DATED MAY 11, 2015
PROSPECTUS SUPPLEMENT |
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Filed Pursuant to Rule 424(b)(5) |
(TO PROSPECTUS DATED NOVEMBER 17, 2014) |
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Registration No. 333-199030 |
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183,433 Shares of 10% Series A
Cumulative Redeemable Perpetual Preferred Stock
$12.50 Per Share
Liquidation Preference $25.00 Per Share
We are offering 183,433 shares of our 10%
Series A Cumulative Redeemable Perpetual Preferred Stock, which we refer to as the Series A preferred stock.
For a more
detailed description of the common stock and preferred stock, see the section entitled "Description of Securities We Are Offering"
beginning on page S-25 of this prospectus supplement.
Northland
Securities, Inc. and Euro Pacific Capital, Inc. are acting as our underwriter in the public offering on a firm commitment basis. We expect that the Series
A preferred stock will be ready for delivery in book-entry form through the Depository Trust Company on or about May 13,
2015.
Holders of the Series A preferred stock generally
will have no voting rights except for limited voting rights if dividends payable on the outstanding Series A preferred stock are
in arrears for six or more consecutive or non-consecutive monthly dividend periods, or if we fail to maintain the listing of the
Series A preferred stock on a national securities exchange for a period of at least 180 days.
If we sell all 183,433 shares of Series
A preferred stock we are offering pursuant to this prospectus and assuming an offering price of $12.50 per share, we
will receive a maximum of $2,292,912.50 million in gross proceeds and approximately $2.02
million in net proceeds, after
deducting the underwriting discount and estimated offering expenses payable by us.
Investing in our securities involves a
high degree of risk. See "Risk Factors" beginning on page S-8 of this prospectus supplement for factors you
should consider before buying our securities.
Our common stock is listed on the NYSE MKT
under the symbol "ENRJ," and our 10% Series A Cumulative Redeemable Perpetual Preferred Stock is listed under the
symbol "ENRJPR." On May 5, 2015, the last reported sale price of our common stock and Series A preferred stock on
the NYSE MKT was $1.74 and $17.41, respectively.
As of May 8, 2015, the aggregate market
value of our outstanding common stock held by non-affiliates, or public float, was approximately
$16,368,452, based on 8,406,661 shares of outstanding common stock, of which approximately 932,482
shares were held by affiliates and 7,474,179 shares were held by non-affiliates, and a price of
$2.19 per share, which was the last reported sale price of our common stock on the NYSE on
April 9, 2015. Prior to this offering, the value of all securities we have offered pursuant to
General Instruction 1.B.6. of Form S-3 in the last 12 calendar months is $2,578,378.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
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Per Share |
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Total |
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Public offering price |
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$ |
12.50 |
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$ |
2,292,912.500 |
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Underwriting discounts and commissions |
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$ |
1.125 |
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$ |
206,362.125 |
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Proceeds to us, before expenses |
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$ |
11.375 |
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$ |
2,086,550.375 |
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TABLE OF CONTENTS
Prospectus Supplement
Prospectus
We have not authorized anyone to provide
you with information different from that contained or incorporated by reference in this prospectus or any accompanying prospectus
supplement or free writing prospectus, and we take no responsibility for any other information that others may give you. This prospectus
is not an offer to sell, nor is it a solicitation of an offer to buy, the securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information contained in this prospectus or any prospectus supplement or free
writing prospectus is accurate as of any date other than the date on the front cover of those documents, or that the information
contained in any document incorporated by reference is accurate as of any date other than the date of the document incorporated
by reference, regardless of the time of delivery of this prospectus or any sale of a security. Our business, financial condition,
results of operations and prospects may have changed since those dates.
As permitted by the rules and regulations of
the Securities and Exchange Commission (the "SEC"), the registration statement of which this prospectus forms a
part includes additional information not contained in this prospectus. You may read the registration statement and the other reports
we file with the SEC at the SEC's website or at the SEC's offices described below under the heading "Where You Can Find More
Information." Before investing in our securities, you should read this prospectus and any accompanying prospectus supplement
or free writing prospectus, as well as the additional information described under "Where You Can Find More Information"
and "Information Incorporated by Reference."
References to the "Company," "EnerJex,"
"we," "our" and "us" in this prospectus are to EnerJex Resources, Inc. and its consolidated
subsidiaries, unless the context otherwise requires. This document includes trade names and trademarks of other companies. All
such trade names and trademarks appearing in this document are the property of their respective holders.
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying
prospectus are part of a "shelf" registration statement on Form S-3, registration statement number 333-199030, that we
filed with Securities and Exchange Commission on November 17, 2014, and that was declared effective on February 25, 2015 (the Registration
Statement). Under this shelf process, we may sell any combination of securities described in the accompanying prospectus in one
or more offerings, up to the total dollar amounts appearing on the cover of the Registration Statement. This prospectus supplement
describes the specific details regarding this offering, including the price, the amount of our preferred stock being offered, the
risks of investing in our preferred stock, and other items.
This document is in two parts. The first
part is this prospectus supplement, which contains specific information about the terms of the offering, including the types, amounts
and prices of the securities being offered and the plan of distribution. This prospectus supplement may also add, update or change
information contained in the accompanying prospectus and the documents incorporated by reference. This prospectus supplement may
be updated or supplemented. The second part is the accompanying prospectus, which gives more general information, some of which
may not apply to this offering. Generally, when we refer to this “prospectus,” we are referring to both documents combined.
To the extent the information contained in this prospectus supplement differs or varies from the information contained in the accompanying
prospectus or any document filed prior to the date of this prospectus supplement and incorporated by reference, the information
in this prospectus supplement will control. You should read carefully both this prospectus supplement and the accompanying
prospectus together with the additional information about us to which we refer you in the section of this prospectus supplement
entitled “Where You Can Find More Information.”
You should rely only on the information contained
or incorporated by reference in this prospectus supplement and accompanying prospectus. We have not authorized any other person
to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely
on it. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state in which the offer
or sale is not permitted. You should not assume that the information appearing in this prospectus supplement, accompanying prospectus
or any document incorporated by reference is accurate as of any date other than its date, regardless of the time of delivery of
the prospectus or prospectus supplement or any sale of securities. Our business, financial condition, results of operations and
prospects may have changed since those dates.
This prospectus supplement contains summaries
of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete
information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents
referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement
of which this prospectus supplement is a part, and you may obtain copies of those documents as described below under the heading
“Where You Can Find More Information.”
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we
file at the SEC's public reference room at 100 F Street, N.E., Washington, District of Columbia 20549. Please call the SEC
at 1-800-SEC-0330 for more information on the public reference room. Our SEC filings are also available to the public from commercial
retrieval services and at the website maintained by the SEC at www.sec.gov . The reports and other information filed by
us with the SEC are also available at our website. The address of the Company's website is www.enerjexresources.com . Information
contained on our website or that can be accessed through our website is not incorporated by reference into this prospectus.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate information
into this prospectus "by reference," which means that we can disclose important information to you by referring you to
another document that we file separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information contained directly in this prospectus. These documents contain important information
about the Company and its financial condition, business and results.
We are incorporating by reference the Company's
filings listed below and any additional documents that we may file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") on or after the date hereof and prior to the
termination of any offering, except we are not incorporating by reference any information furnished (but not filed) under Item 2.02
or Item 7.01 of any Current Report on Form 8-K and corresponding information furnished under Item 9.01 as an exhibit
thereto:
| · | the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March
31, 2015; |
| · | the Definitive Proxy Statement on Schedule 14A, filed with the SEC on April 3, 2015; |
| · | the Company's Current Reports on Form 8-K filed on January 6, 2015, January 20, 2015, March 11, 2015 (as amended
March 13, 2015), April 15, 2015, April 22, 2015 and May 5, 2015 (except that any portions thereof which are furnished and
not filed
shall not be
deemed
incorporated); |
| · | the description of our common stock contained in our Form 8-A filed on June 12, 2014, including any amendments or reports
filed for the purpose of updating the description; and |
| · | the description of our 10% Series A Cumulative Redeemable Preferred Stock contained in our Form 8-A filed on June 13,
2014, including any amendments or reports filed for the purpose of updating the description. |
We will provide, without charge, to each person,
including any beneficial owner, to whom a copy of this prospectus has been delivered a copy of any and all of the documents referred
to herein that are summarized in this prospectus, if such person makes a written or oral request directed to:
EnerJex Resources, Inc.
4040 Broadway, Suite 508
San Antonio, TX 78209
Attn: Robert G. Watson, Jr.
(210) 451-5545
Exhibits to the filings will not be sent, however,
unless those exhibits have specifically been incorporated by reference in this prospectus and any accompanying prospectus supplement.
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements
in this prospectus, other than statements of historical facts, which address activities, events or developments that we expect
or anticipate will or may occur in the future, including such things as future capital expenditures, growth, product development,
sales, business strategy and other similar matters are forward-looking statements. You can identify forward-looking statements
by terminology such as “may,” “will,” “would,” “could,” “should,” “expect,”
“intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue” or the negative of these terms or other similar expressions or phrases. These forward-looking
statements are based largely on our current expectations and assumptions and are subject to a number of risks and uncertainties,
many of which are beyond our control. Actual results could differ materially from the forward-looking statements set forth herein
as a result of a number of factors, including, but not limited to, our products’ current state of development, the need for
additional financing, changes in our business strategy, competition in various aspects of our business, the risks described under
“Risk Factors” beginning on page S-8 of this prospectus and other risks detailed in our reports filed with the Securities
and Exchange Commission, or the SEC. In light of these risks and uncertainties, all of the forward-looking statements made herein
are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated
by us will be realized. We undertake no obligation to update or revise any of the forward-looking statements contained in this
prospectus. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements.
THE OFFERING
Securities we are offering: |
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183,433 shares of 10% Series A Cumulative Redeemable Perpetual Preferred Stock |
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Series A preferred stock outstanding before this offering |
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751,815 shares |
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Series A preferred stock outstanding after this offering |
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935,248 shares, assuming all offered shares are purchased. |
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Use of proceeds |
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We intend to use the net proceeds from this offering to pay down a portion of our credit
facility, to fund an escrow account for the purpose of paying dividends on the Series A preferred stock until November 1,
2015, and for general working capital purposes. See “Use of Proceeds” on page S-22. |
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Market for the common stock and Series A preferred stock |
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Our 10% Series A Cumulative Redeemable Perpetual Preferred Stock is listed under the symbol "ENRJPR." |
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Risk Factors |
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You should read the “Risk Factors” section of this prospectus supplement and in the documents incorporated by reference in this prospectus supplement for a discussion of factors to consider before deciding to purchase our securities. |
Dividends: |
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Holders of Series A preferred stock are entitled to receive, when and as declared by the board of directors, out of funds legally available for the payment of dividends, cumulative cash dividends on the Series A preferred stock at a rate of 10% per annum of the $25.00 liquidation preference per share (equivalent to $2.50 per annum per share). However, if cash dividends on any outstanding Series A preferred stock have not been paid in full for any six consecutive or non-consecutive monthly dividend periods, or if we fail to maintain the listing of the Series A preferred stock on the New York Stock Exchange, NYSE MKT, NASDAQ Stock Market or a successor exchange or quotation system (each, a "National Market") for a period of at least 180 consecutive days, the dividend rate on the Series A preferred stock will increase to 12% per annum, which we refer to as the “Penalty Rate” increasing by 1% per annum for each subsequent failure to pay a monthly dividend, up to a maximum dividend rate of 15% per annum. Dividends will generally be payable on the last day of each calendar month, to holders of record as of the 15th day of such calendar month. Dividends on the Series A preferred stock will accrue regardless of whether: |
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the terms of our senior shares (as defined below) or our agreements, including our credit facilities, at any time prohibit the current payment of dividends; |
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we have earnings; |
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there are funds legally available for the payment of such dividends; or |
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the dividends are declared by our board of directors. |
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All payments of dividends made to the holders of Series A preferred stock will be credited against the previously accrued dividends on such shares of Series A preferred stock. We will credit any dividends paid on the Series A preferred stock first to the earliest accrued and unpaid dividend due. As described more fully under “Ranking” below, the payment of dividends with respect to the Series A preferred stock is senior to any dividends to which holders of our common stock are entitled, if any. |
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Alternative Payment of Dividends Upon Dividend Default: |
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If, at any time, there is a dividend default because cash dividends on the outstanding Series A preferred stock are accrued but not paid in full for any monthly dividend period for a total of six consecutive or non-consecutive monthly dividend periods, and the Penalty Rate is imposed as described above, we can elect to pay dividends on the Series A preferred stock, including all accrued but unpaid dividends, by issuing to the holders thereof (i) if our common stock is then listed on a National Market and to the extent permitted under the rules of the National Market on which such shares are listed, shares of our common stock (based on the weighted average daily closing price for the 10 trading day period ending on the trading day immediately preceding the payment) and cash in lieu of any fractional share, or (ii) if our common stock is not listed on a National Market, additional shares of Series A preferred stock with a liquidation value equal to the amount of the dividend and cash in lieu of any fractional share. |
Optional Redemption: |
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We may not redeem the Series A preferred stock prior to June 16, 2017, except pursuant to the special redemption upon a Change of Control discussed below. On and after June 16, 2017, we may redeem the Series A preferred stock for cash at our option, from time to time, in whole or in part, at a redemption price of $25.00 per share, plus accrued and unpaid dividends (whether or not declared) to, but not including, the redemption date. |
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Special Redemption Upon Change of Ownership
or Control:
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Upon the occurrence of a Change of Control, we have the option upon written notice mailed by us, not less than 30 nor more than 90 days prior to the redemption date and addressed to the holders of record of the Series A preferred stock to be redeemed, to redeem the Series A preferred stock, in whole or in part within 120 days after the first date on which such Change of Control occurred, for cash at the following price: |
Redemption Date | |
Redemption Price per share(1) | |
On or before June 15, 2015 | |
$ | 25.75 | |
After June 15, 2015 and on or before June 15, 2016 | |
$ | 25.50 | |
After June 15, 2016 and on or before June 15, 2017 | |
$ | 25.25 | |
After June 15, 2017 | |
$ | 25.00 | |
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(1) |
plus accrued and unpaid dividends (whether or not declared) to, but not including, the redemption date |
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| Please see the section entitled “Description of Our Series
A Preferred Stock—Redemption” in this prospectus. |
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A “Change of Control” shall be deemed to have
occurred on the date (i) that a “person,” “group” or “entity” (within the meaning of Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act) becomes the ultimate “beneficial
owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have
beneficial ownership of all shares of voting stock that such person or group has the right to acquire regardless of when such
right is first exercisable), directly or indirectly, of voting stock representing more than 50% of the total voting power of our
total voting stock; (ii) that we sell, transfer, or otherwise dispose of all or substantially all of our assets; or (iii) of the
consummation of a merger or share exchange of us with another entity where our stockholders immediately prior to the merger or
share exchange would not beneficially own, immediately after the merger or share exchange, securities representing 50% or more
of the outstanding voting stock of the entity issuing cash or securities in the merger or share exchange (without consideration
of the rights of any class of stock to elect directors by a separate group vote), or where members of our board of directors immediately
prior to the merger or share exchange would not, immediately after the merger or share exchange, constitute a majority of the
board of directors of the entity issuing cash or securities in the merger or share exchange. For purposes of determining whether
a "Change of Control" has occurred, any "group" that exists on the issuance date of the Series A preferred
stock offered hereby shall be disregarded. |
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No Maturity or Mandatory Redemption: |
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The Series A preferred stock does not have any stated maturity date and will not be subject to any sinking fund or mandatory redemption provisions except for redemption at our option (or the option of the acquiring entity) under some circumstances upon a Change of Control as described above or after June 15, 2017. |
Ranking: |
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The Series A preferred stock ranks: (i) senior to our common stock, our series B convertible preferred stock, and any other equity securities that we may issue in the future, the terms of which do not specifically provide that such equity securities rank senior to or on parity with such Series A preferred stock, in each case with respect to payment of dividends and amounts upon liquidation, dissolution or winding up, referred to as “junior shares,” (ii) equal to any other shares of equity securities that we may issue in the future, the terms of which do not specifically provide that such equity securities are junior or senior to our Series A preferred stock, in each case with respect to payment of dividends and amounts upon liquidation, dissolution or winding up (any such issuance would require the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A preferred stock), referred to as “parity shares,” (iii) junior to all other equity securities issued by us, the terms of which specifically provide that such equity securities rank senior to the Series A preferred stock, in each case with respect to payment of dividends and amounts upon liquidation, dissolution or winding up (any such issuance would require the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A preferred stock), referred to as “senior shares,” and (iv) junior to all our existing and future indebtedness. |
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Liquidation Preference: |
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If we liquidate, dissolve or wind up our operations, the holders of our Series A preferred stock will have the right to receive $25.00 per share, plus all accrued and unpaid dividends (whether or not declared) to, but not including, the date of payment, before any payments are made to the holders of our common stock and any other of our junior shares. The rights of the holders of the Series A preferred stock to receive the liquidation preference will be subject to the proportionate rights of holders of each other future series or class of parity shares and subordinate to the rights of senior shares. |
Voting Rights: |
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Holders of the Series A preferred stock will generally be entitled to vote only on changes to our articles of incorporation that would be materially adverse to the rights of holders of Series A preferred stock, provided that an increase of the authorized number of shares of preferred stock shall be deemed to not adversely affect such rights. However, if cash dividends on any outstanding Series A preferred stock have not been paid in full for any monthly dividend period for any six consecutive or non-consecutive monthly periods, or if we fail to maintain the listing of the Series A preferred stock on a National Market for a period of at least 180 consecutive days, then the holders of the Series A preferred stock, voting separately as a class with holders of all other series of parity shares upon which like voting rights have been conferred and are exercisable, will have the right to elect two directors to serve on our board of directors in addition to those directors then serving on our board of directors until such time as the dividend arrearage is eliminated or listing is restored, as applicable. |
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Material U.S. Federal Income Tax Consequences: |
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The material U.S. federal income tax consequences of purchasing, owning and disposing of Series A preferred stock are described in “Material U.S. Federal Income Tax Consequences” beginning on page S-32 of this prospectus. You should consult your tax advisor with respect to the U.S. federal income tax consequences of owning our Series A preferred stock in light of your own particular situation and with respect to any tax consequences arising under the laws of any state, local, foreign or other taxing jurisdiction. |
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Form: |
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The Series A preferred stock will be issued and maintained in book-entry form registered in the name of the nominee of The Depository Trust Company & Clearing Corporation, except under limited circumstances. |
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Conversion Rights:
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The Series A preferred stock is not convertible into common stock. |
Risk Factors: |
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Investing in the Series A preferred stock involves substantial risks. You should carefully review and consider the “Risk Factors” section of this prospectus for a discussion of factors to consider before deciding to invest in our securities. |
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Recent Developments |
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In addition to having pursued this offering, we
currently are evaluating a number of strategic initiatives, including but not limited to potential acquisitions, mergers and sales
of non-core assets. |
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The Company holds a minority interest in a corporation that closed on a sale of its
principal assets. We expect to receive a distribution of approximately $1.75 million within the next 60 to 90
days. |
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In connection with our recent amendment to our credit
facilities allowing us to establish a $1 million segregated account available for payment of dividends through October 2015,
the bank has also agreed to allow us to pay the dividend declared for May 2015 with funds are outside the $1 million
segregated account.
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Our largest stockholder, West Coast Opportunity Fund, LLC, recently made a pro rata
distribution of its shares of our common stock to its investors. As a result ownership of our shares is no longer
concentrated in an entity controlled by members of our board of directors. |
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Recent Adverse Developments
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Pursuant to full cost accounting rules, we must perform
a ceiling test each quarter on its proved oil and natural gas assets within each separate cost center. All of our
costs are included in one cost center because all of the Company’s operations are located in the United States. Our
ceiling test was calculated using trailing twelve-month, unweighted-average first-day-of-the-month prices for oil and natural gas
as of March 31, 2015, which were based on a West Texas Intermediate oil price of $78.82 per Bbl and a Henry Hub natural gas
price of $3.74 per MMBtu (adjusted for basis and quality differentials), respectively. Utilizing these prices, the calculated ceiling
amount was less than the net capitalized cost of oil and natural gas properties as of March 31, 2015, and as a result, a pre-tax
write-down of $16.4 million was recorded at March 31, 2015. Additional material write-downs of the Company’s oil and
gas properties will occur in subsequent quarters in the event that oil and natural gas prices remain at current depressed levels,
or if we experience significant downward adjustments to its estimated proved reserves.
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Preliminary Financial Information |
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We are in the process of finalizing our results for the quarter
ended March 31, 2015.
Based on currently available information, we estimate that,
for the quarter ended March 31, 2015:
· Total
revenues will be in the range of $1.45 million to $1.5 million, compared to $3.85 million for the same period in 2014. This figure does not include $1.1 million of realized gains from our hedging contract.
· Income/(Loss)
from operations will be in the range of ($17.7- $18.2 million), compared to $883,000 in the prior year’s first quarter.
This figure reflects the impact of a pre-tax write-down of $16.4 million for impairment of oil and gas assets due
to reductions in commodity prices, to be recorded at March 31, 2015, as discussed under "Recent Adverse
Developments," above.
· Net
production of barrel of oil equivalent per day ("BOEPD") was approximately 486 BOEPD for the quarter, as opposed to
579 BOEPD for the same period in 2014.
This unaudited preliminary financial information for the quarter
ended March 31, 2015 is based upon our estimates and subject to completion of our financial closing procedures. Moreover, these
data have been prepared solely on the basis of currently available information by, and are the responsibility of, management. This
preliminary financial information is not a comprehensive statement of our financial results for this period, and our actual results
may differ materially from these estimates due to the completion of our financial closing procedures, final adjustments, and other
developments that may arise between now and the time the closing procedures for the quarter are completed. There can be no assurance
that these estimates will be realized, and estimates are subject to risks and uncertainties, many of which are not within our control.
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NYSE Market Symbol |
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ENRJPR |
The number of shares of Series
A preferred stock outstanding after this offering as reflected in the table above is based on the actual number of shares outstanding
as of May 8, 2015, which was 751,815.
ABOUT ENERJEX RESOURCES, INC.
Overview
We operate as an independent exploration and
production company focused on the acquisition and development of oil and natural gas properties located in the mid-continent region
of the United States.
Our primary business objective is to increase
our oil and natural gas production, reserves, and cash flow in a manner that is accretive for our shareholders by acquiring and
developing properties that have low production decline rates and offer abundant drilling opportunities with low risk profiles.
We drilled 52 oil wells in 2014 with a 98%
success rate, and our ratio of proved reserves to production is 20.8 years based on our annualized production volumes for the
year ended December 31, 2014.
As of December 31, 2014, we owned oil and natural
gas leases covering more than 90,000 net acres in Kansas, Colorado, Nebraska, and Texas, of which approximately 64% is held by
production. We have identified more than 500 drilling locations on this acreage from which we expect to recover commercial quantities
of oil and natural gas.
Our total net proved oil and natural gas reserves
as of December 31, 2014 were 4.4 million barrels of oil equivalent (Boe), of which 69% was oil. Of the 4.4 million Boe of total
proved reserves, approximately 50% were classified as proved developed producing, approximately 19% were classified as proved developed
non-producing, and approximately 31% were classified as proved undeveloped. The total PV10 (present value) of our proved reserves
as of December 31, 2014 was $64.3 million.
Strategy
The principal elements of our business strategy
are to:
| · | Develop Our Existing Properties . We plan to increase our oil and natural gas production, reserves, and cash flow by
developing our extensive inventory of drilling locations that we have identified on our existing properties. |
| · | Maximize Operational Control . We seek to operate and maintain a substantial working interest in the majority of our
properties. We believe the ability to control our drilling inventory will provide us with the opportunity to more efficiently allocate
capital, manage resources, control operating and development costs, and utilize our experience and knowledge of oil and gas field
technologies. |
| · | Pursue Selective Acquisitions and Joint Ventures . We believe our local presence in Kansas, Colorado, Nebraska, and
Texas makes us well-positioned to pursue selected acquisitions and joint venture arrangements. |
| · | Reduce Unit Costs Through Economies of Scale and Efficient Operations. As we increase our oil and natural gas production
and develop our existing properties, we expect that our unit cost structure will benefit from economies of scale. In particular,
we anticipate reducing unit costs through greater utilization of our existing infrastructure over a larger number of wells. |
| · | Reduce Oil Price Risk . We seek to minimize the risk to our business of a decline in future oil prices by entering into
derivative or physical hedging arrangements with respect to a portion of our anticipated future oil production. |
We were formerly known as Millennium Plastics
Corporation and were incorporated in the State of Nevada on March 31, 1999. We abandoned a prior business plan focusing on the
development of biodegradable plastic materials. In August 2006, we acquired Midwest Energy, Inc., a Nevada corporation, pursuant
to a reverse merger. After the merger, Midwest Energy became a wholly owned subsidiary, and as a result of the merger the former
Midwest Energy stockholders controlled approximately 98% of our outstanding shares of common stock. We changed our name to EnerJex
Resources, Inc. in connection with the merger, and in November 2007 we changed the name of Midwest Energy (now our wholly owned
subsidiary) to EnerJex Kansas, Inc. All of our current operations are conducted through EnerJex Kansas, Inc., Black Raven Energy,
Inc., and Black Sable Energy, LLC, and our leasehold interests are held in our wholly owned subsidiaries Black Raven Energy, Inc.,
Adena, LLC, Black Sable Energy, LLC, Working Interest, LLC, and EnerJex Kansas, Inc.
RISK FACTORS
An investment in our securities involves
a high degree of risk. Before making an investment decision, you should carefully consider the risks described below, as well as
the risks described under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31,
2014 and the other filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, which
we have incorporated herein by reference. Our business, financial condition, results of operations and cash flows could be materially
adversely affected by any of these risks, and the market or trading price of our securities could decline due to any of these risks.
In addition, please read "Disclosure Regarding Forward-Looking Statements" in this prospectus, where we describe additional
uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this prospectus.
Please note that additional risks not presently known to us or that we currently deem immaterial may also impair our business and
operations.
Risks Related to our Business
The proceeds from this offering will not allow us
to achieve positive cash flow from operations excluding the benefit of our hedge positions, and we will likely
need to pursue a material strategic transaction to continue operations.
Unless oil prices rebound materially, the
proceeds from this offering will not be sufficient to allow us to achieve positive cash flow from operations excluding the
benefit of revenues we are generating from our hedging contracts. After our hedge positions expire, we will not
have sufficient cash flow to sustain our operations and debt burden on a long term basis. As a result, we will likely need
to engage in a merger or other transaction with another oil and gas company whose assets are less leveraged than ours or
complete a significant acquisition which would require raising additional capital and/or issue additional
securities.
The issuance in this offering of preferred
stock with a 10% dividend on par value, and the plan to reserve sufficient funds to pay dividends at least through October
2015, represent a further leveraging of our balance sheet in an effort to raise working capital with which to bridge to a
material strategic transaction and fund operations. There are material risks in that strategy, including that we
may not be able to close such a strategic transaction before we use up our available net working capital, and that we may
need to suspend payment of the dividend on the preferred stock after October 2015 if no transaction is completed by
that time. The suspension of payment of dividends may have an adverse impact on our stock price, which in turn may
have a material adverse impact on our ability to close a material strategic transaction of the sort described above.
In certain sales, mergers, or other
business combinations, there is a risk that the counterparty may condition the closing upon a change in the terms of the
Series A preferred stock or may effect a tender for such shares at a price that is significantly less than the liquidation
preference of the Series A preferred stock, which would have a material adverse impact on the value of such shares.
Current volatile market conditions and significant fluctuations
in energy prices may continue indefinitely, negatively affecting our business prospects and viability.
The oil and gas markets are very volatile, and
we cannot predict future oil and natural gas prices. Historically, oil and natural gas prices have been volatile and are subject
to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond
our control. Any substantial decline in the price of oil and natural gas will likely have a material adverse effect on our planned
operations and financial condition. The amount of any royalty payment we receive, if any, from the production of oil and gas from
our oil and gas interests will depend on numerous factors beyond our control.
Our 2014 oil and gas reserve report shows
a decline in our estimated reserves, which will have adverse implications to our business.
Our 2014 oil and gas reserve
report shows a material decline in our estimated reserves from 2013. This decline will affect our schedule of future production
and development drilling operations.
Our maximum
borrowings under our credit facility are subject to reduction based upon a borrowing base calculation, which is re-determined
using updated reserve reports. Because our 2014 reserve report shows materially reduced available reserves as discussed
above, our borrowing base was similarly reduced. As a result of the reduction, we became overdrawn on our credit facilities
and therefore not in compliance with the financial covenants imposed by our lenders. We recently negotiated and entered into
an amendment of our credit facilities in which, among other things, our lender: (i) redetermined the borrowing base based
upon the 2014 reserve report, (ii) imposed affirmative obligations on us to use a portion of proceeds received with regard to
future sales of securities or certain assets to repay the loan, (iii) consented to our non-compliance with certain terms of
the credit agreement, and (iv) waived certain provisions of the credit agreement. There is no guarantee that we will be able
to meet the requirements of our amended facility. If our borrowing base does not improve this plan and any other requirements
from our lenders may affect our ability to pay ordinary operating expenses as they become due, operate and grow our
production activities, and pay dividends on our Series A preferred stock. All of those factors may adversely affect the
results of our operations and our stock price.
Our ability to pay dividends on the Series A preferred stock
is subject to bank approval, and we cannot assure that we will be able to pay any Series A preferred stock dividends after
October 2015 without further bank approval.
Pursuant to the terms and conditions of
our credit facility, as recently amended, our ability to pay dividends is subject to bank approval until we meet certain loan
covenants. Our bank has approved the payment of the declared dividend on our Series A preferred stock for May 2015. In
addition, the bank consented to the release from the bank lien of $1 million to be segregated in an account for the purpose
of paying Series A preferred stock dividends through October 2015. We anticipate that such funds are sufficient to pay
dividends on our issued and outstanding shares of Series A preferred stock and the shares of Series A preferred stock issued
in this offering until October 2015. After October 2015, we will need further bank consent to pay dividends, and there is no
guarantee that the bank will consent to the payment of any further dividends, even if we had funds to pay such dividends.
After the earlier of November 1, 2015 and exhaustion of the $1 million, the decision to declare further dividends will depend
on the circumstances that then exist. Any failure to pay dividends on our Series A preferred stock will adversely affect our
stock price.
Declining economic conditions and worsening
geopolitical conditions could negatively impact our business
Our operations are affected by local, national
and worldwide economic conditions. Markets in the United States and elsewhere have been experiencing volatility and
disruption for more than 5 years, due in part to the financial stresses affecting the liquidity of the banking system and the financial
markets generally. The consequences of a potential or prolonged recession may include a lower level of economic activity
and uncertainty regarding energy prices and the capital and commodity markets.
In addition, actual and attempted terrorist
attacks in the United States, Middle East, Southeast Asia and Europe, and war or armed hostilities in the Middle East, the Persian
Gulf, North Africa, Iran, North Korea or elsewhere, or the fear of such events, could further exacerbate the volatility and disruption
to the financial markets and economy.
While the ultimate outcome and impact of the
current economic conditions cannot be predicted, a lower level of economic activity might result in a decline in energy consumption,
which may materially adversely affect the price of oil and gas, our revenues, liquidity and future growth. Instability
in the financial markets, as a result of recession or otherwise, also may affect the cost of capital and our ability to raise capital.
The oil and natural gas business involves numerous uncertainties
and operating risks that can prevent us from realizing profits and can cause substantial losses.
Our development, exploitation and exploration
activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties.
Moreover, the successful drilling of a well does not ensure a profit on investment. A variety of factors, both geological and market-related,
can cause a well to become uneconomical or only marginally economical. In addition to their cost, unsuccessful wells can hurt our
efforts to replace reserves.
The oil and natural gas business involves a
variety of operating risks, including:
| · | unexpected operational events and/or conditions; |
| · | reductions in oil and natural gas prices; |
| · | limitations in the market for oil and natural gas; |
| · | adverse weather conditions; |
| · | facility or equipment malfunctions; |
| · | oil and gas quality issues; |
| · | pipe, casing, cement or pipeline failures; |
| · | fires, explosions, blowouts, surface cratering, pollution and other risks or accidents; |
| · | environmental hazards, such as oil spills, pipeline ruptures and discharges of toxic gases; |
| · | compliance with environmental and other governmental requirements; and |
| · | uncontrollable flows of oil or natural gas or well fluids. |
If we experience any of these problems, it could
affect well bores, gathering systems and processing facilities, which could adversely affect our ability to conduct operations.
We could also incur substantial losses as a result of:
| · | severe damage to and destruction of property, natural resources and equipment; |
| · | pollution and other environmental damage; |
| · | clean-up responsibilities; |
| · | regulatory investigation and penalties; |
| · | suspension of our operations; and |
| · | repairs to resume operations. |
Because we use third-party drilling contractors
to drill our wells, we may not realize the full benefit of worker compensation laws in dealing with their employees. Our insurance
does not protect us against all operational risks. We do not carry business interruption insurance at levels that would provide
enough funds for us to continue operating without access to other funds. For some risks, we may not obtain insurance if we believe
the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally
are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could impact
our operations enough to force us to cease our operations.
Drilling wells is speculative, and any material inaccuracies
in our forecasted drilling costs, estimates or underlying assumptions will materially affect our business.
Developing and exploring for oil and natural
gas involves a high degree of operational and financial risk, which precludes definitive statements as to the time required and
costs involved in reaching certain objectives. The budgeted costs of drilling, completing and operating wells are often exceeded
and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oilfield equipment
and related services. Drilling may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment
shortages and mechanical difficulties. Moreover, the successful drilling of an oil or gas well does not ensure a profit on investment.
Exploratory wells bear a much greater risk of loss than development wells. Substantially all of our wells drilled through March
31, 2015 have been development wells and a majority of the wells drilled by Black Raven have been considered by Black Raven
to be development wells. A variety of factors, both geological and market-related, can cause a well to become uneconomical or only
marginally economic. Our initial drilling and development sites, and any potential additional sites that may be developed, require
significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development.
If our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our
business operations as proposed and would be forced to modify our plan of operation.
Development of our reserves, when established,
may not occur as scheduled and the actual results may not be as anticipated. Drilling activity and lack of access to economically
acceptable capital may result in downward adjustments in reserves or higher than anticipated costs. Our estimates will be based
on various assumptions, including assumptions over which we have no control and assumptions required by the SEC relating to oil and
gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. We have limited control over
our operations that affect, among other things, acquisitions and dispositions of properties, availability of funds, use of applicable
technologies, hydrocarbon recovery efficiency, drainage volume and production decline rates that are part of these estimates and
assumptions and any variance in our operations that affects these items within our control may have a material effect on reserves.
The process of estimating our oil and gas reserves is extremely complex, and requires significant decisions and assumptions
in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Our estimates may not
be reliable enough to allow us to be successful in our intended business operations. Our actual production, revenues, taxes, development
expenditures and operating expenses will likely vary from those anticipated. These variances may be material.
Unless we replace our oil and natural
gas reserves, our reserves and production will decline, which would adversely affect our cash flows and income.
Unless we conduct successful development, exploitation
and exploration activities or acquire properties containing proved reserves, our proved reserves will decline as those reserves
are produced. Producing oil and gas reservoirs generally are characterized by declining production rates that vary depending upon
reservoir characteristics and other factors. Our future oil and gas production, and, therefore our cash flow and income, are highly
dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional
recoverable reserves. We may be unable to make such acquisitions because we are:
| · | unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts with them; |
| · | unable to obtain financing for these acquisitions on economically acceptable terms; or |
If we are unable to develop, exploit, find or
acquire additional reserves to replace our current and future production, our cash flow and income will decline as production declines,
until our existing properties would be incapable of sustaining commercial production.
Our decision to acquire a property will depend in part on
the evaluation of data obtained from production reports and engineering studies, geophysical and geological analyses and seismic
and other information, the results of which are often incomplete or inconclusive.
Our reviews of acquired properties can be inherently
incomplete because it is not always feasible to perform an in-depth review of the individual properties involved in each acquisition.
Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit
a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections may not
always be performed on every well, and environmental problems, such as ground water contamination, plugging or orphaned well liability
are not necessarily observable even when an inspection is undertaken.
We must obtain governmental permits and approvals for drilling
operations, which can result in delays in our operations, be a costly and time consuming process, and result in restrictions on
our operations.
Regulatory authorities exercise considerable
discretion in the timing and scope of well drilling permit issuances in the region in which we operate. Compliance with the requirements
imposed by these authorities can be costly and time consuming and may result in delays in the commencement or continuation of our
exploration or production operations and/or fines. Regulatory or legal actions in the future may materially interfere with our
operations or otherwise have a material adverse effect on us. In addition, we are often required to prepare and present to federal,
state or local authorities data pertaining to the effect or impact that a proposed project may have on the environment, threatened
and endangered species, and cultural and archaeological artifacts. Accordingly, the well drilling permits we need may not be issued,
or if issued, may not be issued in a timely fashion, or may involve requirements that restrict our ability to conduct our operations
or to do so profitably.
Cost and availability of drilling rigs, equipment, supplies,
personnel and other services could adversely affect our ability to execute on a timely basis our development, exploitation and
exploration plans.
Shortages or an increase in cost of drilling
rigs, equipment, supplies or personnel could delay or interrupt our operations, which could impact our financial condition and
results of operations. Drilling activity in the geographic areas in which we conduct drilling activities may increase, which would
lead to increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services
and products of other vendors to the industry. Increased drilling activity in these areas may also decrease the availability of
rigs. We do not have any contracts for drilling rigs and drilling rigs may not be readily available when we need them. Drilling
and other costs may increase further and necessary equipment and services may not be available to us at economical prices.
Our exposure to possible leasehold defects and potential title
failure could materially adversely impact our ability to conduct drilling operations.
We obtain the right and access to properties
for drilling by obtaining oil and natural gas leases either directly from the hydrocarbon owner, or through a third party that
owns the lease. The leases may be taken or assigned to us without title insurance. There is a risk of title failure with respect
to such leases, and such title failures could materially adversely impact our business by causing us to be unable to access properties
to conduct drilling operations.
We operate in a highly competitive environment and our competitors
may have greater resources than do we.
The oil and natural gas industry is intensely
competitive and we compete with other companies, many of which are larger and have greater financial, technological, human and
other resources. Many of these companies not only explore for and produce crude oil and/or natural gas, but also carry on refining
operations and market petroleum and other products on a regional, national or worldwide basis. Such companies may be able to pay
more for productive oil and properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of
properties and prospects than our financial or human resources permit. In addition, such companies may have a greater ability to
continue exploration activities during periods of low oil and gas market prices. Our ability to acquire additional properties and
to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment. If we are unable to compete, our operating results and financial position may
be adversely affected.
Oil and gas prices are volatile. Future
volatility may cause negative change in cash flows which may result in our inability to cover our operating or capital expenditures.
Our future revenues, profitability, future
growth and the carrying value of our properties depend substantially on the prices we may realize for our oil and gas production.
Our realized prices may also affect the amount of cash flow available for operating or capital expenditures and our ability to
borrow and raise additional capital.
Oil and gas prices are subject to wide fluctuations
in response to relatively minor changes in or perceptions regarding supply and demand. Historically, the markets for oil and gas
have been volatile, and they are likely to continue to be volatile in the future. Among the factors that can cause this volatility
are:
| · | commodities speculators; |
| · | local, national and worldwide economic conditions; |
| · | worldwide or regional demand for energy, which is affected by economic conditions; |
| · | the domestic and foreign supply of oil and gas; |
| · | domestic and foreign governmental regulations and taxation; |
| · | political and economic conditions in oil and gas producing countries, including those in the Middle East and South America; |
| · | impact of the U.S. dollar exchange rates on oil and gas prices; |
| · | the availability of refining capacity; |
| · | actions of the Organization of Petroleum Exporting Countries, or OPEC, and other state controlled oil and gas companies relating
to oil and gas price and production controls; and |
| · | the price and availability of other fuels. |
It is impossible to predict oil and gas price
movements with certainty. A drop in oil and gas prices may not only decrease our future revenues on a per unit basis but also may
reduce the amount of oil and gas that we can produce economically. A substantial or extended decline in oil and gas prices would
materially and adversely affect our future business enough to potentially force us to cease our business operations. In addition,
our reserves, financial condition, results of operations, liquidity and ability to finance and execute planned capital expenditures
will also suffer in such a price decline.
Our business is affected by local, national and worldwide
economic conditions and the condition of the oil and natural gas industry.
Recent economic data indicates the rate of economic
growth worldwide has declined significantly from the growth rates experienced in recent years. Current economic conditions have
resulted in uncertainty regarding energy and commodity prices. In addition, future economic conditions may cause many oil and natural
gas production companies to further reduce or delay expenditures in order to reduce costs, which in turn may cause a further reduction
in the demand for drilling services. If conditions worsen, our business and financial condition may be adversely impacted.
Our business involves numerous operating hazards, and our
insurance and contractual indemnity rights may not be adequate to cover our losses.
Our operations are subject to the usual hazards
inherent in the drilling and operation of oil and natural gas wells, such as blowouts, reservoir damage, loss of production, loss
of well control, punch throughs, craterings, fires and pollution. The occurrence of these events could result in the suspension
of drilling or production operations, claims by the operator and others affected by such events, severe damage to, or destruction
of, the property and equipment involved, injury or death to drilling personnel, environmental damage and increased insurance costs.
We may also be subject to personal injury and other claims of drilling personnel as a result of our drilling operations. Operations
also may be suspended because of machinery breakdowns, abnormal operating conditions, failure of subcontractors to perform or supply
goods or services and personnel shortages.
Damage to the environment could result from our
operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to property, environmental
and other damage claims by host governments, oil and natural gas companies and other businesses operating offshore and in coastal
areas, as well as claims by individuals living in or around coastal areas.
As is customary in our industry, the risks of
our operations are partially covered by our insurance and partially by contractual indemnities from our customers. However, insurance
policies and contractual rights to indemnity may not adequately cover losses, and we may not have insurance coverage or rights
to indemnity for all risks. Moreover, pollution and environmental risks generally are not fully insurable. If a significant accident
or other event resulting in damage to our drilling units, including severe weather, terrorist acts, war, civil disturbances, pollution
or environmental damage, occurs and is not fully covered by insurance or a recoverable indemnity from a customer, it could adversely
affect our financial condition and results of operations.
Our business is subject to numerous governmental laws and
regulations, including those that may impose significant costs and liability on us for environmental and natural resource damages.
Many aspects of our operations are affected
by governmental laws and regulations that may relate directly or indirectly to the contract drilling industry, including those
requiring us to control the discharge of oil and other contaminants into the environment or otherwise relating to environmental
protection. Countries where we currently operate have environmental laws and regulations covering the discharge of oil and other
contaminants and protection of the environment in connection with operations. Additionally, our operations and activities in the
United States and its territorial waters are subject to numerous environmental laws and regulations, including the Clean Water
Act, the OPA, the Outer Continental Shelf Lands Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Air Act, the Resource Conservation and Recovery Act and MARPOL. Failure to comply with these laws and regulations may
result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the denial or
revocation of permits or other authorizations and the issuance of injunctions that may limit or prohibit our operations.
Laws and regulations protecting the environment
have become more stringent in recent years and may in certain circumstances impose strict liability, rendering us liable for environmental
and natural resource damages without regard to negligence or fault on our part. These laws and regulations may expose us to liability
for the conduct of, or conditions caused by, others or for acts that were in compliance with all applicable laws at the time the
acts were performed. The application of these requirements, the modification of existing laws or regulations or the adoption of
new laws or regulations relating to exploratory or development drilling for oil and natural gas could materially limit future contract
drilling opportunities or materially increase our costs. In addition, we may be required to make significant capital expenditures
to comply with such laws and regulations.
In addition, some financial institutions are
imposing, as a condition to financing, requirements to comply with additional non-governmental environmental and social standards
in connection with operations outside the United States, such as the Equator Principles, a credit risk management framework for
determining, assessing and managing environmental and social risk in project finance transactions. Such additional standards could
impose significant new costs on us, which may materially and adversely affect us.
Changes in U.S. federal laws and regulations, or in those
of other jurisdictions where we operate, including those that may impose significant costs and liability on us for environmental
and natural resource damages, may adversely affect our operations.
If the U.S. government amends or enacts new
federal laws or regulations, our potential exposure to liability for operations and activities in the United States and its territorial
waters may increase. Although the Oil Pollution Act of 1990 provides federal caps on liability for pollution or contamination,
future laws and regulations may increase our liability for pollution or contamination resulting from any operations and activities
that the Company may have in the United States and its territorial waters including punitive damages and administrative, civil
and criminal penalties. Additionally, other jurisdictions where we operate have modified, or may in the future modify, their laws
and regulations in a manner that would increase our liability for pollution and other environmental damage.
Our financial condition may be adversely affected if we are
unable to identify and complete future acquisitions, fail to successfully integrate acquired assets or businesses we acquire, or
are unable to obtain financing for acquisitions on acceptable terms.
The acquisition of assets or businesses that
we believe to be complementary to our exploration and production operations is an important component of our business strategy.
We believe that acquisition opportunities for EnerJex, such as the merger with Black Raven, may arise from time to time, and that
any such acquisition could be significant. At any given time, discussions with one or more potential sellers may be at different
stages. However, any such discussions may not result in the consummation of an acquisition transaction, and we may not be able
to identify or complete any acquisitions. We cannot predict the effect, if any, that any announcement or consummation of an acquisition
would have on the trading price of our securities. Our business is capital intensive and any such transactions could involve the
payment by us of a substantial amount of cash. We may need to raise additional capital through public or private debt or equity
financings to execute our growth strategy and to fund acquisitions. Adequate sources of capital may not be available when needed
on favorable terms. If we raise additional capital by issuing additional equity securities, existing stockholders may be diluted.
If our capital resources are insufficient at any time in the future, we may be unable to fund acquisitions, take advantage of business
opportunities or respond to competitive pressures, any of which could harm our business.
Any future acquisitions could present a number
of risks, including:
| · | the risk of using management time and resources to pursue acquisitions that are not successfully completed; |
| · | the risk of incorrect assumptions regarding the future results of acquired operations; |
| · | the risk of failing to integrate the operations or management of any acquired operations or assets successfully and timely;
and |
| · | the risk of diversion of management's attention from existing operations or other priorities. |
If we are unsuccessful in completing acquisitions
of other operations or assets, our financial condition could be adversely affected and we may be unable to implement an important
component of our business strategy successfully. In addition, if we are unsuccessful in integrating our acquisitions in a timely
and cost-effective manner, our financial condition and results of operations could be adversely affected.
The loss of some of our key executive officers and employees
could negatively impact our business prospects.
Our future operational performance depends to
a significant degree upon the continued service of key members of our management as well as marketing, sales and operations personnel.
The loss of one or more of our key personnel could have a material adverse effect on our business. We believe our future success
will also depend in large part upon our ability to attract, retain and further motivate highly skilled management, marketing, sales
and operations personnel. We may experience intense competition for personnel, and we cannot assure you that we will be able to
retain key employees or that we will be successful in attracting, assimilating and retaining personnel in the future.
Failure to employ a sufficient number of skilled workers or
an increase in labor costs could hurt our operations.
We require skilled personnel to operate and
provide technical services to, and support for, our drilling units. In periods of increasing activity and when the number of operating
units in our areas of operation increases, either because of new construction, re-activation of idle units or the mobilization
of units into the region, shortages of qualified personnel could arise, creating upward pressure on wages and difficulty in staffing.
The shortages of qualified personnel or the inability to obtain and retain qualified personnel also could negatively affect the
quality and timeliness of our work. In addition, our ability to expand operations depends in part upon our ability to increase
the size of the skilled labor force.
Risks Related to EnerJex
Anti-takeover provisions in our charter and bylaws may prevent
or frustrate attempts by stockholders to change the board of directors or management and could make a third-party acquisition of
the company difficult.
Our amended and restated articles of incorporation
and bylaws, as amended, contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control
that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their
shares. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock,
and have a negative effect on the price at which shares of our Series A preferred stock trade.
We have sustained losses in the past,
and our future profitability is subject to many risks inherent in the oil and natural gas exploration and production industry.
Our prospects must be considered in light of
the risks, expenses and difficulties frequently encountered in establishing and maintaining a business in the exploration and production
industry. There is nothing conclusive at this time on which to base an assumption that our business operations will prove to be
successful or that we will be able to operate profitably. Our future operating results will depend on many factors, including:
| · | the future prices of oil and gas; |
| · | our ability to raise adequate capital; |
| · | success of our development and exploration efforts; |
| · | our ability to manage our operations cost effectively; |
| · | effects of our hedging strategies; |
| · | the level of our competition; |
| · | our ability to attract and maintain key management, employees and operators; |
| · | transportation and processing fees on our facilities; |
| · | fuel conservation measures; |
| · | alternate fuel requirements or advancements; |
| · | government regulation and taxation; |
| · | technical advances in fuel economy and energy generation devices; and |
| · | our ability to efficiently explore, develop and produce sufficient quantities of marketable oil and gas in a highly competitive
and speculative environment while maintaining quality and controlling costs. |
To achieve profitable operations, we must, alone
or with others, successfully execute on the factors stated above, along with continually developing ways to enhance our production
efforts. Despite our best efforts, we may not be successful in our development efforts or obtain required regulatory approvals.
There is a possibility that some of our wells may never produce oil or gas in sustainable or economic quantities.
We will need additional capital in the future
to finance our planned growth, which we may not be able to raise or may only be available on terms unfavorable to us or our stockholders,
which may result in our inability to fund our working capital requirements and harm our operational results.
We have and expect to continue to have substantial
capital expenditure and working capital needs. We will need to rely on cash flow from operations and borrowings under our credit
facility or raise additional cash to fund our operations, pay outstanding long-term debt, fund our anticipated reserve replacement
needs and implement our growth strategy, or respond to competitive pressures and/or perceived opportunities, such as investment,
acquisition, exploration, work-over and development activities.
If low oil and gas prices, operating difficulties,
constrained capital sources or other factors, many of which are beyond our control, cause our revenues or cash flows from operations
to decrease, we may be limited in our ability to spend the capital necessary to complete our development, production exploitation
and exploration programs. If our resources or cash flows do not satisfy our operational needs, we will require additional
financing, in addition to anticipated cash generated from our operations, to fund our planned growth. Additional financing might
not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable
terms, our ability to fund our operations, take advantage of opportunities, develop or enhance our business or otherwise respond
to competitive pressures would be significantly limited. In such a capital restricted situation, we may curtail our acquisition,
drilling, development, and exploration activities or be forced to sell some of our assets on an untimely or unfavorable basis. Our
current plans to address a drop in crude oil prices are to maintain hedges covering a portion of our expected future oil production
and to reduce both capital and operating expenditures to a level equal to or below cash flow from operations. However,
our plans may not be successful in improving our results of operations and liquidity.
If we raise additional funds through the issuance
of equity or convertible debt securities, the percentage ownership of our stockholders would be reduced, and these newly issued
securities might have rights, preferences or privileges senior to those of existing stockholders, including rights that are senior
to those of holders of our Series A preferred stock.
Approximately 31% of our total proved reserves as of December
31, 2014 consist of undeveloped reserves, and those reserves may not ultimately be developed or produced.
Our estimated total proved PV10 (present value)
before tax of reserves as of December 31, 2014 was $64.3 million, versus $102 million as of December 31, 2013. Of the 4.4
million net barrels of oil equivalent at December 31, 2014, approximately 50% are proved developed producing, approximately 19%
are classified as proved developed non-producing and approximately 31% are classified as proved undeveloped.
Assuming we can obtain adequate capital resources,
we plan to develop and produce all of our proved reserves, but ultimately some of these reserves may not be developed or produced.
Furthermore, not all of our undeveloped reserves may be ultimately produced in the time periods we have planned, at the costs we
have budgeted, or at all.
Because we face uncertainties in estimating proved recoverable
reserves, you should not place undue reliance on such reserve information.
Our reserve estimates and the future net cash
flows attributable to those reserves at December 31, 2014 were prepared by MHA Petroleum Consultants LLC, an independent petroleum
consultant. There are numerous uncertainties inherent in estimating quantities of proved reserves and cash flows from
such reserves, including factors beyond our control and the control of these independent consultants and engineers. Reserve engineering
is a subjective process of estimating underground accumulations of oil and gas that can be economically extracted, which cannot
be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to these reserves,
is a function of the available data, assumptions regarding future oil and gas prices, expenditures for future development and exploitation
activities, and engineering and geological interpretation and judgment. Reserves and future cash flows may also be subject to material
downward or upward revisions based upon production history, development and exploitation activities and oil and gas prices. Actual
future production, revenue, taxes, development expenditures, operating expenses, quantities of recoverable reserves and value of
cash flows from those reserves may vary significantly from the assumptions and estimates in our reserve reports. Any significant
variance from these assumptions to actual figures could greatly affect our estimates of reserves, the economically recoverable
quantities of oil and gas attributable to any particular group of properties, the classification of reserves based on risk of recovery,
and estimates of the future net cash flows. In addition, reserve engineers may make different estimates of reserves and cash
flows based on the same available data. The estimated quantities of proved reserves and the discounted present value of future
net cash flows attributable to those reserves included in this report were prepared by MHA Petroleum Consultants LLC in accordance
with rules of the Securities and Exchange Commission, or SEC, and are not intended to represent the fair market value of such reserves.
The present value of future net cash flows from
our proved reserves is not necessarily the same as the current market value of our estimated reserves. We base the estimated discounted
future net cash flows from our proved reserves on prices and costs. However, actual future net cash flows from our oil and gas
properties also will be affected by factors such as:
| · | assumptions governing future oil and gas prices; |
| · | amount and timing of actual production; |
| · | future operating and development costs; |
| · | actual prices we receive for oil and gas; |
| · | changes in government regulations and taxation; and |
| · | capital costs of drilling new wells. |
The timing of both our production and our incurrence
of expenses in connection with the development and production of our properties will affect the timing of actual future net cash
flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted
future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks
associated with our business or the oil and gas industry in general.
The differential between the New York Mercantile Exchange,
or NYMEX, or other benchmark price of oil and gas and the wellhead price we receive could have a material adverse effect on our
results of operations, financial condition and cash flows.
The prices that we received for our oil production
in Texas, Colorado and Kansas are typically based on a discount to the relevant benchmark prices, such as NYMEX, that are used
for calculating hedge positions. In Colorado, the prices that we receive for our natural gas production is based upon local market
conditions but generally we receive a discount to Henry Hub. The difference between the benchmark price and the price we receive
is called a differential. We cannot accurately predict oil and gas differentials. Production increases from competing North American
producers, in conjunction with limited refining and pipeline capacity, have gradually widened this differential. Recent economic
conditions, including volatility in the price of oil and gas, have resulted in both increases and decreases in the differential
between the benchmark price for oil and gas and the wellhead price we receive. These fluctuations could have a material adverse
effect on our results of operations, financial condition and cash flows by decreasing the proceeds we receive for our oil and gas
production in comparison to what we would receive if not for the differential.
In order to exploit successfully our current
oil and gas leases and others that we acquire in the future, we will need to generate significant amounts of capital.
The oil and natural gas exploration, development
and production business is a capital-intensive undertaking. In order for us to be successful in acquiring, investigating, developing,
and producing oil and gas from our current mineral leases and other leases that we may acquire in the future, we will need to generate
an amount of capital in excess of that generated from our results of operations. In order to generate that additional capital,
we may need to obtain an expanded debt facility and issue additional shares of our equity securities. There can be no assurance
that we will be successful in ether obtaining that expanded debt facility or issuing additional shares of our equity securities,
and our inability to generate the needed additional capital may have a material adverse effect on our prospects and financial results
of operations. If we are able to issue additional equity securities in order to generate such additional capital, then those issuances
may occur at prices that represent discounts to our trading price, and will dilute the percentage ownership interest of those persons
holding our shares prior to such issuances. Unless we are able to generate additional enterprise value with the proceeds of the
sale of our equity securities, those issuances may adversely affect the value of our shares that are outstanding prior to those
issuances.
A significant portion of our potential future reserves and
our business plan depend upon secondary recovery techniques to establish production. There are significant risks associated with
such techniques.
We anticipate that a significant portion of
our future reserves and our business plan will be associated with secondary recovery projects that are either in the early stage
of implementation or are scheduled for implementation subject to availability of capital. We anticipate that secondary recovery
will affect our reserves and our business plan, and the exact project initiation dates and, by the very nature of waterflood operations,
the exact completion dates of such projects are uncertain. In addition, the reserves and our business plan associated with these
secondary recovery projects, as with any reserves, are estimates only, as the success of any development project, including these
waterflood projects, cannot be ascertained in advance. If we are not successful in developing a significant portion of our reserves
associated with secondary recovery methods, then the project may be uneconomic or generate less cash flow and reserves than we
had estimated prior to investing the capital. Risks associated with secondary recovery techniques include, but are not limited
to, the following:
| · | higher than projected operating costs; |
| · | lower-than-expected production; |
| · | higher costs associated with obtaining capital; |
| · | unusual or unexpected geological formations; |
| · | fluctuations in oil and gas prices; |
| · | shortages of equipment; and |
| · | lack of technical expertise. |
If any of these risks occur, it could adversely
affect our financial condition or results of operations.
Any acquisitions we complete are subject to considerable risk.
Even when we make acquisitions that we believe
are good for our business, any acquisition involves potential risks, including, among other things:
| · | the validity of our assumptions about reserves, future production, revenues and costs, including synergies; |
| · | an inability to integrate successfully the businesses we acquire; |
| · | a decrease in our liquidity by using our available cash or borrowing capacity to finance acquisitions; |
| · | a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions; |
| · | the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate; |
| · | the diversion of management's attention from other business concerns; |
| · | an inability to hire, train or retain qualified personnel to manage the acquired properties or assets; |
| · | the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or
restructuring charges; |
| · | unforeseen difficulties encountered in operating in new geographic or geological areas; and |
| · | customer or key employee losses at the acquired businesses. |
Due to our lack of geographic diversification,
adverse developments in our operating areas would materially affect our business.
We currently only lease and operate oil and
natural gas properties located in Kansas, Colorado, Nebraska and Texas. As a result of this concentration, we may be disproportionately
exposed to the impact of delays or interruptions of production from these properties caused by significant governmental regulation,
transportation capacity constraints, curtailment of production, natural disasters, adverse weather conditions or other events which impact
this area.
We are not the operator of some of our
properties and we have limited control over the activities on those properties.
We are not the operator of our Mississippian
Project, and our dependence on the operator of this project limits our ability to influence or control the operation or future
development of this project. Such limitations could materially adversely affect the realization of our targeted returns on capital
related to exploration, drilling or production activities and lead to unexpected future costs.
We may suffer losses or incur liability
for events for which we or the operator of a property have chosen not to obtain insurance.
Our operations are subject to hazards and risks
inherent in producing and transporting oil and gas, such as fires, natural disasters, explosions, pipeline ruptures, spills, and
acts of terrorism, all of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and other
damage to our and others' properties. As protection against operating hazards, we maintain insurance coverage against some, but
not all, potential losses. In addition, pollution and environmental risks generally are not fully insurable. As a result of market
conditions, existing insurance policies may not be renewed and other desirable insurance may not be available on commercially reasonable
terms, if at all. The occurrence of an event that is not covered, or not fully covered, by insurance could have a material adverse
effect on our business, financial condition and results of operations.
Our hedging activities could result in financial losses or
could reduce our available funds or income and therefore adversely affect our financial position.
To achieve more predictable cash flow and to
reduce our exposure to adverse fluctuations in the prices of oil and gas, we have entered into derivative contracts through June
30, 2016 for approximately 175,000 barrels of crude oil. The settlement of and the mark to market of these contracts could result
in both realized and unrealized hedging losses. For the year ended December 31, 2014, we incurred realized and unrealized hedging
gains of approximately $5,000,000. The extent of our commodity price exposure is related largely to the effectiveness and scope
of our derivative activities. For example, the derivative instruments we may utilize may be based on posted market prices, which
may differ significantly from the actual crude oil prices we realize in our operations.
Our actual future production may be significantly
higher or lower than we estimate at the time we enter into derivative transactions for such period. If the actual amount is higher
than we estimate, we will have greater commodity price exposure than we intended. If the actual amount is lower than the nominal
amount that is subject to our derivative financial instruments, we might be forced to satisfy all or a portion of our derivative
transactions without the benefit of the cash flow from our sale or purchase of the underlying physical commodity, resulting in
a substantial diminution of our liquidity. As a result of these factors, our derivative activities may not be as effective as we
intend in reducing the volatility of our cash flows, and in certain circumstances may actually increase the volatility of our cash
flows. In addition, while we believe our existing derivative activities are with creditworthy counterparties, continued deterioration
in the credit markets may cause a counterparty not to perform its obligation under the applicable derivative instrument or impact
their willingness to enter into future transactions with us.
Our business depends in part on processing facilities owned
by others. Any limitation in the availability of those facilities could interfere with our ability to market our oil and gas production
and could harm our business.
The marketability of our oil and gas production
will depend in part on the availability, proximity and capacity of pipelines and oil processing facilities. The amount of oil and
gas that can be produced and sold is subject to curtailment in certain circumstances, such as pipeline interruptions due to scheduled
and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on such systems. The curtailments
arising from these and similar circumstances may last from a few days to several months. In many cases, we will be provided only
with limited, if any, notice as to when these circumstances will arise and their duration. Any significant curtailment in pipeline
capacity or the capacity of processing facilities could significantly reduce our ability to market our oil and gas production and
could materially harm our business.
Our reserves are subject to the risk of depletion because
many of our leases are in mature fields that have produced large quantities of oil and gas to date.
A significant portion of our operations are
located in or near established fields in Kansas, Colorado, Nebraska, and Texas. As a result, many of our leases are in, or directly
offset, areas that have produced large quantities of oil and gas to date. As such, our reserves may be negatively impacted
by offsetting wells or previously drilled wells, which could significantly harm our business.
Our lease ownership may be diluted due
to financing strategies we may employ in the future.
To accelerate our development efforts, we may
take on working interest partners who will contribute to the costs of drilling and completion operations and then share in any
cash flow derived from production. In addition, we may in the future, due to a lack of capital or other strategic reasons, establish
joint venture partnerships or farm out all or part of our development efforts. These economic strategies may have a dilutive effect
on our lease ownership and could significantly reduce our operating revenues.
We may face lease expirations on leases that are not currently
held-by-production.
We have numerous leases that are not currently
held-by-production, some of which have near term lease expirations and are likely to expire. Although we believe that we can maintain
our most desirable leases by conducting drilling operations or by negotiating lease extensions, we can make no guarantee that we
can maintain these leases.
We are subject to complex laws and regulations, including
environmental regulations, which can adversely affect the cost, manner or feasibility of doing business.
Development, production and sale of oil and
gas in the United States are subject to extensive laws and regulations, including environmental laws and regulations. We may be
required to make large expenditures to comply with environmental and other governmental regulations. Matters subject to regulation
include, but are not limited to:
| · | location and density of wells; |
| · | the handling of drilling fluids and obtaining discharge permits for drilling operations; |
| · | accounting for and payment of royalties on production from state, federal and Indian lands; |
| · | bonds for ownership, development and production of oil and gas properties; |
| · | transportation of oil and gas by pipelines; |
| · | operation of wells and reports concerning operations; and |
Under these laws and regulations, we could be
liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs and
other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination
of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change
in ways that substantially increase our costs. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory
changes could materially adversely affect our financial condition and results of operations enough to possibly force us to cease
our business operations.
Our operations may expose us to significant costs and liabilities
with respect to environmental, operational safety and other matters.
We may incur significant costs and liabilities
as a result of environmental and safety requirements applicable to our oil and gas production activities. We may also be exposed
to the risk of costs associated with Kansas Corporation Commission, the Texas Railroad Commission, and the Colorado Oil and Gas
Conservation Commission, requirements to plug orphaned and abandoned wells on our oil and gas leases that were previously drilled
by third parties. In addition, we may indemnify sellers or lessors of oil and gas properties for environmental liabilities they
or their predecessors may have created. These costs and liabilities could arise under a wide range of federal, state and local
environmental and safety laws and regulations, including regulations and enforcement policies, which have tended to become increasingly
strict over time. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal
penalties, imposition of cleanup and site restoration costs, liens and to a lesser extent, issuance of injunctions to limit or
cease operations. In addition, claims for damages to persons or property may result from environmental and other impacts of our
operations.
Strict, joint and several liability may be imposed
under certain environmental laws, which could cause us to become liable for the conduct of others or for consequences of our own
actions that were in compliance with all applicable laws at the time those actions were taken. New laws, regulations or enforcement
policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. If we are not able
to recover the resulting costs through insurance or increased revenues, our ability to operate effectively could be adversely affected.
Our ability to use net operating loss carryforwards to offset
future taxable income may be subject to certain limitations.
We currently have net operating loss carryforwards
that may be available to offset future taxable income. However, changes in the ownership of our stock (including certain transactions
involving our stock that are outside of our control) could result (or may have already resulted) in an “ownership change”
within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, which may significantly limit our ability
to utilize our net operating loss carryforwards. To the extent an ownership change has occurred or were to occur in the future,
it is possible that the limitations imposed on our ability to use pre-ownership change losses could cause a significant net increase
in our U.S. federal income tax liability and could cause U.S. federal income taxes to be paid earlier than otherwise would be paid
if such limitations were not in effect.
Failure to maintain effective internal controls in accordance
with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on the trading price of our common stock and
Series A preferred stock.
Section 404 of the Sarbanes-Oxley Act of
2002 requires our management to assess the effectiveness of its internal control over financial reporting and to provide a report
by its registered independent public accounting firm addressing the effectiveness of our internal control over financial reporting.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve
their internal control systems. If we are unable to assert that our internal control over financial reporting is effective or if
our registered independent public accounting firm is unable to express an opinion on the effectiveness of the internal controls
or identifies one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence
in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on the trading price of our
common stock and Series A preferred stock. If we fail to maintain the adequacy of our internal controls, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain effective internal control over financial reporting
could have an adverse effect on the trading price of our common stock and Series A preferred stock.
A small number of customers account for a significant portion
of our revenues, and the loss of one or more of these customers could materially adversely affect our financial condition and results
of operations.
We derive a significant portion of our revenues
from a small number of customers. Our financial condition and results of operations could be materially and adversely affected
if any one of these customers interrupts or curtails their activities, fail to pay for the services that have been performed, terminate
their contracts, fail to renew their existing contracts or refuse to award new contracts and we are unable to enter into contracts
with new customers on comparable terms. The loss of any of our significant customers could materially adversely affect our financial
condition and results of operations.
We are exposed to the credit risks of our key customers, including
certain affiliated companies, and certain other third parties, and nonpayment by these customers and other parties could adversely
affect our financial position, results of operations and cash flows.
We are subject to risks of loss resulting from
nonpayment or nonperformance by our customers. Any material nonpayment or nonperformance by key customers and certain other third
parties could adversely affect our financial position, results of operations and cash flows. If any key customers or other parties
default on their obligations to us, our financial results and condition could be adversely affected. Furthermore, some of these
customers and other parties may be highly leveraged and subject to their own operating and regulatory risks.
Our operations might be interrupted by the occurrence of a
natural disaster or other catastrophic event.
Natural disasters or other catastrophic events
could disrupt our operations or those of our strategic partners, contractors and vendors. We might suffer losses as a result of
business interruptions that exceed the coverage available under our and our contractors' insurance policies or for which we or
our contractors do not have coverage. Any natural disaster or catastrophic event could have a significant negative impact on our
operations and financial results, and could delay our efforts to identify and execute any strategic opportunities.
USE OF PROCEEDS
We estimate that the net proceeds from the
sale of the securities we are offering will be approximately $2.02 million, assuming
that we sell all of the securities we are offering, after deducting estimated offering expenses payable by us.
We intend to use the net proceeds that
we receive from this offering as follows:
| · | first, to prepay $1 million of the borrowing base of our credit facilities; |
| · | second, to deposit $1 million into an segregated account to secure the payment of dividends on all issued and outstanding Series
A preferred stock through November 1, 2015; and |
| · | finally, for general working capital purposes. |
UNDERWRITING
Under the terms and subject to the conditions
contained in an underwriting agreement between us and Northland Securities, Inc., as representative of the underwriters, with respect
to the shares of Series A preferred stock subject to this offering, we have agreed to sell to the underwriters, and the underwriters
have severally agreed to purchase, the number shares provided below opposite their names.
Underwriters | |
Number
of Shares | |
Northland Capital Markets | |
| 28,888 | |
Euro Pacific Capital Inc. | |
| 154,545 | |
Total | |
| 183,433 | |
The underwriters are
offering the shares of Series A preferred stock subject to their acceptance of the shares from us and subject to prior sale. The
underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares offered
by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters
are obligated to take and pay for all of the shares if any such shares are taken. The underwriters may, but are not obligated to,
retain other selected dealers that are qualified to offer and sell the shares and that are members of the Financial Industry Regulatory
Authority (FINRA).
Discounts, Commissions and Expenses
The underwriters
have advised us that they propose to offer the shares of Series A preferred stock to the public at the public offering price
set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $0.50
per share. The underwriters may allow, and certain dealers may reallow, a discount from the concession not in
excess of $0.10 per share to certain brokers and dealers. After this
offering, the public offering price, concession and reallowance to dealers may be changed by the underwriters. No such change
shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The shares are
offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part.
The underwriters initially propose to offer
the shares of Series A preferred stock to investors at the public offering price set forth on the cover of this prospectus. The
underwriting discount is equal to the public offering price per share of Series A preferred stock less the amount paid by the underwriters
to us per share of Series A preferred stock. There is no arrangement for funds to be received in escrow, trust or similar arrangement.
We have also agreed to pay the underwriters’
reasonable out-of-pocket expenses (including fees and expense of the underwriters’ counsel) incurred by the underwriters
in connection with this offering up to $65,000. In addition, we estimate that our share of the total expenses of this offering, excluding
underwriting discounts and commissions and payment of the underwriters’ expenses referred to above, will be approximately
$50,000. Except as disclosed in this prospectus, the underwriter has not received and will not receive from us any other item of compensation
or expense in connection with this offering considered by FINRA to be underwriting compensation under its rule of fair price.
The following table summarizes the compensation
and estimated expenses we will pay.
| |
Per Share | | |
Total | |
Public offering price | |
$ | 12.50 | | |
$ | 2,292,912.500 | |
Underwriting discount paid by us | |
$ | 1.125 | | |
$ | 206,362.125 | |
Proceeds, before expenses, to us | |
$ | 11.375 | | |
$ | 2,086,550.375 | |
Indemnification of Underwriters
We will indemnify the underwriters against
some civil liabilities, including liabilities under the Securities Act of 1933 and liabilities arising from breaches of our representations
and warranties contained in the underwriting agreement. If we are unable to provide this indemnification, we will contribute to
payments the underwriters may be required to make in respect of those liabilities.
No Sales of Similar Securities
The underwriters have required all
of our directors and officers to agree not to offer, sell, agree to sell, directly or indirectly, pledge, or otherwise
dispose of any shares of capital stock or any securities convertible into or exchangeable for shares of capital stock without
the prior written consent of Northland Securities, Inc. for a period of 90 days after the date of the final prospectus. There
is an exception for a pre-existing pledge of Series A preferred stock held by Montecito Venture Partners, LLC, an affiliate
of our directors Atticus Lowe and Mr. Lance Helfert.
The restrictions described in the immediately
preceding paragraph do not apply to certain items, including transfers as a bona fide gift or gifts, transfers by will or intestate
succession, or to any trust for the direct or indirect benefit of the director or officer or his or her immediate family, provided
that in each case any such recipient agrees to be bound by the terms of the restrictions described above, and transfers in connection
with the exercise of any stock options that expire during the period described above, to the extent necessary to fund the exercise
price of the stock options and any withholding taxes resulting from such exercise.
We have agreed that for a period of 90
days after the date of the final prospectus, we will not, without the prior written consent of Northland Securities, Inc., offer,
sell or otherwise dispose of any shares of capital stock, except for the shares of Series A preferred stock offered in this offering,
awards to acquire shares of our common stock granted pursuant to our equity incentive plans existing on the date of the underwriting
agreement, and shares of common stock issuable in connection with such awards.
The 90-day restricted period in all of
the agreements described above is subject to extension if (i) during the last 17 days of the restricted period we issue an earnings
release or material news or a material event relating to us occurs or (ii) prior to the expiration of the restricted period, we
announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, in which
case the restrictions imposed in these lock-up agreements shall continue to apply until the expiration of the 18-day period beginning
on the issuance of the earnings release or the occurrence of the material news or material event, unless Northland Securities,
Inc. waives the extension in writing.
Trading Market
Our Series A preferred stock is listed
on the NYSE MKT under the symbol "ENRJPR."
Stamp Taxes
If you purchase shares of Series A preferred
stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the
country of purchase, in addition to the offering price listed on the cover page of this prospectus.
Foreign Regulatory Restrictions on Purchase of the Series
A Preferred Stock
No action may be taken in any jurisdiction
other than the United States that would permit a public offering of the Series A preferred stock or the possession, circulation
or distribution of this prospectus in any jurisdiction where action for that purpose is required. Accordingly, the Series A preferred
stock may not be offered or sold, directly or indirectly, and neither the prospectus nor any other offering material or advertisements
in connection with the Series A preferred stock may be distributed or published in or from any country or jurisdiction except under
circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction.
Additional Information
In the ordinary course
of its business, the underwriters and their affiliates may actively trade or hold our securities for their own accounts or for
the accounts of customers and, accordingly, may at any time hold long or short positions in our securities. The underwriters and
their affiliates may in the future perform various financial advisory and investment banking services for us, for which they will
receive customary fees and expenses.
Northland Capital
Markets is the trade name for certain capital markets and investment banking services of Northland Securities, Inc., member FINRA/SIPC.
This prospectus may be made available on
web sites maintained by the underwriters and the underwriters may distribute prospectuses electronically.
DESCRIPTION OF SECURITIES WE ARE OFFERING
Our authorized capital stock consists of
250,000,000 shares of common stock, $0.001 par value, and 25,000,000 shares of preferred stock, $0.001 par value, of which
2,000,000 shares have been designated Series A redeemable perpetual preferred stock, and 1,764 shares have been designated
series B convertible preferred stock. As of May 8, 2015, we had 8,406,661 shares of common stock, 751,815 shares
of Series A preferred stock, and 1,763.7918 shares of series B convertible preferred stock outstanding.
The underwriters initially propose to offer
the shares of Series A preferred stock to investors at the public offering price set forth on the cover of this prospectus.
In this offering, we are offering
183,433 shares of our Series A preferred stock.
DESCRIPTION OF OUR SERIES A PREFERRED STOCK
The terms of the Series A preferred stock
are contained in an amended and restated certificate of designation that amends our articles of incorporation, as amended. The
following description is a summary of the material provisions of the Series A preferred stock and the amended and restated certificate
of designation. It does not purport to be complete. We urge you to read the amended and restated certificate of designation because
it, and not this description, defines your rights as a holder of shares of Series A preferred stock. As used in this section, the
terms “EnerJex,” “us,” “we” or “our” refer to EnerJex Resources, Inc. and not any
of its subsidiaries.
General
When issued, the Series A preferred stock
offered hereby will be validly issued, fully paid and non-assessable. The holders of the Series A preferred stock have no preemptive
rights with respect to any of our stock or any securities convertible into or carrying rights or options to purchase any such stock.
The Series A preferred stock is not subject to any sinking fund or other obligation of us to redeem or retire the Series A preferred
stock, but we may redeem the Series A preferred stock as described below under “Redemption.” Unless redeemed or repurchased
by us, the Series A preferred stock will have a perpetual term with no maturity.
The Series A preferred stock will be issued
and maintained in book-entry form registered in the name of the nominee, The Depository Trust Company, except in limited circumstances.
See “Book-Entry Procedures” below.
Ranking
The Series A preferred stock ranks:
| · | senior to our common stock and any other equity securities that we may issue in the future, the terms of which do not specifically
provide that such equity securities rank senior to or on parity with such Series A preferred stock, in each case with respect to
payment of dividends and amounts upon liquidation, dissolution or winding up, referred to as “junior shares;” |
| · | equal to any shares of equity securities that we may issue in the future, the terms of which do not specifically provide that
such equity securities are junior or senior with such Series A preferred stock, in each case with respect to payment of dividends
and amounts upon liquidation, dissolution or winding up, referred to as “parity shares” (any such issuance would require
the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A preferred stock); |
| · | junior to all other equity securities issued by us, the terms of which specifically provide that such equity securities rank
senior to such Series A preferred stock, in each case with respect to payment of dividends and amounts upon liquidation, dissolution
or winding up (any such creation would require the affirmative vote of the holders of at least a two-thirds of the outstanding
shares of Series A preferred stock), referred to, as “senior shares;” and |
| · | junior to all our existing and future indebtedness. |
Dividends
Holders of the Series A preferred stock are
entitled to receive, when and as declared by our board of directors, out of funds legally available for the payment of dividends,
cumulative cash dividends at the rate of 10% per annum of the $25.00 per share liquidation preference, equivalent to $2.50
per annum per share. Dividends will accrue on a daily basis and be computed on the basis of a 360-day year consisting of twelve
30-day months.
With respect to monthly dividend periods, the
dividend payment date shall be each the last day of each calendar month, commencing July 31, 2014. The record date for each monthly
dividend period shall be the 15th day of the calendar month in which the dividend payment date falls. Holders of Series A preferred
stock will only be entitled to dividend payments for each monthly dividend period pursuant to which they are the holder of record
as of the applicable record date. Dividends will generally be payable monthly in arrears on the dividend payment date; provided,
that if such day falls on a national holiday or a weekend, such dividends will be due and payable on the next business day following
such weekend or national holiday. We will pay dividends to holders of record as they appear in our stock records at the close of
business on the applicable record date.
We will not declare or pay or set aside for
payment any dividend on the shares of Series A preferred stock if the terms of any of our agreements or senior shares, including
agreements relating to our indebtedness, prohibit that declaration, payment or setting aside of funds or provide that the declaration,
payment or setting aside of funds is a breach of or a default under that agreement, or if the declaration, payment or setting aside
of funds is restricted or prohibited by law. In addition, future debt, contractual covenants or arrangements we enter into may
restrict or prevent future dividend payments. See the risk factor entitled “We could be prevented from paying dividends on
the Series A preferred stock” on page 7 of this prospectus for additional information.
Notwithstanding the foregoing, however, dividends
on the shares of Series A preferred stock will accrue regardless of whether: (i) the terms of our senior shares or our agreements,
including our existing or future indebtedness, at any time prohibit the current payment of dividends; (ii) we have earnings;
(iii) there are funds legally available for the payment of such dividends; or (iv) such dividends are declared by our
board of directors. Except as otherwise provided, accrued but unpaid distributions on the shares of Series A preferred stock will
not bear interest, and holders of the shares of Series A preferred stock will not be entitled to any distributions in excess of
full cumulative distributions as described above. All of our dividends on the shares of Series A preferred stock will be credited
to the previously accrued dividends on the shares of Series A preferred stock. We will credit any dividends paid on the shares
of Series A preferred stock first to the earliest accrued and unpaid dividend due.
We may not declare or pay any dividends, or
set aside any funds for the payment of dividends, on shares of common stock or other junior shares, or redeem, purchase or otherwise
acquire shares of common stock or other junior shares, unless we also have declared and either paid or set aside for payment the
full cumulative dividends on the shares of Series A preferred stock for all past dividend periods.
If we do not declare and either pay or set
aside for payment the full cumulative dividends on the shares of Series A preferred stock and all parity shares, the amount which
we have declared will be allocated pro rata to the shares of Series A preferred stock and to each parity share so that the amount
declared for each share of Series A preferred stock and for each parity share is proportionate to the accrued and unpaid distributions
on those shares.
Failure to Make Dividend Payments
If we have committed a default by failing to
pay the accrued cash dividends on the outstanding Series A preferred stock in full for any six consecutive or non-consecutive monthly
periods, which we refer to as a dividend default, then until we have paid all accrued dividends on the shares of our Series A preferred
stock for all dividend periods up to and including the dividend payment date on which the accumulated and unpaid dividends are
paid in full the annual dividend rate on the Series A preferred stock will be increased to 12% per annum, which we refer to
as the Penalty Rate, commencing on the first day after the dividend payment date on which such dividend default occurs. Thereafter,
the Penalty Rate shall be increased by 1% each successive time we fail to pay the accrued cash dividends on the outstanding Series
A preferred stock, up to a maximum of 15%.
If we have committed a dividend default by
failing to pay the accrued cash dividends on the outstanding Series A preferred stock in full for any six consecutive or non-consecutive
monthly periods, then until we have paid all accrued dividends on the shares of our Series A preferred stock for all dividend periods
up to and including the dividend payment date on which the accumulated and unpaid dividends are paid in full the holders of our
Series A preferred stock will have the voting rights described below. In addition, for any period in which we fail to pay the accrued
cash dividends in full on the outstanding Series A preferred stock in full for any six consecutive or non-consecutive monthly periods,
we can elect to pay dividends on the Series A preferred stock, including all accrued but unpaid dividends, by issuing to the holders
thereof (i) if our common stock is then listed on a National Market and to the extent permitted under the rules of the National
Market on which such shares are listed, shares of our common stock (based on the weighted average daily trading price for the 10
business day period ending on the business day immediately preceding the payment) and cash in lieu of any fractional share, or
(ii) if our common stock is not listed on a National Market, additional shares of Series A preferred stock with a liquidation value
equal to the amount of the dividend and cash in lieu of any fractional share.
A dividend default will be cured and the stated
distribution rate restored once we have paid all accumulated and unpaid dividends in full and have paid dividends at the Penalty
Rate in full for each month, either in cash or equity as described above, unless we again fail to pay any monthly dividend for
any future month.
Failure to Maintain National Market Listing of Series A Preferred
Stock
If we fail to maintain the listing of the Series
A preferred stock on a National Market, for a period of 180 consecutive days, which we refer to as a listing default, then the
annual dividend rate on the Series A preferred stock will be increased to the Penalty Rate of 12% per annum (without further increases)
and holders of Series A preferred stock will have the voting rights described below. See “Voting Rights” below. A listing
default will be cured and the stated distribution rate restored once the Series A preferred stock has been listed on a National
Market, unless the Series A preferred stock is again not listed.
Liquidation Preference
Upon any voluntary or involuntary liquidation,
dissolution or winding up of our affairs, then, before any distribution or payment shall be made to the holders of any common stock
or any other class or series of junior shares in the distribution of assets, the holders of Series A preferred stock shall be entitled
to receive out of our assets legally available for distribution to stockholders, liquidating distributions in the amount of the
liquidation preference, or $25.00 per share, plus an amount equal to all dividends (whether or not declared) accrued and unpaid
to, but not including, the payment date. After payment of the full amount of the liquidating distributions to which they are entitled,
the holders of Series A preferred stock will have no right or claim to any of our remaining assets. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay the amount of
the liquidating distributions on all outstanding Series A preferred stock and the corresponding amounts payable on all senior shares
and parity shares, then after payment of the liquidating distribution on all outstanding senior shares, the holders of the Series
A preferred stock and all other such classes or series of parity shares shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. For such purposes,
the consolidation or merger of us with or into any other entity, or the sale, lease or conveyance of all or substantially all of
our property or business, or a statutory share exchange shall not be deemed to constitute a voluntary or involuntary liquidation,
dissolution or winding up of us.
The amended and restated certificate of designation
for the Series A preferred stock does not contain any provision requiring funds to be set aside to protect the liquidation preference
of the Series A preferred stock.
Redemption
Optional Redemption
We may not redeem the Series A preferred stock
prior to June 16, 2017, except pursuant to the special redemption upon a Change in Control discussed below. On or after June 16,
2017, we, at our option, upon not less than 30 nor more than 90 days’ written notice, may redeem the Series A preferred stock,
in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and
unpaid dividends to, but not including, the date fixed for redemption, without interest.
Special Redemption Upon Change of Control
Upon the occurrence of a Change of Control,
we will have the option upon written notice mailed by us, not less than 30 nor more than 90 days prior to the redemption date and
addressed to the holders of record of the Series A preferred stock to be redeemed, to redeem the Series A preferred stock, in whole
or in part within 120 days after the first date on which such Change of Control occurred, for cash at the following price:
Redemption Date | |
Redemption Price per share(1) | |
On or before June 15, 2015 | |
$ | 25.75 | |
After June 15, 2015 and on or before June 16, 2016 | |
$ | 25.50 | |
After June 16, 2016 and on or before June 15, 2017 | |
$ | 25.25 | |
After June 16, 2017 | |
$ | 25.00 | |
| (1) | plus accrued and unpaid dividends (whether or not declared) to, but not including, the redemption date |
A "Change of Control" shall be deemed
to have occurred on the date (i) that a "person," "group" or "entity" (within the meaning of Sections
13(d) and 14(d) of the Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person or group shall be deemed to have beneficial ownership of all shares of voting stock that
such person or group has the right to acquire regardless of when such right is first exercisable), directly or indirectly, of voting
stock representing more than 50% of the total voting power of our total voting stock; (ii) that we sell, transfer, or otherwise
dispose of all or substantially all of our assets; or (iii) of the consummation of a merger or share exchange of us with another
entity where our stockholders immediately prior to the merger or share exchange would not beneficially own, immediately after the
merger or share exchange, securities representing 50% or more of the outstanding voting stock of the entity issuing cash or securities
in the merger or share exchange (without consideration of the rights of any class of stock to elect directors by a separate group
vote), or where members of our board of directors immediately prior to the merger or share exchange would not, immediately after
the merger or share exchange, constitute a majority of the board of directors of the entity issuing cash or securities in the merger
or share exchange. For purposes of determining whether a “Change of Control” has occurred, any “group”
that exists on the issuance date of the Series A preferred stock offered hereby shall be disregarded.
General Provisions
Unless full cumulative dividends on all Series
A preferred stock and all parity shares shall have been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for all past dividend periods and the then current dividend period, no Series A preferred
stock or parity shares shall be redeemed unless all outstanding Series A preferred stock and parity shares are simultaneously redeemed.
Furthermore, unless full cumulative dividends on all outstanding Series A preferred stock and parity shares have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods
and the then current dividend period, we shall not purchase or otherwise acquire directly or indirectly any Series A preferred
stock or parity shares; provided, however, that the foregoing shall not prevent the purchase or acquisition of Series A preferred
stock and parity shares pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding Series A
preferred stock and parity shares.
If fewer than all of the outstanding Series
A preferred stock is to be redeemed, the number of shares to be redeemed will be determined by us and such shares may be redeemed
pro rata from the holders of record of such shares in proportion to the number of such shares held by such holders (with adjustments
to avoid redemption of fractional shares) or by lot in an equitable manner determined by us.
From and after the redemption date (unless
we default in payment of the redemption price), all dividends will cease to accumulate on the Series A preferred stock, such shares
shall no longer be deemed to be outstanding, and all of your rights as a holder of shares of Series A preferred stock will terminate
with respect to such shares, except the right to receive the redemption price and all accrued and unpaid dividends up to the redemption
date.
Procedures
Notice of redemption will be mailed at least
30 days but not more than 90 days before the redemption date to each holder of record of Series A preferred stock at the address
shown on our share transfer books. Each notice shall state:
| · | the redemption price per share of Series A preferred stock, plus any accrued and unpaid dividends to, but not including, the
date of redemption, |
| · | the number of shares of Series A preferred stock to be redeemed, |
| · | the place or places where any certificates issued for Series A preferred stock other than through the DTC book entry described
below, are to be surrendered for payment of the redemption price, |
| · | that dividends on the Series A preferred stock will cease to accrue on such redemption date, |
| · | that the shares of Series A preferred stock are being redeemed pursuant to our redemption right, and |
| · | any other information required by law or by the applicable rules of any exchange upon which the Series A preferred stock may
be listed or admitted for trading. |
If fewer than all outstanding shares of Series
A preferred stock is to be redeemed, the notice mailed to each such holder thereof shall also specify the number of shares of Series
A preferred stock to be redeemed from each such holder.
Upon issuing a notice of redemption, we shall
deposit with our registrar and transfer agent the redemption price (including accrued and unpaid dividends) and give the registrar
and transfer agent irrevocable instructions and authority to pay such amount to any holder of the Series A preferred stock properly
redeeming its shares. For any Series A preferred stock held through DTC book entry, on or prior to the redemption date, the registrar
and transfer agent shall deposit the redemption price (including accrued and unpaid dividends) of the Series A preferred stock
so called for redemption with DTC in trust for the nominee holders thereof. Any interest or other earnings earned on the redemption
price (including all accrued and unpaid dividends) deposited with a bank or trust company will be paid to us. Any monies so deposited
that remain unclaimed by the holders of the Series A preferred stock at the end of two years after the redemption date will be
returned to us by the registrar and transfer agent.
After the redemption date, the redeemed shares
of the Series A preferred stock shall not be considered outstanding for purposes of voting or determining shares entitled to vote
on any matter on or after the redemption date.
On or after the redemption date, each holder
of shares of Series A preferred stock that holds a certificate other than through the DTC book entry described below must present
and surrender each certificate representing its Series A preferred stock to us at the place designated in the applicable notice
and thereupon the redemption price of such shares will be paid to or on the order of the person whose name appears on such certificate
representing the Series A preferred stock as the owner thereof, each surrendered certificate will be canceled and the shares will
be retired and restored to the status of undesignated, authorized shares of preferred stock.
If we redeem any shares of Series A preferred
stock and if the redemption date occurs after a dividend record date and on or prior to the related dividend payment date, the
dividend payable on such dividend payment date with respect to such shares called for redemption shall be payable on such dividend
payment date to the holders of record at the close of business on such dividend record date, and shall not be payable as part of
the redemption price for such shares.
Voting Rights
If and whenever a dividend default or listing
default has occurred, the number of directors then constituting our board of directors will increase by two, and the holders of
Series A preferred stock, voting together as a class with the holders of any other parity shares upon which like voting rights
have been conferred (any such other series, being “voting preferred shares”), will have the right to elect two additional
directors to serve on our board of directors at any meeting of stockholders called for the purpose of electing directors until
such dividend default or listing default has been cured. The term of office of all directors so elected will terminate with the
termination of such voting rights, provided however that such voting rights shall be reinstated upon any subsequent dividend default
or listing default.
The approval of holders of two-thirds of the
outstanding Series A preferred stock, voting as a separate class, is required in order to:
| · | amend our articles of incorporation if such amendment materially and adversely affects the rights, preferences or voting power
of the holders of the Series A preferred stock, provided that an increase of the authorized number of preferred stock shall be
deemed to not adversely affect the rights, preferences or voting power of the holders of Series A preferred stock; |
| · | create or issue any class or series of parity shares or senior shares. |
Except as provided above, the holders of Series
A preferred stock are not entitled to vote.
Book-Entry Procedures
The Depository Trust Company & Clearing
Corporation, which we refer to as DTC, will act as securities depositary for the Series A preferred stock. We will issue one or
more fully registered global securities certificates in the name of DTC’s nominee, Cede & Co. These certificates
will represent the total aggregate number of shares of Series A preferred stock. We will deposit these certificates with DTC or
a custodian appointed by DTC. We will not issue certificates to you for the Series A preferred stock that you purchase, unless
DTC’s services are discontinued as described below.
Title to book-entry interests in the Series
A preferred stock will pass by book-entry registration of the transfer within the records of DTC, as the case may be, in accordance
with their respective procedures. Book-entry interests in the securities may be transferred within DTC in accordance with procedures
established for these purposes by DTC.
Each person owning a beneficial interest in
the Series A preferred stock must rely on the procedures of DTC and the participant through which such person owns its interest
to exercise its rights as a holder of the Series A preferred stock.
DTC has advised us that it is a limited-purpose
trust company organized under the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation”
within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered under the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants, referred to as “Direct Participants”,
deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants’ accounts, thereby
eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants
and by the New York Stock Exchange, Inc., the NYSE Amex, and the Financial Industry Regulatory Authority, Inc. Access to the DTC
system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain
a custodial relationship with a Direct Participant, either directly or indirectly, referred to as “Indirect Participants.”
The rules applicable to DTC and its Direct and Indirect Participants are on file with the SEC.
When you purchase the Series A preferred stock
within the DTC system, the purchase must be made by or through a Direct Participant. The Direct Participant will receive a credit
for the Series A preferred stock on DTC’s records. You, as the actual owner of the Series A preferred stock, are the “beneficial
owner.” Your beneficial ownership interest will be recorded on the Direct and Indirect Participants’ records, but DTC
will have no knowledge of your individual ownership. DTC’s records reflect only the identity of the Direct Participants to
whose accounts Series A preferred stock is credited.
You will not receive written confirmation from
DTC of your purchase. The Direct or Indirect Participants through whom you purchased the Series A preferred stock should send you
written confirmations providing details of your transactions, as well as periodic statements of your holdings. The Direct and Indirect
Participants are responsible for keeping an accurate account of the holdings of their customers like you.
Transfers of ownership interests held through
Direct and Indirect Participants will be accomplished by entries on the books of Direct and Indirect Participants acting on behalf
of the beneficial owners.
The laws of some states may require that specified
purchasers of securities take physical delivery of the Series A preferred stock in definitive form. These laws may impair the ability
to transfer beneficial interests in the global certificates representing the Series A preferred stock.
Conveyance of notices and other communications
by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants
to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be
in effect from time to time.
We understand that, under DTC’s existing
practices, in the event that we request any action of holders, or an owner of a beneficial interest in a global security such as
you desires to take any action which a holder is entitled to take under our articles of incorporation, as amended or supplemented,
DTC would authorize the Direct Participants holding the relevant shares to take such action, and those Direct Participants and
any Indirect Participants would authorize beneficial owners owning through those Direct and Indirect Participants to take such
action or would otherwise act upon the instructions of beneficial owners owning through them.
Redemption notices will be sent to Cede &
Co. If less than all of the outstanding shares of Series A preferred stock are being redeemed, DTC will reduce each Direct Participant’s
holdings of Series A preferred stock in accordance with its procedures.
In those instances where a vote is required,
neither DTC nor Cede & Co. itself will consent or vote with respect to the Series A preferred stock. Under its usual procedures,
DTC would mail an omnibus proxy to us as soon as possible after the record date. The omnibus proxy assigns Cede & Co.’s
consenting or voting rights to those Direct Participants to whose accounts the Series A preferred stock is credited on the record
date, which are identified in a listing attached to the omnibus proxy.
Dividends on the Series A preferred stock will
be made directly to DTC. DTC’s practice is to credit participants’ accounts on the relevant payment date in accordance
with their respective holdings shown on DTC’s records unless DTC has reason to believe that it will not receive payment on
that payment date.
Payments by Direct and Indirect Participants
to beneficial owners such as you will be governed by standing instructions and customary practices, as is the case with securities
held for the accounts of customers in bearer form or registered in “street name.” These payments will be the responsibility
of the participant and not of DTC, us or any agent of ours.
DTC may discontinue providing its services
as securities depositary with respect to the Series A preferred stock at any time by giving reasonable notice to us. Additionally,
we may decide to discontinue the book-entry only system of transfers with respect to the Series A preferred stock. In that event,
we will print and deliver certificates in fully registered form for the Series A preferred stock. If DTC notifies us that it is
unwilling to continue as securities depositary, or if it is unable to continue or ceases to be a clearing agency registered under
the Exchange Act and a successor depositary is not appointed by us within 90 days after receiving such notice or becoming aware
that DTC is no longer so registered, we will issue the Series A preferred stock in definitive form, at our expense, upon registration
of transfer of, or in exchange for, such global security.
According to DTC, the foregoing information
with respect to DTC has been provided to the financial community for informational purposes only and is not intended to serve as
a representation, warranty or contract modification of any kind.
Initial settlement for the Series A preferred
stock will be made in immediately available funds. Secondary market trading between DTC’s participants will occur in the
ordinary way in accordance with DTC’s rules and will be settled in immediately available funds using DTC’s Same-Day
Funds Settlement System.
MATERIAL U.S.
FEDERAL INCOME TAX CONSEQUENCES
Subject to the assumptions, qualifications,
and limitations set forth below, the following is the opinion of Reicker, Pfau, Pyle & McRoy LLP, counsel to EnerJex, with
respect to the material U.S. federal income tax consequences to “U.S. holders” and “Non-U.S. holders” (each
as defined below) of the purchase, ownership and disposition of Series A preferred stock offered by the selling stockholders under
this prospectus. Counsel’s opinions are limited to statements of U.S. federal income tax law and regulations and legal conclusions
with respect thereto.
This discussion is based upon provisions of
the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations, rulings and judicial decisions as
of the date hereof. These authorities may change, perhaps retroactively, which could result in U.S. federal income tax consequences
different from those summarized below. This discussion only applies to purchasers who purchase and hold the Series A preferred
stock as capital assets within the meaning of Section 1221 of the Code (generally property held for investment). This discussion
does not address all aspects of U.S. federal income taxation (such as the alternative minimum tax) and does not describe any foreign,
state, local or other tax considerations that may be relevant to a purchaser or holder of Series A preferred stock in light of
their particular circumstances. In addition, this discussion does not describe the U.S. federal income tax consequences applicable
to a purchaser or holder of Series A preferred stock who is subject to special treatment under U.S. federal income tax laws (including,
a corporation that accumulates earnings to avoid U.S. federal income tax, a pass-through entity or an investor in a pass-through
entity, a tax-exempt entity, pension or other employee benefit plans, financial institutions or broker-dealers, persons holding
Series A preferred stock as part of a hedging or conversion transaction or straddle, a person subject to the alternative minimum
tax, an insurance company, former U.S. citizens, or former long-term U.S. residents). We cannot assure you that a change in law
will not significantly alter the tax considerations that we describe in this discussion. Counsel’s opinions are an expression
of professional judgment and are not a guarantee of a result and are not binding on the Internal Revenue Service or the courts.
Accordingly, no assurance can be given that counsel’s opinions set forth herein will be sustained if challenged by the Internal
Revenue Service.
If a partnership (or any other entity treated
as a partnership for U.S. federal income tax purposes) holds Series A preferred stock, the U.S. federal income tax treatment of
a partner of that partnership generally will depend upon the status of the partner and the activities of the partnership. If you
are a partnership or a partner of a partnership holding our Series A preferred stock, you should consult your tax advisors as to
the particular U.S. federal income tax consequences of holding and disposing of our Series A preferred stock.
THIS DISCUSSION CANNOT BE USED BY ANY HOLDER
FOR THE PURPOSE OF AVOIDING TAX PENALTIES THAT MAY BE IMPOSED ON SUCH HOLDER. IF YOU ARE CONSIDERING THE PURCHASE OF OUR SERIES
A PREFERRED STOCK, YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF PURCHASING,
OWNING AND DISPOSING OF OUR SERIES A PREFERRED STOCK IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES AND ANY CONSEQUENCES ARISING UNDER
OTHER FEDERAL TAX LAW AND THE LAWS OF APPLICABLE STATE, LOCAL AND FOREIGN TAXING JURISDICTIONS. YOU SHOULD ALSO CONSULT WITH YOUR
TAX ADVISORS CONCERNING ANY POSSIBLE ENACTMENT OF LEGISLATION THAT WOULD AFFECT YOUR INVESTMENT IN OUR SERIES A PREFERRED STOCK
IN YOUR PARTICULAR CIRCUMSTANCES.
U.S. holders:
You are a “U.S. holder” if you
are a beneficial owner of Series A Preferred stock and you are for U.S. federal income tax purposes:
| · | an individual citizen or resident of the United States; |
| · | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under
the laws of the United States, any state thereof or the District of Columbia; |
| · | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| · | a trust if it (a) is subject to the primary supervision of a court within the United States and one or more United States persons
have the authority to control all substantial decisions of the trust or (b) has a valid election in effect under applicable United
States Treasury regulations to be treated as a United States person. |
Distributions in General. If distributions
are made with respect to our Series A preferred stock (whether in cash or our common stock), such distributions will be treated
as dividends to the extent of our current and accumulated earnings and profits as determined under the Code. Any portion of a distribution
that exceeds our current and accumulated earnings and profits will first be applied to reduce a U.S. holder’s tax basis in
the Series A preferred stock on a share-by-share basis, and the excess will be treated as gain from the disposition of the Series
A preferred stock, the tax treatment of which is discussed below under “Material U.S. Federal Income Tax Consequences—U.S.
holders: Disposition of Series A preferred stock, Including Redemptions.”
Dividends received by individual U.S. holders
of Series A preferred stock will be subject to a reduced maximum tax rate of 20% if such dividends are treated as “qualified
dividend income” for U.S. federal income tax purposes. The rate reduction does not apply to dividends received to the extent
that the individual U.S. holder elects to treat the dividends as “investment income,” which may be offset against
investment expenses. Furthermore, the rate reduction does not apply to dividends that are paid to individual U.S. holders with
respect to the Series A preferred stock that is held for 60 days or less during the 121-day period beginning on the date which
is 60 days before the date on which the Series A preferred stock becomes ex-dividend. Also, if a dividend received by an individual
U.S. holder that qualifies for the rate reduction is an “extraordinary dividend” within the meaning of Section 1059
of the Code, any loss recognized by such individual U.S. holder on a subsequent disposition of the stock will be treated as long-term
capital loss to the extent of such “extraordinary dividend,” irrespective of such U.S. holder’s holding period
for the stock. In addition, under the Patient Protection and 2010 Reconciliation Act (the “2010 Reconciliation Act”),
dividends recognized after December 31, 2013, by U.S. holders that are individuals could be subject to the 3.8% tax on net
investment income. Individual U.S. holders should consult their own tax advisors regarding the implications of these rules in
light of their particular circumstances.
Dividends received by corporations generally
will be eligible for the dividends-received deduction. This deduction is allowed if the underlying stock is held for at least days
during the 91 day period beginning on the date 45 days before the ex-dividend date of the stock, and for cumulative preferred stock
with an arrearage of dividends, the holding period is at least 91 days during the 181 day period beginning on the date 90 days
before the ex-dividend date of the stock. If a corporate stockholder receives a dividend on the Series A preferred stock that is
an “extraordinary dividend” within the meaning of Section 1059 of the Code, the corporate stockholder in certain
instances must reduce its basis in the Series A preferred stock by the amount of the “nontaxed portion” of such “extraordinary
dividend” that results from the application of the dividends-received deduction. If the “nontaxed portion” of
such “extraordinary dividend” exceeds such corporate stockholder’s basis, any excess will be taxed as gain as
if such stockholder had disposed of its shares in the year the “extraordinary dividend” is paid. Each domestic corporate
holder of Series A preferred stock is urged to consult with its tax advisors with respect to the eligibility for and amount of
any dividends received deduction and the application of Section 1059 of the Code to any dividends it receives.
Constructive Distributions on Series
A Preferred Stock; EnerJex's Call Option. A distribution by a corporation of its stock deemed made with respect to its preferred
stock is treated as a distribution of property to which Section 301 of the Code applies. If a corporation issues preferred
stock that may be redeemed at a price higher than its issue price, the excess (a “redemption premium”) is treated under
certain circumstances as a constructive distribution (or series of constructive distributions) of additional preferred stock.
The constructive distribution of property
equal to the redemption premium would accrue without regard to the U.S. holder’s method of accounting for U.S. federal income
tax purposes at a constant yield determined under principles similar to the determination of original issue discount (“OID”)
under Treasury regulations under Sections 1271 through 1275 of the Code (the “OID Rules”). The constructive distributions
of property would be treated for U.S. federal income tax purposes as actual distributions of Series A preferred stock that would
constitute a dividend, return of capital or capital gain to the U.S. holder of the stock in the same manner as cash distributions
described under the heading “Material U.S. Federal Income Tax Consequences—U.S. holders: Distributions in General.”
The application of principles similar to those applicable to debt instruments with OID to a redemption premium for the Series A
preferred stock is uncertain.
The Company has the right to call the
Series A preferred stock for redemption on or after June 16, 2017 (the “call option”). The stated redemption price
of the Series A preferred stock upon the Company’s exercise of the call option is equal to the liquidation preference of
the Series A preferred stock (i.e., $25, plus accrued and unpaid dividends) and is payable in cash.
If the redemption price of the Series
A preferred stock exceeds the issue price of the Series A preferred stock upon the exercise of the call option, the excess will
be treated as a redemption premium that may result in certain circumstances in a constructive distribution or series of constructive
distributions to U.S. holders of additional Series A preferred stock. The redemption price for the Series A preferred stock should
be the liquidation preference of the Series A preferred stock (i.e., $25, plus accrued and unpaid dividends). Assuming that the
issue price of the Series A preferred stock is determined under principles similar to the OID Rules, the issue price for the Series
A preferred stock should be the initial offering price at which a substantial amount of the Series A preferred stock is sold.
A redemption premium for the Series A
preferred stock should not result in constructive distributions to U.S. holders of the Series A preferred stock if the redemption
premium is less than a de minimis amount as determined under principles similar to the OID Rules. A redemption premium for the
Series A preferred stock should be considered de minimis if such premium is less than 0.25% of the Series A preferred stock’s
liquidation value of $25 at maturity, multiplied by the number of complete years to maturity. Because the determination under the
OID Rules of a maturity date for the Series A preferred stock is unclear, the remainder of this discussion assumes that the Series
A preferred stock is issued with a redemption premium greater than a de minimis amount.
In addition, our call option should not
require constructive distributions of the redemption premium if, based on all of the facts and circumstances as of the issue date,
the redemption pursuant to the Company’s call option is not more likely than not to occur. The Treasury regulations provide
that an issuer’s right to redeem will not be treated as more likely than not to occur if: (i) the issuer and the holder
of the stock are not related within the meaning of Section 267(b) or Section 707(b) of the Code (substituting “20%”
for the phrase “50%”); (ii) there are no plans, arrangements, or agreements that effectively require or are intended
to compel the issuer to redeem the stock; and (iii) exercise of the right to redeem would not reduce the yield on the stock
determined using principles applicable to the determination of OID under the OID rules. The fact that a redemption right is not
described in the preceding sentence does not mean that an issuer’s right to redeem is more likely than not to occur and the
issuer’s right to redeem must still be tested under all the facts and circumstances to determine if it is more likely than
not to occur. The Company believes that its right to redeem the Series A preferred stock should not be treated as more likely than
not to occur under the foregoing test. Accordingly, no U.S. holder of Series A preferred stock should be required to recognize
constructive distributions of the redemption premium because of the Company’s call option.
Disposition of Series A Preferred Stock,
Including Redemptions. Upon any sale, exchange, redemption (except as discussed below), or other disposition of the Series
A preferred stock, a U.S. holder will recognize capital gain or loss equal to the difference between the amount realized by the
U.S. holder and the U.S. holder’s adjusted tax basis in the Series A preferred stock. Such capital gain or loss will be long-term
capital gain or loss if the U.S. holder’s holding period for the Series A preferred stock is longer than one year. A U.S.
holder should consult its own tax advisors with respect to applicable tax rates and netting rules for capital gains and losses.
Certain limitations exist on the deduction of capital losses by both corporate and non-corporate taxpayers. In addition, under
the 2010 Reconciliation Act, gains recognized after December 31, 2013, by U.S. holders that are individuals could be subject to
the 3.8% tax on net investment income.
A redemption of shares of the Series A
preferred stock will generally be a taxable event. If the redemption is treated as a sale or exchange, instead of a dividend, a
U.S. holder will recognize capital gain or loss (which will be long-term capital gain or loss, if the U.S. holder’s holding
period for such Series A preferred stock exceeds one year), equal to the difference between the amount realized by the U.S. holder
and the U.S. holder’s adjusted tax basis in the Series A preferred stock redeemed, except to the extent that any cash or
the Company’s common stock or Series A preferred stock received is attributable to any accrued but unpaid dividends on the
Series A preferred stock, which will be subject to the rules discussed above in “Material U.S. Federal Income Tax Consequences—U.S.
holders: Distributions in General.” A payment made in redemption of Series A preferred stock may be treated as a dividend,
rather than as payment in exchange for the Series A preferred stock, unless the redemption:
| · | is “not essentially equivalent to a dividend” with respect to a U.S. holder under Section 302(b)(1) of the Code; |
| · | is a “substantially disproportionate” redemption with respect to a U.S. holder under Section 302(b)(2) of the Code; |
| · | results in a “complete redemption” of a U.S. holder’s stock interest in the Company under Section 302(b)(3)
of the Code; or |
| · | is a redemption of stock held by a non-corporate U.S. holder, which results in a partial liquidation of the Company under Section
302(b)(4) of the Code. |
In determining whether any of these tests
has been met, a U.S. holder must take into account not only shares of Series A preferred stock and our common stock or any other
stock that the U.S. holder actually owns, but also shares that the U.S. holder constructively owns within the meaning of Section 318
of the Code.
A redemption payment will be treated as
“not essentially equivalent to a dividend” if it results in a “meaningful reduction” in a U.S. holder’s
aggregate stock interest in the Company, which will depend on the U.S. holder’s particular facts and circumstances at such
time. If the redemption payment is treated as a dividend, the rules discussed above in “Material U.S. Federal Income Tax
Consequences—U.S. holders: Distributions in General” apply.
Satisfaction of the “complete redemption”
and “substantially disproportionate” exceptions is dependent upon compliance with the objective tests set forth in
Section 302(b)(3) and Section 302(b)(2) of the Code, respectively. A redemption will result in a “complete redemption”
if either all of the shares of our stock actually and constructively owned by a U.S. holder is exchanged in the redemption or all
of the shares of our stock actually owned by the U.S. holder is exchanged in the redemption and the U.S. holder is eligible to
waive, and the U.S. holder effectively waives, the attribution of shares of our stock constructively owned by the U.S. holder in
accordance with the procedures described in Section 302(c)(2) of Code. A redemption does not qualify for the “substantially
disproportionate” exception if the stock redeemed is only non-voting stock, and for this purpose, stock which does not have
voting rights until the occurrence of an event is not voting stock until the occurrence of the specified event. Accordingly, any
redemption of Series A preferred stock generally will not qualify for this exception because the voting rights are limited as provided
in the “Description of Our Series A Preferred Stock—Voting Rights.”
For purposes of the “redemption
from non-corporate U.S. holders in a partial liquidation” test, a distribution will be treated as in partial liquidation
of a corporation if the distribution is not essentially equivalent to a dividend (determined at the corporate level rather than
the stockholder level) and the distribution is pursuant to a plan and occurs within the taxable year in which the plan was adopted
or within the succeeding taxable year. For these purposes, a distribution is generally not essentially equivalent to a dividend
if the distribution results in a corporate contraction. The determination of what constitutes a corporate contraction is factual
in nature, and had been interpreted under case law to include the termination of a business or line of business.
Each U.S. holder of Series A preferred
stock should consult its own tax advisors to determine whether a payment made in redemption of Series A preferred stock will be
treated as a dividend or a payment in exchange for the Series A preferred stock. If the redemption payment is treated as a dividend,
the rules discussed above in “Material U.S. Federal Income Tax Consequences—U.S. holders: Distributions in General”
apply.
Under proposed Treasury regulations, if
any amount received by a U.S. holder in redemption of Series A preferred stock is treated as a distribution with respect to such
U.S. holder’s Series A preferred stock, but not as a dividend, such amount will be allocated to all shares of Series A preferred
stock held by such U.S. holder immediately before the redemption on a pro-rata basis. The amount applied to each share will reduce
such U.S. holder’s adjusted tax basis in that share and any excess after the basis is reduced to zero will result in taxable
gain. If such U.S. holder has different bases in shares of Series A preferred stock, then the amount allocated could reduce a portion
of the basis in certain shares while reducing all of the basis, and giving rise to taxable gain, in other shares. Thus, such U.S.
holder could have gain even if such U.S. holder’s aggregate adjusted tax basis in all shares of Series A preferred stock
held exceeds the aggregate amount of such distribution.
The proposed Treasury regulations permit
the transfer of basis in the redeemed shares of the Series A preferred stock to the U.S. holder’s remaining, unredeemed Series
A Preferred stock (if any), but not to any other class of stock held, directly or indirectly, by the U.S. holder. Any unrecovered
basis in the Series A preferred stock would be treated as a deferred loss to be recognized when certain conditions are satisfied.
The proposed Treasury regulations would be effective for transactions that occur after the date the regulations are published as
final Treasury regulations. There can, however, be no assurance as to whether, when and in what particular form such proposed Treasury
regulations are ultimately finalized.
Information Reporting and Backup Withholding.
Information reporting and backup withholding may apply with respect to payments of dividends on the Series A preferred stock and
to certain payments of proceeds on the sale or other disposition of Series A preferred stock. Certain non-corporate U.S. holders
may be subject to U.S. backup withholding (currently at a rate of 28%) on payments of dividends on the Series A preferred stock
and certain payments of proceeds on the sale or other disposition of our Series A preferred stock unless the beneficial owner thereof
furnishes the payor or its agent with a taxpayer identification number, certified under penalties of perjury, and certain other
information, or otherwise establishes, in the manner prescribed by law, an exemption from backup withholding.
U.S. backup withholding tax is not an
additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder’s
U.S. federal income tax liability, which may entitle the U.S. holder to a refund, provided the U.S. holder timely furnishes the
required information to the Internal Revenue Service.
Non-U.S. holders:
You are a “Non-U.S. holder”
if you are a beneficial owner of Series A preferred stock and you are not a “U.S. holder.”
Distributions on the Series A Preferred
Stock. If distributions (whether in cash or our common stock or Series A preferred stock including constructive distributions
as discussed under the heading “Material U.S. Federal Income Tax Consequences—U.S. holders: Distributions of Additional
Shares of Common Stock or Series A preferred stock”) are made with respect to our Series A preferred stock, such distributions
will be treated as dividends to the extent of our current and accumulated earnings and profits as determined under the Code and
may be subject to withholding as discussed below. Any portion of a distribution that exceeds our current and accumulated earnings
and profits will first be applied to reduce the Non-U.S. holder’s basis in the Series A preferred stock and, to the extent
such portion exceeds the Non-U.S. holder’s basis, the excess will be treated as gain from the disposition of the Series A
preferred stock, the tax treatment of which is discussed below under “Material U.S. Federal Income Tax Consequences—Non-U.S.
holders: Disposition of Series A preferred stock, Including Redemptions.” In addition, if we are a U.S. real property holding
corporation, i.e. a “USRPHC,” which we believe that we are currently, and any distribution exceeds our current and
accumulated earnings and profits, we will need to choose to satisfy our withholding requirements either by treating the entire
distribution as a dividend, subject to the withholding rules in the following paragraph (and withhold at a minimum rate of 10%
or such lower rate as may be specified by an applicable income tax treaty for distributions from a USRPHC), or by treating only
the amount of the distribution equal to our reasonable estimate of our current and accumulated earnings and profits as a dividend,
subject to the withholding rules in the following paragraph, with the excess portion of the distribution subject to withholding
at a rate of 10% or such lower rate as may be specified by an applicable income tax treaty as if such excess were the result of
a sale of shares in a USRPHC (discussed below under “Material U.S. Federal Income Tax Consequences—Non-U.S. holders:
Disposition of Series A Preferred Stock, Including Redemptions”), with a credit generally allowed against the Non-U.S. holder’s
U.S. federal income tax liability in an amount equal to the amount withheld from such excess.
Dividends paid to a Non-U.S. holder of
our Series A preferred stock will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade
or business by the Non-U.S. holder within the United States (and, where a tax treaty applies, are attributable to a permanent establishment
maintained by the Non-U.S. holder in the United States) are not subject to the withholding tax, provided certain certification
and disclosure requirements are satisfied including completing Internal Revenue Service Form W-8ECI (or other applicable form).
Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if the Non-U.S. holder
were a United States person as defined under the Code, unless an applicable income tax treaty provides otherwise. Any such effectively
connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
A Non-U.S. holder of our Series A preferred
stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends
will be required to (a) complete Internal Revenue Service Form W-8BEN (or other applicable form) and certify under penalties
of perjury that such Non-U.S. holder is not a United States person as defined under the Code and is eligible for treaty benefits,
or (b) if our Series A preferred stock is held through certain foreign intermediaries, satisfy the relevant certification
requirements of applicable Treasury regulations.
A Non-U.S. holder of our Series A preferred
stock eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts
withheld by timely filing an appropriate claim for refund with the Internal Revenue Service.
Stock Dividends in Lieu of Cash Dividends. Under
the terms of our Series A preferred stock, if we fail to pay the accrued cash dividends in full on the outstanding Series A preferred
stock for any six consecutive or non-consecutive monthly periods, or if we fail to maintain the listing of the Series A preferred
stock for trading upon the NYSE, NYSE MKT, or NASDAQ Stock Market (or any successor exchange to any of the foregoing) for any period
of 180 consecutive days, and if, during any period in which either such condition continues to exist, the dividends accruing on
the Series A preferred are not paid in cash, then dividends on the Series A preferred stock, including all accrued but unpaid dividends,
will be paid by issuing to the holders thereof (i) if our common stock is then listed on a national securities exchange and to
the extent permitted under the rules of the national exchange on which such shares are listed, shares of our common stock (based
on the weighted average daily trading price for the 10 business day period ending on the business day immediately preceding the
payment) and cash in lieu of any fractional share, or (ii) if our common stock is not listed on a national securities exchange,
additional shares of Series A preferred stock with a liquidation value equal to the amount of the dividend and cash in lieu of
any fractional share. Holders receiving any such distribution of shares of our common stock or Series A preferred stock in satisfaction
of any accrued dividends that are not paid in cash, would be subject to income tax by reason of the receipt of such shares of our
common stock or Series A preferred stock, as applicable, based upon the fair market value of such common stock or Series A preferred
stock as of the date of the distribution. Any such taxable distribution would be treated, for income tax purposes, (i) first, as
a taxable dividend, to the extent of our current and accumulated earnings and profits, (ii) second, as a return of the holder's
basis in the holder's shares of Series A preferred stock, and (iii) thereafter, as capital gain.
Disposition of Series A Preferred Stock,
Including Redemptions. Any gain realized by a Non-U.S. holder on the disposition of our Series A preferred stock will not be
subject to U.S. federal income or withholding tax unless:
| · | the gain is effectively connected with a trade or business of the Non-U.S. holder in the United States (and, if required by
an applicable income tax treaty, is attributable to a permanent establishment maintained by the Non-U.S. holder in the United States); |
| · | the Non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition,
and certain other conditions are met; or |
| · | we are or have been a USRPHC for U.S. federal income tax purposes, as such term is defined in Section 897(c) of the Code, and
such Non-U.S. holder owned beneficially (directly or pursuant to attribution rules) more than 5% of the total fair market value
of our Series A preferred stock at any time during the five year period ending either on the date of disposition of such interest
or other applicable determination date. This assumes that our Series A preferred stock is regularly traded on an established securities
market, within the meaning of Section 897(c)(3) of the Code. We believe we are currently a USRPHC and that our Series A preferred
stock will be regularly traded on an established securities market though no assurances can be made this will be the case in the
future. |
A Non-U.S. holder described in the first
bullet point immediately above will generally be subject to tax on the net gain derived from the sale under regular graduated U.S.
federal income tax rates in the same manner as if the Non-U.S. holder were a United States person as defined under the Code, and
if the Non-U.S. holder is a corporation, may also be subject to the branch profits tax equal to 30% of its effectively connected
earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. An individual Non-U.S. holder
described in the second bullet point immediately above will be subject to a flat 30% tax (or at such reduced rate as may be provided
by an applicable treaty) on the gain derived from the sale, which may be offset by U.S. source capital losses, even though the
individual is not considered a resident of the United States. A Non-U.S. holder described in the third bullet point above will
be subject to U.S. federal income tax under regular graduated U.S. federal income tax rates with respect to the gain recognized
in the same manner as if the Non-U.S. holder were a United States person as defined under the Code.
If a Non-U.S. holder is subject to U.S.
federal income tax on any sale, exchange, redemption (except as discussed below), or other disposition of the Series A preferred
stock, such Non-U.S. holder will recognize capital gain or loss equal to the difference between the amount realized by the Non-U.S.
holder and the Non-U.S. holder’s adjusted tax basis in the Series A preferred stock. Such capital gain or loss will be long-term
capital gain or loss if the Non-U.S. holder’s holding period for the Series A preferred stock is longer than one year. A
Non-U.S. holder should consult its own tax advisors with respect to applicable tax rates and netting rules for capital gains and
losses. Certain limitations exist on the deduction of capital losses by both corporate and non-corporate taxpayers.
If a Non-U.S. holder is subject to U.S.
federal income tax on any disposition of the Series A preferred stock, a redemption of shares of the Series A preferred stock will
be a taxable event. If the redemption is treated as a sale or exchange, instead of a dividend, a Non-U.S. holder generally will
recognize long-term capital gain or loss, if the Non-U.S. holder’s holding period for such Series A preferred stock exceeds
one year, equal to the difference between the amount of cash received and fair market value of property received and the Non-U.S.
holder’s adjusted tax basis in the Series A preferred stock redeemed, except that to the extent that any cash received is
attributable to any accrued but unpaid dividends on the Series A preferred stock, which generally will be subject to the rules
discussed above in “Material U.S. Federal Income Tax Consequences—Non-U.S. holders: Distributions on the Series A Preferred
Stock.” A payment made in redemption of Series A preferred stock may be treated as a dividend, rather than as payment in
exchange for the Series A preferred stock, in the same circumstances discussed above under “Material U.S. Federal Income
Tax Consequences—U.S. holders: Disposition of Series A Preferred Stock, Including Redemptions.” Each Non-U.S. holder
of Series A preferred stock should consult its own tax advisors to determine whether a payment made in redemption of Series A preferred
stock will be treated as a dividend or as payment in exchange for the Series A preferred stock.
Information Reporting and Backup Withholding.
We must report annually to the Internal Revenue Service and to each Non-U.S. holder the amount of dividends paid to such Non-U.S.
holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information
returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the
Non-U.S. holder resides under the provisions of an applicable income tax treaty.
A Non-U.S. holder will not be subject
to backup withholding on dividends paid to such Non-U.S. holder as long as such Non-U.S. holder certifies under penalties of perjury
that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason to know that such Non-U.S. holder is a United
States person as defined under the Code), or such Non-U.S. holder otherwise establishes an exemption.
Depending on the circumstances, information
reporting and backup withholding may apply to the proceeds received from a sale or other disposition of our Series A preferred
stock unless the beneficial owner certifies under penalties of perjury that it is a Non-U.S. holder (and the payor does not have
actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner
otherwise establishes an exemption.
U.S. backup withholding tax is not an
additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S.
holder’s U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue
Service.
Recently Enacted Legislation Relating
to Foreign Accounts. Recently enacted legislation (“FATCA”) will generally impose a 30% withholding tax on dividends
on Series A preferred stock and the gross proceeds of a disposition of Series A preferred stock that are paid to: (i) a foreign
financial institution (as that term is defined in Section 1471(d)(4) of the Code and the Treasury regulations thereunder)
unless that foreign financial institution enters into an agreement with the U.S. Treasury Department to collect and disclose information
regarding U.S. account holders of that foreign financial institution (including certain account holders that are foreign entities
that have U.S. owners) and satisfies other requirements, or is otherwise exempt from FATCA withholding; and (ii) a “non-financial
foreign entity” (as that term is defined in Section 1472(d) of the Code and the Treasury regulations thereunder) unless
such entity certifies that it does not have any substantial U.S. owners or provides the name, address and taxpayer identification
number of each substantial U.S. owner and such entity satisfies other specified requirements, or otherwise is exempt from FATCA
withholding. A Non-U.S. holder should consult its own tax advisors regarding the application of this legislation to it. According
to recently issued guidance from the Internal Revenue Service, FATCA withholding will apply to dividends paid on shares of our
Series A preferred stock starting January 1, 2014, and to gross proceeds from the disposition of shares of our Series A preferred
stock starting January 1, 2017.
LEGAL MATTERS
The validity of the securities offered
hereby will be passed upon for us by Reicker, Pfau, Pyle & McRoy LLP, Santa Barbara, California. The placement agent has
been represented in connection with this offering by Faegre Baker Daniels LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements included
in our annual report on Form 10-K for the years ended December 31, 2014 and 2013 and incorporated into this prospectus
by reference have been audited by RBSM, LLP and L.L. Bradford & Company, LLC, respectively, independent registered public accounting
firms, to the extent and for the period set forth in their report and are incorporated in this prospectus by reference in reliance
upon such report given upon the authority of them as experts in auditing and accounting.
PROSPECTUS
![](tlogo.jpg)
$50,000,000
Common Stock
Preferred Stock
Warrants
Units
We may offer and sell from time to time
up to $50,000,000 of any combination of the securities identified above. This prospectus provides you with a general description
of the securities.
We may offer and sell the securities described
in this prospectus and any prospectus supplement to or through one or more underwriters, dealers and agents, or directly to purchasers,
or through a combination of these methods. If any underwriters, dealers or agents are involved in the sale of any of the securities,
their names and any applicable purchase price, fee, commission or discount arrangement between or among them will be set forth,
or will be calculable from the information set forth, in the applicable prospectus supplement. See the sections of this prospectus
entitled “About this Prospectus” and “Plan of Distribution” for more information. No securities may be
sold without delivery of this prospectus and the applicable prospectus supplement describing the method and terms of the offering
of such securities.
This prospectus describes some of the general
terms that may apply to these securities and the general manner in which they may be offered. Each time we sell securities we will
provide a prospectus supplement that will contain specific information about the terms of the securities we are offering and the
specific manner in which we will offer the securities. The prospectus supplement may add to, update or change the information in
this prospectus. You should read this prospectus and any prospectus supplement carefully before you invest in our securities. This
prospectus may not be used to sell securities unless accompanied by a prospectus supplement.
Investing in our securities involves
a high degree of risk. See "Risk Factors" beginning on page 7 of this prospectus for factors you should consider
before buying our securities.
Our common stock is listed on the NYSE under
the symbol "ENRJ," and our 10% Series A Cumulative Redeemable Perpetual Preferred Stock is listed under the symbol "ENRJPR."
On November 14, 2014, the last reported sale price of our common stock and Series A preferred stock on the NYSE was $4.25 and $23.70,
respectively.
As of November 14, 2014, the aggregate market
value of our outstanding common stock held by non-affiliates, or public float, was approximately $13,591,985, based on 7,643,114
shares of outstanding common stock, of which approximately 4,445,000 shares were held by affiliates, and a price of $4.25 per share,
which was the last reported sale price of our common stock on the NYSE on November 14, 2014. Pursuant to General Instruction I.B.6
of Form S-3, in no event will we sell securities registered on this registration statement in a public primary offering with
a value exceeding more than one-third of our public float in any 12-month period held by non-affiliates so long as our public float
remains below $75 million.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal offense.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration
statement that we filed with the SEC utilizing a shelf registration process. Under the shelf registration process, we may offer,
from time to time, the securities or combinations of the securities described in this prospectus with a total offering price of
up to $50,000,000. Pursuant to General Instruction I.B.6 of Form S-3, in no event will we sell securities registered
on this registration statement in a public primary offering with a value exceeding more than one-third of our public float in any
12-month period held by non-affiliates so long as our public float remains below $75 million.
This prospectus provides you with a general
description of the securities we may offer. Each time we offer a type or series of securities, we will provide a prospectus supplement
or free writing prospectus that will contain specific information about the terms of the offering.
A prospectus supplement or free writing
prospectus may include a discussion of risks or other special considerations applicable to us or the offered securities. A prospectus
supplement or free writing prospectus may also add, update or change information contained in this prospectus. If there is any
inconsistency between the information in this prospectus and any related prospectus supplement or free writing prospectus, you
must rely on the information in the prospectus supplement or free writing prospectus. Please carefully read both this prospectus
and the related prospectus supplement or free writing prospectus in their entirety together with additional information described
under the heading "Where You Can Find More Information" in this prospectus. This prospectus may not be used to offer
or sell any securities unless accompanied by a prospectus supplement or free writing prospectus.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we
file at the SEC's public reference room at 100 F Street, N.E., Washington, District of Columbia 20549. Please call the SEC
at 1-800-SEC-0330 for more information on the public reference room. Our SEC filings are also available to the public from commercial
retrieval services and at the website maintained by the SEC at www.sec.gov . The reports and other information filed by
us with the SEC are also available at our website. The address of the Company's website is www.enerjexresources.com . Information
contained on our website or that can be accessed through our website is not incorporated by reference into this prospectus.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate information
into this prospectus "by reference," which means that we can disclose important information to you by referring you to
another document that we file separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information contained directly in this prospectus. These documents contain important information
about the Company and its financial condition, business and results.
We are incorporating by reference the Company's
filings listed below and any additional documents that we may file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") on or after the date hereof and prior to the
termination of any offering, except we are not incorporating by reference any information furnished (but not filed) under Item 2.02
or Item 7.01 of any Current Report on Form 8-K and corresponding information furnished under Item 9.01 as an exhibit
thereto:
| · | the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013
(the "2013 Form 10-K"), filed with the SEC on March 28, 2014; |
| · | the Company's Quarterly Report on Form 10-Q for the quarters ended March 31, 2014, June
30, 2014, and September 30, 2014, filed with the SEC on May 13, 2014, August 13, 2014 and November 14, 2014; |
| · | the Definitive Proxy Statement on Schedule 14A, filed with the SEC on July 23, 2014; |
| · | the Company's Current Reports on Form 8-K filed on May 14, 2014, May 27, 2014, June 2, 2014,
June 3, 2014, June 13, 2014, June 17, 2014, June 17, 2014, June 20, 2014, June 23, 2013, July 21, 2014, August 15, 2014 and August
25, 2014 (except that any portions thereof which are furnished and not filed shall not be deemed incorporated); |
| · | the description of our common stock contained in our Form 8-A filed on June 12, 2014, including
any amendments or reports filed for the purpose of updating the description; and |
| · | the description of our 10% Series A Cumulative Redeemable Preferred Stock contained in our Form 8-A
filed on June 13, 2014, including any amendments or reports filed for the purpose of updating the description. |
We will provide, without charge, to each
person, including any beneficial owner, to whom a copy of this prospectus has been delivered a copy of any and all of the documents
referred to herein that are summarized in this prospectus, if such person makes a written or oral request directed to:
EnerJex Resources, Inc.
4040 Broadway, Suite 508
San Antonio, TX 78209
Attn: Robert G. Watson, Jr.
(210) 451-5545
Exhibits to the filings will not be sent,
however, unless those exhibits have specifically been incorporated by reference in this prospectus and any accompanying prospectus
supplement.
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus contains “forward-looking
statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements
in this prospectus, other than statements of historical facts, which address activities, events or developments that we expect
or anticipate will or may occur in the future, including such things as future capital expenditures, growth, product development,
sales, business strategy and other similar matters are forward-looking statements. You can identify forward-looking statements
by terminology such as “may,” “will,” “would,” “could,” “should,” “expect,”
“intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue” or the negative of these terms or other similar expressions or phrases. These forward-looking
statements are based largely on our current expectations and assumptions and are subject to a number of risks and uncertainties,
many of which are beyond our control. Actual results could differ materially from the forward-looking statements set forth herein
as a result of a number of factors, including, but not limited to, our products’ current state of development, the need for
additional financing, changes in our business strategy, competition in various aspects of our business, the risks described under
“Risk Factors” beginning on page[ ] of this prospectus and other risks detailed in our reports filed
with the Securities and Exchange Commission, or the SEC. In light of these risks and uncertainties, all of the forward-looking
statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments
anticipated by us will be realized. We undertake no obligation to update or revise any of the forward-looking statements contained
in this prospectus. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary
statements.
ABOUT ENERJEX RESOURCES, INC.
We operate as an independent exploration
and production company focused on the acquisition and development of oil and natural gas properties located in the mid-continent
region of the United States.
Our primary business objective is to increase
our oil and natural gas production, reserves, and cash flow in a manner that is accretive for our shareholders by acquiring and
developing properties that have low production decline rates and offer abundant drilling opportunities with low risk profiles.
We drilled 48 oil wells in 2013 with a 100%
success rate, and our ratio of proved reserves to production is 32.8 years based on our annualized production volumes for the three
months ended December 31, 2013. For the six months ended March 31, 2014, we reactivated multiple oil and natural gas wells in our
Adena Field Project and initiated natural gas production under a new sales contract. In addition, we successfully completed workovers
on eight natural gas wells in our Niobrara Project.
As of December 31, 2014, we owned oil and
natural gas leases covering more than 90,000 net acres in Kansas, Colorado, Nebraska, and Texas, of which approximately 64% is
held by production. We have identified more than 500 drilling locations on this acreage from which we expect to recover commercial
quantities of oil and natural gas.
Our total net proved oil and natural gas
reserves as of December 31, 2014 were 4.4 million barrels of oil equivalent (Boe), of which ___% was oil. Of the 4.4 million Boe
of total proved reserves, approximately 50% were classified as proved developed producing, approximately 19% were classified as
proved developed non-producing, and approximately 31% were classified as proved undeveloped. The total PV10 (present value) of
our proved reserves as of December 31, 2014 was $64.3 million.
As of the date of this prospectus,
we are in compliance with all financial covenants imposed on our business by our lenders.
The principal elements of our business strategy
are to:
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Develop Our Existing Properties . We plan to increase our oil and natural gas production, reserves, and cash flow by developing our extensive inventory of drilling locations that we have identified on our existing properties. |
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Maximize Operational Control . We seek to operate and maintain a substantial working interest in the majority of our properties. We believe the ability to control our drilling inventory will provide us with the opportunity to more efficiently allocate capital, manage resources, control operating and development costs, and utilize our experience and knowledge of oil and gas field technologies. |
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Pursue Selective Acquisitions and Joint Ventures . We believe our local presence in Kansas, Colorado, Nebraska, and Texas makes us well-positioned to pursue selected acquisitions and joint venture arrangements. |
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Reduce Unit Costs Through Economies of Scale and Efficient Operations. As we increase our oil and natural gas production and develop our existing properties, we expect that our unit cost structure will benefit from economies of scale. In particular, we anticipate reducing unit costs through greater utilization of our existing infrastructure over a larger number of wells. |
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Reduce Oil Price Risk . We seek to minimize the risk to our business of a decline in future oil prices by entering into derivative or physical hedging arrangements with respect to a portion of our anticipated future oil production. |
We were formerly known as Millennium Plastics
Corporation and were incorporated in the State of Nevada on March 31, 1999. We abandoned a prior business plan focusing on the
development of biodegradable plastic materials. In August 2006, we acquired Midwest Energy, Inc., a Nevada corporation, pursuant
to a reverse merger. After the merger, Midwest Energy became a wholly owned subsidiary, and as a result of the merger the former
Midwest Energy stockholders controlled approximately 98% of our outstanding shares of common stock. We changed our name to EnerJex
Resources, Inc. in connection with the merger, and in November 2007 we changed the name of Midwest Energy (now our wholly owned
subsidiary) to EnerJex Kansas, Inc. All of our current operations are conducted through EnerJex Kansas, Inc., Black Raven Energy,
Inc., and Black Sable Energy, LLC, and our leasehold interests are held in our wholly owned subsidiaries Black Raven Energy, Inc.,
Adena, LLC, Black Sable Energy, LLC, Working Interest, LLC, and EnerJex Kansas, Inc.
RISK FACTORS
An investment in our securities involves
a high degree of risk. Before making an investment decision, you should carefully consider the risks described below, as well as
the risks described under the caption "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31,
2013 and the other filings we make with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, which
we have incorporated herein by reference. Our business, financial condition, results of operations and cash flows could be materially
adversely affected by any of these risks, and the market or trading price of our securities could decline due to any of these risks.
In addition, please read "Disclosure Regarding Forward-Looking Statements" in this prospectus, where we describe additional
uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this prospectus.
Please note that additional risks not presently known to us or that we currently deem immaterial may also impair our business and
operations.
Declining economic conditions and
worsening geopolitical conditions could negatively impact our business
Our operations are affected by local, national
and worldwide economic conditions. Markets in the United States and elsewhere have been experiencing extreme volatility
and disruption for more than 5 years, due in part to the financial stresses affecting the liquidity of the banking system and the
financial markets generally. The consequences of a potential or prolonged recession may include a lower level of economic
activity and uncertainty regarding energy prices and the capital and commodity markets.
In addition, actual and attempted terrorist
attacks in the United States, Middle East, Southeast Asia and Europe, and war or armed hostilities in the Middle East, the Persian
Gulf, North Africa, Iran, North Korea or elsewhere, or the fear of such events, could further exacerbate the volatility and disruption
to the financial markets and economy.
While the ultimate outcome and impact of
the current economic conditions cannot be predicted, a lower level of economic activity might result in a decline in energy consumption,
which may materially adversely affect the price of oil and gas, our revenues, liquidity and future growth. Instability
in the financial markets, as a result of recession or otherwise, also may affect the cost of capital and our ability to raise capital.
The oil and natural gas business involves numerous uncertainties
and operating risks that can prevent us from realizing profits and can cause substantial losses.
Our development, exploitation and exploration
activities may be unsuccessful for many reasons, including weather, cost overruns, equipment shortages and mechanical difficulties.
Moreover, the successful drilling of a well does not ensure a profit on investment. A variety of factors, both geological and market-related,
can cause a well to become uneconomical or only marginally economical. In addition to their cost, unsuccessful wells can hurt our
efforts to replace reserves.
The oil and natural gas business involves
a variety of operating risks, including:
|
· |
unexpected operational events and/or conditions; |
|
· |
reductions in oil and natural gas prices; |
|
· |
limitations in the market for oil and natural gas; |
|
· |
adverse weather conditions; |
|
· |
facility or equipment malfunctions; |
|
· |
title problems; |
|
· |
oil and gas quality issues; |
|
· |
pipe, casing, cement or pipeline failures; |
|
· |
natural disasters; |
|
· |
fires, explosions, blowouts, surface cratering, pollution and other risks or accidents; |
|
· |
environmental hazards, such as oil spills, pipeline ruptures and discharges of toxic gases; |
|
· |
compliance with environmental and other governmental requirements; and |
|
· |
uncontrollable flows of oil or natural gas or well fluids. |
If we experience any of these problems, it
could affect well bores, gathering systems and processing facilities, which could adversely affect our ability to conduct operations.
We could also incur substantial losses as a result of:
|
· |
injury or loss of life; |
|
· |
severe damage to and destruction of property, natural resources and equipment; |
|
· |
pollution and other environmental damage; |
|
· |
clean-up responsibilities; |
|
· |
regulatory investigation and penalties; |
|
· |
suspension of our operations; and |
|
· |
repairs to resume operations. |
Because we use third-party drilling contractors
to drill our wells, we may not realize the full benefit of worker compensation laws in dealing with their employees. Our insurance
does not protect us against all operational risks. We do not carry business interruption insurance at levels that would provide
enough funds for us to continue operating without access to other funds. For some risks, we may not obtain insurance if we believe
the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally
are not fully insurable. If a significant accident or other event occurs and is not fully covered by insurance, it could impact
our operations enough to force us to cease our operations.
Drilling wells is speculative, and any material inaccuracies
in our forecasted drilling costs, estimates or underlying assumptions will materially affect our business.
Developing and exploring for oil and natural
gas involves a high degree of operational and financial risk, which precludes definitive statements as to the time required and
costs involved in reaching certain objectives. The budgeted costs of drilling, completing and operating wells are often exceeded
and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oilfield equipment
and related services. Drilling may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment
shortages and mechanical difficulties. Moreover, the successful drilling of an oil or gas well does not ensure a profit on investment.
Exploratory wells bear a much greater risk of loss than development wells. Substantially all of EnerJex's wells drilled through
March 31, 2014 have been development wells, while a majority of the wells drilled by Black Raven have been considered by Black
Raven to be development wells. A variety of factors, both geological and market-related, can cause a well to become uneconomical
or only marginally economic. Our initial drilling and development sites, and any potential additional sites that may be developed,
require significant additional exploration and development, regulatory approval and commitments of resources prior to commercial
development. If our actual drilling and development costs are significantly more than our estimated costs, we may not be able to
continue our business operations as proposed and would be forced to modify our plan of operation.
Development of our reserves, when established,
may not occur as scheduled and the actual results may not be as anticipated. Drilling activity and lack of access to economically
acceptable capital may result in downward adjustments in reserves or higher than anticipated costs. Our estimates will be based
on various assumptions, including assumptions over which we have no control and assumptions required by the SEC relating to oil and
gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. We have limited control over
our operations that affect, among other things, acquisitions and dispositions of properties, availability of funds, use of applicable
technologies, hydrocarbon recovery efficiency, drainage volume and production decline rates that are part of these estimates and
assumptions and any variance in our operations that affects these items within our control may have a material effect on reserves.
The process of estimating our oil and gas reserves is extremely complex, and requires significant decisions and assumptions
in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Our estimates may not
be reliable enough to allow us to be successful in our intended business operations. Our actual production, revenues, taxes, development
expenditures and operating expenses will likely vary from those anticipated. These variances may be material.
Unless we replace our oil and natural gas reserves, our
reserves and production will decline, which would adversely affect our cash flows and income.
Unless we conduct successful development,
exploitation and exploration activities or acquire properties containing proved reserves, our proved reserves will decline as those
reserves are produced. Producing oil and gas reservoirs generally are characterized by declining production rates that vary depending
upon reservoir characteristics and other factors. Our future oil and gas production, and, therefore our cash flow and income, are
highly dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring
additional recoverable reserves. We may be unable to make such acquisitions because we are:
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unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts with them; |
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unable to obtain financing for these acquisitions on economically acceptable terms; or |
|
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outbid by competitors. |
If we are unable to develop, exploit, find
or acquire additional reserves to replace our current and future production, our cash flow and income will decline as production
declines, until our existing properties would be incapable of sustaining commercial production.
Our decision to acquire a property will depend in part
on the evaluation of data obtained from production reports and engineering studies, geophysical and geological analyses and seismic
and other information, the results of which are often incomplete or inconclusive.
Our reviews of acquired properties can be
inherently incomplete because it is not always feasible to perform an in-depth review of the individual properties involved in
each acquisition. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor
will it permit a buyer to become sufficiently familiar with the properties to assess fully their deficiencies and potential. Inspections
may not always be performed on every well, and environmental problems, such as ground water contamination, plugging or orphaned
well liability are not necessarily observable even when an inspection is undertaken.
We must obtain governmental permits and approvals for
drilling operations, which can result in delays in our operations, be a costly and time consuming process, and result in restrictions
on our operations.
Regulatory authorities exercise considerable
discretion in the timing and scope of well drilling permit issuances in the region in which we operate. Compliance with the requirements
imposed by these authorities can be costly and time consuming and may result in delays in the commencement or continuation of our
exploration or production operations and/or fines. Regulatory or legal actions in the future may materially interfere with our
operations or otherwise have a material adverse effect on us. In addition, we are often required to prepare and present to federal,
state or local authorities data pertaining to the effect or impact that a proposed project may have on the environment, threatened
and endangered species, and cultural and archaeological artifacts. Accordingly, the well drilling permits we need may not be issued,
or if issued, may not be issued in a timely fashion, or may involve requirements that restrict our ability to conduct our operations
or to do so profitably.
Cost and availability of drilling rigs, equipment, supplies,
personnel and other services could adversely affect our ability to execute on a timely basis our development, exploitation and
exploration plans.
Shortages or an increase in cost of drilling
rigs, equipment, supplies or personnel could delay or interrupt our operations, which could impact our financial condition and
results of operations. Drilling activity in the geographic areas in which we conduct drilling activities may increase, which would
lead to increases in associated costs, including those related to drilling rigs, equipment, supplies and personnel and the services
and products of other vendors to the industry. Increased drilling activity in these areas may also decrease the availability of
rigs. We do not have any contracts for drilling rigs and drilling rigs may not be readily available when we need them. Drilling
and other costs may increase further and necessary equipment and services may not be available to us at economical prices.
Our exposure to possible leasehold defects and potential
title failure could materially adversely impact our ability to conduct drilling operations.
We obtain the right and access to properties
for drilling by obtaining oil and natural gas leases either directly from the hydrocarbon owner, or through a third party that
owns the lease. The leases may be taken or assigned to us without title insurance. There is a risk of title failure with respect
to such leases, and such title failures could materially adversely impact our business by causing us to be unable to access properties
to conduct drilling operations.
We operate in a highly competitive environment and our
competitors may have greater resources than do we.
The oil and natural gas industry is intensely
competitive and we compete with other companies, many of which are larger and have greater financial, technological, human and
other resources. Many of these companies not only explore for and produce crude oil and/or natural gas, but also carry on refining
operations and market petroleum and other products on a regional, national or worldwide basis. Such companies may be able to pay
more for productive oil and properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of
properties and prospects than our financial or human resources permit. In addition, such companies may have a greater ability to
continue exploration activities during periods of low oil and gas market prices. Our ability to acquire additional properties and
to discover reserves in the future will be dependent upon our ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment. If we are unable to compete, our operating results and financial position may
be adversely affected.
Oil and natural gas prices are volatile. Future volatility
may cause negative change in our cash flows which may result in our inability to cover our operating or capital expenditures.
Our future revenues, profitability, future
growth and the carrying value of our properties is anticipated to depend substantially on the prices we may realize for our oil
and natural gas production. Our realized prices may also affect the amount of cash flow available for operating or capital expenditures
and our ability to borrow and raise additional capital.
Oil and natural gas prices are subject to
wide fluctuations in response to relatively minor changes in or perceptions regarding supply and demand. Historically, the markets
for oil and natural gas have been volatile, and they are likely to continue to be volatile in the future. Among the factors that
can cause this volatility are:
|
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Commodities speculators; |
|
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local, national and worldwide economic conditions; |
|
· |
worldwide or regional demand for energy, which is affected by economic conditions; |
|
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the domestic and foreign supply of oil and gas; |
|
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weather conditions; |
|
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natural disasters; |
|
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acts of terrorism; |
|
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domestic and foreign governmental regulations and taxation; |
|
· |
political and economic conditions in oil producing countries, including those in the Middle East and South America; |
|
· |
impact of the U.S. dollar exchange rates on oil prices; |
|
· |
the availability of refining capacity; |
|
· |
actions of the Organization of Petroleum Exporting Countries, or OPEC, and other state controlled oil companies relating to oil price and production controls; and |
|
· |
the price and availability of other fuels. |
It is impossible to predict oil and gas
price movements with certainty. A drop in prices may not only decrease our future revenues on a per unit basis but also may reduce
the amount of oil and gas that we can produce economically. A substantial or extended decline in oil and gas prices may materially
and adversely affect our future business enough to force us to cease our business operations. In addition, our reserves, financial
condition, results of operations, liquidity and ability to finance and execute planned capital expenditures will also suffer in
such a price decline.
Lower prices for oil and natural gas reduce demand for
our services and could have a material adverse effect on our revenue and profitability.
Benchmark crude prices peaked at over $140
per barrel in July 2008 and then declined to approximately $92 per barrel at year-end 2012. During 2013, the benchmark for crude
prices fluctuated between $85 per barrel and $110 per barrel. Demand for our services depends on oil and natural gas industry activity
and expenditure levels that are directly affected by trends in oil and natural gas prices. In addition, demand for our services
is particularly sensitive to the level of exploration, development and production activity of and the corresponding capital spending
by, oil and natural gas companies. Any prolonged reduction in oil and natural gas prices could depress the near-term levels of
exploration, development, and production activity. Perceptions of longer-term lower oil and natural gas prices by oil and natural
gas companies could similarly reduce or defer major expenditures given the long-term nature of many large-scale development projects.
Lower levels of activity result in a corresponding decline in the demand for our services, which could have a material adverse
effect on our revenue and profitability. Additionally, these factors may adversely impact our financial position if they are determined
to cause an impairment of our long-lived assets.
Our business is affected by local, national and worldwide
economic conditions and the condition of the oil and natural gas industry.
Recent economic data indicates the rate
of economic growth worldwide has declined significantly from the growth rates experienced in recent years. Current economic conditions
have resulted in uncertainty regarding energy and commodity prices. In addition, future economic conditions may cause many oil
and natural gas production companies to further reduce or delay expenditures in order to reduce costs, which in turn may cause
a further reduction in the demand for drilling services. If conditions worsen, our business and financial condition may be adversely
impacted.
Our business involves numerous operating hazards, and
our insurance and contractual indemnity rights may not be adequate to cover our losses.
Our operations are subject to the usual
hazards inherent in the drilling and operation of oil and natural gas wells, such as blowouts, reservoir damage, loss of production,
loss of well control, punch throughs, craterings, fires and pollution. The occurrence of these events could result in the suspension
of drilling or production operations, claims by the operator and others affected by such events, severe damage to, or destruction
of, the property and equipment involved, injury or death to drilling personnel, environmental damage and increased insurance costs.
We may also be subject to personal injury and other claims of drilling personnel as a result of our drilling operations. Operations
also may be suspended because of machinery breakdowns, abnormal operating conditions, failure of subcontractors to perform or supply
goods or services and personnel shortages.
Damage to the environment could result from
our operations, particularly through oil spillage or extensive uncontrolled fires. We may also be subject to property, environmental
and other damage claims by host governments, oil and natural gas companies and other businesses operating offshore and in coastal
areas, as well as claims by individuals living in or around coastal areas.
As is customary in our industry, the risks
of our operations are partially covered by our insurance and partially by contractual indemnities from our customers. However,
insurance policies and contractual rights to indemnity may not adequately cover losses, and we may not have insurance coverage
or rights to indemnity for all risks. Moreover, pollution and environmental risks generally are not fully insurable. If a significant
accident or other event resulting in damage to our drilling units, including severe weather, terrorist acts, war, civil disturbances,
pollution or environmental damage, occurs and is not fully covered by insurance or a recoverable indemnity from a customer, it
could adversely affect our financial condition and results of operations.
Our business is subject to numerous governmental laws
and regulations, including those that may impose significant costs and liability on us for environmental and natural resource damages.
Many aspects of our operations are affected
by governmental laws and regulations that may relate directly or indirectly to the contract drilling industry, including those
requiring us to control the discharge of oil and other contaminants into the environment or otherwise relating to environmental
protection. Countries where we currently operate have environmental laws and regulations covering the discharge of oil and other
contaminants and protection of the environment in connection with operations. Additionally, our operations and activities in the
United States and its territorial waters are subject to numerous environmental laws and regulations, including the Clean Water
Act, the OPA, the Outer Continental Shelf Lands Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Air Act, the Resource Conservation and Recovery Act and MARPOL. Failure to comply with these laws and regulations may
result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the denial or
revocation of permits or other authorizations and the issuance of injunctions that may limit or prohibit our operations.
Laws and regulations protecting the environment
have become more stringent in recent years and may in certain circumstances impose strict liability, rendering us liable for environmental
and natural resource damages without regard to negligence or fault on our part. These laws and regulations may expose us to liability
for the conduct of, or conditions caused by, others or for acts that were in compliance with all applicable laws at the time the
acts were performed. The application of these requirements, the modification of existing laws or regulations or the adoption of
new laws or regulations relating to exploratory or development drilling for oil and natural gas could materially limit future contract
drilling opportunities or materially increase our costs. In addition, we may be required to make significant capital expenditures
to comply with such laws and regulations.
In addition, some financial institutions
are imposing, as a condition to financing, requirements to comply with additional non-governmental environmental and social standards
in connection with operations outside the United States, such as the Equator Principles, a credit risk management framework for
determining, assessing and managing environmental and social risk in project finance transactions. Such additional standards could
impose significant new costs on us, which may materially and adversely affect us.
Changes in U.S. federal laws and regulations, or in those
of other jurisdictions where we operate, including those that may impose significant costs and liability on us for environmental
and natural resource damages, may adversely affect our operations.
If the U.S. government amends or enacts
new federal laws or regulations, our potential exposure to liability for operations and activities in the United States and its
territorial waters may increase. Although the Oil Pollution Act of 1990 provides federal caps on liability for pollution or contamination,
future laws and regulations may increase our liability for pollution or contamination resulting from any operations and activities
that the Company may have in the United States and its territorial waters including punitive damages and administrative, civil
and criminal penalties. Additionally, other jurisdictions where we operate have modified, or may in the future modify, their laws
and regulations in a manner that would increase our liability for pollution and other environmental damage.
Our financial condition may be adversely affected if we
are unable to identify and complete future acquisitions, fail to successfully integrate acquired assets or businesses we acquire,
or are unable to obtain financing for acquisitions on acceptable terms.
The acquisition of assets or businesses
that we believe to be complementary to our exploration and production operations is an important component of our business strategy.
We believe that acquisition opportunities for EnerJex, such as the merger with Black Raven, may arise from time to time, and that
any such acquisition could be significant. At any given time, discussions with one or more potential sellers may be at different
stages. However, any such discussions may not result in the consummation of an acquisition transaction, and we may not be able
to identify or complete any acquisitions. We cannot predict the effect, if any, that any announcement or consummation of an acquisition
would have on the trading price of our securities. Our business is capital intensive and any such transactions could involve the
payment by us of a substantial amount of cash. We may need to raise additional capital through public or private debt or equity
financings to execute our growth strategy and to fund acquisitions. Adequate sources of capital may not be available when needed
on favorable terms. If we raise additional capital by issuing additional equity securities, existing stockholders may be diluted.
If our capital resources are insufficient at any time in the future, we may be unable to fund acquisitions, take advantage of business
opportunities or respond to competitive pressures, any of which could harm our business.
Any future acquisitions could present a
number of risks, including:
|
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the risk of using management time and resources to pursue acquisitions that are not successfully completed; |
|
· |
the risk of incorrect assumptions regarding the future results of acquired operations; |
|
· |
the risk of failing to integrate the operations or management of any acquired operations or assets successfully and timely; and |
|
· |
the risk of diversion of management's attention from existing operations or other priorities. |
If we are unsuccessful in completing acquisitions
of other operations or assets, our financial condition could be adversely affected and we may be unable to implement an important
component of our business strategy successfully. In addition, if we are unsuccessful in integrating our acquisitions in a timely
and cost-effective manner, our financial condition and results of operations could be adversely affected.
The loss of some of our key executive officers and employees
could negatively impact our business prospects.
Our future operational performance depends
to a significant degree upon the continued service of key members of our management as well as marketing, sales and operations
personnel. The loss of one or more of our key personnel could have a material adverse effect on our business. We believe our future
success will also depend in large part upon our ability to attract, retain and further motivate highly skilled management, marketing,
sales and operations personnel. We may experience intense competition for personnel, and we cannot assure you that we will be able
to retain key employees or that we will be successful in attracting, assimilating and retaining personnel in the future.
Failure to employ a sufficient number of skilled workers
or an increase in labor costs could hurt our operations.
We require skilled personnel to operate
and provide technical services to, and support for, our drilling units. In periods of increasing activity and when the number of
operating units in our areas of operation increases, either because of new construction, re-activation of idle units or the mobilization
of units into the region, shortages of qualified personnel could arise, creating upward pressure on wages and difficulty in staffing.
The shortages of qualified personnel or the inability to obtain and retain qualified personnel also could negatively affect the
quality and timeliness of our work. In addition, our ability to expand operations depends in part upon our ability to increase
the size of the skilled labor force.
Risks Related to EnerJex
Ownership of our common stock is highly concentrated,
and such concentration may prevent other stockholders from influencing significant corporate decisions and may result in conflicts
of interest that could cause our stock price to decline.
EnerJex's directors and executive officers,
together with their respective affiliates, beneficially own or control more than 50% of the Company (see the section entitled "Voting
Securities" beginning on page 4 of our Definitive Proxy Statement on Schedule 14A filed with the SEC on July 23, 2014 for
more information on the ownership of the Company). Accordingly, these directors, executive officers and their affiliates, acting
individually or as a group, have substantial influence over the outcome of a corporate action requiring stockholder approval, including
the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant
corporate transaction. West Coast Opportunity Fund, LLC ("WCOF"), which owns approximately 45% of our issued and outstanding
voting securities, and Montecito Venture Partners, LLC ("MVP"), which owns approximately 6% of our issued and outstanding
voting securities, are parties to an irrevocable voting and proxy agreement, by which MVP granted to WCOF a proxy to vote MVP's
shares with regard to the election of our board of directors. That irrevocable voting and proxy agreement gives WCOF the power
to elect a majority of the members of our board of directors. These stockholders also may exert influence in delaying or preventing
a change in control of the Company, even if such change in control would benefit the other stockholders of the Company. In addition,
the significant concentration of stock ownership may affect adversely the market value of EnerJex's common stock and Series A preferred
stock due to investors' perception that conflicts of interest may exist or arise.
We are exempt from certain governance requirements applicable
to other listed companies, and therefore our board will not consist of a majority of "independent directors," and our
audit committee will not have three "independent" members.
The listing standards for the NYSE MKT on
which our shares of Series A Preferred Stock will be listed for trading generally require that the boards of directors of listed
companies consist of a majority of "independent directors," and that a listed company's audit committee must have three
independent members. We are a "controlled company" because WCOF and MVP own more than 50% of our issued and outstanding
voting securities and are parties to an irrevocable voting and proxy agreement that gives WCOF a proxy to vote MVP's shares, which
will give WCOF control of the election of a majority of the members of our board of directors. As a result, we are exempt from
the requirement that a majority of our directors be "independent directors." At present, only two of our five directors
are "independent directors." In addition, because we are a "smaller reporting company," as such terms are used
in the listing standards for the NYSE MKT, our audit committee is not required to have three independent members. At present, our
audit committee consists of two persons, both of whom are independent directors.
Anti-takeover provisions in our charter and bylaws may
prevent or frustrate attempts by stockholders to change the board of directors or management and could make a third-party acquisition
of the company difficult.
Our amended and restated articles of incorporation
and bylaws, as amended, contain provisions that may discourage, delay or prevent a merger, acquisition or other change in control
that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their
shares. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock,
and have a negative effect on the price at which shares of our Series A preferred stock will trade.
We have sustained losses in the past,
and our future profitability is subject to many risks inherent in the oil and natural gas exploration and production industry.
Our prospects must be considered in light
of the risks, expenses and difficulties frequently encountered in establishing and maintaining a business in the exploration and
production industry. There is nothing conclusive at this time on which to base an assumption that our business operations will
prove to be successful or that we will be able to operate profitably. Our future operating results will depend on many factors,
including:
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the future prices of oil and gas; |
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our ability to raise adequate capital; |
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success of our development and exploration efforts; |
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our ability to manage our operations cost effectively; |
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effects of our hedging strategies; |
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demand for oil and gas; |
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the level of our competition; |
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our ability to attract and maintain key management, employees and operators; |
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transportation and processing fees on our facilities; |
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fuel conservation measures; |
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alternate fuel requirements or advancements; |
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government regulation and taxation; |
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technical advances in fuel economy and energy generation devices; and |
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our ability to efficiently explore, develop and produce sufficient quantities of marketable oil and gas in a highly competitive and speculative environment while maintaining quality and controlling costs. |
To achieve profitable operations, we must,
alone or with others, successfully execute on the factors stated above, along with continually developing ways to enhance our production
efforts. Despite our best efforts, we may not be successful in our development efforts or obtain required regulatory approvals.
There is a possibility that some of our wells may never produce oil or gas in sustainable or economic quantities.
We will need additional capital in the future
to finance our planned growth, which we may not be able to raise or may only be available on terms unfavorable to us or our stockholders,
which may result in our inability to fund our working capital requirements and harm our operational results.
We have and expect to continue to have substantial
capital expenditure and working capital needs. We will need to rely on cash flow from operations and borrowings under our credit
facility or raise additional cash to fund our operations, pay outstanding long-term debt, fund our anticipated reserve replacement
needs and implement our growth strategy, or respond to competitive pressures and/or perceived opportunities, such as investment,
acquisition, exploration, work-over and development activities.
If low oil and gas prices, operating difficulties,
constrained capital sources or other factors, many of which are beyond our control, cause our revenues or cash flows from operations
to decrease, we may be limited in our ability to spend the capital necessary to complete our development, production exploitation
and exploration programs. If our resources or cash flows do not satisfy our operational needs, we will require additional
financing, in addition to anticipated cash generated from our operations, to fund our planned growth. Additional financing might
not be available on terms favorable to us, or at all. If adequate funds were not available or were not available on acceptable
terms, our ability to fund our operations, take advantage of opportunities, develop or enhance our business or otherwise respond
to competitive pressures would be significantly limited. In such a capital restricted situation, we may curtail our acquisition,
drilling, development, and exploration activities or be forced to sell some of our assets on an untimely or unfavorable basis. Our
current plans to address a drop in crude oil prices are to maintain hedges covering a portion of our expected future oil production
and to reduce both capital and operating expenditures to a level equal to or below cash flow from operations. However,
our plans may not be successful in improving our results of operations and liquidity.
If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of our stockholders would be reduced, and these newly
issued securities might have rights, preferences or privileges senior to those of existing stockholders, including rights that
are senior to those of holders of our Series A preferred stock.
Approximately 34% of our total proved reserves as of December
31, 2013 consist of undeveloped reserves, and those reserves may not ultimately be developed or produced.
Our estimated total proved PV10 (present
value) before tax of reserves as of December 31, 2014 was $64.3 million, versus $102 million as of December 31, 2013. Of
the 4.4 million net barrels of oil equivalent at December 31, 2014, approximately 50% are proved developed producing, approximately
19% are classified as proved developed non-producing and approximately 31% are classified as proved undeveloped.
Assuming we can obtain adequate capital
resources, we plan to develop and produce all of our proved reserves, but ultimately some of these reserves may not be developed
or produced. Furthermore, not all of our undeveloped reserves may be ultimately produced in the time periods we have planned, at
the costs we have budgeted, or at all.
Because we face uncertainties in estimating proved recoverable
reserves, you should not place undue reliance on such reserve information.
Our reserve estimates and the future net
cash flows attributable to those reserves at December 31, 2014 were prepared by MHA Petroleum Consultants LLC, an independent petroleum
consultant. There are numerous uncertainties inherent in estimating quantities of proved reserves and cash flows from
such reserves, including factors beyond our control and the control of these independent consultants and engineers. Reserve engineering
is a subjective process of estimating underground accumulations of oil and gas that can be economically extracted, which cannot
be measured in an exact manner. The accuracy of an estimate of quantities of reserves, or of cash flows attributable to these reserves,
is a function of the available data, assumptions regarding future oil and gas prices, expenditures for future development and exploitation
activities, and engineering and geological interpretation and judgment. Reserves and future cash flows may also be subject to material
downward or upward revisions based upon production history, development and exploitation activities and oil and gas prices. Actual
future production, revenue, taxes, development expenditures, operating expenses, quantities of recoverable reserves and value of
cash flows from those reserves may vary significantly from the assumptions and estimates in our reserve reports. Any significant
variance from these assumptions to actual figures could greatly affect our estimates of reserves, the economically recoverable
quantities of oil and gas attributable to any particular group of properties, the classification of reserves based on risk of recovery,
and estimates of the future net cash flows. In addition, reserve engineers may make different estimates of reserves and cash
flows based on the same available data. The estimated quantities of proved reserves and the discounted present value of future
net cash flows attributable to those reserves included in this report were prepared by MHA Petroleum Consultants LLC in accordance
with rules of the Securities and Exchange Commission, or SEC, and are not intended to represent the fair market value of such reserves.
The present value of future net cash flows
from our proved reserves is not necessarily the same as the current market value of our estimated reserves. We base the estimated
discounted future net cash flows from our proved reserves on prices and costs. However, actual future net cash flows from our oil
and gas properties also will be affected by factors such as:
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geological conditions; |
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assumptions governing future oil and gas prices; |
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amount and timing of actual production; |
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availability of funds; |
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future operating and development costs; |
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actual prices we receive for oil and gas; |
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changes in government regulations and taxation; and |
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capital costs of drilling new wells. |
The timing of both our production and our
incurrence of expenses in connection with the development and production of our properties will affect the timing of actual future
net cash flows from proved reserves, and thus their actual present value. In addition, the 10% discount factor we use when calculating discounted
future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks
associated with our business or the oil and gas industry in general.
The differential between the New York Mercantile Exchange,
or NYMEX, or other benchmark price of oil and gas and the wellhead price we receive could have a material adverse effect on our
results of operations, financial condition and cash flows.
The prices that we received for our oil
and gas production in Kansas are typically based on a discount to the relevant benchmark prices, such as NYMEX, that are used for
calculating hedge positions. In Texas, the prices that we receive for our oil and gas production are currently based on a premium
to NYMEX. In Colorado, the prices that we receive for our oil and gas production are based upon a discount to NYMEX and the prices
we receive for our natural gas production is based upon local market conditions but generally we receive a discount to Henry Hub.
The difference between the benchmark price and the price we receive is called a differential. We cannot accurately predict oil
and gas differentials. In recent years for example, production increases from competing Canadian and Rocky Mountain producers,
in conjunction with limited refining and pipeline capacity from the Rocky Mountain area, have gradually widened this differential.
Recent economic conditions, including volatility in the price of oil and gas, have resulted in both increases and decreases in
the differential between the benchmark price for oil and gas and the wellhead price we receive. These fluctuations could have a
material adverse effect on our results of operations, financial condition and cash flows by decreasing the proceeds we receive
for our oil and gas production in comparison to what we would receive if not for the differential.
In order to exploit successfully our current oil and gas
leases and others that we acquire in the future, we will need to generate significant amounts of capital.
The oil and natural gas exploration, development
and production business is a capital-intensive undertaking. In order for us to be successful in acquiring, investigating, developing,
and producing oil and gas from our current mineral leases and other leases that we may acquire in the future, we will need to generate
an amount of capital in excess of that generated from our results of operations. In order to generate that additional capital,
we may need to obtain an expanded debt facility and issue additional shares of our equity securities. There can be no assurance
that we will be successful in ether obtaining that expanded debt facility or issuing additional shares of our equity securities,
and our inability to generate the needed additional capital may have a material adverse effect on our prospects and financial results
of operations. If we are able to issue additional equity securities in order to generate such additional capital, then those issuances
may occur at prices that represent discounts to our trading price, and will dilute the percentage ownership interest of those persons
holding our shares prior to such issuances. Unless we are able to generate additional enterprise value with the proceeds of the
sale of our equity securities, those issuances may adversely affect the value of our shares that are outstanding prior to those
issuances.
A significant portion of our potential future reserves
and our business plan depend upon secondary recovery techniques to establish production. There are significant risks associated
with such techniques.
We anticipate that a significant portion
of our future reserves and our business plan will be associated with secondary recovery projects that are either in the early stage
of implementation or are scheduled for implementation subject to availability of capital. We anticipate that secondary recovery
will affect our reserves and our business plan, and the exact project initiation dates and, by the very nature of waterflood operations,
the exact completion dates of such projects are uncertain. In addition, the reserves and our business plan associated with these
secondary recovery projects, as with any reserves, are estimates only, as the success of any development project, including these
waterflood projects, cannot be ascertained in advance. If we are not successful in developing a significant portion of our reserves
associated with secondary recovery methods, then the project may be uneconomic or generate less cash flow and reserves than we
had estimated prior to investing the capital. Risks associated with secondary recovery techniques include, but are not limited
to, the following:
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higher than projected operating costs; |
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lower-than-expected production; |
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longer response times; |
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higher costs associated with obtaining capital; |
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unusual or unexpected geological formations; |
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fluctuations in oil and gas prices; |
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regulatory changes; |
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shortages of equipment; and |
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lack of technical expertise. |
If any of these risks occur, it could adversely
affect our financial condition or results of operations.
Any acquisitions we complete are subject to considerable
risk.
Even when we make acquisitions that we believe
are good for our business, any acquisition involves potential risks, including, among other things:
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the validity of our assumptions about reserves, future production, revenues and costs, including synergies; |
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an inability to integrate successfully the businesses we acquire; |
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a decrease in our liquidity by using our available cash or borrowing capacity to finance acquisitions; |
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a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions; |
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the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate; |
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the diversion of management's attention from other business concerns; |
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an inability to hire, train or retain qualified personnel to manage the acquired properties or assets; |
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the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; |
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unforeseen difficulties encountered in operating in new geographic or geological areas; and |
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customer or key employee losses at the acquired businesses. |
Due to our lack of geographic diversification,
adverse developments in our operating areas would materially affect our business.
We currently only lease and operate oil
and natural gas properties located in Kansas, Colorado, Nebraska and Texas. As a result of this concentration, we may be disproportionately
exposed to the impact of delays or interruptions of production from these properties caused by significant governmental regulation,
transportation capacity constraints, curtailment of production, natural disasters, adverse weather conditions or other events which impact
this area.
We are not the operator of some of
our properties and we have limited control over the activities on those properties.
We are not the operator of our Mississippian
Project, and our dependence on the operator of this project limits our ability to influence or control the operation or future
development of this project. Such limitations could materially adversely affect the realization of our targeted returns on capital
related to exploration, drilling or production activities and lead to unexpected future costs.
We may suffer losses or incur liability
for events for which we or the operator of a property have chosen not to obtain insurance.
Our operations are subject to hazards and
risks inherent in producing and transporting oil and gas, such as fires, natural disasters, explosions, pipeline ruptures, spills,
and acts of terrorism, all of which can result in the loss of hydrocarbons, environmental pollution, personal injury claims and
other damage to our and others' properties. As protection against operating hazards, we maintain insurance coverage against some,
but not all, potential losses. In addition, pollution and environmental risks generally are not fully insurable. As a result of
market conditions, existing insurance policies may not be renewed and other desirable insurance may not be available on commercially
reasonable terms, if at all. The occurrence of an event that is not covered, or not fully covered, by insurance could have a material
adverse effect on our business, financial condition and results of operations.
Our hedging activities could result in financial losses
or could reduce our available funds or income and therefore adversely affect our financial position.
To achieve more predictable cash flow and
to reduce our exposure to adverse fluctuations in the prices of oil and gas, we have entered into derivative contracts through
June 30, 2016 for approximately 175,000 barrels of crude oil. The settlement of and the mark to market of these contracts could
result in both realized and unrealized hedging losses. For the year ended December 31, 2014, we incurred realized and unrealized
hedging gains of approximately $5,000,000. The extent of our commodity price exposure is related largely to the effectiveness and
scope of our derivative activities. For example, the derivative instruments we may utilize may be based on posted market prices,
which may differ significantly from the actual crude oil prices we realize in our operations.
Our actual future production may be significantly
higher or lower than we estimate at the time we enter into derivative transactions for such period. If the actual amount is higher
than we estimate, we will have greater commodity price exposure than we intended. If the actual amount is lower than the nominal
amount that is subject to our derivative financial instruments, we might be forced to satisfy all or a portion of our derivative
transactions without the benefit of the cash flow from our sale or purchase of the underlying physical commodity, resulting in
a substantial diminution of our liquidity. As a result of these factors, our derivative activities may not be as effective as we
intend in reducing the volatility of our cash flows, and in certain circumstances may actually increase the volatility of our cash
flows. In addition, while we believe our existing derivative activities are with creditworthy counterparties, continued deterioration
in the credit markets may cause a counterparty not to perform its obligation under the applicable derivative instrument or impact
their willingness to enter into future transactions with us.
Our business depends in part on processing facilities
owned by others. Any limitation in the availability of those facilities could interfere with our ability to market our oil and
gas production and could harm our business.
The marketability of our oil and gas production
will depend in part on the availability, proximity and capacity of pipelines and oil processing facilities. The amount of oil and
gas that can be produced and sold is subject to curtailment in certain circumstances, such as pipeline interruptions due to scheduled
and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on such systems. The curtailments
arising from these and similar circumstances may last from a few days to several months. In many cases, we will be provided only
with limited, if any, notice as to when these circumstances will arise and their duration. Any significant curtailment in pipeline
capacity or the capacity of processing facilities could significantly reduce our ability to market our oil and gas production and
could materially harm our business.
Our reserves are subject to the risk of depletion because
many of our leases are in mature fields that have produced large quantities of oil and gas to date.
A significant portion of our operations
are located in or near established fields in Kansas, Colorado, Nebraska, and Texas. As a result, many of our leases are in, or
directly offset, areas that have produced large quantities of oil and gas to date. As such, our reserves may be negatively
impacted by offsetting wells or previously drilled wells, which could significantly harm our business.
Our lease ownership may be diluted
due to financing strategies we may employ in the future.
To accelerate our development efforts, we
may take on working interest partners who will contribute to the costs of drilling and completion operations and then share in
any cash flow derived from production. In addition, we may in the future, due to a lack of capital or other strategic reasons,
establish joint venture partnerships or farm out all or part of our development efforts. These economic strategies may have a dilutive
effect on our lease ownership and could significantly reduce our operating revenues.
We may face lease expirations on leases that are not currently
held-by-production.
We have numerous leases that are not currently
held-by-production, some of which have near term lease expirations and are likely to expire. Although we believe that we can maintain
our most desirable leases by conducting drilling operations or by negotiating lease extensions, we can make no guarantee that we
can maintain these leases.
We are subject to complex laws and regulations, including
environmental regulations, which can adversely affect the cost, manner or feasibility of doing business.
Development, production and sale of oil
and gas in the United States are subject to extensive laws and regulations, including environmental laws and regulations. We may
be required to make large expenditures to comply with environmental and other governmental regulations. Matters subject to regulation
include, but are not limited to:
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location and density of wells; |
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the handling of drilling fluids and obtaining discharge permits for drilling operations; |
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accounting for and payment of royalties on production from state, federal and Indian lands; |
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bonds for ownership, development and production of oil and gas properties; |
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transportation of oil and gas by pipelines; |
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operation of wells and reports concerning operations; and |
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taxation. |
Under these laws and regulations, we could
be liable for personal injuries, property damage, oil spills, discharge of hazardous materials, remediation and clean-up costs
and other environmental damages. Failure to comply with these laws and regulations also may result in the suspension or termination
of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change
in ways that substantially increase our costs. Accordingly, any of these liabilities, penalties, suspensions, terminations or regulatory
changes could materially adversely affect our financial condition and results of operations enough to possibly force us to cease
our business operations.
Our operations may expose us to significant costs and
liabilities with respect to environmental, operational safety and other matters.
We may incur significant costs and liabilities
as a result of environmental and safety requirements applicable to our oil and gas production activities. We may also be exposed
to the risk of costs associated with Kansas Corporation Commission, the Texas Railroad Commission, and the Colorado Oil and Gas
Conservation Commission, requirements to plug orphaned and abandoned wells on our oil and gas leases that were previously drilled
by third parties. In addition, we may indemnify sellers or lessors of oil and gas properties for environmental liabilities they
or their predecessors may have created. These costs and liabilities could arise under a wide range of federal, state and local
environmental and safety laws and regulations, including regulations and enforcement policies, which have tended to become increasingly
strict over time. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal
penalties, imposition of cleanup and site restoration costs, liens and to a lesser extent, issuance of injunctions to limit or
cease operations. In addition, claims for damages to persons or property may result from environmental and other impacts of our
operations.
Strict, joint and several liability may
be imposed under certain environmental laws, which could cause us to become liable for the conduct of others or for consequences
of our own actions that were in compliance with all applicable laws at the time those actions were taken. New laws, regulations
or enforcement policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. If
we are not able to recover the resulting costs through insurance or increased revenues, our ability to operate effectively could
be adversely affected.
We may incur substantial write-downs of the carrying value
of our oil and gas properties, which would adversely impact our earnings.
We review the carrying value of our oil
and gas properties under the full-cost accounting rules of the SEC on a quarterly basis. This quarterly review is referred to as
a ceiling test. Under the ceiling test, capitalized costs, less accumulated amortization and related deferred income taxes, may
not exceed an amount equal to the sum of the present value of estimated future net revenues (adjusted for cash flow hedges) less
estimated future expenditures to be incurred in developing and producing the proved reserves, less any related income tax effects.
In calculating future net revenues, current prices and costs used are those as of the end of the appropriate quarterly period.
Such prices are utilized except where different prices are fixed and determinable from applicable contracts for the remaining term
of those contracts, including the effects of derivatives qualifying as cash flow hedges. Two primary factors impacting this
test are reserve levels and current prices, and their associated impact on the present value of estimated future net revenues.
Revisions to estimates of oil and gas reserves and/or an increase or decrease in prices can have a material impact on the present
value of estimated future net revenues. Any excess of the net book value, less deferred income taxes, is generally written off
as an expense. Under SEC regulations, the excess above the ceiling is not expensed (or is reduced) if, subsequent to the end of
the period, but prior to the release of the financial statements, oil and gas prices increase sufficiently such that an excess
above the ceiling would have been eliminated (or reduced) if the increased prices were used in the calculations.
Our ability to use net operating loss carryforwards to
offset future taxable income may be subject to certain limitations .
We currently have net operating loss carryforwards
that may be available to offset future taxable income. However, changes in the ownership of our stock (including certain transactions
involving our stock that are outside of our control) could result (or may have already resulted) in an “ownership change”
within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended, which may significantly limit our ability
to utilize our net operating loss carryforwards. To the extent an ownership change has occurred or were to occur in the future,
it is possible that the limitations imposed on our ability to use pre-ownership change losses could cause a significant net increase
in our U.S. federal income tax liability and could cause U.S. federal income taxes to be paid earlier than otherwise would be paid
if such limitations were not in effect.
Failure to maintain effective internal controls in accordance
with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on the trading price of our common stock and
Series A preferred stock.
Section 404 of the Sarbanes-Oxley Act
of 2002 requires our management to assess the effectiveness of its internal control over financial reporting and to provide a report
by its registered independent public accounting firm addressing the effectiveness of our internal control over financial reporting.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) provides a framework for companies to assess and improve
their internal control systems. If we are unable to assert that our internal control over financial reporting is effective or if
our registered independent public accounting firm is unable to express an opinion on the effectiveness of the internal controls
or identifies one or more material weaknesses in our internal control over financial reporting, we could lose investor confidence
in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on the trading price of our
common stock and Series A preferred stock. If we fail to maintain the adequacy of our internal controls, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act. Failure to achieve and maintain effective internal control over financial reporting
could have an adverse effect on the trading price of our common stock and Series A preferred stock.
A small number of customers account for a significant
portion of our revenues, and the loss of one or more of these customers could materially adversely affect our financial condition
and results of operations.
We derive a significant portion of our revenues
from a small number of customers. Our financial condition and results of operations could be materially and adversely affected
if any one of these customers interrupts or curtails their activities, fail to pay for the services that have been performed, terminate
their contracts, fail to renew their existing contracts or refuse to award new contracts and we are unable to enter into contracts
with new customers on comparable terms. The loss of any of our significant customers could materially adversely affect our financial
condition and results of operations.
We are exposed to the credit risks of our key customers,
including certain affiliated companies, and certain other third parties, and nonpayment by these customers and other parties could
adversely affect our financial position, results of operations and cash flows.
We are subject to risks of loss resulting
from nonpayment or nonperformance by our customers. Any material nonpayment or nonperformance by key customers and certain other
third parties could adversely affect our financial position, results of operations and cash flows. If any key customers or other
parties default on their obligations to us, our financial results and condition could be adversely affected. Furthermore, some
of these customers and other parties may be highly leveraged and subject to their own operating and regulatory risks.
Our operations might be interrupted by the occurrence
of a natural disaster or other catastrophic event.
Natural disasters or other catastrophic
events could disrupt our operations or those of our strategic partners, contractors and vendors. We might suffer losses as a result
of business interruptions that exceed the coverage available under our and our contractors' insurance policies or for which we
or our contractors do not have coverage. Any natural disaster or catastrophic event could have a significant negative impact on
our operations and financial results, and could delay our efforts to identify and execute any strategic opportunities.
USE OF PROCEEDS
Unless we specify otherwise in a prospectus
supplement, we intend to use the net proceeds from our sale of the securities under this prospectus for general corporate purposes,
which may include making additions to our working capital, funding future acquisitions, or for any other purpose we describe in
the applicable prospectus supplement.
THE SECURITIES WE MAY OFFER
The descriptions of the securities contained
in this prospectus summarize all the material terms and provisions of the various types of securities that we may offer. The particular
terms of the securities offered by any prospectus supplement will be described in that prospectus supplement. If indicated in an
applicable prospectus supplement, the terms of the securities may differ from the terms summarized below. An applicable prospectus
supplement will also contain information, where applicable, about material U.S. federal income tax considerations relating to the
securities, and the securities exchange, if any, on which the securities will be listed.
We may sell from time to time, in one or
more offerings:
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common stock; |
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preferred stock; |
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warrants; or |
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units. |
If we issue securities at a discount from
their original stated principal or liquidation amount, then, for purposes of calculating the total dollar amount of all securities
issued under this prospectus, we will treat the initial offering price of the securities as the total original principal or liquidation
amount of the securities.
This prospectus may not be used to sell
securities unless it is accompanied by a prospectus supplement.
DESCRIPTION OF CAPITAL STOCK
Common Stock
For all matters submitted to a vote of EnerJex
stockholders, each holder of EnerJex common stock is entitled to one vote for each share registered in the holder's name on EnerJex's
books. EnerJex common stock does not have cumulative voting rights. The holders of a majority of the shares of EnerJex common stock
can elect all of the directors standing for election. Subject to limitations under Nevada law and preferences that may be applicable
to any then outstanding preferred stock, holders of EnerJex common stock are entitled to receive ratably those dividends, if any,
as may be declared by the EnerJex board of directors out of legally available funds. Upon the liquidation, dissolution or winding
up of EnerJex, the holders of EnerJex common stock will be entitled to share ratably in the net assets legally available for distribution
to stockholders after the payment of all of EnerJex's debts and other liabilities, subject to the prior rights of any preferred
stock then outstanding. All shares of outstanding EnerJex common stock are fully paid and nonassessable. Holders of EnerJex common
stock do not have preemptive or subscription rights, and they have no right to convert their EnerJex common stock into any other
securities. There are no redemption or sinking fund provisions applicable to the EnerJex common stock. The rights, preferences
and privileges of the holders of EnerJex common stock are subject to the rights of the holders of any series of preferred stock
which EnerJex may designate in the future. EnerJex's articles of incorporation and bylaws do not restrict the ability of a holder
of EnerJex common stock to transfer the holder's shares of EnerJex common stock.
Our common stock is currently quoted on
the NYSE MKT under the trading symbol “ENRJ” and our Series A preferred stock is currently quoted on the NYSE MKT under
the trading symbol “ENRJPR”.
Preferred Stock
The EnerJex board of directors is authorized,
without approval of EnerJex stockholders subject to any limitations prescribed by law, to issue up to an aggregate of 25 million
shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed
upon the preferred stock, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences.
The rights of the holders of EnerJex common stock and Series A preferred stock (with the prior approval of the holders of a majority
of the issued and outstanding shares of the Series A preferred stock) will be subject to, and may be adversely affected by, the
rights of holders of any preferred stock that may be issued in the future. The EnerJex board of directors could authorize the issuance
of shares of preferred stock with terms and conditions more favorable than the EnerJex common stock or Series A preferred stock
(with the prior approval of the holders of a two-thirds of the issued and outstanding shares of the Series A preferred stock) and
with rights that could adversely affect the voting power or other rights of holders of the EnerJex common stock or Series A preferred
stock. Prior to issuance of shares of each series of undesignated preferred stock, the EnerJex board of directors is required by
the Nevada Revised Statutes and EnerJex's amended and restated articles of incorporation to adopt resolutions and file a Certificate
of Designations with the Secretary of State of the State of Nevada, fixing for each such series the designations, powers, preferences,
rights, qualifications, limitations and restrictions of the shares of such series. If such new series of preferred stock has rights
that are senior or equal to those of the Series A preferred stock with respect to dividends or liquidation proceeds, then the terms
of such new series must be approved by holders of two-thirds of the issued and outstanding shares of Series A preferred stock.
Issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes,
could have the effect of delaying, deferring or preventing a change in control of EnerJex.
Anti-Takeover Effects of Provisions of EnerJex's Amended
and Restated Articles of Incorporation and Bylaws and Nevada Law
Some provisions of EnerJex's amended and
restated articles of incorporation and bylaws and Nevada law contain provisions that could make the following transactions more
difficult: an acquisition of EnerJex by means of a tender offer; an acquisition of EnerJex by means of a proxy contest or otherwise;
or removal of EnerJex's incumbent officers and directors. It is possible that these provisions could make it more difficult to
accomplish or could deter transactions that EnerJex stockholders may otherwise consider to be in their best interest or in EnerJex's
best interests, including transactions that might result in a premium over the market price for EnerJex's shares.
These provisions, summarized below, are
designed to discourage coercive takeover practices and inadequate takeover bids. These provisions also are designed to encourage
persons seeking to acquire control of EnerJex to first negotiate with the EnerJex board of directors. The EnerJex board of directors
believes that the benefits of increased protection of its potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure EnerJex outweigh the disadvantages of discouraging these proposals because negotiation
of these proposals could result in an improvement of their terms.
Amended and Restated Articles of Incorporation and Amended
and Restated Bylaws
The following provisions in EnerJex's amended
and restated articles of incorporation and bylaws could delay or discourage transactions involving an actual or potential change
in control or change in EnerJex's management, including transactions that EnerJex stockholders may otherwise consider to be in
their best interest or in EnerJex's best interests, including transactions that might result in a premium over the market price
for EnerJex's shares.
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Authorized But Unissued Capital Stock. EnerJex has shares of common stock and undesignated preferred stock available for future issuance without stockholder approval. EnerJex may use these additional shares for a variety of corporate purposes, including for future public offerings to raise additional capital or to facilitate corporate acquisitions or for payment as a dividend on its capital stock. The existence of unissued and unreserved capital stock may enable the EnerJex board of directors to issue shares to persons friendly to current management that could render more difficult or discourage a third-party attempt to obtain control of EnerJex by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of EnerJex's management. In addition, the ability to authorize undesignated preferred stock makes it possible for the EnerJex board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of EnerJex. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of EnerJex. |
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Stockholder Meetings. EnerJex's amended and restated bylaws provide that a special meeting of stockholders may be called only by EnerJex's chairman of the board, president and chief executive officer, or by the EnerJex board of directors. |
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Requirements for Advance Notification of Stockholder Nominations and Proposals. EnerJex's amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the EnerJex board of directors or a committee of the EnerJex board of directors. |
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No Cumulative Voting Rights. EnerJex's amended and restated articles of incorporation and bylaws do not provide for cumulative voting rights. The holders of a majority of the shares of common stock entitled to vote in any election of directors, voting together as a single class, can elect all of the directors standing for election. |
Nevada Anti-Takeover Law
As a Nevada corporation, EnerJex is subject
to Section 78.411 to 78.444 of the Nevada Revised Statutes. This law prohibits a publicly-held Nevada corporation from engaging
in any business combination with any interested stockholder for a period of three years following the date that the stockholder
became an interested stockholder unless:
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prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85 percent of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
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on or subsequent to the date of the transaction, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
Section 78-416 of the Nevada Revised
Statues defines "business combination" to include:
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any merger or consolidation involving the corporation and the interested stockholder; |
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any sale, transfer, pledge or other disposition of 10 percent or more of the corporation's assets involving the interested stockholder; |
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in general, any transaction that results in the issuance or transfer by the corporation of any of its stock to the interested stockholder; or |
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the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
Limitation of Liability and Indemnification
EnerJex's amended and restated articles
of incorporation contains certain provisions permitted under the Nevada Revised Statutes relating to the liability of directors.
The provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions that involve intentional misconduct or a
knowing violation of law.
In addition, EnerJex's amended and restated
articles of incorporation contain provisions to indemnify EnerJex's directors and officers to the fullest extent permitted by the
Nevada Revised Statutes.
Transfer Agent and Registrar
The transfer agent and registrar for EnerJex
common stock and Series A preferred stock is Standard Registrar & Transfer Co., Inc.
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of
shares of our common stock or preferred stock. We may issue warrants independently or together with other securities, and the warrants
may be attached to or separate from any offered securities. Each series of warrants will be issued under a separate warrant agreement
to be entered into between us and the investors or a warrant agent. The following summary of material provisions of the warrants
and warrant agreements are subject to, and qualified in their entirety by reference to, all the provisions of the warrant agreement
and warrant certificate applicable to a particular series of warrants. The terms of any warrants offered under a prospectus supplement
may differ from the terms described below. We urge you to read the applicable prospectus supplement and any related free writing
prospectus, as well as the complete warrant agreements and warrant certificates that contain the terms of the warrants.
The particular terms of any issue of warrants
will be described in the prospectus supplement relating to the issue. Those terms may include:
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the number of shares of common stock or preferred stock purchasable upon the exercise of warrants to purchase such shares and the price at which such number of shares may be purchased upon such exercise; |
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the designation, stated value and terms (including, without limitation, liquidation, dividend, conversion and voting rights) of the series of preferred stock purchasable upon exercise of warrants to purchase preferred stock; |
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the terms of any rights to redeem or call the warrants; |
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the date on which the right to exercise the warrants will commence and the date on which the right will expire; |
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United States Federal income tax consequences applicable to the warrants; and |
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any additional terms of the warrants, including terms, procedures, and limitations relating to the exchange, exercise and settlement of the warrants. |
Holders of equity warrants will not be entitled:
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to vote, consent or receive dividends; |
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receive notice as stockholders with respect to any meeting of stockholders for the election of our directors or any other matter; or |
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exercise any rights as stockholders of EnerJex. |
Each warrant will entitle its holder to
purchase the number of shares of preferred stock or common stock at the exercise price set forth in, or calculable as set forth
in, the applicable prospectus supplement. Unless we otherwise specify in the applicable prospectus supplement, holders of the warrants
may exercise the warrants at any time up to the specified time on the expiration date that we set forth in the applicable prospectus
supplement. After the close of business on the expiration date, unexercised warrants will become void.
A holder of warrant certificates may exchange
them for new warrant certificates of different denominations, present them for registration of transfer and exercise them at the
corporate trust office of the warrant agent or any other office indicated in the applicable prospectus supplement. Until any warrants
to purchase common stock or preferred stock are exercised, the holders of the warrants will not have any rights of holders of the
underlying common stock or preferred stock, including any rights to receive dividends or payments upon any liquidation, dissolution
or winding up on the common stock or preferred stock, if any.
DESCRIPTION OF UNITS
We may issue units consisting of any combination
of the other types of securities offered under this prospectus in one or more series. We may evidence each series of units by unit
certificates that we will issue under a separate agreement. We may enter into unit agreements with a unit agent. Each unit agent
will be a bank or trust company that we select. We will indicate the name and address of the unit agent in the applicable prospectus
supplement relating to a particular series of units.
The following description, together with
the additional information included in any applicable prospectus supplement, summarizes the general features of the units that
we may offer under this prospectus. You should read any prospectus supplement and any free writing prospectus that we may authorize
to be provided to you related to the series of units being offered, as well as the complete unit agreements that contain the terms
of the units. Specific unit agreements will contain additional important terms and provisions and we will file as an exhibit to
the registration statement of which this prospectus is a part, or will incorporate by reference from another report that we file
with the SEC, the form of each unit agreement relating to units offered under this prospectus.
If we offer any units, certain terms of
that series of units will be described in the applicable prospectus supplement, including, without limitation, the following, as
applicable:
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the title of the series of units; |
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identification and description of the separate constituent securities comprising the units; |
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the price or prices at which the units will be issued; |
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the date, if any, on and after which the constituent securities comprising the units will be separately transferable; |
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a discussion of certain United States federal income tax considerations applicable to the units; and |
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any other terms of the units and their constituent securities. |
PLAN OF DISTRIBUTION
We may sell the securities covered by this
prospectus from time to time in one or more offerings. Registration of the securities covered by this prospectus does not mean,
however, that those securities will necessarily be offered or sold.
We may sell the securities separately or
together:
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through one or more underwriters or dealers in a public offering and sale by them; |
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directly to investors, including our affiliates and stockholders, or in a rights offering; |
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through agents; or |
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through any combination of any of these methods of sale. |
We may sell the securities from time to
time:
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in one or more transactions at a fixed price or prices, which may be changed from time to time; |
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at market prices prevailing at the times of sale; |
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in "at the market offerings," within the meaning of Rule 415(a)(4) of the Securities Act of 1933, as amended (the "Securities Act"), to or through a sales agent or market maker or into an existing trading market, on an exchange or otherwise; |
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at prices related to such prevailing market prices; or |
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at negotiated prices. |
Each time we sell securities covered by
this prospectus, we will describe the method of distribution of the securities and the terms of the offering in the prospectus
supplement or free writing prospectus. Any discounts or concessions allowed or re-allowed or paid to dealers may be changed from
time to time.
We may engage in at-the-market offerings
into an existing trading market in accordance with Rule 415(a)(4) under the Securities Act, and we may also sell securities
through a rights offering, forward contracts or similar arrangements. In any distribution of subscription rights to stockholders,
if all of the underlying securities are not subscribed for, we may then sell the unsubscribed securities directly to third parties
or may engage the services of one or more underwriters, dealers or agents, including standby underwriters, to sell unsubscribed
securities to third parties.
If underwriters are used in the sale of
any securities, the securities will be acquired by the underwriters for their own account and may be resold from time to time in
one or more transactions described above. The securities may be either offered to the public through underwriting syndicates represented
by managing underwriters, or directly by underwriters. Generally, the underwriters' obligations to purchase the securities will
be subject to conditions precedent and the underwriters will be obligated to purchase all of the securities if they purchase any
of the securities. We may use underwriters with whom we have a material relationship. We will describe in the prospectus supplement
or free writing prospectus, naming the underwriter, the nature of any such relationship.
We may designate agents to sell the securities.
Unless otherwise specified in connection with any particular sale of securities, the agents will agree to use their best efforts
to solicit purchases for the period of their appointment.
We may authorize underwriters, dealers or
agents to solicit offers by certain purchasers to purchase the securities from us at the public offering price set forth in the
prospectus supplement or free writing prospectus pursuant to delayed delivery contracts providing for payment and delivery on a
specified date in the future. The contracts will be subject only to those conditions set forth in the prospectus supplement or
free writing prospectus, and the prospectus supplement or free writing prospectus will set forth any commissions we pay for solicitation
of these contracts.
We may enter into derivative transactions
with third parties, or sell securities not covered by this prospectus to third parties in privately negotiated transactions. If
the applicable prospectus supplement indicates, in connection with those derivatives, the third parties may sell securities covered
by this prospectus and the applicable prospectus supplement, including in short sale transactions. If so, the third party may use
securities pledged by us or borrowed from us or others to settle those sales or to close out any related open borrowings of stock,
and may use securities received from us in settlement of those derivatives to close out any related open borrowings of stock. The
third party in such sale transactions will be an underwriter and will be identified in the applicable prospectus supplement or
in a post-effective amendment.
Underwriters, dealers and agents may be
entitled to indemnification by us against certain civil liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments made by the underwriters, dealers or agents, under agreements between us and the underwriters, dealers
and agents.
We may grant underwriters who participate
in the distribution of securities an option to purchase additional securities to cover over-allotments, if any, in connection with
the distribution.
Underwriters, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from us or our purchasers, as their agents in connection with
the sale of securities. These underwriters, dealers or agents may be considered to be underwriters under the Securities Act. As
a result, discounts, commissions or profits on resale received by the underwriters, dealers or agents may be treated as underwriting
discounts and commissions. The prospectus supplement or free writing prospectus will identify any such underwriter, dealer or agent
and describe any compensation received by them from us. Any initial public offering price and any discounts or concessions allowed
or re-allowed or paid to dealers may be changed from time to time.
Any common stock or preferred sold pursuant
to a prospectus supplement or free writing prospectus will be listed for trading on the NYSE MKT.
Any underwriter may engage in over-allotment
transactions, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation M under
the Exchange Act. Over-allotment involves sales in excess of the offering size, which create a short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Short covering
transactions involve purchases of the securities in the open market after the distribution is completed to cover short positions.
Penalty bids permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer
are purchased in a covering transaction to cover short positions. T hose activities may cause the price of the securities to be
higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time. We make no
representation or prediction as to the direction or magnitude of any effect that such transactions may have on the price of the
securities. For a description of these activities, see the information under the heading "Underwriting" or "Plan
of Distribution" in the applicable prospectus supplement.
Underwriters, broker-dealers or agents who
may become involved in the sale of the common stock may engage in transactions with and perform other services for us in the ordinary
course of their business for which they receive compensation.
LEGAL MATTERS
Reicker, Pfau, Pyle & McRoy LLP will
pass upon certain legal matters relating to the issuance and sale of the securities offered hereby on behalf of EnerJex. Additional
legal matters may be passed upon for us, or any underwriters, dealers or agents, by counsel that we will name in the applicable
prospectus supplement.
EXPERTS
The financial statements of EnerJex as of
December 31, 2014, and for the year ended December 31, 2014, incorporated in this prospectus by reference, and the effectiveness
of EnerJex's internal control over financial reporting as of December 31, 2014, has been audited by RBSM, LLC, an independent
registered public accounting firm, as stated in their reports. Such financial statements have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in accounting and auditing.
The financial statements of EnerJex as of
December 31, 2013, and for the year ended December 31, 2013, incorporated in this prospectus by reference, and the effectiveness
of EnerJex's internal control over financial reporting as of December 31, 2013, has been audited by L.L. Bradford & Company,
LLC, an independent registered public accounting firm, as stated in their reports. Such financial statements have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
The information incorporated in this prospectus
by reference, as of December 31, 2014 and 2013 relating to EnerJex’s estimated quantities of oil and gas reserves is
derived from reserve reports prepared by MHA Petroleum Consultants LLC. This information is included in this prospectus in reliance
upon such firm as experts in matters contained in the reports.
ENERJEX RESOURCES, INC.
183,433
Shares of 10% Series A Cumulative Redeemable Preferred Stock
Northland Capital Markets |
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Euro Pacific Capital Group, Inc. |
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