KESTREL ENERGY, INC.
2,502,000 shares of Common Stock, without par value
------------------
All 2,502,000 shares (the "Shares") of the Common Stock of
Kestrel Energy, Inc. (the "Company") offered hereby are being sold by
holders of shares of the Company's Common Stock purchased in the Company's
recent Regulation S offering, which offering is described in the Company's
Form 8-K dated April 30, 1997 (the "Selling Shareholders"). The Shares
will be offered by the Selling Shareholders from time to time (i) at
market prices prevailing on the Nasdaq SmallCap Market at the time of
offer and sale or at prices related to such prevailing market prices, (ii)
in negotiated transactions, or (iii) in a combination of such methods of
sale. The Selling Shareholders may effect such transactions by offering
and selling the Shares directly to or through securities broker-dealers,
and such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agent or
to whom the Selling Shareholders may sell as principal, or both (which
compensation as to a particular broker-dealer might be in excess of
customary commissions). See "The Selling Shareholders" and "Sale of
Shares." The last reported sale price of the Common Stock reported on the
Nasdaq SmallCap Market on June 4, 1997 was $2.50.
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by the Company. The Company has agreed to
bear all expenses in connection with the registration and sale of the
shares being offered by the Selling Shareholders, other than compensation
payable to securities broker-dealers by the Selling Shareholders and/or
the purchasers of the Shares, any securities broker-dealer expense
allowances and fees and expenses of counsel and other advisors to the
Selling Shareholders and transfer taxes.
THESE ARE SPECULATIVE SECURITIES.
SUCH SECURITIES INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
No persons have been authorized to give any information or to
make any representation not contained in this Prospectus in connection
with the offering of securities made hereby and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Company or any other person. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities by any person in any jurisdiction in which it is unlawful to
make any such offer or solicitation of an offer. Neither the delivery of
this Prospectus nor any distribution of securities offered hereby shall,
under any circumstances, create an implication that there has been no
change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to its date.
The date of this Prospectus is June 5, 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed
with the Commission may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at
7 World Trade Center, New York, New York 10048, and Suite 1400 Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a site on the World Wide
Web at http://www.sec.gov/edgarhp.htm that contains reports, proxy and
information statements and other information concerning registrants that
file electronically with the Commission. The Common Stock is traded on
the Nasdaq SmallCap Market. Information filed by the Company with Nasdaq
may be inspected at the offices of Nasdaq at 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration
Statement on Form S-3 (together with any amendments thereto, the
"Registration Statement") under the Securities Act of 1993, as amended
(the "Securities Act") with respect to the securities to be sold pursuant
to this Prospectus. This Prospectus does not contain all the information
set forth in the Registration Statement. Such additional information may
be inspected and copied at the Public Reference Section of the Commission,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in its entirety by such reference. All
references herein to the Company include the Company and its wholly-owned
subsidiary.
This Prospectus incorporates by reference documents which are
not presented herein or delivered herewith. Copies of these documents
(other than exhibits to such documents unless such exhibits are
specifically incorporated by reference) are available to any person,
including any beneficial owner, to whom this Prospectus is delivered, on
written or oral request, without charge, directed to Timothy L. Hoops,
President, Kestrel Energy, Inc., 999 18th Street, Suite 1100, Denver,
Colorado 80202 (telephone number: (303) 295-0344).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference
(Commission File No.0-9261):
1. Annual Report on Form 10-K for the year ended June 30,
1996, filed September 30, 1996;
2. Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, filed November 14, 1996;
3. Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, filed February 14, 1997;
4. Quarterly Report on Form 10-Q for the quarter ended March
31, 1997, filed May 15, 1997;
5. The section entitled "Description of Securities to be
Registered" contained in the Company's registration statement on Form 8-A,
File No. 0-9261, filed on May 2, 1980 pursuant to Section 12(g) of the
Exchange Act, as amended by the Company's Form S-3, File No. 33-89716,
declared effective on May 12, 1995; and
6. Form 8-K dated April 30, 1997, filed May 8, 1997.
All documents and reports subsequently filed with the Commission
by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from
the date of filing such documents or reports. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein (or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference herein) modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
A copy of the documents incorporated by reference other than
exhibits to such documents (unless such exhibits are specifically
incorporated by reference in the information contained in this
Prospectus), may be obtained upon request without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered upon the written or oral request of such person. Requests for
such copies should be made to Timothy L. Hoops, President, Kestrel Energy,
Inc., 999 18th Street, Suite 1100, Denver, Colorado 80202 (telephone
number: (303)295-0344). In addition, such materials filed electronically
by the Company with the Commission are available at the Commission's World
Wide Web site at http://www.sec.gov/edgarhp.htm.
THE COMPANY
Kestrel was incorporated under the laws of the State of Colorado
on November 1, 1978 as Tanner Pruitt Exploration, Inc. In March 1995 the
Company changed its name to Kestrel Energy, Inc. The Company's principal
business at this time is exploration for oil and gas reserves, either
alone or with others in the United States, Australia and surrounding
areas. Additionally the Company has non-operated working interests in
proved developed producing and proved undeveloped oil and gas leases, in
several areas in the United States. Normally the Company uses existing
working capital and cash flow in the development of its exploration and
development properties. However, the Company does expect to use debt and
equity financing in the future to fund its efforts.
The Company presently owns oil and gas interests in the states
of California, Colorado, Kansas, Louisiana, New Mexico, Oklahoma, South
Dakota, Texas and Wyoming and in Papua New Guinea and Australia.
The Company's offices are located at 999 18th Street, Suite
1100, Denver, Colorado 80202. The Company's telephone number is (303)
295-0344.
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMPANY'S COMMON STOCK SHOULD
CAREFULLY CONSIDER, TOGETHER WITH THE OTHER INFORMATION HEREIN, THE
FOLLOWING FACTORS THAT AFFECT THE COMPANY.
RISKS OF OIL AND GAS DRILLING OPERATIONS
The Company must continually acquire and explore for and develop
new oil and gas reserves to replace those being depleted by production.
Without successful drilling or acquisition ventures, the Company's assets,
properties and revenues will decline. Oil and gas exploration and
development are speculative and involve a high degree of risk. The
process of drilling for oil and gas can be hazardous and carries the risk
that no commercially viable oil or gas production will be obtained. The
cost of drilling, completing and operating wells is often uncertain.
Moreover, drilling may be curtailed, delayed or canceled as a result of
many factors, including title problems, weather conditions, shortages or
delays in delivery of equipment, as well as the financial instability of
well operators, major working interest owners and well servicing
companies.
A significant portion of the Company's oil and gas properties
are proved undeveloped reserves and probable reserves. Successful
development and production of such reserves cannot be assured. Additional
drilling will be necessary in future years both to maintain production
levels and to define the extent and recoverability of existing reserves.
There is no assurance that present oil and gas wells of the Company will
continue to produce at current or anticipated rates of production, that
development drilling will be successful, that production of oil and gas
will commence when expected, that there will be favorable markets for oil
and gas which may be produced in the future or that production rates
achieved in early periods can be maintained.
The nature of the oil and gas business involves a variety of
risks, including, but not limited to, the risks of operating hazards such
as fires, explosions, cratering, blowouts, adverse weather conditions,
pollution and environmental risks, encountering formations with abnormal
pressures, and, in horizontal wellbores, the increased risk of mechanical
failure and collapsed holes, the occurrence of any of which could result
in substantial losses to the Company. The Company obtains insurance
against some, but not all, of these risks in amounts that management
believes to be reasonable in accordance with customary oil and gas
industry practices. The occurrence of a significant event that is not
fully insured, however, could have a material adverse effect on the
Company's financial condition and results of operations.
POTENTIAL ADVERSE IMPACT ON TRADING MARKET
While the Company's Common Stock is traded on the Nasdaq
SmallCap Market, there has historically been a relatively low volume of
trading in those Shares. Consequently, the price at which Shares trade
may be highly volatile. The Selling Shareholders are not restricted as to
the price or prices at which they may sell their Shares. Sales of such
Shares at less than the market prices may depress the market price of the
Company's Common Stock. Moreover, the Selling Shareholders are not
restricted as to the number of Shares which may be sold at any one time,
and it is possible that a significant number of Shares could be sold at
the same time which may have a depressive effect on the market price of
the Company's Common Stock. The Shares being offered hereby represent
56.7% of the Company's outstanding Common Stock. Given the historic low
volume of trading, sale of these Shares in the market could materially and
adversely affect the market price of the Company's securities. In
addition, although the Common Stock is currently traded on the Nasdaq
SmallCap Market, there is no assurance that it will remain eligible to be
included on Nasdaq.
OIL AND GAS PRICING AND MARKETS
The Company's revenues, profitability and future rate of growth,
if any, are substantially dependent upon prevailing prices for oil and
natural gas and the ability of the Company to develop and produce its
undeveloped reserves. Historically, the prices for oil and natural gas
have been quite volatile. Further, a significant portion of the Company's
oil and gas production is subject to spot market prices, which have
historically been even more volatile. The volatility of the spot market
for oil and natural gas is due to factors beyond the Company's control,
including seasonality of demand and currency fluctuations. Prices are
also affected by actions of state and local agencies, the United States
and foreign governments, and international cartels. These external
factors and the volatile nature of the energy markets make it difficult to
estimate future prices of oil and natural gas. Any substantial or
extended decline in the price of oil or natural gas would have a material
adverse effect on the Company's financial condition and results of
operations.
The availability of a ready market for the Company's oil and gas
depends on numerous factors beyond its control, including the demand for
and the supply of oil and gas, the proximity of the Company's natural gas
reserves to pipelines, the capacity of such pipelines, fluctuations in
production and seasonal demand, the effects of inclement weather and
governmental regulation. Gas wells may be shut-in for lack of a market
until a gas pipeline or gathering system with available capacity is
extended into the area. Oil wells may have production curtailed until
production facilities and delivery arrangements are acquired or developed.
The Company's business will always be subject to these types of risks.
DEPENDENCE ON KEY PERSONNEL
The success of the Company will largely be dependent upon the
efforts and active participation of Timothy L. Hoops, the President of the
Company, John T. Kopcheff, Vice President-International and Robert J.
Pett, the Chairman of the Board. The Company presently does not have key
person life insurance on the lives of any of its officers. The loss of
the services of any of these individuals may adversely affect the
Company's business.
COMPETITION
The Company operates in a highly competitive environment. The
Company competes with major and independent oil and gas companies for the
acquisition of desirable oil and gas properties, as well as the equipment
and labor required to develop and operate such properties. The Company
also competes with major and independent oil and gas companies in the
marketing and sale of oil and natural gas to transporters, distributors
and end-users. Many of these competitors have financial and other
resources substantially greater than those of the Company.
RELIANCE ON RESERVE ESTIMATES
Information relating to the Company's estimates of proved
reserves of oil and gas is based upon engineering estimates. Petroleum
engineering is not an exact science. Estimates of commercially
recoverable oil and gas reserves and of the future net cash flows
therefrom are based upon a number of variable factors and assumptions,
such as historical production from the subject properties, comparison with
other producing properties, the assumed effects of regulation by
governmental agencies and assumptions concerning future oil and gas prices
and future operating costs, severance and excise taxes, abandonment costs,
development costs and workover and remedial costs, all of which estimates
may in fact vary considerably from actual results. All such estimates are
to some degree speculative, and various classifications of reserves are
only attempts to define the degree of speculation involved. For these
reasons, estimates of the commercially recoverable reserves of oil and
natural gas attributable to any particular property or group of
properties, the classification, cost and risk of recovering such reserves
and estimates of the future net cash flows expected therefrom prepared by
different engineers or by the same engineers at different times, may vary
substantially. The Company therefore emphasizes that the actual
production, revenues, severance and excise taxes, development
expenditures, workover success rate and remedial expenditures, abandonment
expenditures and operating expenditures with respect to its reserves will
likely vary from such estimates, and such variances may be material.
In addition, actual future net cash flows will be affected by
factors such as actual production, supply and demand for oil and natural
gas, curtailments or increases in consumption by natural gas purchasers,
changes in governmental regulations or taxation and the impact of
inflation on costs. The timing of actual future net revenue from proved
reserves, and thus their actual present value, can be affected by the
timing of the incurrence of expenditures in connection with development of
oil and gas properties. The 10% discount factor, which is required by the
United States Securities and Exchange Commission to be used to calculate
present value for reporting purposes, is not necessarily the most
appropriate discount factor based on interest rates in effect from time to
time and risks associated with the oil and gas industry. Discounted
present value, no matter what discount rate is used, is materially
affected by assumptions as to the amount and timing of future production
and pricing of oil and gas, all of which may and often do prove to be
inaccurate.
GOVERNMENT REGULATION, ENVIRONMENTAL RISKS AND TAXES
Various aspects of the Company's oil and natural gas operations
in the United States are regulated by administrative agencies under
statutory provisions of the states where such operations are conducted and
by certain agencies of the federal government for operations on federal
leases. In the past, the federal government has regulated the prices at
which oil and natural gas could be sold. While sales by producers of
natural gas, and all sales of crude oil, condensate and natural gas
liquids can currently be made at uncontrolled market prices, the United
States Congress could reenact price controls in the future.
Extensive federal, state and local laws govern oil and gas
operations regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment. Numerous
governmental departments issue rules and regulations to implement and
enforce such laws, with which it is often difficult and costly to comply
and which carry substantial penalties for noncompliance. These laws,
rules and regulations may restrict the rate of oil and gas production or
otherwise increase the Company's costs of doing business. Consequently,
any such restrictions or increases could have an effect on the operations
of the Company and its profitability. Compliance with environmental
requirements generally could have a material adverse effect upon the
capital expenditures, earnings or competitive position of the Company.
Although the Company's experience has been to the contrary, there is no
assurance that this will continue to be the case.
In addition, many states have raised state taxes on energy
sources and additional increases may occur, although there can be no
certainty of the effect that increases in state energy taxes would have on
natural gas and oil prices. If market conditions or the Company's
contracts with gas purchasers do not allow the Company to effectively pass
on the burden of the tax imposed to the ultimate consumer of oil or gas,
the Company's financial condition and results of operations could be
materially adversely affected.
The Company's drilling and potential development operations in
other countries involve comparable or even greater risks from governmental
regulation and taxes, including the risk of partial or complete forfeiture
of the Company's interests to the foreign government as the result of a
radical change in such government or its policies. While the Company does
not believe that there is a material risk of government seizure of some or
all of its interests in any of the foreign countries in which it currently
proposes doing business, such action remains a possibility, albeit a
remote one.
DIVIDENDS NOT LIKELY
The Company does not anticipate paying any dividends on the
shares of Common Stock offered hereby within the foreseeable future. The
Company's Articles of Incorporation authorize the issuance of one million
shares of Preferred Stock, none of which is currently outstanding.
Therefore, the Company does not anticipate paying any dividends on the
shares of Preferred Stock.
USE OF PROCEEDS
The Company will not receive any proceeds from this offering;
however, the Company received net proceeds of approximately $4,674,000
(after deducting estimated offering expenses of $330,000, including
$270,000 in placement agent fees) from the sale of the Shares in the
Company's Regulation S offering, through which the Selling Shareholders
acquired the 2,502,000 Shares to be offered and sold hereunder. The
Company intends to spend approximately $2,500,000 in development of its
recently acquired properties in the San Joaquin Basin Project in
California. The Company has also identified several other U.S. domestic
development projects which would require approximately $1,186,000.
Additionally the Company intends to spend approximately $500,000 towards
international exploration activities in Papua New Guinea, Australia and
southeast Asia. In addition, subject to management's determination that
there are appropriate opportunities, the Company may use the remaining
proceeds, together with its operating cash flow and a bank line of credit,
to acquire producing properties or exploration or developmental
opportunities.
The proposed allocation of the net proceeds of the Company's
Regulation S offering set forth above represents the Company's best
estimate based upon its present plans and certain assumptions regarding
general economic and industry conditions and the Company's future revenues
and expenditures. If any of these factors change, the Company may find it
necessary or advisable to reallocate some of the proceeds within the above
described categories or use portions thereof for other purposes.
The Selling Shareholders have agreed to pay all commissions and
other compensation to any securities broker-dealers through whom they sell
any of the Shares.
THE SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
Selling Shareholders and the Shares offered by the Selling Shareholders
pursuant to this Prospectus. To the Company's knowledge, the Selling
Shareholders have not had any other material relationship or held any
office or position with the Company, its predecessors or affiliates during
the past three years.
<TABLE>
<CAPTION>
Shares to Be
Beneficially
Owned on
Completion of the
Offering
Number of
Shares Number of
Name of Selling Beneficially Shares Being % of
Shareholder (1) Owned Offered Number Class
--------------- ------------ ------------ ------ -----
<S> <C> <C> <C> <C>
Steven Horton 2,250 2,250 0 *
David Andersen 2,000 2,000 0 *
Guy Aird 3,250 3,250 0 *
Margaret Rich 20,000 20,000 0 *
Raymond G. Barnes 10,000 10,000 0 *
J.J.F. Delfos 10,000 10,000 0 *
Bella Horton 5,000 5,000 0 *
Hamish Smith 5,000 5,000 0 *
Tyra M. Williams 10,000 10,000 0 *
Jendry Management Pty. 10,000 10,000 0 *
Ron Prefontaine 2,000 2,000 0 *
Ian Paton 10,000 10,000 0 *
Falcon Resources Pty. Ltd. 15,000 15,000 0 *
Daphne Kopcheff 10,000 10,000 0 *
Nieuport Pty. Ltd. 40,000 40,000 0 *
Ross H. Haldane 2,000 2,000 0 *
Mitabel Pty. Ltd. 5,000 5,000 0 *
Meng Kanji Lim 15,000 15,000 0 *
Robert Archer Black 20,000 20,000 0 *
Jeffrey Roche 10,000 10,000 0 *
Stephanie Hodge 2,500 2,500 0 *
Graham Daniels 3,000 3,000 0 *
Roger Blake 2,000 2,000 0 *
Lakes Oil N.L. 50,000 50,000 0 *
James Capel & Co. 200,000 200,000 0 *
Donald Tulloch 5,000 5,000 0 *
William Tulloch 5,000 5,000 0 *
Kenneth Lewis Tulloch 5,000 5,000 0 *
Mark Syropoulo 35,000 35,000 0 *
Syrops & Co. Pty. Ltd. 5,000 5,000 0 *
Derain Pty. Ltd. 15,000 15,000 0 *
Australasian Syndication 5,000 5,000 0 *
Management Services Pty.
Ltd.
Haifa Pty. Ltd. 10,000 10,000 0 *
Stenbank Pty. Ltd. 10,000 10,000 0 *
Universal Oil (Australia) 50,000 50,000 0 *
Pty. Ltd.
Gacaked Pty. Ltd. 5,000 5,000 0 *
Drilltech Services Pty. 10,000 10,000 0 *
Ltd.
Austrust Ltd. 10,000 10,000 0 *
Running Water Limited 20,000 20,000 0 *
Clifton Y. Adams 5,000 5,000 0 *
(T/F Trueman Trust)
Ivanhoe Pty. Ltd. 1,000 1,000 0 *
Peter John Nelson 7,500 7,500 0 *
Blackmort Nominees 12,500 12,500 0 *
Pty. Ltd.
Orebrod Nominees Pty. Ltd. 20,000 20,000 0 *
Narrow Lane Pty. Ltd. 5,000 5,000 0 *
Advena Nominees Pty. Ltd. 5,000 5,000 0 *
V.L.H. Pty. Ltd. (as 10,000 10,000 0 *
Trustee for V.L.H. Pty.
Ltd. Superannuation Fund)
Francesca Carulili 20,000 20,000 0 *
Cazenove & Co. 100,000 100,000 0 *
Anz Grindlays Nominee 125,000 125,000 0 *
Limited
Woodspeen Investment 40,000 40,000 0 *
Management Ltd.
Cuent A/C
John Bernard Marsh 50,000 50,000 0 *
Booth & Co. 840,000 840,000 0 *
CM Investment Nominees 80,000 80,000 0 *
Limited
CM Investment Nominees 37,000 37,000 0 *
Limited Account 49136
CM Investment Nominees 125,000 125,000 0 *
Limited Account 48437
Hare & Co. 125,000 125,000 0 *
Fiske Nominees Limited 40,000 40,000 0 *
Thorney Pty. Ltd. 150,000 150,000 0 *
Pershing Keen Nominees 50,000 50,000 0 *
Limited
</TABLE>
==========================================================================
(1) Effective as of April 30, 1997, all of the above named Selling
Shareholders purchased 2,502,000 Shares pursuant to a private offering of
the Shares in Canada, Europe and Australia and elsewhere in accordance
with Regulation S under the Securities Act. Prior to the private
offering, the Company had no relationship with the Selling Shareholders.
PLAN OF DISTRIBUTION
All of the Shares offered hereby are being sold by the Selling
Shareholders. The Shares will be offered by the Selling Shareholders from
time to time (i) at market prices prevailing on the Nasdaq SmallCap Market
at the time of offer and sale or at prices related to such prevailing
market prices and (ii) in negotiated transactions, or (iii) in a
combination of such methods of sale. The Selling Shareholders may effect
such transactions by offering and selling the Shares directly to or
through securities broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom the Selling Shareholders may
sell as principal, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions).
The Selling Shareholders and any broker-dealers who act in
connection with the sale of the Shares hereunder may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act
and any commissions received by them and profit on any resale of the
Shares as principal might be deemed to be underwriting discounts and
commissions under the Securities Act. The Company has advised the Selling
Shareholders that they and any securities broker-dealers or others who may
be deemed to be statutory underwriters will be subject to the Prospectus
delivery requirements under the Securities Act. The Company has also
advised the Selling Shareholders that, in the event of a "distribution" of
the Shares, the Selling Shareholders, any "affiliated purchasers," and any
broker-dealer or other person who participates in such distribution may be
subject to Rule 10b-6 under the Exchange Act until his or its
participation in that distribution is completed. A "distribution" is
defined in Rule 10b-6(c)(5) as an offering of securities "that is
distinguished from ordinary trading transactions by the magnitude of the
offering and the presence of special selling efforts and selling methods."
Rule 10b-6 makes it unlawful for any person who is participating in a
distribution to bid for or purchase stock of the same class as is the
subject of the distribution. The Company has also advised the Selling
Shareholders that Rule 10b-7 under the Exchange Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purposes of pegging,
fixing or stabilizing the price of the Company's Common Stock in
connection with this offering.
The executive officers, Directors and certain large shareholders of
the Company are "affiliates" of the Company which subject them to the
limitations of Rule 144, promulgated under the Securities Act ("Rule
144"). In general, under Rule 144 as currently in effect, an "affiliate"
of the Company, or a person who has beneficially owned shares which are
"restricted securities" for at least one year, is entitled to sell within
any three-month period a number of shares that does not exceed the greater
of: (i) one percent (1%) of the then outstanding shares of Common Stock
of the Company, or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks preceding a sale by such person.
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Under Rule 144, however, a person who has
held shares of restricted securities for a minimum of two years and who is
not, and for the three months prior to the sale of such shares has not
been, an affiliate of the Company is free to sell such shares without
regard to the limitations contained in Rule 144.
To comply with certain states' securities laws, if applicable, the
Shares may be offered or sold by the Selling Shareholders in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Shares may not be offered or sold by the
Selling Shareholders unless they have been registered or qualified for
sale in such states or an exemption from registration or qualification is
available and is complied with.
EXPERTS
The consolidated financial statements of the Company as of June 30,
1996 and 1995, and for each of the years in the three-year period ended
June 30, 1996, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, also incorporated by
reference herein, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for
the Company by Gorsuch Kirgis L.L.C., 1401 17th Street, Suite 1100,
Denver, Colorado 80202.
INDEMNIFICATION OF DIRECTORS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the issuer pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
