U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended August 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from to
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Commission File No. 0-20879
PYR ENERGY CORPORATION
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(Name of small business issuer in its charter)
Delaware 95-4580642
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(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1675 Broadway, Suite 1150, Denver, CO 80202
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (303) 825-3748
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
$.001 Par Value Common Stock
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended August 31, 1999 were $ 116,713
The aggregate market value of the voting stock held by non-affiliates
computed based on the last sale price of such stock as of December 3, 1999, was
$41,046,194.*
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the issuer's classes of common
equity as of December 3, 1999 is as follows:
$.001 Par Value Common Stock 14,579,580
* Without asserting that any of the issuer's directors or executive officers, or
the entity that owns convertible preferred stock that may be converted into
1,666,667 shares of common stock and 93,750 warrants, or the entity that owns
convertible preferred stock that may be converted into 833,333 shares of common
stock, or the person and entities that own 943,750 shares and 94,375 warrants,
is an affiliate, the shares of which they are beneficial owners have been deemed
to be owned by affiliates solely for this calculation.
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PART I
ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES
Overview
PYR Energy Corporation (the "Company" and "PYR") is a development stage
independent oil and gas exploration company whose strategic focus is the
application of advanced seismic imaging and computer-aided exploration
technologies in the systematic search for commercial hydrocarbon reserves,
primarily in the onshore western United States. The Company attempts to leverage
its technical experience and expertise with seismic data to identify exploration
and exploitation projects with significant potential economic return. The
Company currently intends to participate in exploration projects as a
non-operating, working interest owner, sharing both risk and rewards with its
joint venture partners. The Company has and will continue to pursue exploration
opportunities in regions where the Company believes significant opportunity for
discovery of oil and gas exists. By reducing drilling risk through seismic
technology, the Company seeks to improve the expected return on investment in
its oil and gas exploration projects.
The Company was founded in 1996 by two geoscientists with extensive seismic
and geological experience in the western United States. The Company has
extensive experience in exploration, exploitation and the application of
advanced geophysical technologies. Its business plan involves the following
strategy:
Focus on high impact exploration plays in the western United States
* Under-exploited or under-explored mature basins
* Gain access to large, non or under-performing acreage positions
* Focus on play concepts that are expandable within a basin or
region.
Use advanced seismic imaging, processing and visualization to reduce
drilling risk
* Seismic captures resolution of trapping geometry
Leverage technical expertise with outside capital resources
* Retain control of the pre-drill exploration process
* Retain sizable working interest in each prospect
* Use industry partners for local operating expertise
The Company was incorporated in March 1996 in the state of Delaware under
the name Mar Ventures Inc. Effective as of August 6, 1997, the Company purchased
all the ownership interests of PYR Energy, LLC, an oil and gas exploration
company. Also on that date, the Company issued units of its common stock and
common stock purchase warrants for approximately $1,700,000 net of fees and
commissions. The warrants subsequently expired without exercise. Effective as of
November 12, 1997, the Company changed its name to PYR Energy Corporation.
The Company's offices are located at 1675 Broadway, Suite 1150, Denver,
Colorado 80202. The telephone number is (303) 825-3748, telefax number is (303)
825-3768 and the Company's web site is www.pyrenergy.com.
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Developments During Fiscal 1999
In May of 1997, the Company and other working interest owners commenced
drilling on the Company's first exploration well - the Bellevue #1-17 on the
Company's East Lost Hills prospect. On November 23, 1998, the Bellevue #1-17
prospect well blew out and ignited after having reached a depth of approximately
17,600 feet out of targeted total depth of 19,000 feet. A relief well, the
Bellevue #1-17R, began drilling on December 18, 1998. On May 29, 1999 the relief
well successfully killed, and the operator plugged and abandoned, the original
well bore. The Bellevue #1-17R was then used to successfully sidetrack a
replacement well back into the target reservoir. Concurrent with commencing
completion operations, Berkley Petroleum, Inc. (a wholly owned subsidiary of
Berkley Petroleum Corporation (TSE-"BKP") ("Berkley")) of Calgary has taken over
as operator. Berkley is in the process of preparing the 1-17R replacement well
for production testing. In August of 1999, the Company and other working
interest owners commenced drilling a second well approximately two miles
northwest of the #1-17R well. This well targets the same resevoir formation
encountered with the #1-17 and #1-17R wells. See " - Southern San Joaquin Basin,
California".
In October and November 1998, the Company issued $2.5 million of
Convertible Promissory Notes in a private placement to a limited group of
investors. In accordance with the private placement agreement, these notes have
been converted into the Company's convertible preferred stock which are now
convertible into the Company's common stock. See "Item 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS - Private Placement of Notes".
In April 1999, the Company purchased working interests, ranging from 3.0%
to 3.75% in three additional deep Temblor exploration projects in the San
Joaquin Basin of California. These projects are called Cal Canal, Lucky Dog and
Pyramid Power. The Company's interest will be carried (non-cost bearing)
"through the tanks" in the initial test well in each of the three separate
exploration prospects. The first exploration well in the program (Cal Canal)
began drilling on June 15, 1999 and is operated by Berkley. See "Southern
San Joaquin Basin, California".
On May 14, 1999, the Company completed a private placement resulting in
receipt of $7,000,000 (less commissions, fees and related expenses of
approximately $100,000) of funding through the sale of 4,375,000 shares of the
Company's Common Stock and 437,500 5-year warrants to purchase an additional
share of the Company's Common Stock at a price of $2.50. The warrants are
immediately exercisable, and all warrants expire on May 14, 2004. The Company
may, upon 30-days notice, repurchase any remaining outstanding warrants for $.01
per warrant at any time after the weighted average trading price of the
Company's Common Stock has been at least $6.00 for a 45 day period.
Disclosure Regarding Forward-Looking Statements And Cautionary Statements
Forward-Looking Statements
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This Annual Report on Form 10-KSB includes "forward-looking" statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
facts included in this Annual Report, including without limitation statements
under "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES" and "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION", regarding the Company's financial position, business strategy, and
plans and objectives of management of the Company for future operations and
capital expenditures, are forward-looking statements. Although the Company
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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 and assumptions will
prove to have been correct. Additional statements concerning important factors
that could cause actual results to differ materially from the Company's
expectation ("Cautionary Statements") are disclosed below in the "-Cautionary
Statements" section and elsewhere in this Annual Report. All written and oral
forward-looking statements attributable to the Company or persons acting on its
behalf subsequent to the date of this Annual Report are expressly qualified in
their entirety by the Cautionary Statements.
Cautionary Statements
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In addition to the other information contained in this Annual Report, the
following Cautionary Statements should be considered when evaluating the
forward-looking statements contained in this Annual Report.
Start-Up Nature Of The Company's Oil And Gas Business; Absence Of Profits
The Company was formed in 1996, and does not have a history of sustained
profit from operations. The development of the Company's business will continue
to require substantial expenditures. The Company's future financial results will
depend primarily on its ability to locate hydrocarbons economically in
commercial quantities, to provide drilling site and target depth recommendations
resulting in profitable productive wells and on the market prices for oil and
natural gas. There can be no assurance that the Company will achieve or sustain
profitability or positive cash flows from operating activities in the near
future.
Oil And Gas Prices; Marketability Of Production
Even if the Company is able to discover or acquire oil and gas production,
of which there is no assurance, the Company's revenues, profitability and
liquidity will be highly dependent upon prevailing prices for oil and natural
gas. Oil and gas prices can be extremely volatile and in recent years have been
depressed by excess total domestic and imported supplies. There can be no
assurance that current price levels can be sustained. Prices also are affected
by actions of state and local agencies, the United States and foreign
governments, and international cartels. These external factors and the volatile
nature of the energy markets make it difficult to estimate future prices of oil
and natural gas. Any substantial or extended decline in the price of oil and/or
natural gas would have a material adverse effect on the Company's financial
condition and results of operations, including reduced cash flow and borrowing
capacity. All of these factors are beyond the control of the Company. Sales of
oil and natural gas are seasonal in nature, leading to substantial differences
in cash flow at various times throughout the year. The marketability of the
Company's gas production, if any, will depend in part upon the availability,
proximity and capacity of gas gathering systems, pipelines and processing
facilities. Federal and state regulation of oil and gas production and
transportation, general economic conditions, changes in supply and changes in
demand all could adversely affect the Compan s ability to produce and market oil
and natural gas. If market factors were to change dramatically, the financial
impact on the Company could be substantial. The availability of markets and the
volatility of product prices are beyond the control of the Company and thus
represent a significant risk.
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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, this could limit the Company's ability to fully implement its
business plan and could have a material adverse effect on the Company's
business, financial condition and results of operations
Non-Operator Status
The Company focuses primarily on providing seismic imaging and analysis and
relies upon other project partners 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 number of a project's operations or the
associated costs of such operations. The success of a project is dependent upon
a number of factors which are outside of the Company's area of expertise and
project responsibilities. Such factors include: (i) the availability of
favorable term leases and required permitting for projects, (ii) the
availability of future capital resources by the Company and the other
participants to the purchasing of leases and the drilling of wells, (iii) the
approval of other participants to the purchasing of leases and the drilling of
wells on the projects and (iv) the economic conditions at the time of drilling,
including the prevailing and anticipated prices for oil and gas. The Company's
reliance on other project partners and its limited ability to directly control
certain project costs could have a material adverse effect on the realization of
expected rates of return on the Company's investment in certain projects.
Ability To Discover 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 conduct successful exploration and development activities is
dependent upon a number of factors, including its participation in multiple
exploration projects and its technological capability to locate oil and gas in
commercial quantities. Because the Company may rely upon other industry
participants to develop the Company's exploration projects, no assurances can be
given that the Company will have the opportunity to participate in projects
which economically produce commercial quantities of hydrocarbons in amounts
necessary to meet its business plan or that the projects in which it elects to
participate will be successful. There can be no assurance that the Company's
planned projects will result in significant reserves or that the Company will
have future success in drilling productive wells at low reserve replacement
costs. The Company has not yet established any oil and gas production, nor has
it booked any proved reserves.
Substantial Capital Requirements And Liquidity
In order to continue its oil and gas exploration plans fully, the Company
anticipates that it will need additional funding. In October and November 1998,
the Company closed a private placement resulting in a capital infusion of
$2,500,000. In May 1999, the Company completed an additional Private Placement
resulting in a capital infusion of $7,000,000. See "Item 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS--Private Placement Of Notes" and "Private
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Placement of Common Shares". The Company anticipates that these funds will be
used entirely for existing projects. 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 including unexpected
formation and drilling conditions, pressure or other irregularities in
formations, equipment failures or accidents, as well as weather conditions,
compliance with governmental requirement and shortages or delays in the delivery
of equipment. There is no assurance that the expenditures made by the Company on
its oil and natural gas properties will result in discoveries of oil or natural
gas in commercial quantities. Some test wells, as a consequence, may not
ultimately be developed into producing wells and may be abandoned.
Competition
The Company competes in the areas of oil and gas exploration with other
companies, many of which may have substantially larger financial and other
resources. From time to time, there may be competition for, and shortage of,
exploration, drilling and production equipment and these shortages could lead to
an increase in costs and to delays in operations that could have a material
adverse effect on the Company. The Company may therefore not be able to acquire
desirable properties or equipment required to develop its properties. Problems
of this nature also could prevent the Company from producing any oil and natural
gas it discovers at the rate it desires to do so.
General Risks Of Oil And Gas Operations
The nature of the oil and gas business involves a variety of risks,
including the risks of operating hazards such as fires, explosions, cratering,
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 which could result in losses to the Company.
The Company will maintain insurance against some, but not all, of these risks in
amounts that management believes to be reasonable in accordance with customary
industry practices. The occurrence of a significant event, however, that is not
fully insured could have a material adverse effect on the Company's financial
position. See "--Significant Properties--Southern San Joaquin Basin, California"
concerning the blowout at the East Lost Hills exploratory well.
Technology Changes
The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As new technologies develop, the Company may be
placed at a competitive disadvantage, and competitive pressures may force the
Company to implement such new technologies at substantial cost. In addition,
other oil and gas finding companies may implement new technologies before the
Company, and consequently such companies may be able to provide enhanced
capabilities and superior quality compared with that which the Company is able
to provide. There can be no assurance that the Company will be able to respond
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to such competitive pressures and implement such technologies on a timely basis
or at an acceptable cost. One or more of the technologies currently utilized by
the Company or implemented in the future may become obsolete. In such case, the
Company's business, financial condition and results of operations could be
materially adversely affected. If the Company is unable to utilize the most
advanced commercially available technology, the Company's business, financial
condition and results of operations could be materially and adversely affected.
Government Regulations And Environmental Risks
The production and sale of oil and gas are subject to a variety of federal,
state and local government regulations including regulation concerning the
prevention of waste, the discharge of materials into the environment, the
conservation of oil and natural gas, pollution, permits for drilling operations,
drilling bonds, reports concerning operations, the spacing of wells, the
unitization and pooling of properties, and various other matters including
taxes. Many jurisdictions have at various times imposed limitations on the
production of oil and gas by restricting the rate of flow for oil and gas wells
below their actual capacity to produce. During the past few years there has been
a significant amount of discussion by legislators and the presidential
administration concerning a variety of energy tax proposals. There can be no
certainty that any such measure will be passed or what its effect will be on oil
and natural gas prices if it is passed. In addition, many states have raised
state taxes on energy sources and additional increases may occur, although there
can be no certainty of the effect that increases in state energy taxes would
have on oil and natural gas prices. Although the Company intends to be in
substantial compliance with applicable environmental and other government laws
and regulations, there can be no assurance that significant costs for compliance
will not be incurred in the future. The blowout of the East Lost Hills
exploratory well in which the Company has an interest raises a number of these
risks. Although a majority of the costs associated with the blow out have been
covered by insurance policies in effect when the blow out occurred, a portion of
the claims have not yet been reimbursed through one of the insurance policies.
The Company has advanced approximately $410,000 for its proportionate share of
the claims in order that these claims be paid directly to the claimants. The
Company believes that most, if not all, of these claims will ultimately be
reimbursed through insurance proceeds. The Company currently carries the
advanced funds as Reimbursable Property Costs on its August 31, 1999 Balance
Sheet.
Variability Of Operating Results
The Company's operating results, as a start up company in the oil and gas
industry, may vary significantly during any financial period. These variations
may be caused by significant periods of time between each of the Company's
discoveries and developments, if any, of oil or natural gas properties in
commercial quantities. These variations may also be caused by the volatility
associated with oil and gas prices. See "Oil And Gas Prices; Marketability Of
Production".
Risks Associated With Management Of Growth
Because of its small size, the Company desires to grow extremely rapidly in
order to achieve certain economies of scale. Although there is no assurance that
this rapid growth will occur, to the extent that it does occur it will place a
significant strain on the Company's financial, technical, operational and
administrative resources. As the Company increases its services and enlarges the
number of projects it is evaluating or in which it is participating, there will
be additional demands on the Company's financial, technical and administrative
resources. The failure to continue to upgrade the Company's technical,
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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 is currently pursuing only the oil and gas exploration
business. Although the Company is involved in other oil and gas projects, it is
concentrating the majority of its initial oil and gas exploration efforts on
approximately 100,000 gross and 45,000 net exploratory acres in the San Joaquin
basin. Although the Company is involved in eight 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.
Certain Definitions
Unless otherwise indicated in this Annual Report, natural gas volumes are
stated at the legal pressure base of the state or area in which the reserves are
located at 60(degree)Fahrenheit. Oil equivalents are determined using the ratio
of 6 Mcf of natural gas to one barrel of crude oil, condensate or natural gas
liquids so that 6 Mcf of natural gas are referred to as one barrel of oil
equivalent or "BOE".
As used in this Annual Report, the following terms have the following
specific meanings: "Mcf" means thousand cubic feet, "Bcf" means billion cubic
feet, "Bbl" means barrel, "MBbl" means thousand barrels, "MMBoe" means million
barrels of oil equivalent, "MMBbl" means million barrels, "MMBO" means million
barrels of oil, "BBO" means billion barrels of oil and "Tcf" means trillion
cubic feet.
With respect to information concerning the Company's working interests in
wells or drilling locations, "gross" gas and oil wells or "gross" acres is the
number of wells or acres in which the Company has an interest, and "net" gas and
oil wells or "net" acres are determined by multiplying "gross" wells or acres by
the Company's working interest in those wells or acres. A "working interest" in
an oil and gas lease is an interest that gives the owner the right to drill,
produce, and conduct operating activities on the property and to receive a share
of production of any hydrocarbons covered by the lease. A working interest in an
oil and gas lease also entitles its owner to a proportionate interest in any
well located on the lands covered by the lease, subject to all royalties,
overriding royalties and other burdens, to all costs and expenses of
exploration, development and operation of any well located on the lease, and to
all risks in connection therewith.
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A "development well" is a well drilled as an additional well to the same
horizon or horizons as other producing wells on a prospect, or a well drilled on
a spacing unit adjacent to a spacing unit with an existing well capable of
commercial production and which is intended to extend the proven limits of a
prospect. The latter type of development well drilling is known as "step-out
drilling". An "exploratory well" is a well drilled to find commercially
productive hydrocarbons in an unproved area, or to extend significantly a known
prospect.
"Reserves" means natural gas and crude oil, condensate and natural gas
liquids on a net revenue interest basis, found to be commercially recoverable.
"Proved developed reserves" includes proved developed producing reserves and
proved developed behind-pipe reserves. "Proved developed producing reserves"
includes only those reserves expected to be recovered from existing completion
intervals in casing of existing wells when the cost of making such reserves
available for production is relatively small compared to the cost of a new well.
"Proved undeveloped reserves" includes those reserves expected to be recovered
from new wells on proved undrilled acreage or from existing wells where a
relatively major expenditure is required for recompletion.
"Infill drilling" means drilling of an additional well or additional wells
in order to more adequately drain a reservoir.
"Stratigraphic trap" means a barrier that impedes the migration of
hydrocarbons caused by either a nonporous formation sealing off the top edge of
a reservoir bed or by a change of porosity and permeability within the reservoir
bed itself. "Strategraphic play" means a prospect targeted to test a
strategraphic trap.
"API" means a measure of gravity based on standards set by the American
Petroleum Institute.
"Carried through the tanks" means the Company will not incur any capital
cost for this portion of its working interest until commercial quantities of
hydrocarbons are being produced and are generating revenues. At this point, the
Company will become responsible for paying any additional capital costs and
lease operating expenses as well as receiving its share of revenues from sales.
"Cretaceous D-Sand and J-Sand reservoirs" means sandstone reservoirs that
contain hydrocarbons of Cretaceous age that are found in the Denver basin of
Colorado, Wyoming and Nebraska.
"Cretaceous incised valley-filled reservoirs" means sandstone reservoirs of
Cretaceous age that were deposited in valleys carved into underlying strata
during a period of falling sea level.
"Cretaceous reservoirs" means rock reservoirs most commonly comprised of
sandstone that were deposited during the Cretaceous Period. The Cretaceous
Period occurred between 66 and 144 million years before present.
"Down-spaced drilling" means a method of development drilling whereby well
density in a given area is increased by drilling between existing wells.
"Palynology analysis" means an analysis of a rock sequence through
examination of contained spores and/or pollen. A method of age dating strata.
"Reserve capture" means the quantification of hydrocarbon reserves as a
result of drilling and testing a reservoir.
"Steam floods" means a secondary recovery technique whereby steam is
injected into a hydrocarbon reservoir in an effort to mobilize heavy (tarry)
oil.
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"Subthrust structure" means a fold of strata which is found beneath a
thrust fault.
"Swept reservoir pods" means distinct sandstone units that have been
depleted of hydrocarbons through the secondary recovery method of waterflooding.
"Thrusted anticlinal feature" means a fold of geologic strata that is
bounded by a thrust fault, which is a fault that results in older strata
overlying younger strata.
"Turbidite" means a stratigraphic sequence deposited by turbidity currents,
commonly associated with submarine canyons.
(Intentionally Left Blank)
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Strategy
The Company's business strategy is to continue to enhance shareholder value
by leveraging its technical experience and expertise with seismic technology to
identify exploration and exploitation projects with significant potential
reserves and economic results based on the application of appropriate technology
and suitable project risk management. The Company's ongoing goal is to increase
its reserve base through a focus on mature hydrocarbon basins where it believes
that the historical under- utilization of seismic technology creates tremendous
opportunities. It is the Company's view point that the systematic application of
advanced seismic imaging and visualization to exploration can significantly
reduce drilling risk and enhance financial results. The Company's strategy is to
focus on applying 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 seismic application to structural and
stratigraphic play concepts.
o Identification and exploitation of non-performing and under-utilized
existing seismic surveys and acreage positions in which the
application of technical expertise and advanced interpretation and
visualization methodologies could significantly impact drilling
results.
o Development of 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 to utilize for the recruitment and motivation of these technical
experts.
The Company adheres to a disciplined approach to selective project
participation. The Company participates only in those projects that it believes
are likely to maximize the return on its capital investment, have significant
reserve growth potential, and benefit from the application of advanced seismic
technology. The Company believes that these factors result in a positive impact
to the finding-cost and production economics. The Company actively and
continually manages its portfolio of exploration and exploitation projects. The
aggressive portfolio management enables the Company to maximize the investment
of available capital in a limited number of high impact geologic plays and
projects.
The Company generates many of its exploration and exploitation projects
internally, and therefore is not dependent on outside parties for project flow.
The Company strives to control all the pre-drill exploration phases, including
the acreage position and the application of seismic technology. With the
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resulting project control, the Company is in the position to fully manage the
exploration process and determine, subject to its financial resources, the
appropriate level of working interest that it retains in the drilling of any
associated wells. The Company aggressively leverages its project control and
technical expertise to potential industry partners thereby maximizing return on
investment while controlling capital exposure. The Company does not intend to
operate the drilling of project wells, but intends to retain the flexibility to
maintain a sufficient working interest in projects to enhance leverage of its
technical resources and influence operator actions.
Significant Projects
The Company's exploration activities are primarily focused on the southern
San Joaquin basin of California. The Company also has projects in selective
Rocky Mountain areas. 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 that they will be successful if drilled.
Southern San Joaquin Basin, California
The San Joaquin basin of California has proven to be one of the most
productive hydrocarbon producing basins in the continental United States. To
date, the approximately 14,000 square mile basin has produced in excess of 13
billion barrels of oil equivalent, and contains 25 fields classified as giant,
with cumulative production of more than 100 MMBoe.
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 1998 reported by the California
Department of Oil and Gas for all producers in the aggregate indicate total
production of 254.62 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.
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The basin as a whole has suffered from a lack of applied exploration
technology and deep drilling. Approximately one percent of the total basin wells
have been drilled to a depth greater than 12,000 feet. Additional 1998
statistics indicate that the average well depth drilled during the year was just
slightly more than 1,800 feet.
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 have opened up these fee acreage
positions to outside exploration by aggressive independent companies.
East Lost Hills. During 1997, the Company identified and undertook
technical analysis of a deep, large untested structure in the footwall of the
Lost Hills thrust. This prospect lies directly east of and structurally below
the existing Lost Hills field, which has produced in excess of 350 MMBoe from
shallow pay zones in a large thrusted anticlinal feature.
This unconventional deep prospect had significant structural and reservoir
risk, but the potential for large reserves made it an attractive play. In a
joint effort with Denver based Armstrong Resources LLC ("Armstrong"), the
Company has 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 joint interest partners to
participate in the drilling of an initial exploratory well to fully evaluate the
feature. 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
working interest of 10.575%.
On May 15, 1998, an initial exploration well, 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 below 17,000 feet. 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. Surface containment facilities were installed and
liquid and gas production 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, after eight kill attempts, was not successful.
A majority of the costs associated with the blow out have been covered by
insurance policies in effect when the blow out occurred. A portion of the claims
have not yet been reimbursed through one of the insurance policies. The Company
has advanced approximately $410,000 for its proportionate share of the claims in
order that these claims be paid directly to the claimants. The Company believes
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<PAGE>
that most, if not all of these claims will ultimately be reimbursed through
insurance proceeds. The Company currently carries the advanced funds as
Reimbursable Property Costs on its August 31, 1999 Balance Sheet.
On December 18, 1998, a relief well, the Bellevue #1-17R, began drilling.
This well 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 that it would be
necessary 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 Bellevue #1-17 well was killed by pumping heavy mud and cement into
the well bore. This well bore has been plugged and abandoned and the relief well
has been successfully used to sidetrack a replacement well into the targeted
Temblor Zone. The operator of the well is currently in the process of completing
this replacement well for production testing.
On August 26, 1999, the participants in this prospect commenced drilling a
second well at East Lost Hills to further explore the Temblor Formation. This
well is approximately two miles to the northwest of the original well. The
target depth for this well is 19,000 feet. In order to have a better chance to
reach total depth, a drilling rig capable of drilling to 30,000 feet was brought
in to drill this well. This well is expected to be at total depth early in the
first quarter of calendar year 2000.
At the present time, the participants may drill one or more additional
wells in this prospect during calendar year 2000.
Deep Temblor Exploration Program - Cal Canal, Lucky Dog and Pyramid Power.
In April 1999, the Company purchased a working interest 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 purchased working
interests, ranging from 3.00% to 3.75%, in each of the three exploration
prospect areas. The Company's interest will be carried (non-cost bearing)
"through the tanks" in the initial test well in each of the three separate
exploration prospects.
The first exploration well in the program (Cal Canal) began drilling on
June 15, 1999 and is operated by Berkley. The ultimate results of this well are
not likely to be determined until drilling operations have been finalized, logs
have been run and, if appropriate, completion for production testing has
occurred. The three exploration prospects in this program, targeting the Temblor
Formation at depths ranging from 15,000 to 19,000 feet, are expected to be
drilled in sequence with the same rig. Berkley will operate the other
exploration projects in the Deep Temblor Exploration Program as well as the
future operations at East Lost Hills.
Wedge Prospect and Bull Dog Prospect. PYR has created these exploration
opportunities and is in the process of presenting these prospects to potential
industry partners. These prospects will target the Temblor Formation in the San
Joaquin basin, similar to the East Lost Hills and Deep Temblor Exploration
Program. PYR currently controls 100% of the gross acreage in these areas and
intends to sell a portion of its interest to industry partners for a cash
consideration while retaining a working interest in the exploration wells and
adjoining acreage. PYR controls approximately 21,000 acres in these prospects
and expects to drill 1 or 2 exploration wells during calendar 2000.
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<PAGE>
Rectang Force Prospect. PYR owns 30% of approximately 3,800 acres in this
San Joaquin basin prospect. This is another prospect that targets the Temblor
Formation. PYR may elect to participate in the drilling of an initial
exploration well here at the current 30% ownership, or may elect to sell down
its interest for cash and/or a carried working interest in the initial well.
This prospect is still in the development stage and no drilling plans are
currently in place.
Southeast Maricopa. PYR holds a 100% working interest in this acreage.
During 1998, PYR acquired new 3-D seismic data over approximately 56 square
miles using Western Geophysical Company as the seismic contractor. PYR is
currently presenting this prospect to potential industry participants and
intends to generate an up front cash consideration and a carried working
interest in an initial exploration well here. Through lease and option, PYR has
a 100% working interest in approximately 14,000 gross acres in this project.
School Road Prospect. On June 1, 1998, the Company executed a participation
agreement with Houston based Seneca Resources, Inc. for the Company's School
road acreage. The drill to earn agreement provided PYR with a cash consideration
and a "carried through the tanks" working interest in an initial exploration
well. This well commenced drilling on July 28, 1998 and, after drilling to a
total depth of 12,508 feet, was plugged and abandoned. The Company charged
$15,000 as a dry hole impairment in fiscal 1998. After further evaluation of the
prospect, the Company has determined that it is unlikely that the Company will
pursue additional drilling on this acreage. Accordingly, the Company has
recorded an impairment of approximately $285,000 against its basis in this
project.
Rocky Mountain Areas. The Company is in the process of developing
exploration plays in three separate high potential prospect areas. PYR intends
to replicate the approach taken with the California projects by controlling the
pre-drill exploration phase including developing the geological background,
identifying potential oil and/or gas reservoirs via seismic imaging, and
controlling the land position. After these tasks are complete, the Company
intends to take each prospect to potential industry partners in order to
generate up front cash and drilling activity. The Company currently controls,
through lease or option, approximately 104,000 gross and 52,000 net acres in
these projects. The Company expects these projects will be ready for
presentation around mid-year of calendar year 2000.
Geological and Geophysical Expertise
The Company's oil and gas finding capabilities are dependent upon the
effective application of seismic imaging technologies. The Company has assembled
a technically experienced staff of in-house geologists and geophysicists with
extensive experience involving the utilization of advanced seismic data imaging
and analysis, who 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 a computer aided exploration workstation running the full suite of
GeoGraphix geologic mapping and analysis software. Additionally, the Company
owns one geophysical workstation employing SeisX 2-D and 3-D seismic
interpretation and analysis software. Through a strategic alliance with a
Denver-based 3-D seismic consulting firm (Interactive Earth Sciences
Corporation), the Company has full access to multiple UNIX-based seismic
interpretation workstations running the complete Schlumberger/GeoQuest seismic
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<PAGE>
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 1999, the Company participated in the drilling of the initial
exploration well at Cal Canal in its Deep Temblor exploration project. The
Company owns a 3.75% working interest in this prospect and because of its
ownership interest being carried through the tanks, the Company has no capital
cost commitment on this initial well until the well has been completed and is
producing. However, there is no assurance this well will ever be commercially
productive. The Company is also participating in a step-out well at its East
Lost Hills Project that commenced drilling on August 26, 1999. PYR owns a
10.575% working interest in this well and the surrounding acreage and is paying
its full 10.575% of the drilling costs. Although there is no assurance that any
additional exploration wells will be drilled, the Company anticipates the
drilling of from two to five additional exploratory wells during 2000, depending
on ongoing exploration efforts in California and in the Rocky Mountains.
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 solely from successful exploration efforts and any successful
development thereof.
Acreage
The Company currently controls, through lease, farmout, and option, the
following approximate acreage position as detailed below:
State Gross Acres Net Acres
----- ----------- ---------
California 100,000 45,000
Rocky Mountain Areas 104,000 52,000
-------------------- ------- ------
TOTAL 204,000 97,000
Competitive Advantage
The Company believes that the cumulative experience of its technical and
management team, with past exposure to more than 100 seismic projects covering
approximately 1,500 square miles in diverse geologic trends throughout the
world, results in a strong competitive advantage relative to current competition
in these focus areas. The Company currently has four full-time geoscientists and
a landman who are specialists in a variety of technical exploration aspects and
have extensive experience and expertise in numerous geologic regions.
The Company's expertise in the application of advanced seismic
interpretation methods includes many of the "cutting-edge" technologies
necessary in today's competitive exploration environment. These advanced
techniques include 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 seismic
experience and expertise with significant exploration and exploitation
opportunities.
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<PAGE>
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.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any current or pending legal proceeding (nor
are any of the Company's properties subject to a pending legal proceeding).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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".
The table below presents the range of high and low sales prices for the
Company's Common Stock during each of the quarters indicated as reported by the
OTC Bulletin Board.
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
August 31, 1999 5.125 2.125
On December 3, 1999, the closing sales price for the Company's Common Stock
was $4.3125 per share.
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Number Of Stockholders Of Record
On December 3, 1999, the number of stockholders of record of the Company
was approximately 1,475.
Dividend Policy
The Company has not declared or paid any cash dividends on its Common Stock
since its formation and does not presently anticipate paying any cash dividends
on its Common Stock in the foreseeable future. The Company currently intends to
retain any future earnings to finance the expansion and continued development of
its business.
ITEM 6. 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, 1999 ("1999"), and as of and for the twelve months ended August 31,
1998 ("1998"). This discussion should be read in conjunction with the Company's
Financial Statements, the notes related thereto, and the other financial data
included elsewhere in this Annual Report on Form 10-KSB.
Overview
The Company is a developoment stage independent oil and gas exploration
company whose strategic focus is the application of advanced seismic imaging and
computer aided exploration technologies in the systematic search for commercial
hydrocarbon reserves, primarily in the onshore western United States. The
Company attempts to leverage its technical experience and expertise with seismic
data to identify exploration and exploitation projects with significant
potential economic return. The Company intends to participate in selected
exploration projects as a non-operating, working interest owner, sharing both
risk and rewards with its partners. The Company 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 seismic technology, the Company seeks to improve
the expected return on investment in its oil and gas exploration projects.
During 1999, the Company incurred approximately $876,000 for costs related
to continued leasing and optioning of acreage, $1,094,000 for positions in
additional exploration projects in California, $313,000 for costs relating to
seismic and $480,000 in drilling costs associated with deep exploratory drilling
at the Company's East Lost Hills project. The Company had no revenues from oil
and gas production during 1999.
During 1998, the Company incurred approximately $439,000 for acquisition of
acreage, $2,046,000 for costs relating to 3-D seismic acquisition and $118,000
in drilling costs at East Lost Hills.
The Company currently anticipates that it will participate in the drilling
of at least two exploratory wells during its fiscal year ending August 31, 2000
("2000"), although the number of wells may increase as additional projects are
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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 "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES-Start-Up
Nature Of The Company's Oil And Gas Business; Absence Of Profits."
The Company's future financial results continue to depend primarily on (i)
the Company's ability to discover commercial quantities of hydrocarbons; (ii)
the market price for oil and gas; (iii) the Company's ability to continue to
source and screen potential projects; and (iv) the Company's ability to fully
implement its exploration and development program. There can be no assurance
that the Company will be successful in any of these respects or that the prices
of oil and gas prevailing at the time of production will be at a level allowing
for profitable production. See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND
PROPERTIES-Start-Up Nature of The Company's Oil And Gas Business; Absence Of
Profits," "- Substantial Capital Requirements And Liquidity" and "- Risks Of
Exploratory Drilling Activities."
Results of Operations
The twelve months ended August 31, 1999 ("1999") compared with the twelve
months ended August 31, 1998 ("1998")
Oil and Gas Revenues and Expenses. At August 31, 1999, the Company did not
own any producing or proved oil and gas properties, and no oil and gas
production revenues or expenses had been recorded by the Company. The Company
recorded an impairment against its "School Road" Project of $285,000 in 1999 and
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 from consulting fees
in 1998. 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.
General and Administrative Expense. The Company incurred $743,000 and
$675,000 in general and administrative expenses during 1999 and 1998,
respectively. The increase results from incurring costs associated with the
hiring of additional technical and administrative personnel in pursuit of the
development of the Company's exploration and exploitation plan.
Dry Hole, Impairment and Abandonments. During 1998, the Company recorded a
dry hole impairment of $15,000 associated with the drilling of an unsuccessful
exploration well on its School Road Acreage. In 1999, the Company re-evaluated
School Road and recorded an impairment of approximately $285,000 against its
basis in this project. Also in 1999, the Company has abandoned projects and has
recorded an abandonment cost of approximately $21,000 associated with these
projects.
Interest Expense. The Company recorded $183,000 in interest expense during
1999, predominately associated with the 10% Convertible Debentures that were
outstanding from October 26, 1998 through April 16, 1999. Per the Convertible
Debenture agreement, the Company elected to pay this interest by issuing 53,326
shares of the Company's common stock. The Company had nominal interest expense
during 1998.
Depreciation, Depletion and Amortization. The Company recorded no depletion
expense from oil and gas properties in 1999 or 1998. At August 31, 1999 and
1998, the Company did not own any proved reserves and had no oil or gas
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production. The Company recorded $24,000 and $22,000 in depreciation expense
associated with capitalized office furniture and equipment during 1999 and 1998,
respectively. The Company also recorded nominal amortization expense associated
with organization costs during 1999 and 1998.
Gain On Sale of Oil and Gas Properties. During 1998, the Company sold 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 of 10.575%.
During the fiscal year ended August 31, 1999, the Company's carrying costs
for undeveloped oil and gas properties increased by a net amount of
approximately $2,560,000. This net increase is comprised of expenditures on
undeveloped oil and gas prospects of approximately $2,889,000, and property
abandonments and impairments of approximately $330,000.
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
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 August 31, 1999, the Company had a working capital amount of $5,021,000.
In May of 1999, the Company issued 4,375,000 shares of its common stock in
exchange for $7,000,000 in cash. As part of this transaction, the Company also
issued 437,500 warrants to purchase one common share for each warrant issued at
a price of $2.50 per share. In November of 1998, the Company had issued a total
of $2,500,000 in 10% convertible notes. These notes automatically converted to
10% convertible preferred stock when the Company's stockholders approved
authorization of the preferred stock at the Company's stockholders meeting held
on April 16, 1999. The Company incurred costs of approximately $82,000 in
connection with this issuance of the notes and recorded costs attributable to
the issuance of warrants of approximately $57,000. 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 1999 totaled $9,037,000. Of this
amount, $3,523,000 was used in conjunction with the Company's oil and gas
exploration and exploitation plan, $5,091,000 was used to invest in government
backed securities, $410,000 was used to advance payments to claimants related to
the blow out at the Company's East Lost Hills Prospect and $13,000 was used for
office furniture and equipment.
The Company had no outstanding long-term debt at August 31, 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.
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<PAGE>
It is anticipated that the future development of the Company's business
will require additional (and possibly substantial) capital expenditures.
Depending upon the extent of success of the Company's ability to sell additional
prospects for cash, the level of industry participation in the Company's
exploration projects, the continuing results at East Lost Hills and the Deep
Temblor exploration program, the Company may require from $2,000,000 to over
$10,000,000 for capital expenditures relating to exploration and potential
development of its projects during the 12 month period ending August 31, 2000.
See "ITEMS 1 AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES-Substantial Capital
Requirements And Liquidity". The Company intends to attempt 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.
Although currently there are no commitments for additional funding, the Company
may need to raise additional funds to cover capital expenditures. See "ITEMS 1
AND 2. DESCRIPTION OF BUSINESS AND PROPERTIES-- Disclosure Regarding
Forward-Looking Statements And Cautionary Statements--Cautionary Statements" and
"--Significant Properties--Southern San Joaquin Basin, California".
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 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 has reviewed the Company's computers and software as well as other
material equipment that utilizes imbedded computer chips, such as facsimile
machines and telephone systems, and has not found any information suggesting
that the Company is vulnerable to potential Year 2000 failures in these areas.
The Company has confirmed with the maker of its accounting software that it is
Year 2000 compliant. In addition, the Company has confirmed with the vendors
that it believes are its most significant vendors, and does not feel there is
significant risk for the Company associated with Year 2000 failures. The
Company's contingency plans include doing business with other vendors in the
event that a vendor is disrupted by Year 2000 failures. The Company has
identified other potential vendors for this purpose.
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ITEM 7. FINANCIAL STATEMENTS
The Financial Statements that constitute Item 7 are attached at the end of
this Annual Report on Form 10-KSB. An index to these Financial Statements is set
forth below:
Page
----
Independent Auditor's Report F-2
Balance Sheet
August 31, 1999 F-3
Statements of Operations
Years ended August 31, 1998 and 1999
And cumulative amounts from Inception
To August 31, 1999. F-4
Statements of Members'/Stockholders' Equity
Period from Inception (May 31, 1996) to
December 31, 1996, Eight Months Ended
August 31, 1997 and Years Ended August
31, 1998 and 1999. F-5, F-6
Statements of Cash Flows
Years ended August 31, 1998 and 1999
And cumulative amounts from Inception
To August 31, 1999. F-7 - F-8
Notes To Financial Statements F-9 - F-19
All other schedules are omitted because they are inapplicable, not required, or
the information is included in the financial statements or notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The directors and executive officers of the Company, their respective
positions and ages, and the year in which each director was first elected, are
set forth in the following table. Each director has been elected to hold office
until the next annual meeting of stockholders and thereafter until his successor
is elected and has qualified. Additional information concerning each of these
individuals follows the table.
<TABLE>
<CAPTION>
Name Age Position with the Company Director Since
---- --- ------------------------- --------------
<S> <C> <C> <C>
D. Scott Singdahlsen 41 Chief Executive Officer, 1997
President, and Chairman
Of the Board
Robert B. Suydam 61 Vice President--Geology and Director 1998
Andrew P. Calerich 35 Chief Financial Officer and Secretary ---
Keith F. Carney 43 Director 1997
S. L. Hutchison 66 Director 1999
Bryce W. Rhodes 46 Director 1999
Kenneth R. Berry, Jr. 47 Vice President-Land 1999
</TABLE>
D. Scott Singdahlsen has served as President, Chief Executive Officer, and
Chairman of the Board of the Company since August 1997. Mr. Singdahlsen
co-founded PYR Energy, LLC in 1996, and served as General Manager and
Exploration Coordinator. In 1992, Mr. Singdahlsen co-founded Interactive Earth
Sciences Corporation, a 3-D seismic management and interpretation consulting
firm in Denver, where he served as 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.
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Andrew P. Calerich has served as Chief Financial Officer of the Company
since August 1997, as Secretary of the Company since May 1998 and as Vice
President since August of 1999. 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
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 is 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
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.
Kenneth R. Berry, Jr. has served as Vice President of land since August,
1999 and 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.
23
<PAGE>
Board And Committee Meetings
The Board of Directors met nine times during the fiscal year ended August
31, 1999 and, except for one meeting, all directors were present at each of
those meetings.
The Board of Directors currently has a Compensation Committee which met
three times during the fiscal year ended August 31, 1999 and all members of the
Compensation Committee participated in those meetings. The Compensation
Committee has the authority to establish policies concerning compensation and
employee benefits for employees of the Company. The Compensation Committee
reviews and makes recommendations concerning the Company's compensation policies
and the implementation of those policies and determines compensation and
benefits for executive officers. The Compensation Committee currently consists
of Messrs. Carney, (Chairman), Hutchison and Rhodes, each of whom is an outside
director.
The Board of Directors currently has an audit committee consisting of
Messrs. Hutchison (Chairman), Carney and Rhodes. The audit committee did not
meet formally during the fiscal year ending August 31, 1999.
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.
The Company believes that during the year ended August 31, 1999, 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.
ITEM 10. 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 $100,000 during any of the last three fiscal years.
24
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ----------------------------------
Restricted
Other Annual Stock LTIP All other
Name and Fiscal Salary Bonus Compensation Awards ($) Options Payouts Compensation
Principal Position Year ($)(1) ($)(2) ($)(3) (#) ($)(4) ($)(5)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Scott Singdahlsen 1999 $77,917 -0- -0- -0- -0- -0- -0-
Chief Executive Officer,
President and Chairman 1998 $75,000 -0- -0- -0- -0- -0- -0-
Of the Board
1997 $10,250 -0- -0- -0- -0- -0- -0-
</TABLE>
- ----------
(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.
25
<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. During fiscal year ended August 31, 1999,
options to purchase 585,000 additional shares were granted and options to
purchase 10,000 shares terminated so that, as of August 31, 1999, options to
purchase 821,000 shares were outstanding and 179,000 shares may be granted
pursuant to the 1997 Plan.
Compensation Of Outside Directors
Currently, Directors are not compensated for serving as a director.
Directors are reimbursed for direct 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 3, 1999, there were 14,579,580 shares of the Company's $.001
par value common stock (the "Common Stock") outstanding. The following table
sets forth certain information as of December 3, 1999, with respect to the
beneficial ownership of the Company's Common Stock by each director, by all
executive officers and directors as a group, and by each other person known by
the Company to be the beneficial owner of more than five percent of the
Company's Common Stock:
26
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned (1) Shares Outstanding
- ---------------- ---------------------- ------------------
<S> <C> <C>
D. Scott Singdahlsen 1,950,000 13.3%
1675 Broadway, Suite 1150
Denver, Colorado 80202
Robert B. Suydam 1,300,000 (2) 8.9%
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) 18.3%
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 6,833,375 (2)(3)(4)(5)(6) 41.2%
Directors as a group (six persons)
PinOak, Inc. 1,300,000 (2) 8.9%
287 West Morrison Court
Grand Junction, Colorado 81503
Victory Oil Company 2,904,583 (7) 17.7%
222 West Sixth Street, Suite 1010
San Pedro, California 90731
Whittier Trust Company 833,333 (8) 5.4%
1600 Huntington Drive
South Pasadena, California 91030
Thomas E. Claugus 1,038,125 (9) 7.0%
2100 RiverEdge Parkway, Suite 840
Atlanta, Georgia 30328
</TABLE>
- ----------
(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.
27
<PAGE>
(2) The shares shown for Mr. Suydam are owned of record by PinOak Inc.
("PinOak"). These shares are included twice in the table. They are listed
as being held beneficially by both PinOak and by Mr. Suydam. PinOak is
owned by Mr. Suydam's wife and Mr. Suydam is the President of PinOak.
(3) Includes options to purchase 10,000 shares at $1.28 per share until May 26,
2001 that currently are exercisable or that will become exercisable within
the next 60 days. Also includes common stock purchase warrants enabling
this shareholder/director to purchase an additional 2,400 shares
(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 122,500
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.
28
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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".
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.
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. 93,750 Units for
$1,500,000 and 7,875 Units for $126,000 were purchased by Victory and WEC,
respectively.
29
<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 14,579,580 shares of Common Stock issued and outstanding as of
December 3, 1999, and these outstanding shares were held by approximately 1,475
stockholders. The Company also had outstanding 22,979 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 434,375 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.
30
<PAGE>
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".
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 a 45 day 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 redeemed or 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. At October 26, 1999 the
Company had exceeded the $2.40 per share requirement and has
initiated the redemption/conversion process.
o The Company has the right to require that two-thirds of the
outstanding Series A Preferred be redeemed or 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 redeemed or 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.
31
<PAGE>
o The Company shall have the right, beginning October 26, 2000, to
require that all the outstanding Series A Preferred be redeemed
or 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
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. At October 26,
1999, the Company had met certain goals that enable the Company to repurchase
58,333 warrants. The warrant holders have been notified and have elected to
exercise this component of their warrants. The Company is in the process of
completing this transaction. 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
434,375 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.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) Financial Statements And Financial Statement Schedules
See "ITEM 7. FINANCIAL STATEMENTS".
(a)(3) Exhibits.
---------
32
<PAGE>
Exhibit Index
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
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)
27.1 Financial Data Schedule
- --------------------
(1) Incorporated by reference from the Registrant'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 Registrant'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 Registrant'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.
(b) Reports On Form 8-K.
During the fourth quarter of the fiscal year ended August 31, 1998, the
Registrant filed three Current Reports on Form 8-K reporting events that
occurred on June 1, 1999, June 21, 1999 and July 16, 1999. These events
consisted of the dissemination of press releases by the Company and were
reported under "ITEM 5. OTHER EVENTS". Subsequent to August 31, 1999 and prior
to filing this Annual Report on Form 10-KSB, the Registrant has not filed any
Current Reports on Form 8-K.
33
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
INDEX
Independent Auditor's Report F-2
Balance Sheet
August 31, 1999 F-3
Statements of Operations
Years Ended August 31, 1998 and 1999 and
Cumulative Amounts from Inception to August 31, 1999 F-4
Statements of Members'/Stockholders' Equity
Period from Inception (May 31, 1996) to
December 31, 1996, Eight Months Ended
August 31, 1997 and Years Ended August 31, 1998 and 1999 F-5 - F-6
Statements of Cash Flows
Years Ended August 31, 1998 and 1999 and
Cumulative Amounts from Inception to August 31, 1999 F-7 - F-8
Notes to Financial Statements F-9 - F-19
F - 1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
PYR ENERGY CORPORATION
We have audited the accompanying balance sheet of PYR Energy Corporation (a
development stage company) as of August 31, 1999, the related statements of
operations, members'/stockholders' equity and cash flows for the two years then
ended, and cumulative amounts from inception to August 31, 1999. 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, 1999, and the results of its operations and its cash flows for the
two years then ended and cumulative amounts from inception to August 31, 1999 in
conformity with generally accepted accounting principles.
/s/ Wheeler Wasoff, PC.
Denver, Colorado
October 8, 1999
F - 2
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEET
AUGUST 31, 1999
ASSETS
CURRENT ASSETS
Cash $ 117,905
Marketable securities 5,111,062
Accounts receivable 3,082
Prepaid expenses 10,347
------------
Total Current Assets 5,242,396
------------
PROPERTY AND EQUIPMENT 5,106,847
------------
OTHER ASSETS
Reimbursable property costs 410,000
Deposit 3,278
------------
413,278
------------
$ 10,762,521
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 179,839
Current portion of capital lease obligation 1,600
------------
Total Current Liabilities 181,439
------------
CAPITAL LEASE OBLIGATION 1,062
------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 9)
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value;
Authorized 1,000,000 shares
Series A - Authorized 25,000 shares;
Issued and outstanding 22,979 shares 23
Common stock, $.001 par value;
Authorized 30,000,000 shares
Issued and outstanding 14,408,620 shares 14,409
Capital in excess of par value 11,925,537
Deficit accumulated during the development stage (1,359,949)
------------
10,580,020
------------
$ 10,762,521
============
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
from
Years Ended Inception to
August 31, August 31,
1998 1999 1999
----------------------------------- ------------
REVENUES
<S> <C> <C> <C>
Consulting fees $ 10,000 $ -- $ 127,528
Interest 36,145 116,713 158,454
------------ ------------ ------------
46,145 116,713 285,982
------------ ------------ ------------
OPERATING EXPENSES
General and administrative 675,245 743,115 1,562,039
Dry hole, impairment and abandonments 15,000 306,369 321,369
Interest 488 183,256 184,095
Depreciation and amortization 22,416 24,380 47,847
------------ ------------ ------------
713,149 1,257,120 2,115,350
------------ ------------ ------------
OTHER INCOME
Gain on sale of oil and gas prospects 556,197 -- 556,197
------------ ------------ ------------
(110,807) (1,140,407) (1,273,171)
INCOME APPLICABLE TO
PREDECESSOR LLC (Note 1) -- -- (35,868)
------------ ------------ ------------
NET (LOSS) $ (110,807) $ (1,140,407) $ (1,309,039)
============ ============ ============
NET (LOSS) PER
COMMON SHARE - BASIC AND DILUTED (Note 2)
$ (.012) $ (.105) $ (.167)
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (Note 2) 9,154,804 10,823,645 7,817,851
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F - 4
<PAGE>
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 YEARS ENDED AUGUST 31, 1998 AND 1999
Deficit
Preferred Stock Common Stock Accumulated
--------------- ------------ Capital in During the
Members' Excess of Development
Equity Shares Amount Shares Amount Par Value Stage
- -----------------------------------------------------------------------------------------------------------------------------------
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
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF MEMBERS'/STOCKHOLDERS' EQUITY (continued)
PERIOD FROM INCEPTION (MAY 31, 1996) TO DECEMBER 31, 1996,
EIGHT MONTHS ENDED AUGUST 31, 1997 AND YEARS ENDED AUGUST 31, 1998 AND 1999
Deficit
Preferred Stock Common Stock Accumulated
--------------- ------------ Capital in During the
Members' Excess of Development
Equity Shares Amount Shares Amount Par Value Stage
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Forward $ -- -- $ -- 9,154,804 $ 9,155 $ 1,768,088 $ (168,632)
Issuance of preferred stock
for convertible notes -- 25,000 25 -- -- 2,499,976 --
Unamortized convertible note
financing costs -- -- -- -- -- (73,319) --
Issuance of common stock for
interest on convertible debt,
at $2.19 per share -- -- -- 53,326 53 116,769 --
Issuance of common stock
warrants for financing costs -- -- -- -- -- 56,833 --
Conversion of preferred
stock to common stock
at $.60 per share -- (2,021) (2) (336,833) 337 (335) --
Sale of common stock pursuant
to private placement for cash
of $1.60 per share -- -- -- 4,375,000 4,375 6,995,625 --
Costs of private placement -- -- -- -- -- (83,155) --
Exercise of private placement
warrants for cash of $2.50
per share -- -- -- 3,125 3 7,809 --
Issuance of common stock for
property valued at $.75
per share -- -- -- 266,666 267 199,733 --
Issuance of common stock for
property at valued $2.00
per share -- -- -- 218,866 219 437,513 --
Preferred dividends paid -- -- -- (50,910)
Net (loss) -- -- -- -- -- -- (1,140,407)
------ --------- ------------ ------------ ------------ ------------ ------------
Balance August 31, 1999 $ -- 22,979 $ 23 14,408,620 $ 14,409 $ 11,925,537 $ (1,359,949)
====== ========= ============ ============ ============ ============ ============
The accompanyinotes are an integral part of the financial statements.
F - 6
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Years Ended Cumulative
August 31 Amounts from
1998 1999 Inception
---------------------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (110,807) $ (1,140,407) $ (1,273,171)
Adjustments to reconcile net (loss) to
net cash provided by operating activities
Depreciation and amortization 22,416 24,380 47,847
Contributed services -- -- 36,000
Gain on sale of oil and gas prospects (556,197) -- (556,197)
Dry hole, impairment and abandonments 15,000 306,369 321,369
Common stock issued for interest on debt -- 116,822 116,822
Amortization of financing costs -- 26,939 26,939
Amortization of marketable securities -- (20,263) (20,263)
Changes in assets and liabilities
Decrease (increase) in accounts receivable 10,000 (3,082) (3,082)
(Increase) in prepaids (12,700) (3,451) (18,742)
(Decrease) increase in accounts payable (25,858) 135,450 165,405
Other -- 10,000 6,249
------------ ------------ ------------
Net cash (used) by operating activities (658,146) (547,243) (1,150,824)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for furniture and equipment (43,407) (13,067) (85,955)
Cash paid for undeveloped oil and gas properties (1,406,613) (3,522,969) (5,227,760)
Proceeds from sale of oil and gas properties 1,050,078 -- 1,050,078
Cash paid for marketable securities -- (5,090,799) (5,090,799)
Cash paid for reimbursable property costs -- (410,000) (410,000)
------------ ------------ ------------
Net cash (used) in investing activities (399,942) (9,036,835) (9,764,436)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Members capital contributions -- -- 28,000
Distributions to members -- -- (66,000)
Cash from short-term borrowings -- -- 285,000
Repayment of short-term borrowings -- -- (285,000)
Proceeds from sale of common stock -- 7,000,000 9,023,750
Proceeds from sale of convertible debt -- 2,500,001 2,500,001
Proceeds from exercise of warrants -- 7,812 7,812
Cash paid for offering costs -- (126,580) (407,291)
Cash received upon recapitalization and merger -- -- 336
Payments on capital lease (1,093) (1,440) (2,533)
Preferred dividends paid -- (50,910) (50,910)
------------ ------------ ------------
Net cash (used) provided by financing activities (1,093) 9,328,883 11,033,165
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH (1,059,181) (255,195) 117,905
CASH, BEGINNING OF PERIODS 1,432,281 373,100 --
------------ ------------ ------------
CASH, END OF PERIODS $ 373,100 $ 117,905 $ 117,905
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F - 7
</TABLE>
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED AUGUST 31, 1998 AND 1999
AND PERIOD FROM INCEPTION TO AUGUST 31, 1999
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended August 31, 1998 and 1999, the Company paid cash for
interest of $488 and $371, respectively, 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.
During the year ended August 31, 1999, the Company issued common stock,
valued at $637,732, as partial consideration for oil and properties; issued
common stock, valued at $116,822 for interest on convertible debt; and
issued warrants, valued at $56,833, as partial consideration for commission
on the sale of convertible debt.
The accompanying notes are an integral part of the financial statements.
F - 8
<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, primarily 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. 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 operations of PYR LLC are 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, 1999, has not earned any production revenue nor recognized 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. During the year ended
August 31, 1999 the Company continued its acquisition of unproven
properties and related seismic data with industry partners, and is
participating in exploration of the properties, including the drilling of
exploratory wells.
F - 9
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
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.
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. Oil and gas properties
accounted for using the full cost method of accounting, a method utilized
by the Company, are excluded from this requirement, but will continue to be
subject to the ceiling test limitations.
At August 31, 1999 the Company has determined that an impairment loss of
$285,229 on unproved oil and gas properties be recognized.
F - 10
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
All investments are accounted for under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company determines
the appropriate classification at time of purchase. Securities are
classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at cost, adjusted for amortization of premiums and discounts to
maturity. Marketable securities not classified as held-to- maturity are
classified as available-for-sale. Available-for-sale securities are carried
at fair value, which is based on quoted prices. Unrealized gains and
losses, net of tax, are reported as a separate component of shareholders'
equity. The cost of securities available-for-sale is adjusted for
amortization of premiums and discounts to maturity. Interest and
amortization of premiums and discounts for all securities are included in
interest income. Realized gains and losses are included in other income.
Cost of securities sold is determined on a specific identification basis.
FINANCING COSTS
Financing costs include expenses incurred in conjunction with the Company's
private placement of convertible notes. These costs were amortized over the
term of the notes and charged to interest expense up to the date of
conversion to preferred stock. At conversion, unamortized financing costs
were charged to capital in excess of par value.
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
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, 1999, the Company had a net operating loss carryforward of
approximately $1,800,000 that may be offset against future taxable income
through 2019.
The Company has fully reserved the $351,000 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. Of the
total tax benefit, $327,000 is attributable to 1999.
F - 11
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, and impairment pursuant to SFAS No. 121.
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.
The oil and gas industry is subject, by its nature, to environmental
hazards and clean-up costs. At this time, management knows of no
substantial costs from environmental accidents or events for which it may
be currently liable; except for the Company's liabilities related to the
blowout of November 23, 1998. The Company has advanced what management
believes to be the total remaining costs to claimants. (See Note 4) In
addition, the Company's oil and gas business makes it vulnerable to changes
in wellhead prices of crude oil and natural gas. Such prices have been
volatile in the past and can be expected to be volatile in the future. By
definition, proved reserves are based on current oil and gas prices and
estimated reserves. Price declines reduce the estimated quantity of proved
reserves and increase annual amortization expense (which is based on proved
reserves).
(LOSS) PER SHARE
(Loss) per common share is computed based on the weighted average number of
common shares outstanding during each period. 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.
SHARE BASED COMPENSATION
In October 1995, SFAS No. 123 "Accounting for Stock-Based Compensation" was
issued. This 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.
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.
F - 12
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW TECHNICAL PRONOUNCEMENTS
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 an inpact on the
Company's financial statements.
In October 1998 SFAS No. 134 "Accounting for Mortgage Broker Securities:
was issued for fiscal years beginning after December 15, 1998. Adoption of
SFAS No. 134 is not expected to have an impact on the Company's financial
statements.
In February 1999 SFAS No. 135 "Rescission of FASB Statement No. 75 and
Technical Corrections" was issued for fiscal years beginning after February
15, 1999. Adoption of SFAS No. 135 is not expected to have an impact on the
Company's financial statements.
In June 1999 SFAS No. 136 "Transfers of Assets to a Not-For-Profit
Organization or Charitable Trust that Raises or Holds Contributions for
Others" was issued for fiscal years beginning after December 15, 1999.
Adoption of SFAS No. 136 is not expected to have an impact on the Company's
financial statements.
In June 1999 SFAS No. 137 "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statements No.
133" was issued. Adoption of SFAS No. 137 is not expected to have an impact
on the Company's financial statements.
NOTE 3 - MARKETABLE SECURITIES
At August 31, 1999, the Company held investments in marketable securities
which were classified as held-to-maturity. Securities classified as
held-to-maturity at August 31, 1999 consisted of securities with a maturity
date within one year, and are classified as Marketable Securities as a part
of Current Assets. These securities are stated at amortized cost.
The held-to-maturity securities at August 31, 1999 include the following:
Amortized Fair
Cost Value
---------- ----------
U.S. Government backed discount notes,
face value of $5,255,000 $5,111,062 $5,106,000
F - 13
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at August 31, 1999 consists of the following:
Furniture and equipment $ 85,955
Asset under capital lease 5,195
------------
91,150
Less accumulated depreciation and amortization (47,373)
------------
43,777
------------
Undeveloped oil and gas prospects 5,348,299
Less impairment (285,229)
------------
5,063,070
------------
$ 5,106,847
============
Information relating to the Company's costs incurred in its oil and gas
operations during the year ended August 31, 1999 is summarized as follows:
Property acquisition - Unproved properties $ 2,085,584
Exploration costs 792,616
------------
$ 2,878,200
============
Property acquisition costs include costs incurred to purchase, lease, or
otherwise acquire a property. Exploration costs include the costs of
geological and geophysical activity, and drilling and equipping exploratory
wells.
During the year ended August 31, 1998, the Company charged $15,000 to
operations 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. During the year ended August 31, 1999 the Company abandoned
properties with a carrying cost of $21,140 and, in addition, recorded an
impairment loss on undeveloped oil and gas properties in the amount of
$285,229.
Depreciation expense for the years ended August 31, 1998 and 1999 was
$22,321 and $24,111, respectively.
On November 23, 1998, the Company's test well being drilled on its East
Lost Hills prospect suffered a blowout. A majority of the costs associated
with the blowout have been covered by insurance policies in effect when the
blowout occurred. A portion of the claims has not yet been received from
one of the insurance policies. The Company has paid $410,000 for its
proportionate share of the claims. The Company believes that most, if not
all of these claims will ultimately be reimbursed through insurance
proceeds. The accompanying financial statements reflect the costs advanced
as Reimbursable Property Costs at August 31,1999. Any amounts not
reimbursed will be capitalized as oil and gas property costs.
F - 14
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 5 - CAPITAL LEASE OBLIGATION
Capitalized lease obligation at August 31, 1999 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, 2000 -
$1,600; 2001 - $1,062.
Future minimum payments on capitalized leases are as follows:
Year ending August 31,
2000 $1,803
2001 1,080
------
2,883
Less amount representing interest 221
------
Present value of net minimum lease payments 2,662
Less current maturity 1,600
------
Long-term portion $1,062
======
NOTE 6 - CONVERTIBLE NOTES PAYABLE
In November 1998 the Company completed the sale of $2,500,000, 10%
convertible notes, due October 1999. The notes were convertible into an
aggregate 25,000 shares of a newly designed Series A Preferred Stock of the
Company. The Company obtained shareholder approval for authorization of the
Series A Preferred Stock and, in April 1999, all notes were converted to
Series A Preferred Stock. Accrued interest due as of the date of conversion
of $116,822 was paid by the issuance of 53,326 shares of common stock,
valued at $2.19 per share. In conjunction with the sale of $1,500,000 of
the notes, the Company paid a finder's 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. The warrants
were valued at $56,833.
NOTE 7 - STOCKHOLDERS' EQUITY
PREFERRED STOCK
In April 1999 the shareholders of the Company approved an amendment to the
Certificate of Incorporation wherein the Company was authorized to issue
1,000,000 shares of preferred stock, with a par value of $.001 per share.
The Board of Directors authorized the designation of a "Series A Preferred
Stock," consisting of 25,000 shares, face value of $100 per share, 10%
cumulative dividend payable in cash or shares of common stock on January 1
and July 1 of each year. Holders of Series A Preferred Stock receive
preference in the event of any liquidation, dissolution or winding up of
the Company. The shares of Series A Preferred Stock are convertible into
shares of common stock of the Company at an initial conversion price of
$.60 per share.
In April 1999 the holders of convertible notes (Note 6) converted the notes
to 25,000 shares of Series A Preferred Stock. As of August 31, 1999, 2,021
shares of Series A Preferred Stock were converted to 336,833 shares of
common stock at a conversion price of $.60 per share.
At August 31, 1999 accrued, undeclared dividends on Series A Preferred
Stock was $39,814.
F - 15
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
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
transaction 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.
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.
In May 1999 the Company completed the sale of 437,500 units of common stock
and warrants pursuant to a private placement at a price of $16 per unit.
Each unit consisted of 10 shares of common stock and one warrant to
purchase one share of common stock at an exercise price of $2.50 per share
for a period of five years. The Company may repurchase the warrants for
$.001 per warrant at any time after the weighted average trading price of
the Company's common stock has been at least $6.00 per share for a 45-day
period. Proceeds from the offering were $7,000,000, before costs of the
offering of $83,155. As of August 31, 1999 warrant holders had exercised
3,125 warrants.
During the year ended August 31, 1999 the Company issued shares of common
stock valued at the non-discounted trading market price as of the date of
the transaction, in conjunction with the assignment to the Company of
certain undeveloped oil and gas prospects located in California as follows:
* 266,666 shares, valued at $.75 per share, as full consideration for
property received
* 218,866 shares, valued at $2.00 per share, as partial consideration
for property received.
F - 16
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
In 1999, the Company issued warrants to purchase 175,000 shares of common
stock at an exercise price of $.75 per share through October 26, 2003 as
partial consideration for a commission in conjunction with the private
placement of convertible notes. The warrants are valued at $56,833, using
the Black-Scholes option pricing model. In May 1999, in conjunction with
the sale of 437,500 Units of common stock and warrants as described above,
the Company issued warrants to purchase 437,500 shares of common stock at
an exercise price of $2.50 through May 14, 2004.
At August 31, 1999 the status of outstanding warrants is as follows:
Issue Shares Exercise Expiration
Date Exercisable Price Date
---------------------------------------------------------------------------
October 26, 1998 175,000 $ .75 October 26, 2003
May 14, 1999 434,375 $ 2.50 May 14, 2004
At August 31, 1999 the per share weighted average exercise price of
outstanding warrants was $2.00 per share.
NOTE 8 - 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 is as
follows:
<TABLE>
<CAPTION>
Number Weighted Avg. Weighted Avg.
of Shares Exercise Price Fair Value
--------- -------------- ----------
<S> <C> <C> <C>
Options Outstanding - July 1, 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)
Expired (10,000)
Granted 585,000 $1.10 $ .92
--------
Options Outstanding - August 31, 1999 821,000 $1.20 $ .74
========
(139,000 exercisable)
</TABLE>
F - 17
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 8 - 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 1999 would have been
increased to the pro forma amounts indicated below:
Net (loss) applicable to common stockholders - as reported $ (1,140,407)
============
Net (loss) applicable to common stockholders - pro forma $ (1,187,322)
============
(Loss) per share - as reported $ (.105)
============
(Loss) per share - pro forma $ (.110)
============
Weighted average fair value of options granted in 1999 $ .92
============
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 161%; discount rate of 5.50%; and expected lives of 3 to 5 years.
At August 31, 1999 the number of options exercisable was 139,000, the
weighted average exercise price of these options was $1.44, the weighted
average contractual life of the options was 5 years and the exercise price
was $1.28 to $1.50 per share.
NOTE 9 - 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,
2000 $ 41,105
2001 41,105
Rent expense was $35,539 and $40,816 for the years ended August 31, 1998
and 1999, respectively.
In conjunction with the Company's working interests in undeveloped oil and
gas prospects, the Company must pay approximately $700,000 in delay rentals
and other costs during fiscal year ended August 31, 2000 to maintain the
right to explore these prospects.
The Company may be subject to various possible contingencies which are
derived 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 10 - RELATED PARTY TRANSACTIONS
In 1998 the Company paid $43,530 for services provided to the Company by an
entity controlled by a former director of the Company.
F - 18
<PAGE>
PYR ENERGY CORPORATION
(A Development Stage Company)
Notes to Financial Statements
NOTE 11 - 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. Fair value of marketable securities approximates amortized
cost due to the short-term period to maturity.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and marketable securities.
The Company maintains cash accounts at one financial institution. 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. Marketable securities consist of U.S.
Government backed discount notes. The Company believes that credit risk
associated with these investments is remote.
NOTE 12 - SEGMENT REPORTING
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued, which amends the requirements for a public
enterprise to report financial and descriptive information about its
reportable operating segments. Operating segments, as defined in the
pronouncement, are components of an enterprise about which separate
financial information is available that is evaluated regularly by the
Company in deciding how to allocate resources and in assessing performance.
The financial information is required to be reported on the basis that is
used internally for evaluating segment performance and deciding how to
allocate resources to segments. The Company has adopted SFAS No. 131 for
the year ended August 31, 1999.
The Company has one reportable segment, oil and gas producing activities.
The Company has concentrated its oil and gas acquisition and exploration
activities in the western United States, primarily in California and the
Rocky Mountain region. All significant activities in this segment have been
with industry partners.
The Company has not earned any revenue from its oil and gas activities nor
recorded proved reserves at August 31, 1999.
NOTE 13 - COMPREHENSIVE INCOME
There are no adjustments necessary to net (loss) as presented in the
accompanying statements of operations to derive comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive Income."
F - 19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PYR ENERGY CORPORATION
Date: December 6, 1999 By: /s/ D. Scott Singdahlsen
------------------------------------------
D. Scott Singdahlsen, Chief Executive Officer
In accordance with the requirements of the Exchange Act, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ D. Scott Singdahlsen Chief Executive Officer, President December 6, 1999
- ------------------------------------- and Chairman Of The Board
D. Scott Singdahlsen
/s/ Keith F. Carney Director December 6, 1999
- -------------------------------------
Keith F. Carney
/s/ Robert B. Suydam Vice President-Geology and Director December 6, 1999
- -------------------------------------
Robert B. Suydam
/s/ S. L. Hutchison Director December 6, 1999
- -------------------------------------
S. L. Hutchison
/s/ Bryce W. Rhodes Director December 6, 1999
- -------------------------------------
Bryce W. Rhodes
/s/ Andrew P. Calerich Chief Financial Officer and Secretary December 6, 1999
- -------------------------------------
Andrew P. Calerich
</TABLE>
AMENDED AND RESTATED
BYLAWS
OF
PYR ENERGY CORPORATION
(As approved by the Board Of Directors on October 22, 1999.)
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
PYR ENERGY CORPORATION
ARTICLE I.
Offices
-------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware or such other city and
county as the board of directors shall determine.
The corporation may also have offices at such other places both within and
without the State of Delaware as the board of directors may from time to time
determine or the business of the corporation may require.
ARTICLE II.
Stockholders
------------
Section 1. Annual Meeting. The annual meeting of the stockholders shall be
held at a time and date fixed by the board of directors for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the election of directors shall not be held at the annual
meeting of the stockholders, or at any adjournment thereof, the board of
directors shall cause the election to be held at a special meeting of the
stockholders as soon thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the stockholders, for any
purpose, unless otherwise prescribed by statute, may be called by the president
or by the board of directors.
Section 3. Place Of Meeting. The person or persons authorized to call any
annual or special meeting may designate any place, either within or outside
Delaware, as the place for the meeting. If no designation is made, the place of
meeting shall be the principal corporate offices of the corporation.
Section 4. Fixing Date For Determination Of Stockholders Of Record. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to express
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
1
<PAGE>
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for any other lawful action, the board of directors may fix, in
advance, a date as the record date for any such determination of stockholders,
which date shall not be more than 60 nor less than ten days before the date of
such meeting, nor more than 60 days prior to any other action. If no record date
is fixed then the record date shall be as follows: (a) for determining
stockholders entitled to notice of or to vote at the meeting of stockholders,
the close of business on the day next preceding the day on which the meeting is
held; (b) for determining stockholders entitled to express consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is necessary, the day on which the first written consent is expressed,
and (c) for determining stockholders for any other purpose, the close of
business on the day on which the board of directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
Section 5. Notice Of Meeting. Written notice stating the place, day and
hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than 60 days before the date of the meeting, unless otherwise required
by statute, either personally or by mail, to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the stockholder at his
address as it appears on the stock books of the corporation, with postage
thereon prepaid. When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
Section 6. Organization. The president or any vice president shall call
meetings of stockholders to order and act as chairman of such meetings. In the
absence of said officers, any stockholder entitled to vote at that meeting, or
any proxy of any such stockholder, may call the meeting to order and a chairman
shall be elected by a majority of the stockholders entitled to vote at that
meeting. In the absence of the secretary or any assistant secretary of the
corporation, any person appointed by the chairman shall act as secretary of such
meetings.
Section 7. Agenda And Procedure. The board of directors shall have the
responsibility of establishing an agenda for each meeting of stockholders,
subject to the rights of stockholders to raise matters for consideration which
may otherwise properly be brought before the meeting although not included
within the agenda. The chairman shall be charged with the orderly conduct of all
meetings; provided however, that in the event of any difference in opinion with
respect to the proper cause of action which cannot be resolved by reference to
statute, or to the articles of incorporation or these bylaws, Robert's Rules Of
Order (as last revised) shall govern the disposition of the matter.
Section 8. Voting Lists. The officer who has charge of the stock books of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
2
<PAGE>
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of each stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 9. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders for the transaction of business except as otherwise
provided by statute or by the certificate of incorporation. If fewer than a
majority of the outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time in
accordance with Section 5 of this Article, until a quorum shall be present or
represented.
Section 10. Manner Of Acting. When a quorum is present at any meeting, the
affirmative vote of a majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders,
unless a different vote is required by law or the certificate of incorporation,
in which case such express provision shall govern.
Section 11. Informal Action By Stockholders. Unless otherwise provided in
the certificate of incorporation, any action required or permitted to be taken
at any meeting of the stockholders may be taken without a meeting, without prior
notice and without a vote, provided that a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. In the event that the action
which is consented to is such as would require the filing of a certificate with
the Secretary of State of Delaware under the General Corporation Law of the
State of Delaware if such action had been voted on by stockholders at a meeting
thereof, the certificate filed shall state, in lieu of any statement required
under law concerning any vote of stockholders, that written consent has been
given in accordance with the provision of law and that written notice has been
given as provided by law.
Section 12. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize any other person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date unless the proxy provides for a longer period.
Section 13. Voting Of Shares. Unless otherwise provided in the certificate
of incorporation and subject to the provisions of Section 4 of this Article,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder. In the election of directors, each record holder of
3
<PAGE>
stock entitled to vote at such election shall have the right to vote the number
of shares owned by him for as many persons as there are directors to be elected,
and for whose election he has the right to vote. Cumulative voting shall not be
allowed.
Section 14. Voting Of Shares By Certain Holders. Persons holding stock in a
fiduciary capacity shall be entitled to vote the shares so held. Persons whose
stock is pledged shall be entitled to vote, unless in the transfer by the
pledgor on the books of the corporation the pledgor has expressly empowered the
pledgee to vote thereon, in which case only the pledgee or his proxy may
represent such shares and vote thereon. If shares stand of record in the names
of two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the secretary of the corporation is given written notice to the contrary
and if furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with respect to
voting shall be as set forth in the General Corporation Law of the State of
Delaware.
Section 15. Inspectors. The chairman of the meeting may at any time appoint
one or more inspectors to serve at a meeting of the stockholders. Such
inspector(s) shall decide upon the qualifications of voters, including the
validity of proxies, accept and count the votes for and against the questions
presented, report the results of such votes, and subscribe and deliver to the
secretary of the meeting a certificate stating the number of shares of stock
issued and outstanding and entitled to vote thereon and the number of shares
voted for and against the questions presented. The inspector(s) does not need to
be a stockholder of the corporation, and any director or officer of the
corporation may be an inspector on any question other than a vote for or against
his election to any position with the corporation or on any other question in
which he may be directly interested.
ARTICLE III.
Board Of Directors
------------------
Section 1. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of its board of directors, except as
otherwise provided in the General Corporation Law of the State of Delaware or
the certificate of incorporation.
Section 2. Number, Tenure And Qualification. The number of directors of the
corporation shall be as determined by the board of directors and shall be not
less than three nor more than nine. Directors shall be elected at each annual
meeting of stockholders except as otherwise provided in Section 3 of this
Article. Each director shall hold office until his successor shall have been
elected and qualified or until the earliest of his death, resignation or
removal. Directors need not be residents of Delaware or stockholders of the
corporation.
Section 3. Vacancies. Any director may resign at any time by giving written
notice to the corporation. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective. Any vacancy or
4
<PAGE>
newly created directorship resulting from an increase in the authorized number
of directors may be filled by the affirmative vote of the majority of directors
then in office, although less than a quorum, or by a sole remaining director,
and a director so chosen shall hold office until the next annual election and
until his successor is duly elected and qualified, unless sooner displaced. If
at any time, by reason of death, resignation or other cause, the corporation
should have no directors in office, then an election of directors may be held in
the manner provided by law. When one or more directors shall resign from the
board, effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill any vacancy
or vacancies, with the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office until the next annual election and until his successor is duly elected
and has qualified.
Section 4. Regular Meetings. Unless otherwise approved by the board of
directors, a regular meeting of the board of directors shall be held without
other notice than this bylaw immediately after and at the same place as the
annual meeting of stockholders. The board of directors may provide by resolution
the time and place, either within or outside Delaware, for the holding of
additional regular meetings without other notice than such resolution.
Section 5. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the president or any two directors. The person
or persons authorized to call special meetings of the board of directors may fix
any place, either within or outside Delaware, as the place for holding any
special meeting of the board of directors called by them.
Section 6. Notice. Notice of any special meeting shall be given at least 24
hours previous thereto by written notice delivered personally, or at least one
business day (and not less than 24 hours) previous thereto if sent by facsimile
or electronic mail to the business address of the director, or at least five
days previous thereto if mailed to a director at his business address, or by
notice given at least two days previous thereto by telegraph. If sent by
facsimile or electronic mail, such notice shall be deemed delivered when the
electronic transmission has been completed and the person giving the notice
should use all reasonable efforts to notify the recipient by telephone,
voicemail message or other telephonic message of the delivery of the notice. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors then in office
shall constitute a quorum for the transaction of business at any meeting of the
board of directors, but if less than such majority is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present.
5
<PAGE>
If a meeting of the board of directors at which a quorum is present is
adjourned for more than 24 hours, notice of the time and place of reconvention
of the adjourned meeting shall be given, to those directors who were not present
at the adjournment of the meeting, in accordance with the provisions of Section
6 of this Article.
Section 8. Manner Of Acting. The vote of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, except as may be otherwise specifically provided by law or the
certificate of incorporation.
Section 9. Removal. Unless otherwise restricted by law, any director or the
entire board of directors may be removed, with or without cause, by the holders
of a majority of shares then entitled to vote at a meeting of stockholders.
Section 10. Committees. The board of directors may, by resolution passed by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously appoint another member of the
board of directors to act at the meeting in the place of such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors and except as prohibited below in this
paragraph, shall have and may exercise all the powers and authority of the board
of directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amend the certificate of incorporation, to adopt an agreement of
merger or consolidation, to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
to recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or to amend the bylaws of the corporation; and,
unless the resolution expressly so provides, no such committee shall have the
power or authority to declare a dividend or to authorize the issuance of stock.
Each committee shall keep regular minutes of its meetings and report the same to
the board of directors when required.
Section 11. Compensation. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at such meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of any committee of the board may be allowed like compensation for attending
committee meetings.
Section 12. Action By Written Consent Of Directors. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the board of directors or
any committee thereof may be taken without a meeting if all members of the board
or committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the minutes of the proceedings of the board or
committee.
6
<PAGE>
Section 13. Meetings By Telephone. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the board of directors,
or any committee designated by the board of directors, may participate in a
meeting of the board of directors, or any committee thereof, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and such participation
in a meeting in such manner shall constitute presence in person at the meeting.
ARTICLE IV.
Officers And Agents
-------------------
Section 1. General. The officers of the corporation shall be a president, a
secretary and a Treasurer and/or Chief Financial Officer. The board of directors
may appoint such other officers, assistant officers, and agents, a chairman or
vice-chairmen of the board, assistant secretaries and assistant Treasurers, as
they may consider necessary, who shall be chosen in such manner and hold their
offices for such terms and have such authority and duties as from time to time
may be determined by the board of directors. The salaries of all the officers of
the corporation shall be fixed by the board of directors. Any number of offices
may be held by the same person with the exception of the office of president and
secretary being held simultaneously by the same person, or as otherwise provided
in the certificate of incorporation or these bylaws.
Section 2. Election And Term Of Office. The officers of the corporation
shall be elected by the board of directors annually at the first meeting of the
board held after each annual meeting of the stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as conveniently may be. Each officer shall hold office until his
successor shall have been duly elected and qualified or until the earliest to
occur of his death, resignation or removal.
Section 3. Removal. Any officer or agent elected or appointed by the board
of directors may be removed at any time by the board whenever in its judgment
the best interests of the corporation will be served thereby.
Section 4. Vacancies. Any officer may resign at any time upon written
notice to the corporation. Such resignation shall take effect at the time stated
therein; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any vacancy occurring
in any office by death, resignation, removal or otherwise shall be filled by the
board of directors for the unexpired portion of the term. If any officer shall
be absent or unable for any reason to perform his duties, the board of
7
<PAGE>
directors, to the extent not otherwise inconsistent with these bylaws or law,
may direct that the duties of such officer during such absence or inability
shall be performed by such other officer or assistant officer as seems advisable
to the board.
Section 5. Authority And Duties Of Officers. The officers of the
corporation shall have the authority and shall exercise the powers and perform
the duties specified below, and as may be otherwise specified by the board of
directors or by these bylaws, except that in any event each officer shall
exercise such powers and perform such duties as may be required by law, and in
cases where the duties of any officer or agent are not prescribed by these
bylaws or by the board of directors, such officer or agent shall follow the
orders and instructions of each of the following in the following order of
priority: (a) the chief executive officer, (b) the president and (c) if a
chairman of the board is elected, then the chairman of the board.
(a) Chief Executive Officer. The chief executive officer, subject to
the direction and supervision of the board of directors, shall have the
following responsibilities: (i) have general and active control of the
corporation's affairs, business and property and general supervision of its
officers, agents and employees; (ii) preside at all meetings of the
stockholders; (iii) see that all orders and resolutions of the board of
directors are carried into effect; and (iv) sign or countersign all
certificates, contracts and other instruments of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation. In
addition, the chief executive officer shall, unless otherwise directed by the
board of directors, attend in person or by substitute appointed by them, or by
written instruments appointing proxy or proxies to represent the corporation,
all meetings of the stockholders of any corporation in which the corporation
shall hold any stock and may, on behalf of the corporation, in person or by
substitute or proxy, execute written waivers of notice and consents with respect
to such meetings. At all such meetings, and otherwise, the chief executive
officer, in person or by substitute or proxy as aforesaid, may vote the stock so
held by the corporation and may execute written consent and other instruments
with respect to such stock and may exercise any and all rights and powers
incident to the ownership of said stock, subject however to the instructions, if
any, of the board of directors. Subject to the directions of the board of
directors, the chief executive officer shall exercise all other powers and
perform all other duties normally incident to the office of chief executive
officer of a corporation and shall exercise such other powers and perform such
other duties as from time to time may be assigned to him by the board.
(b) President. The president shall be the chief operating officer of
the corporation and shall report to and be subject to the direction and
supervision of the chief executive officer. At any time that there is no one who
has been elected and is then serving as chief executive officer, the president
shall have the powers and perform the duties of the chief executive officer.
(c) Chairman Of The Board. If a chairman of the board has been
elected, the chairman of the board shall preside at all meetings of the board of
directors. The chairman of the board shall not have the authority to act on
behalf of the corporation, or otherwise commit or bind the corporation, unless
specifically authorized by the board of directors in specific instances.
8
<PAGE>
(d) Vice Presidents. The vice presidents, if so directed, shall assist
the chief executive officer and shall perform such duties as may be assigned to
them by the chief executive officer or by the board of directors. In the absence
of the president, the vice president designated by the board of directors or (if
there be no such designation) the vice president senior in rank as fixed by the
board of directors or (if there be no designation or ranking by the board of
directors) the vice president designated in writing by the president shall have
the powers and perform the duties of the president. If no such designation or
ranking shall be made all vice presidents may exercise such powers and perform
such duties.
(e) Secretary. The secretary shall perform the following functions:
(i) record or cause to be recorded the proceedings of the meetings of the
stockholders, the board of directors and any committees of the board of
directors in a book to be kept for that purpose; (ii) see that all notices are
duly given in accordance with the provisions of these bylaws or as required by
law; (iii) be custodian of the corporate records and of the seal of the
corporation; (iv) keep at the corporation's registered office or principal place
of business within or outside Delaware a record containing the names and
addresses of all stockholders and the number and class of shares held by each,
unless such a record shall be kept at the office of the corporation's transfer
agent or registrar; (v) have general charge of the stock books of the
corporation, unless the corporation has a transfer agent; and (vi) in general,
perform all other duties as from time to time may be assigned to him by the
chief executive officer, or by the board of directors. Assistant secretaries, if
any, shall have the same duties and powers, subject to supervision by the
secretary.
(f) The Treasurer and/or Chief Financial Officer. The Treasurer and/or
Chief Financial Officer, if one shall be elected, shall perform the following
functions: (i) be the principal financial officer of the corporation and have
the care and custody of all funds, securities, evidences of indebtedness and
other personal property of the corporation and deposit the same in accounts
insured by the United States government and in instruments backed by the full
faith and credit of the United States government and otherwise in accordance
with the instructions of the board of directors; (ii) receive and give receipts
and acquittances for monies paid in on account of the corporation, and pay out
of the funds on hand all bills, payrolls and other just debts of the corporation
of whatever nature upon maturity; (iii) be the principal accounting officer of
the corporation and as such prescribe and maintain the methods and systems of
accounting to be followed, keep complete books and records of account, prepare
and file all local, state and federal tax returns, prescribe and maintain an
adequate system of internal audit, and prepare and furnish to the chief
executive officer and the board of directors statements of account showing the
financial position of the corporation and the results of its operations; and
(iv) perform all other duties incident to the office of Treasurer and/or Chief
Financial Officer and such other duties as from time to time may be assigned to
the Treasurer and/or Chief Financial Officer by the chief executive officer or
the board of directors. Assistant Treasurers, if any, shall have the same powers
and duties, subject to the supervision of the Treasurer and/or Chief Financial
Officer. The Treasurer and/or Chief Financial Officer may also be designated as
and/or have the title of the Chief Financial Officer.
9
<PAGE>
Section 6. Surety Bonds. The board of directors may require any officer or
agent of the corporation to execute to the corporation a bond in such sums and
with such sureties as shall be satisfactory to the board, conditioned upon the
faithful performance of his duties and for the restoration to the corporation of
all books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the corporation.
Section 7. Salaries. Officers of the corporation shall be entitled to such
salaries, emoluments, compensation or reimbursement as shall be fixed or allowed
from time to time by the board of directors
ARTICLE V.
Stock
-----
Section 1. Certificates. Each holder of stock in the corporation shall be
entitled to have a certificate signed in the name of the corporation by the
chief executive officer, president or a vice-president, and by the Treasurer and
or Chief Financial Officer or an assistant Treasurer, or the secretary or an
assistant secretary of the corporation. Any of or all the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Certificates of stock shall be consecutively numbered and shall be in such form
consistent with law as shall be prescribed by the board of directors.
Section 2. Record. A record shall be kept of the name of each person or
other entity holding the stock represented by each certificate for shares of the
corporation issued, the number of shares represented by each such certificate,
the date thereof and, in the case of cancellation, the date of cancellation. The
person or other entity in whose name shares of stock stand on the books of the
corporation shall be deemed the owner thereof, and thus a holder of record of
such shares of stock, for all purposes as regards the corporation.
Section 3. Consideration For Shares. Shares shall be issued for such
consideration (but not less than the par value thereof) as shall be determined
from time to time by the board of directors. Treasury shares shall be disposed
of for such consideration as may be determined from time to time by the board.
Such consideration may consist, in whole or in part, of cash, personal property,
real property, leases of real property, services rendered, or promissory notes,
and shall be paid in such form, in such manner and at such times as the
directors may require.
Section 4. Issuance Of Stock. The capital stock issued by the corporation
shall be deemed to be fully paid and nonassessable stock, if: (a) the entire
amount of the consideration has been received by the corporation in the form or
10
<PAGE>
forms set forth in Section 3 of this Article V and if any part of the
consideration is in the form of a promissory note or other obligation, such note
or obligation has been satisfied in full; or (b) not less than the amount of the
consideration determined to be capital pursuant to statute has been received by
the corporation in the form or forms set forth in Section 3 of this Article V
and the corporation has received a binding obligation of the subscriber or
purchaser to pay the balance of the subscription or purchase price; provided,
however, nothing contained herein shall prevent the board of directors from
issuing partly paid shares as described herein.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares the total amount of the consideration to be paid
therefor and the amount paid thereon shall be stated. Upon the declaration of
any dividend upon partly paid shares, the corporation shall declare a dividend
upon partly paid shares of the same class, but only upon the basis of the
percentage of the consideration actually paid thereon.
The directors may from time to time demand payment, in respect of each
share of stock not fully paid, of such sum of money as the necessities of the
business may, in the judgment of the board of directors, require, not exceeding
in the whole, the balance remaining unpaid on said stock, and such sum so
demanded shall be paid to the corporation at such times and by such installments
as the directors shall direct. The directors shall give written notice of the
time and place of such payments, which notice shall be mailed to each holder or
subscriber to his last known post office address at least thirty days before the
time for such payment for stock which is not fully paid.
The corporation may, but shall not be required to, issue fractions of a
share. If it does not issue fractions of a share, it shall: (a) arrange for the
disposition of fractional interests by those entitled thereto; (b) pay in cash
the fair value of fractions of a share as of the time when those entitled to
receive such fractions are determined; or (c) issue scrip or warrants in
registered or bearer form which shall entitle the holder to receive a
certificate for a full share upon the surrender of such scrip or warrants
aggregating a full share. A certificate for a fractional share shall, but scrip
or warrants shall not unless provided therein, entitle the holder to exercise
voting rights, to receive dividends thereon, and to participate in any of the
assets of the corporation in the event of liquidation. The board of directors
may cause scrip or warrants to be issued subject to the conditions that they
shall become void if not exchanged for certificates representing full shares
before a specified date, or subject to the conditions that the shares for which
scrip or warrants are exchangeable may be sold by the corporation and the
proceeds thereof distributed to the holders of scrip or warrants, or subject to
any other conditions which the board of directors may impose.
The board of directors may, at any time and from time to time, if all of
the shares of capital stock which the corporation is authorized by its
certificate of incorporation to issue have not been issued, subscribed for, or
otherwise committed to be issued, issue or take subscriptions for additional
shares of its capital stock up to the amount authorized in its certificate of
incorporation.
11
<PAGE>
Section 5. Lost Certificates. In case of the alleged loss, destruction or
mutilation of a certificate of stock, the board of directors may direct the
issuance of a new certificate in lieu thereof upon such terms and conditions in
conformity with law as it may prescribe. The board of directors may in its
discretion require a bond in such form and amount and with such surety as it may
determine, before issuing a new certificate. The Chief Executive Officer,
President, Treasurer and/or Chief Financial Officer may, in lieu of requiring a
bond before issuing a new certificate, agree that the corporation shall
indemnify the corporation's stock transfer agent from losses resulting from lost
certificates representing less than 100 shares of common stock.
Section 6. Transfer Of Shares. Upon surrender to the corporation or to a
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in the stock books; provided however, that the corporation shall not
be required to effect the requested transfer if the corporation believes the
requested transfer would be in violation of any applicable law, regulation,
court order or other restriction of any nature.
Section 7. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and the corporation
shall be entitled to hold liable for calls and assessments a person registered
on its books as the owner of shares, and the corporation shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof except as otherwise provided by the laws of Delaware.
Section 8. Transfer Agents, Registrars And Paying Agents. The board may at
its discretion appoint one or more transfer agents, registrars and agents for
making payment upon any class of stock, bond, debenture or other security of the
corporation. Such agents and registrars may be located either within or outside
Delaware. They shall have such rights and duties and shall be entitled to such
compensation as may be agreed.
ARTICLE VI.
Indemnification Of Officers And Directors
-----------------------------------------
Section 1. Indemnification Of Directors, Officers, And Others. Any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was at any
time since the inception of the corporation a director, officer or employee of
the corporation, or is or was at any time since the inception of the corporation
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including serving as trustee, plan administrator or other fiduciary
12
<PAGE>
of any employee benefit plan, shall be indemnified by the corporation to the
full extent permitted by the General Corporation Law of the State of Delaware
(or any similar provision or provisions of applicable law at the time in
effect).
Section 2. Indemnification Of Officers, Directors And Employees Pursuant To
The Common Law Or Statutory Provisions Other Than The General Corporation Law Of
The State Of Delaware. Any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was at any time since the inception of the corporation a director,
officer or employee of the corporation, or is or was at any time since the
inception of the corporation serving at the request of the corporation as a
director, officer, or employee of another corporation, partnership, joint
venture, trust or other enterprise, including serving as trustee, plan
administrator or other fiduciary of any employee benefit plan, shall be
indemnified by the corporation to the full extent permitted by the common law
and by any statutory provision other than the General Corporation Law of the
State of Delaware.
Section 3. Mandatory Advance Of Expenses. Reasonable expenses incurred in
defending any action, suit or proceeding described in Section 1 or 2 of this
Article VI shall be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director, officer or employee to repay such amount to the
corporation if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this Article.
Section 4. Payment Of Indemnified Claims. Reasonable amounts required to be
paid in settlement or as a judgment in any action, suit or proceeding described
in Section 1 or 2 of this Article VI shall be paid by the corporation within 90
days of the receipt of an undertaking by or on behalf of such director, officer
or employee to repay such amount to the corporation if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Article; provided however, that the corporation shall not be
required to pay such amounts if a majority of the members of the board of
directors vote to deny the request for indemnification within the 90 day period
set forth in this Section 4 if such amounts previously have not been paid by the
corporation in accordance with this Section 4.
Section 5. Rights Of Appeal. In the event that the corporation advances
funds for indemnification pursuant to this Article, and, subsequently,
indemnification pursuant to this Article is declared unenforceable by a court,
or the corporation determines that the director, officer or employee on whose
behalf the funds were advanced is not entitled to indemnification pursuant to
this Article, then such director, officer or employee shall have the right to
retain the indemnification payments until all appeals of the court's or the
corporation's decision have been exhausted.
Section 6. Additional Indemnification. Without limiting the indemnification
otherwise provided by this Article VI, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
13
<PAGE>
reason of the fact that he is or was at any time since the inception of the
corporation a director, officer or employee of the corporation or a wholly owned
subsidiary of the corporation, or is or was at any time since the inception of
the corporation a trustee, plan administrator or other fiduciary of any employee
benefit plan of the corporation or a wholly owned subsidiary of the corporation,
shall be indemnified by the corporation against all expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such action, suit or proceeding,
including an action or suit by or in the right of the corporation to procure a
judgment in its favor, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, he had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendre or its equivalent, shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 7. Indemnification Not Exclusive. The indemnification provided in
this Article shall not be deemed exclusive of any other rights to which any
person seeking indemnification may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 8. Insurance. By action of the board of directors, notwithstanding
any interest of the directors in such action, the corporation may purchase and
maintain insurance, in such amounts as the board may deem appropriate, on behalf
of any person who is or was a director, officer or employee of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, regardless of
whether the corporation would have the power to indemnify him against such
liability under applicable provisions of laws.
Section 9. Applicability; Effect. Any indemnification and advancement of
expenses provided by or granted pursuant to this Article VI shall be applicable
to acts or omissions that occurred prior to the adoption of this Article VI,
shall continue as to any persons who ceased to be a director, officer, or
employee of the corporation or a wholly owned subsidiary of the corporation, or
was serving as or has since ceased to be a trustee, plan administrator or other
fiduciary of any employee benefit plan of the corporation or a wholly owned
subsidiary of the corporation, and shall inure to the benefit of the heirs,
executors, and administrators of such person. The repeal or amendment of this
Article VI or any Section or provision hereof which would have the effect of
limiting, qualifying or restricting any of the powers or rights of
indemnification provided or permitted in this Article VI shall not, solely by
reason of such repeal or amendment, eliminate, restrict or otherwise affect the
right or power of the corporation to indemnify any person, or affect any right
14
<PAGE>
of indemnification of such person, with respect to any acts or omissions which
occurred prior to such repeal or amendment. All rights under this Article VI
shall be deemed to be provided by a contract between the corporation and each
person covered hereby.
Section 10. Savings Clause. If this Article VI or any Section or provision
hereof shall be invalidated by any court on any ground, then the corporation
shall nevertheless indemnify each party otherwise entitled to indemnification
hereunder to the fullest extent permitted by law or any applicable provision of
this Article VI that shall not have been invalidated.
ARTICLE VII.
Execution Of Instruments; Loans; Checks
And Endorsements; Deposits; Proxies
-----------------------------------
Section 1. Execution Of Instruments. The president or any vice president
shall have the power to execute and deliver on behalf of and in the name of the
corporation any instrument requiring the signature of an officer of the
corporation, except as otherwise provided in these bylaws or where the execution
and delivery thereof shall be expressly delegated by the board of directors to
some other officer or agent of the corporation. Unless authorized to do so by
these bylaws or by the board of directors, no officer, agent or employee shall
have any power or authority to bind the corporation in any way, to pledge its
credit or to render it liable pecuniarily for any purpose or in any amount.
Section 2. Loans To Directors, Officers And Employees. The corporation may
lend money to, guarantee the obligations of and otherwise assist directors,
officers and employees of the corporation, or directors of another corporation
of which the corporation owns a majority of the voting stock, only upon
compliance with the requirements of the General Corporation Law of the State of
Delaware.
Section 3. Checks And Endorsements. All checks, drafts or other orders for
the payment of money, obligations, notes or other evidences of indebtedness,
bills of lading, warehouse receipts, trade acceptances and other such
instruments shall be signed or endorsed by such officers or agents of the
corporation as shall from time to time be determined by resolution of the board
of directors, which resolution may provide for the use of facsimile signatures.
Section 4. Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the corporation's credit in such banks
or other depositories as shall from time to time be determined by resolution of
the board of directors, which resolution may specify the officers or agents of
the corporation who shall have the power, and the manner in which such powers
shall be exercised, to make such deposits and to endorse, assign and deliver for
collection and deposit checks, drafts and other orders for the payment of money
payable to the corporation or its order.
15
<PAGE>
Section 5. Proxies. Unless otherwise provided by resolution adopted by the
board of directors, the president or any vice president may from time to time
appoint one or more agents or attorneys-in-fact of the corporation, in the name
and on behalf of the corporation, to cast the votes which the corporation may be
entitled to cast as the holder of stock or other securities in any other
corporation, association or other entity any of whose stock or other securities
may be held by the corp ration, at meetings of the holders of the stock or other
securities of such other corporation, association or other entity or to consent
in writing, in the name of the corporation as such other entity, and may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed in the
name and on behalf of the corporation and under its corporate seal, or
otherwise, all such written proxies or other instruments as he may deem
necessary or proper in the premises.
ARTICLE VIII.
Miscellaneous
-------------
Section 1. Waivers Of Notice. Whenever notice is required to be given by
law, by the certificate of incorporation or by these bylaws, a written waiver
thereof, signed by the person entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting or (in the case of a stockholder) by proxy shall constitute
a waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need to be specified in any written waiver or notice
unless so required by the certificate of incorporation or these bylaws.
Section 2. Presumption Of Assent. A director or stockholder of the
corporation who is present at a meeting of the board of directors or
stockholders at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director or stockholder who voted in
favor of such action.
Section 3. Seal. The corporate seal of the corporation shall be circular in
form and shall contain the name of the corporation and the words "Seal,
Delaware." The custodian of the seal shall be the secretary, who along with the
president or other officer authorized by the board of directors, may affix the
seal to documents of the corporation.
Section 4. Amendments. These bylaws may be altered, amended or repealed or
new bylaws may be adopted by the board of directors at any meeting of the
directors or by the stockholders at any meeting of the stockholders if in the
case of a stockholders' meeting notice of such alteration, amendment, repeal or
adoption is contained in the notice of such stockholders' meeting.
16
<PAGE>
Section 5. Emergency Bylaws. Subject to repeal or change by action of the
stockholders, the board of directors may adopt emergency bylaws in accordance
with and pursuant to the provisions of the General Corporation Law of the State
of Delaware.
* * * * *
17
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23 0
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