As filed with the Securities and Exchange Commission on June 20, 2000
Registration Statement No. 333-_________
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------
FORTUNE NATURAL RESOURCES CORPORATION
-------------------------------------
(Exact Name of Registrant as specified in its charter)
DELAWARE 95-4114732
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
515 WEST GREENS ROAD, SUITE 720 HOUSTON, TEXAS 77067 (281) 872 1170
-------------------------------------------------------------------
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
DEAN W. DRULIAS, ESQ.
FORTUNE NATURAL RESOURCES CORPORATION
515 WEST GREENS ROAD, SUITE 720
HOUSTON, TEXAS 77067
(281) 872-1170
-------------------------------------------------------------------
(Name, address - including zip code, and telephone number, including
area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ X ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be to be Offering Price(1)(2) Aggregate Offering Registration
Registered Registered Per Share Price Fee
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
$0.01 par value 982,132 shares $0.75 $736,599 $205
Common Stock
$0.01 par value 524,167 shares $1.50 $786,251 $219
Common Stock
$0.01 par value 524,164 shares $2.25 $1,179,369 $328
--------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of
the registration fee.
(2) Pursuant to Rule 457(g) and (j) of the General Rules and Regulations under
the Securities Act of 1933, as amended, the proposed maximum offering
price per share is based upon the average of the price at which the shares
were issued in February and March 2000 and the exercise prices of warrants
issued in February through May 2000 which are also convertible into the
shares.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the SEC, acting pursuant to Section 8(a),
may determine.
This Registration Statement is comprised of 17 pages.
The Exhibit Index appears on Page S-1.
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN FORM S-3 LOCATION IN PROSPECTUS
---------------- ----------------------
<S> <C> <C>
ITEM 1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.................................... Cover Page, Cross-Reference Sheet,
Outside Front Cover of Prospectus
ITEM 2. Inside Front and Outside Back Cover Pages of Prospectus..... Inside Front and Outside Back Cover
Pages of Prospectus
ITEM 3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges.............................................. As Applicable: Cover Page, Fortune
ITEM 4. Use of Proceeds............................................. Use of Proceeds
ITEM 5. Determination of Offering Price............................. Not Applicable
ITEM 6. Dilution.................................................... Not Applicable
ITEM 7. Selling Security Holders.................................... Plan of Distribution
ITEM 8. Plan of Distribution........................................ Plan of Distribution
ITEM 9. Description of Securities to be Registered.................. Incorporation of Information by
Reference
ITEM 10. Interests of Named Experts and Counsel...................... Experts
ITEM 11. Material Changes............................................ Fortune
ITEM 12. Incorporation of Certain Information by Reference........... Incorporation of Information by
Reference
ITEM 13. Disclosure of SEC Position on Indemnification for
Securities Act Liabilities................................. Plan of Distribution
</TABLE>
ii
<PAGE>
2,030,463 S H A R E S
FORTUNE NATURAL RESOURES CORPORATION
(COMMON STOCK - $.01 PAR VALUE)
------------------------------
The shares of Fortune common stock, $.01 par value covered by this
prospectus may be offered for sale from time to time by certain selling
shareholders of Fortune Natural Resources Corporation. Fortune will not receive
any proceeds from the sale of shares by the selling shareholders.
The selling shareholders include persons or entities who, in February
through May 2000, acquired shares and warrants convertible into shares of
Fortune common stock in a private placement under Regulation D and who received
common stock as a premium for the conversion of their notes into common stock.
(SEE "PLAN OF DISTRIBUTION.")
The expenses incurred in registering these shares, including legal and
accounting fees, will be paid by Fortune. To Fortune's knowledge, the selling
shareholders have made no arrangement with any brokerage firm for the sale of
these shares. The selling shareholders may be deemed to be "underwriters" within
the meaning of the Securities Act of 1933, as amended. Any commissions received
by a broker or dealer in connection with resale of theses shares may be deemed
to be underwriting commissions or discounts under the Securities Act of 1933.
The common stock is listed on the over-the-counter bulletin board. On June 19,
2000, the closing price of the common stock was $0.70 per share.
These shares of common stock have not been registered for sale under the
securities laws of any state or other jurisdiction as of the date of this
Prospectus. Brokers or dealers effecting transactions in the common stock should
confirm the registration of the common stock under the securities laws of states
in which such transactions occur or the existence of an exemption from such
registration, or should cause such registration to occur in connection with any
offer or sale of the common stock.
Investment in the common stock entails certain risks. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------------------------------------------------------
Price to Public Underwriting Discount Proceeds to Company(1)
--------------- -------------------- -------------------
Per share N/A N/A $N/A
Total $ N/A N/A $N/A
--------------------------------------------------------------------------------
(1) None. All proceeds will be received by the selling shareholders, who will
bear all commissions payable to brokers or dealers in connection with the
sale of shares. Fortune will bear all costs of the offering estimated at
$10,000.
------------------------------
The date of this Prospectus is ______________, 2000.
<PAGE>
ADDITIONAL INFORMATION
Fortune files annual, quarterly and special reports, as well as
registration and proxy statements and other information, with the Securities and
Exchange Commission. You may read and copy any document filed with the SEC by
Fortune, including this registration statement on Form S-3 and exhibits, at the
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 or at
the SEC's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You can get further information from the SEC's
Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding companies like Fortune that are filed
electronically with the SEC.
This prospectus is part of a registration statement on Form S-3 filed by
Fortune with the SEC under the Securities Act of 1933 with respect to this
offering of common stock. This prospectus, which is a part of the registration
statement on Form S-3, does not contain all of the information filed with the
SEC. For a fuller understanding of this offering, you may wish to see the
complete registration statement on Form S-3 that may be obtained from the
locations described above.
INCORPORATION OF INFORMATION BY REFERENCE
There is hereby incorporated by reference in this prospectus and made a
part hereof Fortune's (1) Annual Report on Form 10-KSB/A for the year ended
December 31, 1999, (2) Quarterly Report on Form 10-QSB for the period ended
March 31, 2000 and (3) Forms 8-K filed on February 8, April 12, May 16, May 18,
May 31, and June 19, 2000.
There is also hereby incorporated by reference in this prospectus and made
a part hereof Fortune's Registration Statement on Form 8-A filed on September
13, 1993, which describes the common stock.
All documents filed by Fortune pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the common stock shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or to be incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this prospectus to the extent that a statement
contained herein modifies, supersedes or replaces such statement. Any statements
modified or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this prospectus.
No person is authorized to give any information or make any
representations other than those contained in the prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by Fortune. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the registered shares
to which it relates or an offer to sell or a solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of Fortune since the date hereof or that the information
contained herein is correct as of any time subsequent to its date.
2
<PAGE>
FORTUNE
BUSINESS AND STRATEGY
Fortune Natural Resources Corporation is an independent oil and gas
company whose primary focus is exploring and developing domestic oil and gas.
Fortune is active principally in areas onshore and offshore Louisiana and Texas,
including the relatively shallow transition zone. It uses modern geophysical
technology and advanced interpretation techniques in these areas in an attempt
to make new discoveries in areas of proven historical production.
Fortune participates generally as a non-operator of relatively small
interests in a variety of exploration and development projects. We use
state-of-the-art technologies, including three dimensional seismic and
computer-aided exploration technology, wherever possible because we believe that
these techniques have undergone important technological advances in recent years
and that their use can provide us with a more accurate and complete prospect
evaluation. This is intended to increase the likelihood of finding commercial
quantities of oil and gas at lower average reserve finding costs.
Our strategy is to invest in a diversified portfolio of oil and gas
exploration and development properties within our areas of interest, since doing
so mitigates the risks of exploration drilling. In furtherance of this strategy,
Fortune has developed working relationships with other independent resource
companies operating in its areas of interest and has acquired interests in
exploration projects, which are currently in various stages of evaluation,
acquisition and preparation for drilling.
All of our current and proposed exploration activities involve a high
degree of risk, including the risk that we will make substantial investments in
properties and wells without achieving commercial production. While Fortune
attempts to manage exploration risk through careful evaluation of potential
investments and diversification, the company's efforts may not result in
successful development of oil or gas wells.
Fortune's principal executive offices are located at 515 West Greens Road,
Suite 720, Houston, Texas 77067. Our telephone number at that address is (281)
872-1170. In 1997 Fortune changed its name from Fortune Petroleum Corporation to
"Fortune Natural Resources Corporation," the name under which Fortune previously
operated in Louisiana and Texas.
RISK FACTORS
This prospectus contains forward-looking statements. Forward-looking
statements include statements regarding future oil and gas production and
prices, future exploration and development spending, future drilling and
operating plans, reserve and production potential of Fortune's properties and
prospects and Fortune's business strategy. Actual events or results could differ
materially from those discussed in the forward-looking statements as a result of
various factors including the risk factors described below. An investment in
Fortune's common stock involves a high degree of risk. You should not acquire
our stock unless you can afford to lose your entire investment. As a prospective
investor you should carefully consider all of the information contained in this
prospectus or incorporated by reference, including the following risk factors:
3
<PAGE>
RISKS ASSOCIATED WITH FORTUNE
FORTUNE'S FINANCIAL POSITION. At March 31, 2000, Fortune had $2,295,000 of
12% subordinated convertible notes outstanding. Such convertible subordinated
notes are due December 31, 2007. Fortune has realized net losses for many years,
resulting in an accumulated deficit of $28 million at March 31, 2000. As a
result of depleting reserves and the sale of Fortune's interest in East Bayou
Sorrel in March 1998, Fortune has realized negative operating cash flows of
$656,000 and $616,000 in calendar years 1999 and 1998, respectively, and
$192,000 in the first quarter of 2000. In February and March 2000, Fortune took
steps to improve its short term liquidity by raising $782,000 through the sale
of common stock and the exercise of common stock warrants. Also during February
and March 2000, $930,000 of Fortune's 12% convertible notes were converted to
common stock. The remaining notes are convertible into common stock at $0.75 per
share.
Also in February 2000, the producing well at South Timbalier Block 86 was
recompleted and by June 2000, was producing approximately 20 million cubic feet
of gas and 100 barrels of condensate per day. Fortune owns a 3.167% overriding
royalty interest, which converts to 4% after payout, in the well. At current
production levels and prices, the well is expected to add significantly to
Fortune's revenue and cash flow. Gas prices have also increased significantly
since year end 1999 and the first quarter of 2000. Oil prices have also remained
in the $26 to $30 per barrel range.
As a result of these transactions and the higher production and prices, we
believe that Fortune has the capital resources to maintain its operations over
the next year. However, based on historical operating results and the
uncertainties of projecting long term production and cash flows from current oil
and gas prices and reserves, Fortune's cash flow could decrease again and we may
not be able to repay the remaining $2,295,000 of convertible subordinated notes
when they become due on December 31, 2007. We believe that Fortune's operating
cash flow will continue to increase if we are successful in exploiting our
inventory of projects or acquiring producing properties. However, no assurances
can be given that cash flow will increase or that it will be sufficient to
enable Fortune to repay the convertible subordinated notes at December 31, 2007.
In the event that Fortune's operating cash flow decreases unexpectedly,
drilling is unsuccessful or management determines to accelerate the growth plans
for Fortune, we will require additional equity and debt financing to fund our
continuing operations. Fortune's projections of production, cash flow and
capital requirements are based upon numerous assumptions about the future,
including: oil and gas prices, production decline rates, costs, absence of major
operating disruptions and catastrophes, timing of projects and markets for our
production. See the additional risk factors herein for a discussion of risks
associated with Fortune and future projections made by us. There is no assurance
that our assumptions will be accurate. If we experience significant unexpected
decreases in cash flow or increases in capital requirements, and we are unable
to raise capital, we will need to take other steps to maintain our viability
over the next year. Those steps might include reducing overhead further,
foregoing our participation in projects or selling assets. Fortune has been
successful in the past in raising capital to fund its operations and/or repay
debt balances substantially greater than that currently outstanding. For
example, from 1995 through March 31, 2000, Fortune raised over $15 million
through the issuance of common stock (most of which was raised in 1995), reduced
its total debt by $4.8 million and virtually eliminated its current maturities
of long-term debt. Furthermore, Fortune's debt balance at March 31, 2000 was the
lowest it has been since 1991. Although there is no assurance Fortune will be
successful in raising capital in the future to fund its activities, management
will continue to look for opportunities to improve Fortune's financial
condition.
FORTUNE'S RELIANCE ON EXPLORATORY PROJECTS INCREASES THE RISKS INHERENT IN
THE OIL AND GAS INDUSTRY. We base our decisions to participate in exploration
projects on assumptions and judgments concerning the oil and gas industry, such
as future oil and gas prices, competition for leases, reserves, and equipment,
and our perceived risk of success. These assumptions and judgments may be
speculative and are often subjective. Although we can obtain information with
respect to the potential of oil or gas properties, it is impossible to determine
with certainty the ultimate production potential, if any, of a particular
project. Moreover, the successful completion of an oil or gas well does not
insure a profit on our investment, since completion and production expenses may
exceed expectations. We primarily invest in exploration projects, where the
risks are substantially greater than investing in wells drilled into already
producing formations. We anticipate that one or more of our next wells will be
designed to test the deeper formations beneath known production in Espiritu
Santo Bay. These formations have not been extensively tested to date, leaving
seismic imaging and the well data
4
<PAGE>
from the recently drilled State Tract 210 #6 as the only data available to aid
in understanding subsurface geology. The exploration risks, therefore, are
higher on this project than they might be where a greater number of underground
references exist. Fortune has realized less success than originally anticipated
in some of its recent prospects, and we expect that a substantial number of our
future projects could experience similar results.
FORTUNE HAS INCURRED NET LOSSES FOR EACH OF THE LAST THREE years. Fortune
has incurred substantial net losses in each of the last three years and during
the first quarter of 2000. Although we made significant budget cuts recently,
oil and gas prices remain volatile and our production has declined. This makes
it likely that these losses will continue.
FORTUNE IS NOT CURRENTLY REPLACING ALL OF ITS EXISTING reserves. Producing
oil and gas reserves are depleting assets. Fortune's future cash flow and income
are highly dependent on our ability to find or acquire additional reserves to
replace those being currently produced. We are not adding reserves at present at
the same pace at which they are being produced. Without adding additional
reserves in the future, our oil and gas reserves and production will continue to
decline.
OUR REVENUE IS DEPENDENT UPON A LIMITED NUMBER OF PRODUCING WELLS. During
1999, approximately one-third of our oil and gas revenues, cash flow, and proved
oil and gas reserves were accounted for by a single well at South Timbalier
Block 76. In June 2000, the producing well at South Timbalier Block 86 is
estimated to comprise about 50% of our cash flow from oil and gas production
whereas the South Timbalier Block 76 well is now estimated to comprise less than
10%. The currently producing sand in the South Timbalier Block 86 well has been
producing only since February 2000. Because of the limited production history
from this zone, Fortune is unable to predict how long the current high rate will
last or how long the well will produce. A significant curtailment or loss of
production from the South Timbalier Block 86 well for a prolonged period before
we could replace the reserves through new discoveries or acquisitions would have
a material adverse effect on our projected operating results and financial
condition.
OUR NEED FOR WORKING CAPITAL MAY AFFECT OUR LEVEL OF PARTICIPATION IN
VARIOUS PROJECTS. Investment in oil and gas exploration requires the commitment
of substantial amounts of capital over significant periods of time. For the
three-year period ended December 31, 1999, Fortune incurred approximately $9
million of capital costs in its oil and gas exploration, development and
acquisition activities. It is very difficult for small-cap energy companies to
raise additional funds because of the recent depressed state of the oil and gas
industry. Fortune does not have sufficient liquid capital resources to
participate at its existing working interest level if the operators of any of
its properties propose an accelerated drilling schedule. If Fortune fails to
participate in the capital expenditures for any project, its interest in that
project will be substantially reduced or lost entirely.
FORTUNE IS DEPENDENT ON OPERATORS, CONSULTANTS AND PARTNERS OVER WHOM IT
HAS LITTLE CONTROL. Since we do not operate our projects, we are dependent on
other oil and gas companies to conduct operations in a prudent, competent, and
timely manner. Although we are actively involved in project evaluations, we
often have little or no control over the manner or timing of such operations. If
the operator is not prudent, we could incur additional costs to conduct remedial
procedures or we could lose our investment in a property altogether. Because we
employ a variety of technological approaches to our geologic, geophysical, and
engineering evaluation of properties and projects, we rely heavily on outside
consultants for their expertise. Fortune has no long-term agreements with such
consultants, all of whom are available to other oil and gas companies, including
our competitors. In the current environment of volatile oil and gas prices, our
partners may determine that projects that have previously been agreed upon are
no longer economically feasible. If this were to occur, projects could be
delayed or cancelled. If, on the other hand, projects are accelerated because of
high oil and gas prices, Fortune may not have the capital resources to
participate.
5
<PAGE>
ACCOUNTING RULES MAY RESULT IN ADDITIONAL WRITE-DOWNS OF PROPERTY VALUES.
We report our operations using the full-cost method of accounting for oil and
gas properties. Under these rules, all exploration and development costs are
capitalized. The net capitalized costs of properties may not exceed a "ceiling"
limit of the tax-effected present value of estimated future net revenues from
proved reserves, discounted at 10%, plus the lower of cost or fair market value
of unproved properties. This requires calculating future revenues at the
unescalated prices in effect as of the end of each fiscal quarter. A write-down
is required if the net capitalized costs of the properties exceed the ceiling
limit, even if price declines are only temporary. The risk that we will be
required to write down the carrying value of our properties increases when oil
and gas prices are depressed or unusually volatile or when previously
unevaluated properties carried at cost are determined to be worth less than
their cost. For example, we recognized a $3.7 million impairment in 1997 and a
$960,000 impairment for in 1998. As a result of continued volatile oil and gas
prices, we may incur further impairments.
OUR PROVED PROPERTIES ARE PLEDGED TO SECURE DEBT. Substantially all of our
proved properties are pledged to secure our bank credit facility. If we fail to
pay the principal or interest to the bank or breach the financial covenants
under our credit facility, we could lose our principal producing properties. The
entire principal balance of the credit facility is due January 11, 2001.
Although the current balance is only $10,000, we may borrow additional amounts
if the bank approves. If our operating activities are significantly curtailed or
our financial position weakens significantly and we are unable to repay such
debt when it is due, our properties could be seized through a foreclosure.
THERE ARE UNINSURED RISKS IN OUR OPERATIONS THAT COULD CAUSE MATERIAL
LOSSES. The operators of our projects are required to carry insurance against
certain risks of oil and gas operations. We normally pay our proportionate share
of the premiums for such insurance and are named as an additional insured under
the policy. In addition to such insurance, we also carry insurance against
operating risks such as pollution control and blowouts. However, we may not be
fully insured against all risks because such insurance is not available, is not
affordable, or losses may exceed policy limits.
FORTUNE DEPENDS ON A KEY OFFICER. Fortune depends to a large extent on the
abilities and continued participation of its President and Chief Executive
Officer, Tyrone J. Fairbanks. The loss of Mr. Fairbanks could have a material
adverse effect on Fortune. In an effort to reduce the risk, Fortune has entered
into an employment agreement with Mr. Fairbanks that expires six months
following a notice of termination. No such notice has been given to date.
Fortune also has obtained $500,000 of key man life insurance on the life of Mr.
Fairbanks.
RISKS ASSOCIATED WITH THE OIL AND GAS INDUSTRY
OIL AND GAS PRICES ARE VOLATILE AND HAVE BEEN DEPRESSED recently. Our
revenues, profitability and future rate of growth depend on prevailing market
prices for oil and gas, which can be extremely volatile. In addition to market
factors, actions of state and local agencies, the United States and foreign
governments, and international cartels affect oil and gas prices. All of these
factors are beyond our control. These external factors and the volatile nature
of the energy markets make it difficult to estimate future prices of oil and
gas. Current price levels, especially for oil, have rebounded from historically
low levels but may not remain at these levels. We may not be able to produce our
oil or gas on an economic basis under certain market conditions. Any additional
substantial or extended decline in the price of oil and/or gas would have a
material adverse effect on our financial condition and results of operations,
including reduced cash flow and borrowing capacity, and could reduce both the
value and the amount of Fortune's oil and gas reserves.
FORTUNE'S PRODUCTION MAY DIFFER MARKEDLY FROM ESTIMATES OF PROVED RESERVES
AND FUTURE NET REVENUES. Estimating quantities of proved reserves and projecting
future rates of production and timing of development expenditures involve many
uncertainties and factors beyond our control. Fortune's proved reserves are
estimates. These estimates are based upon assumptions about future production
levels, future oil and gas prices and future operating costs using currently
available geologic, engineering, and economic data. These assumptions may prove
to be incorrect over time. As assumptions change or actual results differ from
projections, the quantity of proved reserves may be revised downward or upward.
In addition, different engineers, or the same engineers at different times, may
arrive at significantly different estimates of proved reserves for a particular
property and different classifications of such reserves by risk category.
6
<PAGE>
OIL AND GAS LEASES MAY BE SUBJECT TO DIFFERING AND ADVERSE
INTERPRETATIONS. We lease all of our oil and gas properties from third parties
under various oil and gas lease contracts. There are many versions of oil and
gas leases in use. We acquired our properties, in most cases, from other
companies who first entered into leases with the landowners. These leases
generally call for annual rental payments and the payment of a percentage
royalty on the oil and gas produced. Courts in many states have interpreted oil
and gas leases to include various implied covenants, including an implied
obligation to develop the lease diligently, to prevent drainage of oil and gas
by wells on adjacent land, to seek markets for production, and to operate
prudently according to industry standards. Leases with similar language may be
interpreted quite differently depending on the state in which the property is
located. We believe we and our operators have followed industry standards in
interpreting our leases in the states where we operate, but those leases may
still be the subject of litigation concerning the meaning of their terms.
Adverse decisions could result in material costs or the loss of one or more
leases.
These leases typically have a primary term of three to five years. If a
productive well is drilled, the lease is extended for the life of the
production. All of the non-producing leases covering our exploration projects
will expire over the next one to five years. If productive wells are not drilled
on these projects before that time, the leases will terminate and we will lose
our entire investment in the leases. We may not be able to drill or farm out all
of our exploration leases prior to their expiration.
WEATHER, UNEXPECTED SUBSURFACE CONDITIONS, AND OTHER UNFORESEEN OPERATING
HAZARDS MAY ADVERSELY IMPACT OUR SHORT-TERM ABILITY TO CONDUCT BUSINESS. A
variety of factors, including unexpected drilling conditions, equipment
failures, accidents and adverse weather conditions may curtail, delay, or cancel
our operations. We may encounter unexpected downhole formations or pressures,
corrosive or hazardous substances, mechanical equipment failure, blowouts,
cratering, or fires, any of which could result in damage to formations,
producing facilities or other property, or could result in personal injuries,
loss of life or environmental pollution. Any such event could result in
substantial loss that could have a material adverse effect on our financial
condition. In 1996 and 1997, we experienced mechanical failures of downhole
equipment at Fortune's South Timbalier Block 76 well. As a result of these
equipment failures, the well was shut in for approximately two months in 1996
and one month in 1997, and we incurred significant repair costs. In the past, we
have also experienced temporary production shut-ins and operating delays as a
result of hurricane activity in the Gulf of Mexico. Although such operational
risks and hazards may to some extent be minimized, no combination of experience,
knowledge and scientific evaluation can eliminate the risk of investment or
assure a profit to any company engaged in oil and gas operations.
COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT REGULATIONS COULD BE
COSTLY AND NEGATIVELY IMPACT PRODUCTION. We have never experienced a significant
environmental mishap, but accidental releases of oil or natural gas could occur
which could create material liability to Fortune for clean-up expenses and
penalties. Numerous federal, state and local laws and regulations regulate our
business. Compliance with these laws and regulations is expensive and may result
in a decrease in the amount of production we obtain. For example, state
conservation laws regulate the rates of production from oil and gas wells for
the purpose of ensuring maximum production of the resource. Such regulations may
require us to produce certain wells at less than their maximum flow rate. State
law also governs the apportionment of production among property owners and
producers where numerous wells may be producing from a single reservoir. Rulings
in these proceedings may allocate production in a particular reservoir in a
manner that decreases our share of production. Other regulations prevent us from
freely conducting operations at all times during the year, such as those
protecting the whooping crane habitat which occupies a portion of our Espiritu
Santo Bay area of interest.
OUR RELATIVELY SMALL SIZE MAY MAKE US LESS ABLE TO COMPETE IN THIS
ECONOMIC ENVIRONMENT. The oil and gas exploration, production and acquisition
business is highly competitive. A large number of companies and individuals
engage in acquiring properties or drilling for oil and gas, and there is much
competition for desirable oil and gas prospects and properties. There is also
competition between the oil and gas industry and other industries in supplying
the energy and fuel requirements of industrial, commercial, residential and
other consumers. Many of our competitors have greater financial and other
resources than do we. These financial resources are even more important during
times when commodity prices are low, since low prices mean that we are less able
to cover our fixed costs. We would like to acquire additional producing reserves
to increase our cash flow and our borrowing base; however, our limited cash
reserves and low stock price reduce our ability to do so.
7
<PAGE>
SHORTAGES OF SUPPLIES AND EQUIPMENT MAY INTERRUPT PRODUCTION. Our ability
to conduct operations in a timely and cost effective manner is subject to the
availability of oil and gas operations equipment, supplies, and service crews.
The industry has recently experienced a shortage of certain types of drilling
rigs and workboats in the Gulf of Mexico. This shortage has and may continue to
result in delays in Fortune's operations as well as higher operating and capital
costs. In recent years, low commodity prices have reduced the number of wells
being drilled. This, in turn, has forced service companies to mothball or
drydock significant numbers of rigs and other equipment, making shortages worse.
These shortages could continue to occur from time to time, further hindering our
ability to conduct operations as planned.
RISKS ASSOCIATED WITH THIS OFFERING
THE MARKET FOR FORTUNE COMMON STOCK IS LIMITED. Fortune's common stock
trades on the over-the-counter bulletin board under the symbol FPXA. Although
there are currently eight firms making a market in the Fortune stock, the daily
trading volume may be insufficient to allow shareholders to easily liquidate
large holdings at a desirable price.
THE NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE COULD POTENTIALLY DILUTE THE
PRICE OF FORTUNE STOCK. At May 31, 2000, 16,356,802 shares of our common stock
were outstanding, of which 13,244,341 shares were freely tradeable and 3,112,461
shares were "restricted securities" as that term is defined in Rule 144 under
the Securities Act. At that date, we also had outstanding options and private
warrants to acquire 11,421,889 shares of common stock. We also had $2,295,000 of
notes convertible into 3,060,004 shares of common stock, subject to adjustment.
Issuing substantial additional shares or sales of substantial amounts of the
common stock in the public market could adversely affect the market price of
Fortune's common stock.
FORTUNE'S STOCK PRICE MAY BE VOLATILE. The market price of our common
stock may be subject to significant fluctuations in response to drilling results
and the financial results of operations. Developments affecting the oil and gas
industry generally, including national and international economic conditions and
government regulation, could also have a significant impact on the market price
of our stock. In addition, the stock market in recent years has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies and the price of
Fortune's stock could be affected by such fluctuations.
USE OF PROCEEDS
The shares that are the subject of this Prospectus may be offered and sold
from time to time by the selling shareholders. Fortune will not receive any of
the proceeds of such sales by the selling shareholders. Fortune agreed to bear
all expenses of registering such shares, including accounting and printing costs
estimated at $10,000.
8
<PAGE>
PLAN OF DISTRIBUTION
Selling shareholders may offer and sell shares pursuant to this prospectus
from time to time on the over-the-counter bulletin board or through individually
negotiated transactions or in other ways. Fortune is not aware of any agreements
that any selling shareholders may have entered into with brokers, dealers or
third parties for the offer or sale of any shares. Fortune will not be a party
to any such agreements nor will it participate in the negotiation or
consummation of any such agreements or the offer and sale of any of the shares
covered by this prospectus.
The selling shareholders include persons or entities who, in February
through May 2000, acquired shares and warrants convertible into shares of
Fortune common stock in a private placement under Regulation D and who received
common stock as a premium for the conversion of their notes to common stock.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in this act and is
therefore unenforceable.
The table below sets forth data on the number of shares (including shares
issuable upon exercise of options, warrants or convertible securities) held by
each of the selling shareholders as of May 31, 2000:
<TABLE>
<CAPTION>
MATERIAL SECURITIES SECURITIES PERCENTAGE
RELATIONSHIP OWNED BEFORE IN OF CLASS
NAME WITH FORTUNE OFFERING OFFERING(1) OWNED(2)
------------------------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Ackerman, Stephen & Jane, JTRS Shareholder * 4,312 *
Baker, Robert Shareholder * 200,000 *
Berry, Brent W. Shareholder * 21,056 *
Blank, Barry W. Beneficial Owner 2,618,338 51,750 14.2%
Bouquet, Joe Shareholder * 2,875 *
Branch, Ben Shareholder * 4,800 *
Collins, John D. Shareholder * 25,000 *
Detwiler, Robert R. Shareholder * 150,000 *
Frier, Christopher Shareholder * 2,875 *
Jacobson, Richard W. Shareholder * 9,056 *
Levine, Phillip Shareholder * 128,750 *
Lyons, Robert Ted Shareholder * 40,000 *
M & C Partners, III Affiliate of Martin Lacoff, a Director 44,718 200,000 1.5%
Mueller, Dr. Richard Shareholder * 108,034 *
Mueller, Richard Shareholder * 50,467 *
Perren, William E. Shareholder * 50,000 *
Renaissance Capital Growth Beneficial Owner 1,061,728 460,666 9.2%
Renaissance US Growth Beneficial Owner 1,061,728 460,666 9.2%
Robertson, Stafford Shareholder * 2,156 *
Smith, Harlan W. Shareholder * 24,000 *
TNC Incorporated Shareholder * 26,000 *
Wechsler, Stuart D. Shareholder * 8,000 *
</TABLE>
-------------------
(1) Total includes 1,048,331 shares underlying an equal number of warrants which
expire March 1, 2003, one-half of which are exercisable at each of $1.50 and
$2.25. If all such warrants were exercised and the underlying shares issued,
Fortune would realize proceeds of $1,965,621.
(2) Except as indicated, this information is not available to Fortune. The
asterisk indicates less than 5%, calculated on available data.
9
<PAGE>
EXPERTS
Fortune's financial statements as of December 31, 1999 and 1998 and for
each of the years in the three year period ended December 31, 1999, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The information incorporated by reference herein with respect to net
proved oil and gas reserves of Fortune at December 31, 1999, 1998 and 1997, was
estimated by Huddleston & Co., Inc., independent petroleum engineers, and is
incorporated by reference herein on the authority of such engineers as experts
in petroleum engineering.
10
<PAGE>
====================================== ======================================
TABLE OF CONTENTS
Page
----
2,030,463 SHARES
Cover Page 1
COMMON STOCK
Additional Information 2 ($.01 PAR VALUE)
Incorporation of Information
by Reference 2
FORTUNE NATURAL
The Company 3 RESOURCES CORPORATION
Risk Factors 2
Use of Proceeds 8 -----------------
PROSPECTUS
-----------------
Plan of Distribution 9
Experts 10
____________, 2000
====================================== ======================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses in connection with the offering
described in the Registration Statement will be as follows:
Securities and Exchange Commission Registration Fee..... $ 750
Accountants' Fees and Expenses.......................... $ 5,000
Legal................................................... $ 2,000
Printing and Miscellaneous.............................. $ 2,250
-------
Total............................................ $10,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the
indemnification of officers, directors, employees and agents of Delaware
corporations. Fortune's Certificate of Incorporation and Bylaws provide that the
corporation shall, to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware as it may be amended from time to time,
indemnify and hold harmless each person who was or is a party or is threatened
to be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person whom he or she is a legal
representative, is or was a director or officer of Fortune or is or was serving
at the request of Fortune as director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action or inaction in an official capacity or in any
other capacity while serving as a director, officer, employee or agent, against
all costs, charges, expenses, liabilities and losses (including attorney's fees,
judgments, fines, excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NUMBER DESCRIPTION
-------- -----------
5.1* Opinion of Mr. Dean W. Drulias, General Counsel of
Registrant, regarding legality of securities
23.1* Consent of KPMG LLP
23.2* Consent of Huddleston & Co., Inc.
23.3 Consent of Mr. Dean W. Drulias (included in Exhibit 5.1)
24.1 Power of Attorney (included in the signature page of this
Registration Statement
------------------
* Filed herewith
S-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) (1) To file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement:
Provided however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) (b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
S-2
<PAGE>
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in this act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person of the registrant in the successful defense of any action, suit of
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in this act and
will be governed by the final adjudication of such issue.
S-3
<PAGE>
SIGNATURES
The Registrant. Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 20, 2000
FORTUNE NATURAL RESOURCES CORPORATION
By: /s/ Tyrone J. Fairbanks
----------------------------------
Tyrone J. Fairbanks
President, Chief Executive Officer
and Director
By: /s/ J. Michael Urban
----------------------------------
J. Michael Urban
Vice President, Chief Financial Officer
and Chief Accounting Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Tyrone
J. Fairbanks and Dean W. Drulias, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits hereto, and other documents
in connection therewith, with the Securities and Exchange Commission granting
unto said attorney-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the foregoing, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agent, or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following person in the
capacities and on the dates indicated.
Signature Title Date
/s/ Tyrone J. Fairbanks President, Chief Executive June 20, 2000
------------------------ Officer, and Director
Tyrone J. Fairbanks
/s/ Dean W. Drulias Executive Vice President, June 20, 2000
--------------------- General Counsel, Corporate
Dean W. Drulias Secretary and Director
/s/ Barry Feiner Director June 20, 2000
----------------------------
Barry Feiner
/s/ D. R. Shaughnessy Director June 20, 2000
----------------------------
D. R. Shaughnessy
/s/ John E. McConnaughy, Jr. Director June 20, 2000
----------------------------
John E. McConnaughy, Jr.
/s/ Martin Lacoff Director June 20, 2000
----------------------------
Martin Lacoff
S-4
<PAGE>
