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Filed with the Securities and Exchange Commission on: September 19, 2000
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DAUGHERTY RESOURCES, INC.
(Exact name of Registrant as specified in its charter)
BRITISH COLUMBIA NOT APPLICABLE
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
WILLIAM S. DAUGHERTY
120 PROSPEROUS PLACE, SUITE 201 DAUGHERTY RESOURCES, INC.
LEXINGTON, KY 40509-1844 120 PROSPEROUS PLACE, SUITE 201
(859) 263-3948 LEXINGTON, KY 40509-1844
(859) 263-3948
(Address, including zip code, (Name, address, including zip code,
and telephone number, including and telephone number including area code,
area code, of Registrant's of agent for service)
principal executive offices)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
--------------------------------------------------------------------------------
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
--------------------------------------------------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Aggregate Aggregate Registration
to be Registered Registered (1) Offering Price Offering Price (1) Fee
Per Unit (1)
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<S> <C> <C> <C> <C>
Common Stock, 313,491 $2.719 $852,382.02 $236.96
Without par value 70,929 2.719 192,855.95 53.61
101,200 2.719 275,162.80 76.49
124,415 2.719 338,284.38 94.04
137,777 2.719 374,615.66 104.14
------------ ------------- -------
747,812 $2,033,300.81 $565.24
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</TABLE>
(1) Plus such indeterminable number of additional shares of common
stock as may be issued from time to time as a result of adjustments for any
redemption bonus which may be paid in accordance with the "Put Right" provisions
of the 10% Convertible Secured Notes.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee and, pursuant to Rule 457(f), based on the average of the high
and low sale prices of the Common Stock, as reported on the Nasdaq Small Cap
Market on September 18, 2000 paid herewith.
(3) Paid herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
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TABLE OF CONTENTS
-----------------
Page #
Where You Can Find Information 4
Summary Prospectus 4
Domestication 8
Risk Factors 8
Use of Proceeds 12
Description of Securities 12
Selling Stockholders 17
Plan of Distribution 19
Certain Other Information 20
Experts 20
Legal Matters 20
Additional Information 21
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SUBJECT TO COMPLETION, DATED SEPTEMBER 19, 2000
PROSPECTUS
747,812 SHARES
DAUGHERTY RESOURCES, INC.
COMMON STOCK
This Prospectus covers 747,812 shares (the "Shares") of common stock,
no par value ("Common Stock") of Daugherty Resources, Inc. ("Daugherty
Resources", "Our", or "We") that may be offered from time to time by certain
stockholders of Daugherty Resources (the "Selling Stockholders"). The Shares may
be offered in open market transactions, negotiated transactions, and principal
transactions or by a combination of these methods of sale. See "Plan of
Distribution".
434,321 Shares were issued to a Selling Stockholder in a private
placement. The balance of the Shares (313,491) are issuable to other Selling
Stockholders upon conversion or redemption of the Daugherty Resources' 10%
Convertible Secured Notes due July 31, 2004 (the "Notes"), which were also
issued in a private placement. The subscription agreements for the private
placements granted certain registration rights to the Selling Stockholders. See
"Selling Stockholders".
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by Daugherty Resources. We have agreed to bear all
expenses in connection with the registration and sale of the Shares, other than
underwriting discounts and selling commissions. We have also agreed to indemnify
the Selling Stockholders against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
On September 18, 2000, the last reported sale price of the Common Stock
on the Nasdaq Small Cap Market was $2.688. The Common Stock is traded in the
Nasdaq Small Cap Market under the symbol "NGAS".
SEE "RISK FACTORS" BEGINNING ON PAGE 8 TO READ ABOUT CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BEFORE BUYING SHARES OF COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
September 19, 2000
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WHERE YOU CAN FIND INFORMATION
Daugherty Resources, Inc. (referred to in this prospectus as "we",
"us", "Daugherty Resources" or the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In accordance with those requirements, we file periodic reports and other
information with the Securities and Exchange Commission (the "Commission"). Our
reports and other information may be inspected at the Commission's public
reference facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549. Copies of those materials can also be obtained from the
Commission's public reference facility at prescribed rates. The materials are
also available for inspection and copying at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, as well as the website maintained by the Commission at
http:\\www.sec.gov.
We have filed with the Commission a registration statement on Form S-3
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth or incorporated by
reference in the Registration Statement. See "Certain Other Information". Copies
of the Registration Statement and the exhibits thereto are on file at the
offices of the Commission and may be obtained upon payment of the prescribed fee
or may be examined without charge at the Commission's public reference facility
in Washington, D.C. or copied without charge from its website.
WE WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A PROSPECTUS IS
DELIVERED, UPON REQUEST, A COPY OF THE DOCUMENTS INCORPORATED BY REFERENCE IN
THIS PROSPECTUS (EXCLUDING EXHIBITS THERETO). SEE "CERTAIN OTHER INFORMATION".
REQUESTS SHOULD BE DIRECTED TO INVESTOR RELATIONS, DAUGHERTY RESOURCES, INC.,
120 PROSPEROUS PLACE, SUITE 201, LEXINGTON, KENTUCKY 40509-1844 OR BY TELEPHONE
AT (859) 263-3948.
This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any of the securities offered hereby in any jurisdiction to
any person to whom it is unlawful to make an offer in that jurisdiction. No
person has been authorized to give any information or to make any
representations, other than as contained in this Prospectus, in connection with
the offer contained in this Prospectus and, if given or made, the information or
representation must not be relied upon. Neither delivery of this Prospectus nor
any sale made pursuant hereto shall, under any circumstances, create any
implication that there has been no change in the information set forth herein.
SUMMARY PROSPECTUS
The following material is qualified in its entirety by the more
detailed information and financial statements appearing in the Company's
periodic reports incorporated herein by reference.
GENERAL
Daugherty Resources is a natural resources company with assets in oil
and gas, and gold and silver properties. We officially changed our name in 1998
from Alaska Apollo Resources, Inc. to Daugherty Resources, Inc. Originally
formed in 1979 to develop gold properties in Alaska, the Company, through its
1993 acquisition of Daugherty Petroleum, Inc., ("Daugherty Petroleum") has
acquired substantial oil and gas interests in the Appalachian and Illinois
Basins.
Our strategy is to continue to expand its base in oil and gas resources
in the eastern part of the United States. To implement this strategy, DRI
emphasizes the following elements:
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- Reserve growth through high potential developmental drilling;
- Balance between development drilling and acquisitions of proved oil
and gas properties; and
- Equity ownership and incentives to attract and retain employees.
Has focused on its oil and gas drilling efforts through its wholly owned
subsidiary, Daugherty Petroleum, Inc., in the Appalachian and Illinois Basins.
Management has extensive experience in both basins, and we believe that there
are significant undiscovered reserve potential and opportunities in the basins.
DRI's concentration on these two basins helps keep operational expenses to a
minimum.
DRI is engaged through Daugherty Petroleum, which was incorporated in
1984, in the business of acquiring properties for the exploration and
development of oil and gas, including lease acquisitions, participation in
ventures involving other oil and gas companies and investors, and in farm-ins
from other producers. Daugherty Petroleum performs these services on behalf of
the DRI, investors in specific programs, and on a turnkey basis for other oil
and gas companies.
The majority of the wells operated by DRI are located in the Kentucky
and Tennessee portions of the Appalachian Basin. The Appalachian Basin is
characterized by shallow developmental wells, which generally have provided
highly predictable drilling success rates. In addition, because wells drilled in
the Appalachian Basin are closer to the northeast gas market, the natural gas
from this area typically has commanded a price premium relative to natural gas
produced in areas such as the Gulf Coast and Mid-Continent regions of the United
States. Furthermore, DRI's natural gas has a heating value that results in it
receiving a 20% premium for its gas. In addition to its drilling activities, we
purchase natural gas producing properties. During 1999, DRI purchased 20.30675
net wells.
BUSINESS STRATEGY
DRI's objective is to expand its oil and natural gas reserves, production
and revenues through a strategy that includes the following key elements:
Expand drilling operations. DRI has primarily concentrated its drilling
operations in the southern portion of the Appalachian Basin. DRI believes that
it will be able to drill a substantial number of new wells on its current
undeveloped leased properties. As of December 31, 1999 DRI had 18,859 net
undeveloped acres. Through the end of the second quarter of 2000, DRI drilled 17
productive wells.
Acquire producing properties. DRI's acquisition efforts are focused on
properties that help build critical mass in areas where DRI has established
operations or are establishing new operations. Acquisitions are sought that with
offer economies in management and administration, and, therefore, enable DRI to
acquire more producing wells without incurring substantial increases in its
costs of operations.
Pursue geographic expansion. DRI has a proven ability to drill and
operate natural gas wells successfully. There are a number of areas outside the
Appalachian Basin where drilling and operating characteristics are similar to
those in Appalachia. DRI will continue to evaluate opportunities to expand
geographically on an ongoing basis.
Reduce risks inherent in natural gas development and marketing. An
integral part of our strategy has been and will continue to be to concentrate on
development, (rather than exploratory) drilling to reduce risk levels associated
with natural gas and oil production. Development drilling is less risky than
exploratory drilling. DRI's focus on shallow wells allows it to drill more wells
the result of which also
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provides greater investment diversification than an equal investment in a
smaller number of deeper more expensive wells. Geographical diversification can
help to offset possible weakness in the natural gas market or disappointing
drilling results in one area. We intend to continue to expand its marketing
capacity to keep pace with the changing natural gas industry.
Expand strategic relationships. By managing drilling programs for itself
and other investors, we are able to share administrative, overhead and other
costs with its partners, reducing costs for both. DRI also is able to maintain a
larger and more capable staff than would be possible without partners. Other
benefits from these associations include greater buying power for drilling
services and materials, larger amounts of natural gas available to market,
increased profits from drilling and operating wells for partners, and greater
awareness of DRI in the investment community.
Gold and silver properties. It is the our objective to develop a
strategy to monetize its Alaskan gold and silver properties by 1) seeking a
joint venture partner to provide funds for additional exploration of its
prospects, and 2) considering a divestiture of its gold and silver properties.
To help achieve its goals of monetization of the properties, in March 2000, we
commissioned a review of its gold and silver properties by Steffen Robertson
Kirsten (U.S.), Inc., an engineering firm specializing in mineral properties. In
addition, we retained Balfour Holding, Inc. an independent consulting firm to
perform an appraisal of the properties.
EXPLORATION AND DEVELOPMENT ACTIVITIES
DRI's exploration and development activities focus on the identification
and drilling of new productive wells and the acquisition of existing producing
wells from other producers.
DRILLING ACTIVITIES
When prospects have been developed by our staff and consultants, we
develop these properties by drilling wells. Typically, DPI will act as driller
for these prospects, entering into contracts with partnerships, including
DPI-sponsored partnerships, and other entities that are interested in
exploration or development of the prospects. DPI generally retains an interest
in each well it drills. See "Financing of Drilling Activities".
Much of the work associated with drilling, completing and connecting
wells, including drilling, fracturing, logging and pipeline construction, is
performed by subcontractors specializing in those operations, as is common in
the industry. A large part of the material and services used by us in the
development process is acquired from industry vendors by virtue of direct
negotiation of rates and costs for services and supplies. As the prices paid to
DPI by its investor partners for the our services are frequently fixed before
the wells are drilled or are determined solely on the well depth, we are subject
to the risk that prices of goods or services used in the development process
could increase, rendering its contracts with its investor partners less
profitable or unprofitable. In addition, problems encountered in the process can
substantially increase development costs, sometimes without recourse for us to
recover its costs from its partners.
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ACQUISITIONS OF PRODUCING PROPERTIES
In addition to drilling new wells, we continue to pursue opportunities to
purchase existing producing wells from other producers and greater ownership
interests in the wells it operates. Generally, outside interests purchased
include a majority in the wells and include the right to operate the wells.
WELL OPERATIONS
We currently operate approximately 156 natural gas wells in the
Appalachian Basin and 45 oil wells in the Illinois Basin. We also operate 5 oil
wells in the Appalachian Basin. Our ownership interest in these wells range from
10% to 100%, and, on average, we have an approximate 39% ownership interest in
the wells it operates. As of December 31, 1999 these wells produce an aggregate
of about 1709 Mcf of natural gas per day, including the Company's share of 667
Mcf per day.
We are paid a monthly operating charge for each well it operates. The
rate is competitive with rates charged by other operators in the area. The
charge covers monthly operating and accounting costs, and insurance. Other costs
for special non-recurring activities, such as reworks and recompletions are
billed to the working interest owners on as those expenses arise.
TRANSPORTATION
Natural gas wells are connected by underground pipelines to natural gas
markets. Over the years, we have developed extensive gathering systems in its
areas of operations. We also continues to construct new gathering lines as
necessary to provide for the marketing of natural gas being developed from new
areas and to enhance or maintain its existing systems.
MARKETING
We market substantially all of the oil and gas production from our
operated properties for both the account of DRI and the other working interest
owners in these properties. As of March 31, 2000, substantially all of the
Company's natural gas production is sold to Nami Resources, LLC under a
short-term (less than 12 months) contract. During 1999, Southern Gas Company and
Nami Resources each purchased in excess of 10% of the gas sold by DPI for its
own account. Oil sales contracts are short-term and are based upon field posted
prices plus negotiated bonuses. During 1999, Indiana Farm Bureau Mark Oil
Company, and B. P. Bear Creek Oil, LLC each purchased in excess of 10% of the
oil sold by us for its own account. Because alterative purchasers of oil and gas
are readily available, we believes that the loss of any of these purchasers
would not have a material adverse effect on the Company.
SENTRA CORPORATION
Sentra Corporation, a Kentucky Corporation, is a 100% owned subsidiary of
Daugherty Petroleum. Effective April 2, 1999 Daugherty Petroleum, Inc. acquired
all outstanding shares of Sentra for its book value of $44,417 from an
individual serving as Director and President of the DRI. Sentra owns and
operates two natural gas distribution systems in south central Kentucky. The two
systems are located in the cities of Fountain Run and Gamaliel pursuant to
natural gas franchises granted by those cities and certificates of convenience
and necessity issued by the Kentucky Public Service Commission. Sales of gas at
retail rates commenced in November 1999 to a limited number of customers.
Completion of the construction of both distribution systems is expected by the
Fall of 2000.
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UTILITY REGULATION
Sentra Corporation, a 100% owned subsidiary that is a Kentucky public
utility, is subject to regulation by the Kentucky Public Service Commission in
virtually all of its activities, including pricing and supply of services,
addition of and abandonment of service to customers, design and construction of
facilities, and safety issues.
GALAX ENERGY CONCEPTS, LLC
Galax Energy is a North Carolina limited liability corporation owned 50%
by Daugherty Petroleum. Galax Energy generates steam at its Galax, Virginia
plant by burning wood waste as fuel and sells the steam to National Textiles on
a long-term contract. The plant is financed with industrial revenue bonds issued
through the Industrial Development Authority of the City of Galax, Virginia.
EMPLOYEES
As of December 31, 1999, DPI had 12 employees, including one in finance,
four in administration, two in exploration and development, and five in
production. Our engineers and well tenders are generally responsible for the
day-to-day operation of wells and pipeline systems. In addition, we retain
subcontractors to perform geological duties, drilling, fracturing, logging, and
pipeline construction functions at drilling sites. Our employees act as
supervisors of the subcontractors.
Our employees are not covered by a collective bargaining agreement. We
consider relations with its employees to be excellent.
DOMESTICATION
Daugherty Resources is currently organized under the laws of the
province of British Columbia, Canada. It is the intention of our management to
change its jurisdiction of incorporation from British Columbia to Delaware in a
transaction known as "Domestication" under Delaware law (the "Domestication").
Upon the effectiveness of the Domestication, we will become a Delaware
corporation as if we had originally been incorporated in that jurisdiction and
Daugherty, as it currently exists, will be dissolved in British Columbia. In
order to accomplish domestication we must obtain the approval of the majority of
its stockholders at a special meeting of shareholders which management expects
to hold in 2001. The Domestication, if approved and implemented as expected, is
intended to enhance stockholder value over the long term by facilitating capital
formation, enhancing the marketability of the Common Stock by raising the
Company's profile in the capital markets and easing the income tax and
accounting complexities associated with multi-jurisdictional operations.
RISK FACTORS
An investment in Daugherty Resources, involves certain risks.
Prospective investors should carefully review the following factors together
with the other information contained in this prospectus prior to making an
investment decision.
REVENUE FROM OUR OIL AND GAS PROPERTIES OFTEN DEPENDS ON FACTORS BEYOND OUR
CONTROL
The profitability of our oil and gas operations depends upon factors
which are beyond our control, including:
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- Natural gas and crude oil prices, which are subject to substantial
fluctuations as a result of variations in supply and demand and
seasonality;
- Future market, economic and regulatory factors which may materially
affect our sales of gas production; and
- Business practices of our competitors in the oil and gas operating
sector.
OUR CURRENT RESERVES MAY PROVE INADEQUATE
Unless we acquire additional properties containing proven reserves or
we conduct successful exploration and development activities, or both, our
reserves will decline as they are produced.
OUR GOLD MINING SECTOR IS CURRENTLY NOT PROFITABLE
We have had no revenues from our gold mining properties. Further,
during each year we must expend funds to maintain the validity of the title to
our mining properties. We may never be able to put our mining properties into
production, and we may never be able to generate a profit from their operations.
THE DOMESTICATION MAY RESULT IN ADVERSE TAX CONSEQUENCES FOR CERTAIN HOLDERS OF
OUR SECURITIES
Although the matter is not free from doubt, for United States income
tax purposes, the Domestication should not result in the recognition of gain or
loss under Internal Revenue Code ss. 1001 to holders of our convertible notes,
warrants and options. The IRS or the courts could disagree with this
characterization of the result to holders of convertible notes, warrants and
options and instead treat the transaction in connection with these instruments
as a taxable exchange. In that event, each United States holder of convertible
notes, warrants or options would recognize gain or loss on the exchange equal to
the difference between the fair market value of our convertible notes, warrants
and options after the domestication and the adjusted tax basis of our
convertible notes, warrants or options. The recognized gain or loss would be
capital gain or loss if the instruments are held as capital assets and the
instruments are held for more than one year. If those conditions are satisfied,
resulting net gains would be taxable at lower preferential rates. Each holder of
convertible notes, warrants or options is urged to consult his own tax adviser
regarding the tax consequences of the domestication on his particular
circumstances.
THERE ARE SEVERAL DIFFERENCES IN SHAREHOLDER'S RIGHTS UNDER DELAWARE AND BRITISH
COLUMBIA LAW
There are a substantial number of differences between the British
Columbia Company Act and the General Corporation Law of the State of Delaware
and between our current memorandum and articles under British Columbia law and
our proposed certificate of incorporation and bylaws under Delaware law. These
differences may materially affect the rights of shareholders.
PROVISIONS OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE AND OUR
PROPOSED CERTIFICATE OF INCORPORATION AND BYLAWS MAY CONTAIN ANTI-TAKEOVER
PROTECTIONS
Some provisions of the General Corporation Law of the State of Delaware
and of our anticipated certificate of incorporation and bylaws may be deemed to
provide anti-takeover protections. These include allowance of the issuance of
"blank check" preferred stock and advance notice requirements for director
nominations and actions to be taken at annual meetings. Those provisions could
impede any merger, consolidation, takeover or other business combination
involving Daugherty Resources or discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of Daugherty Resources.
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SHARES ELIGIBLE FOR FUTURE SALE MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
Sales of substantial amounts of our common stock in the public market
following the completion of the offering described in this prospectus could have
a materially adverse effect on the market price of our common stock. As of
September 19, 2000, there were 3,206,182 shares of our common stock issued and
outstanding. Upon completion of the offering 3,206,182 shares of our common
stock will be immediately eligible for public resale without restrictions,
together with any unrestricted common stock acquired through the conversion of
preferred stock, the exercise of stock warrants or options or conversion of
notes. No prediction can be made as to the effect, if any, that future sales of
additional shares of our common stock will have on the market price of the
common stock prevailing from time to time. Sales of substantial amounts of our
common stock in the public market, or the perception that substantial sales
could occur, could adversely affect prevailing market prices of our common
stock.
WE DO NOT ANTICIPATE THE PAYMENT OF ANY CASH DIVIDENDS ON OUR COMMON STOCK
We have never paid cash dividends on our common equity securities. Our
current policy is to retain earnings, if any, to finance the anticipated growth
of our business. Any further determination as to the payment of dividends will
be made at the discretion of our board of directors and will depend upon our
operating results, financial condition, capital requirements, general business
conditions and other factors as our board of directors deems relevant. We may
produce credit from third parties for additional capital for expansion and
business development activities. It is likely that any credit facility we enter
into may limit or restrict our ability to pay cash dividends on our common
stock. In the event that the domestication is effected, it is anticipated that
the dividend policy of Daugherty as a Delaware corporation will be the same as
our current policy. The preferred stock is eligible for non-cumulative ordinary
dividends prior and in preference to shares of our common stock, when and if
declared by our board of directors.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE DUE TO AN INEFFICIENT PUBLIC
MARKET
Shares of our common stock are currently traded on the Nasdaq Small Cap
Market and it is anticipated that if the domestication occurs, the shares of
Daugherty Resources as a Delaware Corporation will likewise be traded on the
Nasdaq Small Cap Market. The Nasdaq Small Cap Market may not provide for an
active public market for the common stock and an active trading market for our
common stock as a Delaware corporation may not develop, or if developed, may not
be sustained. The market price of our common stock as a Delaware corporation
could be subject to significant response to variations in results of operations
and other factors. In addition, the equity markets in recent years have
experienced price and volume fluctuations that often have been unrelated and
disproportionate to the operating performance of companies; the price of our
common stock as a Delaware corporation could be affected by fluctuations.
SHARES OF OUR COMMON STOCK ARE "PENNY STOCKS"
The shares of our common stock are "penny stocks" as defined in the
Exchange Act. As a result, an investor may find it more difficult to dispose of
or obtain accurate quotations as to the price of the shares of our common stock
being registered under this prospectus. In addition, the "penny stock" rules
adopted by the Commission under the Exchange Act subject the sale of our shares
to regulations, which impose sales practice requirements on broker-dealers. For
example, broker-dealers selling penny-stocks must, prior to effecting the
transaction, provide their customers with a document, which discloses the risks
of investing in penny stocks.
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Furthermore, if the person purchasing the securities is someone other
than an accredited investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker-dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in penny stocks.
Accordingly, the Commission's rules may limit the number of potential purchasers
of our shares of common stock. Moreover, various state securities laws impose
restrictions on transferring "penny stocks", and as a result, investors in our
common stock may have their ability to sell their shares impaired.
OUR SHARES COULD BE DELISTED FROM THE NASDAQ SMALL CAP MARKET
Although shares of our common stock are currently traded on the Nasdaq
Small Cap Market, an active trading market may not be sustained. The Nasdaq
Small Cap Market recently approved changes to the standards for companies to
become listed on the Nasdaq Small Cap Market including, without limitation, new
corporate governance standards, a new requirement that the market price of the
shares must remain above $1.00 per share or else the shares will be delisted
from the Nasdaq Small Cap Market. If the shares of our common stock are
delisted, then the shares would be quoted on the OTC Bulletin Board. We plan on
having the shares of our common stock quoted for sale on the Nasdaq Small Cap
Market following the domestication. Consequently, all of the requirements with
respect to continued listing on the Nasdaq Small Cap Market which existed prior
to the domestication will apply after the domestication. In an effort to comply
with the market price requirement for the shares of our common stock, on June
22, 1998 we consolidated our capital stock on a one share for five shares basis.
The immediate effect of the consolidation was to place the market price for the
shares of our common stock above $1.00 until August 7, 1998.
On November 15, 1998, Nasdaq notified us that we did not meet the $1.00
minimum bid price requirement for continued listing on the Nasdaq Small Cap
Market. We were granted a 90-day grace period, expiring on February 5, 1999 to
regain compliance. We did not regain compliance during the grace period and we
subsequently requested a hearing. Our bid price closed above $1.00 per share on
March 19, 1999 and has continued above $1.00 per share ever since. On April 15,
1999, we had our hearing before Nasdaq. On May 19, 1999, Nasdaq notified us that
since we were in compliance with the $1.00 minimum bid price requirement for
continued listing on the Nasdaq Small Cap Market, we would not be delisted. If
the minimum bid price for our common stock falls below $1.00 per share, there is
the possibility that we will again face delisting from the Nasdaq Small Cap
Market.
WE MAY BECOME UNABLE TO MAINTAIN A CURRENT PROSPECTUS
We must maintain a current prospectus in order for our shareholders to
resell the shares of our common stock convertible or exercisable in connection
with the preferred stock, convertible notes, and options described in this
prospectus. In the event that we are unable to maintain a current prospectus due
to lack of sufficient financial resources or for other reasons, our shareholders
may be unable to resell their shares of our common stock in any public market.
THE MARKET PRICE FOR OUR COMMON STOCK COULD DECLINE SHOULD WE ISSUE ADDITIONAL
SHARES OF OUR COMMON STOCK UPON CONVERSION OF OTHER SECURITIES
We have 6,233,586 shares of our common stock reserved for issuance upon
the conversion of preferred stock and convertible notes and the exercise of
warrants and options. These securities are convertible or exercisable at prices
that range from fixed prices of $1.25 to $4.50 per share and variable prices
depending on the market price of our common stock and expire on various dates
extending to May 11, 2005. The exercise or conversion of these securities, and
the resale of the underlying shares
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<PAGE> 12
of our common stock could have a dilutive effect on the prevailing market price
of our common stock.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
We believe that this prospectus and the documents incorporated herein
by reference contain forward-looking statements, including statements regarding,
among other items, our future plans and growth strategies and anticipated trends
in the industry in which we operate. These forward-looking statements are based
largely on our expectations and are subject to a number of risks and
uncertainties, many of which are beyond our control. Actual results could differ
materially from these forward-looking statements as a result of the factors
described in this prospectus, including among others, regulatory or economic
influences. In light of these risks and uncertainties, the forward-looking
information contained in this prospectus may not transpire or prove to be
accurate. This inclusion of that information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved.
USE OF PROCEEDS
The shares of common stock offered hereby are being registered for the
account of the selling shareholders identified in this prospectus (see "Selling
Stockholders"). All net proceeds from the sale of the common stock will go to
the shareholders who offer and sell their shares of common stock. The principal
purpose of this offering is to effect an orderly disposition of the selling
stockholders' shares we will not receive any part of the proceeds from such
sales of common stock.
DESCRIPTION OF SECURITIES
Daugherty Resources is authorized to issue up to 100,000,000 shares of
the Common Stock, without par value, and 5,000,000 shares of the Preferred
Stock, without par value ("Preferred Stock"). See "Summary Information -
Domestication". As of September 19, 2000, there are 3,206,182 shares of the
Common Stock and 1,152,363 shares of Preferred Stock issued and outstanding.
GENERAL
Immediately after the Domestication, the authorized capital stock of
Daugherty Resources will consist of 100,000,000 shares of Common Stock, par
value $0.001 per share, of which 3,206,182 shares will be issued and
outstanding, together with any underlying shares issued and outstanding as a
result of the conversion or exercise of any or all preferred shares, warrants,
options or convertable notes, and 5,000,000 shares of Preferred Stock, par value
$0.001 per share, of which 1,152,363 shares are issued. See "Preferred Stock".
COMMON STOCK
Subject to the rights of holders of the Preferred Stock then
outstanding, holders of the Common Stock are entitled to receive any dividends
that may from time to time be declared by the Board of Directors of Daugherty
Resources. Holders of the Common Stock are entitled to one vote per share on all
matters on which the holders of the Common Stock are entitled to vote. Because
holders of the Common Stock do not have cumulative voting rights, the holders of
a majority of the shares of Common Stock represented at a meeting can select all
of the directors.
Holders of the Common Stock have no preemptive rights to subscribe for
any additional securities that Daugherty Resources may issue, and there are no
redemption provisions or sinking fund provisions applicable to the Common Stock,
nor is the Common Stock subject to calls or assessments by Daugherty Resources.
All shares of the Common Stock to be outstanding upon completion of the
Domestication will be legally issued, fully paid and nonassessable. Upon the
liquidation, dissolution or winding up of Daugherty Resources, holders of the
Common Stock are entitled to share equally, share-for-share, in the assets
available for distribution after payment to all creditors of Daugherty and,
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<PAGE> 13
subject to the rights of holders of any outstanding shares of Preferred Stock.
The selling shareholders acquired a total of 434,321 shares of common
stock in private placement transactions and in accordance with the terms of that
offering transactions are being registered herein.
PREFERRED STOCK
Pursuant to Daugherty Resources' Certificate of Incorporation to be in
effect after the Domestication, the Board of Directors of Daugherty Resources
are authorized, subject to any limitations prescribed by law, to provide for the
issuance of shares of Preferred Stock from time to time in one or more series,
to establish the number of shares to be included in each series and to fix the
designation, powers, preferences and relative, participating, optional and other
special rights of the shares of each series and any qualifications, limitations
or restrictions thereof. Because of this power, the Board of Directors may
afford the holders of Preferred Stock preferences, powers and rights (including
voting rights) senior to the rights of the holders of Common Stock. The issuance
of rights to purchase shares of the Preferred Stock could be used to discourage
an unsolicited acquisition proposal.
Under the terms and conditions of the Agreement for Purchase and Sale,
Daugherty Petroleum acquired interests in 41 producing and non-producing oil and
gas leaseholds, including related equipment and other interests, located in
Kentucky, Tennessee and Louisiana. The transaction was accounted for as a
purchase transaction. As consideration for the sale of the assets, which was
completed on November 4, 1999, we issued the EEI sellers 1,152,363 shares of our
preferred stock. In addition to being non-voting, the preferred stock is:
- Convertible by the EEI Sellers into shares of our common stock, on a
share for share basis, at any time within a period of two years from
the date of issuance. Upon the expiration of the two year period,
all unconverted shares of the preferred stock will automatically
convert into shares of our common stock. In addition, the EEI
Sellers will receive a conversion bonus of shares of our common
stock equal to twelve (12%) percent of the number of shares of the
preferred stock unconverted on the second anniversary date of the
agreement; or
- Convertible by us if the last sales price of our common stock equals
or exceeds $10.00 per share for at least 20 trading days and proper
notice of conversion is provided to the holder. In the event we
elect to convert, the EEI Sellers will receive a conversion bonus of
shares of our common stock equal to one half of one percent per
month of the number of shares of the preferred common stock which
were converted, times the number of months from issuance of the
preferred stock to the date of conversion.
The EEI Sellers do not have any preemptive rights to acquire shares of
our preferred stock or, common stock upon conversion.
(THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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WARRANTS
The following table describes the outstanding warrants at December 31,
1999 that will continue to be contractual obligations of Daugherty following
this offering and Domestication. The warrants provide for "piggyback" and demand
registration rights for the Common Stock issuable upon their exercise.
NUMBER OF UNDERLYING SHARES EXERCISE PRICE EXPIRATION DATE
------------------------------- ------------------ ------------------
100,000 $2.50 10/30/00
300,000 0.63 03/06/02
23,800 2.50 06/27/01
100,000 0.63 03/06/02
100,000 0.63 03/06/02
In addition to the above warrants and the Preferred Stock (see
"Preferred Stock") issuable in Daugherty Petroleum Inc.'s acquisition from EEI,
Daugherty issued Warrants in the transaction for 1,536,941 shares of Common
Stock. The Warrants will be exercisable as follows: 384,101 Series A Warrants
exercisable at $1.75 per share, 192,140 Series B Warrants exercisable at $2.00
per share, 192,140 Series C Warrants exercisable at $2.50 per share, 192,140
Series D Warrants exercisable at $3.00 per share, 192,140 Series E Warrants
exercisable at $3.50 per share, 192,140 Series F Warrants exercisable at $4.00
per share, and 192,140 Series G Warrants exercisable at $4.50 per share. The
exercise price of all the Warrants to be issued in the EEI transaction will be
reduced to $1.00 per share if the Common Stock becomes and remains delisted from
The Nasdaq Small Cap Market for a specified period.
We can redeem each series of acquisition warrants, as an entire series,
at a price of $0.05 per acquisition warrant if the last sales price of our
common stock equals or exceeds 200 percent of the exercise price of the series
of acquisition warrants being redeemed for 20 consecutive trading days and
proper notice of redemption is provided to the holder. We are not required to
establish a sinking fund for the redemption of the shares.
All shares of our common stock acquired by the EEI Sellers following
the conversion of the preferred stock or the acquisition warrants are subject to
the terms of a voting trust until the time the shares are distributed to the
various interest holders of the EEI Sellers. A panel of trustees will be
appointed by the EEI Sellers to hold title to the shares of our common stock and
shall have discretionary authority to vote the same as a majority of the
trustees shall determine. The voting trust shall terminate upon the earlier of
distribution or 10 years from the date of its creation.
The shares of our common stock, which may be issued upon the conversion
of the preferred stock or the exercise of an acquisition warrant are being
registered under the Securities Act of 1933 by means of the registration
statement of which this prospectus is a part.
(THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE> 15
OPTIONS
The following table lists outstanding stock Options as of June 30, 2000
that will continue to be our obligations following the Domestication. The
Options were granted under the Company's stock option plan and provide option
holders with demand registration rights for the Common Stock issuable upon
exercise of the options.
NUMBER OF UNDERLYING SHARES EXERCISE PRICE EXPIRATION DATE
------------------------------- ---------------- -----------------
70,000 $5.00 02/27/00-03
69,000 5.00 12/27/00-02
84,000 5.00 06/28/01-03
142,222 1.55 03/06/02
30,000 3.25 06/25/02
4,000 3.25 06/25/02
400,000 5.00 11/02/02
1,120,000 1.00 08/20/04
100,000 1.25 05/11/05
100,000 1.25 05/11/05
100,000 1.25 05/11/05
10,000 1.25 05/11/05
10,000 1.25 05/11/05
The warrants granted to Trio Growth Trust, Exergon Capital S.A., and
Jayhead Investments, Ltd. provide for "piggyback" and demand registration rights
with respect to our common stock to be issued upon the exercise of any of the
warrants. Moreover, the options granted to Mr. Daugherty and others under our
Stock Option Plan provide that option holders shall have demand registration
rights with respect to our common stock issued upon the exercise of any of the
operations.
10 PERCENT CONVERTIBLE SECURED NOTES
On June 30, 1999, we issued our 10 percent Convertible Secured Notes
("Notes") to a limited number of investors, who purchased $850,000 of our
convertible Notes as of September 30, 1999, in a private placement conducted in
reliance on Regulation D of the Securities Act.
The proceeds from the offering of the convertible notes allowed us to
increase natural gas reserves and revenues by providing capital to be used for
the explicit purpose of drilling proven locations and acquiring proved producing
properties. The first $100,000 of the net proceeds from the offering of the
convertible notes was used to finance our share of drilling and completion costs
for natural gas drilling operations in the Appalachian Basin. Net proceeds in
excess of the first $100,000 was applied to finance the acquisition of
percentage working interests in producing oil and gas properties located in Knox
County, Kentucky. Additional net proceeds were added to working capital for
future drilling, recovery or acquisition programs.
The convertible Notes have the following characteristics:
- Issued at 100 percent of their respective principal amounts;
- Interest will accrue at a rate of 10 percent per annum from the
date of issuance until maturity;
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<PAGE> 16
- Interest payments will be due and payable semi-annually until
maturity;
- Convertible at the options of the holder at any time, unless
previously redeemed, into our common stock at a conversion rate to
be established at 125 percent of the average between the high and
low bid prices of our common stock on the Nasdaq Small Cap Market
for each of the 10 trading days immediately preceding the closing,
subject to adjustment in some events. This conversion rate was
established at 368.8132 shares of Common Stock per each $1.00
principal amount of Notes purchased;
- Each holder has a right to require us to redeem the security 18
months after the closing at a price equal to 100 percent of the
principal amount of the convertible note, plus accrued interest,
each payable in cash, plus a premium equal to 25 percent of the
principal amount of the convertible note, payable in shares of our
common stock, determined by dividing that amount by the prevailing
market price of our common stock;
- We may redeem the convertible notes at any time following 18
months after the closing at a price equal to 100 percent of their
principal amount, plus accrued interest, payable in cash;
- The convertible notes are guaranteed by Daugherty Petroleum, which
collateralized the guarantee by granting a security interest in
its mining interests; However, Daugherty Petroleum may provide
substitute collateral in the form of specified oil and gas
interests upon the occurrence of some events; and
- No sinking fund is required to be established for the redemption
of our convertible notes.
The shares of our common stock which may be issued upon the conversion
of our convertible notes are being registered under the Securities Act by means
of the registration statement of which this prospectus is a part.
PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS
The Certificate of Incorporation and the Bylaws of Daugherty Resources
to be in effect after the Domestication contain provisions that could have an
anti-takeover effect. These provisions may discourage certain types of
transactions that may involve an actual or threatened change of control of
Daugherty Resources.
The Board of Directors will have broad powers to fix by resolution the
powers, preferences and rights of new series of Preferred Stock. This power
could be used to create a class of Preferred Stock that, because of its rights,
could discourage a potential takeover. Additionally, the Bylaws will give the
Board of Directors power to fill vacancies on the Board without shareholder
approval. As a result, an incumbent Board, not a potential bidder, would have
control over board positions in the period between annual meetings of
stockholders. Finally, the Bylaws will provide for an advance notice procedure
governing business to be brought before an annual meeting of stockholders, which
could discourage a potential bidder from taking action at a meeting.
After the Domestication, Daugherty Resources will be subject to the
provisions of Section 203 of the Delaware General Corporation Law. In general,
this statute prohibits a publicly held Delaware corporation from engaging in a
"business transaction" with an "interested stockholder" for a period of three
years after the date that the person became an interested stockholder unless
(with certain exceptions) the business combination or the transaction in which
the person became an interested stockholder is approved in a prescribed manner.
A "business combination" generally includes a merger, asset or stock
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<PAGE> 17
sale or a transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" generally is a person who, together
with affiliates and associates, owns (or within the three prior years did own)
15% or more of a corporation's outstanding voting stock.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by an appropriate provision in its certificate of incorporation.
Daugherty Resources' Certificate of Incorporation will contain this exclusion
for William S. Daugherty, the Chairman and Chief Executive Officer of the
Company.
EXCHANGE AGENT, TRANSFER AGENT AND REGISTRARS
The Exchange Agent, Transfer Agent and Registrar for exchange of stock
certificates is Pacific Corporate Trust Company.
DIVIDEND POLICY
Daugherty Resources has never paid cash dividends on the Common Stock.
Daugherty's Resources' current policy is to retain earnings, if any, to finance
the anticipated growth of its business. Any future determination to pay
dividends on the Common Stock will be at the discretion of the Board of
Directors and will depend upon the Company's operating results, financial
condition, capital requirements, general business conditions and any other
factors that the Board of Directors deems relevant, subject to restrictions that
may be included in the agreements governing the Company's credit facilities.
SELLING STOCKHOLDERS
The following table sets forth (i) the name of each Selling
Stockholder, (ii) the total number of shares of Common Stock owned beneficially
by each Selling Stockholder as of the date of this Prospectus, including shares
issuable upon conversion or redemption of the Convertible Notes, (iii) the
number of Shares to be offered for the account of each Selling Stockholder and
(iv) the number and percentage of shares of Common Stock to be owned by each
Selling Stockholder after giving effect to this offering.
Robert McIntyre and Daugherty Petroleum, Inc., a wholly owned subsidiary of
Daugherty Resources, each own 50% of Galax Energy Concepts LLC.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY NUMBER AND PERCENTAGE
OWNED/PRIOR TO NUMBER OF SHARES OF SHARES TO BE OWNED
NAME OFFERING (1) TO BE OFFERED AFTER THE OFFERING (2)
---------------------------------- ------------------ ------------------ -----------------------
Convertible Note Holders: Number Percent
------ -------
<S> <C> <C> <C> <C>
Trust Company of America C/F 18,440 18,440 0 0
Forrest E. Coyle
Trust Company of America C/F 18,440 18,440 0 0
John T. Bytella
Trust Company of America C/F 18,440 18,440 0 0
Fredrick O. Wheeler
</TABLE>
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<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
Trust Company of America C/F 18,440 18,440 0 0
William Lane Letsch
Merelene V. Bytella, Trustee, 18,440 18,440 0 0
Mabel C. Bowie Revocable Trust,
u/a dtd 04/26/93
Trust Company of America C/F 9,220 9,220 0 0
Augistine V. Rampola
Trust Company of America C/F 27,660 27,660 0 0
Margaret J. Klalo
Trust Company of America C/F 55,321 55,321 0 0
Mary Derusha (1)
Trust Company of America C/F 18,440 18,440 0 0
Basilios D. Kouroupis
Trust Company of America C/F 9,220 9,220 0 0
Albert D. Chopey
Trust Company of America C/F 18,440 18,440 0 0
John Kouroupis
Trust Company of America C/F 18,440 18,440 0 0
Paul G. Kennedy
Trust Company of America C/F 9,220 9,220 0 0
John J. Ascenzi
Trust Company of America C/F 18,440 18,440 0 0
Bernard N. O'Donnell
Karl and Sue Avellar, Trustee, 18,440 18,440 0 0
Karl Avellar Revocable Trust
Brian E. Steward 9,220 9,220 0 0
Trust Company of America C/F 9,220 9,220 0 0
Stephen G. Konsowski
H & S Lumber, Inc. 70,929 70,929 0 0
Robert McIntyre 101,200 101,200 0 0
Richard Brautigam 124,415 124,415 0 0
Everett Titus III 137,777 137,777 0 0
</TABLE>
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<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
------------------ ------------------ -----------------------------------
Total 747,812 747,812 0 0
</TABLE>
-----------------------
(1) Beneficial ownership is determined in accordance with the Commission's
rules and generally includes voting or investment power with respect to
securities. Shares of common stock subject to options, warrants and
convertible preferred stock currently exercisable or convertible within
(60) days, are counted as outstanding in computing the percentage of
the person holding such options or warrants but are not counted as
outstanding for computing the percentage of any other person.
(2) Assumes that all of the shares held by the selling stockholder and
being offered under this prospectus are sold and that the sellig
stockholders acquire no additional shares of common stock before the
completion of this offering.
The information set forth in the foregoing table was provided to
Daugherty Resources by the Selling Stockholders. None of the Selling
Stockholders has had any position or other material relationship with Daugherty
Resources or its affiliates during the past three years.
The Shares being offered for the accounts of the Note holders are
issuable upon conversion or redemption of the Notes. The Indenture for the Notes
provides that a holder may convert his Note at any time, unless previously
redeemed, into Common Stock at a conversion rate of 368.8132 shares of Common
Stock per each $1,000 principal amount of the Notes, subject to adjustment in
certain events. The Indenture also provides that each Note holder, at his
option, exercisable during the ten-day period commencing October 17, 2000, may
require the Company to redeem his Note on December 17, 2000 at a redemption
price equal to 100% of the principal amount of the Note, together with accrued
interest on the Note through that date, each payable in cash, plus a premium
equal to 25% of the principal amount of the Note, payable in Shares, determined
by dividing that amount by the prevailing market price of the Common Stock.
PLAN OF DISTRIBUTION
The Shares may be sold from time to time to purchasers directly by the
Selling Stockholders. Alternatively, any of the Selling Stockholders may from
time to time offer the Shares through underwriters, dealers or agents who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Selling Stockholders or the purchasers of the Shares for
whom they act as agent, or both. The Selling Stockholders and any underwriters,
dealers or agents who participate in the distribution of the Shares may be
deemed to be underwriters, and any profits on the sale of the Shares by them and
any discounts, concessions or commissions received by any underwriters, dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. At any time a particular offer of the Shares is made, if
required, a Prospectus Supplement will be distributed that will set forth the
aggregate amount of the Shares being offered and the terms of the offering,
including the names of any underwriters, dealers or agents, any discounts,
commissions and other terms constituting compensation from the Selling
Stockholders and any discounts, commissions or concessions allowed, reallowed or
paid to dealers. The Prospectus Supplement and, if necessary, a post-effective
amendment to the Registration Statement may be filed with the Commission to
reflect the disclosure of additional information with respect to the
distribution of the Shares.
The Shares may be sold from time to time in one or more transactions at
a fixed offering price, which may be changed, or at varying prices determined at
the time of sale or at negotiated prices. The prices will be determined by the
Selling Stockholders or by agreement between the Selling Stockholders and their
underwriters or dealers.
The Selling Stockholders and any other person participating in a
distribution of Shares will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including Rules 10b-3, 10b-6 and
10b-7, which may limit the timing of sales of Shares by the Selling Stockholders
and any other distribution participant. Furthermore, pursuant to Rule 10b-6
under the Exchange Act, any person engaged in a distribution of Shares may not
simultaneously engage in market-making activities with respect to the particular
Shares being distributed for a period of nine business days prior to the
commencement of the distribution. All of the foregoing may affect the
marketability of the Shares and
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<PAGE> 20
the ability of any person or entity to engage in market-making activities with
respect to the Shares.
Daugherty Resources will pay substantially all of the expenses incident
to the registration, offering and sale of the Shares to the public other than
commissions, fees and discounts of underwriters, dealers and agents. Daugherty
Resources has also agreed to indemnify the Selling Stockholders and any
underwriters they may utilize against certain liabilities, including liabilities
under the Securities Act.
In order to comply with certain states' securities laws, if applicable,
the Shares will be sold in those jurisdictions only through registered or
licensed brokers or dealers. In certain states, the Shares may not be sold
unless they have been registered for sale in those states, or unless an
exemption from registration or qualification is available and is obtained.
CERTAIN OTHER INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Commission. For further information about
Daugherty Resources, reference is made to the Registration Statement, which may
be obtained from Daugherty Resources or inspected and copied at the public
reference facilities maintained by the Commission at the addresses set forth on
page 2 of this Prospectus.
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) Annual Report of the Company on Form 10-KSB for the year ended
December 31, 1999.
(b) Quarterly Reports of the Company on Form 10-QSB for the quarters
ended March 31 and June 30, 2000.
(c) Proxy Statement and Information Circular dated June 2, 2000.
(d) All documents filed by Daugherty Resources after the date of this
Prospectus pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act,
prior to the filing of a post-effective amendment indicating that all Shares
offered hereby have been sold or deregistering any Shares then remaining unsold.
All of these documents will be deemed to be incorporated herein by reference and
to be a part hereof from their respective filing dates.
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 that statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
EXPERTS
The Consolidated Financial Statements of Daugherty Resources
incorporated herein by reference to Daugherty Resources' Annual Report on Form
10-KSB for the year ended December 31, 1999 were audited by Kraft, Berger,
Grill, Schwartz, Cohen & March LLP, independent auditors of the Company.
LEGAL MATTERS
The validity of the issuance of the Shares being offered hereby has
been passed upon for us by Gary M. Smith, Esq., Attorney-at-Law.
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<PAGE> 21
ADDITIONAL INFORMATION
References appearing or incorporated in this Prospectus to various
documents, statutes, regulations and agreements do not purport to be complete
and are qualified in their entirety by those documents, statutes, regulations
and agreements. This Prospectus omits certain of the information contained in
the Registration Statement on file with the Commission, pursuant to rules and
regulations of the Commission. The information so omitted may be obtained from
the principal office of the Commission in Washington, D.C., upon payment of the
fee prescribed by the Commission, examined there without charge or copied from
the Commission's website. See "Available Information".
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<PAGE> 22
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Indemnification for securities act liabilities include information
required by Item 510 of Regulation S8. The following table sets forth the
expenses payable by the Company in connection with the sale, issuance and
distribution of the securities being registered, other than underwriting
discounts and commissions.
SEC registration fee......................................$ 565.24
Printing and copying costs................................ 250.00*
Legal fees................................................ 4,000.00*
Accounting fees........................................... 500.00*
Miscellaneous............................................. 1,000.00*
----------
Total............................................$ 6,315.24*
==========
----------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Bylaws of Daugherty Resources in effect after the Domestication
provide for Daugherty Resources' indemnification of officers, directors and
controlling persons to the full extent provided in the General Corporation Law
of Delaware (the "GCL"). Section 145 of the GCL provides that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed proceeding (other than a proceeding by
or in the right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation in a similar position with another entity,
against expenses (including attorneys' fees), judgments, fines and settlements
incurred by him in connection with the proceeding if he acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification under
Section 145 of the GCL is limited in a proceeding by or in the right of the
corporation to expenses (including attorneys' fees) incurred in connection with
the proceeding. In either case, no indemnification shall be made if the
indemnified person has been adjudged to be liable for negligence or misconduct
in the performance of his duty to the corporation, unless, and to the extent,
the Delaware Court of Chancery or other court in which the proceeding was
brought, despite the adjudication of liability determines such person is
entitled to indemnity.
Section 145 of the GCL provides that the indemnity obligations of a
corporation shall only arise if authorized by (i) a majority of a quorum of
directors who are not a party to the proceeding, (ii) independent legal counsel
to the corporation if a quorum of directors is not obtainable, (iii) independent
legal counsel to the corporation if a quorum of directors is obtainable and the
directors direct counsel to make the determination or (iv) the stockholders. The
board of directors of the corporation may authorize expenses in connection with
a proceeding to be paid in advance of the final disposition upon receipt of an
undertaking by the person on whose behalf the expenses are to be paid to repay
the expenses in the event he is not entitled to indemnity.
Delaware corporations also are authorized under the GCL to obtain
insurance to protect officers and directors from certain liabilities, including
liabilities against which the corporation cannot indemnify its directors and
officers. The Company currently has no directors' and officers' liability
insurance in effect.
22
<PAGE> 23
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
Number Description of Exhibit
------ ----------------------
5(a) Opinion of Gary M. Smith, Esq.
23.1 Consent of Independent Auditors
24.1 Powers of Attorney.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Daugherty Resources, Inc.
By /s/ William S. Daugherty
----------------------------
William S. Daugherty
Chairman of the Board
September 19, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman of the Board, President, Director September 19, 2000
William S. Daugherty of the Registrant
--------------------
WILLIAM S. DAUGHERTY
Director of the Registrant September 19, 2000
James K. Klyman *
---------------
JAMES K. KLYMAN
Director of the Registrant September 19, 2000
Charles L. Cotterell *
--------------------
CHARLES L. COTTERELL
September 19, 2000
*By /s/ William S. Daugherty
William S. Daugherty
Attorney-in-Fact
</TABLE>
24
