FORELAND CORPORATION
N Warrants and Common Stock
This Prospectus relates to the issuance by Foreland Corporation, a Nevada
corporation (the "Company") of (i) 414,000 common stock purchase warrants (the
"N Warrants"), representing the right to purchase one share of the Company's
common stock, par value $0.001 per share (the "Common Stock"), at $12.00 per
share through December 31, 1998, to those persons who held the Company's L
Warrants which expired on December 31, 1996, and (ii) 414,000 shares of Common
Stock on the exercise of a like number of N Warrants. (See "DESCRIPTION OF
SECURITIES").
This Prospectus also relates to the public offer and sale by certain
stockholders (the "Selling Stockholders") of 1,500 shares of Common Stock
issuable on exercise of a like number of common stock purchase warrants (the
"96-4 Warrants") now held by such Selling Stockholders.
The Company's Common Stock is included on the Nasdaq SmallCapSM Market
("Nasdaq") under the symbol "FORL." On June 16, 1997, the closing sales price
for the Company's Common Stock on Nasdaq was $3.09. The Company intends to
apply to list the N Warrants on Nasdaq. However, there can be no assurance that
such securities will be approved for listing or that a market therefor will
develop.
THE ACQUISITION AND OWNERSHIP OF THE SECURITIES OFFERED BY THIS PROSPECTUS
INVOLVE A HIGH DEGREE OF RISK. THE SECURITIES SHOULD BE PURCHASED ONLY BY
INVESTORS WHO ARE ABLE TO AFFORD THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT.
(See "RISK FACTORS" on page 8.)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE OR OTHER REGULATORY AUTHORITY, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE OR REGULATORY AUTHORITY PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Public Offering Commissions Proceeds to Company(1)
--------------- -------------------- ----------------------
<S> <C> <C> <C>
By the Company:
N Warrants (2)
Per Warrant -- -- --
Total -- -- --
Common Stock
Per Share (3) $ 12.00 -- $ 12.00
Total $ 4,968,000 -- $ 4,968,000
By Selling Stockholders
Common Stock (4)
Per Share $ 3.09 -- $ 3.09
Total $ 4,641 -- $ 4,641
Total Offering $ 4,972,641 -- $ 4,972,641
</TABLE>
[FN]
(1) Does not reflect expenses of this offering payable by the Company estimated
at $20,000. (See "PLAN OF DISTRIBUTION" below.)
(2) The Company will receive no cash proceeds from the issuance of the N
Warrants to the holders of the expired L Warrants.
(3) The price per share for the shares of Common Stock issuable by the Company
on exercise of the N Warrants is the exercise price of the N Warrants.
(4) The price per share for the securities offered by the Selling Stockholders
is estimated at the closing sales price quoted by Nasdaq for the Common
Stock at $3.09 on June 16, 1997. The Common Stock may be offered at the
current market price, which may vary through the period during which the
securities may be offered, or at such other prices as may be negotiated by
the Selling Stockholders and the purchaser at the time of sale. (See
"ITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS" in the Company's 1996 Form 10-K.) The securities to be sold by
Selling Stockholders may be sold by them through or to securities brokers
or dealers, which sales may involve the payment of commissions by the
Selling Stockholders. There is no agreement between the Company and any
broker or dealer respecting such sales.
The date of this Prospectus is June 18, 1997.
The Selling Stockholders will offer their Common Stock through or to
securities brokers or dealers designated by them in the over-the-counter market
or in other transactions negotiated by the Selling Stockholders. Any such sale
of Common Stock by a Selling Stockholder must be accompanied by, or follow the
delivery of, a prospectus filed with a current registration statement relating
to the Common Stock being offered, unless a Selling Stockholder elects to rely
on Rule 144 or another exemption from the registration requirements in
connection with a particular transaction. The Selling Stockholders and any
broker, dealer, or agent that participates with the Selling Stockholders in the
sale of the Common Stock offered hereby may be deemed "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any commissions or discounts received by them and any profit on the resale of
the Common Stock purchased by them may be deemed to be underwriting commissions
under the Securities Act. (See "SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION.")
The Company will not receive any proceeds from the issuance of the N
Warrants to the holders of the expired L Warrants or on the sale of the Common
Stock by Selling Stockholders. However, the Company will receive proceeds upon
the issuance of the Common Stock on exercise of the N Warrants and 96-4
Warrants. (See "USE OF PROCEEDS.") In connection with this offering, the
Company estimates that it will incur costs of approximately $20,000 for legal,
accounting, printing, and other costs. Any separate costs of the Selling
Stockholders will be borne by them. Commissions or discounts paid in connection
with the sale of securities by the Selling Stockholders will be determined by
negotiations between them and the broker-dealer through or to which the
securities are to be sold and may vary depending on the broker-dealers'
commission or mark up schedule, the size of the transaction, and other factors.
(See "PLAN OF DISTRIBUTION" below.)
ADJUSTMENTS FOR RECENT STOCK SPLIT
All share and per share data in this Prospectus have been adjusted to
reflect a 3-to-1 reverse stock split of the Common Stock effective on June 15,
1996.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's annual report on Form 10-K for the year ended December 31,
1996, as amended on Form 10-K/A filed April 30, 1997, and May 7, 1997 ("1996
Form 10-K"), quarterly report on Form 10-Q for the quarter ended March 31, 1997
("1st Quarter 1997 10-Q"), and current reports on Form 8-K dated January 13,
1997, January 22, 1997, February 20, 1997, March 18, 1997, May 2, 1997, and May
12, 1997, are incorporated herein by reference.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus, other than certain exhibits to
such documents. Requests for such copies should be directed to Shareholder
Relations, Foreland Corporation, Union Terrace Office Building, 12596 West
Bayaud, Suite 300, Lakewood, Colorado 80228-2019; telephone (303) 988-3122.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports and
other information with the Securities and Exchange Commission (the
"Commission"). The Company has filed with the Securities and Exchange
Commission a Registration Statement on Form S-2 under the Securities Act of
1933, as amended. For the purposes hereof, the term "Registration Statement"
means the original Registration Statement and any and all amendments thereto.
This prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, to which reference hereby is
made. Each statement made in this prospectus concerning a document filed as an
exhibit to the Registration Statement is qualified in its entirety by reference
to such exhibit for a complete statement of its provisions. Any interested
party may inspect the Registration Statement and its exhibits, as well as the
other reports and information filed by the Company, without charge, at the
public reference facilities of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at its regional offices at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, Suite 1300,
New York, New York 10048. Any interested party may obtain copies of all or any
portion of the Registration Statement and its exhibits we well as the other
reports and information filed by the Company at prescribed rates from the Public
Reference Section of the Commission at its principal office at Judiciary Plaza,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. In addition, the SEC
maintains an internet site that contains reports, proxy and information
statements and other information regarding the Company and other registrants
that file electronically with the SEC at http://www.sec.gov.
No person is authorized to give any information or make any representation
not contained in this Prospectus and, if given or made, such information or
representation should not be relied on as having been authorized.
SUMMARY AND INTRODUCTION
The following summary is qualified in its entirety by the more detailed
information, including the financial statements and notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference herein.
This Prospectus contains certain forward-looking statements and information
relating to the Company that are based on the beliefs of the Company or
management as well as assumptions made by and information currently available to
the Company or management. When used in this document, the words "anticipate,"
"believe," "estimate," "expect," and "intend" and similar expressions, as they
relate to the Company or its management, are intended to identify forward-
looking statements. Such statements reflect the current view of the Company
respecting future events and are subject to certain risks, uncertainties, and
assumptions, including the risks and uncertainties noted. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended. In each instance,
forward-looking information should be considered in light of the accompanying
meaningful cautionary statements herein.
Unless otherwise indicated, all information herein relating to oil and gas
reserves has been calculated in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC").
Each prospective investor is urged to read this Prospectus in its entirety,
particularly the matters set forth under "RISK FACTORS."
The Company
The Company is engaged in exploring for oil in the Great Basin and Range
geologic province in Nevada (the "Great Basin"), an area that management
believes is one of the most promising unexplored onshore domestic areas with
potential for the discovery of major oil reserves. In continuing to advance
this exploration since its organization in 1985, the Company's strategy is to
generate exploration prospects with the most recent generally available
scientific techniques, expand and improve the Company's strategic land position,
and establish arrangements with other oil exploration firms active in Nevada to
obtain additional scientific data, leases, and funding.
Until 1994, the Company had only limited revenue, consisting of modest
amounts of interest income earned on net proceeds from the sale of securities
and revenue from producing properties. In order to supplement its own
exploration efforts, between 1993 and 1994, the Company acquired certain leases
and properties in Railroad Valley, Nevada, including the Eagle Springs field. In
the Eagle Springs field, the Company has reworked and returned to production
eleven acquired wells, drilled a new water injection well, drilled and placed
into production eight additional wells, replaced and improved surface equipment
to handle increased production and to lower long-term operating costs, and
undertook a 3D seismic evaluation program. Much of this development work was
conducted under an agreement with Plains Petroleum Operating Company, which was
acquired in August 1995 by Barrett Resources Corporation (together, "Barrett"),
resulting in Barrett acquiring a 40% interest in the Eagle Springs field. In
November 1996, the Company acquired Barrett's interest in the Eagle Springs
field, effective August 1, 1996. The Company plans to continue additional
drilling in the Eagle Springs field to place into production undeveloped
reserves and to drill at additional locations to test horizons that are
productive in existing wells.
During 1996, the Company continued with exploration drilling on two
prospects, including a test that discovered the Ghost Ranch field on a different
geologic structure approximately one-half mile south of the Eagle Springs field
in a different formation. The first Ghost Ranch discovery well reached total
depth in late July 1996 and resulted in significant production and increases in
the Company's oil reserves. The Company plugged a second Ghost Ranch well in
November 1996, after determining it was not economic to produce. The Company
completed a third Ghost Ranch well for production in February 1997, which is now
producing at levels comparable to the discovery well, and completed a fourth
well in May 1997 that the Company is continuing to work to increase oil
production. The Company has a 60% working interest in the Ghost Ranch field and
is the operator. Barrett continues to hold the remaining 40% working interest
pursuant to the agreement discussed above. Of the other wells drilled during
1996, one well in Toano Draw is still being tested and one well in Pine Valley
was plugged and abandoned.
Business Plan
The Company has assembled a management and technical team of persons with
specialized technical training and experience concentrated on Nevada oil
exploration. In all, the Company's technical team has over 75 years of combined
Nevada oil exploration experience, much of it with major oil companies. The
Company believes that the working experience of its executives and employees in
Nevada is a significant factor in the Company's exploration progress to date and
in its ability to act as operator under exploration arrangements with other
exploration firms such as Enserch Exploration, Inc. ("Enserch"), Berry Petroleum
Company ("Berry"), Parker and Parsley Petroleum Company (successor-in-interest
to Santa Fe Energy Resources, Inc.) ("P&P"), and Barrett. This team employs the
following strategies in guiding the Company's Nevada exploration.
Science
The Company seeks to utilize the most advanced available scientific tools
and techniques to evaluate the risk and exploration potential of specific
prospects. The Company's oil exploration model for the Great Basin of Nevada
continually evolves from a large data base collected, originally by Gulf Oil
Corporation ("Gulf") and, since 1985, by the Company. As a result of the
Company's own work as well as information sharing arrangements with others, the
Company now has access to over 1,400 line miles of 2D seismic data, much of it
reprocessed with new analytical computer programs, newly acquired high
resolution 3D seismic surveys, and gravity data gathered by the Company as well
as by Exxon, P&P, Mobil, Chevron, Enserch, and Berry. Data from 3D seismic,
gravity, reprocessed seismic surveys, and previous drilling are integrated as a
guide to further exploration. The Company believes that it benefits from the
long-term involvement of the Company's personnel in Nevada oil exploration and
operations, which enhances the Company's ability to share data and expertise
with industry participants.
Prospect Generation and Leasing
The Company's leasing program is coordinated with prospect generation and
exploration results. As areas of interest are identified, the Company attempts
to acquire leases or other exploration rights on what preliminarily appears to
be the most promising prospect areas in order to establish a preemptive lease
position prior to generating a specific drilling prospect. As specific prospect
evaluation advances, the Company may seek leases on additional areas or
relinquish leases on areas that appear less promising, thereby reducing lease
holding costs. As a result, the Company has substantially increased the size of
its gross acreage while, in management's opinion, improving the exploration
potential of its leaseholdings.
Joint Exploration
The Company regularly seeks joint exploration arrangements with other oil
exploration firms active in Nevada to obtain access to additional scientific
data and technical expertise, particularly relatively expensive geophysical
data, including 3D seismic. Joint exploration arrangements are sought with
firms that have significant lease positions in the prospect area and that can
bear a portion of the costs of specified further exploration. The Company also
utilizes joint exploration arrangements to spread the risks of specific
exploration, attempting to retain a larger interest by bearing a greater
proportion of the related costs in those prospect areas in which management
believes that the risks and reserve potential warrant such action. In
situations in which management perceives a higher degree of risk or a smaller
potential for the prospect, it seeks to retain a smaller interest and bear a
smaller share of related costs. With the acquisition of Barrett's 40% interest
in the Eagle Springs field, the Company assumed the cost and associated risk of
100% of operations in the Eagle Springs field. Industry interest in oil
exploration in Nevada has fluctuated significantly in previous years, and there
can be no assurance that the Company can continue to identify oil exploration
firms to undertake joint exploration of Nevada prospects.
Drilling Near Existing Production
Further exploration drilling is required to delineate the extent of
productive horizons in individual fields and complete development where
warranted. In the Eagle Springs and Ghost Ranch fields, the Company's
geophysical and geological evaluation is ongoing to locate possible additional
drilling locations to develop the undeveloped reserves and to test the horizons
that are productive in the existing wells. In both fields, the Company has
surface facilities capable of handling additional production. The Company also
intends to continue to drill exploration wells in areas of existing production
in the Pine and Railroad Valleys to further evaluate reservoir extent and
characteristics, increase production, and obtain data that might benefit the
Company's overall exploration effort. The Company intends to pursue these
drilling objectives in Pine Valley as well as specific prospects in Railroad
Valley as involving somewhat lower risk than exploration testing in areas with
relatively less drilling history or other exploration success to date.
Long-Term Exploration
Management anticipates that it will take several years to explore fully the
target areas that may be identified by the Company in the Great Basin of Nevada,
as is the case in many frontier areas of exploration, and believes that it is
important to provide for an ongoing presence for the Company in Nevada
exploration. In such a long term exploration effort, the results of early
exploration serve as a guide for identifying new prospects so it is important,
in management's view, to continually identify new prospect concepts and areas
for possible future exploration while advancing existing prospects to the
drilling stage.
During recent years, the Company has focused its activities on drilling in
the Eagle Springs to exploit proved undeveloped reserved and to evaluate at new
locations horizons that are productive in existing wells and to drill in
additional exploratory prospects in the Pine, Railroad, and Huntington Valleys
and Toano Draw of Nevada. In 1996, the Company's exploration effort led to the
discovery of the Ghost Ranch field, which it is now developing. Through 1997,
the Company will continue its exploration and development activities in such
areas. In addition, the Company will continue its acquisition of 3D seismic
data and reanalysis of existing 2D seismic data. The Company will also continue
its evaluation of data to identify additional exploration targets, expand its
lease holdings where warranted, and seek additional exploration arrangements
with other industry participants.
The Company's principal executive offices are located at 12596 West Bayaud,
Suite 300, Lakewood, Colorado 80228-2019 and its telephone number is (303) 988-
3122.
Capitalization
The following table shows the capitalization of the Company as of March 31,
1997, and as adjusted to give effect to the issuance of 113,865 shares of Common
Stock on conversion of outstanding shares of Preferred Stock, and the issuance
of 1,500 shares of Common Stock for services rendered to the Company:
<TABLE>
<CAPTION>
March 31, 1997
----------------------------
Historical As Adjusted
------------ ------------
<S> <C> <C>
Long term debt, net of current portion $ 916,931 $ 916,931
------------ ------------
Stockholders' Equity
Preferred Stock, par value $0.001 per share, 5,000,000 shares authorized
1991 Convertible Preferred Stock, 40,000 shares issued and
outstanding 40 40
1994 Convertible Redeemable Preferred Stock, 165,140 shares
issued and outstanding 165 165
1995 Convertible Redeemable Preferred Stock, 613,334 shares
issued and outstanding 613 613
1996 Series 6% Convertible Preferred Stock, 12.5 shares
issued and outstanding -- --
1996-4 Series Preferred Stock, 255 and 222 shares issued and
outstanding, respectively -- --
Common Stock, par value $0.001 per share, 50,000,000 shares
authorized, 7,283,927 and 7,399,292 shares
issued and outstanding, respectively 7,284 7,399
Additional paid in capital 32,650,301 32,877,727
Less note and stock subscriptions receivable (1,112,177) (1,112,177)
Accumulated deficit (22,875,459) (22,875,459)
------------ ------------
Total stockholders' equity 8,670,767 9,008,267
------------ ------------
Total capitalization $ 9,587,698 $ 9,925,198
============ ============
</TABLE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Securities offered by the Company
N Warrants...................................................... 414,000 warrants
Common Stock.................................................... 414,000 shares(1)
Securities offered by the Selling Stockholders...................... 1,500 shares(1)
Common Stock outstanding before the offering........................ 7,399,292 shares
Common Stock outstanding after the offering......................... 7,814,792 shares(1)
Common Stock reserved for issuance.................................. 2,532,694 shares(2)
Fully diluted Common Stock.......................................... 10,347,486 shares(2)
Nasdaq Symbols:
Common Stock...................................................... FORL
</TABLE>
[FN]
(1) The 414,000 shares of Common Stock offered by the Company are issuable on
exercise of the N Warrants, also offered by the Company pursuant to this
Prospectus. The 1,500 shares of Common Stock offered by the Selling
Stockholders are issuable on exercise of the 96-4 Warrants. The figures
in the table assume that all of the N Warrants and all of the 96-4 Warrants
are exercised to acquire shares of Common Stock. If all of the N Warrants
and 96-4 Warrants in this offering are exercised, the Company would receive
gross proceeds of $4,979,250.
(2) Consists of (i) up to 618,962 shares of Common Stock issuable on the
conversion of outstanding shares of Preferred Stock; (ii) up to 989,402
shares of Common Stock issuable on the exercise of outstanding options and
warrants at a weighted average exercise price of $6.98 per share; (iii) up
to 400,000 shares of Common Stock issuable on the exercise of outstanding
options subject to shareholder approval at an exercise price of $4.00 per
share; and (iv) up to 524,330 shares of Common Stock issuable on the
exercise of outstanding options subject to vesting requirements at a
weighted average exercise price of $4.94 per share. (See "ITEM 11.
EXECUTIVE COMPENSATION," "ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT," and "ITEM 13. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS," in the Company's 1996 Form 10-K, and
"DESCRIPTION OF SECURITIES--Preferred Stock, Warrants, and Options
Outstanding" below.)
The board of directors has authority to authorize the offer and sale of
additional securities without the vote of or notice to existing shareholders,
and it is likely that additional securities will be issued to provide future
financing. The issuance of additional securities could dilute the percentage
interest and per share book value of existing shareholders, including persons
purchasing securities in this offering. (See "DESCRIPTION OF SECURITIES" below)
Use of Proceeds
The Company will receive no net proceeds from the issuance of the N
Warrants or from the sale by the Selling Stockholders of the Common Stock
issuable on exercise of the 96-4 Warrants. The N Warrants to be issued pursuant
to this Prospectus must be exercised to receive shares of Common Stock and the
96-4 Warrants held by Selling Stockholders must be exercised into shares of
Common Stock prior to the resale of the Common Stock offered by the Selling
Stockholders pursuant to this Prospectus. Proceeds received by the Company on
the exercise of warrants, aggregating $4,979,250 if all N Warrants and 96-4
Warrants are exercised, will be used by the Company to pay general and
administrative expenses, to the extent not funded from operating revenue, and
for additional drilling, geological and geophysical data gathering, or lease
acquisition. If all options and warrants held by persons other than those
receiving the N Warrants and the Selling Stockholders in this offering were
exercised to acquire 1,913,732 shares of Common Stock, the Company would receive
proceeds of $11,091,608. There can be no assurance that any of the outstanding
options or warrants will be exercised to provide any proceeds therefrom to the
Company.
Risk Factors
Offerees should not purchase these securities without carefully reading and
considering the risks involved and unless they are willing and able to accept
the complete loss of their investment. The securities offered hereby are
speculative and involve an unusually high degree of risk. (See "RISK FACTORS"
below.)
No Dividends
The Company has not paid dividends. The Company seeks growth and expansion
of its business through the reinvestment of profits, if any, and does not
anticipate that it will pay dividends in the foreseeable future. In addition,
the Company's credit agreement with a commercial bank contains, among other
provisions, a negative covenant that prohibits the Company from paying
dividends.
RISK FACTORS
The purchase of the Common Stock involves certain risks. Prospective
purchasers should consider, in addition to the negative implications of the
other information and financial data set forth herein or incorporated herein by
reference, the following risk factors before making an investment in the Common
Stock.
This document and all Company disclosures, including periodic reports filed
with the Commission, contain certain forward-looking statements and information
relating to the Company that are based on the beliefs of Company management as
well as assumptions made by and information currently available to Company
management. When used herein and in other Company disclosures, the words
"anticipate," "believe," "estimate," "expect," "intend," and similar
expressions, as they relate to the Company or Company management, are intended
to identify forward-looking statements. Such statements reflect the current
views of the Company with respect to future events and are subject to certain
risks, uncertainties and assumptions, including the risk factors described
below. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those described herein as anticipated, believed, estimated,
expected, or intended. The Company does not intend to update these forward-
looking statements.
Risks Related to the Business of the Company
Concentration of Risks Resulting From Barrett Acquisition
Prior to the acquisition of the 40% interest in the Eagle Springs field
from Barrett in November 1996, the Company diversified the economic risks
associated with drilling and the other activities in the Eagle Springs field
because, as a 40% working interest owner, Barrett was responsible for 40% of all
costs. As a result of the acquisition by the Company of Barrett's interest, the
Company assumed the cost and associated risk of 100% of operations in the Eagle
Springs field.
Company's Ability to Continue as a Going Concern/Shortages of Working
Capital and Continuing Losses
The Company has incurred losses of $22,875,459 since its inception in 1985
and expects that its accumulated deficit will increase. During 1995 the Company
experienced a net loss of $2,275,565. These losses continued, with a loss of
$3,385,287 for the year ended December 31, 1996, and a loss of $216,694 for the
three months ended March 31, 1997. The Company anticipates continuing losses
through the remainder of 1997. Based on current production and oil prices,
management believes that its production revenue is now sufficient to meet its
fixed and recurring operating costs. The Company will also incur substantial
additional exploration costs, depending on the level of its drilling activity,
which may vary dramatically from quarter to quarter. The Company's independent
auditor's report on the financial statements for the year ended
December 31, 1996, as for preceding fiscal years, contains an explanatory
paragraph as to the Company's ability to continue as a going concern. (See
"ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" and "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" in the Company's 1996 Form 10-K and see the Company's 1st Quarter
1997 10-Q.)
Additional Possible Expenses Related to Capitalized Costs
The Company includes in oil and gas properties on its balance sheets costs
of wells in progress, which are capitalized until a decision is made to plug and
abandon or, if the well is still being evaluated, until one year after reaching
total depth, at which time such costs are charged to expense, even though the
well may subsequently be placed into production. At March 31, 1997, oil and gas
properties included approximately $420,000 related to a single well in progress.
Management expects that all information necessary to evaluate this property will
be available by the third quarter of 1997.
The Company evaluates its proved oil and gas properties for impairment
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. When such an assessment is required, the Company compares
the net carrying value on a lease-by-lease basis to the related estimates of
undiscounted future net cash flows for each property. If the net carrying value
exceeds the estimated net cash flows, then impairment expense is recognized to
reduce the carrying value to the estimated fair value. Estimates of future cash
flows for specific properties are based upon reserve engineering evaluations
which are impacted by a number of factors, including historical oil production
levels, adjacent drilling results, lease operating costs, and historical and
projected prices for oil, which have typically been volatile.
At March 31, 1997, the Company also had a net investment of $616,300 in
undeveloped oil and gas leases for which no proved reserves have been
established. For these properties, it will be necessary to drill exploratory
wells to determine if sufficient economic oil and gas reserves exist.
Management periodically assesses these properties for impairment by considering
a number of factors, including unsuccessful drilling activity by the Company or
others in the vicinity of the lease, management's plans to pay delay rentals or
to drill a well prior to the expiration of the primary lease term, opportunities
to obtain and/or evaluate seismic data related to the lease, and management's
expectations about oil and gas prices, production costs and development costs.
Adverse information related to any of the above matters could have a
material adverse impact on the Company's future results of operations.
Dependence on Joint Exploration Arrangements with Industry Participants
The Company has entered into a number of joint exploration agreements with
industry participants to obtain leases, scientific data, and funds for drilling
and other exploration. These agreements typically set forth obligations that
the Company must perform timely in order to earn specified property interests,
permit funding participants to terminate their participation at specified points
during the exploration program, and condition continuation of joint efforts on
obtaining satisfactory results. If such a participant elects not to continue
with respect to any well, the Company would be required to fund all of the costs
of such well, in which case it would be dependent on proceeds from the sale of
securities and production revenue, which would delay or limit planned drilling.
Limited Production Revenue
The Company has only recently established revenue from oil production from
its Eagle Springs, Nevada, property acquired during 1993, and its Ghost Ranch
field. Based on current production and oil prices, management believes that its
production revenue is now sufficient to meet its current fixed and recurring
operating costs as well as a portion of the Company's costs of exploration.
There can be no assurance, however, that ongoing oil production in commercial
quantities will continue, that oil prices will not decrease dramatically, or
that oil reserves will be proved as a result of the Company's exploration
efforts. (See "ITEM 1. BUSINESS" in the Company's 1996 Form 10-K.)
Limited Commercial Drilling Success to Date
Despite the expertise of management, the significant amount of data that
the Company has collected with respect to Nevada, and the expenditure of several
million dollars in property acquisition, data collection, and exploration since
1985, the Company has established only limited reserves and developed limited
ongoing production as a result of its drilling program. The Ghost Ranch
discovery well, which was placed into production recently, is the first
exploration test by the Company that has resulted in significant ongoing
production. The oil production from the Eagle Springs field was acquired by the
Company in 1993 and, except for the increased production resulting from certain
reworking of existing wells and the development wells drilled by the Company,
did not result from the Company's exploration or drilling activities. Although
the Company began to receive oil production revenue from the Eagle Springs field
in early 1994 and from the Ghost Ranch well in mid-1996, the Company's success
will continue to depend on the results of drilling, evaluation, and testing of
its various prospects. (See "ITEM 1. BUSINESS" and "ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA" in the Company's 1996 10-K.)
Need for Additional Funds
The nature, extent, and cost of exploring prospects in the Great Basin
province over several years cannot be predicted, but the total cost could amount
to tens of millions of dollars. Because of the size of the total exploration
possibilities and the Company's limited resources, it is likely that the
interest of the Company's shareholders in the Company and the interest of the
Company in its drilling prospects will continue to be diluted substantially as
the Company continues to obtain funding through the sale of additional
securities or through sharing arrangements with industry participants. There
can be no assurance that exploration funds will be available to the Company when
required or, if available, that such funds can be obtained on terms acceptable
or favorable to the Company. (See "ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the Company's 1996 Form 10-K
and see the Company's 1st Quarter 1997 10-Q.)
Concentration of Activities in Frontier Area
Management of the Company has focused its efforts on acquiring lease
positions, developing data, and exploring and drilling in the Great Basin area
of Nevada, a largely unproved and unexplored geological province. While the
Company holds exploration rights to a significant number of acres, its holdings
are insignificant when compared to the size of the potential geological area.
Other than in the Eagle Springs field and Ghost Ranch field, no significant
ongoing commercial production of oil has been established on the Company's
properties. In addition, the areas targeted by the Company, other than the
Eagle Springs field and Ghost Ranch field, have geological, geophysical,
drilling, completion, and production problems which to date have prevented the
Company and others with larger exploration budgets from developing or
establishing significant production or reserves. There is no assurance that
these problems can be overcome or that the Company's drilling program will be
commercially successful. (See "ITEM 1. BUSINESS" in the Company's 1996 Form
10-K.)
Dependence on Key Employees
The business of the Company is dependent on its management and technical
team and their substantial Nevada exploration experience, the loss of any one of
whom could adversely affect the Company's proposed activities. The Company does
not have and does not intend to acquire key man life insurance on any of its
executives. (See "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT" in
the Company's 1996 Form 10-K.)
Speculative Nature of Oil and Gas Industry
Exploration for oil is a highly speculative business. There is no way to
know in advance of drilling and testing whether any prospect will yield oil in
sufficient quantities to be economically feasible. The completion of a well for
production or the initiation of production in paying quantities does not
necessarily mean that the well will be economic because it may not produce
sufficient revenues to recover related costs and generate a financial return to
the Company.
High Operating Costs
The costs of exploring, drilling, producing, and transporting are higher in
the geological province targeted by management than they would be in a more
fully developed oil producing area. Access roads to drilling targets over
relatively long distances frequently have to be completed, drilling equipment
and services typically must be brought in from considerable distances, and there
is no collection pipeline so that any oil that is produced must be trucked to a
refinery, the nearest of which is in Salt Lake City, Utah, a distance of several
hundred miles. (See "ITEM 1. BUSINESS--Oil Properties" in the Company's 1996
Form 10-K.)
Uncertainty of Reserve Estimates and Future Net Revenues
There are numerous uncertainties inherent in estimating quantities of
proved oil reserves. The estimates in the 1996 Form 10-K which are incorporated
into this Prospectus are based on various assumptions relating to rates of
future production, timing and amount of development expenditures, oil prices and
the results of planned development work. Actual future production rates and
volumes, revenues, taxes, operating expenses, development expenditures and
quantities of recoverable oil reserves may vary substantially from those assumed
in the estimates. Any significant change in these assumptions, including
changes that result from variances between projected and actual results, could
materially and adversely affect future reserve estimates. In addition, such
reserves may be subject to downward or upward revision based upon production
history, results of future development, prevailing oil prices and other factors.
(See "ITEM 2. PROPERTIES" and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Liquidity and Capital Resources"
in the 1996 Form 10-K.)
Dependence on Oil Prices
The Company's oil exploration and production activities are dependent on
the prevailing price for oil, which is beyond the Company's control or
influence, and there is no assurance that the Company's wells can be produced at
levels in excess of related production costs. Oil prices increased materially
during 1996, but there can be no assurance that such prices will continue. Oil
and gas prices have been and are likely to continue to be volatile and subject
to wide fluctuations in response to any of the following factors: relatively
minor changes in the supply of and demand for oil and gas; market uncertainty;
political conditions in international oil producing regions; the extent of
domestic production and importation of oil; the level of consumer demand;
weather conditions; the competitive position of oil or gas as a source of energy
as compared with coal, nuclear energy, hydroelectric power, and other energy
sources; the refining capacity of prospective oil purchasers; the effect of
federal and state regulation on the production, transportation and sale of oil;
and other factors, all of which are beyond the control or influence of the
Company. In an effort to limit the adverse effects of extreme declines in oil
prices, the Company has entered into agreements with Crysen Refining, Inc., Salt
Lake City, Utah, to sell oil from its currently producing fields through August
1997 at minimum fixed prices, and with Petro Source Corporation, Salt Lake City,
Utah, to sell oil from a portion of the Ghost Ranch field through August 1997.
Notwithstanding these agreements, adverse changes in the market or regulatory
environment would likely have an adverse effect on the Company's ability to
obtain funding from lending institutions, industry participants, the sale of
additional securities, and other sources. (See "ITEM 1. BUSINESS--Oil
Properties" in the Company's 1996 Form 10-K.)
Operating Risks and Uninsured Hazards
Oil drilling involves hazards such as fire, explosion, pipe failure, cave
in, collapse, encountering unusual or unexpected formations, pressures, and
other conditions, environmental damage, personal injury, and other occurrences
that could result in the Company incurring substantial losses and liabilities to
third parties. As is customary in exploration arrangements with other energy
companies under which specified drilling is to be conducted, the operator is
required to purchase and pay for insurance against risks customarily insured
against in the oil and gas industry by others conducting similar activities.
(See "ITEM 1. BUSINESS--Operational Hazards and Insurance" in the Company's
1996 Form 10-K.) Nevertheless, the Company may not be insured against all
losses or liabilities that may arise from all hazards because such insurance is
unavailable at economic rates, because the operator has not fulfilled its
obligation to purchase such insurance, or because of other factors. Any
uninsured loss could have a material adverse effect on the Company.
Risks of Adverse Weather
The Company's activities are subject to periodic interruptions due to
weather conditions, which may be quite severe at various times of the year.
Periods of heavy precipitation make travel to exploration or drilling locations
difficult and/or impossible, while extremely cold temperatures limit or
interrupt drilling, pumping, and/or production activities or increase operating
costs.
Intense Competition in Oil and Gas Industry
The acquisition and exploration of oil and gas prospects are highly
competitive. Many of the Company's current and potential competitors engaged in
oil exploration in the Great Basin of Nevada have greater financial resources,
broader exploration programs, and a greater number of managerial and technical
personnel. Because the Company's resources will be limited even on successful
completion of this offering, there can be no assurance that it will be able to
compete effectively in the exploration for oil in Nevada. (See "ITEM 1.
BUSINESS--Competition and Markets" in the Company's 1996 Form 10-K.)
Environmental and Other Governmental Regulation
Oil and gas exploration and production are subject to comprehensive
federal, state, and local laws and regulations controlling the exploration for
and production and sale of oil and gas and the possible effects of such
activities on the environment. To date, the Company has not been required to
expend significant resources in order to satisfy applicable environmental laws
and regulations respecting its own activities. Although management believes
that the Company has substantially completed certain remediation work that it
agreed to undertake in connection with the acquisition of the Eagle Springs
field, there can be no assurance that additional work may not be required. In
addition, present, as well as future, legislation and regulations could cause
additional expenditures, restrictions, and delays in the Company's business, the
extent of which cannot be predicted and which may require the Company to limit
substantially, delay or cease operations in some circumstances or subject the
Company to various governmental controls. From time to time, regulatory
agencies have proposed or 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. Because federal energy
and taxation policies are subject to constant revisions, no prediction can be
made as to the ultimate effect of such governmental policies and controls on the
Company. (See "ITEM 1. BUSINESS--Government Regulation" in the Company's 1996
Form 10-K.)
General Risks Relating to Offering
Volatility of Common Stock
The market price for the Common Stock has been volatile in the past and
could fluctuate significantly in response to the results of specific exploration
drilling tests, variations in quarterly operating results, and changes in
recommendations by securities analysts. Further, the trading volume of the
Common Stock is relatively small, and the market for the Common Stock may not be
able to efficiently accommodate significant trades on any given day.
Consequently, sizable sales or purchases of the Common Stock have in the past,
and may in the future, cause volatility in the market price of the Common Stock
to a greater extent than in other more actively traded securities. Until more
trading volume develops, larger transactions may not be able to be closed at the
then current market price for the Common Stock. In addition, the securities
markets regularly experience significant price and volume fluctuations that are
often unrelated or disproportionate to the results of operations of particular
companies. These broad fluctuations may adversely affect the market price of
the Common Stock. See "ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS" in the Company's 1996 Form 10-K.
Substantial Warrants and Options Outstanding
The Company has issued to employees, officers, directors, and others
providing services to the Company vested options to purchase up to 557,670
shares of Common Stock with exercise prices ranging from $3.93 to $9.00 per
share. Options to purchase a total of 94,000 shares contain a provision that, on
exercise, the holder is granted a new option covering the number of shares for
which the prior option was exercised, with the exercise price of the new option
fixed at the then fair market value of the Common Stock. Options to purchase an
additional 400,000 shares of Common Stock have been issued to directors of the
Company and are subject to shareholder approval. In addition, the Company has
outstanding options held by unrelated third parties to purchase 126,666 shares
of Common Stock at prices ranging from $3.75 per share to $9.75 per share and
warrants to purchase a total of 216,025 shares of Common Stock at a weighted
average exercise price of $10.78 per share, including warrants held by Selling
Stockholders to purchase 1,500 shares but excluding the N Warrants offered
hereby. The existence of such options and warrants may prove to be a hindrance
to future financing by the Company, and the exercise of options and warrants may
further dilute the interests of the stockholders. The possible future sale of
Common Stock issuable on the exercise of such options and warrants could
adversely affect the prevailing market price of the Company's Common Stock.
Further, the holders of options and warrants may exercise them at a time when
the Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. (See "DESCRIPTION OF SECURITIES--Preferred
Stock, Warrants, and Options Outstanding" below and "ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" in the Company's 1996
Form 10-K.)
Issuance of Additional Common Stock
The Company has authorized 5,000,000 shares of Preferred Stock, par value
$0.001 per share, and 50,000,000 shares of Common Stock, par value $0.001 per
share. As of the date of this Prospectus, 7,399,292 shares of Common Stock were
issued and outstanding, and 2,948,194 additional shares were reserved for
issuance on the exercise or conversion of options, warrants (including the N
Warrants offered hereby), and shares of Preferred Stock issued and outstanding
or issuable on exercise of placement agent warrants. The Company's board of
directors also has authority, without action or vote of the shareholders, to
issue all or part of the authorized but unissued shares. Any such issuance will
dilute the percentage ownership of shareholders and may further dilute the book
value of the Company's Common Stock.
Preferential Rights of Preferred Stock Outstanding
The Company has 40,000 shares of 1991 Preferred Stock, 165,140 shares of
1994 Preferred Stock, 613,334 shares of 1995 Preferred Stock, 12.5 shares of
1996 Preferred Stock, and 222 shares of 1996-4 Preferred Stock issued and
outstanding. The 1991 Preferred Stock has a liquidation preference of $1.25 per
share, the 1994 Preferred Stock has a liquidation preference of $2.00 per share,
the 1995 Preferred Stock has a liquidation preference of $1.50 per share, the
1996 Preferred Stock has a liquidation preference of $1,000 per share plus
accrued dividends, and the 1996-4 Preferred Stock has a liquidation preference
of $10,000 per share plus accrued dividends. On liquidation or termination of
the Company, an aggregate of $3,641,653 in assets would be distributed to the
holders of the currently issued and outstanding Preferred Stock, after payment
of all of the Company's obligations, prior to any distribution to the holders of
Common Stock. The 1991, 1994 and 1995 Preferred Stock vote as a single class
with the Common Stock, and the 1996 Preferred Stock and 1996-4 Preferred Stock
do not vote, except as otherwise required by the corporate statutes of Nevada.
If the Company seeks to amend its certificate of incorporation to change the
provisions relating to the Preferred Stock or to approve a merger containing
provisions that would require a class vote if they were contained in an
amendment to the certificate of incorporation, the approval of each class of
Preferred Stock affected thereby, voting as a separate class, will be required.
Consequently, the holders of a relatively minor number of shares of Preferred
Stock may be able to block such proposals, even in circumstances where they
would be in the best interests of the holders of Common Stock. (See
"DESCRIPTION OF SECURITIES--Preferred Stock, Warrants, and Options Outstanding"
below.)
No Shareholder Meetings or Reports
Since its formation, the Company has not held a meeting of its shareholders
for purposes of electing directors or for any other purpose and has not
distributed any annual report or financial information to its stockholders.
Under Nevada law, the Company has been required since inception to have an
annual shareholders' meeting for the election of directors, but has not done so
because of the costs involved in the preparation and mailing of required proxy
materials and holding meetings. In any year in which the Company has not held
or does not hold a shareholders' meeting, a shareholder may force the Company to
call such a meeting. Shareholders of the Company would have the right to
nominate their own candidates for election as directors at such meeting in
addition to the nominees of the Company for election as directors. Other
business could also be acted on at such a meeting as the shareholders may
determine. As a result, it is possible that the current directors and
management could be replaced and Company policies changed. The Company has
agreed to hold an annual meeting of shareholders on or before June 30, 1997.
Determination of Purchase and Exercise Price
The conversion ratio of the outstanding Preferred Stock and the exercise
prices of the outstanding options and warrants were determined by the Company,
taking into account the history of, and recent prices for, the Common Stock as
quoted on Nasdaq at the time the Preferred Stock, options, and warrants were
issued, the business history and prospects of the Company, the number of
securities to be offered, and the general condition of the securities market,
all as assessed by the Company's management. Such prices bear no relationship
to the assets, earnings, or net tangible book value of the Company or any other
traditional criteria of value. (See "PLAN OF DISTRIBUTION" and "DESCRIPTION OF
SECURITIES" below.)
Substantial and Immediate Dilution
Persons purchasing the Common Stock will suffer a substantial and immediate
dilution to the net tangible book value below the purchase price of such Common
Stock. (See "DILUTION" below.)
No Dividends
The Company has not paid dividends in the past and does not plan to pay
dividends in the foreseeable future, even if it were profitable. Earnings, if
any, are expected to be used to advance the Company's exploration activities and
for general corporate purposes, rather than to make distributions to
shareholders. In addition, the Company's credit agreement with a commercial bank
contains, among other provisions, a negative covenant that prohibits the Company
from paying dividends.
Registration Rights of Existing Shareholders
The Company has previously granted to existing shareholders and holders of
options and warrants, including officers and directors, registration rights that
require the Company to include securities in future registration statements
filed by the Company, subject to the approval of the managing underwriter in
such future offerings and, in some cases, to file registration statements with
respect to the resale, exercise, or conversion of the securities held by the
holders of such registration rights, all at the expense of the Company. The
Company has obtained the effectiveness of a registration statement respecting
all of its registration obligations, subject to the requirement for updating
through supplements or post-effective amendments. (See "DESCRIPTION OF
SECURITIES--Registration Rights" below.)
USE OF PROCEEDS
The Company will receive no net proceeds from the issuance by the Company
of the N Warrants or from the sale by the Selling Stockholders of the Common
Stock issuable on exercise of the 96-4 Warrants. The N Warrants to be issued
pursuant to this Prospectus must be exercised to receive shares of Common Stock
and the 96-4 Warrants held by Selling Stockholders must be exercised into shares
of Common Stock prior to the resale of the Common Stock offered by the Selling
Stockholders pursuant to this offering. Proceeds received by the Company on the
exercise of warrants, aggregating $4,979,250, if all N Warrants and 96-4
Warrants are exercised, will be used by the Company to pay general and
administrative expenses, to the extent not funded from operating revenue, and
for additional drilling, geological and geophysical data gathering, or lease
acquisition. If all options and warrants held by persons other than those
receiving N Warrants and the Selling Stockholders in this offering were
exercised to acquire an additional 1,913,732 shares of Common Stock, the Company
would receive proceeds of $11,091,608. There can be no assurance that any of
the outstanding options or warrants will be exercised to provide any proceeds
therefrom to the Company.
THE COMPANY
For information regarding the Company, reference is made to the Company's
annual report on Form 10-K for the year ended December 31, 1996, a copy of which
is attached to this prospectus.
DILUTION
Immediately prior to this offering, the Company had a pro forma net
tangible book value of $8,670,767, with 7,399,292 shares of Common Stock issued
and outstanding, or approximately $1.17 per share. The pro forma net tangible
book value per share decreases to $0.68 after deducting liquidation preferences
of an aggregate of $3,641,653 with respect to the shares of outstanding 1991,
1994, 1995, 1996, and 1996-4 Preferred Stock. The pro forma net tangible book
value is determined by adjusting the net tangible book value of the Company as
of March 31, 1997, to give pro forma effect to the subsequent issuance of 72,712
shares of Common Stock on conversion of outstanding shares of Preferred Stock,
and 1,500 shares of Common Stock for services rendered to the Company. (See
"ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" in the Company's 1996
Form 10-K.)
Holders of N Warrants and 96-4 Warrants will suffer dilution in the
adjusted net tangible book value per share received on exercise below their
effective purchase price per share. Similarly, purchasers of shares of Common
Stock from Selling Stockholders will likely suffer substantial and immediate
dilution in the adjusted net tangible book value per share of the Common Stock
they purchase below the purchase price for such shares. Based on the Company's
net tangible book value immediately prior to this offering, after giving further
effect to the exercise of all N Warrants offered hereby and all 96-4 Warrants
owned by all Selling Stockholders to acquire the 415,500 shares of Common Stock
to be sold in this offering, the Company would have a net tangible book value of
$10,008,364, or approximately $1.28 per share, which represents a reduction of
$1.81 per share from the closing sales price of $3.09 for the Company's Common
Stock on Nasdaq on June 16, 1997.
SELLING STOCKHOLDERS
The following table provides certain information, as of the date of this
Prospectus, respecting the Selling Stockholders, the shares of Common Stock held
by them, to be sold, and to be held following the offering, assuming the sale by
such Selling Stockholders of all shares of Common Stock offered.
The Selling Stockholders named below confirmed at the time they acquired
the 96-4 Warrants that such securities were acquired for investment purposes
only and without a view toward their resale and acknowledged the existence of
restrictions on resale applicable to such securities. Such Selling Stockholders
can sell such securities only in limited circumstances. The Company is not
aware of any intention by any Selling Stockholder to sell such 96-4 Warrants
prior to their exercise. This offering relates only to the sale of shares of
Common Stock held or to be held by the Selling Stockholders named in the
following table. If a Selling Stockholder sells the 96-4 Warrants held by such
Selling Stockholder prior to exercising such securities into shares of Common
Stock, such shares of Common Stock will not be registered and may not be resold
pursuant to this offering.
<TABLE>
<CAPTION>
Securities Owned Prior Shares Owned After
to the Offering(1) the Offering
---------------------- ------------------
Shares
Common 96-4 to be
Selling Stockholders Stock Warrants(2) Offered Number %
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Dwight B. Bronnum -- 750 750 -- --
Robert L. Hopkins -- 750 750 -- --
-----------------------------------------------------------
Total -- 1,500 1,500 -- --
===========================================================
</TABLE>
[FN]
(1) Shares owned prior to the offering include all shares of Common Stock, if
any, and underlying securities convertible or exercisable into shares of
Common Stock owned by or issuable to the Selling Stockholder. Shares owned
after the offering assume the sale of all shares of Common Stock offered
pursuant to this offering. Percentage figures respecting the securities
owned after the offering give effect to the exercise of all 96-4 Warrants
by all Selling Stockholders.
(2) The 96-4 Warrants are a portion of like warrants issued to designees of the
placement agent in the offering in November 1996 of 1996-4 Preferred Stock,
which warrants entitle the holders thereof to purchase shares of Common
Stock at an exercise price of $7.50, subject to adjustment in certain
circumstances based on the market price of the Common Stock at each
anniversary date of the issuance of the 96-4 Warrants. Such 96-4 Warrants
must be exercised to purchase shares of Common Stock before the resale of
the Common Stock offered by the Selling Stockholders pursuant to this
offering.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $0.001 per share, and 50,000,000 shares of Common Stock, par value $0.001
per share.
Common Stock
The holders of the Company's Common Stock are entitled to one vote per
share on each matter submitted to vote at any meeting of shareholders. Shares
of Common Stock do not carry cumulative voting rights, and therefore, a majority
of the shares of outstanding Common Stock is able to elect the entire board of
directors, and if they do so, minority shareholders would not be able to elect
any persons to the board of directors. The Company's bylaws provide that one-
third of the issued and outstanding shares of the Company shall constitute a
quorum for shareholders' meetings, except with respect to certain matters for
which a greater percentage quorum is required.
Shareholders of the Company have no preemptive right to acquire additional
shares of Common Stock or other securities. The Common Stock is not subject to
redemption and carries no subscription or conversion rights. In the event of
liquidation of the Company, the shares of Common Stock are entitled to share
equally in corporate assets after satisfaction of all liabilities. The shares
of Common Stock, when issued, are fully paid and nonassessable.
Holders of Common Stock are entitled to receive such dividends as the board
of directors may from time to time declare out of funds legally available for
the payment of dividends. The Company seeks growth and expansion of its
business through the reinvestment of profits, if any, and does not anticipate
that it will pay dividends in the foreseeable future.
The board of directors has the authority to issue the authorized but
unissued shares without action by the shareholders. The issuance of such shares
would reduce the percentage ownership held by persons purchasing stock in this
offering and may dilute the book value of the then existing shareholders.
Preferred Stock, Warrants and Options Outstanding
As of the date of this Prospectus, the Company had the following Preferred
Stock, options and warrants outstanding as discussed in detail below.
<TABLE>
<CAPTION>
Number of Shares of Price Per Share of
Common Stock or Common Stock or
Common Stock Common Stock
Description Equivalent Equivalent
- - ------------------------------------ ------------------- ------------------
<S> <C> <C>
Preferred Stock
1991 Series 13,334 $3.75
1994 Series 55,047 $6.00
1995 Series 204,443 $4.50
1996 Series 2,778(1) $4.50(1)
1996-4 Series 343,360(1) $7.50(1)
Warrants to purchase Common Stock 17,450 $4.50
29,353 $7.50
169,222 $12.00
Options to purchase Common Stock(2) 10,000 $3.75
22,667 $3.93
22,000 $4.00
128,000 $4.50
150,000 $5.00
1,667 $5.63
216,667 $6.375
100,000 $6.90
6,666 $7.50
3,333 $7.88
20,000 $9.00
3,333 $9.75
</TABLE>
[FN]
(1) Based on the maximum conversion price of $4.50 per share for the 1996
Preferred Stock and $7.50 per share for the 1996-4 Preferred Stock. The
actual conversion prices may be less, depending on the market price of the
Common Stock at the time of conversion.
(2) Does not include options subject to shareholder approval to purchase up to
400,000 shares of Common Stock at an exercise price of $4.00 per share, and
options subject to vesting requirements to purchase up to 524,330 shares of
Common Stock at a weighted average exercise price of $4.94 per share.
Preferred Stock
The Company has 40,000 shares designated as 1991 Series Convertible
Preferred Stock, 165,140 shares designated as 1994 Series Convertible Redeemable
Preferred Stock, 613,334 shares designated as the 1995 Series Convertible
Preferred Stock, 12.5 shares designated as the 1996 Series 6% Convertible
Preferred Stock, and 222 shares designated as the 1996-4 Series Preferred Stock
issued and outstanding as of the date of this Prospectus. The Company has no
current plans to issue any additional Preferred Stock, except 70,000 shares of
1993 Preferred Stock to be issued on the exercise of the outstanding 1993
Placement Agent Warrants and 131,622 shares of 1994 Preferred Stock to be issued
on the exercise of the outstanding 1994 Placement Agent Warrants. The Company's
articles of incorporation provide that the board of directors of the Company has
authority, without action by the shareholders, to issue the authorized but
unissued Preferred Stock in one or more series, and to determine the voting
rights, preferences as to dividends and liquidation, conversion rights, and
other rights of such series.
The 1991, 1994 and 1995 Preferred Stock is convertible, at the election of
the holder, into the Company's Common Stock at the rate of one share of Common
Stock for each three shares of Preferred Stock, after giving effect to the 3-
for-1 reverse stock split of the Common Stock. The 1993 Preferred Stock issuable
on the exercise of the 1993 Placement Agent Warrants is convertible, at the
election of the holder, into the Company's Common Stock at the rate of two
shares of Common Stock for each three shares of Preferred Stock. The 1996
Preferred Stock is convertible, at the election of the holder, into the
Company's Common Stock at the rate of one share of 1996 Preferred Stock for the
number of shares of Common Stock determined by dividing $1,000 by the lesser of
$4.50 or 75% of the closing bid price of the Common Stock as reported on Nasdaq
on the day preceding the date of conversion. The 1996-4 Preferred Stock is
convertible, at the election of the holder, into the Company's Common Stock at
the rate of one share of 1996-4 Preferred Stock for the number of shares of
Common Stock determined by dividing $10,000, plus an accretion at 8% per annum,
by the lesser of $7.50 or a percentage of the average closing bid price of the
Common Stock as reported on Nasdaq for the five days preceding the date of
conversion. Such percentage is 90% of the 1996-4 Preferred Stock if converted
after March 20, 1997, and before May 20, 1997, 85% if after May 20, 1997, and
before November 20, 1997, and 82.5% if after November 20, 1997.
The 1991 Preferred Stock carries a preference of $1.25 per share on
dissolution and liquidation of the Company, the 1994 Preferred Stock carries a
preference of $2.00 per share, the 1995 Preferred Stock carries a liquidation
preference of $1.50 per share, the 1996 Preferred Stock carries a liquidation
preference of $1,000 per share plus accrued dividends, and the 1996-4 Preferred
Stock carries a liquidation preference of $10,000 per share plus accrued
dividends. The 1991, 1994, and 1995 Preferred Stock votes as a single class
with the Common Stock except as otherwise provided by the corporate laws of the
state of Nevada. Shares of 1991, 1994 and 1995 Preferred Stock are entitled to
one vote per share. The 1996 Preferred Stock and 1996-4 Preferred Stock are not
entitled to vote except as required by the corporate laws of the state of Nevada
and on certain specific matters. Except for the 1996 Preferred Stock, none of
the issued and outstanding Preferred Stock is entitled to preferential
dividends, but participates with the Common Stock in the unlikely event that a
dividend is declared. The 1996 Preferred Stock is entitled to a 6% dividend
payable in cash in the event the 1996 Preferred Stock is redeemed or in
additional shares of Common Stock upon the conversion of the 1996 Preferred
Stock. The 1996-4 Preferred Stock is entitled to an 8% accretion payable in
additional shares of Common Stock upon the conversion of the 1996-4 Preferred
Stock or in cash if the 1996-4 Preferred Stock is redeemed.
The 1991 Preferred Stock is redeemable at $1.25 per share at any time after
December 31, 1995, the 1994 Preferred Stock is redeemable at $4.00 per share at
any time after March 31, 1996, the 1995 Preferred Stock is redeemable at $3.00
per share at any time after December 31, 1995, and the 1996 Preferred Stock is
redeemable at $1,330 per share at any time after April 1, 1997. The 1996-4
Preferred Stock is redeemable at $13,000 per share at any time after November
20, 1997, through May 20, 1998, and at $12,500 thereafter. The 1996-4 Preferred
Stock will automatically convert into shares of Common Stock on November 20,
1998. In each case, the Preferred Stock can be converted prior to the
redemption date fixed in the notice.
Warrants
The Company has issued and outstanding the following warrants to purchase
Common Stock and has reserved an equivalent number of shares of Common Stock for
issuance on exercise of such warrants. Each of the warrants described below is
governed by a warrant agreement between the Company and the warrant agent. The
following summary is subject to the detailed provisions of the warrant agreement
governing such warrants.
Holders of warrants are deemed to be shareholders of the Company only to
the extent of the shares of Common Stock held by them. Holders of warrants, as
such, are not entitled to vote with respect to matters submitted to the
shareholders of the Company, are not entitled to participate in dividends, if
any, and do not have ownership rights on termination or liquidation of the
Company.
$4.50 Warrants. The Company has issued and outstanding warrants to
purchase 8,333 shares of Common Stock at an exercise price of $4.50 per share
which expire in June 2000.
N Warrants. The Company is offering pursuant to this Prospectus to the
record holders of the class L Warrants, which warrants expired pursuant to their
terms on December 31, 1996, N Warrants to purchase 414,000 shares of Common
Stock at $12.00 per share. The N Warrants will be exercisable through December
31, 1998. The N Warrants are subject to redemption by the Company at a
redemption price of $0.10 per Warrant if the average closing price of the Common
Stock is at least $12.00 per share for 20 consecutive trading days preceding the
date of notice of redemption, subject to certain other conditions. Such
Warrants may be exercised during the period after notice of redemption has been
given and prior to the redemption date.
M Warrants. The Company has issued and outstanding 507,666 M Warrants.
Giving effect to the reverse stock split, the M Warrants entitle the holder to
purchase one share of Common Stock for each three M Warrants held at $12.00 at
any time through December 1, 1998. The M Warrants are subject to redemption by
the Company at a redemption price of $0.10 per Warrant if the average closing
price of the Common Stock is at least $12.00 per share for 20 consecutive
trading days preceding the date of notice of redemption, subject to certain
other conditions. Such Warrants may be exercised during the period after notice
of redemption has been given and prior to the redemption date.
1996 Placement Agent Warrants. The placement agent in the offering in
which the 1996 Preferred Stock was sold has warrants to acquire 9,117 shares of
Common Stock at a price equal to the lesser of $4.50 or 75% of the closing bid
price of the Common Stock as reported on Nasdaq on the day preceding the date of
exercise. The placement agent's warrants are exercisable before March 25, 2001.
1996-4 Investor Warrants. The Company will issue to each holder of 1996-4
Preferred Stock who converts his or her shares after November 20, 1997, an
Investor Warrant to purchase a number of shares of Common Stock, depending on
the dates on which such shares of 1996-4 Preferred Stock are converted. Each
share of 1996-4 Preferred Stock converted on November 20, 1996, will entitle the
holder thereof to receive an Investor Warrant to purchase 1,111 shares of Common
Stock at an exercise price of $9.00 per share. The number of shares and the
exercise price of the Investor Warrants issued thereafter shall be adjusted
ratably each day until November 20, 1998, when each share of 1996-4 Preferred
Stock converted on such date will entitle the holder thereof to receive an
Investor Warrant to purchase 1,333 shares of Common Stock at an exercise price
of $7.50 per share. This Prospectus relates to the resale of Common Stock
issuable on exercise of the Investor Warrants.
1996-4 Placement Agent Warrants. The designees of the placement agent in
the 1996-4 Preferred Stock offering have warrants to purchase an aggregate of
29,353 shares of Common Stock at an exercise price equal to the lesser of $7.50
or 125% of the average closing price of the Common Stock as reported on Nasdaq
for the five days preceding each anniversary of the issuance of such warrants.
Such warrants are exercisable at any time prior to November 8, 2001. This
Prospectus relates to the resale of Common Stock issuable on exercise of up to
1,500 of the Placement Agent Warrants. The resale of the shares of Common Stock
issuable on exercise of the remaining Placement Agent Warrants was previously
registered.
Options
The Company has issued and outstanding options to purchase up to 684,336
shares of Common Stock at a weighted average exercise price of $5.71 per share,
including options to purchase 557,670 shares of Common Stock at a weighted
average exercise price of $5.49 per share of Common Stock issued to executive
officers, directors and employees of the Company. In addition, the Company has
issued to directors of the Company options to purchase up to 400,000 shares of
Common Stock at an exercise price of $4.00 per share that are subject to
shareholder approval, and to employees of the Company options to purchase up to
524,330 shares of Common Stock at a weighted average exercise price of $4.94 per
share that are subject to vesting requirements.
General
Each of the foregoing warrants and options contain provisions that protect
the holders thereof against dilution by adjustment in the number of shares of
Common Stock purchasable on exercise of the warrants and options in certain
events such as stock splits or stock dividends. In the event the number of
warrant or option shares purchasable is increased, through the operation of the
anti-dilution provisions, the exercise price will be reduced proportionately.
Conversely, if the number of warrant or option shares purchasable is decreased,
the exercise price will be increased proportionately.
Registrar and Transfer Agent
The registrar and transfer agent of the Company's securities is Atlas Stock
Transfer Corporation, 5899 South State Street, Salt Lake City, Utah 84107,
telephone (801) 266-7151.
PLAN OF DISTRIBUTION
General
This Prospectus relates to the issuance by the Company of 414,000 N
Warrants to the persons who held the Company's L Warrants which expired on
December 31, 1996, and 414,000 shares of Common Stock issuable on exercise of
the N Warrants. This Prospectus also relates to the public offer and sale by
certain shareholders (the "Selling Stockholders") of up to 1,500 shares of
Common Stock of the Company issuable on exercise of the 96-4 Warrants at an
exercise price of $7.50 per share, subject to adjustment depending on the
trading price of the Common Stock at the anniversary dates of the issuance of
such Warrants. (See "SELLING STOCKHOLDERS" and "DESCRIPTION OF SECURITIES"
above.)
Exercise of Warrants
The N Warrants and 96-4 Warrants may be exercised, at the discretion of
the holder thereof, by the delivery to the Company at its principal executive
offices at Foreland Corporation, Union Terrace Office Bldg., 12596 West Bayaud,
Suite 300, Lakewood, Colorado 80228-2019, of the Warrant accompanied by an
election of exercise and payment of the purchase price for each share of Common
Stock purchased in accordance with the terms of such warrant. Payment on the
exercise of warrants must be made in the form of cash or check payable to the
order of the Company.
Determination of Exercise Prices
The exercise prices of the N Warrants and 96-4 Warrants were determined at
the time of the issuance by the board of directors, based on the historical and
future trading prices for the Common Stock in the over-the-counter market, the
possible results of exploration in the Company's properties, and the Company's
anticipated need for additional capital. The terms of the foregoing securities
were not determined through arm's length negotiations.
The exercise prices of the N Warrants and the 96-4 Warrants bear no
relationship to the assets, earnings, or book value of the Company or any other
recognized criteria of value.
Sale of Common Stock by Selling Stockholders
The Common Stock to be sold by the Selling Stockholders may be sold by them
from time to time directly to purchasers. Alternatively, the Selling
Stockholders may, from time to time, offer the Common Stock for sale in the
over-the-counter market through or to securities brokers or dealers that may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Stockholders and/or the purchasers of Common Stock for whom they may
act as agent. Any such sale of Common Stock by Selling Stockholders must be
accompanied by, or follow the delivery of, a prospectus filed with a current
registration statement relating to the Common Stock being offered, unless a
Selling Stockholder elects to rely on Rule 144 or another exemption from the
registration requirements in connection with a particular transaction. The
Selling Stockholders, and any dealers or brokers that participate in the
distribution of the Common Stock, may be deemed to be "underwriters" as that
term is defined in the Securities Act, and any profit on the sale of Common
Stock by them and any discounts, commissions, or concessions received by any
such dealers or brokers may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Common Stock may be sold by the Selling Stockholders from time to time
in one or more transactions at a fixed offering price, which may be changed, or
at prices that may vary through the period during which the securities may be
offered, or at such other prices as may be negotiated by the Selling
Stockholders and the purchaser at the time of sale. The Company does not intend
to enter into any arrangement with any securities dealer concerning solicitation
of offers to purchase the Common Stock.
The Company estimates that it will incur costs of approximately $20,000 in
connection with this offering for legal, accounting, printing, and other costs.
Any separate costs of the Selling Stockholders will be borne by them.
Commissions or discounts paid in connection with the sale of securities by the
Selling Stockholders will be determined by negotiations between them and the
broker-dealer through or to which the securities are to be sold and may vary
depending on the broker-dealers' commission or mark up schedule, the size of the
transaction, and other factors.
LEGALITY OF SECURITIES
The validity under the Nevada Revised Statutes of the issuance of the N
Warrants and the Common Stock issuable on exercise of the N Warrants and 96-4
Warrants has been passed on for the Company by Kruse, Landa & Maycock, L.L.C.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, have been audited by Hein + Associates LLP, certified public
accountants, as stated in their report, which is incorporated herein by
reference and has been so incorporated in reliance upon such report given on the
authority of that firm as experts in accounting and auditing.
The year end independent reserve report dated December 31, 1996,
incorporated by reference into this Prospectus by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, has been
prepared by the firm of Malkewicz Hueni Associates, Inc., Golden, Colorado, as
stated in its report, which is incorporated by reference and has been so
incorporated by reference in reliance and upon such report given on the
authority of that firm as experts in mining engineering.
TABLE OF CONTENTS
<TABLE>
<CAPTION> FORELAND CORPORATION
Section Page
<S> <C>
SUMMARY AND INTRODUCTION....................3
RISK FACTORS................................8
USE OF PROCEEDS............................14 N WARRANTS
THE COMPANY................................15 SHARES OF COMMON STOCK
DILUTION...................................15
SELLING STOCKHOLDERS.......................16
DESCRIPTION OF SECURITIES..................16
PLAN OF DISTRIBUTION.......................20
LEGALITY OF SECURITIES.....................21
EXPERTS....................................21
</TABLE>
No dealer, salesman, or other PROSPECTUS
person has been authorized in
connection with this offering to give
any information or to make any
representation other than as
contained in this Prospectus and, if
made, such information or
representation must not be relied on
as having been authorized by the
Company. This Prospectus does not
constitute an offer to sell or the
solicitation of an offer to buy any
securities covered by this Prospectus
in any state or other jurisdiction to
any person to whom it is unlawful to
make such offer or solicitation in
such state or jurisdiction. June 18, 1997
