As filed with the Securities and Exchange Commission on October 18, 1996
Registration No. 333-____________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
MAGNUM PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
Nevada 1311 87-0462881
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
600 East Las Colinas Blvd., Suite 1200, Irving, Texas 75039, (214) 401-0752
(Address and telephone number of principal executive offices)
Morgan F. Johnston, Esq., 600 East Las Colinas Blvd., Suite 1200,
Irving, Texas 75039, (214) 401-0752
(Name, address and telephone number, including area code, of agent for service)
------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
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 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 of
the same offering [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
Title of each Amount Proposed Proposed Amount of
class of to be maximum maximum registration
securities to be registered offering price aggregate fee
registered per share (1) offering price (1)
- --------------------------------------------------------------------------------
Common Stock,
par value $.002 985,185 $4.97 $4,896,369 $1,688.40
(1) Estimated solely for purpose of calculating registration fee.
------------
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.
Page number 1 of 35 pages numbered sequentially.
The Exhibit Index may be found on Page 28.
<PAGE>
MAGNUM PETROLEUM, INC.
985,185 SHARES
Common Stock, par value $.002 per share
This Prospectus relates to 985,185 shares (the "Shares") of the Common
Stock, par value $.002 per share, of Magnum Petroleum, Inc., a Nevada
corporation ("Magnum" or the "Company"), which may be offered from time to time
by certain stockholders of the Company (the" Selling Stockholders"). See
"Selling Stockholders." The Shares were acquired from the Company under various
agreements more specifically described herein under the heading "Plan of
Distribution". The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. All expenses incurred in connection with
this offering, other than selling commissions and fees and expenses of counsel
and other representatives of the Selling Stockholders, are being borne by the
Company.
The Company has been advised by the Selling Stockholders that they or their
successors may sell all or a portion of the shares offered hereby from time to
time through the American Stock Exchange, in privately negotiated transactions
or otherwise, including sales through or directly to a broker or brokers. Sales
will be at prices and terms then prevailing or at prices related to the then
current market prices or at negotiated prices. In connection with any sales, any
broker or dealer participating in such sales may be deemed to be an underwriter
within the meaning of the Securities Act of 1933. Certain shares covered by this
Prospectus may be sold under Rule 144 instead of this Prospectus. See "Plan of
Distribution".
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor any
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer. solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
The Common Stock of the Company is traded on the American Stock Exchange
(the "AMEX") under the symbol "MPM." On October 15, 1996, the last reported sale
price of the Common Stock on the AMEX was $5.0625 per share.
See "Risk Factors" on page 5 for a discussion of certain risk factors which
should be considered in connection with an investment in the Company.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES 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 ________, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as at the Regional Offices of the
Commission at Seven World Trade Center, 13th Floor, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates and can also be inspected at the offices of the
American Stock Exchange, Inc., 86 Trinity Place, New York, New York 10006-1881.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus does not contain all of the information set forth in such
Registration Statement. For further information with respect to the Company and
the Common Stock being offered, reference is hereby made to the Registration
Statement and to the exhibits thereto.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents and information filed by the Company with the
Commission pursuant to the Exchange Act are hereby incorporated by reference:
1. The Company's Annual Report on Form 10-KSB for the year ended December 31,
1995;
2. The Company's Quarterly Reports on Form 10-QSB for the quarters ended March
31, 1996 and June 30, 1996;
3. The Company's Current Reports on Form 8-K dated May 21, 1996, and June 28,
1996;
4. The Company's amendments to Form 8-K reported on Form 8-K/A filed March 15,
1996, August 14, 1996 and August 16, 1996; and
5. The description of the Common Stock contained in the Company's Registration
Statement on Form 8-A filed pursuant to Section 12(b) of the Exchange Act,
dated March 6, 1996.
Each document filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Common Stock under this Prospectus shall
be deemed to be incorporated by reference into this Prospectus and to be made a
part hereof from the date of filing of such document, except as to any portion
of any future Annual or Quarterly Report to Stockholders which is not deemed to
be filed under said provisions. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated or deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
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THE COMPANY
Magnum was incorporated under the laws of the State of Nevada on February
10, 1989 originally under the name Master Ventures, Inc. and registered a public
offering of its securities in 1989. Subsequently, Magnum became engaged in the
oil and gas business and changed its name to Magnum Petroleum, Inc. on October
1, 1990. Magnum is qualified to do business in the states of California,
Oklahoma, New Mexico, and Texas. During the past three years, Magnum's primary
focus has been the acquisition and drilling of oil and gas prospects and raising
working capital through the private and public sale of its common and preferred
stock.
The business purpose of Magnum is to engage in the acquisition,
exploration, drilling, development and operation of oil and gas properties; to
acquire other interests in oil and/or gas production; to produce and market oil
and/or gas from prospects; and to engage in and perform any and all acts and
activities customary in connection therewith, or incident thereto, within the
United States. In most instances, Magnum acts as operator of record of the oil
and gas properties in which it has acquired an interest.
Recent Developments
Acquisition of Panoma Properties
--------------------------------
On June 28, 1996, Magnum closed on the purchase of 469 natural gas wells
and 427 miles of a gas gathering pipeline system from Meridian Oil Inc.
("Meridian"), a wholly-owned subsidiary of Burlington Resources, Inc. The net
purchase price after certain purchase price adjustments was approximately $35
million for all of Meridian's interest in certain gas wells and a gas gathering
system located in the Panhandle of Texas and Western Oklahoma, more commonly
referred to as the "Panoma Properties."
The current daily production volumes from the Magnum owned wells is
approximately 14 million cubic feet per day with total delivery, including third
party gas purchased by the gathering system, of almost 19 million cubic feet per
day. The Company has estimated the monthly cash flow from the acquisition of the
Panoma Properties to be approximately $500,000 per month. The existing wells and
gas gathering system are located in three fields, the West Panhandle Field, the
East Panhandle Field, and the South Erick Field, all located in Gray, Wheeler,
Collingsworth and Donley Counties, Texas and Beckham and Greer Counties,
Oklahoma. Magnum's wholly-owned subsidiary, Gruy Petroleum Management Co., has
become the operator of all wells, the gas gathering pipeline system, and
associated assets.
Line of Credit
--------------
On June 26, 1996, Magnum received a commitment from Wells Fargo Bank, N.A.,
as Agent, and Banque Paribas, as Co-agent, (hereinafter collectively referred to
as "Banks") for a new credit facility for the benefit of Magnum and several
wholly-owned subsidiaries. The purpose of the new line of credit is to i)
refinance the Company's existing indebtedness with First Interstate Bank of
Texas, N.A. (a wholly-owned subsidiary of Wells Fargo Bank, N.A.), ii) finance
the acquisition of oil and gas reserves including the $35.4 million Panoma
Property acquisition, as discussed below, from Meridian Oil Inc. ("Meridian"), a
wholly-owned subsidiary of Burlington Resources, Inc., iii) future property
development, and iv) working capital support and general corporate purposes. The
credit facility is subject to a "Borrowing Base" determination established from
time-to-time by the Banks based upon proven oil and gas reserves and gas
gathering assets owned by Magnum and its subsidiaries. The availability under
the Company's existing credit facility was $16 million and has now been
increased to $48 million based upon the acquisition of the Panoma Properties.
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The new credit facility gives the Company the flexibility to choose a range of
either "LIBOR" or "Prime" based interest rates options. At June 30, 1996, $40
million was outstanding under the revolving credit note agreements with interest
at eight percent (8%) (Libor plus two and one-half percent (2 1/2%).
Additionally, $8 million was outstanding under term notes with interest at ten
and one-half percent (10 1/2%) (Prime plus 2.25 percent). Terms of the revolving
credit notes provide for a maturity date of June 28, 2001 with no required
principal payments until maturity, provided the future Borrowing Base
determinations established from time-to-time by the Banks do not exceed the then
outstanding principal balance. Terms of the term notes provide for a maturity
date of December 31, 1996 with the option to payoff the remaining principal
balance at that date in eight quarterly installments beginning March 31, 1997.
On June 28, 1996, Magnum closed on the purchase of 469 natural gas wells and
approximately 427 miles of a gas gathering pipeline system from Meridian. The
net purchase price after certain purchase price adjustments was approximately
$35,350,000, funded by a loan from Magnum's principal lending financial
institutions. As the purchase was not completed until the end of the second
quarter of 1996, the Statements of Operations for 1996 do not include any
operating results for the purchased properties. The purchase price was allocated
based on estimated fair market values resulting in the recording of $29,560,000
as oil and gas properties and $5,790,000 as pipelines. The gas wells and gas
gathering system are located in the Panhandle of Texas and Western Oklahoma and
are more commonly referred to as the "Panoma Properties."
The current daily production volumes from the Magnum owned wells is
approximately 14 million cubic feet per day with total delivery, including third
party gas purchased by the gathering system, of almost 19 million cubic feet per
day. The Company has estimated the monthly cash flow from the acquisition of the
Panoma Properties to be approximately $500,000 per month. The existing wells and
gas gathering system are in three fields, the West Panhandle Field, the East
Panhandle Field, and the South Erick Field, all located in Gray, Wheeler,
Collingsworth and Donley Counties, Texas and Beckham and Greer Counties,
Oklahoma. Magnum's wholly-owned subsidiary, Gruy Petroleum Management Co., has
become the operator of all wells, the gas gathering pipeline system, and
associated assets.
Series C Convertible Preferred Stock
------------------------------------
On June 5, 1996, Magnum called for redemption 208,333 shares of its Series C
preferred stock at $10.50 per share, as provided by the terms of the certificate
of designations, plus accrued dividends with an extended redemption date of July
10, 1996. Terms of the preferred stock provide for the option by the holder to
convert the preferred shares into common stock at the rate of three (3) shares
of common stock for each share of Series C preferred stock. At June 30, 1996,
57,400 shares of the preferred stock had converted into 172,200 shares of Magnum
common stock. An additional, 3,527 shares of common stock were issued for
accrued dividends to conversion date. Subsequent to June 30, 1996, but prior to
July 11, 1996, an additional 236,992 shares of the preferred stock were
converted for 732,223 shares of common stock including accrued dividends paid in
common stock. Additionally, 8,224 shares of preferred stock were redeemed for
cash in the amount of $88,860.
On July 11, 1996, Magnum called for the redemption the remaining 322,384 shares
of its Series C preferred stock. The redemption price was $10.50 per share, plus
accrued dividends of $.141 per share from July 1, 1996 through the extended
redemption date of August 16, 1996, for a total redemption price of $10.641 per
share. The Series C preferred shares could be converted, at the option of the
holder, at any time prior to August 16, 1996 into common stock. 302,492 shares
of Series C preferred stock were converted into 938,451 shares of common stock
including the accrued dividends paid in common stock. Additionally, 19,892
shares of preferred stock were redeemed for cash in the amount of $210,431.
After both redemption calls, Magnum converted 596,884 shares of its Series C
preferred stock into common stock and redeemed 28,116 shares of its Series C
preferred stock.
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RISK FACTORS
There are certain risks associated with the distribution of the Magnum
Shares to Hunter Shareholders. Among the significant risks are the following:
1. LIMITED OPERATING HISTORY/OPERATING LOSSES. Magnum has only a limited
recent history of operations and was, until March 31, 1992 considered to be a
development stage enterprise. Magnum has incurred operating losses and had
accumulated a deficit of $5,642,000 at June 30, 1996. Magnum's ability to
continue business, maintain its financing arrangements and pay dividends would
be adversely affected by continued operating losses. Any improvement in the
financial condition of Magnum will be dependent upon improvement in the
development of new oil and gas reserves, revenues from the sale of oil and gas
production, increases in commodity pricing and reduction in operating expenses.
There is no assurance that such improvements will occur.
2. COMMON STOCK SUBORDINATE TO PREFERRED STOCK. The Magnum Common Stock to
be distributed is subordinate to all outstanding classes of preferred stock of
Magnum in the payment of dividends and other distributions made with respect to
the stock, including distributions upon liquidation or dissolution of Magnum.
Magnum has previously issued three separate series of Preferred Stock (Series A,
B and C), which, in the aggregate, have substantial liquidation preferences and
annual dividend requirements, all of which must be satisfied before Magnum can
pay dividends or make other distributions with respect to Common Stock. See
"Description of Securities".
3. DEPENDENCE UPON KEY PERSONNEL. Magnum is substantially dependent upon a
few key individuals who comprise the management of Magnum; specifically, Gary C.
Evans and Matthew C. Lutz. As compared to many other public oil and gas
companies, Magnum does not have a depth of managerial and technical personnel.
Accordingly, there is a greater likelihood that loss of the services of any of
these individuals would have a material adverse impact upon Magnum. See "Certain
Relationships and Related Transactions". Both Mr. Evans and Mr. Lutz have
employment agreements with Magnum. Mr. Evans' agreement terminates December 31,
1996 and continues thereafter on a year to year basis and provides for a salary
of $150,000 per annum. Mr. Lutz's agreement terminates September 30, 1996 and
continues thereafter on a year to year basis and provides for a salary of
$48,000 per annum in addition to participation rights in certain exploration
projects. Both agreements provide that the same benefits supplied to other
Magnum employees shall be available to the employee. The employment agreements
also contain, among other things, covenants by the employee that in the event of
termination, he will not associate with a business that competes with Magnum for
a period of one year after cessation of employment. Magnum also has key man life
insurance on Mr. Evans in the amount of $1,000,000.
4. RISK OF LOSS FROM UNSUCCESSFUL PROSPECTS. The oil and gas business is
very speculative and involves a high degree of risk. No combination of
experience, knowledge and scientific evaluation can overcome the risk of
investment so as to assure a profit to a company in the oil and gas industry.
There can be no assurance that revenues derived from proved properties will
exceed the cost of acquiring and developing such properties. Magnum will be
involved in additional development work on its existing properties, including
reworking existing wells to increase production and/or drilling offset wells to
existing production. There is no assurance Magnum will not expend substantial
sums for such acquisition and development, only to determine that a well is
nonproductive or a property is not commercially producible, in which case the
amounts invested in such prospect may be totally lost. The ultimate success of a
prospect may not be known until substantially all development costs have been
incurred.
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5. UNCERTAINTIES INHERENT IN CURRENT OIL AND GAS MARKET. World and domestic
market and economic conditions, availability of gas transmission lines or the
existence of price control regulations may affect the price of, or the ability
to market the oil and gas produced. There is substantial uncertainty as to the
prices at which oil and gas produced by Magnum may be sold, and it is possible
that under some market conditions, the production and sale of oil and gas from
some or all of Magnum's properties may not be economical, resulting in a
reduction in the value of Magnum's reserves. The availability of a ready market
for oil and gas and the prices obtained for such oil and gas depend upon
numerous factors beyond the control of Magnum, including competition from other
oil and gas suppliers and national and international economic and political
developments. See "Business - Competition and Markets."
6. ENVIRONMENTAL REGULATION. Magnum is subject to numerous federal, state
and local environmental laws and regulations governing the oil and gas business,
including petroleum spills, noise pollution, air quality, disposal of water,
preservation of wildlife and other eco-system preservation. Magnum's drilling
and operating activities may expose it to potential liability for pollution or
other damage to the environment. Compliance with all statutes and regulations
relating to environmental matters to which Magnum is subject may cause delays in
drilling and completion of wells and/or additional expenses. Magnum does carry
certain environmental impairment liability insurance coverage where available
and maintains bonds as required by state law, but there is no assurance this
protection would be adequate to cover any actual losses or liabilities which may
arise from such hazards.
7. OTHER GOVERNMENT REGULATION. The oil and gas industry is subject to
federal, state and local governmental regulations. These jurisdictions are
empowered to enact legislation or regulations which limit or otherwise control
the methods and rates of oil and gas production, the pricing and marketing of
oil and gas, and the taxation of oil and gas. Since energy policies are
uncertain and constantly changing, no prediction can be made with respect to the
ultimate effect on the business of Magnum of governmental policies such as price
controls, taxes, drilling restrictions, etc.
8. NEED FOR DEVELOPMENT OF ADDITIONAL RESERVES. Magnum's future success
depends upon its continuing ability to find or acquire additional oil and gas
reserves that are economically recoverable. Except to the extent that Magnum
conducts successful exploration or development activities or acquires properties
containing proved reserves, the proved reserves of Magnum will generally decline
as reserves are produced. There can be no assurance that Magnum will be able to
discover additional commercial quantities of oil and gas, or that Magnum will be
able to continue to acquire oil and gas reserves at prices which it considers
economically advisable.
9. WRITE DOWNS AND LIMITATIONS ON ACCURACY OF RESERVE ESTIMATES. Oil and
gas reserve estimates are based on subjective engineering judgment and are
necessarily imprecise. In addition, any estimates of future net revenues and the
present value thereof are based on price and cost assumptions provided by Magnum
as its best estimate. To the extent these estimates of quantities, prices and
costs prove incorrect, or Magnum is unsuccessful in expanding its oil and gas
reserve base with its capital expenditure program, or declines in oil and gas
prices occur, then write downs in reserve estimates and the capitalized costs
associated with Magnum's oil and gas assets could occur again in the future. See
"Properties - Reserves."
10. UNCERTAINTIES OF TITLE. Although Magnum will attempt, where practical,
to obtain legal title opinions from reputable counsel, title to natural resource
properties is subject to questions of law as well as facts and circumstances
which are not always readily discoverable of record or otherwise which can
adversely affect validity of title.
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11. NO ASSURANCE OF DIVIDENDS. Magnum does not currently pay cash dividends
on its Common Stock and does not anticipate paying such dividends at any time in
the future. Holders of shares of Series C Preferred Stock have only been
entitled to receive cash dividends when, as and if declared by the Board of
Directors of Magnum out of funds legally available therefor. While historically,
Magnum has declared and paid dividends on the Series C Preferred Stock, except
upon conversion or redemption, Magnum has no obligation in the future to pay
dividends on any security. See "Market for Common Equity and Related Shareholder
Matters."
12. VOLATILITY OF STOCK PRICES. During the two most recent fiscal years and
subsequent interim period, bid quotations and trading prices of the common stock
of Magnum as traded on the American Stock Exchange, have ranged from $2.25 to
$5.25 per share. The market prices of Magnum's Common Stock, Series C Preferred
Stock and Warrants are subject to significant fluctuation in response to
variations in operating results of Magnum and other factors such as investor
perceptions of Magnum and the stock market in general. Additionally, the supply
and demand for petroleum products, interest rates, general economic conditions
as well as those specific to the oil and gas industry, international political
conditions, particularly in oil producing countries, developments with regard to
Magnum's drilling activities, future acquisitions, financial condition and
management decisions.
13. POTENTIAL ISSUANCE OF ADDITIONAL PREFERRED AND COMMON STOCK. Magnum is
authorized to issue up to 10,000,000 shares of preferred stock, the rights and
preferences of which may be designated in series by the Board of Directors.
Except for certain restrictions requiring the approval of Series C Preferred
Shareholders, such designations may be made without shareholder approval. A
total of 625,000 shares were designated as Series C Preferred Stock in addition
to 216,000 shares of Series A Preferred and 248,000 shares of Series B Preferred
previously designated. The designation and issuance of other series of preferred
stock will create additional securities which may have dividend and liquidation
preferences over the Common Stock. Magnum is also authorized to issue up to
50,000,000 shares of common stock, of which 13,275,379 shares are presently
issued and outstanding, 20,750 shares are reserved for issuance upon conversion
of the Series B Preferred Shares that were to convert to common as of December
31, 1995, and 854,176 shares are reserved for issuance upon exercise of the
Warrants. The issuance of additional common stock in the future after completion
of this offering will reduce the proportionate ownership and voting rights of
common stock presently outstanding or issuable upon conversion/exercise.
On June 5, 1996, Magnum called for redemption 208,333 shares of its Series C
preferred stock at $10.50 per share, as provided by the terms of the certificate
of designations, plus accrued dividends with an extended redemption date of July
10, 1996. Terms of the preferred stock provide for the option by the holder to
convert the preferred shares into common stock at the rate of three (3) shares
of common stock for each share of Series C preferred stock. At June 30, 1996,
57,400 shares of the preferred stock had converted into 172,200 shares of Magnum
common stock. An additional, 3,527 shares of common stock were issued for
accrued dividends to conversion date. Subsequent to June 30, 1996, but prior to
July 11, 1996, an additional 236,992 shares of the preferred stock were
converted for 732,223 shares of common stock including accrued dividends paid in
common stock. Additionally, 8,224 shares of preferred stock were redeemed for
cash in the amount of $88,860.
On July 11, 1996, Magnum called for the redemption the remaining 322,384 shares
of its Series C preferred stock. The redemption price was $10.50 per share, plus
accrued dividends of $.141 per share from July 1, 1996 through the extended
redemption date of August 16, 1996, for a total redemption price of $10.641 per
share. The Series C preferred shares could be converted, at the option of the
holder, at any time prior to
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August 16, 1996 into common stock. 302,492 shares of Series C preferred stock
were converted into 938,451 shares of common stock including the accrued
dividends paid in common stock. Additionally, 19,892 shares of preferred stock
were redeemed for cash in the amount of $210,431.
While Magnum continues to negotiate with five separate institutional investors
concerning the funding of up to $15 million in participating preferred stock, it
is likely that within the next sixty days, Magnum will complete a transaction
with one institution for this funding. The structure of this transaction will
probably be in two forms. The first $10 million will be structured as a
mandatory redeemable (non-convertible) preferred stock bearing interest at
approximately 9% per annum and providing the institutional investor the ability
to participate by owning an overriding royalty interest in up to six development
and waterflood projects owned by Magnum in West Texas and Western Oklahoma. The
remaining $5 million will most likely be structured as a convertible preferred
stock at a price equal to a 25% premium over the price of the common stock at
the time of issuance. The purpose for the $15 million offering is to fund the
capital cost necessary to fully develop the six development and waterflood
projects and to reduce Magnum's existing senior bank indebtedness.
14. SHARES ELIGIBLE FOR FUTURE SALE. All 2,465,191 shares of common stock
owned by members of Magnum's existing management or their affiliates are
"restricted securities" and under certain circumstances may in the future be
sold in compliance with Rule 144 adopted under the Securities Act of 1933, as
amended. Rule 144 provides, among other things, that persons holding restricted
securities for a period of two years may each sell in brokerage transactions
every three months an amount equal to 1% of Magnum's total outstanding shares or
the weekly reported volume of trading during the four calendar weeks preceding
the filing of a notice of proposed sale, whichever is greater. All 2,465,191
shares held by Magnum's management and their affiliates are eligible for resale
pursuant to Rule 144. No prediction can be made as to the effect, if any, that
sales of such shares or the availability of such shares for sale will have on
Magnum market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of common stock may be sold in the public market may
adversely affect prevailing as well as future market prices for Magnum shares
being issued in the proposed transaction and could also impair Magnum's ability
to raise capital through the sale of its equity securities in the future.
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SELLING STOCKHOLDERS
The following table provides certain information with respect to the shares
of Common Stock held by each Selling Stockholder.
Number of
Number of Number of Shares of
Shares of Common Shares Common Stock
Stock Benef- of Common Beneficially
icially Owned Stock Owned
Before the Registered After the
Name Offering Hereunder Offering
- ---- -------- --------- --------
The McDaniel Company 12,500 12,500 0
Cascade Energy Corporation 1,875 1,875 0
Andrew H. Duvall 827 827 0
Pursuit Energy Corporation 53,245 53,245 0
Scott Oils, Inc. 44,221 44,221 0
R. Douglas Cronk 6,325 6,325 0
Travis Oil and Gas, Inc. 38,861 38,861 0
Ted A. Class and Bertolet B. Class 10,000 10,000 0
Fred L. Ward, Inc. 10,000 10,000 0
Paul Berger 5,000 5,000 0
Larry Heinonen TTEE West Hills
Gastroenterology Asn Pft Shr
and Ret Tr FBO Joanne Heinonen 20,000 20,000 0
Kevin Maloney, Trustee,
Maloney Family Trust 10,000 10,000 0
Thomas Ranftl 4,000 4,000 0
Perry A. Reel 14,000 14,000 0
Charles Moorman 10,000 10,000 0
Hal Curren Weed and Carolyn M. Weed 7,727 7,727 0
Hal Weed and Carolyn Weed Trustees
FBO Aurora Borealis Inc. Target
Benefit Pension Plan and Trust 2,273 2,273 0
David W. Groesbeck 7,000 7,000 0
Reef Exploration, Inc. 12,023 12,023 0
Kachina Capital Corporation 475,000 475,000 0
Denny W. Nestripke 111,750 100,000 11,750
David Howell 15,000 15,000 0
Michele Gressett 45,000 45,000 0
Sam H. Allen 6,461 6,461 0
Michael Menefee 6,461 6,461 0
Joe H. Allen 6,461 6,461 0
Douglas Z. Gayle 3,231 3,231 0
John R. Thompson 4,846 4,846 0
Allegro Investments, Inc. 4,848 4,848 0
Lucius Blanchard 50,000 40,000 0
J.W. Brown 2,000 2,000 0
Mark A. Doering 2,000 2,000 0
Richard L. Henninger 2,000 2,000 0
Phyllis Kimbrell 2,000 2,000 0
------------
985,185
============
9
<PAGE>
PLAN OF DISTRIBUTION
The shares may be sold by the Selling Stockholders or by pledgees, donees,
transferees or other successors-in-interest. Such sales may be made in the
over-the-counter market, in privately negoiated transctions, or otherwise, at
prices and at terms then prevailing, at prices related to the then current
market prices or at negotiated prices.
The shares may be sold by one or more of the following methods: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the shares
as an agent but may position and resell a portion of the block as principal in
order to consummate the transaction; (b) a purchase by a broker or dealer as
principal. and the resale by such broker or dealer for its account pursuant to
this Prospectus, including resale to another broker or dealer; (c) ordinary
brokerage transactions and transacions in which the broker solicits purchasers;
or (d) an exchange distribution in accordance with the rules of such exchange.
In effecting sales, brokers or dealers engaged by the Selling Stockholder
may arrange for other brokers or dealers to participate. Any such brokers or
dealers will receive commissions or discounts from a Selling Stockholder in
amounts to be negotiated immediatley prior to the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended. Any
gain realizd by such a broker or dealer on the sale of such shares which it
purchases as a principal may be deemed to be compensation to the broker or
dealer in addition to any commission paid to the broker by a Selling
Stockholder.
The Company will not receive any portion of the proceeds of the shares sold
by the Selling Stockholders. There is no assurance that the Selling Stockholders
will sell any or all of the shares of Common Stock available under such option.
10
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following statements are qualified in their entirety by reference to the
detailed provisions of Magnum's Articles of Incorporation and Bylaws.
Magnum is presently authorized to issue 50,000,000 shares of $.002 par value
Common Stock, and 10,000,000 shares of $.001 per value Preferred Stock. The
holders of common stock, including the shares of common stock offered hereby,
issuable upon conversion or exercise of the Series C Preferred Stock and
Warrants, are entitled to equal dividends and distributions, per share, with
respect to the common stock when, as and if declared by the Board of Directors
from funds legally available therefor. No holder of any shares of common stock
has a preemptive right to subscribe for any securities of Magnum nor are any
common shares subject to redemption or convertible into other securities of
Magnum. Upon liquidation, dissolution or winding up of Magnum, and after payment
of creditors and preferred Shareholders, if any, the assets will be divided
pro-rata on a share-for-share basis among the holders of the shares of common
stock. All shares of common stock now outstanding are fully paid, validly issued
and non-assessable. Holders of Magnum's common stock do not have cumulative
voting rights, so that the holders of more than 50% of the combined shares
voting for the election of directors may elect all of the directors, if they
choose to do so and, in that event, the holders of the remaining shares will not
be able to elect any members to the Board of Directors.
Under Magnum's Articles of Incorporation, as amended, the Board of Directors has
the power, without further action by the holders of the Common Stock, to
designate the relative rights and preferences of the preferred stock, and issue
the preferred stock in such one or more series as designated by the Board of
Directors. The designation of rights and preferences could include preferences
as to liquidation, redemption and conversion rights, voting rights, dividends or
other preferences, any of which may be dilutive of the interest of the holders
of the Common Stock or the Preferred Stock of the other series. The issuance of
Preferred Stock may have the effect of delaying or preventing a change in
control of Magnum without further shareholder action and may have adversely
effect the rights and powers, including voting rights, of the holders of Common
Stock. In certain circumstances, the issuance of preferred stock could depress
the market price of the Common Stock. The Board of Directors effects a
designation of each series of Preferred Stock by filing with the Nevada
Secretary of State a Certificate of Designation defining the rights and
preferences of each such series. Documents so filed are matters of public record
and may be examined in accordance with procedures of the Nevada Secretary of
State, or copies thereof may be obtained from Magnum.
In addition to the Series C Preferred Stock, the Board of Directors previously
designated a Series A Preferred Stock and issued 216,000 shares of such series,
of which 80,000 shares are presently outstanding. The Board of Directors also
previously designated a Series B Preferred Stock and issued 248,500 shares of
such series, of which only 74,550 shares remain outstanding. The other Series B
shares have been canceled as part of an offer Magnum has made to Series B
holders to convert their units into common stock, which terminated August 20,
1993. Shares of preferred stock in addition to Series A, Series B and Series C
may be designated by the Board of Directors and issued from time to time in one
or more series with such designations, voting powers, if any, preferences and
relative, participating, optional or other special rights, and such
qualifications, limitations and restrictions thereof, as may be determined by
resolution of the Board of Directors of Magnum. Within the limits of authorized
but unissued preferred stock, such additional series and shares of preferred
stock may be designated by the Board of Directors and issued without further
approval of the holders of Magnum's voting securities, except that so long as
any Series C Preferred Stock
11
<PAGE>
is outstanding, Magnum may not issue any more series of stock having rights
senior to the Series C Preferred Stock without the approval of holders of at
least 50% of the outstanding shares of Series C Preferred Stock.
SERIES C CONVERTIBLE PREFERRED STOCK
The Series C Convertible Preferred Stock has been authorized by the Board of
Directors of Magnum as a series of Magnum's preferred stock, $.001 par value,
consisting of 625,000 shares. As of July 11, 1996, all of the Series C
Convertible Preferred Stock has been called for redemption thereby eliminating
any future dividend payments on this issue.
Dividends
Holders of shares of Series C Preferred Stock have been entitled to receive,
when, as and if declared by the Board of Directors out of funds at the time
legally available therefor, cash dividends at an annual rate of $1.10 per share,
and no more, payable quarterly in arrears on March 31, June 30, September 30,
and December 31 of each year beginning December 31, 1993, except that if any
such date is a Saturday, Sunday or legal holiday, then such dividends shall be
payable on the next day that is not a Saturday, Sunday or legal holiday.
Dividends have accrued and have been cumulative from the date of first issuance
of the Series C Preferred Stock and have been payable to holders of record as
they appear on the stock books of Magnum on such record dates as are fixed by
the Board of Directors.
The Series C Preferred Stock has been junior as to dividends to any series or
class of Magnum's stock hereafter issued that ranks senior as to dividends to
the Series C Preferred Stock ("senior dividend stock"). If at any time Magnum
has failed to declare and pay or set apart for payment accrued and unpaid
dividends on any senior dividend stock, Magnum may not pay any dividend on the
Series C Preferred Stock. Magnum made a prior allocation of 50% of the net
operating revenues received by the working interest owners from the West Dilley
Prospect to pay dividends on the Series A Preferred Stock, and the revenues so
allocated will not be available to pay any dividends on the Series C Preferred
Stock. To the extent of such allocation, Series C Preferred Stock has been
junior to Series A Preferred Stock. There are presently 80,000 shares of Series
A Preferred Stock outstanding, which are entitled to an aggregate dividend in
the total amount of $7.50 per share, payable only from the allocation of 50% of
the Net Operating Revenue received by the working interest owners in the West
Dilley Prospect. Magnum owns 90% of the working interest in such prospect. The
dividend is cumulative to the extent accrued but not paid. To date no dividends
have accrued or been paid on the Series A Preferred Stock because the revenues
generated from such prospect which are allocable to the working interests have
not exceeded working interests costs, so no net operating revenue has yet been
generated that could be allocated to the payment of such dividends. Magnum also
made a prior allocation of 50% of net operating revenues from all oil and gas
produced from properties acquired or drilled after September 5, 1992 (which
constitutes most of Magnum's present properties as well as all future
acquisitions) and 50% of its remaining revenues from the West Dilley Prospect
(after the Series A allocation), to make production payments of the Series B
Production Certificates included in the Series B Units previously offered and
sold by Magnum. 74,550 shares of Series B Preferred Stock remain outstanding,
which are entitled to a cumulative annual dividend of $.35 per share ($26,093
total annually) until redeemed or converted, and twelve Series B Production
Certificates. Holders of the Certificates representing this right are entitled
to receive production payments from the 50% allocation of net operating
revenues. The Series B Preferred Stock will be automatically redeemed and
converted into common stock at the rate of one common share for two Series B
Preferred Stock, and the Series B Production Certificates will expire when the
sum of dividends paid with respect to the Series B Preferred Stock, plus
production
12
<PAGE>
payments made with respect to the Series B Production Certificates, equals
$10,000 (200%) of the original investment) per outstanding Series B Unit.
Recently, Magnum made an offer to Series B Unit holders to exchange each of
their Series B Production Certificates for 1,250 shares of Common Stock, and as
part of such exchange, to agree to convert their Series B Preferred Stock into
Common Stock not later than December 31, 1995. Pursuant to such offer, all but
twelve of the Series B Production Certificates were exchanged for Common Stock.
With only twelve Series B Production Certificates remaining outstanding, this
requires a total payback of $60,000, of which $3,500 has already been paid back
through dividends on the Series B Preferred Shares which are part of the same
Units. Until this payout is made, Series C Preferred Stock has been junior to
Series B Preferred Stock in the payment of dividends, and the revenues allocated
to make production payments on the Series B Production Certificates has not been
available for payment of dividends on the Series C Preferred Stock. Magnum made
its first dividend payment on the Class B Preferred Stock in January of 1993.
Subsequent dividend payments were made in April and July of 1993. The total
amount of dividend payments to date is $40,343, of which only $7,219 was paid
with respect to shares that remain outstanding. No production payments have been
made to date with respect to the Series B Production Certificates. The
Certificates are subject to a $175.00 annual servicing fee, and the revenue less
costs allocable to the Certificates have not exceeded such fee.
The Series C Preferred Stock has had priority as to dividends over the Common
Stock and any series or class of Magnum's stock hereafter issued that ranks
junior as to dividends to the Preferred Stock ("junior dividend stock"), and no
dividend (other than dividends payable solely in Common Stock or any other
series or class of Magnum's stock hereafter issued that ranks junior as to
dividends to the Series C Preferred Stock) may be declared, paid or set apart
for payment on, and no purchase, redemption or other acquisition may be made by
Magnum of, any Common Stock or junior dividend stock unless all accrued and
unpaid dividends on the Series C Preferred Stock have been declared and paid or
set apart for payment. Magnum may not pay dividends on any class or series of
Magnum's stock having parity with the Series C Preferred Stock as to dividends,
if any such stock is hereafter issued ("parity dividend stock"), unless it has
declared and paid or set apart for payment, or contemporaneously declares and
pays or sets apart for payment, all accrued and unpaid dividends for all prior
periods on the Series C Preferred Stock; and Magnum may not pay dividends on the
Series C Preferred Stock unless it has declared and paid or set apart for
payment, or contemporaneously declares and pays or sets apart for payment all
accrued and unpaid dividends for all prior periods on the parity dividend stock.
Whenever all accrued dividends are not paid in full on the Series C Preferred
Stock or any parity dividend stock, all dividends declared on the Series C
Preferred Stock and such parity dividend stock will be declared and made pro
rata so that the amount of dividends declared per share on the Series C
Preferred Stock and such parity dividend stock will bear the same ratio that
accrued and unpaid dividends per share on the Series C Preferred Stock and such
parity dividend stock bear to each other.
The annual dividend rate on the Series C Preferred Stock is $1.10 per share. The
amount of dividends payable per share of Series C Preferred Stock for each
quarterly dividend will be computed by dividing the annual dividend amount by
four. The amount of dividends payable for the initial dividend period and any
period shorter than a full dividend period will be computed on the basis of a
365-day year. No interest will be payable in respect of any dividend payment on
the Series C Preferred Stock which may be in arrears.
Redemption
The Preferred Stock may not be redeemed prior to two years after the date of
this Prospectus. Any shares of Series C Preferred Stock outstanding thereafter
are redeemable for cash, in whole or in part, at anytime,
13
<PAGE>
at the option of Magnum, at $10.50 per share plus any accrued and unpaid
dividends, whether or not declared.
If fewer than all of the outstanding shares of Series C Preferred Stock are to
be redeemed, Magnum will select those to be redeemed pro rata or by lot. There
is no mandatory redemption or sinking fund obligation with respect to the Series
C Preferred Stock. In the event that Magnum has failed to pay accrued dividends
on the Series C Preferred Stock, it may not redeem any of the then outstanding
Series C Preferred Stock until all such accrued and unpaid dividends and the
then current quarterly dividend, pro-rated until the redemption date, have been
paid in full on all shares of Series C Preferred Stock.
Notice of redemption will be mailed at least 30 days but not more than 60 days
before the redemption date to each holder of record of Series C Preferred Stock
to be redeemed at the holder's address shown on the stock transfer books of
Magnum. After the redemption date, unless there shall have been a default in
payment of the redemption price, dividends will cease to accrue on the shares of
Series C Preferred Stock called the redemption, and all rights of the holders of
such Preferred Stock will terminate except the right to receive the redemption
without interest, which shall be paid within 10 days of the redemption date.
Conversion
Automatic Conversion. If, during the twenty consecutive trading days immediately
prior to November 12, 1994, or any twenty consecutive trading days thereafter,
the closing bid price for Magnum's Common Stock as quoted by any market maker in
the over-the-counter market bulletin board or on NASDAQ or any national
securities exchange, shall equal or exceed $5.00 per share, then the Series C
Preferred Stock will be automatically converted into Common Stock as described
below.
Optional Conversion. The holder of any shares of Series C Preferred Stock will
have the right, at the holder's option, to convert any or all such shares into
Common Stock. The Conversion Rate will be three shares of Common Stock per share
of Series C Preferred Stock, If the Series C Preferred Stock is called for
redemption, the conversion right will terminate at the close of business on the
business day prior to the date fixed for redemption (unless Magnum defaults in
the payment of the redemption price). Dividends, if any, declared and accrued
but unpaid at the date of conversion will be paid in cash upon conversion, or at
the option of Magnum will be converted into shares of Common Stock at the rate
of $3.33 per share. No fractional shares of Common Stock will be issued upon
conversion for accrued and unpaid dividends, if any, but in lieu thereof, the
amount of any such dividends will be paid in cash by Magnum. The Conversion
Price will be subject to adjustment in the event of the issuance of stock as a
dividend on the Common Stock, subdivisions or combinations of the Common Stock
or similar events. Except as stated in the preceding sentence, the Series C
Preferred Stock does not have rights protecting against dilution resulting from
the sale of additional shares of Common Stock for less than the Conversion Price
or the current market price of Magnum's securities.
Liquidation Rights
In the event of any liquidation, dissolution or winding up of Magnum, holders of
shares of Series C Preferred Stock are entitled to receive, out of legally
available assets, a liquidation preference of $10.00 per share, plus an amount
equal to any accrued and unpaid dividends to the payment date, and no more,
before any payment or distribution is made to the holders of Common Stock or any
series or class of Magnum's stock hereafter issued that ranks junior as to
liquidation rights to the Series C Preferred Stock. But the holders of Series C
14
<PAGE>
Preferred Stock will not be entitled to receive the liquidation preference of
such shares until the liquidation preferences of Series A & B Preferred Stock,
and any other series or class of Magnum's stock hereafter issued that ranks
senior as to liquidation rights to the Series C Preferred Stock ("senior
liquidation stock") has been paid in full. The 80,000 shares of Series A
Preferred Stock which are presently outstanding have a liquidation preference of
the liquidation proceeds from Magnum's interest in the West Dilley Prospect. The
74,550 shares of Series B Preferred Stock which are outstanding are entitled to
a liquidation preference of $.001 per share, which would amount to $74.55 in the
aggregate. Series B Production Certificates are not entitled to any
distributions upon liquidation, dissolution or winding up. The holders of Series
C Preferred Stock and all other series or classes of Magnum's stock hereafter
issued that rank on a parity as to liquidation rights with the Series C
Preferred Stock are entitled to share ratably, in accordance with the respective
preferential amounts payable on such stock, in any distribution (after payment
of the liquidation preference of the senior liquidation stock) which is not
sufficient to pay in full the aggregate of the amounts payable thereon. After
payment in full of the liquidation preference of the shares of Series C
Preferred Stock, the holders of such shares will not be entitled to any further
participation in any distribution of assets by Magnum. Neither a consolidation,
merger or other business combination of Magnum with or into another corporation
or other entity nor a sale or transfer of all or part of Magnum's assets for
cash, securities or other property will be considered a liquidation, dissolution
or winding up of Magnum.
Voting Rights
The holders of the Series C Preferred Stock will have no voting rights except as
described below or required by law. In connection with any such vote, each
outstanding share of Series C Preferred Stock will be entitled to one vote
excluding shares held by Magnum or any entity controlled by Magnum, which shares
shall have no voting rights.
In the event a default is incurred in the payment of any dividend declared by
the Board of Directors on the Series C Preferred Stock and such default has not
been cured by the date of any annual (or special in lieu of annual) meeting of
shareholders at which directors are to be elected occurring at least one year
but less than two years after the date of such default, the holders of Series C
Preferred Stock shall have the right, voting as a class at such meeting, to
elect two members to Magnum's board of directors.
So long as any Series C Preferred Stock is outstanding, Magnum shall not,
without the affirmative vote of the holders of at least two-thirds of all
outstanding shares of Series C Preferred Stock, voting separately as a class,
(I) amend, alter or repeal any provision of the Articles of Incorporation or the
Bylaws of Magnum so as to affect adversely the relative rights, preferences,
qualification, limitations or restrictions of the Series C Preferred Stock, (ii)
authorize or issue, or increase the authorized amount of, any additional class
or series of stock or any security convertible into stock of such class or
series, senior to or on a parity with the Series C Preferred Stock as to
dividends or upon liquidation, dissolution or winding up of Magnum, (iii) effect
any reclassification of the Series C Preferred Stock, or (iv) effect a merger of
Magnum with any other corporation, exchange of shares or a sale of all or
substantially all of the assets of Magnum if the shareholders of Magnum
immediately prior to such merger, share exchange or sale will own less than 50%
of the shares of the surviving (in case of a merger) or acquiring (in the case
of an exchange of shares or a sale of assets) corporation immediately following
such merger, share exchange or sale. Holders of Series C Preferred Stock will
not have the right to vote for election of directors in any circumstance.
15
<PAGE>
Other Provisions
Holders of Series C Preferred Stock shall be entitled to notice in the event of
(a) the granting by Magnum to all holders of its Common Stock of rights to
purchase any shares of capital stock or any other rights or (b) any
reclassification of the Common Stock, any consolidation of Magnum with, or
merger of Magnum into, any other persons, any merger of any person into Magnum
(other than a merger that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock), or any sale or
transfer of all or substantially all of the assets of Magnum.
The shares of Series C Preferred Stock, are duly and validly issued, fully paid
and nonassessable. Magnum has reserved from its authorized but unissued Common
Stock a sufficient number of shares for issuance upon conversion of the Series C
Preferred Stock.
The holders of the shares of Series C Preferred Stock have no preemptive rights
with respect to any securities of Magnum.
WARRANTS
Each Warrant represents the right to purchase one share of Common Stock at an
initial exercise of $5.50 per share. The exercise price and the number of shares
issuable upon exercise of the Warrants are subject to adjustment in certain
events, to the extent that such events occur after the effective date of the
Warrant Agency Agreement, including the issuance of Common Stock as a dividend
on shares of Common Stock, subdivisions or combinations of the Common Stock or
similar events. Except as stated in the preceding sentence, the Warrants do not
contain provisions protecting against dilution resulting from the sale of
additional shares of Common Stock for less that the exercise price of the
Warrants or the current market price of Magnum's securities.
The Warrants are exercisable during the period ending November 12, 1998. Holders
of Warrants may exercise their Warrants for the purchase of shares of Common
Stock only if a current prospectus relating to such shares is then in effect and
only if such shares are qualified for sale, or deemed to be exempt from
qualifications, under applicable state securities law. Magnum will use its best
efforts to maintain a current prospectus relating to such shares of Common Stock
at all times when the market price of the Common Stock exceeds the exercise
price of the Warrants until the expiration date of the Warrants, although there
can be no assurance that Magnum will be able to do so. Whether a current
prospectus is in effect or not, the outstanding Warrants will be redeemable, in
whole or in part, at the option of Magnum, upon not fewer than 30 days notice,
at a redemption price equal to $.02 per Warrant beginning November 12, 1995, or
earlier if the closing bid price for the Common Stock on any national securities
exchange or automated interdealer quotation system or over-the-counter bulletin
board equals or exceeds $6.75 for five consecutive trading days. Although Magnum
would not normally do so, in the event it calls for redemption of the Warrants
at a time when a current prospectus is not in effect, warrant holders would have
no opportunity to exercise their warrants, and would be compelled to accept the
redemption price of $.02 per warrant. If Magnum should call for redemption of
the Warrants when a current prospectus is in effect, warrant holders will have a
minimum of 30 days in which to decide wether to exercise their warrants, after
which they will have to accept the redemption price.
16
<PAGE>
Holders of Warrants will be entitled to notice in the event of (a) the granting
by Magnum to all holders of its Common Stock of rights to purchase any share of
capital stock or any other rights or (b) any reclassification of the Common
Stock, any consolidation of Magnum with, or merger of Magnum into any other
person or merger of any other person into Magnum (other than a merger that does
not result in any reclassification, conversion, exchange or cancellation of any
outstanding shares of Common Stock), or any sale or transfer of all or
substantially all of the assets of Magnum.
Magnum has reserved from its authorized unissued shares a sufficient number of
shares of Common Stock for issuance on exercise of the Warrants. During the
period in which a Warrant is exercisable, exercise of such Warrant may be
effected by delivery of the Warrant, duly endorsed for exercise and accompanied
by payment of the exercise price and any applicable taxes or governmental
charges, to the Warrant Agent. The shares of Common Stock issuable on exercise
of the Warrant will be, when issued in accordance with the Warrants, fully paid
and non-assessable.
For the life of the Warrants the holders thereof have the opportunity to profit
from a rise in the market for Magnum's Common Stock, with a resulting dilution
in the interest of all other shareholders. So long as the Warrants are
outstanding, the terms on which Magnum could obtain additional capital may be
adversely affected. The holders of such Warrants might be expected to exercise
them at a time when Magnum would, in all likelihood, be able to obtain any
needed capital by a new offering of securities on terms more favorable than
those provided for by such Warrants.
Except as described above, the holders of the Warrants have no rights at
Shareholders of Magnum until they exercise their Warrants.
INDEMNIFICATION
The General Corporation Law of Nevada permits provisions in the articles,
by-laws or resolutions approved by shareholders which limit liability of
directors for breach of fiduciary duty of certain specified circumstances.
Magnum's by-laws indemnify its Officers and Directors to the full extent
permitted by Nevada law. The by-laws with certain exceptions eliminate any
personal liability of a Director to Magnum or its shareholders for monetary
damages for the breach of a Director's fiduciary duty and therefore a Director
cannot be held liable for damages to Magnum or its shareholders for gross
negligence or lack of due care in carrying out his fiduciary duties as a
Director. Magnum's Articles provide for indemnification to the full extent
permitted under law which includes all liability, damages and costs or expenses
arising from or in connection with service for, unemployment by, or other
affiliation with Magnum to the maximum extent and under all circumstances
permitted by law. Nevada law permits indemnification if a director or officer
acts in good faith in a manner reasonable believed to be in, or not opposed to,
the best interest's of the corporation. A director or officer must be
indemnified as to any matter in which he successfully defends himself.
Indemnification is prohibited as to any matter in which the director or officer
is adjudged liable to the corporation. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers, and controlling persons of Magnum pursuant to the foregoing provisions
or otherwise, Magnum 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.
17
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the Shares offered
hereby will be passed upon for Magnum by Morgan F. Johnston, Esq.
EXPERTS
The audited consolidated financial statements of Magnum as of December 31,
1995 and for the year ended December 31, 1995 incorporated by reference herein
and elsewhere in this Registration Statement have been audited by Hein +
Associates LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. The audited
consolidated financial statements of Magnum as of December 31, 1994 and for the
year then ended, incorporated by reference herein and elsewhere in this
Registration Statement, have been included herein in reliance on the report,
which includes an explanatory paragraph concerning a change in Magnum's method
of accounting for oil and gas producing operations, of Hansen, Barnett &
Maxwell, independent certified public accountants, given on authority of that
firm as experts in accounting and auditing. The historical summaries of revenue
and direct operating expenses for the Meridian acquisition incorporated by
reference herein and elsewhere in the Registration Statement have been audited
by Hein + Associates LLP, independent certified public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities 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 Commission, such indemnification is
against public policy as expressed in the Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
18
<PAGE>
No dealer, salesman or any other person has been
authorized to give any information or to make any
representation other than those contained in this
Prospectus in connection with the offering herein
contained, and if given or made, such information or
representation must not be relied upon as having
been authorized by the Company. This Prospectus
does not constitute an offer to sell any security other
than the registered securities to which it relates, or
an offer to or solicitation of any person in any
jurisdiction in which such offer or solicitation would
be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any
circumstance, create an implication that there has
been no change in the facts herein set forth since the
date hereof.
-----------------------------------
TABLE OF CONTENTS
Page
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Available Information 2
Incorporation of Certain 2
Information by Reference
The Company 3
Recent Developments 3 MAGNUM PETROLEUM, INC.
Risk Factors 5
Selling Stockholders 9 985,185 Shares
Plan of Distribution 10
Description of Capital Stock 11 Common Stock
Legal Matters 18
Experts 18
Disclosure of Commission Position 18
On Indemnification for
Securities Act Liabilities
- ---------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, in connection with
the offering described in this Registration Statement.
Total
-----
SEC Filing Fee $ 1,795.52
Accounting Fees and Expenses $ 2,000.00
Legal Fees and Expenses $ 5,000.00
Miscellaneous $ 3,000.00
Total $ 11,795.52
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The statutes, charter provisions, bylaws, contracts or other arrangements
under which controlling persons, directors or officers of the registrant are
insured or indemnified in any manner against any liability which they may incur
in such capacity are as follows:
(a) Section 78.751 of the Nevada Business Corporation Act provides that
each corporation shall have the following powers:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made party to any threatened, pending or completed actions,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorney's fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with the action, suit or proceeding if he 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, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had proceeding, he had reasonable cause to believe that his
conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorney's fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he 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. Indemnification may not be made for
any claim,
<PAGE>
issue or matter as to which such person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be liable
to the corporation or for amount paid in settlement to the corporation, unless
and only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction, determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
3. 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, suit or proceeding referred to in subsections 1 and 2, or in the defense
of any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorney's fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by a court
or advanced pursuant to subsection 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances. That
determination must be made:
(a) By the shareholders;
(b) By the board of directors by majority vote or a quorum consisting
of directors who were not parties to the act, suit or
proceedings;
(c) If a majority vote of a quorum consisting of directors who were
not parties to the act, suit or proceeding so orders, by
independent legal counsel, in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
5. The certificate or articles of incorporation, the bylaws or an agreement
made by the corporation may provide that the expenses of officers and directors
incurred in defending a civil or criminal action, suit or proceeding must be
paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
director of officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered
by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under
the certificate or articles of incorporation of any bylaw,
agreement, vote of shareholders or disinterested directors or
otherwise, for either an action in his official capacity or an
action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection
2 or for the advancement of expenses made pursuant to subsection
5, may not be made to or on behalf of any director or officer if
a final adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing violation of
the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs,
executors and administrators of such a person.
(b) The registrant's Articles of Incorporation limit liability of its
Officers and Directors to the full extent permitted by the Nevada Business
Corporation Act.
<PAGE>
ITEM 16.
EXHIBITS INDEX
<TABLE>
<CAPTION>
Sequential
Page Number
Exhibit No. Document Or Location
- ----------- -------- -----------
<S> <C> <C>
3.1 & 4.1 Articles of Incorporation *
3.2 & 4.2 Articles of Amendment **
3.3 & 4.3 Articles of Amendment ***
3.4 & 4.4 By-Laws, as Amended ***
5.1 & 24.3 Opinion & Consent of Counsel 30
10.1 Agreement and Plan of Reorganization and *****
Plan of Liquidation
10.2 Amendment to Agreement and Plan of ****
Reorganization and Plan of Liquidation
10.3 Employment Agreement for Gary C. Evans ****
10.4 Employment Agreement for Matthew C. Lutz ****
10.5 Credit Agreement dated June 28, 1996 among Wells Fargo Bank ****
(Texas), N.A. et al and the Company
10.6 Purchase and Sale Agreement, dated May 17, 1996 between ******
Meridian Oil, Inc. and ConMag Energy Corporation
21.1 Subsidiaries of the Registrant ****
24.1 Consent of Hansen, Barnett & Maxwell as 33
Accountants
24.2 Consent of Hein + Associates LLP as 35
Accountants
</TABLE>
* Incorporated by reference to Registration Statement on Form S-18, File No.
33-30298-D.
** Incorporated by reference to Form 10-K for the year ended December 31,
1990.
*** Incorporated by reference to Registration Statement on Form SB-2, File No.
33-66190.
**** Incorporated by reference to Registration Statement on Form S-4, File No.
333-2290.
*****Incorporated by reference to Form 8-K/A dated July 21, 1995, filed on
October 3, 1995.
****** Incorporated by reference to Form 8-K dated June 28, 1996, filed July 12,
1996
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(5) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas on
October 16, 1996.
MAGNUM PETROLEUM, INC.
By: /s/ Gary C. Evans
------------------------------
Gary C. Evans, President, CEO
POWER OF ATTORNEY
The Company and each person who signature appears below hereby designates and
appoints Gary C. Evans and Steven P. Smart, and each of them, as its or his
attorneys-in-fact (the "Attorneys-in-Fact") with full power to act alone, and to
execute in the name of and on behalf of the Company and each person,
individually in each capacity stated below, any additional amendments (including
post-effective amendments) to this Registration Statement, which amendments may
make such changes in this Registration Statement as either Attorney-in-Fact
deems appropriate, and to file each such amendment to this Registration
Statement together with all exhibits thereto and any and all documents in
connection therewith.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
/s/ Lloyd T. Rochford Chairman and Director October 16, 1996
- -----------------------------
Lloyd T. Rochford
/s/ Gary C. Evans Chief Executive Officer October 16, 1996
- ----------------------------- President and Director
Gary C. Evans
/s/ Matthew C. Lutz Vice Chairman and Director October 16, 1996
- -----------------------------
Matthew C. Lutz
/s/ Gerald W. Bolfing Director October 16, 1996
- -----------------------------
Gerald W. Bolfing
/s/ Oscar C. Lindemann Director October 16, 1996
- -----------------------------
Oscar C. Lindemann
/s/ Stanley McCabe Director October 16, 1996
- ----------------------------
Stanley McCabe
<PAGE>
/s/ James E. Upfield Director October 16, 1996
- -----------------------------
James E. Upfield
/s/ Steven P. Smart Chief Financial Officer October 16, 1996
- -----------------------------
Steven P. Smart
<PAGE>
EXHIBIT INDEX
-------------
Sequential
Page Number
Exhibit No. Document Or Location
- ----------- -------- -----------
5.1 Opinion of Morgan F. Johnston, Esq. regarding 30
legality (including consent)
24.1 Consent of Hansen, Barnett & Maxwell as 33
Accountants
24.2 Consent of Hein + Associates LLP as 35
Accountants
<PAGE>
EXHIBIT 5.1
<PAGE>
MORGAN F. JOHNSTON, ESQ.
5825 STEEPLECHASE
PLANO, TEXAS 75093
(972) 733-4078
October 17, 1996
Magnum Petroleum, Inc.
600 East Las Colinas Blvd., Suite 1200
Irving, Texas, 75039
Re: S-3 Registration Statement
Gentlemen:
At your request, I have examined the form of Registration Statement,
No.333-____, which you have filed on October __, 1996 with the Securities and
Exchange Commission, on Form S-3 (the "Registration Statement"), in connection
with the registration under the Securities Act of 1933, as amended, of an
aggregate of 985,185 shares of your Common Stock (the "Stock") to be sold by
certain selling securityholders.
In rendering the following opinion, I have examined and relied only upon
the documents, and certificates of officers and directors of the Company as are
specifically described below. In my examination, I have assumed the genuineness
of all signatures, the authenticity, accuracy and completeness of the documents
submitted to me as originals, and the conformity with the original documents of
all documents submitted to me as copies. My examination was limited to the
following documents and no others:
1. Certificate of Incorporation of the Company, as amended to date;
2. Bylaws of the Company, as amended to date;
3. Certified Resolutions adopted by the Board of Directors of the Company
authorizing the original issuances of the Stock; and
4. The Registration Statement.
I have not undertaken, nor do I intend to undertake, any independent
investigation beyond such documents and records, or to verify the adequacy of
accuracy of such documents and records.
Based on the foregoing, it is my opinion that the Stock to be sold under
the Registration Statement by the selling securityholders, subject to
effectiveness of the Registration Statement and
<PAGE>
compliance with applicable blue sky laws, when sold, will by duly and validly
authorized, fully paid and non-assessable.
I consent to the filing of this opinion as an exhibit to any filing made
with the Securities and Exchange Commission or under any state or other
jurisdiction's securities act for the purpose of registering, qualifying or
establishing eligibility for an exemption from registration or qualification of
the Stock described in the Registration Statement in connection with the
offering described therein. Other than as provided in the preceding sentence,
this opinion (i) is addressed solely to you, (ii) covers only matters of Nevada
and federal law and nothing in this opinion shall be deemed to imply any opinion
related to the laws of any other jurisdiction, (iii) may not be quoted or
reproduced or delivered by you to any other person, and (iv) may not be relied
upon for any other purpose whatsoever. Nothing herein shall be deemed to relate
to or constitute an opinion concerning any matters not specifically set forth
above.
The information set forth herein is as of the date of this letter. I
disclaim any undertaking to advise you of changes which may be brought to my
attention after the effective date of the Registration Statement.
Very truly yours,
/s/ Morgan F. Johnston
Morgan F. Johnston
<PAGE>
EXHIBIT 24.1
<PAGE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Magnum Petroleum, Inc.
We have issued our report dated March 26, 1995, except for Note 2 to the
consolidated financial statements as to which the date is September 29, 1995, on
the consolidated financial statements of Magnum Petroleum, Inc. and subsidiaries
as of December 31, 1994 and for the year then ended. We consent to the
incorporation by reference of our report in the Registration Statement of Magnum
Petroleum, Inc. on Form S-3. We also consent to the use of our name and the
statements with respect to us as appearing under the heading "Experts" in the
Registration Statement.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
October 15, 1996
<PAGE>
EXHIBIT 24.2
<PAGE>
Exhibit 24.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use by incorporation by reference in the Form S-3 Registration
Statement and Prospectus of Magnum Petroleum, Inc. of our report, which is dated
April 3, 1996, accompanying the consolidated financial statements of Magnum
Petroleum, Inc. and our report dated August 2, 1996 accompanying the historical
summaries of revenues and direct operating expenses of the properties acquired
June 28, 1996, contained in such Registration Statement, and to the use of our
name and the statements with respect to us, as appearing under the heading
"Experts" in the Prospectus.
HEIN + ASSOCIATES LLP
Certified Public Accountants
October 15, 1996
Dallas, Texas
<PAGE>
