SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT UNDER SECTION 13 OR 15 (D)
OF
THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended August 31, 1999
Commission File Number 0-8814
PURE CYCLE CORPORATION
(Name of small business issuer as specified in its charter)
Delaware 84-0705083
(State of incorporation) (I.R.S. Employer
Identification
No.)
5650 York Street, Commerce City, CO 80022
(Address of principal executive office) (Zip Code)
Issuer's telephone number: (303) 292-3456
Name of each
exchange
Securities registered under Section 12(b)of the Exchange Act:
Title of Class on which registered
None
None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock,
1/3 of $.01 par value
(Title of class)
Check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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 [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, 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]
Revenues for fiscal year ended August 31, 1999: $498,317
Aggregate market value of voting stock held by non-affiliates:
$14,903,555 (based upon closing price on the OTC Bulletin Board on
November 8, 1999)
Number of shares of Common Stock outstanding, as of November 13,
1999: 78,439,763
Transitional Small Business Disclosure Format(Check One): Yes [ ]
No [x]
Documents incorporated by reference: None
Table of Contents
Item Part I Page
1. Description of Business . . . . . . . . . . . 3
2. Description of Property . . . . . . . . . . . 6
3. Legal Proceedings. . . . . . . . . . . . . . . 6
4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . 6
Part II
5. Market for the Common Equity and
Related Stockholder Matters . . . . . . . . . 7
6. Management's Discussion and Analysis . . . . 7
7. Financial Statements . . . . . . . . . . . . 11
8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . 23
Part III
9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act . . . . . . . 24
10. Executive Compensation . . . . . . . . . . . 25
11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 26
12. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . 29
13. Exhibits and Reports on Form 8-K . . . . . . .29
Signatures . . . . . . . . . . . . . . . . .31
"SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Statements that are not historical facts contained in this Annual
Report on Form 10-KSB are forward looking statements that involve
risk and uncertainties that could cause actual results to differ
from projected results. Factors that could cause actual results to
differ materially include, among others: the market price of water,
changes in applicable statutory and regulatory requirements,
changes in technology, uncertainties in the estimation of water
available under decrees and timing of development, the strength and
financial resources of the Company's competitors, the Company's
ability to find and retain skilled personnel, climatic conditions,
labor relations, availability and cost of material and equipment,
delays in anticipated permit and start-up dates, environmental
risks, the results of financing efforts, amd general economic
conditions.
PART I
Item 1. Description of Business
General
Pure Cycle Corporation (the "Company") was incorporated in
Delaware in 1976. The Company is engaged in the water management
business providing water and wastewater services to customers
located in the Denver area. The Company operates water and
wastewater systems which include designing, constructing, operating
and maintaining systems serving customers in the Denver
metropolitan area. The Company also owns patented water recycling
technologies which are capable of processing wastewater into pure
potable drinking water. There have been no significant changes in
the way the Company does business during the year. The Company's
focus continues to be to provide water and wastewater service to
customers within its service area and to expand its service to
other areas throughout the Denver metropolitan area and the
southwestern United States.
In 1996, the Company entered into a landmark water privatization
agreement with the State of Colorado and the Rangeview Metropolitan
District (the "District") for the development of over 26,000 acre
feet of water in the Denver metropolitan area. The water
privatization agreement enabled the Company to acquire ownership to
a total gross volume of 1,165,000 acre feet of groundwater (with an
annual usage right of 11,650 acre feet per year), an option to
substitute 1,650 acre feet of surface water in exchange for a total
gross volume of 165,000 acre feet of groundwater, and the use of
surface reservoir storage capacity (collectively referred to as the
"Export Water Supply").
In addition to ownership of the Export Water Supply, the Company
entered into eighty-five year water and wastewater privatization
agreements ("Service Agreements") with the District to design,
construct, operate, and maintain the District's water and
wastewater systems to service customers within the District's
24,000 acre service area which is located along the greater Denver
metropolitan area in Arapahoe County ("Service Area"). The
District has reserved approximately 14,350 acre feet per year of
water and surface reservoir storage capacity (collectively referred
to as the "Service Area Water Supply") for use within the
District's Service Area.
The Company's water assets together with its Service Agreements
enable the Company to develop and market water and wastewater
service to cities, municipalities and special districts in need of
additional water supplies and to serve the water and wastewater
needs of customers within the District's Service Area. The Company
will seek to utilize its patented water recycling technologies to
process the wastewater into pure potable water for reuse
applications.
Description of Company Assets
Rangeview Water Supply
In 1996, as part of a comprehensive settlement agreement with the
State of Colorado ("Settlement Agreement"), the Company purchased
all of the District's outstanding bonds from the holders of the
securities and entered into a water privatization agreement between
the District and the Company. As part of the Settlement Agreement,
the Company entered into the Service Agreements and purchased a fee
interest to the Export Water Supply, which consists of a total
gross volume of 1,165,000 acre feet (approximately 11,650 acre feet
per year) of non-tributary groundwater, the option to substitute
1,650 acre feet of tributary surface water for a total gross volume
of 165,000 acre feet of non-tributary groundwater, and surface
reservoir storage rights from the District in exchange for all the
District's outstanding bonds. The Company continues to develop
and market its Export Water Supply to Denver area water providers
that are in need of additional water supplies.
Comprehensive Amendment Agreement
In order to acquire the District's outstanding bonds to enable
the Company to enter into the Settlement Agreement and to acquire
the Export Water Supply, the Company negotiated agreements with all
the remaining bond holders and amended the Water Commercialization
Agreement ("WCA") and its agreements with all prior investors in
the WCA. Pursuant to the Comprehensive Amendment Agreement (the
"CAA") entered into in conjunction with the Settlement Agreement,
such bond holders and investors have a right to receive $31,807,000
from the proceeds of a sale or other disposition of the Export
Water Supply.
Service Agreements
In 1996, the Company entered into an eighty-five year water
privatization agreement with the District to design, construct,
operate, and maintain the District's water system to provide water
service to customers within the Service Area. The District has
reserved approximately 14,350 acre feet of water per year, together
with surface reservoir storage capacity for the Company's use in
providing water service to customers within the District's Service
Area. In exchange for providing water service to customers within
the Service Area, the Company will receive 95% of the District's
water revenues remaining after payment of royalties to the State of
Colorado Land Board.
In January of 1997, the Company entered into an eighty-five year
Wastewater Service Agreement with the District which provides for
the Company to design, finance, construct, operate and maintain the
District's wastewater system to provide wastewater service to
customers within the Service Area. In exchange for providing
wastewater service to customers within the Service Area, the
Company will receive 100% of the District's wastewater tap fees,
and 90% of the District's wastewater usage fees.
The Company supplies water and wastewater services to customers
within the 24,000 acres of property which constitute the boundaries
of the Service Area. The Service Area is located in southeastern
Arapahoe County, Colorado, a growing county bordering Denver,
Colorado. Currently the majority of the property is undeveloped
land owned by the State of Colorado, however portions of the
property are currently under development. Development of the
property is dependent on overall growth in the Denver metropolitan
area.
Development of the Rangeview Assets are divided into two phases:
one phase is the development and distribution of the Export Water
Supply to Denver area water providers in need of additional water
supplies; and the second, is the development of water and
wastewater service to customers within the Service Area.
Paradise Water Supply
In 1987, the Company acquired certain water, water wells, and
related assets from Paradise Oil, Water and Land Development, Inc.,
which constitute the "Paradise Water Supply". The Paradise Water
Supply includes 70,000 acre feet of tributary Colorado River
decreed water, a right-of-way permit from the United States
Department of the Interior, Bureau of Land Management for the
construction of a 70,000 acre foot dam and reservoir across federal
lands, and four water wells ranging in depth from 900 feet to 1,800
feet. The water wells produce approximately 7,500 - 9,400 gallons
per minute or approximately 14,000 acre feet per well per year with
an artesian pressure of approximately 100 pounds per square inch.
Recycling Technology
The Company developed and patented water recycling technology
which converts single-family home wastewater/sewage into pure
potable drinking water. The Company manufactured, installed and
operated the single-family water recycling units in the late 1970's
and early 1980's until halting production of the units in 1982.
The Company has shifted its strategic market for its water
recycling technology from its original single-family units to large
municipal wastewater treatment applications. The Company has not
operated a large wastewater treatment plant using its technologies
and their can be no assurance that the technology will be
technically or economically feasible on a large scale. The
Company, through its Wastewater Service Agreement, will seek to
apply its water recycling technology to treat municipal wastewater
into pure potable water for reuse.
The Business
Beginning in fiscal 1987, and continuing through fiscal 1999, the
Company has acquired a portfolio of water assets which are
described above in the Description of Company Assets. This
portfolio of water assets can be used to provide water service to
customers located throughout the Denver metropolitan area and the
Company has acquired the exclusive right to provide water and
wastewater service to customers located within the Service Area.
The Company seeks to utilize its water assets and wastewater
treatment technologies to privatize other government owned water
and wastewater systems in Colorado and throughout the western
United States.
The Rangeview Metropolitan District is a quasi-municipal,
political subdivision of the State of Colorado and is empowered to
provide water and wastewater services to approximately 24,000 acres
of property located south and east of Denver metropolitan area,
most of which is owned by the State of Colorado (the "Service
Area").
The development of the District's Service Area is dependent on
growth in the Denver metropolitan area, and on the State of
Colorado selling portions of its property to parties interested in
the development of the land. The District has reserved
approximately 14,350 acre feet of water annually, together with
surface reservoir storage capacity, to provide water service to the
property. The District completed a study to analyze the future
development opportunities for the property and defined three
categories of land uses: residential, commercial/light industrial,
and open space. Approximately 10,000 acres is suitable for
residential development accommodating up to 70,000 single-family
homes; approximately 2,200 acres is suitable for commercial and
light industrial development along the primary access corridors;
and the remaining 12,800 acres is suitable for open space (i.e.
parks, playing fields, and golf courses).
Pursuant to the Company's water and wastewater Service
Agreements, the Company will develop, operate and maintain the
District's water and wastewater systems. In exchange for
developing, operating and maintaining the District's water system,
the Company receives 95% of the water tap fee and usage fee
revenues after payment of a twelve percent (12%) royalty to the
State Land Board. In exchange for developing, operating and
maintaining the District's wastewater system the Company receives
100% of the District's wastewater tap fees and 90% of the
District's wastewater usage fees. The District is empowered to set
rates and charges for water and wastewater services. Pursuant to
the Settlement Agreement, the District's water rates and charges
must be the average of similar rates and charges of the three
surrounding municipal water providers. Portions of the Company's
participation in the water and wastewater tap fees and user fees
are required to be used to finance the development of facilities
needed to furnish water and wastewater service.
Pursuant to its Service Agreements, the Company is obligated to
provide water and wastewater service to a 400 acre development
which will include the construction of a 500-bed Academic Model
Juvenile Facility ("Model Facility"). The Model Facility purchased
the equivalent of 201 residential water taps at $8,165 per tap (or
$1,641,165), and the equivalent of 156 residential wastewater taps
at $4,000 per tap (or $624,000, collectively $2,265,165). Pursuant
to its Service Agreements, the Company received $1,372,014 from the
water tap fees during fiscal 1999, and will receive $624,000 from
the sewer tap fees upon the initiation of construction of the
wastewater treatment facility scheduled for second quarter 2000 for
a combined total of $1,996,014. The Company designed, and will
construct, operate and maintain the water and wastewater systems to
deliver water and sewer service to the Model Facility. Construction
of the Model Facility began in first quarter of fiscal year 1999
with the opening of the Model Facility expected in 2001.
The 40 largest municipal water providers in the Denver
metropolitan area deliver approximately 98% of the water consumed
by residents and businesses in the Denver metropolitan area. The
Company actively marketed the Export Water Supply to each of the 40
largest providers during fiscal year 1999. The Export Water Supply
could be sold for a lump sum amount or pursuant to service contract
whereby the Company will design, construct, operate and maintain
the water system to deliver the water to customers. The timing,
terms, and conditions of sales are dependent on the purchaser.
The Company is also pursuing the sale of water from the Paradise
Water Supply to users in the Denver metropolitan area and to
cities, municipalities, and special districts in the downstream
states of Arizona, Nevada and California. However, there are
certain restrictions under the Colorado River Compact which relate
to a reallocation of water from one state to another, including a
requirement that a court decree authorizing the use of the water
out of state be obtained and compliance with other interstate
compacts or agreements, which would need to be resolved or complied
with before the Paradise Water Supply can be sold to users outside
of Colorado. If the Company is successful in selling its Paradise
Water Supply, the Company would anticipate developing the
facilities to deliver the water in a manner similar to the Export
Water Supply. Other potential development opportunities for the
Paradise Water Supply include, but are not limited to, the
utilization of the artesian pressure for hydroelectric power
generation, water leasing to agricultural interests, mineral
interests, and recreational interests.
The Company's business of water management is subject to
competitive factors since alternative sources of water are
available. The Company is aware of other private water companies
who are attempting to market competing water to municipal water
providers in the Denver area. In addition, municipal water
providers seeking to acquire water evaluate independent water owned
by individuals, farmers, ranchers, and others. The principal
factors affecting competition in this regard include, but may not
be limited to, the availability of water for the particular
purpose, the cost of delivering the water to the desired location,
the availability of water during dry year periods, the quality and
quanity of the water source, and the reliability of the water
supply. The Company believes that its water provides the Company
with an advantage over its competition because the water the
Company owns has been designated for municipal use by decrees
issued by Colorado water courts, and because of the quantity of
water available, the quality of water, its location relative to the
Denver metropolitan area, (and Paradise's location to deliver water
to either downstream users or Denver area water users through
exchanges or other transfers), and price. The quantity of water
the Company has available for sale has been determined by court
decrees of the Colorado water courts. The Company has had the
quality and quantity of the Rangeview and Paradise Water Supply
evaluated by independent appraisers and water engineers. The
Rangeview water quality, without treatment, meets or exceeds all
current federal and state drinking water standards.
Water processing and municipal water recycling are also subject
to competition from municipal water providers who also provide
wastewater/sewage processing, and from regional wastewater/sewage
processors. The majority of wastewater/sewage treatment is
processed by approximately 10 major wastewater/sewage treatment
providers. The majority of Denver area water providers participate
in the Metropolitan Wastewater Authority which process
approximately 95% of the area's wastewater/sewage. The Company is
not aware of any private companies providing wastewater/sewage
treatment services in the Denver metropolitan area. The Company
believes that it could have a competitive advantage because its
wastewater treatment technology uses no toxic chemicals and the
water after processing exceeds stringent water quality standards
currently in effect. Additionally, residual material created in the
wastewater treatment process can be composted into a high grade
fertilizer for agricultural use.
If the Company is successful in selling water, the construction
of wells, dams, pipelines and storage facilities may require
compliance with environmental regulations; however, the Company
believes that regulatory compliance would not materially impact
such a sale. It is anticipated that a purchaser of the Company's
water would undertake to construct the required facilities to
deliver the water to its users, however the Company would consider
providing such infrastructure as part of a water sale agreement. If
the Company were to ultimately agree to provide such facilities,
the Company could incur substantial capital expenditures to comply
with governmental regulations. However, the Company cannot assess
such costs until the purchaser of the water and the nature of the
water delivery system required has been determined. Similarly if
the Company were to obtain a contract for treatment of wastewater
and sewage, governmental regulations concerning drinking water
quality and wastewater discharge quality may be applicable.
However, until the Company has a contract proposal specifying the
quantity and type of wastewater to be treated and the proposed use
of such treated water, the cost of regulatory compliance cannot be
determined.
The Company holds several patents in the United States and abroad
related to its water recycling system and its components. The
value to the Company of these patents is dependent upon the
Company's ability to adapt its water recycling system to larger
scale applications, or to develop other uses for the technology.
The Company currently has three full time employees and one part
time employee.
Item 2. Description of Property
The Company currently leases office facilities at the address
shown on the cover page.
The Company owns a total gross volume of 1,165,000 acre feet
(approximately 11,650 acre feet per year) of non-tributary
groundwater, an option to substitute 1,650 acre feet of tributary
surface water in exchange for a total gross volume of 165,000 acre
feet of non-tributary groundwater, and surface storage rights from
the District. See "Item 1. Description of Business - Description of
Company's Assets - Rangeview Water Supply."
The Company owns approximately 70,000 acre feet of conditional
water rights, water wells and related assets in the State of
Colorado by assignment and quit claim deed. See "Item 1.
Description of Business - Description of Company's Assets -
Paradise Water Supply."
Item 3. Legal Proceedings
In March 1998, the Company joined a lawsuit initiated by others
including the Rangeview Metropolitan District and the State of
Colorado, Board of Land Commissioners ("State"), brought in the
District Court of Arapahoe County, Colorado, against US Home
Corporation seeking declaratory judgment affirming US Home
Corporation's responsibilities under Lease S-37280 as amended and
the Agreement to Exchange Real Property requiring US Home
Corporation to obtain water service from the District and the State
for development activities on property governed under Lease S-
37280. On April 23, 1999 the District Court of Arapahoe County
entered an order of summary judgement in favor of US Home
Corporation on all claims. The Company together with Rangeview and
the State have appealed the trial court's order. Management does
not believe the outcome of the lawsuit will have a material adverse
effect to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of stockholders during the
fourth quarter ended August 31, 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Markets
The table below shows for the quarters indicated the high and low
bid prices of the common stock on the OTC Bulletin Board. The
Company's Common stock is traded on the OTC Bulletin Board under
the trade symbol PCYL. As of November 15, 1999, there were 3,946
holders of record of the Company's Common stock.
Calendar Quarter Low High
1999 First $.10 $.125
Second $.12 $.40
Third $.17 $.24
Fourth $.17 $.20
1998 First $.15 $.22
Second $.11 $.19
Third $.12 $.187
Fourth $.11 $.15
Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual
transactions.
Dividends
The Company has never paid any dividends on its common stock and
does not anticipate paying any dividends in the foreseeable future.
Dividends cannot be paid on the common stock at any time when there
are unpaid accrued dividends owning on the Company's outstanding
Preferred Stock.
Recent Sales of Unregistered Securities
In January 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the Company
issued 500,000 shares of Series C-1 Preferred Stock to Mr. Thomas
Clark in exchange for 500,000 shares of common stock owned by Mr.
Clark. The Company sold 500,000 shares of the Company's Common
Stock at $.18 per share to an accredited investor. Proceeds to the
Company were $90,000. The shares were issued under Section 4(2) of
the Securities Act of 1933.
In August 1998, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the Company
issued 3,200,000 shares of Series C Preferred Stock to Mr. Thomas
Clark in exchange for 3,200,000 shares of common stock owned by Mr.
Clark. The Company sold 3,200,000 shares of the Company's Common
Stock at $.125 per share to four accredited investors who have
previously invested in the Company. Proceeds to the Company were
$400,000. The shares were issued under Section 4(2) of the
Securities Act of 1933.
In December of 1997, the Company agreed to adjust the exercise
price of its outstanding options and warrants to purchase
approximately 48,672,000 shares held by certain directors,
officers, and investors of the Company from $.25 per share to $.18
per share. The options and warrant repricing was based on the
market closing price on December 2, 1997 of $.18 per share. The
Company has recognized a non-cash compensation expense of
approximately $51,000 which reflects the change in value of the
options and warrants based on the price of the Company's
outstanding shares at the date of repricing. The options and
warrants expire during 2002.
Item 6. Management's Discussion and Analysis
General
Pure Cycle is engaged in the privatization of municipal water and
wastewater systems in Colorado and other areas. The Company seeks
to use its water and water technologies to enhance the availability
and quality of domestic drinking water. The Company purchased
approximately 11,650 acre feet of water and entered into two,
eighty-five year water and wastewater Service Agreements with the
Rangeview Metropolitan District which will enable the Company to
provide water and wastewater service to over 36 square miles of
property located in the Denver area. The Company continues to
develop its water recycling technologies and, will seek to
integrate these technologies for processing wastewater into pure
potable water for reuse into its wastewater service commitment to
the District's Service Area.
The Company is aggressively pursuing the marketing and sale of
its water to municipal water providers in the Denver metropolitan
region as well as users in Arizona, Nevada and California to
generate current and long term revenue sources. During fiscal year
1999, the Company sold the equivalent of 201 residential water
taps, the equivalent of 156 residential wastewater taps and
delivered approximately 29 million gallons of water to customers
within the District's Service Area. The Company continues to meet
with developers and other parties interested in developing portions
of the District's Service Area. The District's Service Area is
primarily undeveloped land owned by the State of Colorado situated
in the growing Arapahoe County. A portion of the property is
currently under development and the Company has constructed the
water system and is in the process of constructing the wastewater
system to serve customers on the property.
During the fiscal year ended August 31, 1999, the Company entered
into an agreement to provide water and wastewater service to a 400
acre development which will include the construction of a 500-bed
Academic Model Juvenile Facility ("Model Facility"). The Model
Facility purchased the equivalent of 201 residential water taps at
$8,165 per tap (or $1,641,165), and the equivalent of 156
residential wastewater taps at $4,000 per tap (or $624,000,
collectively $2,265,165). Pursuant to its Service Agreements, the
Company received $1,372,014 from the water tap fees in fiscal 1999,
and will receive $624,000 from the sewer tap fees upon the
initiation of construction of the wastewater facilities for a
combined total of $1,996,014. The Company began construction of
the water system and has incurred costs as of the end of fiscal
year 1999 of $359,000 with the remaining portion of the water
system currently under bonded contract for $591,000 for a combined
total of $950,000. Projected cost for construction of the
wastewater system are $600,000 or combined water and sewer capital
project costs of $1,550,000.
In addition to the Company's Service Area activities, the Company
continues to meet with Denver area water providers to develop and
sell the Company's Export Water Supply. Denver area water providers
continue to experience strong regional growth rates which continue
to pressure their developed water supplies. The Company is
marketing its Export Water Supply to water providers in need of
supplemental water supplies. Additionally, during fiscal 1999, the
Company has presented water supply proposals to private and
municipal water providers in Nevada, Arizona and California for the
sale of the Company's 70,000 acre feet of Paradise Water Supply,
understanding that certain legal issues relating to interstate
water transfers may exist. The Company continues to discuss water
supply arrangements with private companies and municipal water
providers to whom it has made proposals. The Company continues to
identify and market its water to other private companies and
municipal water providers.
At this time the Company is not able to determine the timing of
water sales or the timing of development of the property within the
District's Service Area. There can be no assurance that these
sales can be made on terms acceptable to the Company or that
development will occur. In the event water sales are not
forthcoming or development of the property within the District's
Service Area is delayed, the Company may sell additional portions
of the Company's profits interest pursuant to the CAA, incur
additional short or long-term debt obligations or seek to sell
additional shares of common stock, preferred stock or stock
purchase warrants as deemed necessary by the Company to generate
operating capital. The Company's ability to ultimately realize its
investment in its two primary water projects is dependent on its
ability to successfully market the water, or in the event it is
unsuccessful, to sell the underlying water. Under the provisions
of the CAA, the other investors in the Rangeview project are to
receive the first approximately $31,807,000 from the sale or other
disposition of the Export Water Supply. The Company has agreed to
pay the next $4,000,000 in proceeds to LCH, Inc., a company
affiliated with the Company's president. The next $433,000 in
proceeds are payable to the holders of the Company's Series B
Preferred Stock. The Company retains 100% of the proceeds in
excess of $36,240,000 from the sale or other disposition of the
Export Water Supply.
Results of Operations
During fiscal year 1999, the Company's water service revenues
increased $472,951 to $498,317 as compared to $25,366 for fiscal
1998, due primarily to the agreement entered into with the Model
Facility during 1999. The Company incurred construction costs of
$359,000 and has construction deposits totaling $895,379. The
Company recognized revenues from construction based on percentage-
of-completion methodology. As of August 31, 1999, construction of
the water and wastewater facilities for the Model Facility were
approximately 23% complete, resulting in a revenues of $462,892.
During fiscal 1999, the Company delivered approximately 29 million
gallons of water to customers in the Service Area generating
revenues from water sales of $35,425. The Company incurred
approximately $4,800 in operating costs associated with the water
service revenues. The Company continues to operate at a loss with
its operating capital requirements funded primarily through debt
and equity financings and the sale of rights to participate in the
proceeds from the sale of the Company's Export Water Supply.
The Company's general and administrative expenses for fiscal 1999
decreased approximately $40,000 or 12% to $295,000 as compared to
$335,000 for fiscal 1998, due primarily to a decrease in payroll
expenditures. The Company's general and administrative expenses for
fiscal 1998 increased approximately $40,000 or 15% to $335,000 as
compared to $295,000 for fiscal 1997, due primarily to a increase
in payroll expenditures.
The Company's fiscal 1999 net loss of $361,000 improved 31% as
compared to $526,000 for fiscal 1998. The decrease in net loss for
fiscal 1999 was due primarily construction revenues received during
1999 from completion of 23% of the Model Facility capital
construction project.
Liquidity and Capital Resources
Prior to fiscal 1992, the Company funded operations primarily
through long term debt financing from certain related parties
including the Company's President and major stockholder. Since
fiscal 1992, the Company has funded operations with debt and equity
financing and by marketing the right to share in proceeds from the
sale of its Export Water Supply to private individuals, companies
and institutions with an interest in the water supply market.
The Company's working capital at August 31, 1999 was $21,286.
The Company has billings in excess of costs resulting in estimated
earnings from the construction of water and wastewater facilities
for the Model Facility of approximately $300,000. The Company
expects to incur additional costs in fiscal 2000 to complete the
water and wastewater facilities for the Model Facility of which
$895,000 have been received and $624,000 will be due upon the
initiation of contruction of the wastewater facility. The Company
believes that at August 31, 1999, it has sufficient working capital
and available credit to fund its operations for the next year or
longer. There can be no assurances, however, that the Company will
be successful in marketing the water from its two primary water
projects in the near term. In the event sales are not achieved,
the Company may sell additional participating interests in its
water projects, incur additional short or long-term debt or seek to
sell additional shares of common or preferred stock or stock
purchase warrants, as deemed necessary by the Company, to generate
working capital.
Development of any of the water that the Company has, or is
seeking to acquire, will require substantial capital investment by
the Company. Any such additional capital for the development of
the water is anticipated to be financed by the municipality
purchasing such water or through the sale of water taps and water
delivery charges. A water tap charge refers to a charge imposed by
a municipality to permit a water user access to a water delivery
system (i.e. a single-family home's tap into the municipal water
system), and a water delivery charge refers to a water user's
monthly water bill, generally based on a per 1,000 gallons of water
consumed.
Operating Activities
During fiscal 1999, operating activities provided cash of
approximately $779,000, compared to using cash of approximately
$256,000 in fiscal 1998. Proceeds from construction revenue
received in fiscal 1999 accounted for the improvement in cash flow
from operations in fiscal 1999. Budgeted construction costs, are
anticipated to increase during fiscal 2000 with the completion of
the water and wastewater systems for the Model Facility. The
Company expects billings in excess of estimated costs will provide
sufficient revenues to complete the construction of the Model
Facility's water and wastewater systems. Budgeted operating costs
are expected to remain the same and it is anticipated that a
similar level of cash will be used in the Company's general
and administration operations during fiscal 2000.
Construction Activities
In August 1998, the Company entered into an agreement to provide
water and wastewater service to a 400 acre development which will
include the construction of a 500-bed Model Facility. The Company
is designing, constructing, and will operate and maintain the water
and wastewater system to provide service to the Model Facility.
Projected costs for construction of the water system are
approximately $950,000, and projected cost for construction of the
wastewater system are $600,000 for combined costs of $1,550,000 to
be paid from construction revenues.
Investing Activities
Cash used in investing activities for fiscal 1999 was
approximately $300,000. Costs of approximately $287,000 were
incurred relating to the Rangeview and Paradise Water Supply
projects and costs of approximately $12,000 were incurred relating
to the development of a water system serving customers within the
District's Service Area. Cash used in investing activities for
fiscal 1998 was approximately $92,000. Costs of approximately
$78,000 were incurred relating to the Rangeview and Paradise Water
Supply projects and costs of approximately $14,000 were incurred
relating to the development of a water system serving customers
within the District's Service Area. Interest income increased to
$40,000 in fiscal 1999, as compared to $32,000 for fiscal 1998 due
primarily to an increase in the average outstanding balance in the
Company's cash operating accounts. Interest expense remained
approximately the same at $241,000 as compared to $243,000 in
fiscal 1998 due primarily a constant level of outstanding loan
balances.
Financing Activities
In January of 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the Company
issued 500,000 shares of Series C-1 Preferred Stock to Thomas P.
Clark in exchange for 500,000 shares of common stock owned by Mr.
Clark. The Company sold 500,000 shares of common stock to an
accredited investors for $.18 per share. Proceeds to the Company
were $90,000. In August 1998, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the Company
issued 3,200,000 shares of Series C Preferred Stock to Thomas P.
Clark in exchange for 3,200,000 shares of common stock owned by Mr.
Clark. The Company sold 3,200,000 shares of common stock to an
accredited investors for $.125 per share. Proceeds to the Company
were $400,000.
Year 2000
The Company has completed its assessment of year 2000 issues on
its computer systems, applications and water facilities.
Conversion and testing activities have been completed. The
Company's cost for conversion and testing for year 2000 compliance
was less than $10,000. While the company does not believe it has
any material year 2000 problems, the failure to correct a material
problem or the impact of a year 2000 problem on customers and third-
party suppliers could result in an interruption in, or failure of
normal business activities or operations. Failures such as
electric utility may result in service interruptions to the
Company's water system. The Company does not have any retail water
customers and has notified its commercial customers of potential
year 2000 problems. The Company does have emergency preparedness
procedures in the event of extended power service interruption to
restore service to its customers. Such failures could materially
and adversely affect the Company's results of operations, liquidity
and financial condition.
Readers are cautioned that forward-looking statements contained
in this Form 10KSB should be read in conjunction with the Company's
disclosure under the heading: "SAFE HARBOR STATEMENT UNDER THE
UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995" on
page 2.
Item 7. Financial Statements
Page
Independent Auditors' Reports 12
Balance Sheets 13
Statements of Operations 14
Statements of Stockholders' Equity 15
Statements of Cash Flows 16
Notes to Financial Statements 17-23
Independent Auditors' Report
The Board of Directors
Pure Cycle Corporation:
We have audited the accompanying balance sheets of Pure Cycle
Corporation ("the Company") as of August 31, 1999 and 1998, and the
related statements of operations, stockholders' equity, and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Pure Cycle
Corporation as of August 31, 1999 and 1998 and the results of its
operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
Denver, Colorado
October 22, 1999
PURE CYCLE CORPORATION
BALANCE SHEETS
August 31,
--------------------------------
ASSETS 1999 1998
Current assets:
Cash and cash equivalents $ 981,025 $ 423,027
Accounts receivable 6,106 --
Prepaid expenses and other current assets 11,259 11,259
---------- ----------
Total current assets 998,390 434,286
Investment in water and systems:
Rangeview water supply (Note 3) 13,282,485 12,995,881
Paradise water supply 5,482,303 5,470,606
Rangeview water system (Note 4) 126,611 114,088
---------- ----------
Total investment in water and systems 18,891,208 18,580,575
Note receivable, including accrued
interest (Note 6) 321,794 298,269
Equipment, at cost, net of accumulated
depreciation of $17,238 in 1999 and
$16,095 in 1998 -- 1,143
Other assets 22,596 22,596
---------- ----------
$ 20,234,179 $ 19,336,869
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 55,915 $ 4,049
Billings in excess of costs and
estimated earnings (Note 5) 895,379 --
Accrued liabilities 25,810 45,809
---------- ----------
Total current liabilities 977,104 49,858
Long-term debt - related parties,
including accrued interest (Note 7) 4,021,177 3,786,981
Other non-current liabilities (Note 8) 128,123 120,983
Participating interests in Rangeview
water supply (Note 3) 11,090,630 11,090,630
Stockholders' equity (Notes 9 and 12):
Preferred stock, par value $.001 per
share; authorized - 25,000,000 shares:
Series A -1,600,000 shares issued and
outstanding as of August 31, 1998 -- 1,600
Series A1 - 1,600,000 shares issued
and outstanding 1,600 --
Series B - 432,514 shares issued and
outstanding 433 433
Series C - 3,200,000 shares issued
and outstanding 3,200 3,200
Series C-1- 500,000 shares authorized
and outstanding 500 --
Common stock, par value 1/3 of $.01 per
share; 135,000,000 shares authorized;
78,439,763 shares issued and
outstanding 261,584 261,584
Additional paid-in capital 24,216,244 24,126,744
Accumulated deficit (20,466,416) (20,105,144)
---------- ----------
Total stockholders' equity 4,017,145 4,288,417
---------- ----------
$ 20,234,179 $ 19,336,869
========== ==========
[FN]
See Accompanying Notes to Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF OPERATIONS
Years ended August 31,
----------------------------
1999 1998
Water service revenue:
Construction revenue (Note 5) $ 462,892 $ --
Water usage fees 35,425 25,366
------- -------
498,317 25,366
Construction costs incurred (Note 5) (359,009) --
Water service operating expense ( 4,800) ( 4,800)
------- -------
Gross Margin 134,508 20,566
General and administrative
expense (294,514) (335,297)
------- -------
Operating loss (160,006) (314,731)
Other income (expense):
Interest income 40,070 32,146
Interest expense:
Related parties (234,196) (236,056)
Other ( 7,140) ( 7,140)
------- -------
Net loss $(361,272) $(525,781)
======= =======
Basic and diluted net
loss per common share $ * $ *
======= =======
Weighted average common
shares outstanding 78,439,763 78,439,763
========== ==========
* Less than $.01 per share
[FN]
See Accompanying Notes to Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended August 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1997 $2,032,513 $2,033 78,439,763 $261,584 $23,678,561 $(19,579,363)
Preferred Stock issued in
exchange (Note 9) 3,200,000 3,200 (3,200,000) (3,200) -- --
Common Stock issued (Note 9) -- -- 3,200,000 3,200 396,800 --
Warrants issued
(Note 7 and 9) -- -- -- -- 51,383 --
Net loss -- -- -- -- -- (525,781)
--------- ----- ---------- -------- ---------- -----------
Balance at August 31, 1998 5,232,513 $5,233 78,439,76 $261,584 $24,126,744 $(20,105,144)
Preferred Stock issued in
exchange (Note 9) 500,000 500 (500,000) (500) -- --
Common Stock issued (Note 9) -- -- 500,000 500 89,500 --
Net loss -- -- -- -- -- ( 361,272)
--------- ----- ---------- ------- ---------- ----------
Balance at August 31, 1999 $5,732,513 $5,733 78,439,763 $261,584 $24,216,244 $(20,466,416)
========= ===== ========== ======= ========== ==========
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
PURE CYCLE CORPORATION
STATEMENTS OF CASH FLOWS
Years ended August 31,
---------------------------
1999 1998
---- ----
Cash flows from operating activities:
Net loss $(361,272) $( 525,781)
Adjustments to reconcile
net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,143 1,946
Noncash compensation expense for the
repricing of options and warrants -- 51,383
Increase in accrued interets on note
receivable ( 23,525) ( 23,504)
Increase in accrued interest on long
term debt and other non-current
liabilities 241,336 243,196
Changes in operating assets
and liabilities:
Accounts receivable ( 6,106) --
Billings in excess of costs
and estimated earnings 895,379 --
Accounts payable and other
accrued liabilities 31,867 ( 2,807)
------- -------
Net cash provided by
(used in) operating activities 778,822 (255,567)
------- -------
Cash flows from investing activities:
Investments in water supply (298,301) ( 77,956)
Investment in Rangeview water system ( 12,523) ( 13,876)
------- -------
Net cash used in investing
activities (310,824) ( 91,832)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock 90,000 400,000
------- -------
Net cash provided by financing
activities 90,000 400,000
------- -------
Net increase in cash and cash
equivalents 557,998 52,601
Cash and cash equivalents beginning
of year 423,027 370,426
------- -------
Cash and cash equivalents end of
year $ 981,025 $ 423,027
======= =======
[FN]
See Accompanying Notes to Financial Statements
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
August 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND BUSINESS
Pure Cycle Corporation is engaged in the water management
business providing water and wastewater services to customers
located in the Denver metropolitan area. The Company operates
water and wastewater systems and its operations include designing,
constructing, operating and maintaining systems serving customers
in the Denver metropolitan area and other areas. The Company also
owns patented water recycling technologies which are capable of
processing wastewater into pure potable drinking water. There have
been no significant changes in the way the Company does business
during the current year. The Company's focus continues to be to
provide water and wastewater service to customers within its
service area and expects to expand its service to other areas
throughout the Denver metropolitan area and the southwest.
Although the Company believes it will be successful in marketing
the water from one or both of its water projects, there can be no
assurance that sales can be made on terms acceptable to the
Company. The Company's ability to ultimately realize its
investment in its two primary water projects is dependent on its
ability to successfully market the water, or in the event it is
unsuccessful, to sell the underlying water assets.
During its development stage, the Company funded the acquisition
of certain water and its operating activities primarily through
equity and other financing agreements with investors with an
interest in the water management business. These investors are
entitled to participate in the future revenues derived from the
sale of the Company's water. The Company believes that at August
31, 1999, it has sufficient working capital and available credit to
fund its operations for the next year or longer. There can be no
assurances, however, that the Company will be successful in
marketing the water from its two primary water projects in the near
term. In the event sales are not achieved, the Company may sell
additional participating interests in its water projects, incur
additional short or long-term debt or seek to sell additional
shares of common or preferred stock or stock purchase warrants, as
deemed necessary by the Company, to generate working capital.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The company recognizes income from fixed price contracts using
the percentage-of-completion method, measured by the contract costs
incurred to date as a percentage of the estimated total contract
costs. Contract costs include all direct material, labor, and
equipment costs and those indirect costs related to contract
performance such as indirect labor and supplies costs. If the
fixed price of a contract is not determinable, the Company uses a
price that is most likely to occur in using the percentage-of-
completion method. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are
determined.
At August 31, 1999, billings in excess of costs and estimated
earnings represent payments on a construction contract under which
the work has not been completed. Amount will be recognized as
construction progresses in accordance with the percentage-of-
completion method.
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 the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash equivalents
Cash and cash equivalents include all liquid debt instruments
with an original maturity of three months or less.
Investments in Water Projects
The Paradise water supply represents Colorado River water, water
wells, and a federal right-of-way permit for a dam site located
near Debeque, Colorado. The Paradise water supply is recorded at
cost. The Company's investment in the Rangeview water supply is
recorded at cost. Pursuant to the terms of the Comprehensive
Amendment Agreement ("CAA") entered into in 1996, certain investors
in the Rangeview project have the right to receive the first
approximately $31,807,000 from the proceeds of a sale or other
disposition of the Rangeview water supply. The
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
consideration received from those investors for this right to
participate in the proceeds has been reflected in the accompanying
consolidated balance sheet as a participating interest in the
Rangeview Water Supply.
The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicated that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair market value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value
less costs to sell. The Company believes there are no impairments
in the carrying amounts of its investments in water at August 31,
1999.
Stock-Based Compensation
As allowed by Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation (SFAS 123), the
Company continues to measure compensation costs for these plans
using the intrinsic value method of accounting as prescribed in
Accounting Pronouncement Bulletin Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25). The pro forma disclosure of
net loss and loss per share required by SFAS 123 are included in
Note 9.
Income taxes
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Loss per common share
Loss per common share is computed by dividing net loss by the
weighted average number of shares outstanding during each period.
Convertible preferred stock and common stock options and warrants
have been excluded from the calculation of loss per share as their
effect is anti-dilutive.
Reclassifications
Certain reclassifications were made to the financial statements
for prior periods to conform to August 31, 1999 presentation.
NOTE 3 - RANGEVIEW WATER SUPPLY
In April of 1996, the Company entered into a water privatization
agreement with the State of Colorado and the Rangeview Metropolitan
District (the "District") which enabled the Company to acquire
ownership to a total gross volume of 1,165,000 acre feet of
groundwater (approximately 11,650 acre feet per year), an option to
substitute 1,650 acre feet of surface water in exchange for a total
gross volume of 165,000 acre feet of groundwater, and the use of
surface reservoir storage capacity (collectively referred to as the
"Export Water Supply").
In addition to the Export Water Supply, the Company entered into
a water and wastewater service agreement ("The Service Agreements")
with the District which grants the Company an eighty-five year
exclusive right to design, construct, operate and maintain the
District's water and wastewater systems. In exchange for
designing, constructing, operating and maintaining the District's
water and wastewater system, the Company will receive 95% of the
District's water revenues remaining after payment of royalties
totaling 12% of gross revenues to the State Land Board, and 100% of
the District's wastewater system development charges and 90% of the
District's wastewater usage charges.
The Company capitalized certain legal, engineering and other
costs relating to the acquisition of the Rangeview Water Supply due
to the improvements of the water assets through adjudication and
engineering services. The Company capitalized costs totaling
$310,824 in 1999, $91,832 in 1998, and $1,179,860 in years prior.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - RANGEVIEW WATER SUPPLY (continued)
The Participating Interests in the CAA, in the aggregate, have
the right to receive the first approximately $31,807,000 from the
proceeds of a sale or other disposition of the Export Water Supply.
After the distributions pursuant to the CAA, LCH Inc., a company
affiliated with the Company's president has the right to receive
the next $4,000,000 in proceeds. The next $433,000 in proceeds is
payable to the holders of the Company's Series B Preferred Stock.
The Company retains 100% of the proceeds in excess of $36,240,000
from the sale or other disposition of the Export Water Supply.
NOTE 4 - RANGEVIEW WATER SYSTEM
In conjunction with the privatization agreement, the Company also
entered into an 85 year Service Agreement with the District to
design, finance, construct, operate, and maintain the District's
water system to provide water service to customers within the
Service Area. The District has reserved approximately 14,350 acre
feet of water per year, together with surface reservoir storage
capacity, for the Company's use in providing water service to
customers within the Service Area. In exchange for providing water
service to customers within the Service Area, the Company receives
95% of the District's water revenues remaining after payment of
royalties to the State Land Board. The Company incurred costs of
$4,800 during 1999, and $4,800 during 1998 to operate and maintain
the water system to deliver water to customers within the Service
Area. During fiscal year 1999, the Company delivered approximately
29 million gallons of water to customers in the Service Area.
Currently there are no wastewater customers within the Service
Area.
NOTE 5 - Construction Revenue
Pursuant to its Service Agreements, the Company is obligated to
provide water and wastewater service to a 400 acre development
which will include the construction of a 500-bed Academic Model
Juvenile Facility ("Model Facility"). The Model Facility purchased
the equivalent of 201 residential water taps at $8,165 per tap (or
$1,641,165), and the equivalent of 156 residential wastewater taps
at $4,000 per tap (or $624,000, collectively $2,265,165). Pursuant
to its Service Agreements, the Company received $1,372,014 from the
water tap fees during fiscal 1999, and will receive $624,000 from
the sewer tap fees upon the initiation of construction of the
wastewater treatment facility scheduled for second quarter 2000 for
a combined total of $1,996,014. The Company began construction of
the water system and has incurred costs as of the end of fiscal
year 1999 of $359,000 with the remaining portion of the water
system currently under bonded contract for $591,000 for a combined
total of $950,000. Projected cost for construction of the
wastewater system are $600,000 or combined water and sewer capital
project costs of $1,550,000.
During fiscal 1999, the Company had sales to a single customer
that accounted for 93% of revenue.
NOTE 6 - NOTE RECEIVABLE
In 1995, the Company extended a line of credit to the District.
The loan provides for borrowings of up to $250,000, is unsecured,
bears interest based on the prevailing prime rate plus 2% and,
matures on December 31, 1999. The balance of the note receivable
at August 31, 1999 was $321,794, including accrued interest. The
Company intends to extend the due date to December 31, 2000.
Accordingly, the note has been classified as non-current.
NOTE 7 - LONG-TERM DEBT
Long-term debt, including accrued interest at August 31, 1999 and
1998 is comprised of the following:
1999 1998
---- ----
Notes payable, including accrued interest
to six related parties, due August 2002
interest at 10.25%, unsecured $ 392,250 $ 354,308
Notes payable, including accrued interest to
five related parties, due August 2002 interest
at 10.25%, unsecured net of unamortized discount
of $27,000 399,184 361,500
Note payable, to related party, due October 2000,
non-interest bearing, unsecured 26,542 26,542
Notes payable, including accrued interest, to
President and stockholder due October 2000,
interest at 8.36% to 9.01%, unsecured 423,501 402,141
Notes payable,including accrued interest, to
related party, due October, 2000, interest
at the prime rate plus 3%, secured by shares
ofthe Company's common stock owned by the
President and stockholder 2,076,559 1,971,545
Notes payable, including accrued interest,
to a related corporation, due October 2000,
interest ranging from 7.18% to 8.04%, unsecured 703,141 670,945
--------- ---------
Total long-term debt $4,021,177 $3,786,981
========= =========
Aggregate maturities of long-term debt are as follows:
Year Ending August 31, Amount
--------------------- --------
2000 $ 0
2001 3,229,743
2002 791,434
---------
Total $ 4,021,177
=========
In August 1997, the Company entered into a loan agreement with
five related party investors. The loan balance is $399,184 at
August 31, 1999, is unsecured, bears interest at the rate of 10.25%
and is due August 30, 2002. In connection with the loan agreement,
the Company issued warrants to purchase 2,100,000 shares of the
Company's common stock at $.25 per share (see Note 9). A portion
of the proceeds received under the agreement ($45,000) has been
attributed to the estimated fair value of the warrants issued. The
resulting discount is being amortized over the term of the loan.
As of August 31, 1999, the President and stockholder of the
Company has pledged a total of 20,000,000 shares of common stock
from his personal holdings as collateral on certain of the above
notes payable.
NOTE 8 - OTHER NON-CURRENT LIABILITIES
At August 31, 1999, the Company owes approximately $128,000 to
creditors incurred prior to 1986 which are reflected as other non-
current liabilities in the accompanying balance sheet.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred and Common Stock
In January 1999, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the Company
authorized the issuance of 500,000 shares of Series C-1 Convertible
Preferred Stock to the Company's President, Mr. Thomas Clark, in
exchange for 500,000 shares of common stock owned by Mr. Clark.
The Series C-1 Convertible Preferred Stock converts into an
equivalent number of shares of Common stock at the election of Mr.
Clark provided the Company has authorized and unissued shares of
Common Stock available. As of August 31, 1999, the shares of
Series C-1 Preferred Stock had not been issued to Mr. Clark.
However, the Company has a binding obligation to issue 500,000
shares of Series C-1 Preferred Stock to the Company's President,
Mr. Clark accordingly such shares are reflected in the accompanying
financial statements as authorized and outstanding. The Company
sold 500,000 shares of the Company's Common Stock at $.18 per
share to four accredited investors who had previously invested
in the Company. Proceeds to the Company were $90,000.
In August 1998, the Company entered into a Plan of
Recapitalization and a Stock Purchase Agreement whereby the Company
issued 3,200,000 shares of Series C Convertible Preferred Stock to
the Company's President, Mr. Thomas Clark, in exchange for
3,200,000 shares of common stock owned by Mr. Clark. The Series C
Convertible Preferred Stock converts into an equivalent number of
shares of Common stock at the election of Mr. Clark provided the
Company has authorized and unissued shares of Common Stock
available. The Company sold 3,200,000 shares of
the Company's Common Stock at $.125 per share to four accredited
investors who had previously invested in the Company. Proceeds to
the Company were $400,000. On May 25, 1994, the Company sold
1,600,000 shares of Series A Convertible Preferred Stock, $.001 par
value, for $1.00 per share for total proceeds of $1,600,000. On
December 2, 1997, the board of directors of the Company approved a
proposal to exchange the outstanding Series A Convertible Preferred
Stock for a new series entitled Series A-1 Convertible Preferred
stock on a one-for-one basis. The proposal was submitted to the
holders of the Series A Preferred Stock for approval. On July 21,
1998, a Certificate of Designation creating the new Series A-1
Preferred Stock was filed with the Secretary of State of Delaware.
Letters of Transmittal were sent to the Series A shareholders with
exchange instructions. At August 31, 1999, 1,590,000 Series A-1
shares had been issued and 1,590,000 Series A shares had been
canceled. As of that date, and continuing to this date, 10,000
shares of Series A have not been submitted for exchange; however
the holder of the Series A-1 certificate only holds a right to
receive Series A-1 shares for such certificate.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
The holders of the Series A-1 Convertible Preferred Stock are
entitled to be paid a dividend amount equal to $2.00 per share
represented by a Participating Interest in the CAA. The Series A-1
Preferred Stock is convertible into 4 shares of Common Stock at the
election of the Company or the holders of the Preferred Stock.
During years prior to 1994, the Company was charged for the
reimbursement of costs, administrative services and rent expense by
a company related through common ownership. On August 31, 1994,
the Company issued 432,513 shares of Series B Preferred Stock,
$.001 par value, to a related party corporation, in satisfaction of
the payable for these charges of $432,513. The holder of the Series
B Preferred Stock is entitled to be paid a dividend amount equal to
$1.00 per share for a total of $432,513 to be paid from the
proceeds from a disposition of the Rangeview Water Supply after the
Participating Interests in the CAA and the dividend obligation on
the Series A Convertible Preferred Stock have been satisfied.
Stock Options
Pursuant to the Company's Equity Incentive Plan, the Company has
granted Mr. Fletcher Byrom, Ms. Margaret Hansson and Mr. George
Middlemas options to purchase 7,000,000, 8,000,000, and 1,000,000
shares of common stock respectively at an exercise price of $.18
per share which expire in 2002. The Company has also granted Mr.
Mark Harding options to purchase 7,000,000 shares of common stock
at the exercise price of $.18 per share, of which 1,000,000 shares
will vest in annual increments of 250,000 shares beginning March
12, 1998.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has
been recognized for stock options granted to key employees under
the Equity Incentive Plan. Had compensation costs for the
Company's two stock-based compensation plans been determined based
on the fair market value at the grant dates for awards under those
plans consistent with the method prescribed in FASB Statement 123,
the Company's net loss and loss per share would have been increased
to the pro forma amounts indicated below for the years ended August
31, 1999 and 1998:
Net loss: 1999 1998
---- ----
As Reported $(361,272) (525,781)
Pro forma (368,772) (529,354)
Loss per share:
As Reported * *
Pro forma * *
* Less than $.01 per share
The fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in fiscal
years 1996 through 1999: no dividend yield; no expected
volatility; and the weighted average risk-free interest rate of
6.75% for the options.
A summary of the status of the Company's Equity Incentive Plan as
of August 31, 1999 and 1998, and changes during the years then
ended is presented below:
1999 1998
---------------------------- ---------------------------
Weighted average Weighted average
Fixed options Shares exercise price Shares exercise price
Outstanding at ---------- ---------------- ---------- ----------------
beginning of year 23,000,000 $.18 23,000,000 $.18
Granted -- -- -- --
Exercised -- -- -- --
---------- ----------
Outstanding at
end of year 23,000,000 $.18 23,000,000 $.18
========== ==========
Options exercisable
at year end 22,750,000 22,250,000
Weighted average of
fair value of
options granted
during the year -- --
The following table summarizes information about Equity Incentive
Plan options outstanding at August 31, 1999:
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STOCKHOLDERS' EQUITY (continued)
Options Outstanding Options Exercisable
- -------------------------------------- ---------------------------------
Range of Weighted average Weighted Weighted
Exercise Number remaining average Number average
Price Outstanding contract life ex. price exercisable ex. price
- -------- ----------- --------------- --------- ----------- ---------
.18 23,000,000 2.75 .18 22,750,000 .18
.18 23,000,000 2.75 .18 22,750,000 .18
========== ==========
No options were exercised during the years ended August 31, 1999
and 1998.
Warrants
As discussed in Note 7, the Company has issued warrants which
remain outstanding, between 1990 and 1998 to purchase 24,403,000
shares of the Company's stock at $.18 per share in connection with
the sale of profits interests in the Rangeview WCA, which were
subsequently converted into participating interests in the CAA.
The warrants expire 6 months after the payment of the participating
interests in the CAA.
No warrants were exercised during the years ended August 31, 1999
and 1998.
NOTE 10 - INCOME TAXES
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
August 31, 1999 and 1998 are presented below.
1999 1998
---- ----
Deferred tax assets:
Net operating loss carry forwards $ 2,712,000 $ 2,635,000
Less valuation allowance (2,712,000) (2,635,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
The valuation allowance for deferred tax assets as of August 31,
1999 was $2,712,000. The net change in the valuation allowance for
the year ended August 31, 1999 was a net increase of $77,000,
attributable to the net operating loss incurred during the year.
Since this is the only temporary difference, the accompanying
statements of operations reflect no income tax benefit.
At August 31, 1999, the Company has net operating loss carry
forwards for federal income tax purposes of approximately
$6,973,000, which are available to offset future federal taxable
income, if any, through fiscal 2018.
NOTE 11 - INFORMATION CONCERNING BUSINESS SEGMENTS
During the year ended August 31, 1999, the Company adopted SFAS No.
131 Disclosure About Segments of an Enterprise and Related
Information which requires the Company to report information about
its operating segments.
The Company has two lines of business: one segment is the design
and construction of water and wastewater systems pursuant to the
Service Agreements to provide water and wastewater service to
customers within the Service Area; and the second is the operation
and maintenance of the water and wastewater systems which serve
customers within the Service Area.
The accounting policies of the segments are the same as those
described in the Summary of Significant Accounting Policies (see
Note 2). The Company evaluates the performance of its segments
based on operating income of the respective business units.
PURE CYCLE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INFORMATION CONCERNING BUSINESS SEGMENTS (continued)
Segment information for the years ended August 31, 1999 and 1998 is
as follows:
1999 1998
------------------------------ -------------------------------
Water Water
------------------------------ -------------------------------
Construction Service Total Construction Service Total
----------- ------- -------- ------------ ------- -------
Revenues $ 462,292 $35,425 $498,317 $ -- $25,366 $25,366
Gross Margin 103,883 30,625 134,508 -- 20,566 20,566
Total Assets -- 126,611 126,611 -- 114,088 114,088
Depreciation,
Depletion and
Amortization -- 1,143 1,143 -- 1,946 1,946
Capital Expenditures -- 310,824 310,824 -- 91,832 91,832
NOTE 12 - LEASES
The Company leases office facilities/equipment on a month-to-
month basis under an operating lease agreement. Rent expense for
the years ended August 31, 1999 and 1998 was $24,000 and $24,000
resepctively.
NOTE 13 - SUBSEQUENT EVENT
Subsequent to year end, on September 7, 1999, the Company entered
into a Plan of recapitalization authorizing the issuance of 666,667
shares of Series C2 Convertible Preferred Stock to Thomas P. Clark
in exchange for 666,667 shares of outstanding common stock of the
Company. On September 7, 1999, the Company entered into a Stock
Purchase Agreement to sell 666,667 shares of common stock to be
received from Mr. Clark at a purchase price of $.18 per share
resulting in proceeds to the Company of $120,000.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The following are the officers and directors of the Company as of
August 31, 1999:
Name Age Position(s) with the Company
- ------------------------- --- ------------------------------------
Margaret S. Hansson . . . 75 Director, Chairman, Vice President
Fletcher L. Byrom . . . . 81 Director
Thomas P. Clark . . . 63 Director, President, Treasurer
George M. Middlemas . . . 53 Director
Richard L. Guido . . . . 55 Director
Mark W. Harding . . . . 36 Chief Financial Officer, Secretary
MARGARET S. HANSSON
Ms. Hansson has been a Director of the Company since April 1977
and Chairman since September 23, 1983, and was the Chief Executive
Officer of the Company from September 23, 1983 to January 31, 1984.
From 1976 to May 1981, she was President of GENAC, Inc., a Boulder,
Colorado firm, which she founded. From 1960 to 1975, Ms. Hansson
was President and Chairman of Gerry Baby Products Company (formerly
Gerico, Inc.), now a division of Evenflo. She is a Director of
Norwest Banks of Colorado, Blue Cross Blue Shield of Colorado,
Staodyn Inc., Colorado Capital Alliance, Gateway Technologies Inc.,
Reality Quest Inc., and the Midwest Group of Funds. Ms. Hansson
received her Bachelor of Arts degree from Antioch College.
THOMAS P. CLARK
Thomas P. Clark has been a Director of the Company and President
since June 29, 1987, and Treasurer since September 6, 1988. Mr.
Clark is primarily involved in the management of the Company. His
business activities include: President, LC Holdings, Inc.
(business development), 1983 to present and, Partner, through a
wholly owned corporation, of Resource Technology Associates
(development of mineral and energy technologies), 1982 to present.
Mr. Clark received his Bachelor of Science degree in Geology and
Physics from Brigham Young University, Provo, Utah.
MARK W. HARDING
Mark W. Harding joined the Company in February 1990 as Corporate
Secretary and Chief Financial Officer. He brings a background in
public finance and management consulting experience. From 1988 to
1990, Mr. Harding worked for Price Waterhouse in Management
Consulting Services where he assisted clients in Public Finance
services and other investment banking related services. Mr.
Harding has a B.S. Degree in Computer Science, and a Masters in
Business Administration in Finance from the University of Denver.
FLETCHER L. BYROM
Fletcher L. Byrom has been a Director of the Company since April
22, 1988. He is a retired Chairman (1970-1982) and Chief Executive
Officer (1967-1982) of Koppers Company, Inc. Mr. Byrom presently
serves in the following positions: President and Director of MICASU
Corporation.
GEORGE M. MIDDLEMAS
George M. Middlemas has been a Director of the Company since
April 1993. Mr. Middlemas is a general partner with the Apex
Investment Partners, a diversified venture capital management
group. From 1985 to 1991, Mr. Middlemas was Senior Vice President
of Inco Venture Capital Management, primarily involved in venture
capital investments for Inco. From 1979 to 1985, Mr. Middlemas was
a Vice President and a member of the Investment Committee of
Citicorp Venture Capital Ltd., where he sourced, evaluated and
completed investments for Citicorp. Mr. Middlemas is a director of
RSA Securities, Inc., Online Resources & Communications
Corporation, Tut Systems, Data Critical Inc., and Pennsylvania
State University - Library Development Board. Mr. Middlemas
received Bachelor degrees in History and Political Science from
Pennsylvania State University, a Masters degree in Political
Science from the University of Pittsburgh and a Master of Business
Administration from Harvard Business School.
RICHARD L. GUIDO
Mr. Guido has been a Director of the Company since July 1996. Mr.
Guido is Associate General Counsel of Inco Limited and President,
Chief Legal Officer and Secretary of Inco United States, Inc. Mr.
Guido is on the Board of Governors, Foreign Policy Association and
is a Director on the American-Indonesia Chamber of Commerce, and
the Canada-United States Law Institute. Mr. Guido received a
Bachelor of Science degree from the United States Air Force
Academy, a Master of Arts degree from Georgetown University, and a
Juris Doctor degree from the Catholic University of America.
None of the above persons is related to any other officer or
director of the Company. All directors are elected for one-year
terms which expire at the annual meeting of stockholders or until
their successors are elected and qualified. The Company's officers
are elected annually by the board of directors and hold office
until their successors are elected and qualified.
Mr. Middlemas was elected to the Company's board of directors
pursuant to the EPFund Voting Agreement. See "Security Ownership
of Certain Beneficial Owners and Management."
Mr. Guido was elected to the Company's board of directors
pursuant to the Inco Voting Agreement. See "Security Ownership of
Certain Beneficial Owners and Management."
Section 16(a) Beneficial Ownership Reporting Compliance
The Company's directors and executive officers and persons who
are beneficial owners of more than 10% of the Company's Common
Stock are required to file reports of their holdings and
transactions in Common Stock with the Securities and Exchange
Commission and furnish the Company with such reports. Based solely
upon its review of the copies the Company has received or upon
written representations from these persons, the Company believes
that, as of November 8, 1999 all of the Company's directors,
executive officers, and 10% beneficial owners had complied with the
applicable Section 16 (a) filing requirements.
Item 10. Executive Compensation
Annual Compensation
----------------------------------------------
Other
Name Annual
and Compen-
Principal Fiscal Salary Bonus sation
Position Year ($) ($) ($)
- --------------------------------------------------------------
Thomas P. Clark
Pres./CEO 1999 60,000 0 0
1998 60,000 0 0
1997 60,000 0 0
For all other executive officers, consisting of two persons,
total annual salary and bonuses were less than $100,000.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of November 8, 1999, the
beneficial ownership of the Company's issued and outstanding Common
Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series C1 Preferred Stock and Series C2
Preferred Stock by each person who owns of record (or is known by
the Company to own beneficially) 5% or more of each such class of
stock, by each director of the Company, each executive officer and
by all directors and executive officers as a group. Except as
otherwise indicated, the Company believes that each of the
beneficial owners of the stock listed has sole investment and
voting power with respect to such shares, based on information
provided by such holders.
Common Stock
Percent of
Name & Address of Number of Common Outstanding
Beneficial Owner Stock Shares Common Shares
- --------------------------- ----------------- -------------
Thomas P. Clark 27,264,854 32.9% (9)
5650 York Street, Commerce (18)
City, Colorado 80022
George Middlemas 1,000,000 1.3% (1)
2440 N. Lakeview Ave (11)
Chicago, IL 60614
Richard L. Guido 0 0% (9)
145 King Street West
Toronto, Ontario, Canada
Margaret S. Hansson 8,246,000 9.5% (2)
2220 Norwood Avenue (9)
Boulder, Colorado 80304
Fletcher L. Byrom 7,100,000 8.3% (3)
P.O. Box 1055 (9)
Carefree, AZ 85377
Mark W. Harding 6,960,000 8.9% (4)
5650 York Street, Commerce
City, Colorado 80022
INCO Securities Corporation 4,700,000 5.7% (5)
One New York Plaza (9)
New York, New York 10004
Apex Investment Fund II L.P. 16,754,500 18.8% (6)
233 S. Wacker Drive, (11)
Suite 9600 (12)
Chicago, Illinois 60606
Environmental Venture 6,278,181 7.7% (7)
Fund, L.P. (11)
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
Environmental Private Equity 7,142,320 8.6% (13)
Fund II, L.P. (16)
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
The Productivity 4,781,846 5.9% (8)
Fund II, L.P. (11)
233 S. Wacker Drive, Suite 9600
Chicago, Illinois 60606
Proactive Partners L.P. 3,579,052 4.4% (13)
50 Osgood Place, Penthouse
(17)
San Francisco, California 94133
All Officers and Directors 50,570,854 47.9% (12)
as a group (6 persons) (18)
(19)
(20)
Preferred Stock
<TABLE>
<CAPTION>
<S>
Number of Number of Number of
Series A Percentage Series B Percentage C, C1,C2 Percent of
Name and Address of Preferred Outstanding Preferred Outstanding Preferred Outstanding
Beneficial Owner Shares Shares Shares Shares Shares Shares
- ------------------ --------- ----------- --------- ----------- ---------- -----------
<C> <C> <C> <C> <C> <C>
Thomas P. Clark 346,000 80.0% (14)
5650 York Street,
Commerce City 3,200,000 100.0% (18)
80022 500,000 100.0% (19)
666,667 100.0% (20)
Apex Investment Fund
II L.P. 408,000 25.5%
233 S. Wacker Drive,
Suite 9600
Chicago, Illinois
60606
Environmental Private
Equity Fund II, L.P. 600,000 37.5%
233 S. Wacker Drive,
Suite 9600
Chicago, Illinois
60606
Proactive Partners
L.P. 500,000 31.5%
50 Osgood Place,
Penthouse
San Francisco,
California 94133
LC Holdings, Inc. 432,513 100.0%
5650 York Street,
Commerce City, Colorado
LCH, Inc. 86,503 20.0% (15)
5650 York Street,
Commerce City, Colorado
</TABLE>
(1) Includes 1,000,000 shares purchasable by Mr. Middlemas under
currently exercisable options.
(2) Includes 8,000,000 shares purchasable by Ms. Hansson under
currently exercisable options.
(3) Includes 3,000,000 shares purchasable under a currently
exercisable option by MICASU Aluminum, LLC which Mr. Byrom controls
as a manager and member and 1,000,000 shares purchasable under a
currently exercisable option by MICASU Corporation which Mr. Byrom
controls as President, Chief Executive Officer, and controlling
shareholder and 3,000,000 shares purchasable by Mr. Byrom under
currently exercisable options..
(4) Includes 6,750,000 shares purchasable by Mr. Harding under a
currently exercisable option.
(5) Includes 4,700,000 shares purchasable by Inco Securities
Corporation ("Inco") under currently exercisable warrants.
(6) Includes 8,506,198 shares purchasable by Apex Investment Fund
II, L.P. ("Apex") under a currently exercisable warrants.
(7) Includes 2,596,620 shares purchasable by Environmental Venture
Fund, L.P. ("EVFund") under a currently exercisable warrants.
(8) Includes 1,776,166 shares purchasable by Productivity Fund II,
L.P. ("PFund") under currently exercisable warrants.
(9) Pursuant to a voting agreement (the "Inco Voting Agreement")
dated December 11, 1990, Mr. Clark, Ms. Hansson and Mr. Byrom have
agreed to vote their shares of Common Stock in favor of electing a
representative designated by Inco to the Company's board of
directors. The Inco Voting Agreement remains in effect until
December 11, 2000. Mr. Guido is currently serving in the director
position elected pursuant to this Agreement.
(10) Intentionally omitted.
(11) Each of the Apex, EVFund, PFund, and EPFund (the "Apex
Partnerships") is controlled through one or more partnerships. The
persons who have or share control of such stockholders after
looking through one or more intermediate partnerships are referred
to herein as "ultimate general partners." The ultimate general
partners of Apex are: First Analysis Corporation, a Delaware
corporation ("FAC"), Stellar Investment Co. ("Stellar"), a
corporation controlled by James A. Johnson ("Johnson"); George
Middlemas ("Middlemas"); and Chartwell Holdings Inc. ("Chartwell"),
a corporation controlled by Paul J. Renze ("Renze"). The ultimate
general partners of EVFund are: FAC; F&G Associates ("F&G");
William D. Ruckelshaus Associates, a Limited Partnership ("WDRA");
and Banc America Robertson, Stephens & Co. ("BARS"). The ultimate
general partners of PFund are FAC and Bret R. Maxwell ("Maxwell").
The ultimate general partners of EPFund are FAC, Maxwell, RS,
Argentum Environmental Corporation ("AEC") and Schneur Z. Genack,
Inc. ("SZG").
The business address of FAC, Stellar, Johnson, Middlemas, and
Maxwell is 233 S. Wacker Drive, Suite 9600. Chicago Illinois 60606.
The business address of Renze and Chartwell is 20 N Wacker Dr.,
Suite 2200, Chicago IL 60606. Each of AEC and SZG maintains its
business address c/o The Argentum Group ("TAG"), 405 Lexington
Avenue, 54th Floor New York, New York 10174. The persons who take
actions on behalf of AEC and SZG with respect to their functioning
as ultimate general partners of EPEF are SZG, Daniel Raynor
("Raynor") and Walter H. Barandiaran ("Barandiaran"). Each of
Raynor and Barandiaran is principally employed as an executive of
TAG and maintains his business address at the TAG address. TAG's
principal business is Merchant banking. SZG is principally
employed as a private investor and maintains his business address
at 18 East 48th Street, Suite 1800, New York, New York 10017. The
business address of F&G and Harvey G. Felson ("Felson") who takes
actions on behalf of F&G with respect to its functioning as a
ultimate general partner of EVFund, is 123 Grove Avenue, Suite 118,
Cedarhurst, New York 11516. WDRA and Paul B. Goodrich the person
who takes action on behalf of WDRA with respect to its functions on
behalf of WDRA with respect to its functioning as general partner
of EVFund, maintains its business address at 1201 Third Avenue,
39th Floor, Seattle, Washington 98101. BARS maintains its business
address at One Embarcadero Center, San Francisco, California 94111.
BARS maintains its business address at 555 California St., San
Francisco, CA 94111. The person who takes actions on behalf of
BARS with respect to its functioning as an ultimate general partner
of EVF and EPEF is Charles R. Hamilton ("Hamilton"). Hamilton is
principally employed as a partner is BARS and maintains his
principal business address at BARS.
By reason of its status as a general partner or ultimate general
partner of each of Apex Partnerships, FAC may be deemed to be the
indirect beneficial owner of 34,956,847 shares of Common Stock, or
38.1% of such shares. By reason of his status as the majority
stockholder of FAC, F. Oliver Nicklin may also be deemed to be the
indirect beneficial owner of such shares. By reason of their
status as ultimate general partners of Apex, Stellar (and through
Stellar, Johnson, Middlemas, Chartwell and through Chartwell and
Renze) may be deemed to be the indirect beneficial owners of
16,754,500 shares of Common Stock, or 18.8% of such shares. When
these shares are combined with his currently exercisable option to
purchase 1,000,000 shares of Common Stock, Middlemas may be deemed
to be the beneficial owner (directly with respect to the option
shares and indirectly as to the balance) of 17,754,500 shares of
Common Stock, or 19.9% of such shares.
By reason of his status as an ultimate general partner of PFund
and EPFund, Maxwell may be deemed to be the indirect beneficial
owner of 11,924,166 shares of Common Stock, or 14.2% of such
shares.
By reason of F&G's and WDRA's status as an ultimate general
partners of EVFund, F&G, WDRA and their respective controlling
persons may be deemed to be the indirect beneficial owners of
6,278,181 shares of Common Stock, or 7.7% of such shares. By
reason of AEC's and SZG's status as ultimate general partners of
EPFund, AEC, SZG and their and their controlling persons may be
deemed to be the indirect beneficial owners of 7,142,320 shares of
Common Stock, or 8.7% of such shares. By reason of Genack's
interest in F&G, AEC and SZG, he may be deemed to be the indirect
beneficial owner of 13,420,501 shares of Common Stock, or 15.8% of
such shares.
By reason of BARS's status as a general partner of EVFund and an
ultimate general partner of EPFund, BARS and its controlling
persons may be deemed to be the indirect beneficial owners of
13,420,501 shares of Common Stock, or 15.8% of such shares.
Each of the Apex Partnerships disclaims beneficial ownership of
all shares of Common Stock described herein except those shares
that are owned by that entity directly. The Company understands
that each of the other persons named as an officer, director,
partner or other affiliate of any Apex Partnership herein disclaims
beneficial ownership of all the shares of Common Stock described
herein, except for Middlemas with respect to the option to purchase
1,000,000 shares held by him.
Each of the Apex Partnerships disclaims the existence of a
"group" among any or all of them and further disclaims the
existence of a "group" among any or all of them and any or all of
the other persons named as an officer, director, partner or those
affiliate of any of them, in each case within the meaning of
Section 13(d) (3) of the 1934 Act.
(12) Includes 22,750,000, shares purchasable by directors and
officers under currently exercisable options.
(13) Includes the conversion of 1,600,000 shares of Series A-1
Preferred Stock to Common Stock. Apex Investment Fund II, L.P.,
owning 408,000 shares of Series A Convertible Preferred Stock which
are currently convertible into 2,266,685 shares of Common Stock,
The Environmental Private Equity Fund II, L.P., owning 600,000
shares of Series A Convertible Preferred Stock which are currently
convertible into 3,333,360 shares of Common Stock, and Proactive
Partners, L.P., owning 500,000 shares of Series A-1 Convertible
Preferred Stock which are currently convertible to 2,777,800 shares
of Common Stock.
(14) Includes 346,010 shares of Series B Preferred Stock which Mr.
Clark. the Company's president, may be deemed to hold beneficially
by reason of his ownership of 80% of the common stock of LC
Holdings, Inc., the owner of 100% of the Series B Preferred Stock.
(15) Includes 86,503 shares of Series B Preferred Stock which LCH,
Inc. may be deemed to hold beneficially by reason of its ownership
of 20% of the common stock of LC Holdings, Inc., the owner of 100%
of the Series B Preferred Stock.
(16) Includes 322,264 shares purchasable by the Environmental
Private Equity Fund under a currently exercisable warrant.
(17) Includes 801,252 shares purchasable by Proactive Partners,
L.P. under a currently exercisable warrant.
(18) Includes 3,200,000 shares of Series C Preferred Stock, which
Mr. Clark, the Company's president owns which are convertible to
3,200,000 shares of common stock if the Company has sufficent
authorized but unissued shares of common stock.
(19) Includes 500,000 shares of Series C1 Preferred Stock , which
Mr. Clark, the Company's president owns which are convertible to
500,000 shares of common stock if the Company has sufficent
authorized but unissued shares of common stock
(20) Includes 666,667 shares of Series C2 Preferred Stock , which
Mr. Clark, the Company's president owns which are convertible to
666,667 shares of common stock if the Company has sufficent
authorized but unissued shares of common stock
Item 12. Certain Relationships and Related Transactions
From time to time since December 6, 1987, Thomas P. Clark, a
Director and President of the Company, loaned funds to the Company
to cover operating expenses. These funds have been treated by the
Company as unsecured debt, and the promissory notes with interest
at 8.36% to 9.01% per annum, issued to Mr. Clark on various dates
are payable October 15, 2000. To date, Mr. Clark has loaned the
Company $284,178 of which $43,350 has been repaid, leaving a
balance of $240,828. As of August 31, 1999, accrued interest on
the Notes totaled $182,672. All loans were made on terms
determined by the board members, other than Mr. Clark, to be at
market rates.
Additionally, LCH, Inc., a Delaware corporation which owns 20% of
LC Holdings, Inc. and is thereby affiliated with Mr. Clark, who
owns 80% of LC Holdings, Inc., loaned the Company a total of
$950,000 between November, 1988 and February, 1989. These funds
were represented by two Demand Promissory Notes (the "Notes") with
interest at a rate equal to the rate announced from time to time by
Mellon Bank, Pittsburgh, Pennsylvania as its "prime rate" plus 300
basis points from the date of the first advance thereunder until
maturity, payable quarterly beginning on the first day of April,
1989 and continuing thereafter on the first day of each subsequent
calendar quarter. No payments were made on the Notes. An April
25, 1989 Assumption of Obligations Agreement assigned the entire
debt of $950,000 to Rangeview Development Corp., which was a wholly-
owned subsidiary of the Company until it was dissolved in fiscal
1997 and further assigned $750,000 of that $950,000 to Rangeview
Company, L.P a limited partnership in which LCH held a 45% interest
and Rangeview Development Corporation held a 55% interest. In
February of 1991, LCH transferred its interest in Rangeview
Company, L.P. to the Company in exchange for a $4,000,000 profits
interest in the Rangeview Project paid subsequent to the first
$31,807,000 profits interest allocated to other investors. The
Company's wholly-owned subsidary Rangeview Development Corporation
was dissolved in August 1997. In connection with the Settlement
Agreement, LCH consented to be paid its $4,000,000 profits interest
from the sale or other disposition of the Export Water subsequent
to payment of $31,807,000 owed under the CAA. During fiscal year
ended August 31, 1998, the Company reached an agreement with LCH,
Inc. to defer payment of the principal amount of the Notes, plus
interest until October 1, 2000. No additional consideration is due
to LCH, Inc. for the deferral. The board members, other than Mr.
Clark, determined the transactions are at fair market value taking
into consideration the risk to LCH, Inc.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
3(a) Certificate of Incorporation of Registrant -
Incorporated by reference from Exhibit 4-A to Registration
Statement No. 2-65226.
3(a).1 Certificate of Amendment to Certificate of
Incorporation, filed August 31, 1987 - Incorporated by
reference from Annual Report on Form 10-K for the fiscal
year ended August 31, 1987.
3(a).2 Certificate of Amendment to Certificate of
Incorporation, filed May 27, 1988. Incorporated by
reference from Proxy Statement for the Annual Meeting held
April 22, 1988.
3(a).4 Certificates of Amendment to Certificate of
Incorporation filed April 13, 1993. Incorporated by
reference from Proxy Statement for Annual Meeting held
April 2, 1993.
3(a).6 Certificates of Amendment to Certificate of
Incorporation filed May 25, 1994 (Series A). Incorporated
by reference from Annual Report on Form 10-K for the fiscal
year ended August 31, 1994.
3(a).7 Certificates of Amendment to Certificate of
Incorporation filed August 31, 1994 (Series B).
Incorporated by reference from Annual Report on Form 10-K
for the fiscal year ended August 31, 1994
3(a).8 Certificates of Designation for the Series A-1
Preferred Stock Filed July 21, 1998.**
3(a).9 Certificates of Amendment to Certificate of
Incorporation filed September 2, 1998 (Series C).**
3(a).10 Certificates of Amendment to Certificate of
Incorporation filed November 5, 1999 (Series C1), filed
herewith.
3(a).11 Certificates of Amendment to Certificate of
Incorporation filed November 5, 1999 (Series C2), filed
herewith.
3(b) Bylaws of Registrant - Incorporated by reference
from Exhibit 4.c to Registration Statement No. 2-62483.
3(b).1 Amendment to Bylaws effective April 22, 1988.
Incorporated by reference from Annual Report on Form 10-K
for the fiscal year ended August 31, 1989.
4.1 Specimen Stock Certificate - Incorporated by
reference to Registration Statement No. 2-62483.
9.1 Voting Agreement dated December 11, 1991, by and among Inco
Securities Corporation, Thomas P. Clark, Margaret S.
Hansson, Fletcher L. Byrom and the Company.*
10.1 Agreement to defer payment of notes, dated June 6, 1998, by
and between LCH inc. and the Company.**
10.2 Equity Incentive Plan. Incorporated by references from
Proxy State for Annual Meeting held April 2, 1993.
10(h).2Service Agreement, dated April 19, 1996, by and
between the Company, and the District. ***
10(h).3Wastewater Service Agreement, dated January 22,
1998, by and between the Company, and the District.***
10(h).4Comprehensive Amendment Agreement No. 1, dated April
11, 1996, by and among ISC, the Company, the Bondholders,
Gregory M. Morey, Newell Augur, Jr., Bill Peterson, Stuart
Sundlun, Alan C. Stormo, Beverlee A. Beardslee, Bradley
Kent Beardslee, Robert Douglas Beardslee, Asra Corporation,
International Properties, Inc., and the Land Board. ***
27 Financial Data Schedule - filed herewith.
* Incorporated by reference from Annual Report on
Form 10-K for fiscal year ended August 31, 1991
** Incorporated by reference from Annual Report on Form
10-KSB for fiscal year ended August 31, 1998.
*** Incorporated by reference from Quarterly Report on
Form 10-QSB for the quarterly period ended May 31, 1996.
(b) The Company has not filed any reports on form 8-K during
the last quarter of fiscal 1999.
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.
PURE CYCLE CORPORATION
By: /s/ Thomas P. Clark
--------------------------
Thomas P. Clark, President
Date: November 25, 1999
In accordance with 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:
Signature Title Date
- ----------------------- ------------------ ------------------
/s/ Margaret S. Hansson Chairman, Vice November 25, 1999
- -----------------------
Margaret S. Hansson President, Director
/s/ Thomas P. Clark President, Treasurer, November 25, 1999
- ----------------------- Director
Thomas P. Clark
/s/ Mark W. Harding Principal Financial November 25, 1999
- ----------------------- Officer, Secretary
Mark W. Harding
/s/ Fletcher L. Byrom Director November 25, 1999
- -----------------------
Fletcher L. Byrom
/s/ George M. Middlemas Director November 25, 1999
- ------------------------
George M. Middlemas
/s/ Richard L. Guido Director November 25, 1999
- ------------------------
Richard L. Guido
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS DOCUMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THECOMPANY'S 10-QSB DATED August 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-END> AUG-31-1999
<CASH> 981,025
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 998,390
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,234,179
<CURRENT-LIABILITIES> 977,604
<BONDS> 0
<COMMON> 261,584
0
5,233
<OTHER-SE> 3,749,828
<TOTAL-LIABILITY-AND-EQUITY> 20,234,179
<SALES> 0
<TOTAL-REVENUES> 498,317
<CGS> 0
<TOTAL-COSTS> 429,028
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241,336
<INCOME-PRETAX> (361,272)
<INCOME-TAX> 0
<INCOME-CONTINUING> (361,272)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (361,272)
<EPS-BASIC> (0.01)
<EPS-DILUTED> 0
</TABLE>
. CERTIFICATE OF THE DESIGNATIONS, POWERS, PREFERENCES
AND RIGHTS OF
SERIES C-1 CONVERTIBLE PREFERRED STOCK
($.001 Par Value)
of
PURE CYCLE CORPORATION
______________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
______________________
PURE CYCLE CORPORATION, a Delaware corporation (the "Corporation")
, does hereby certify that the following resolutions were duly adopted
by the board of directors of the Corporation pursuant to authority conferred
upon the board of directors by Article IV of the Certificate of
Incorporation of the Corporation, which authorizes the issuance of up
to 25,000,000 shares of Preferred Stock, at a meeting of the board of
directors duly held on January 5, 1999
RESOLVED, that one series of the class of authorized Preferred Stock,
$.001 par value, of the Corporation is hereby created and that the
designations, powers, preferences and relative, participating, optional
or other special rights of the shares of such series, and qualifications,
limitations or restrictions thereof, are hereby fixed as follows:
1. Number of Shares and Designation. 500,000 shares of the Preferred
Stock, $.001 par value, of the Corporation are hereby constituted as a
series of the Preferred Stock designated as Series C-1 Convertible
Preferred Stock (the "Series C-1 Preferred Stock").
2. Liquidation.
A. Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Series C-1 Preferred
Stock will be entitled to share in any distribution or payment made to
the holders of Common Stock on a pro rata basis with the holders of the
Common Stock determined as if such holders had converted their Series C-1
Preferred Stock to Common Stock pursuant to Section 4 hereof immediately
prior to such liquidation, dissolution or winding up.
B. The Corporation will mail written notice of any distribution in
connection with such liquidation, dissolution or winding up, not less
than 60 days prior to the payment date stated therein, to each record
holder of Series C-1 Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all or any
part of its assets, nor the reduction of the capital stock of the
Corporation, will be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 2.
3. Dividends. The holders of the Series C-1 Preferred Stock will be
entitled to share in any dividend or distribution or payment made to
the holders of Common Stock on a pro rata basis with the holders of
the Common Stock determined as if such holders had converted their
Series C-1 Preferred Stock to Common Stock pursuant to Section 4 hereof
immediately prior to such dividend or distribution.
4. Conversion.
A. Right to Convert. Each share of Series C-1 Preferred Stock shall
be convertible, at the option of the holder thereof, at any time, into
1 fully paid and non-assessable share of Common Stock (the "Conversion
Rate"), provided that the Corporation has authorized but unissued shares
of Common Stock to deliver to the holders of the Series C-1 Preferred
Stock at the time of such conversion.
B. Fractional Shares. In the event the aggregate number of shares
of Series C-1 Preferred Stock being converted by a holder thereof is
convertible into a number of shares of Common Stock which would require
the issuance of a fractional interest in a share of Common Stock, the
Corporation shall deliver cash in the amount of the fair market value
of such fractional interest.
C. Accrued Dividends. If, at the time the holder of shares of
Series C-1 Preferred Stock exercises its right of conversion under
Section 4.A, such holder's shares of Series C-1 Preferred Stock have
accrued dividends which remain unpaid at the time of such conversion,
such holder's right to receive dividends on the shares so converted,
to the extent accrued but unpaid on the date of conversion, shall continue.
D. Mechanics of Conversion. Before any holder of the Series C-1
Preferred Stock shall be entitled to voluntarily convert the same into
shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation,
in the case of a conversion pursuant to Section 4.A above, shall give
written notice to the Corporation at such office that he or she elects
to convert the same and shall state therein his or her name or the name
or names of his or her nominees in which he or she wishes the certificates
certificates for shares of Common Stock to be issued. The Corporation shall,
as soon as pracitcable thereafter, issue and deliver at such office to such
holder of the Series C-1 Preferred Stock, or to his or her nominee or
nominees, a certificate or certificates for the number of shares of
Common Stock to which he or she shall be entitled as aforesaid. Any conversion
shall be deemed to have taken place at 5:01 Mountain Time on the date of such
surrender of the shares to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares
of Common Stock on such date; provided, however, that the right to receive
dividends on the shares so converted, to the extent accrued but unpaid on
the date of such conversion (whether or not declared), shall continue.
E. Adjustment for Combinations or Consolidations of Common Stock. In
the event the Corporation at any time or from time to time after the date
of issuance of any Series C-1 Preferred Stock effects a subdivision,
combination or reclassification of its outstanding shares of Common
Stock into a greater or lesser number of shares, then and in each such
event the Conversion Rate shall be increased or decreased proportionately.
F. Adjustments for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation
or the conveyance of all or substantially all of the assets of the
Corporation to another corporation or other person, provision shall be
made so that each share of the Series C-1 Preferred Stock shall thereafter
be convertible into the number of shares of stock or other securities or
property to which a holder of the number of shares of Common Stock of the
Corporat
of such Series C-1 Preferred Stock would have been entitled upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the board of directors) shall be made in
the application of the provisions herein set forth with respect to the
rights and interest thereafter of the holders of the Series C-1 Preferred
Stock, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the
Conversion Rate) shall
able, as nearly as they reasonably may be, in relation to any shares of
stock or other securities or property thereafter deliverable upon the
conversion of the Series C-1 Preferred Stock.
5. Voting.
A. Holders of the Series C-1 Preferred Stock shall have the right to
vote together with the Common Stock, and not separately as a class, for
the election of directors and upon all other matters to be voted on by
the holders of the Common Stock of the Corporation. Every holder of
shares of the Series C-1 Preferred Stock shall have the number of votes
equal to the number of shares of Common Stock that his or her shares of
Series C-1 Preferred Stock would be convertible into pursuant to Section
4 on the rec
h such shares are being voted.
B. At each meeting or at any adjournment thereof at which the holders
of the Series C-1 Preferred Stock have the right to vote as a class, the
presence, in person or by proxy, of the holders of a majority of the Series
C-1 Preferred Stock then outstanding will be required to constitute a quorum.
The vote of a majority of such quorum will be required to take any action
at such meeting. Cumulative voting by holders of Series C-1 Preferred
Stock is prohibited. In the absence of a quorum, a majority of the
y proxy of the Series C-1 Preferred Stock shall have the power to
adjourn the portion of the meeting related to that particular series for
a period of up to 30 days without notice other than announcement at the
meeting until a quorum shall be present.
6. Corporation's Right to Purchase Series C-1 Preferred Stock.
A. The Corporation shall have the right at any time to acquire any
Series C-1 Preferred Stock from the owner of such shares on such terms
as may be agreeable to such owner. Shares of Series C-1 Preferred Stock
may be acquired by the Corporation from any stockholder pursuant to this
Section 6.A without offering any other stockholder an equal opportunity
to sell his stock to the Corporation, and no purchase by the Corporation
from any stockholder pursuant to this Section 6.A shall be deemed to
create any r
lder to sell any shares of Series C-1 Preferred Stock (or any other stock)
to the Corporation. The purchase by the Corporation of shares of Series
C-1 Preferred Stock pursuant to this Section 6.A shall not be deemed for
any purpose to be a redemption. Such shares shall not be entitled to
receive dividends while held by the Company.
B. Notwithstanding the foregoing provisions of this Section 6, if a
dividend upon any shares of Series C-1 Preferred Stock is past due, the
Corporation shall not purchase or otherwise acquire any shares of Series
C-1 Preferred Stock, except (i) pursuant to a purchase or exchange offer
made on the same terms to all holders of the Series C-1 Preferred Stock,
or (ii) by conversion of shares of Series C-1 Preferred Stock into, or
exchange of such shares for, Common Stock.
7. Preemptive Rights. The holders of shares of Series C-1 Preferred
Stock are not entitled to any preemptive or subscription rights in
respect of any securities of the Corporation.
8. Notices. Any notice required hereby to be given to the holders
of shares of Series C-1 Preferred Stock shall be sufficiently given
if sent by telecopier, registered or certified mail, postage prepaid,
by express mail or by other express courier addressed to each holder
of record at his address appearing on the books of the Corporation.
All notices and other communications shall be effective (i) if mailed,
when received or three (3) days after mailing, whichever is earlier; (ii)
if sent by express mail
d (iii) if telecopied, when received by the telecopier to which
transmitted (a machine-generated transaction report produced by sender
bearing recipient's telecopier number being prima facie proof of receipt).
9. Transfer Costs. The Corporation shall pay any and all documentary
stamp and other transaction taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any shares of
Series C-1 Preferred Stock; provided, however, that the Corporation
shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue or delivery of shares of Common
Stock in a name other than that of the holder of the Series C-1
Preferred Stock to be converted and
be made unless and until the person requesting such issue or delivery
has paid to the Corporation the amount of any such tax or has established,
to the satisfaction of the Corporation, that such tax has been paid.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
of Designation this 5 day of JANUARY, 1999.
PURE CYCLE CORPORATION
By:
Thomas P. Clark, President
ATTEST:
By:
Mark W. Harding, Secretary
. CERTIFICATE OF THE DESIGNATIONS, POWERS, PREFERENCES
AND RIGHTS OF
SERIES C-2 CONVERTIBLE PREFERRED STOCK
($.001 Par Value)
of
PURE CYCLE CORPORATION
______________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
______________________
PURE CYCLE CORPORATION, a Delaware corporation (the "Corporation"),
does hereby certify that the following resolutions were duly adopted
by the board of directors of the Corporation pursuant to authority
conferred upon the board of directors by Article IV of the Certificate
of Incorporation of the Corporation, which authorizes the issuance of
up to 25,000,000 shares of Preferred Stock, at a meeting of the board
of directors duly held on September 7, 1999
RESOLVED, that one series of the class of authorized Preferred Stock,
$.001 par value, of the Corporation is hereby created and that the
designations, powers, preferences and relative, participating, optional
or other special rights of the shares of such series, and qualifications,
limitations or restrictions thereof, are hereby fixed as follows:
1. Number of Shares and Designation. 666,667 shares of the Preferred
Stock, $.001 par value, of the Corporation are hereby constituted as a
series of the Preferred Stock designated as Series C-2 Convertible
Preferred Stock (the "Series C-2 Preferred Stock").
2. Liquidation.
A. Upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, the holders of the Series C-2 Preferred
Stock will be entitled to share in any distribution or payment made to
the holders of Common Stock on a pro rata basis with the holders of the
Common Stock determined as if such holders had converted their Series
C-2 Preferred Stock to Common Stock pursuant to Section 4 hereof
immediately prior to such liquidation, dissolution or winding up.
B. The Corporation will mail written notice of any distribution in
connection with such liquidation, dissolution or winding up, not less
than 60 days prior to the payment date stated therein, to each record
holder of Series C-2 Preferred Stock. Neither the consolidation or
merger of the Corporation into or with any other corporation or
corporations, nor the sale or transfer by the Corporation of all or
any part of its assets, nor the reduction of the capital stock of the
Corporation, will be deemed to be
winding up of the Corporation within the meaning of this Section 2.
3. Dividends. The holders of the Series C-2 Preferred Stock will be
entitled to share in any dividend or distribution or payment made to
the holders of Common Stock on a pro rata basis with the holders of
the Common Stock determined as if such holders had converted their
Series C-2 Preferred Stock to Common Stock pursuant to Section 4
hereof immediately prior to such dividend or distribution.
4. Conversion.
A. Right to Convert. Each share of Series C-2 Preferred Stock
shall be convertible, at the option of the holder thereof, at any
time, into 1 fully paid and non-assessable share of Common Stock
(the "Conversion Rate"), provided that the Corporation has authorized
but unissued shares of Common Stock to deliver to the holders of the
Series C-2 Preferred Stock at the time of such conversion.
B. Fractional Shares. In the event the aggregate number of shares
of Series C-2 Preferred Stock being converted by a holder thereof is
convertible into a number of shares of Common Stock which would require
the issuance of a fractional interest in a share of Common Stock, the
Corporation shall deliver cash in the amount of the fair market value
of such fractional interest.
C. Accrued Dividends. If, at the time the holder of shares of Series
C-2 Preferred Stock exercises its right of conversion under Section 4.A,
such holder's shares of Series C-2 Preferred Stock have accrued
dividends which remain unpaid at the time of such conversion, such
holder's right to receive dividends on the shares so converted, to
the extent accrued but unpaid on the date of conversion, shall continue.
D. Mechanics of Conversion. Before any holder of the Series C-2
Preferred Stock shall be entitled to voluntarily convert the same
into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office
of the Corporation, in the case of a conversion pursuant to Section
4.A above, shall give written notice to the Corporation at such office
that he or she elects to convert the same and shall state therein his
or her name or the name or names of his or
e wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter,
issue and deliver at such office to such holder of the Series C-2
Preferred Stock, or to his or her nominee or nominees, a certificate
or certificates for the number of shares of Common Stock to which he
or she shall be entitled as aforesaid. Any conversion shall be deemed
to have taken place at 5:01 Mountain Time on the date of such surrender
of the shares to be conv
s entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date; provided,
however, that the right to receive dividends on the shares so converted,
to the extent accrued but unpaid on the date of such conversion
(whether or not declared), shall continue.
E. Adjustment for Combinations or Consolidations of Common Stock.
In the event the Corporation at any time or from time to time after
the date of issuance of any Series C-2 Preferred Stock effects a
subdivision, combination or reclassification of its outstanding
shares of Common Stock into a greater or lesser number of shares,
then and in each such event the Conversion Rate shall be increased
or decreased proportionately.
F. Adjustments for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another
corporation or the conveyance of all or substantially all of the
assets of the Corporation to another corporation or other person,
provision shall be made so that each share of the Series C-2 Preferred
Stock shall thereafter be convertible into the number of shares of stock
or other securities or property to which a holder of the number of shares
of Common Stock of the Corporat
of such Series C-2 Preferred Stock would have been entitled upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the board of directors) shall be made in
the application of the provisions herein set forth with respect to the
rights and interest thereafter of the holders of the Series C-2 Preferred
Stock, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the
Conversion Rate) shal
nearly as they reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the
conversion of the Series C-2 Preferred Stock.
5. Voting.
A. Holders of the Series C-2 Preferred Stock shall have the right
to vote together with the Common Stock, and not separately as a class,
for the election of directors and upon all other matters to be voted
on by the holders of the Common Stock of the Corporation. Every holder
of shares of the Series C-2 Preferred Stock shall have the number of
votes equal to the number of shares of Common Stock that his or her
shares of Series C-2 Preferred Stock would be convertible into
pursuant to Section 4 on the rec
h such shares are being voted.
B. At each meeting or at any adjournment thereof at which the
holders of the Series C-2 Preferred Stock have the right to vote as
a class, the presence, in person or by proxy, of the holders of a
majority of the Series C-2 Preferred Stock then outstanding will be
required to constitute a quorum. The vote of a majority of such
quorum will be required to take any action at such meeting. Cumulative
voting by holders of Series C-2 Preferred Stock is prohibited. In the
absence of a quorum, a majority of the
y proxy of the Series C-2 Preferred Stock shall have the power to
adjourn the portion of the meeting related to that particular series
for a period of up to 30 days without notice other than announcement
at the meeting until a quorum shall be present.
6. Corporation's Right to Purchase Series C-2 Preferred Stock.
A. The Corporation shall have the right at any time to acquire
any Series C-2 Preferred Stock from the owner of such shares on such
terms as may be agreeable to such owner. Shares of Series C-2
Preferred Stock may be acquired by the Corporation from any stockholder
pursuant to this Section 6.A without offering any other stockholder an
equal opportunity to sell his stock to the Corporation, and no purchase
by the Corporation from any stockholder pursuant to this Section 6.A
shall be deemed to create any r
lder to sell any shares of Series C-2 Preferred Stock (or any other stock)
to the Corporation. The purchase by the Corporation of shares of Series
C-2 Preferred Stock pursuant to this Section 6.A shall not be deemed for
any purpose to be a redemption. Such shares shall not be entitled to
receive dividends while held by the Company.
B. Notwithstanding the foregoing provisions of this Section 6, if a
dividend upon any shares of Series C-2 Preferred Stock is past due, the
Corporation shall not purchase or otherwise acquire any shares of Series
C-2 Preferred Stock, except (i) pursuant to a purchase or exchange offer
made on the same terms to all holders of the Series C-2 Preferred Stock,
or (ii) by conversion of shares of Series C-2 Preferred Stock into, or
exchange of such shares for, Common Stock.
7. Preemptive Rights. The holders of shares of Series C-2 Preferred
Stock are not entitled to any preemptive or subscription rights in
respect of any securities of the Corporation.
8. Notices. Any notice required hereby to be given to the holders
of shares of Series C-2 Preferred Stock shall be sufficiently given
if sent by telecopier, registered or certified mail, postage prepaid,
by express mail or by other express courier addressed to each holder
of record at his address appearing on the books of the Corporation.
All notices and other communications shall be effective (i) if mailed,
when received or three (3) days after mailing, whichever is earlier;
(ii) if sent by express mail
vered; and (iii) if telecopied, when received by the telecopier to
which transmitted (a machine-generated transaction report produced
by sender bearing recipient's telecopier number being prima facie
proof of receipt).
9. Transfer Costs. The Corporation shall pay any and all
documentary stamp and other transaction taxes attributable to the
issuance or delivery of shares of Common Stock upon conversion of
any shares of Series C-2 Preferred Stock; provided, however, that
the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery
of shares of Common Stock in a name other than that of the holder of
the Series C-2 Preferred Stock to be converted and
be made unless and until the person requesting such issue or delivery
has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax
has been paid.
IN WITNESS WHEREOF, the undersigned have executed this Certificate
of Designation this 7 day of September, 1999.
PURE CYCLE CORPORATION
By:
Thomas P. Clark, President
ATTEST:
By:
Mark W. Harding, Secretary
