As Filed with the Securities and Exchange Commission on February 6, 1997
Registration No. 333-19589
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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PEASE OIL AND GAS COMPANY
(Name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
87-0285520
(I.R.S. Employer Identification No.)
751 Horizon Court, Suite 203
P.O. Box 60219
Grand Junction, Colorado 81506-8758
(970) 245-5917
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Willard H. Pease, Jr.
751 Horizon Court, Suite 203
P.O. Box 60219
Grand Junction, Colorado 81506-8758
(970) 245-5917
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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With Copies to:
Alan W. Peryam, Esq.
1610 Wynkoop Street, Suite 200
Denver, Colorado 80202
(303) 892-6123
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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 to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities To Be Registered(3) Registered Per Share Offering Price Fee
- ----------------------------- ---------------- --------------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock............................ 5,781,660 Shares(1) $ 2.7344(2) $ 15,809,371(2)4 $4,790.72(2)
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(1) Includes 1,666,000 shares of Common Stock into which currently
outstanding convertible debentures are convertible which were issued
in a private placement; 2,500,000 shares of Common Stock underlying
Common Stock Purchase Warrants which are exercisable at $1.25 per
share and were issued in a private placement; 223,500 shares of Common
Stock underlying Common Stock Purchase Warrants exercisable at $2.00
per share which were issued in a private placement; 1,040,000 shares
of Common Stock underlying Common Stock Purchase Warrants exercisable
at $0.75 per share which were issued under consulting arrangements;
315,000 shares of Common Stock issued in a private placement in
connection with the acquisition of an oil and gas interest under a
Purchase and Sale Agreement dated December 31, 1996; and 36,500 shares
of Common Stock held by five employees and a consultant which were
granted for past services to the Company.
(2) The registration fee was calculated in accordance with Rule 457 (c)
and (g)(1) and is based on the average of the high and low prices of
Registrant's Common Stock, as reported on the NASDAQ Small-Cap Market
on January 7, 1997.
(3) In accordance with Rule 416, there are hereby being registered an
indeterminate number of additional shares of Common Stock which may be
issued as a result of the anti-dilution provisions of the Warrants and
Convertible Debentures or as a result of any future stock split or
stock dividend.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
(ii)
<PAGE>
SUBJECT TO COMPLETION DATED FEBRUARY 6, 1997
PROSPECTUS
PEASE OIL AND GAS COMPANY
5,781,660 Shares of Common Stock
This Prospectus relates to the resale by the holders (the "Selling
Securityholders") named herein of, or the exercise or conversion of other
securities of Pease Oil and Gas Company ("Company") for, up to 5,781,660 shares
of the $0.10 par value common stock ("Common Stock") of the Company, which are
either currently issued and outstanding, or which are issuable upon conversion
of outstanding convertible debentures ("Convertible Debentures") or the exercise
of warrants ("Warrants") to purchase shares of Common Stock, which Warrants and
Convertible Debentures are currently outstanding. The shares of Common Stock
being offered for resale includes 1,666,000 shares of Common Stock into which
currently outstanding convertible debentures are convertible which were issued
in a private placement; 2,500,000 shares of Common Stock underlying Common Stock
Purchase Warrants which are exercisable at $1.25 per share and were issued in a
private placement; 223,500 shares of Common Stock underlying Common Stock
Purchase Warrants exercisable at $2.00 per share which were issued in a private
placement; 1,040,000 shares of Common Stock underlying Common Stock Purchase
Warrants exercisable at $0.75 per share which were issued under consulting
Agreements dated March 9, 1996; 315,000 shares of Common Stock issued in a
private placement in connection with the acquisition of an oil and gas interest
under a Purchase and Sale Agreement dated December 31, 1996; and 36,500 shares
of Common Stock held by five employees and a consultant which were granted for
past services to the Company. See "Selling Securityholders."
The Company will not receive any proceeds from the sale of shares by the
Selling Securityholders and will not receive any proceeds upon the conversion of
the Convertible Debentures which are convertible without payment of additional
consideration into Common Stock. If all of the Warrants are exercised, of which
there is no assurance, the Company will receive proceeds of up to approximately
$4,352,000. There is no assurance that all or any portion of the Warrants will
be exercised. However, the holders of the Warrants will have to exercise the
Warrants in order to sell the shares of Common Stock offered for resale hereby
by holders of Warrants.
--------------------------------------------
FOR INFORMATION CONCERNING CERTAIN FACTORS WHICH SHOULD BE CONSIDERED
BY PURCHASERS OF THE COMMON STOCK OFFERED HEREBY AND BY PERSONS WHO CONVERT
THEIR PREFERRED STOCK OR CONVERTIBLE DEBENTURES OR WHO EXERCISE WARRANTS, SEE
"RISK FACTORS" COMMENCING ON PAGE 4 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February __, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance with the Exchange
Act files periodic reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company with the Commission can be inspected and copied
(at prescribed rates) at the Commission's Public Reference Section, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, 13th Floor, New York, New York 10048. The commission maintains a Web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding the Company. In addition, reports,
proxy statements and other information concerning the Company can be inspected
and copied at the office of the National Association of Securities Dealers,
Inc., 9513 Key West Avenue, Rockville, Maryland 20850-3389.
The Company has filed with the Commission a registration statement (the
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to the Common Stock offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement and such
exhibits and schedules.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference.
(a) Annual Report on Form 10-KSB for the year ended December 31, 1995 (the
"Annual Report on Form 10-KSB");
(b) The Company's Proxy Statement, dated June 21, 1996 in connection with
the Annual Meeting of Shareholders of the Company held August 10, 1996;
(c) Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996;
(d) Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996;
(e) Quarterly Report on Form 10-QSB for the Quarter ended September 30,
1996 (the "Third Quarter Report").
(f) Current Report on Form 8-K dated January 10, 1997; and
(g) All documents filed after the date of this Prospectus by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the Offering.
Any statement contained in the above-referenced documents shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained in this Prospectus modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Copies of any documents or portions of such other documents incorporated in
this Prospectus, not including exhibits to the information that is incorporated
by reference, unless such exhibits are specifically incorporated by reference in
this Prospectus, may be obtained at no charge by any person (including any
beneficial owner) to whom this Prospectus is delivered by a written or oral
request to Patrick J. Duncan, Corporate Secretary, 751 Horizon Court, P.O. Box
60219, Grand Junction, Colorado 81506-8758, telephone (970) 245-5917.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus or contained in other reports and documents of the Company which
are incorporated by reference in this Prospectus.
The Company
Pease Oil and Gas Company ("Company"), a Nevada corporation, has been
engaged in the oil and gas exploration, development and production business
since 1972. The Company's operations have been conducted primarily in Colorado,
Nebraska, Utah and Wyoming. In late 1996, the Company acquired interests in
producing oil and gas properties in Louisiana and intends to focus substantial
efforts on the Gulf Coast area of the southeastern United States.
The Company's business strategy is to expand its reserve base and cash flow
primarily through:
o Raising significant capital to take advantage of leading edge technologies
such as horizontal drilling and 3-D seismic exploration projects;
o Positioning itself with strategic sources of capital and partners that can
react to opportunities in the oil and gas business when they present
themselves;
o Developing alliances with major oil and gas finders that have been trained
by the major oil companies;
o Participating in projects that have opportunities involving relatively
small amounts of capital that could potentially generate significant rates
of return. These projects include areas with large field potentials in the
Rocky Mountains, Transition Zone Louisiana, and the Gulf of Mexico;
o Implementing the Company's investment strategy to carefully consider,
analyze, and exploit the potential value of the Company's existing assets
to increase the rate of return to its shareholders;
o Reinvesting operating cash flows into development drilling and recompletion
activities;
o Expanding the Company's operations outside the D-J Basin;
o Continuing the implementation of asset rationalization and operating
efficiencies designed to improve operating margins and lower per unit
operating cost;
o Acquiring properties that build upon and enhance the Company's existing
asset base;
o Developing a long term track record regarding stock price performance and a
reasonable rate of return to the shareholder.
As of December 31, 1996, the Company had varying ownership interests in 151
gross productive wells (133 net) located in four states. The Company operates
143 of the wells (132 net wells), with the other wells being operated by
independent operators under contracts that are standard in the industry.
In 1995, the Company restructured its operations by substantially
downsizing its oil field service and supply store operations as well as closing
its administrative office in Denver, Colorado. In the restructuring, the Company
terminated 40 of 71 employees.
Beginning in December 1994, the Board of Directors of the Company voted not
to declare the quarterly dividend and to suspend indefinitely the payment of
future dividends on the Company's outstanding Series A Cumulative Preferred
Stock ("Preferred Stock"). Dividends accrue on the outstanding Preferred Stock
on a monthly basis. At December 31, 1996 there were outstanding 179,938 shares
of Preferred Stock.
Pursuant to the Company's Articles of Incorporation, the Preferred
Stockholders elected two directors to the Company's Board of Directors at the
Company's annual meeting in August 1996. Holders of outstanding shares of
Preferred Stock shall have the right to elect two directors so long as there are
accrued unpaid dividends outstanding. As of December 31, 1996, there were
$404,861 in dividends in arrears, or $2.25 per share.
The Company's address is 751 Horizon Court, Suite 203, Grand Junction,
Colorado 81506-8718 and its telephone number is (970) 245-5917.
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<PAGE>
RISK FACTORS
Company's Continuing Losses and Financial Condition. As described in the
financial statements contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995 and the Third Quarter Report, the
Company has sustained operating losses during each of the last five fiscal years
and for the nine months ended September 30, 1996. The Company had net losses of
approximately $1,707,000, $765,000 and $510,000 for the fiscal years ended
December 31, 1994, 1995 and the nine months ended September 30, 1996,
respectively, and net losses applicable to common shares of $2,865,000,
$2,609,000 and $662,000 for fiscal years 1994, 1995 and for the nine months
ended September 30, 1996, respectively. Although the Company's current assets
and the estimated present value of the Company's oil and gas reserves exceeded
the Company's liabilities by $8.58 million as of December 31, 1995, there can be
no assurance that the Company can produce the oil and gas reserves or otherwise
liquidate those assets during the times or at the prices assumed in valuing
those reserves. In addition, no assurance can be made that the Company will
generate cash flows from operations or operate profitably in the future as an
oil and gas exploration, development and production company. Any likelihood of
future profitability of the Company must be considered in light of the problems,
expenses, difficulties, complications and delays frequently encountered in
connection with the oil and natural gas exploration, development and production
business in which the Company will be engaged.
Need for Additional Capital. The Company's ability to complete its planned
drilling and development programs which is intended to expand its reserve base
and diversify its operations, is dependent upon the Company's ability to obtain
the necessary capital. The Company's cash flow and borrowing capacity, together
with any proceeds from this offering, will not be sufficient for the Company to
complete its planned drilling and development programs. Additional sources of
financing will be needed and there can be no assurance that additional sources
of financing will be available at all or at a reasonable cost. See "Management's
Discussion and Analysis" in Third Quarter Report.
Development Risks and Production. A portion of the Company's oil and gas
reserves are proved undeveloped reserves. Successful development and production
of such reserves, although they are categorized as "proved," cannot be assured.
Additional drilling will be necessary in future years both to maintain
production levels and to define the extent and recoverability of existing
reserves. There is no assurance that present oil and gas wells of the Company
will continue to produce at current or anticipated rates of production, that
development drilling will be successful, that production of oil and gas will
commence when expected, that there will be favorable markets for oil and gas
which may be produced in the future or that production rates achieved in early
periods can be maintained.
Convertible Debenture Repayment Priority. As of December 31, 1996, the
Company's obligations under the Convertible Debentures, in the principal amount
of $5,000,000, together with interest thereon, is secured by a first priority
security interest in substantially all of the Company's oil and gas reserves in
Larimer and Weld Counties, Colorado, which reserves totaled approximately 50% of
all the Company's reserves at December 31, 1995. If the Company's obligations
under the Convertible Debentures are ever declared immediately due and payable,
the holders of the Convertible Debentures would have a first lien on the
Company's major assets and might sell a significant portion of the assets to
repay the Convertible Debentures.
Price Volatility. The revenues generated by the Company and estimated
future net revenue are highly dependent upon the prices of oil, natural gas and
natural gas liquids. The energy market makes it difficult to estimate future
prices of oil, natural gas and natural gas liquids. For instance, the price of
oil dropped from approximately $18.00 per barrel as of December 31, 1992, to
less than $12.00 per barrel as of December 31, 1993. The Company's average
collected price for oil in 1994 was $15.94 per barrel and for natural gas was
$1.36 per thousand cubic feet ("mcf"), for 1995 was $16.77 and $1.18,
respectively and through November 1996, $19.81 and $1.15, respectively. On
December 31, 1996, the posted price for oil and natural gas in the Company's
producing areas was approximately $25 per barrel for oil and for natural gas was
approximately $3.50 per mcf. The reserve valuations shown in the Company's
Annual Report on Form 10-KSB are based on the December 31, 1995 prices of $17.66
per barrel of oil and $1.71 per mcf of natural gas. Various factors beyond the
control of the Company affect prices of oil and natural gas, including worldwide
and domestic supplies of, and demand for, oil and natural gas, the ability of
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the members of the Organization of Petroleum Exporting Countries ("OPEC") to
agree to and maintain oil price and production controls, political instability
or armed conflict in oil-producing regions, the price of foreign imports, the
level of consumer demand, the price and availability of alternative fuels, the
availability of pipeline capacity and changes in existing federal regulation and
price controls. As in the past, it is likely that oil and gas prices will
continue to fluctuate in the future which may adversely affect the Company's
business.
Limitations on Accuracy of Reserve Estimates and Future Net Revenue. This
Prospectus contains estimates of the Company's oil and gas reserves and the
future net revenue therefrom which have been prepared by independent petroleum
engineers. These estimates are based on various assumptions and, therefore, are
inherently imprecise. Estimates of reserves and of future net revenue prepared
by different petroleum engineers may vary substantially depending, in part, on
the assumptions made and may be subject to adjustment either up or down in the
future. Actual future production, revenue, taxes, development expenditures,
operating expenses and quantities of recoverable oil and gas reserves may vary
substantially from those assumed in the estimates. In addition, the Company's
reserves may be subject to downward or upward revision, based upon production
history, results of future exploration and development, prevailing oil and gas
prices and other factors. If these estimates of quantities, prices and costs
prove inaccurate, the Company is unsuccessful in expanding its oil and gas
reserves base with its capital expenditure program, and/or declines in and
instability of oil and natural gas prices occur, then writedowns in the
capitalized costs associated with the Company's oil and gas assets may be
required. Purchasers should note the different categories of reserves and that
the category of "probable" reserves carries substantially more risk than the
category of "proved" reserves.
Risks Inherent in Oil and Gas Operations The search for oil and gas is a
highly speculative activity that may be marked by numerous unproductive efforts.
Many wells will be dry, and productive wells may not produce enough oil or gas
to produce a profit or even return the invested capital. The Company must
continually acquire and explore for and develop new oil and gas reserves to
replace those being depleted by production. Without successful drilling or
acquisition ventures, the Company's assets, properties and revenues will
decline. Oil and gas exploration and development are speculative, involve a high
degree of risk and are subject to all the hazards typically associated with the
search for, development of, and production of oil and gas. The Company's
operations are subject to all of the risks incident to exploration for and
production of oil and gas including blow-outs, cratering, pollution and fires,
each of which could result in damage to or destruction of oil and gas wells or
production facilities or damage to persons and property. The Company's insurance
may not fully cover certain of these risks and the occurrence of a significant
event not fully insured against could have a material adverse effect on the
Company's financial position. The process of drilling for oil and gas can be
hazardous and carry the risk that no commercially viable oil or gas production
will be obtained. The cost of drilling, completing and operating wells is often
uncertain. Moreover, drilling may be curtailed, delayed or canceled as the
result of many factors, including title problems, weather conditions, shortages
of or delays in delivery of equipment, as well as the financial instability of
well operators, major working interest owners and well servicing companies. The
availability of a ready market for the Company's oil and gas depends on numerous
factors beyond its control, including the demand for and supply of oil and gas,
the proximity of the Company's natural gas reserves to pipelines, the capacity
of such pipelines, fluctuations in production and seasonal demand, the effects
of inclement weather and governmental regulation. New gas wells may be shut-in
for lack of a market until a gas pipeline or gathering system with available
capacity is extended into the area. New oil wells may have production curtailed
until production facilities and delivery arrangements are acquired or developed.
The Company's business will always be subject to these types of risks.
Exploration Risks. The Company intends to pursue a significant number of
wildcat projects in southern Louisiana, Texas and the Gulf Coast. The
exploration of such projects involves an extremely high degree of risk that no
commercial production will be obtained or that the production will be
insufficient to recover drilling and completion costs. The costs of drilling,
completing and operating wells is, at best, uncertain. Drilling operations may
be curtailed, delayed or cancelled as a result of numerous factors, including
title problems, weather conditions, compliance with governmental regulations and
shortages and delays in the delivery of equipment. Furthermore, completion of a
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well does not assure a profit on the investment or a recovery of drilling,
completion and operating costs.
Risks of Purchasing Interests in Oil and Gas Properties. The Company
expects to continue to make acquisitions of producing and exploratory oil and
gas properties in the future. The Company often will not control the operation
of properties in which an interest is acquired. It is generally not feasible for
the Company to review in-depth every property it purchases and all records with
respect to such properties. However, even an in-depth review of properties and
records may not necessarily reveal existing or potential problems, nor will it
permit the Company to become familiar enough with the properties to assess fully
their deficiencies and capabilities. Evaluation of future recoverable reserves
of oil, gas and natural gas liquids, which is an integral part of the property
selection process, is a process that depends upon evaluation of existing
geological, engineering and production data, some or all of which may prove to
be unreliable or not indicative of future performance. To the extent the seller
does not operate the properties, obtaining access to properties and records may
be more difficult. Even when problems are identified, the seller may not be
willing or financially able to give contractual protection against such
problems, and the Company may decide to assume environmental and other
liabilities in connection with acquired properties.
Loss of Revenue from Take-or-Pay Contract. A "take-or-pay" contract with
Public Service Company of Colorado which called for PSCo to purchase annually a
minimum of 2.92 billion cubic feet (BCF) of natural gas from the Company expired
June 30, 1996. Historically, the price paid by PSCo under that contract had been
at a premium above the market and therefore allowed for the "marketing and
trading" activities which represented gas purchased from third parties and sold
to PSCo under the terms of the contract. The expiration of this contract has and
will have a material negative impact on the Company's future operations since
the activity generated gross margin between $500,000 and $600,000 annually
through the date that the contract expired.
Competition. The oil and gas industry is highly competitive in many
respects, including identification of attractive oil and gas properties for
acquisition, drilling and development, securing financing for such activities
and obtaining the necessary equipment and personnel to conduct such operations
and activities. In seeking suitable opportunities, the Company competes with a
number of other companies, including large oil and gas companies and other
independent operators with greater financial resources and, in some cases, with
more experience. Many other oil and gas companies in the industry have financial
resources, personnel and facilities substantially greater than those of the
Company and there can be no assurance that the Company will continue to be able
to compete effectively with these larger entities.
Shortage of Equipment, Services, and Supplies. The Company is involved in
intense competition for scarce drilling and completion equipment, services and
supplies, and there can be no assurance that sufficient drilling and completion
equipment, services and supplies will be available when needed. The likelihood
of shortages is greater at the present time than in the past because of the
recent increase in oil and gas prices causing an increase in drilling activity
and a resulting decrease in available material and equipment. Any such shortages
could delay the proposed exploration, development, and sales activities of the
Company and could cause a material adverse affect to the financial condition of
the Company.
Dependence on Key Personnel. The success of the Company will largely be
dependent upon the efforts and active participation of Willard H. Pease, Jr. the
President of the Company, James N. Burkhalter, the Vice President of Engineering
and Production of the Company and Patrick J. Duncan the Chief Financial Officer
of the Company. The loss of the services of any of its officers may adversely
affect the Company's business.
Government Regulation and Environmental Risks. The production and sale of
gas and oil are subject to a variety of federal, state and local government
regulations, including regulations concerning the prevention of waste, the
discharge of materials into the environment, the conservation of natural gas and
oil, pollution, permits for drilling operations, drilling bonds, reports
concerning operations, the spacing of wells, the unitization and pooling of
properties, and various other matters, including taxes. Many jurisdictions have
at various times imposed limitations on the production of gas and oil by
restricting the rate of flow for gas and oil wells below their actual capacity
to produce. In addition, many states have raised state taxes on energy sources
and additional increases may occur, although increases in state energy taxes
would have no predictable effect on natural gas and oil prices. The Company
believes it is in substantial compliance with applicable environmental and other
government laws and regulations, however, there can be no assurance that
significant costs for compliance will not be incurred in the future.
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The production and sale of oil and natural gas are subject to various
federal, state and local governmental regulations, which may be changed from
time to time in response to economic or political conditions. Matters subject to
regulation include discharge permits for drilling operations, drilling bonds,
reports concerning operations, the spacing of wells, unitization and pooling of
properties, taxation and environmental protection. From time to time, regulatory
agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. From time to time,
regulatory agencies have also reviewed certain aspects of the operations of oil
and gas companies in the D-J Basin to determine if additional regulations or
regulatory action is necessary. State statutes, rules and regulations affecting
oil and gas companies may, if changed as proposed by certain interest groups,
render drilling in certain locations more expensive or uneconomical due to
increased surface owner compensation and bonding requirements or environmental
regulatory constraints. The Colorado Oil and Gas Conservation Commission
recently enacted and is considering stricter regulation of matters such as oil
conservation, land reclamation, fluid disposal and bonding of oil and gas
companies. Additionally, various cities and counties in which the Company
operates have conducted and continue to conduct hearings to review their
ordinances to determine the level of regulatory authority they should assert
over such matters. At present, it cannot be determined to what degree stricter
regulations would adversely impact the Company's operations.
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the public health and the environment, may affect the Company's
operations, expenses and costs. Moreover, the recent trend toward stricter
standards in environmental legislation and regulations is likely to continue.
Legislation and regulations concerning the disposal of oil and gas waste were
adopted by the Colorado Oil and Gas Conservation Commission during the summer of
1993. The Colorado Air Quality Control Commission has adopted regulations to
implement the federal Clean Air Act. These regulations generally exempt oil and
gas exploration and production activities, except from certain routine filings.
These governmental agencies may impose further regulatory restrictions and
reporting requirements which could adversely impact the Company's operating
costs. However, at present the Company cannot predict if or to what degree its
costs and operations will be impacted.
Anti-Takeover Protections. The Company's Articles of Incorporation and
Bylaws include certain provisions, the effect of which may be to inhibit a
change of control of the Company. These include the authorization for issuance
of additional classes of Preferred Stock and classification of the Board of
Directors so that approximately one-third of the Company's directors are elected
annually. In addition, certain of the Company's officers have entered into
employment contracts providing for certain payments to be made upon termination.
These provisions may discourage a third party from attempting to obtain control
of the Company.
Preferred Stock. The Company is authorized to issue 2,000,000 shares of
preferred stock. The shares of preferred stock may be issued from time to time
in one or more series as may be determined by the Board of Directors without
stockholder approval. Further, the voting powers and preferences, the relative
rights of each such series, and the qualifications, limitations and restrictions
may be established by the Board of Directors without stockholder approval. The
Company has previously issued Preferred Stock, 179,938 shares of which are
outstanding as of December 31, 1996 and are convertible into 562,306 shares of
Common Stock and 562,306 Warrants. Any issuance of additional Preferred Stock
could affect the rights of the holders of Common Stock and therefore reduce the
value of the Common Stock. Holders of the shares of outstanding Preferred Stock
are entitled, and holders of any Preferred Stock issued in the future would
probably be entitled, to preferences ahead of holders of Common Stock as to
dividends and at liquidation and any such preferences could affect the value of
the Common Stock. Such preferences will be lost if the holders of the
outstanding shares of Preferred Stock having conversion rights convert their
Preferred Stock into Common Stock and Warrants.
Dividend Policy. Holders of outstanding shares of Preferred Stock are
entitled to receive cumulative cash dividends at an annual rate of $1.00 per
share annually, payable quarterly in arrears, when, as and if declared by the
Board of Directors of the Company out of funds at the time legally available
therefor. Payment of dividends is subject to declaration by the Board of
Directors and if not declared, dividends will cumulate from quarter to quarter
- 7 -
<PAGE>
without interest until declared and paid. Unpaid dividends increase the number
of shares of Common Stock into which Preferred Stock may be converted. As of
December 31, 1996, there was $404,861, or $2.25 per share, of preferred stock
dividends in arrears. The Company does not currently pay cash dividends on its
Common Stock (into which the Preferred Stock is convertible) and does not
anticipate paying such dividends in the foreseeable future.
Election of Additional Directors by Preferred Stockholders. The Company's
Articles of Incorporation provide that whenever dividends on the Preferred Stock
(or any outstanding shares of Parity Stock, as defined) have not been paid in an
aggregate amount equal to at least six quarterly dividends on such shares
(whether or not consecutive), the number of directors of the Company will be
increased by two, and the holders of the Preferred Stock, voting separately as a
class, will be entitled to elect such two additional directors to the Board of
Directors at any meeting of stockholders of the Company at which directors are
to be elected held during the period such dividends remain in arrears. Such
voting rights will terminate when all such dividends accrued and in default have
been paid in full or set apart for payment. The term of office of all directors
so elected will terminate immediately upon such payment or setting apart for
payment. Two directors were elected by the Preferred Stockholders at the
Company's 1996 Annual Meeting in August 1996.
Outstanding Options and Warrants. As of December 31, 1996, the Company has
outstanding options and warrants to purchase a total of 7,926,556 shares of the
Company's Common Stock. The exercise prices of the outstanding options and
warrants range from $.70 per share to $6.00 per share. The holders of the
outstanding options and warrants might have the opportunity to profit from a
rise in the market price (of which there is no assurance) of the shares of the
Company's Common Stock underlying the options and warrants, and their exercise
may dilute the ownership interest in the Company held by other stockholders.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares by the
Selling Securityholders and will not receive any proceeds upon the conversion of
the Convertible Debentures, which are convertible without payment of additional
consideration into Common Stock. If all of the Warrants are exercised, of which
there is no assurance, the Company would receive proceeds of up to approximately
$4,352,000. Any proceeds from the exercise of Warrants will be used by the
Company for general corporate purposes.
- 8 -
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of December 31, 1996, by each Selling
Securityholder herein as adjusted to reflect the sale by all Selling
Securityholders of the shares offered hereby by each Selling Securityholder.
This list indicates the number of Common Shares owned by such Selling
Securityholder prior to the offering, the maximum number of shares to be offered
for such Selling Securityholder's account, the amount of the class owned by the
Selling Securityholder after completion of the offering (assuming the Selling
Securityholder sold the maximum number of shares of Common Stock) and any
position, office or other material relationship with the Company that the
Selling Securityholder had within the past three (3) years. The Selling
Securityholders are not required, and may choose not, to sell any of their
shares of Common Stock.
<TABLE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Allen, Gylan C. & Mary H. Allen Family Trust,
Gylan C. Allen Trustee....................... 20,833 20,833(1) --
American Energy Mgmt Profit Sharing Plan,
DTD 12/20/84, Jerry Spilsbury TTEE........... 83,333 83,333(1) --
Awerbuch, Wilma....................................... 20,833 20,833(1) --
Barnett, O. Lee....................................... 12,500 12,500(1) --
Barstow, Hal IRA Roll--Over............................ 41,667 41,667(1) --
Benson, Lloyd K....................................... 16,667 16,667(1) --
Bluto, Paul M......................................... 25,000 25,000(1) --
Bobzin, Paul A........................................ 20,833 20,833(1) --
Boyack, Wallace T. Pension & Profit
Sharing Trust DTD 1/1/81..................... 20,833 20,833(1) --
Boyd, Harry E. & Gloria S............................. 20,833 20,833(1) --
Bradford, William L. & Ruth A......................... 20,833 20,833(1) --
Broadbent, Robert C.& Helen H. Broadbent TTEES
of the Broadbent Family Trust DTD 4/26/95.... 25,000 25,000(1) --
Broschart Family Trust UAD 8/24/92,
James & Gloria TTEES......................... 20,833 20,833(1) --
Byrne, Raymond and Jacquelyn.......................... 8,333 8,333(1) --
Carty, Everett C. & Joan M. TTEES UTD 2/26/96,
FBO the Carty Living Trust................... 20,833 20,833(1) --
Casey, Larry W. & Suanne B., TTEES
FBO the Casey Family Trust................... 20,833 20,833(1) --
Catelli, Anne R. Trust U/A DTD 1/9/96
Thomas R. Villone TTEE....................... 41,667 41,667(1) --
Cavin, William J. (Jr) and M. Janice.................. 41,667 41,667(1) --
- 9 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Cox, David C.......................................... 41,667 41,667(1) --
Curry, Patrick G...................................... 20,833 20,833(1) --
Cutler, Stanley....................................... 20,833 20,833(1) --
D'Asaro, Michael A.................................... 20,833 20,833(1) --
Davidson, Janice...................................... 66,667 66,667(1) --
Dawes, Steven A....................................... 41,667 41,667(1) --
Delta Financial Resources, Inc........................ 41,667 41,667(1) --
Demuth, Irene Esther Trust............................ 20,833 20,833(1) --
Doctors Financial Mgmt. Co., Inc..................... 139,583 83,333(2) 56,250
Elhaj, Abed K......................................... 104,166 104,166(1) --
Engs, John A. and Alexandra........................... 20,833 20,833(1) --
Fine Revokable Trust.................................. 333,333 333,333(1) --
Foster, Leita Revokable Trust......................... 16,667 16,667(1) --
Fredson, Ronald A. & Margaret......................... 41,667 41,667(1) --
Frey, Philip Jr....................................... 41,667 41,667(1) --
Galbraith, Jack H., TTEE of the Jack H. Galbraith
Living Trust U/A dated 5/25/95............... 8,333 8,333(1) --
Georgeson, Mrs. Jill T................................ 20,833 20,833(1) --
Gilman, Robert........................................ 83,334 83,334(1) --
Gleave, Barton........................................ 20,833 20,833(1) --
Wasatch Family Denter Care PC Pension Plan, U/A DTD
1/1/95 FBO Rodney S. Gleave Family........... 20,833 20,833(1) --
Godfrey, Gary B. Family Revocable Trust, Dated 7/1/93,
Gary B. Godfrey TTEE......................... 16,667 16,667(1) --
Gordon, Kilbourn III.................................. 8,333 8,333(1) --
Grobe, Charles........................................ 208,333 208,333(1) --
Grobe, Charles and Ila 1973 Trust, The Separate Property of
Ila Grobe.................................... 20,833 20,833(1) --
Hafer, Edward......................................... 62,500 62,500(1) --
Hagerty, FBO William Kelly, IRA, Delaware Charter
Guarantee & Trust Co.TTEE.................... 20,833 20,833(1) --
- 10 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Harris, Bonnie F. & Alfred Fletcher TTEES, UTD 6/14/91
FBO the Harris Trust......................... 25,000 25,000(1) --
Hartunian Family Trust DTD 3/8/95..................... 41,667 41,667(1) --
Harvey, Patrick L..................................... 41,667 41,667(1) --
Heiman, R. Feed Yard, Inc............................. 16,667 16,667(1) --
Houlihan, Richard..................................... 281,483 20,833(3) 260,650
Hughes, Betty R., TTEE, FBO R.P. & B.R. Hughes
DTD 11-30-71................................. 41,667 41,667(1) --
Jamett, Evelyn Louise................................. 20,833 20,833(1) --
Jones, Carroll S...................................... 20,833 20,833(1) --
Kanne, Charles R. Jr.................................. 166,666 166,666(1) --
Keiser, Charles....................................... 16,667 16,667(1) --
Kennedy, Eileen Mary IRA.............................. 20,833 20,833(1) --
Kennedy, Thomas James IRA............................. 20,833 20,833(1) --
Khayyam, Mansour & Victoria........................... 41,667 41,667(1) --
Kirby, Thomas B....................................... 8,333 8,333(1) --
Kirby Trust, Thomas B. Kirby TTEE..................... 16,667 16,667(1) --
Kulick 1984 Trust DTD 10/23/84
Edward L. Kulick TTEE........................ 58,333 58,333(1) --
Lawler, Doris Gene.................................... 41,667 41,667(1) --
Lewis Family Trust DTD 5/6/82
Phillis & Clair Lewis TTEES.................. 8,333 8,333(1) --
Madaien, Hanna........................................ 83,333 83,333(1) --
Martin, Jim H. IRA................................... 41,667 41,667(1) --
McDonald, Thomas James................................ 20,833 20,833(1) --
McLeod, Daniel V...................................... 103,333 103,333(4) --
Mencinger, Micholas & Julie Johnson................... 41,667 41,667(1) --
Meyer, Dennis C....................................... 16,667 16,667(1) --
Modglin, Donald L. & Grace M. Modglin
Co TTEES to Trust............................ 20,833 20,833(1) --
Moore, John Temple TTEE, John Temple Moore Living Trust,
UA DTD 11/16/94.............................. 41,667 41,667(1) --
- 11 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
North County Pulmonary Medical Group Inc.
Profit Sharing Plan.......................... 25,000 25,000(1) --
Pacific States Capital Corporation.................... 280,000 280,000(5) --
Paul, Geraldine W..................................... 20,833 20,833(1) --
Pierce, Don D. and Juanita J.......................... 41,667 41,667(1) --
Pum, Dr. Franz J. IRA................................ 8,333 8,333(1) --
Rabinowitz, Milton.................................... 41,667 41,667(1) --
Ramey, William K...................................... 20,833 20,833(1) --
Reott, Lavina G....................................... 41,667 41,667(1) --
FBO Rosenwasser, Stuart N.,
D.R. Technologies, Inc. PSP.................. 41,667 41,667(1) --
Santa Fe Exploration.................................. 16,667 16,667(1) --
Schubert, Steve....................................... 41,667 41,667(1) --
Schwab, Wayne......................................... 41,666 41,666(1) --
Schwartz Family Revocable Trust, Earl D. Schwartz, TTEE 8,333 8,333(1) --
Shonyo Revocable Living Trust, Kenneth W. Shonyo, TTEE,
UAD 6/30/91.................................. 62,500 62,500(1) --
Smith, Andrew D. Profit Sharing Plan
FBO A. Smith................................. 20,833 20,833(1) --
Smith, Jeff........................................... 8,333 8,333(1) --
Sproul, David E....................................... 16,667 16,667(1) --
Sproul, David E.as Custodian for
Lindsey M. Sproul (Minor).................... 8,333 8,333(1) --
Stauffer Family Revocable Living Trust
UTAD 3/2/93.................................. 20,833 20,833(1) --
Stock, Lincoln F. and Helen M. TTEES for the Lincoln F.
and Helen M. Stock Revocable Trust........... 41,667 41,667(1) --
Swarts Family Trust Dated 2/9/95...................... 25,000 25,000(1) --
Tamar Properties Inc. Profit Sharing Plan............. 20,833 20,833(1) --
Tejeda, Rennie C. and Kathleen........................ 41,667 41,667(1) --
Thompson, W. Gayle TTEE, FBO W. Gayle Thompson
Employee Benefit Trust....................... 41,667 41,667(1) --
Totman, James W. TTEE UTD 12/18/86
FBO James W. Totman Trust.................... 41,667 41,667(1) --
- 12 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Tully Family Trust UTD 5/25/84........................ 8,333 8,333(1) --
Warner, Julian R...................................... 20,833 20,833(1) --
Warner, Wayne IRA..................................... 20,833 20,833(1) --
White, Harold L. and Sandra R......................... 41,667 41,667(1) --
Wilson, Guy B. and Jeanette TTEES
FBO the Wilson Family Trust.................. 20,833 20,833(1) --
Witkowski, John J. and Carolyn A...................... 20,833 20,833(1) --
Witwer, James, MD..................................... 149,583 83,333(6) --
Yamamoto Trust UTD 1/15/88............................ 20,833 20,833(1) 66,250
Zucker, Steven S., IRA................................ 41,667 41,667(1) --
Zucker, Steven S...................................... 16,667 16,667(1) --
Steve Antry c/o Signal Securities, Inc................ 664,442 11,137(7) 653,305
Jenni Buys c/o Coleman and Company Securities, Inc.... 900 900 --
Thomas Carey c/o Tradeway Securities Group, Inc....... 3,500 3,500 --
Carib Financial Group Ltd............................. 26,250 26,250 --
Christopher Huey c/o Coleman and
Company Securities Inc....................... 4,500 4,500 --
Coleman and Company Securities Inc.................... 3,600 3,600 --
Fox & Company Investments Inc......................... 17,814 17,814 --
GBS Financial Corp.................................... 5,813 5,813 --
Donald G. Gloisten and Mary J. Gloisten Family Trust
UTD 11/30/96 c/o GBS Financial Corp.......... 3,000 3,000 --
Scott H. Gulbranson
c/o Fox & Company Investments Inc............ 625 625 --
Hagerty, Stewart & Associates......................... 1,125 1,125 --
William Kelly Hagerty c/o Hagerty, Stewart & Associates 6,375 6,375 --
Bill Herndon c/o Reidl & Co........................... 6,500 6,500 --
Brian Houlihan c/o Signal Securities, Inc............. 4,000 4,000 --
Gary K. Jamett c/o Signal Securities, Inc............. 2,000 2,000 --
JTM Consulting, Inc. c/o Signal Securities, Inc....... 5,000 5,000 --
Peter Koonce c/o GBS Financial Corp................... 32,937 32,937 --
- 13 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Meridian Capital Group, Inc........................... 2,000 2,000 --
Michael T. Michelas c/o Presidential Brokerage, Inc... 5,000 5,000 --
Presidential Brokerage Inc............................ 18,125 18,125 --
Richard K. Roberts c/o Fox & Company Investments, Inc. 1,718 1,718 --
Travis K. Roberts c/o Fox & Company Investments, Inc.. 1,718 1,718 --
Ronald Schiff c/o Fox & Company Investments, Inc...... 625 625 --
Delbert C. Schilling and Gloria B. Schilling,
JTWROS c/o Signal Securities Inc............. 4,638 4,638 --
Signal Securities, Inc................................ 4,725 4,725 --
Lincoln Stock c/o Presidential Brokerage, Inc......... 2,500 2,500 --
Jamal R. Taha c/o Tradeway Securities Group, Inc...... 5,000 5,000 --
Waldron & Co., Inc.................................... 7,500 7,500 --
Charles J. Weschler
c/o Fox and Company Investments, Inc......... 1,250 1,250 --
Western Pacific Securities............................ 20,000 20,000 --
Cynthia D. Williams c/o Meridian Capital Group, Inc... 3,000 3,000 --
Antry, Lisa........................................... 664,442 600,000(7) 64,442
Carib Financial....................................... 20,000 20,000 --
Cohee, Gary........................................... 10,000 10,000 --
Stephen L. Fischer.................................... 213,400 205,000(8) 8,400
GBS Financial Corp.................................... 3,000 3,000 --
Hilywa, John and Cynthia.............................. 2,500 2,500 --
Houlihan, Richard .................................... 280,233 85,000(3) 195,233
Jones, Fred........................................... 10,000 10,000 --
Kavanau, Chris........................................ 1,250 1,250 --
Koonce, J. Peter & Marilyn C. JTWROS.................. 17,000 17,000 --
McDerott, Kevin....................................... 1,250 1,250 --
Richard K. Roberts.................................... 2,376 2,376 --
Rogers, Travis K...................................... 2,376 2,376 --
Walker, Clemons F..................................... 358,248 90,873(9) 267,357
- 14 -
<PAGE>
<CAPTION>
Shares Owned Shares Owned
Prior Shares Being After
Name to Offering Offered Offering
- ------------------------------------------------------ ----------- ------------ ------------
<S> <C> <C>
Atocha Exploration, Inc............................... 141,750 141,750 --
Browning Oil Company, Inc............................. 47,250 47,250 --
Potosky Oil and Gas, Inc.............................. 126,000 126,000 --
Adams, Marilyn........................................ 22,000 3,500(10) 18,500
Burkhalter, James N................................... 130,710 5,000(11) 125,710
Duncan, Patrick J..................................... 125,635 5,000(12) 120,635
Hu, Gounong........................................... 21,000 6,000(13) 15,000
McCartney, Jack A..................................... 15,000 15,000(14) --
Ratcliff, John........................................ 7,000 2,000(15) 5,000
--------- ---------- ---------
Totals....................................... 7,638,410 5,781,660 1,856,750
========= ========= =========
</TABLE>
- ------------------------
(1) Of Shares being offered, 40% will be issued upon conversion of
outstanding Convertible Debentures at $3.00 per share and 60% will be
issued upon exercise of a warrant to purchase the Common Stock of the
Company at $1.25 per share. These securities were issued in a private
placement by the Company.
(2) The Trustee for this account, Leroy W. Smith, has been a director of
the Company since August 1996, and is therefore deemed to have
indirect beneficial ownership of the underlying shares. Accordingly,
this includes 5,000 shares that are held by Mr. Smith's wife, 10,000
shares underlying presently exercisable options held directly by Mr.
Smith, and 31,250 shares underlying convertible preferred stock the is
held directly by Mr. Smith, his wife and another entity whereby Mr.
Smith is the Trustee. The remaining amount of 83,333 consists of
33,333 shares underlying a convertible debenture and 50,000 shares
underlying a warrant to purchase the Companys Common Stock issued in a
private placement.
(3) Mr. Houlihan is a director of the Company and is also the Chairman of
the Company's Audit Committee. In addition, prior to joining the Board
of Directors in August 1996, a consulting firm of which Mr. Houlihan
is a principal, prepared a due diligence study dated May 1996 for the
Company and was paid a fee of $35,000 plus $5,776 for expenses. The
amount shown in the table includes 85,000 shares underlying presently
exercisable options held directly by Mr. Houlihan and 24,500 shares
held by an entity of which Mr. Houlihan is the Trustee and is deemed
to have indirect beneficial ownership. The remaining amount of 20,833
consists of 8,333 shares underlying a convertible debenture and 12,500
shares underlying a warrant to purchase the Company's Common Stock in
a private placement.
(4) The amount includes 53,333 shares underlying Convertible Debentures
and 50,000 presently exercisable warrants.
(5) The amount includes 100,000 shares underlying Convertible Debentures
and 180,000 presently exercisable warrants.
(6) The Trustee for this account, Leroy W. Smith, has been a director of
the Company since August 1996, and is therefore deemed to have
indirect beneficial ownership of the underlying shares. Accordingly,
- 15 -
<PAGE>
this includes 5,000 shares that are held by Mr. Smith's wife, 10,000
shares underlying presently exercisable options held directly by Mr.
Smith, and 41,250 shares underlying convertible preferred stock the is
held directly by Mr. Smith, his wife and another entity whereby Mr.
Smith is the Trustee. The remaining amount of 83,333 consists of
33,333 shares underlying a convertible debenture and 50,000 shares
underlying a warrant to purchase the Common Stock in a private
placement.
(7) Mr. Antry has been a director of the Company since August 1996 and is
the President of Beta Capital Group, Inc. ("Beta"). The Company
entered into a three year consulting agreement with Beta in March 1996
that requires minimum monthly cash payments of $17,500 for fees plus
reimbursement of out-of-pocket expenses. The agreement also requires
the Company to pay Beta 2% of the gross proceeds received from any
private or public financing and 7% of the gross proceeds received from
any exercise of warrants. In addition to the cash compensation, the
Company also agreed to grant Beta, or its assignees, warrants to
purchase 1,000,000 shares of the Company's Common Stock at $0.75 per
share. These warrants expire in March 2001. Beta Capital retained
ownership of 600,000 of these warrants, which are assigned to Lisa
Antry, Mr. Antry's wife, and assigned the other 400,000 warrants to
other parties. Accordingly, this number includes 600,000 shares
underlying the warrants assigned to Mrs. Antry, 50,000 shares
underlying presently exercisable warrants held directly by Mr. Antry
and 625 shares underlying convertible preferred stock held directly by
Mr. Antry. Mr. Antry is also an associated person of Signal
Securities, Inc., which also received warrants and commissions from
the Company in connection with a private placement by the Company.
(8) Mr. Fischer works for Beta as an independent contractor. Included in
this amount is 205,000 shares underlying presently exercisable
warrants.
(9) Mr. Walker has been a director of the Company since August 1996.
Through a broker-dealer with which he is affiliated and individually,
Mr. Walker assisted the Company in raising in excess of $2.5 million
dollars in various private placements since 1992. Mr. Walker received
commissions and broker warrants commensurate with the industry norm
for those efforts. In addition, Mr. Walker has acted in the capacity
of an advisor to the Company since 1992 and from time-to-time received
both cash and/or warrants to purchase Common Stock for those services.
The number of shares owned includes 254,353 shares underlying
presently exercisable warrants and 625 shares underlying convertible
preferred stock held directly by Mr. Walker.
(10) Mrs. Adams is the Company's Accounting Supervisor. The number of
shares owned includes 17,500 shares underlying presently exercisable
options.
(11) Mr. Burkhalter has been a director of the Company as well as the
Company's Vice President of Engineering and Production since August
1993. The number of shares owned includes 115,000 shares underlying
presently exercisable options.
(12) Mr. Duncan is a director of the Company's as well as the Company's
Chief Financial Officer, Treasurer and Corporate Secretary. Mr. Duncan
joined the Company as its Controller in April 1994. The number of
shares owned includes 105,000 shares underlying presently exercisable
options.
(13) Mr. Hu is the Company's Geologist. The number of shares owned includes
15,000 shares underlying presently exercisable options.
(14) Mr. McCartney is a consultant to the Company who received the shares
for services performed in 1996.
(15) Mr. Ratcliff is an accountant for the Company. The number of shares
owned includes 5,000 shares underlying presently exercisable options.
- 16 -
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock issuable upon exercise of the Warrants and the
shares of Common Stock issuable upon conversion of Convertible Debentures will
be issued directly by the Company to the Warrant holders or holders of
Convertible Debentures upon surrender of the particular Warrants together with
the exercise price or upon surrender of the Convertible Debentures to the
Company. The exercise or conversion are subject to the terms of the Warrants and
Convertible Debentures, and such Warrants and Convertible Debentures may be
exercisable or convertible during different periods of time. Shares issued upon
exercise of Warrants or options or conversion of Convertible Debentures will be
restricted securities as defined in Rule 144 adopted under the Securities Act of
1933, as amended, while held by the person exercising a Warrant or converting a
Convertible Debenture.
The Selling Securityholders intend to sell their shares directly, through
agents, dealers, or underwriters, in the over-the-counter market, or otherwise,
on terms and conditions determined at the time of sale by the Selling
Securityholders or as a result of private negotiations between buyer and seller.
Sales of the shares of Common Stock may be made pursuant to this Prospectus and
pursuant to Rule 144 adopted under the Securities Act of 1933, as amended. No
underwriting arrangements exist as of the date of this Prospectus for the
Selling Securityholders to sell their shares. Upon being advised of any
underwriting arrangements that may be entered into by a Selling Securityholder
after the date of this Prospectus, the Company will prepare a supplement to this
Prospectus to disclose such arrangements. It is anticipated that the per share
selling price for the shares will be at or between the "bid" and "asked" prices
of the Company's Common Stock as quoted in the over-the-counter market
immediately preceding the sale. Expenses of any such sale will be borne by the
parties as they may agree.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Selling
Securityholders by Alan W. Peryam, Denver, Colorado.
EXPERTS
The consolidated financial statements as of December 31, 1995, and for each
of the two years in the period ended December 31, 1995, incorporated by
reference in this Prospectus, have been audited by HEIN + ASSOCIATES LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
- 17 -
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
No dealer, salesperson or other person has been authorized
to give any information or to make any representation not
contained in this Prospectus and, if given or made, such PEASE OIL AND GAS COMPANY
information or representation must not be relied upon as
having been authorized by the Company or any Selling
Securityholder. This Prospectus does not constitute an 5,781,660 SHARES OF COMMON STOCK
offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any
persons to whom it is unlawful to make such offer in such
jurisdiction.
-----------------------------------
---------------------
Page No.
PROSPECTUS
---------------------
AVAILABLE INFORMATION................................. 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.............................. 2
PROSPECTUS SUMMARY.................................... 3
RISK FACTORS.......................................... 4
USE OF PROCEEDS....................................... 8
SELLING SECURITYHOLDERS............................... 9
PLAN OF DISTRIBUTION.................................. 17
LEGAL MATTERS......................................... 17
February 6, 1997
EXPERTS............................................... 17
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses payable by Registrant in connection with the issuance and
distribution of the securities being registered hereby are as follows:
SEC Registration Fee*................................ $6,170
Accounting Fees and Expenses*........................ 4,000
Legal Fees and Expenses*............................. 11,000
Printing, Freight and Engraving*..................... 2,500
Miscellaneous*....................................... 1,330
------
Total....................................... $ 25,000
=======
- -----------------
* Estimated.
Item 15. Indemnification of Directors and Officers.
Article VII of the Registrant's Articles of Incorporation provides that no
director or officer of the Registrant shall be personally liable to the
Registrant or any of its stockholders for damages for breach of fiduciary duty
as a director or officer, except that such provision will not eliminate or limit
the liability of a director or officer for any act or omission which involves
intentional misconduct, fraud or a knowing violation of law or for the payment
of any dividend in violation of Section 78.300 of the Nevada Revised Statutes.
Section 78.751 of the Nevada Revised Statutes permits the Registrant to
indemnify its directors, officers, employees and agents if such person acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, has no reasonable cause to believe his conduct was
unlawful.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, the
corporation must provide indemnification against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the defense.
Section 43 of the Registrant's Bylaws provides that the Registrant shall
provide indemnification to Registrant's officers, directors and employees to the
fullest extent permitted under the Nevada General Corporation Law.
Item 16. Exhibits.
In addition to the exhibits previously filed by Registrant, the following
is a list of all exhibits filed as part of this Registration Statement or, as
noted, incorporated by reference to this Registration Statement:
II-1
<PAGE>
Exhibit No. Description and Method of Filing
- ---------- --------------------------------
(5) Opinion of Company counsel.*
(10.23) Agreement between Beta Capital Group, Inc. and Pease Oil and
Gas Company dated March 9, 1996, incorporated by reference to the
Registrant's 1995 Annual Report on Form 10-KSB as Exhibit No.
10.22.
(10.25) Form of $50,000 Five Year 10% Collateralized Convertible
Debenture issuable by Registrant in connection with its 1996
private placement, incorporated by reference to Exhibit 10.25 to
Registration Statement No. 33-44536.
(10.26) Form of Warrant to Purchase Common Stock issuable in
connection with Registrant's 1996 private placement, incorporated
by reference to Exhibit 10.26 to Registration Statement No.
33-44536.
(10.27) Purchase and Sale Agreement to acquire oil and gas properties
dated December 31, 1996 incorporated by reference to Registrant's
Form 8-K dated January 10, 1997 as Exhibit 10.27.
(23.1) Consent of Alan W. Peryam.*
(23.2) Consent of HEIN + ASSOCIATES LLP Independent Certified Public
Accountants.*
- ---------------------
*Previously filed.
Item 17. Undertakings
The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which Registrant offers or sells securities,
a post-effective amendment to this registration statement to include any
material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat such
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") 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 the 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 or controlling
person of the Registrant in the successful defense of any action, suit or
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 controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all 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 Grand Junction, Mesa County, State of Colorado, on
February 6, 1997.
PEASE OIL AND GAS COMPANY
By: /s/ Willard H. Pease, Jr.
----------------------------
Willard H. Pease, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the capacity
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Steve Antry Director February 6, 1997
- ---------------------------------------------------
Steve Antry
/s/ James N. Burkhalter Director February 6, 1997
- ---------------------------------------------------
James N. Burkhalter
/s/ Patrick J. Duncan Director February 6, 1997
- ---------------------------------------------------
Patrick J. Duncan
/s/ Richard A. Houlihan Director February 6, 1997
- ---------------------------------------------------
Richard A. Houlihan
/s/ Homer C. Osborne Director February 6, 1997
- ---------------------------------------------------
Homer C. Osborne
/s/ Willard H. Pease, Jr. Director February 6, 1997
- ---------------------------------------------------
Willard H. Pease, Jr.
/s/ James C. Ruane Director February 6, 1997
- ---------------------------------------------------
James C. Ruane
/s/ LeRoy W. Smith Director February 6, 1997
- ---------------------------------------------------
LeRoy W. Smith
/s/ Robert V. Timlin Director February 6, 1997
- ---------------------------------------------------
Robert V. Timlin
/s/ Clemons F. Walker Director February 6, 1997
- ---------------------------------------------------
Clemons F. Walker
/s/ William F. Warnick Director February 6, 1997
- ---------------------------------------------------
William F. Warnick
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
Exhibit Description Page No.
- ------- ----------- --------
(5) Opinion of Company counsel.* N/A
(10.25) Agreement between Beta Capital Group, Inc. and N/A
Pease Oil and Gas Company dated March 9, 1996,
incorporated by reference to the Registrant's 1995
Annual Report on Form 10-KSB as Exhibit No. 10.22.
(10.25) Form of $50,000 Five Year 10% Collateralized N/A
Convertible Debenture issuable by Registrant in
connection with its 1996 private placement,
incorporated by reference to Exhibit 10.25 to
Registration Statement No. 33-44536.
(10.26) Form of Warrant to Purchase Common Stock issuable N/A
in connection with Registrant's 1996 private
placement, incorporated by reference to Exhibit 10.26
to Registration Statement No. 33-44536.
(10.27) Purchase and Sale Agreement to acquire oil and gas N/A
properties dated December 31, 1996, incorporated by
reference to Registrant's Form 8-K dated January 10,
1997 as Exhibit 10.27.
(23.1) Consent of Alan W. Peryam.* N/A
(23.2) Consent of HEIN + ASSOCIATES LLP Independent
Certified Public Accountants.* N/A
- ---------------------
*Previously filed.
