PAGE 23
Exhibit 99.1
P R O S P E C T U S
RENTECH, INC.
500,000 Shares Common Stock ($.01 par value)
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
SEE RISK FACTORS BEGINNING AT PAGE 4
This Prospectus relates to 500,000 shares (the "Shares") of common
stock, $.01 par value per share (the "Common Stock"), of RENTECH, INC.
(the "Company"). The Selling Shareholders are identified in this
Prospectus under the heading "Selling Shareholders." The Shares may be
offered by Selling Shareholders from time to time: (i) in transactions
in the over-the-counter market, on the automated inter-dealer system on
which shares of Common Stock of the Company are then listed, in
negotiated transactions, or a combination of such methods of sale, and
(ii) at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, or at negotiated prices. The Selling
Shareholders may effect such transactions by selling the Shares to or
through securities broker-dealers. 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 they sell as principal,
or both (which compensation as to a particular broker-dealer might be in
excess of customary commissions). See "Selling Shareholders" and "Plan
of Distribution." Selling Shareholders may also sell such shares
pursuant to Rule 144 or Rule 144A under the Securities Act of 1933 if the
requirements for the availability of such rules have been satisfied.
The Shares were issued to the Selling Shareholders upon exercise of
options granted to them under the Company's employee benefit plans. None
of the proceeds from the sale of the Shares by the Selling Shareholders
will be received by the Company. The Company has, however, received the
net proceeds from the exercise of the stock options described herein
under "Use of Proceeds." The Company has agreed to bear all expenses
(other than underwriting discounts, selling commissions, and underwriter
expense allowance, and fees and expenses of counsel and other advisers to
the Selling Shareholders) in connection with the registration and sale of
the Shares being offered by the Selling Shareholders. The Company has
agreed to indemnify the Selling Shareholders against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
The Common Stock of the Company is listed and traded on NASDAQ on
the Small Cap Market under the symbol "RNTK." On February 3, 1998, the
last reported sale price of the Common Stock was $.9375 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 9, 1998
PAGE 24
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith, files reports and other information with the Securities and
Exchange Commission (the "Commission"). Proxy statements, reports and
other information concerning the Company can be inspected and copied at
Room 1024 of the Commission's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Commission's Regional Offices in Denver
(Suite 4800, 1801 California Street, Denver, Colorado 80202), New York
(Room 1228, 75 Park Place, New York, New York 10007), and Chicago (Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60621-2511), and copies of such material can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. This Prospectus does not
contain all information set forth in the Registration Statement of which
this Prospectus forms a part and exhibits thereto which the Company has
filed with the Commission under the Securities Act and to which reference
is hereby made.
DOCUMENTS INCORPORATED BY REFERENCE
The Company will provide, without charge, to each person to whom a
copy of this Prospectus is delivered, including any beneficial owner,
upon the written or oral request of such person, a copy of any or all of
the documents incorporated by reference herein (other than exhibits to
such documents, unless such exhibits are specifically incorporated by
reference into the information that the Prospectus incorporates).
Requests should be directed to:
Rentech, Inc.
1331 17th Street, Suite 720
Denver, Colorado 80202
Telephone number: (303) 298-8008
Attention: James P. Samuels, Chief Financial Officer
The following documents filed with the Commission by the Company
(File Number 0-19260) are hereby incorporated by reference into this
Prospectus:
The Company's Form 10-KSB/A dated January 15, 1998 amending its
Annual Report on Form 10-KSB dated December 29, 1997 for the
12-month period ended September 30, 1997.
All documents filed with the Commission by the Company pursuant to
Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering
registered hereby shall be deemed to be incorporated by reference into
this Prospectus and to be a part hereof from the date of the filing of
such documents. 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 subsequently filed document which
PAGE 25
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
SUMMARY
The Company
Rentech, Inc. ("Rentech" or the "Company") was organized as a
Colorado corporation in 1981 to develop and exploit processes for the
conversion of natural gas and other low-value carbon-bearing gases and
solids into valuable liquid hydrocarbons, including premium diesel fuel,
naphthas and waxes. The gas-to-liquids technology developed by the
Company ("Rentech Process Technology" or "Technology") is protected by a
series of patents issued by the U.S. Patent Office. The ability of the
Technology to convert carbon-bearing gases into valuable liquid
hydrocarbons has been validated in two pilot plants operated periodically
between 1982 and 1989, in a 235 barrel per day commercial scale facility
in 1992 and 1993, and in a third pilot plant presently being operated in
Rentech's test facility at Pueblo, Colorado. Rentech's
gas-to-liquids Technology has been licensed for use in India in a 360
barrel per day plant that the licensee is now beginning to construct.
During March 1997, the Company entered into the business of
manufacturing and selling water-based stains, sealers and coatings by
purchasing the assets of Okon, Inc. The Company is continuing and
expanding the 20-year old business of Okon as a wholly-owned subsidiary.
Okon, Inc. sells environmentally clean, water repellant sealers, coatings
and stains for wood, concrete and masonry. The customers are the
construction industry and architects. Okon, Inc. presently provides
Rentech's primary source of revenues.
During July 1997, Rentech agreed with ITN Energy Systems, Inc., a
privately-owned Colorado corporation, to enter into a new business called
ITN Electronic Substrates LLC. Rentech owns 50% of this new entity. The
LLC intends to engage in the manufacture and sale of several types of
flexible thin-film on which it has electronically deposited metals with
unique properties, such as copper and molybdenum, that provide conductive
paths to which computer chips may be attached. The new business intends
to begin its first activities and begin production in 1998. The
customers are expected to be contract manufacturers in the computer,
aerospace and medical instrument industries, as well as large
end-users which use the substrates to manufacture their own products.
The Company's long-term plan is to diversify into three industry
groups centered around its three present lines of business. Rentech
plans to continue licensing its gas-to-liquids Technology in a
petrochemical group, to establish an environmental and industrial
products group that includes products such as the stains, sealers,
repellants and other coatings produced by Okon, Inc., and to develop an
advanced technology group with such technologies as the new business of
ITN Electronic Substrates LLC.
PAGE 26
The Company is continuing its original business of licensing its
gas-to-liquids Technology, including sale of its proprietary catalyst
used in the conversion process. Licenses are granted in exchange for
license fees and ongoing royalties on the production of liquid
hydrocarbons from conversion plants that use the Technology and are
constructed and owned by licensees. Rentech has licensed its Technology
for use in India for a plant now under construction by its Indian
licensee at Arunachal Pradesh, India. Rentech is providing its Indian
licensee engineering design and technical services under contract, and
will provide such services to subsequent licensees for their use in
constructing their plants, together with engineering services and startup
operational support services on a fee basis for licensed plants. In
addition, Rentech may reserve the right to contract for the engineering
and supply the synthesis gas conversion reactor modules that are
essential to use of its Technology in conversion plants. Rentech is not
now receiving significant revenues from its gas-to-liquids Technology.
The Rentech Technology uses as feedstock natural gas from gas wells
that are not producing or that flare gas, or synthesis gas, a mixture of
hydrogen and carbon monoxide gases, produced by gasification of coal and
other carbonaceous materials. These sources of fuel are in abundant
supply worldwide. A potential feedstock of growing importance is the
heavy, high sulphur fuels at refineries commonly known as refinery
bottoms. Other sources of feedstock include methane, a gas collected
from coal beds, as well as industrial off gases. The Technology can
provide a means of utilizing gas resources that are currently
unmarketable due to their remote locations or because of the presence of
diluents such as carbon dioxide or nitrogen.
The diesel fuel produced by using the Technology has been tested to
have a sulphur content below detectable limits and to have improved
combustion characteristics when compared to commercial No. 2 diesel fuel.
These qualities make it less polluting than presently available diesel
fuel, and, unlike alternative fuels such as methanol or compressed
natural gas, does not require any engine or vehicle modifications for
use. Based upon prices of crude oil at about $18 per barrel, and
commercial No. 2 diesel fuel at approximately $.50 per gallon, management
believes the diesel fuel can be produced and sold at competitive prices
and, particularly in view of the requirements of the federal Clean Air
Act, may be saleable at premium prices. The Technology has the potential
of reducing, in this and other countries, dependency upon imports of
crude oil and petroleum products by converting the large fields of
shut-in natural gas reserves in this country into liquid that can be
inexpensively trucked to users.
The executive offices of the Company are located at 1331 17th
Street, Suite 720, Denver, Colorado 80202, telephone (303) 298-8008, fax
(303) 298-8010.
RISK FACTORS
The securities offered hereby involve a high degree of risk.
Prospective investors, prior to making an investment, should carefully
PAGE 27
consider the following risks and speculative factors inherent in and
affecting the business of the Company and an investment in the Shares.
In accordance with the provisions of the Private Securities Litigation
Reform Act of 1995, the cautionary statements set forth below identify
important factors that could cause actual results to differ materially
from those in the forward-looking statements contained in this
prospectus.
1. Lack of Profitable Operations. From inception on December 18,
1981, through September 30, 1997, the Company has sustained losses
aggregating $9,735,824. For the year ended September 30, 1997 and the
nine month period ended September 30, 1996, the Company had net losses of
$1,375,686 and $392,478, respectively. The increase of approximately
350% in loss for the twelve month period in 1997 compared to the nine
month period in 1996 is due to a decrease in contract revenues and
license fees of $295,176, increase in interest expense of approximately
$289,000 from the addition of $1,250,500 in debt and extraordinary gain
in 1996 of $200,434. Increases in 1997 costs over 1996 are attributable
in general to the longer fiscal period in 1997 and in particular to
public relations costs, and approximately $100,000 in hiring costs of a
chief financial officer. Profit contributed by Okon from its acquisition
in March 1997 partially offset the increases in costs due to the longer
fiscal period. The losses since inception raise substantial doubt about
the ability of the Company to continue as a going concern, as stated in
the report of independent certified public accountants contained in the
September 30, 1997 audited financial statements. There are no assurances
that the Company will complete acquisitions of revenue producing
businesses or that the Company's licensees will complete construction of
plants using the Technology, or that any gas-to-liquids conversion plants
that are completed will be operated profitably or provide engineering
design fees, license fees or royalties for the Company.
2. Economic Feasibility of Gas-to-Liquids Technology Not Assured.
Whether any full-scale conversion plant using the Technology can be
profitably operated depends upon the availability of low-cost feedstock
and the economic feasibility or efficiency of the Technology, as well as
a ready market for the end products (primarily premium diesel fuel,
naphthas and waxes) at reasonable prices. The diesel fuel produced by
the Technology has not been subjected to long-term engine tests to
determine if there are any adverse effects. No in-depth cost or price
studies have been prepared by independent third parties for the Company.
Any significant decrease in prices of crude oil below approximately $16
or of commercial No. 2 diesel fuel below approximately $.50 per gallon
could have a material adverse effect upon the economic potential of the
Technology.
3. Dependence upon Management. At this stage of the Company's
development, economic success of the gas-to-liquids Technology depends
upon design of gas conversion plants and their startup to achieve optimal
process plant operations, and establishment of the Company's advanced
technology business. Both require knowledge, skills, and relationships
unique to the Company's technical personnel. Moreover, to successfully
compete with its gas conversion Technology and advanced technology, the
Company will be required to engage in continuous research and development
PAGE 28
regarding processes, products, markets and costs. Loss of the services
of the executive officers of the Company, particularly Drs. Charles B.
Benham or Mark S. Bohn due to their technical expertise and knowledge
related to the gas conversion Technology, could be expected to have a
material adverse effect upon the Company. The Company's employment
contract with Dr. Benham, expires on March 31, 1999. It has no
employment contract with Dr. Bohn who works for the Company on a
part-time basis as needed.
4. New Business Risks Associated With Entry into Advanced
Technology Business. The likelihood of success of the Company's entry
into the advanced technology business of producing and selling flexible
thin-film substrates by electronic deposition through ITN Electronic
Substrates LLC, and the Company's proposed entry into other new
businesses involving advanced technology, must be considered in view of
the problems, expenses, difficulties, complications and delays frequently
encountered with starting up a new business, including the development of
new technology and the marketing of new products. The Company has no
history of operations in these lines of business upon which to evaluate
its prospects for future operating or financial success.
5. Risk of Technological and Regulatory Change and Requirement for
New Products. The market for advanced technology products is
characterized by rapidly changing technology, new legislation and
regulations, and evolving industry standards. The introduction of
products embodying new technology, the adoption of new legislation or
regulations, or the emergence of new industry standards could render the
LLC's products and future products, if any, obsolete and unmarketable.
The success and growth of the LLC will depend, in part, upon its ability
to anticipate changes in technology, market needs, law, regulations, and
industry standards, and to successfully develop and introduce new and
enhanced products on a timely basis. The LLC will need to devote a
substantial amount of its efforts to research and development as well as
to sales and marketing.
6. Effect of Competition. The products of the
gas-to-liquids Technology will compete with other petroleum products,
including products produced by similar methods. To a great extent,
competition in this business will be based upon price, although
compliance with environmental laws may create demand for the Company's
low aromatic, sulphur-free diesel fuel even at premium prices. Others
have and are actively seeking to develop technology that will enable
results similar to the Company's processes for conversion of
gas-to-liquid hydrocarbons. The most likely competition will come from
major corporations in the oil and gas and synthetic fuel industries that
have vastly greater technical and financial resources than the Company.
The stains, sealers and coatings industry is highly competitive and has
historically been subject to intense price competition. It is estimated
that there are approximately 800 coatings manufacturers in the United
States, many of which are small companies that provide intense
competition within regional and local markets, especially with respect to
lower price coatings and custom made specialty items required on a
short-term delivery basis. The Company's primary competition is
approximately one dozen other manufacturers, of which at least five are
large, better capitalized, and have more extensive distribution networks.
Other manufacturers are large
PAGE 29
diversified corporations, the assets of which are vastly greater than
those of the Company, which compete on a nationwide basis. The Company's
overall position in the coatings industry, as one of the smallest
manufacturers, is minor. The advanced technology industry producing
thin-film substrates by electronic deposition is highly competitive.
Competitors include at least a dozen of United States and international
competitors, many of which are large diversified businesses, and the
assets of which are greatly superior to those of the Company.
Competition for the advanced technology products is based upon price,
quality, and quantity of the products, as well as reputation, none of
which have been established by the Company because it is only now
entering into this business.
7. Need for Inexpensive Feedstock to Produce
Gas-to-Liquids Products that Are Competitively Priced. Successful
exploitation of the Company's gas-to-liquids Technology depends upon the
availability of substantial quantities of carbon-bearing,
low-cost feedstock for plants that use the Technology. Management
believes such feedstock gas will be readily available from sources such
as natural gas wells that are not producing gas because of remote
locations, and from other sources such as synthesis gas produced by
gasification of coal, as well as industrial off gases. However, in the
event low-cost gas cannot be obtained, then plants using the Technology
may not be able to produce products for sale at competitive prices.
Although the cost of diesel fuel produced at the plants may require that
it be sold at prices somewhat higher than competing diesel fuels,
management expects that many users, particularly those subject to the
increasingly strict mandates of the Clean Air Act, will pay a premium.
If prices for crude oil are in the range of $18 per barrel and diesel
fuel at approximately $.50 per gallon or higher, management believes that
the diesel fuel produced using the Technology can be priced
competitively, but no such assurance can be given. Also, should oil or
commercial No. 2 diesel fuel prices both decrease significantly, any
market for the Company's diesel fuel that may hereafter exist could be
adversely affected.
8. Lack of Adequate Capital to Exploit the Gas-to-Liquids
Technology. The capital cost of gas conversion plants and natural gas
fields or other sources of feedstock that use the Company's Technology
requires more capital than is available to the Company or to many of its
potential licensees. While the Company does not presently plan to build
its own plants for use of the Technology, and expects its licensees to
acquire feedstock and build and own plants for which they are licensed by
the Company, many potential licensees are unable to finance the
construction costs and acquire feedstock, or to do so readily. These
limitations have slowed and will continue to delay use of the Technology
and resulting revenues to the Company from use of the Technology unless
the Company is able to join with other better capitalized companies to
commercially exploit the Technology. There are no assurances that such
joint arrangements will be available or acceptable to the Company.
9. Lack of End Product Purchase Contracts. The Company has
previously contacted various potential purchasers of the products of the
gas-to-liquids Technology, primarily users of diesel fuel, and potential
purchasers of the thin-film substrates, but has no contracts for purchase
of such end products. The Company's gas-to-liquids licensees are
PAGE 30
responsible for marketing products from gas conversion plants constructed
by them. Because the diesel fuel produced is relatively
non-polluting, it is believed that metropolitan transportation districts
and other users of fuel in urban areas having air pollution problems may
be interested in purchasing such fuel, possibly at a premium over the
price of commercial diesel fuel. However, no such assurance can be
given.
10. Risk of Expatriation Laws. In its offshore operations
involving the gas-to-liquids Technology, the Company expects it will
usually be paid design contract fees, license fees, royalties and other
compensation denominated in the currency of the subject country. The
Company will thus be subject to the risk of fluctuation of currency
exchange rates. Whenever possible, however, management intends to
negotiate payment in U.S. dollars. In addition, some countries have laws
that may adversely affect the ability of the Company to remove funds from
that country, may impose taxes upon such removal, or limit the amount of
the payments that a licensee can make to the Company.
11. Uninsured Losses Related to the Gas-to-Liquids Technology.
Certain types of losses (generally losses of a catastrophic nature such
as damage to a conversion plant in which the Company may hold an interest
caused by fire, explosion, war, earthquakes and floods) are either
uninsurable or not economically insurable. Should an uninsured or
partially insured loss occur, the Company could suffer a loss of invested
capital and any profits that might otherwise have been anticipated.
12. Limitation on Protection of Intellectual Property. The Company
relies on a combination of patent, trade secret, copyright and trademark
law, nondisclosure agreements and technical security measures to protect
its intellectual property rights in its lines of business. There are no
assurances that these rights or any additional patents will be adequate
to protect the Company's interest in present and any future intellectual
property. Patents and copyrights may be contested by competitors and
held invalid or not effective to preclude others from using similar
concepts and functionally similar processes. The protection afforded to
intellectual property by other nations is generally not as effective as
that provided within the United States.
13. No Expectation of Dividends. No dividends have been paid on
the Company's Common Stock since inception, and it is highly unlikely
that any dividends will be paid in the near term due to existing capital
needs. However, if the business plan is successful, the Company may
generate substantial revenue from its lines of business, which, barring
unanticipated capital commitments, is expected to allow payment of
dividends. No assurance can be given, however, that the Company will
ever pay, or be in a position to pay dividends.
14. Potential Dilution Due to Exercise of Stock Options and
Additional Private Offerings. The Company has committed to issue a
substantial number of shares of Common Stock upon exercise of presently
outstanding stock options. The Company may issue additional shares of
its Common Stock or warrants for the purchase of Common Stock to raise
operating capital or acquire other businesses or assets. Issuance of
PAGE 31
additional shares of Common Stock will reduce the percentage ownership
interest in the Company represented by shares of Common Stock acquired by
purchasers and may dilute the value of their interest in the Company.
15. Potential Dilution of Shareholder Rights by Issuance of
Preferred Stock. The Company is authorized to issue up to 1,000,000
shares of preferred stock, par value $10 per share. Preferred stock may
be issued in one or more series, the terms of which will be determined at
the time of issuance by the board of directors without any requirement
for shareholder approval. Such rights may include voting rights,
preferences as to dividends and, upon liquidation, conversion and
redemption rights, and mandatory redemption provisions pursuant to
sinking funds or otherwise. Conversion of the preferred stock or
issuance of additional preferred stock could affect the rights of the
holders of Common Stock and therefore reduce the value of the Common
Stock. Rights could also be granted to holders of preferred stock
hereafter issued that could reduce the attractiveness of the Company as a
potential takeover target. See "DESCRIPTION OF COMMON STOCK AND
PREFERRED STOCK."
16. Deterrence of Tender Offers by Fair Price Provisions. The
Company's Articles of Incorporation include provisions designed to assure
shareholders, to the extent possible, that any hostile takeover attempt
or merger of the Company with a significant shareholder or its affiliate
will result in shareholders receiving a fair value for their securities.
These provisions include grouping of the board of directors into three
classes with staggered terms; a requirement that directors may be removed
without cause only with the approval of the holders of 66-2/3% of the
outstanding voting power of the capital stock of the Company; and a
requirement that the holders of not less than 66-2/3% of the voting power
of the outstanding capital stock of the Company approve certain business
combinations of the Company with any holder of more than 10% of such
voting power or an affiliate of any such holder unless the transaction is
either approved by at least a majority of the uninterested and
unaffiliated members of the board of directors or unless certain minimum
price and procedural requirements are met. These provisions could deter
a hostile tender offer by a third party for the purchase of some or all
of the Company's outstanding securities and could have the effect of
entrenching management. See "DESCRIPTION OF COMMON STOCK AND PREFERRED
STOCK."
17. Volatility of Stock Prices; Penny Stock Rules. The
over-the-counter markets for securities such as the Company's Common
Stock historically have experienced extreme price and volume
fluctuations. These broad market fluctuations, variations in the
Company's results of operations, and other economic and industry trends
may adversely affect the market price of the Company's Common Stock.
Although the Common Stock is listed for quotation on the NASDAQ SmallCap
Market, there are no assurances that the Common Stock will meet the
minimum bid price of $1 or other listing requirements. Accordingly,
there can be no assurance that the Common Stock will remain eligible for
quotation on NASDAQ. In the event of ineligibility and delisting, the
Common Stock would become subject to rules of the Securities and Exchange
Commission regulating broker-dealer practices in connection with
transactions in "penny stocks." The penny stock rules may make many
PAGE 32
brokers unwilling to engage in transactions in the Company's Common Stock
because of the added burdens imposed on the broker by those rules to make
disclosures and to determine and establish the suitability of each
prospective purchaser of the Common Stock. The penny stock rules may
make it more difficult for purchasers of Common Stock in this offering to
dispose of their securities and could adversely affect the market price
of the Common Stock.
Use of Proceeds
The Shares are being offered for the account of Selling
Shareholders. The Company will not receive any proceeds from the sale of
their Shares. The Company will receive approximately $83,625 if all of
the stock options presently issued pursuant to the Plan for the purchase
of 450,000 shares of Common Stock are exercised, of which there is no
assurance. The Company intends to use any net proceeds from the exercise
of the stock options for working capital and general corporate purposes.
RECENT DEVELOPMENTS
During July 1997, Rentech agreed with ITN Energy Systems, Inc., a
privately-owned Colorado corporation, to enter into a new business called
ITN Electronic Substrates LLC. Rentech owns 50% of this new entity. The
LLC will manufacture and sell flexible thin-film substrates by electronic
deposition. The new business intends to begin its first activities and
begin production in 1998. The customers are expected to be contract
manufacturers in the computer, aerospace and medical instrument
industries, as well as large end-users which use the substrates to
manufacture their own products.
SELLING SHAREHOLDERS
The shares of Common Stock owned by the Selling Shareholders and the shares of Common Stock (the
"Shares") underlying stock purchase warrants held by them are being offered by the Selling Shareholders
identified in the following table.
Number of Shares
Number of to be Beneficially Owned
Name of Number of Shares Shares That On Completion of the Offering
Selling Beneficially Owned May Be % of
Shareholder Record Indirect Offered(1) Record Indirect Class
- ----------------- ------ -------- ---------- ------ -------- -----
Charles B. Benham 275,440 488,380 80,000 275,440 408,380 2.2%
Mark S. Bohn 443,431 289,592 20,000 443,431 269,592 2.3%
Ronald C. Butz 533,583 488,380 80,000 533,583 408,380 3.1%
James P. Samuels 127,500 579,500 10,000 127,500 569,500 2.2%
Erich W. Tiepel 123,277 272,448 20,000 123,277 252,448 1.2%
Dennis L. Yakobson 404,354 499,900 80,000 404,354 419,900 2.7%
---------
Total 290,000(1)
- ---------------
<FN>
*Less than 1%
<F1> Includes shares of common stock issuable upon exercise of presently issued stock options.
</FN>
PAGE 33
To the knowledge of the Company, each of the Selling Shareholders is
presently an officer, director or employee of the Company or has held an
office, position or other material relationship with the Company, its
predecessors or affiliates during the past three years.
Each Selling Shareholder has represented that he purchased the
Common Stock for investment and with no present intention of distributing
or reselling such Shares unless registered for resale. However, in
recognition of the fact that holders of restricted securities may wish to
be legally permitted to sell their Shares when they deem appropriate, the
Company has filed with the Commission under the Securities Act a Form
S-3 registration statement of which this Prospectus forms a part with
respect to the resale of the Shares from time to time in the
over-the-counter market or in privately negotiated transactions. The
Company has agreed to prepare and file such amendments and supplements to
the Registration Statement and to use its best efforts to obtain
effectiveness of the Registration Statement and to keep the Registration
Statement effective until all the Shares offered hereby have been sold
pursuant thereto, until such Shares are no longer, by reason of Rule 144
under the Securities Act or any other rule of similar effect, required to
be registered for the sale thereof by the Selling Shareholders, or for a
period of 180 days, whichever occurs first.
Certain of the Selling Shareholders, their associates and affiliates
may from time to time be customers of, engage in transactions with,
and/or perform services for the Company or its subsidiaries in the
ordinary course of business.
PLAN OF DISTRIBUTION
The sale of the Shares by the Selling Shareholders may be effected
from time to time (i) in transactions in the over-the-counter market, in
negotiated transactions, or through a combination of such methods of
sale, and (ii) at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The
Selling Shareholders may effect such transactions by selling the Shares
to or through 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 which
such broker-dealers may act as agent or to whom they may sell, as
principal, or both (which compensation as to a particular
broker-dealer may be in excess of customary compensation). Selling
Shareholders may also sell such shares pursuant to Rule 144 or Rule 144A
under the Securities Act of 1933 if the requirements for the availability
of such rules have been satisfied.
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.
PAGE 34
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 of 1933. The Company has also advised the
Selling Shareholders that in the event of a "distribution" of his or its
shares, such 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 Securities Exchange Act of 1934 ("1934
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." The Company has also advised the Selling
Shareholders that Rule 10b-7 under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging,
fixing or stabilizing the price of the Common Stock in connection with
this offering.
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK
The shares of Common Stock covered by this Prospectus are fully paid
and nonassessable. Holders of the Common Stock have no preemptive
rights. Each stockholder is entitled to one vote for each share of
Common Stock held of record by such stockholder. There is no right to
cumulate votes for election of directors. Upon liquidation of the
Company, the assets then legally available for distribution to holders of
the Common Stock will be distributed ratably among such shareholders in
proportion to their stock holdings. Holders of Common Stock are entitled
to dividends when, as and if declared by the Board of Directors out of
funds legally available therefor.
The authorized capital stock of the Company consists of 100,000,000
shares of Common Stock, $.01 par value per share, and 1,000,000 shares of
preferred stock, $10 par value per share. A quorum for purposes of
meetings of common shareholders consists of a majority of the issued and
outstanding shares of Common Stock, and once a quorum is established,
action of a routine nature may properly be taken by a majority of the
shares represented in person or by proxy at the meeting. Most major
corporate transactions such as mergers, consolidations, sales of all or
substantially all assets, and certain amendments to the articles of
incorporation require approval by the holders of two-thirds of the issued
and outstanding shares entitled to vote. The Company's board of
directors is authorized to issue shares of Common Stock and preferred
stock without approval of shareholders. Shares of preferred stock may be
issued in one or more series, the terms of which will be determined at
the time of issuance by the board of directors without any requirement
for shareholder approval. Such rights may include voting rights,
preferences as to dividends, and upon liquidation, conversion and
redemption rights, and mandatory redemption provisions pursuant to
sinking funds or otherwise. No shares of preferred stock are issued and
outstanding as of this date, and the Company has no present plans to
issue shares of preferred stock.
PAGE 35
LEGAL OPINIONS
Brega & Winters, P.C., 1700 Lincoln Street, Suite 2222, Denver,
Colorado 80203 has rendered an opinion as to the legality of the Shares
issued to the Selling Shareholders. A lawyer associated with Brega &
Winters P.C. beneficially owns 283,052 Shares of the Company's common
stock.
EXPERTS
The financial statements incorporated in this prospectus by
reference from the Company's Annual Report on Form 10-KSB/A for the
twelve months ended September 30, 1997 and the nine-month period ended
September 30, 1996 have been audited by BDO Seidman, LLP, independent
certified public accountants, as stated in their report (which contained
an explanatory paragraph relative to the going concern uncertainty),
which is incorporated herein, and has been so incorporated in reliance
upon such report given upon the authority of the firm as experts in
accounting and auditing.
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING HEREIN CONTAINED AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER 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 ANY INFORMATION CONTAINED HEREIN IS CORRECT AS TO ANY OF
THE TIME SUBSEQUENT TO ITS DATE. HOWEVER, THE COMPANY HAS UNDERTAKEN TO
AMEND THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART TO
REFLECT ANY FACTS OR EVENTS ARISING AFTER THE EFFECTIVE DATE THEREOF
WHICH INDIVIDUALLY OR IN THE AGGREGATE REPRESENT A FUNDAMENTAL CHANGE IN
THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT. IT IS
ANTICIPATED, HOWEVER, THAT MOST UPDATED INFORMATION WILL BE INCORPORATED
HEREIN BY REFERENCE TO THE COMPANY'S REPORTS FILED UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "DOCUMENTS INCORPORATED BY REFERENCE."
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PAGE 36
TABLE OF CONTENTS
Available Information 2
Documents Incorporated by Reference 2
Summary 2
Risk Factors 4
Use of Proceeds 9
Recent Developments 10
Selling Shareholders 10
Plan of Distribution 12
Description of Common Stock and Preferred Stock 13
Legal Opinions 13
Experts 13