution,
as attorney-in-fact in their names, place and stead to execute any and all
amendments to this Registration Statement in the capacities set forth opposite
their name and hereby ratify all that said attorney-in-fact and each of them or
his substitutes may do by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, the
Registration Statement was signed by the following persons in the capacities and
on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ D. Scott Singdahlsen Chief Executive Officer; June 21, 1999
- ------------------------- President and Chairman Of The Board
D. Scott Singdahlsen
/s/ Keith F. Carney Director June 21, 1999
- -------------------------
Keith F. Carney
/s/ Robert B. Suydam Director June 21, 1999
- -------------------------
Robert B. Suydam
/s/ S.L. Hutchison Director June 21, 1999
- -------------------------
S.L. Hutchison
/s/ Bryce W. Rhodes Director June 21, 1999
- -------------------------
Bryce W. Rhodes
/s/ Andrew P. Calerich Chief Financial Officer June 21, 1999
- ------------------------- and Secretary
Andrew P. Calerich
<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 Certificate Of Amendment to the Certificate of Incorporation effective
as of November 12, 1997 filed with the Delaware Secretary Of State (5)
3.3 Bylaws (1)
4.1 Specimen Common Stock Certificate (4)
4.2 Specimen Series A Preferred Stock Certificate
4.3 Certificate Of Designation concerning Series A Preferred Stock filed
with the Delaware Secretary Of State on April 16, 1999
5.1 Opinion of Patton Boggs LLP 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 (4)
10.3 Purchase And Sale Agreement effective as of August 6, 1997 between the
Registrant and Buddy Young (4)
10.4 1997 Stock Option Plan (3)
10.5 Convertible Note Purchase Agreement dated October 26, 1998 between the
Registrant and various investors(6)
23.1 Consent of Patton Boggs LLP (included in Opinion in Exhibit 5.1)
23.2 Consent of Wheeler Wasoff, P.C.
24.1 Power of Attorney (included in Part II of Registration Statement)
- ----------
(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 on 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.
(4) Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 filed with the SEC on October 24, 1997, File No. 333-38665.
(5) Incorporated by reference from the Registrant's Form 10-KSB/A1 for the year
ended August 31, 1997.
(6) Incorporated by reference from Exhibit 2 to the Schedule 13D filed by
Victory Oil Company and other filing parties on November 5, 1998.
SEE LEGENDS ON THE REVERSE SIDE OF THIS CERTIFICATE
Incorporated Under The Laws Of The
State Of Delaware
---------------- ----------------
Number Shares
------ ------
A-___ -_____-
----------------- ----------------
- --------------------------------------------------------------------------------
PYR ENERGY CORPORATION
- --------------------------------------------------------------------------------
$.001 Par Value Series A Preferred Stock,
25,000 Shares Authorized
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT _____________________ is the registered
holder of ________________ Shares of the $.001 par value Series A
Preferred Stock of
PYR ENERGY CORPORATION
fully paid and non-assessable, transferable only on the books of the
Corporation by the holder hereof in person or by Attorney upon
surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this
Certificate to be signed by its duly authorized officers and its
Corporate Seal to be hereunto affixed as of this ___ day of _______,
A.D. 1999.
------------------------------ -------------------------------
Andrew P. Calerich, Secretary D. Scott Singdahlsen, President
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS.
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 "U.S. SECURITIES ACT"), AND ARE 'RESTRICTED SECURITIES'
AS THAT TERM IS DEFINED IN RULE 144 UNDER THE U.S.
SECURITIES ACT. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE U.S. SECURITIES
ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
U.S. SECURITIES ACT.
For Value Received, ______________ hereby sell, assign and transfer unto
_________________ _______________ 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 _______________ 19 _____
---------------------------------------------
Signature
[NOTICE. THE SIGNATURE OF 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.]
In presence of
- ------------------------------------------
CERTIFICATE OF DESIGNATION
OF
PREFERENCES OF PREFERRED STOCK
OF
PYR ENERGY CORPORATION,
a Delaware corporation
The undersigned, D. Scott Singdahlsen and Andrew P. Calerich, certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of PYR Energy Corporation, a Delaware corporation (the
"Corporation").
2. Pursuant to authority given by the Corporation's Certificate of
Incorporation, the Board of Directors of the Corporation has duly adopted the
following recitals and resolutions:
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series and to determine the designation
thereof, or any of them; and
WHEREAS, the Corporation has not issued any shares of such Preferred Stock
and the Board of Directors of the Corporation desires, pursuant to its authority
as aforesaid, to determine and fix the rights, preferences, privileges and
restrictions relating to the initial series of said Preferred Stock and the
number of shares constituting and the designation of said series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes
and determines the designation of, the number of shares constituting and the
rights, preferences, privileges and restrictions relating to, said initial
series of Preferred Stock as follows:
I. PREFERRED STOCK
1.1 Designation. The initial series of Preferred Stock shall be designated
"Series A Preferred Stock."
2.1 Number of Shares. The number of shares constituting the Series A
Preferred Stock shall be 25,000 shares.
3.1 Sale Price. The Sale Price for each share of Series A Preferred Stock
shall initially be equal to $100 per share.
4.1 Dividends. (a) The holders of the Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors of the
Corporation, out of the assets at the time legally available therefor,
preferential dividends at a rate of Ten Dollars ($10.00) per share of Series A
<PAGE>
Preferred Stock per annum, subject to proportionate adjustment for any stock
split, reverse stock split, stock dividend (but excluding any payment of a
dividend on the Series A Preferred Stock by the issuance of Common Stock, as
permitted by Section 4.1(d)), recapitalization or other similar change in the
character or amount of outstanding Series A Preferred Stock, and no more,
payable in cash semiannually on January 1 and July 1 in each year, commencing
January 1, 1999. All calculations of dividends due and pro rations thereof shall
be based on a 365-day year and the actual number of days outstanding.
(b) Dividends on each share of Series A Preferred Stock shall be cumulative
from the date of issuance of such share, whether or not at the time such
dividend shall accrue or become due or at any other time there shall be profits,
surplus or other funds of the Corporation legally available for the payment of
dividends. Dividends shall accrue on each share of Series A Preferred Stock from
and including the date of issuance of such share to and including the date on
which the share of Series A Preferred Stock is redeemed or converted as set
forth herein. Dividends shall accrue and become due on each January 1 and July 1
regardless of whether the Corporation is then able or legally permitted to pay
such dividend.
(c) If at any time the Corporation shall pay less than the total amount of
dividends due on outstanding Series A Preferred Stock at the time of such
payment, such payment shall be distributed among the holders of the Series A
Preferred Stock so that an equal amount shall be paid with respect to each
outstanding share of Series A Preferred Stock.
(d) Accrued dividends, at the option of the Corporation, may be paid by
delivery of shares of Common Stock of the Corporation with a fair market value
equal to the amount of accrued, but unpaid dividend, then due on each share of
Series A Preferred Stock. For purposes of this Section 4.1(d), the fair market
value of a share of Common Stock shall be determined as of the original dividend
due date, and shall be determined as follows. The fair market value shall equal
the weighted average trading price over the 45 calendar days preceding the date
of determination. For purposes of the "weighted average" calculation, the number
of shares involved in each individual trade during the period of determination
shall be multiplied by the sale price for that trade, then the sum of all those
amounts shall be divided by the total number of shares traded during the
relevant period of determination (the "Weighted Average Trading Price").
4.2 Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
Series A Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of the Corporation to the holders of
the Common Stock, an amount per share equal to the Sale Price, plus a further
amount equal to any accrued or declared but unpaid dividends thereon before any
payment shall be made or any assets distributed to the holders of Common Stock.
If upon such liquidation, dissolution or winding up of the Corporation, the
assets thus distributed among the holders of Series A Preferred Stock shall be
insufficient to permit the payment in full of the aforesaid preferential
amounts, the entire assets of the Corporation to be distributed shall be
distributed among the holders of the Series A Preferred Stock.
2
<PAGE>
Following the completion of the distribution of the stated liquidation
preferences to be paid to the holders of the Series A Preferred Stock, any
remaining assets shall be distributed to the holders of the Common Stock of the
Corporation; provided, however, if no shares of Common Stock are outstanding at
the time of such distribution, the holders of the Series A Preferred Stock shall
be entitled to receive, ratably (assuming conversion of all shares of Series A
Preferred Stock to Common Stock), all assets of the Corporation remaining after
the payment of the stated liquidation preferences of the Series A Preferred
Stock.
A consolidation or merger of the Corporation with and into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Corporation, shall, at the option of the holders of the Series A
Preferred Stock, be deemed to be a liquidation, dissolution or winding up within
the meaning of this Section 4.2 if, as a result of such transaction, control of
the Corporation is transferred. For purposes of this Section 4.2, "control"
shall mean the ownership of, or the direct or indirect, power to vote more than
50% of the outstanding voting securities of the Corporation.
4.3 Conversion Rights. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Series A Preferred Stock. Each share of Series A Preferred Stock shall
be convertible into the number of fully paid and nonassessable shares of Common
Stock which results from dividing the Conversion Value (as defined) of such
share at the time of conversion by the per share Conversion Price (as defined)
in effect for such share at the time of conversion. The initial "Conversion
Price" per share of Series A Preferred Stock shall be $0.60, and the per share
"Conversion Value" of Series A Preferred Stock shall be $100.00, plus accrued or
declared and unpaid dividends. The initial Conversion Price of Series A
Preferred Stock shall be subject to adjustment from time to time as provided
below. The number of shares of Common Stock into which a share of Series A
Preferred Stock is convertible is hereinafter referred to as the "Conversion
Rate" of such series. The Corporation shall either (i) pay or (ii) make
adjustment by increasing the Conversion Value for any accrued or declared but
unpaid dividends on the shares of Series A Preferred Stock surrendered for
conversion.
4.4 Conversion Procedure.
(a) Before any holder of shares of Series A Preferred Stock shall be
entitled to convert any or all of such shares of Series A Preferred Stock
into shares of Common Stock, the holder shall surrender the certificate or
certificates therefor, duly endorsed in blank or accompanied by proper
instruments of transfer, at the office of the Corporation or of any
transfer agent for the shares of the Series A Preferred Stock, and shall
give written notice to the Corporation at such office that such holder
elects to convert the same and shall state in writing therein the name or
names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
shares of the Series A Preferred Stock, or to such holder's nominee or
nominees, certificates for the number of full shares of Common Stock to
3
<PAGE>
which such holder shall be entitled, as aforesaid, together with cash in
lieu of any fraction of a share as hereinafter provided in Section 4.4(j)
and a new certificate representing any shares of Series A Preferred Stock
not so converted. Such conversion shall be deemed to have been made as of
the date of delivery of such written notice and of such surrender of the
shares of the Series A Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on said date.
(b) Adjustment for Stock Splits and Combinations. If the Corporation shall
at any time after October ___, 1998 (the "Determination Date") effect a
subdivision or combination of the outstanding Common Stock, the Conversion
Price then in effect immediately before such subdivision or combination
shall be proportionately decreased or increased. Any adjustment under this
subsection shall become effective at the close of business on the effective
date of the subdivision or combination.
(c) Adjustment for Certain Dividends and Distributions. If the Corporation
at any time after the Determination Date shall issue additional shares of
Common Stock, by reason of the declaration or payment of a dividend or
other distribution on the Common Stock payable in additional shares of
Common Stock, then and in each such event, the Conversion Price then in
effect shall be decreased as of the time of such issuance or, if such a
record date shall have been fixed, as of the close of business on such
record date, by multiplying the Conversion Price then in effect by a
fraction:
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Price shall be recomputed accordingly
as of the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this subsection as of the
time of actual payment of such dividends or distributions.
(d) Adjustments for Other Dividends and Distributions. If the Corporation
at any time after the Determination Date shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
4
<PAGE>
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of Series A Preferred Stock
shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Corporation which they would have received had their Series A Preferred
Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including
the conversion date, retained such securities (together with any
distributions payable thereon during such period) receivable by them as
aforesaid during such period, giving application to all adjustments called
for during such period under Section 4.4 with respect to the rights of the
holders of the Series A Preferred Stock.
(e) Adjustment for Reclassification, Exchange or Substitution. If the
Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or different number of shares of any class
or classes of stock, by capital reorganization, involving exchange,
substitution, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation or sale of assets provided for
below), then the holder of each share of Series A Preferred Stock shall
have the right thereafter to convert each such share into the same kind and
amount of shares of stock and other securities and property receivable upon
such exchange, reclassification or other change, as a holder of the number
of shares of Common Stock into which such shares of Series A Preferred
Stock might have been converted immediately prior to such substitution,
reclassification or other change, all subject to further adjustment as
provided herein.
(f) Reorganization, Merger, Consolidation or Sale of Assets. If at any time
there shall be a capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 4.4) or a merger or consolidation of the
Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, and the holders of Series A Preferred Stock do not elect to treat
such transaction as a liquidation, dissolution or winding up as provided by
Section 4.2, then, as a part of such reorganization, merger, consolidation
or sale, provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of
such Series A Preferred Stock, the number of shares of stock or other
securities or property of the Corporation, or of the successor corporation
resulting from such reorganization, merger, consolidation or sale, to which
a holder of Common Stock deliverable upon conversion would have been
entitled upon such capital reorganization, merger, consolidation or sale.
(g) Sale of Shares Below Conversion Price.
5
<PAGE>
(i) If at any time or from time to time prior to conversion of the
Series A Preferred Stock into shares of Common Stock and subsequent to the
Determination Date the Corporation shall issue or sell Additional Shares of
Common Stock (as defined in Section 4.4(g)(iv) below), other than as a
dividend or other distribution on any class of stock as provided in Section
4.4(c) and 4.4(d) above, and other than upon a subdivision or combination
of shares of Common Stock as provided in section 4.4(b) above, for a
consideration per share less than the then applicable Conversion Price for
the Series A Preferred Stock, then, and in each such case, the Conversion
Price of the Series A Preferred Stock, shall be recalculated and, if
appropriate, shall be reduced, but not increased, as of the close of
business on the date of such issue or sale, to a price determined by
multiplying the Conversion Price by a fraction, the numerator of which
shall be (x) the number of shares of Common Stock (assuming all outstanding
shares of Series A Preferred Stock have been converted into shares of
Common Stock) outstanding at the close of business on the day next
preceding such issuance or sale plus (y) the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase
at such Conversion Price, and the denominator of which shall be the number
of shares of Common Stock (assuming all outstanding shares of Series A
Preferred Stock have been converted into shares of Common Stock)
outstanding at the close of business on the date of such issue or sale
after giving effect to the issuance of such Additional Shares of Common
Stock.
(ii) For the purposes of making any adjustment to the Conversion Price
of the Series A Preferred Stock or number of shares of Common Stock
receivable on conversion of Series A Preferred Stock as provided in this
Section 4.4(g), the consideration received by the Corporation for any issue
or sale of securities shall:
(A) to the extent it consists of cash, be computed at an amount
equal to the price paid for the securities;
(B) to the extent it consists of property other than cash, be
computed at the net fair market value of that property as determined
in good faith by the Board; and
(C) if Additional Shares of Common Stock, Convertible Securities
(as defined in paragraph (iii) below) or rights or options to purchase
either Additional Shares of Common Stock or Convertible Securities are
issued or sold together with other stock or securities or other assets
of the Corporation for a consideration which covers both, be computed
as the net portion of the consideration so received that may be
reasonably and in good faith determined by the Board to be allocable
to such Additional Shares of Common Stock, Convertible Securities or
rights or options.
6
<PAGE>
(iii) For the purposes of this Section 4.4(g), the term "Options"
shall mean rights, options or warrants to subscribe for, purchase, or
otherwise acquire either Common Stock or Convertible Securities, as defined
herein, and the term "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Series A Preferred Stock) or other
securities directly or indirectly convertible into or exchangeable for
Common Stock. If the Corporation at any time or from time to time after the
Determination Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities,
then the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of
such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall
be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in the case of Convertible Securities and Options, in case
such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share
(determined pursuant to Section 4.4(g)(ii) above assuming the payment of
all consideration required to effect the exercise or conversion of Options
or Convertible Securities, as the case may be) of such Additional Shares of
Common Stock would be less than the applicable Conversion Price of the
Series A Preferred Stock in effect on the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common Stock are deemed
to be issued:
(A) no further adjustment in the applicable Conversion Price of
the Series A Preferred Stock shall be made upon the subsequent issue
of Convertible Securities or shares of Common Stock upon the exercise
of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, or decrease in the
number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price of the Series A
Preferred Stock computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities, which are outstanding at
such time;
7
<PAGE>
(C) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price of the Series A
Preferred Stock computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or Options for
Common Stock, the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor
was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the
additional consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the
Corporation upon such conversion or exchange; and
(2) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for
the Additional Shares of Common Stock deemed to have been then
issued was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4.4(g)(ii) above) upon the issue
of the Convertible Securities upon the actual exercise of such
Options.
(D) no readjustment pursuant to clause (B) or (C) above shall
have the effect of increasing the Conversion Price of the Series A
Preferred Stock to an amount which exceeds the lower of: (i) the
Conversion Price of the Series A Preferred Stock on the Determination
Date, or (ii) the Conversion Price of the Series A Preferred Stock
that would have resulted from any other issuance of Additional Shares
of Common Stock between the original adjustment date and such
readjustment date and that previously has not been recomputed or
readjusted pursuant to clause (B) or (C) above; and
8
<PAGE>
(E) in the case of any Options which expire by their terms not
more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price of the Series A Preferred Stock shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause (C)
above.
(iv) The term "Additional Shares of Common Stock" as used herein means
all shares of Common Stock issued by the Corporation after the
Determination Date, whether or not subsequently reacquired or retired by
the Corporation, other than (A) shares outstanding as of the Determination
Date, to the extent that such shares are reacquired and thereafter resold
by the Corporation for a consideration per share equal to or greater than
that paid by the Corporation to reacquire the shares; (B) shares of Common
Stock issued upon conversion of the Series A Preferred Stock; (C) shares of
Common Stock issued as a dividend or distribution on the Series A Preferred
Stock; or (D) up to 1,000,000 shares of Common Stock (or rights to acquire
Common Stock) issued after the Determination Date pursuant to the
Corporation's 1997 Stock Option Plan.
(h) Minimum Adjustment. No adjustment of the Conversion Price shall be made
in an amount less than $0.001, but any such lesser adjustments shall be
carried forward and shall be made at the time together with the next
subsequent adjustment which together with any adjustments so carried
forward shall amount to $0.001 or more.
(i) Certificate of Adjustment. Upon the occurrence of each adjustment or
readjustment of the Conversion Price of the Series A Preferred Stock
pursuant to this Section 4.4, the Corporation shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of such Series A Preferred Stock a certificate,
signed by the Chairman of the Board, the President or the Chief Financial
Officer, setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
(j) Fractional Shares. No fractional shares of Common Stock shall be issued
upon conversion of Series A Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation
shall pay cash equal to the product of such fraction multiplied by the fair
market value of one share of the Corporation's Common Stock on the date of
conversion. For purposes of fractional share payments, the fair market
value of a share of Common Stock of the Corporation shall be equal to the
Weighted Average Trading Price of a share of Common Stock during the 45
days preceding the date of determination.
(k) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
all times reserve and keep available, out of its authorized but unissued
Common Stock, solely for the purpose of effecting the conversion of the
9
<PAGE>
Series A Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all shares of the Series A Preferred
Stock from time to time outstanding. The Corporation shall from time to
time, in accordance with the laws of the State of Delaware, use its best
efforts to increase the authorized amount of its Common Stock if at any
time the authorized number of shares of Common Stock remaining unissued
shall not be sufficient to permit the conversion of all of the shares of
the Series A Preferred Stock at the time outstanding.
(l) Payment of Taxes. The Corporation shall pay any and all issuance and
other taxes that may be payable in respect of any issuance or delivery of
Common Stock upon conversion of the Series A Preferred Stock pursuant
hereto other than income taxes and other taxes personal to the recipient of
those shares. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the
issuance and delivery of Common Stock in a name other than that in which
the Series A Preferred Stock so converted was registered, and no such
issuance or delivery shall be made unless and until the person requesting
such issuance has paid to the Corporation the amount of any such tax.
(m) No Dilution or Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issuance or sale of securities
or any other voluntary action, avoid or seek to avoid the observance of
performance of any of the terms to be observed or performed hereunder by
the Corporation, but will at all times in good faith assist in the carrying
out of all the provisions of this Section 4.4 and in the taking of all such
action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
impairment.
4.5 Redemption. Subject to applicable provisions of the Delaware General
Corporation Law, the Corporation may redeem the then outstanding shares of
Series A Preferred Stock as follows: (a) after October 26, 1999, one-third of
the originally issued shares of Series A Preferred Stock may be redeemed by the
Corporation if the Weighted Average Trading Price of a share of Common Stock of
the Corporation for the 45 days prior to the date of the Redemption Notice
equals or exceeds $2.40 per share; (b) after October 26, 2000, an additional
one-third of the originally issued shares of Series A Preferred Stock may be
redeemed by the Corporation if the Weighted Average Trading Price of a share of
Common Stock of the Corporation for the 45 days prior to the date of the
Redemption Notice equals or exceeds $3.60 per share; and (c) after October 26,
2000, an additional one-third of the originally issued shares of Series A
Preferred Stock may be redeemed by the Corporation if the Weighted Average
Trading Price of a share of Common Stock of the Corporation for the 45 days
prior to the date of the Redemption Notice equals or exceeds $4.80 per share. In
addition to the foregoing rights of the Corporation to redeem outstanding shares
of Series A Preferred Stock, the Corporation may redeem the then outstanding
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shares of Series A Preferred Stock after October 26, 2000, if the retained
earnings of the Corporation (as reflected in publicly available period end
financial statements prepared in accordance with generally accepted accounting
principles) equal or exceed $3,750,000. Any such redemption shall be at the Sale
Price of the Preferred Stock to be redeemed plus all accrued and all declared
but unpaid dividends on the shares of Series A Preferred Stock to be redeemed.
The redemption procedure shall be as set forth in this Section 4.5.
(a) Redemption Procedure. At least 30 days but not more than 60 days prior
to a date set for redemption of Series A Preferred Stock (a "Redemption
Date"), the Corporation shall mail a written notice of such redemption (a
"Redemption Notice"), postage prepaid, to each holder of Series A Preferred
Stock. The Redemption Notice shall state (A) the number of shares of Series
A Preferred Stock to be redeemed, (B) the Redemption Date and the total
redemption price, (C) that holders must surrender to the Corporation, in
the manner and at the place designated by the Corporation, such holders
certificate or certificates representing the shares of Series A Preferred
Stock, and (D) stating the basis upon which the Corporation is entitled to
redeem the shares.
(b) Notice of Redemption. The Redemption Notice shall notify all holders of
Series A Preferred Stock that on or before the Redemption Date, each holder
of Series A Preferred Stock shall surrender its certificate or certificates
representing its shares of Series A Preferred Stock to the Corporation, in
the manner and at the place designated in the notice from the Corporation,
and thereupon the Redemption Price of such shares shall be payable to the
order of the person whose name appears on such certificate or certificates
as the owner thereof, and each surrendered certificate shall be cancelled.
Such Redemption Notice shall also state the current Conversion Price and
the date on which the right to convert the Series A Preferred Stock or
portions thereof into Common Stock of the Corporation will expire.
(c) Trust Fund. On or prior to 30 days after a Redemption Date, the
Corporation shall deposit the aggregate Redemption Price of all Series A
Preferred Stock shares to be redeemed for which certificates have not been
surrendered on or before the date of deposit, with a bank or trust company
having aggregate capital and surplus in excess of $100,000,000 as a trust
fund, with irrevocable instructions and authority to the bank or trust
company to pay the Redemption Price to the respective holders upon the
surrender of their share certificates. The deposit shall constitute full
payment for the shares to their holders. The balance of any monies
deposited by the Corporation pursuant to this paragraph remaining unclaimed
at the expiration of one year following the Redemption Date shall
thereafter be returned to the Corporation upon its request expressed in a
resolution of the Board of Directors of the Corporation, provided that the
stockholder to which such monies would be payable hereunder shall be
entitled, upon proof of ownership of the Series A Preferred Stock, to
receive from the Corporation such monies but without interest from the
Redemption Date.
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4.6 Voting Rights of Preferred Stock. Each holder of shares of Series A
Preferred Stock shall be entitled to the number of votes equal to the whole
number of shares of Common Stock into which such holder's shares of Series A
Preferred Stock could be converted on the record date for the vote or consent of
stockholders. The holder of each share of Series A Preferred Stock shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock, except with respect to the election or removal of directors for which
each holder will have the rights set forth in Section 4.7 below, and shall be
entitled to notice of any stockholders meeting in accordance with the Bylaws of
the Corporation and shall vote with holders of the Common Stock upon any matters
submitted to a vote of stockholders, except those matters required by law to be
submitted to a class vote and except as otherwise provided in Section 4.8
hereof.
4.7 Election of Directors. In addition to the rights set forth in Section
4.6, the holders of the Series A Preferred Stock, as a separate class, shall
have the special and exclusive right, when more than 10,000 shares of Series A
Preferred Stock are outstanding, to elect (a) two directors to the Board of
Directors of the Corporation, or (b) if the Board of Directors is increased to a
number greater than six, a number of directors equal to one-third of the total
number of directors, in the case of fractions, rounded up to the next whole
number; and, when more than 5,000 shares but fewer than 10,000 shares of Series
A Preferred Stock are outstanding, to elect (1) one director to the Board of
Directors of the Corporation, or (2) if the board of Directors is increased to a
number greater than six, a number of directors equal to one-sixth of the total
number of directors, in the case of fractions, rounded up to the next whole
number. In any election of directors by the holders of Series A Preferred Stock,
each holder of Series A Preferred Stock shall have the number of votes equal to
the number of shares of Common Stock into which such holders' shares of Series A
Preferred Stock could be converted on the record date for such election. In the
case of any vacancy in the office of a director occurring among the directors
elected by the holders of the Series A Preferred Stock pursuant to this Section
4.7, the remaining directors so elected by that class may, by the affirmative
vote of the majority thereof (or the remaining director so elected if there be
but one), elect a successor or successors to hold office for the unexpired term
of the director or directors whose place or places shall be vacant. Within 30
days after the resignation of a director elected by the holders of the Series A
Preferred Stock, the holders of the Series A Preferred Stock agree to hold a
meeting or act by written consent to re-elect current Series A Preferred Stock
directors or a new slate of Series A Preferred Stock directors. Series A
Preferred Stock directors then in office shall remain in office until such
meeting is held or such action by written consent is taken. Any directors who
shall have been elected by the holders of the Series A Preferred Stock or by an
directors so elected as provided in the preceding sentence may be removed during
their term of office, either with or without cause, by, and only by, the
affirmative vote of the a majority of the shares of Series A Preferred Stock
given either at a special meeting or such stockholders duly called for that
purpose or pursuant to a written consent of stockholders, and any vacancy
thereby created may be filled by holders of the Series A Preferred Stock
represented at such meeting or pursuant to such written consent.
4.8 Protective Provisions of Preferred Stock. So long as more than 5,000
shares of Series A Preferred Stock are outstanding the Corporation shall not,
without the vote or written consent of the holders of more than 50% of the
outstanding shares of Series A Preferred Stock, do any of the following:
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(a) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock;
(b) increase the authorized number of shares of Series A Preferred
Stock;
(c) authorize or issue any new class or series of equity securities
which has mandatory redemption provisions, or which has anti-dilution
provisions or voting rights that are more favorable than those of the
Series A Preferred Stock, or which has liquidation or dividend preferences
that are equal or senior in priority to those of the Series A Preferred
Stock;
(d) effect any sale, lease, assignment, transfer, or other conveyance
of all or substantially all of the assets of the Corporation or any of its
subsidiaries, or any consolidation or merger involving the Corporation or
any of its subsidiaries if the Corporation or its subsidiary is not the
surviving corporation, or any consolidation or merger involving the
Corporation or any of its subsidiaries if the Corporation or its subsidiary
is the surviving corporation but the holders of the capital stock of the
Corporation before the consolidation or merger own less than 50% of the
Corporation after the consolidation or merger, or any reclassification or
other change of any stock, or any recapitalization of the Corporation, or
any voluntary dissolution, liquidation or winding up of the Corporation;
(e) repurchase any outstanding shares of Common Stock (except for
repurchases of Common Stock from directors, employees and consultants not
exceeding $10,000 in any twelve month period);
(f) amend, alter or repeal the Certificate of Incorporation to change
the rights, preferences, privileges or limitations of the Series A
Preferred Stock, whether by merger, consolidation or otherwise;
(g) declare any dividends on or make any distribution on account of
the Common Stock; or
(h) permit any direct or indirect subsidiary or other entity owned by
the Corporation to sell any equity security or similar interest or any
right to acquire an equity security or similar interest in such entity,
except when done in the ordinary course of the Corporation's oil and gas
business.
4.9 Status of Converted Stock. In case any shares of Series A Preferred
Stock shall be converted pursuant to Section 4.3 hereof, the shares so converted
shall assume the status of authorized but undesignated and unissued shares of
Series A Preferred Stock.
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4.10 Notices. Any notice required herein except as otherwise specifically
provided herein, to be given to the holders of shares of Series A Preferred
Stock shall be in writing and may be delivered by personal service, sent by
overnight professional courier service, sent by telegraph or cable or sent by
United States registered or certified mail, return receipt requested, with
postage thereon fully prepaid. All such communications shall be addressed to
each holder of record at its address appearing on the books of the Corporation.
If sent by facsimile, a confirmed copy of such facsimile notice shall promptly
be sent by mail (in the manner provided above) to the holders. Service of any
such communication made only by mail shall be deemed complete on the date of
actual delivery as shown by the addressee's registry or certification receipt or
at the expiration of the third business day after the date of mailing, whichever
is earlier in time.
4.11 Consent for Certain Repurchases of Common Stock Deemed to be
Distributions. Each holder of Series A Preferred Stock shall be deemed to have
consented, for purposes of any applicable laws concerning corporate governance,
to distributions made by the Corporation in connection with the repurchase of
shares of Common Stock issued to or held by employees or consultants upon
termination of their employment or services pursuant to agreements providing for
such right of repurchase between the Corporation and such persons.
RESOLVED FURTHER, that the Chairman of the Board, the President or any Vice
President and the Secretary or any Assistant Secretary of the Corporation are
each authorized to execute, verify and file a certificate of designation of
preferences of preferred stock in accordance with the General Corporation Law of
the State of Delaware.
3. The authorized number of shares of Preferred Stock of the Corporation is
1,000,000 shares, the number of shares constituting Series A Preferred Stock,
none of which has been issued, is 25,000 shares.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on April
16, 1999.
/s/ D. Scott Singdahlsen
-------------------------------
D. Scott Singdahlsen, President
ATTEST:
/s/ Andrew P. Calerich
- -----------------------------
Andrew P. Calerich, Secretary
14
Patton Boggs LLP
1660 Lincoln Street
Suite 1900
Denver, Colorado 80264
(303) 830-1776
June 21, 1999
PYR Energy Corporation
1675 Broadway, Suite 1150
Denver, Colorado 80202
Gentlemen and Ladies:
We have acted as counsel for PYR Energy Corporation, a Delaware corporation
(the "Company"), in connection with preparation of the Company's Registration
Statement on Form SB-2 (the "Registration Statement") under the Securities Act
of 1933, as amended, concerning registration of the transfer of 5,031,366 shares
of the Company's $.001 par value common stock (the "Common Stock") by certain
stockholders of the Company (the "Selling Stockholders"). These shares consist
of (1) 4,375,000 shares of Common Stock issued by the Company to Selling
Stockholders in a private placement transaction (the "Private Placement")
pursuant to exemptions from federal and state registration requirements, (2)
437,500 shares issuable upon the exercise of warrants to purchase Common Stock,
which were received by Selling Stockholders in the Private Placement, and (3)
218,866 shares of Common Stock issued to one of the Selling Stockholders as part
of the purchase price paid by the Company for working interests in three oil and
natural gas exploration prospects.
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 the shares of Common
Stock being transferred by the Selling Stockholders as described in the
Registration Statement have been legally issued and are fully paid and
non-assessable and that the shares to be issued upon the exercise of the
warrants, if any, will have been legally issued, and will constitute fully paid
and non-assessable shares of the Company's Common Stock.
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 may not be used for any other purpose.
Very truly yours,
/s/ PATTON BOGGS LLP
--------------------
PATTON BOGGS LLP
PB: ALT/FBB
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement on Form SB-2 of PYR Energy
Corporation of our report dated October 26, 1998, except for Note 10(c) as to
which the date is November 23, 1998, relating to the financial statements of PYR
Energy Corporation 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.
/s/ WHEELER WASOFF, P.C.
------------------------
WHEELER WASOFF, P.C.
Denver, Colorado
June 21, 1999
