Unassociated Document
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment
No. 1)
Filed
by
the Registrant [X]
Filed
by
a Party other than the Registrant [ ]
Check
the
appropriate box:
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[X]
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Preliminary
Proxy Statement
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[
]
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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[
]
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Definitive
Proxy Statement
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[
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Definitive
Additional Materials
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[
]
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Soliciting
Material Pursuant to Rule 14a-11(c) or Rule
14a-12
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KESTREL
ENERGY, INC.
(Name
of
Registrant as Specified in Its Charter)
(Name
of
Person(s) Filing Proxy Statement if other than the Registrant): N/A
Payment
of Filing Fee (Check the appropriate box):
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[
]
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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1)
Title of each class of securities to which transaction
applies:
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2)
Aggregate number of securities to which transaction
applies:
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3)
Per unit price or other underlying value of transaction computed
pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is
calculated and state how it was
determined):
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4)
Proposed maximum aggregate value of
transaction:
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[
]
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Fee
paid previously with preliminary
materials.
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[
]
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid
previously. Identify the previous filing by registration statement
number,
or the Form or Schedule and the date of its
filing.
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1)
Amount Previously Paid:
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2)
Form, Schedule or Registration Statement
No.:
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PRELIMINARY
PROXY STATEMENT
KESTREL
ENERGY, INC.
1726
Cole Boulevard, Suite 210
Lakewood,
Colorado 80401
(303)
295-0344
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
To
Be Held July 26, 2005
10:00
a.m.
To
Our
Shareholders:
We
strongly encourage your attendance and participation at a Special Meeting of
Shareholders of Kestrel Energy, Inc. (the “Company”), which will be held at
10:00 a.m. on Tuesday, July 26, 2005, at our offices at 1726 Cole Boulevard,
Suite 210, Lakewood, Colorado for the following purposes:
1. To
approve, subject to final action by our Board of Directors, a 100-to-1 reverse
stock split of our Common Stock, with the result that (i) holdings prior to
such
split of fewer than 100 shares of Common Stock will be converted to a fractional
share, which will then be immediately cancelled and converted into a right
to
receive the cash consideration described in the attached Proxy Statement, and
(ii) after these cancellations, we will have fewer than 300 record shareholders
allowing us to deregister the Common Stock under the Securities Exchange Act
of
1934, and thus avoid the costs associated with being a public reporting company;
and
2. To
transact such other business as may properly come before the meeting.
A
Proxy
Statement explaining the matters to be acted upon at the meeting is
enclosed.
Our
Board
of Directors has designated May 27, 2005 as the record date for determining
shareholders entitled to notice of and to vote at the Special
Meeting.
OUR
BOARD OF DIRECTORS WOULD LIKE TO EMPHASIZE THE IMPORTANCE OF EXERCISING YOUR
RIGHTS AS SHAREHOLDERS TO VOTE ON THE PROPOSAL DESCRIBED IN THE ENCLOSED PROXY
STATEMENT. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
REVERSE STOCK SPLIT.
YOU
ARE
URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED AS PROMPTLY AS POSSIBLE.
June
29,
2005 Timothy
L. Hoops
President
1726
Cole Boulevard, Suite 210
Lakewood,
Colorado 80401
PROXY
STATEMENT
Special
Meeting of Shareholders
To
Be Held July 26, 2005
10:00
a.m.
The
enclosed Proxy is solicited by our Board of Directors of Kestrel Energy, Inc.,
a
Colorado corporation (the “Company”), for use at our Special Meeting of
Shareholders to be held at our offices at 1726 Cole Boulevard, Suite 210,
Lakewood, Colorado on Tuesday, July 26, 2005 at 10:00 a.m., Mountain Daylight
Time, and at any adjournment thereof.
It is
anticipated that this Proxy Statement and the accompanying Proxy will be mailed
to our shareholders on or about June 29, 2005. References to the
“Company,”“us,”“we,” or “our” refer to Kestrel Energy, Inc.
You
are
being asked to vote on the following proposals:
1. To
approve, subject to final action by our Board of Directors, a 100-to-1 reverse
stock split of our Common Stock, with the result that (i) holdings prior to
such
split of fewer than 100 shares of Common Stock will be converted to a fractional
share, which will then be immediately cancelled and converted into a right
to
receive the cash consideration described in the Proxy Statement, and (ii) after
these cancellations, we will have fewer than 300 record shareholders allowing
us
to deregister the Common Stock under the Securities Exchange Act of 1934, and
thus avoid the costs associated with being a public reporting company;
and
2. To
transact such other business as may properly come before the meeting.
THE
REVERSE STOCK SPLIT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, AND NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
PASSED UPON THE FAIRNESS OR MERITS OF THE REVERSE STOCK SPLIT OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY STATEMENT.
ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
PROXY
SOLICITATION
The
expense of the Board of Directors' Proxy solicitation will be borne by us.
In
addition to solicitation of Proxies by use of the mails, some of our officers
and directors may solicit Proxies by telephone, telegraph or personal interview
without any additional compensation to them. We will reimburse brokers,
nominees, custodians and other fiduciaries for expenses in forwarding Proxy
materials to their principals.
GOING
PRIVATE TRANSACTION
The
reverse stock split which is the subject of this proxy statement is considered
a
“going private” transaction as defined in Rule 13e-3 promulgated under the
Exchange Act, because, if consummated, it is intended to terminate the
registration of our Common Stock under Section 12(b) of the Exchange
Act
and suspend our duty to file periodic reports with the SEC. Consequently, we
have filed a Rule 13e-3 Transaction Statement on Schedule 13E-3
with
the SEC. The Schedule 13E-3 is available on the SEC’s website at
http://www.sec.gov or
from
the Company. See “OTHER MATTERS--Available Information” below.
PROXY
REVOCATION
Any
shareholder giving a Proxy on the enclosed form may revoke it at any time prior
to the exercise thereof by advising our Secretary in writing at the above
address, by properly executing a later dated Proxy, or by appearing in person
and voting at the Special Meeting.
VOTING
OF SHARES
Only
holders of our outstanding shares of common stock, no par value (“Common
Stock”), of record at the close of business on May 27, 2005, will be entitled to
notice of, and to vote at, the Special Meeting and at any adjournment thereof.
On that date, there were 10,673,200 shares of Common Stock
outstanding.
Each
shareholder will be entitled to one vote per share. The approval of the reverse
stock split requires an affirmative vote of a majority of the shares represented
in person or by proxy at the Special Meeting. Approval of a majority of
unaffiliated shareholders is not required. Abstentions and broker non-votes
will
be counted for purposes of establishing a quorum only. Only those votes cast
for
the reverse stock split will be counted as votes in favor or affirmative votes.
The presence at the Special Meeting, in person or by proxy, of the holders
of a
majority of our Common Stock outstanding on the record date will constitute
a
quorum for the meeting. Our
Board of Directors urges each shareholder to mark, sign and mail the enclosed
Proxy card in the return envelope as promptly as possible.
SUMMARY
TERM SHEET
This
summary term sheet, including the “Questions and Answers About the Meeting and
Transaction” section that follows, highlights selected information from the
attached Proxy Statement for the 2005 Special Meeting of our shareholders and
addresses the material terms of the reverse stock split described below. For
a
complete description of the reverse stock split, you should carefully read
the
Proxy Statement. This summary is qualified in its entirety by reference to
the
more detailed information appearing elsewhere in, or accompanying, the Proxy
Statement. References to the “Company,”“us,”“we,” or “our” refer to Kestrel
Energy, Inc., a Colorado corporation.
REVERSE
STOCK SPLIT; “GOING DARK”; “PINK SHEET” QUOTATION
Our
Board
of Directors has authorized, subject to shareholder approval and subsequent
final action by our Board of Directors, a 100−to−1 reverse stock split of our
Common Stock. Shareholders who own fewer than 100 shares at the Effective Date
of the reverse stock split will have their shares cancelled and will receive
a
cash payment equal to the value of the shares they hold prior to the reverse
stock split, as described in more detail in the Proxy Statement. Shareholders
who own 100 or more shares of our Common Stock at the Effective Date of the
reverse stock split will remain shareholders, will continue to hold whole
shares, and will not be entitled to receive any cash for their fractional share
interests resulting from the reverse stock split. For shareholders who own
one
or more shares after the split, a fractional share will not be issued but the
number will be rounded up to the next whole number of shares.
If
consummated, the reverse stock split would be part of a “going dark” plan.
Following the reverse stock split, we would have fewer than 300 holders of
record and would be eligible to terminate the registration of our Common Stock
under the Securities Exchange Act of 1934 (“Exchange Act”). We would then “go
dark,” i.e., terminate our Exchange Act registration and become a non−reporting
company for purposes of the Exchange Act. This will eliminate the significant
expense required to comply with public reporting and related requirements
including, but not limited to, the Sarbanes−Oxley Act of 2002. Our Board of
Directors estimates that the Company’s current costs of “being public” are
approximately $250,000 per year but the burden of compliance with the
forthcoming internal control audit assessment and review requirements of Section
404 of the Sarbanes-Oxley Act of 2002 may be significantly higher in the future.
Moreover, while there can be no certainty as to future costs, the one time
cost
for creating the internal controls required by Section 404 has been estimated
to
be as high as $700,000. (See “Advantages of the Proposal - Cost
Savings”)
Even
after we terminate our registration, our Board of Directors has concluded that
the cost associated with being a reporting company is not justified by its
benefits in view of the limited trading activity in our Common Stock, and has
determined that the reverse stock split is substantively and procedurally fair
to and in the best interests of our unaffiliated shareholders. See also the
information in the sections “Recommendation of Our Board of Directors” and
“Fairness of the Reverse Stock Split.” After we “go dark,” our shares may still
be quoted in the “Pink Sheets,” albeit at a price approximately 100 times their
current price on the OTC Bulletin Board (“OTCBB”) to reflect the reverse stock
split. In addition, the spread between the bid and asked prices of our Common
Stock may be wider than on the OTCBB and the liquidity of our shares may be
less. There is no assurance, however, that there will be any Pink Sheets
quotations after we “go dark” nor that, if such quotations begin they will
continue for any length of time.
The
members of our Board of Directors, including Neil T. MacLachlan (who is also
a
member of the Board of Directors of Samson Oil & Gas N.L., the largest
shareholder of the Company (“Samson”)), have indicated that they intend to vote,
or cause to be voted, the shares of our Common Stock that they directly or
indirectly control in favor of the reverse stock split. The shares of our Common
Stock beneficially owned by directors represent approximately 8% of our
outstanding voting securities. Samson, which holds approximately 77% of our
outstanding shares, has also indicated that it intends to vote in favor of
the
reverse stock split. These percentages will not materially change after the
reverse stock split. See also the information in the section “Special Interests
of Affiliated Persons in the Transaction.”
The
reverse stock split is not expected to affect our current business plan or
operations, except for the anticipated cost and management time savings
associated with termination of our public reporting company obligations. See
also the information in the section “Structure of Proposal.”
If
the
proposal is approved by the shareholders, our Board of Directors would still
retain the authority to determine whether to effect the reverse stock split,
notwithstanding the authorization by shareholders. While it is highly unlikely
that it would do so, the Board could elect to delay or even abandon the split
without further action by shareholders if, in the Board’s judgment, new or
changed circumstances make the declaration of the reverse stock no longer in
the
best interests of the Company’s unaffiliated shareholders. The date on which the
reverse stock split takes effect is referred to herein as the Effective Date
of
the reverse stock split. Please see the section of the Proxy Statement entitled
“Structure of the Proposal,” for a more detailed discussion of the procedures to
effect the reverse stock split.
Our
Board
of Directors appointed a Special Committee of two of the Company’s Directors,
Timothy L. Hoops, our President and Chief Executive Officer, and Kenneth W.
Nickerson, an independent outside director, to review the fairness to our
unaffiliated shareholders of the reverse stock split and of the price to be
paid
to those shareholders whose shares are repurchased after the split. Our Board
of
Directors has set the cash consideration to be paid to the shareholders with
less than one share after the reverse stock split as the greater of (i) 125%
of
the average pre-split closing price per share of our Common Stock as quoted
on
the OTCBB for the forty (40) trading days preceding the first public
announcement of the plan to effect a reverse stock split, or May 20,
2005
(the “Announcement Date”) or (ii) 125% of the average pre-split closing price
per share over the 5 trading days preceding the Effective Date of the reverse
stock split as declared by our Board of Directors (the “Purchase Price”) based
on the number of pre-split shares held, which amount the Board of Directors
believes to represent an amount equal to or greater than the “fair market value”
per share of our Common Stock. Since the Effective Date has not yet occurred,
the final Purchase Price cannot be determined at this time On the other hand,
because it is set as the greater of the two values, based on the May 20, 2005,
Announcement Date and the average pre-split trading price of our Common Stock
for the forty (40) trading days preceding that date, the minimum Purchase Price
is $1.42.
For
the
forty (40) trading day period from March 24, 2005 through May 19, 2005, our
closing prices ranged from a low of $0.94 to a high of $1.47, with an average
closing price of $1.13975 per share for that period. 125% of that average
closing price is $1.42 per share, which is how we have calculated the minimum
Purchase Price. We will file a Form 8-K with the SEC to inform our shareholders
of the final Purchase Price after the Effective Date irrespective of whether
it
is higher than the $1.42 minimum. We will also amend our Schedule 13E-3 with
the
same information. Our Board of Directors established the formula for the
Purchase Price in good faith, based upon fairness and other factors it deemed
relevant, as described in more detail in the section “Fairness of the Reverse
Stock Split.”
If
we
effect the reverse stock split, some of our shareholders are entitled to assert
dissenter’s rights and obtain payment of the fair value of their shares, under
Article 113 of the Colorado Business Corporation Act. See also the information
in the section “Appraisal and Dissenters' Rights.”
QUESTIONS
AND ANSWERS ABOUT THE MEETING AND THE PROPOSAL
Q:
WHAT
IS THE TIME AND PLACE OF THE SPECIAL MEETING?
A:
The
Special Meeting will be held at the offices of the Company, 1726 Cole Boulevard,
Suite 210, Lakewood, Colorado, on Tuesday, July 26, 2005, at 10:00 a.m.
Mountain Daylight Time.
Q:
WHAT
PROPOSALS WILL BE VOTED ON AT THE SPECIAL MEETING?
A:
You
are being asked to vote on the approval of a proposal that will provide for
a
100−to−1 reverse stock split of our Common Stock and to transact such other
business as may properly come before the meeting.
Q:
WHAT
DOES IT MEAN TO “GO DARK”?
A:
If the
reverse stock split is consummated, we would have fewer than 300 holders of
record, and we would be eligible to terminate the registration of our Common
Stock under the Exchange Act. That is referred to as “going dark” because we
would no longer be required to file Form 10-K, 10-Q and 8-K with the
SEC or
make other Exchange Act filings or be required to comply with the requirements
of the Sarbanes−Oxley Act of 2002. After “going dark,” our Common Stock would no
longer be quoted on the OTCBB though it might be quoted on the Pink Sheets
(www.pinksheets.com)
for
some period of time. Additionally, shares of our Common Stock could trade in
privately negotiated sales. If we are solicited by one or more qualified
brokerage firms about making a market in our Common Stock and obtaining Company
information so that the brokerage firm can file Form 211 with the NASD
and
trade the stock under Rule 15c2-11, then our Board of Directors will consider
such request at the time it is made, balancing the potential benefits to
shareholders of such public trading with the costs, effort and other potential
liabilities involved.
Q:
WHAT
ARE THE BENEFITS OF “GOING DARK”?
The
benefits of deregistering include:
| · |
Eliminating
the costs associated with filing documents under the Exchange Act
with the
SEC, including but not limited to reporting transactions of our executive
officers, directors, and 10% shareholders relating to our Common
Stock;
|
| · |
Eliminating
the costs of compliance with the Sarbanes−Oxley Act and related
regulations including but not limited to Section 404, which
requires
companies to establish costly systems of internal controls over financial
reporting and provide annual assessments of the efficacy of such
controls;
|
| · |
Reducing
the direct and indirect costs of administering our shareholder accounts
and responding to shareholder
requests;
|
| · |
Affording
our shareholders who hold fewer than 100 shares immediately before
the
reverse stock split the opportunity to receive cash for their shares
without having to pay brokerage commissions and other transaction
costs;
|
| · |
Permitting
our management to focus its time and resources on our long−term business
goals and objectives; and
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| · |
We
will no longer be subject to the liability provisions of the Exchange
Act;
we will no longer be subject to the new restrictions and requirements
of
the Sarbanes−Oxley Act; and our officers will no longer be required to
certify the accuracy of our financial
statements.
|
Q:
WHAT
ARE THE DISADVANTAGES TO “GOING DARK”?
A:
Some
of the disadvantages include:
| · |
Our
Common Stock will no longer be traded on the OTCBB so that, to the
extent
that shares can presently be sold on the OTCBB, that market will
no longer
be available to shareholders; instead, shareholders will be relegated
to
sales on The Pink Sheets, if the Common Stock is traded there after
the
reverse stock split, or privately negotiated transactions.
|
| · |
Shareholders
owning fewer than 100 shares of our Common Stock before the reverse
stock
split will not have an opportunity to liquidate their shares after
the
reverse stock split at a time and for a price of their own choosing;
instead, they will be cashed out and will no longer be our shareholders
and will not have the opportunity to participate in or benefit from
any
future potential appreciation in our
value;
|
| · |
Shareholders
who will continue to be our shareholders following the reverse stock
split
will no longer have available all of the information regarding our
operations and results that is currently available in our filings
with the
SEC, although, as indicated above, we may elect to provide the necessary
information to a brokerage firm if a firm expresses interest in quoting
our Common Stock in the Pink
Sheets;
|
| · |
Because
our shares following the reverse stock split will no longer be quoted
on
the OTCBB, and even though they may be quoted in the Pink Sheets,
the
effect will be a significant reduction in
liquidity;
|
| · |
We
may have less flexibility in attracting and retaining executives
and other
employees because equity−based incentives (such as stock options, if we
choose to use them) tend not to be viewed as having the same value
in a
non−reporting company; and
|
| · |
We
will be less likely to be able to use our shares of our Common Stock
for
acquisitions of operating companies or
assets.
|
See
“Fairness of the Reverse Stock Split.”
Q:
IS IT
POSSIBLE THAT THE NUMBER OF HOLDERS OF RECORD WILL AGAIN REACH 300, THEREBY
MAKING US A REPORTING COMPANY AGAIN?
A:
Unless
our assets come to exceed $10 million at the end of a fiscal year, we would
not
have to re-register under the Exchange Act unless the number of holders of
record of our Common Stock went above 500 holders. After the 100−to−1 reverse
stock split is effected and the shares of all shareholders who then have only
fractional shares are repurchased, we may choose to repurchase additional shares
of Common Stock from some of our Continuing Shareholders to ensure that the
Company is not required to again register the Common Stock under the Exchange
Act. For example, if shares of Common Stock are proposed to be transferred
by a
Continuing Shareholder and such proposed transfer would cause the number of
holders of record of our Common Stock to equal or exceed the 300 or 500
shareholder limit, whichever applies, the Company might seek to repurchase
the
offered shares. In such an event, the price paid by the Company for the shares
pursuant to this option would be the fair market value for such shares as
determined by our Board of Directors in good faith.
Q:
WHAT
ARE SOME OF THE REASONS FOR DEREGISTERING NOW?
A:
Our
Board of Directors believes that, for the past several years, neither the
Company nor its unaffiliated shareholders have derived any material benefit
from
our status as a public reporting company. Notwithstanding the direct financial
burden of being a public reporting company, the low trading volume in our Common
Stock has not provided significant liquidity to our shareholders. Because of
this lack of an active and liquid trading market, the Company has found it
difficult to use shares of our Common Stock as consideration for acquisitions
or
other transactions and our Board of Directors does not believe that we will
be
able to do so in the foreseeable future. Finally, the low trading volume has
historically resulted in substantial spikes in the trading price on the OTCBB
when actual trades are made, leading to arbitrary and unfair treatment of
shareholders buying and selling Common Stock. All of these factors, when
considered in the context of the anticipated dramatic increases in the costs
of
being publicly held on account of Section 404 of the Sarbanes-Oxley Act, make
this an especially appropriate time to deregister our Common Stock. See
information in the section “Background of the Proposal.”
Q:
AS A
SHAREHOLDER, WHAT WILL I RECEIVE IN THE TRANSACTION?
A:
If the
reverse stock split is consummated and you own fewer than 100 shares of our
Common Stock on the Effective Date of the reverse stock split, you will receive
a cash payment, without interest, as payment for the shares of Common Stock
that
you own prior to the reverse stock split and you will cease to be our
shareholder. Our Board of Directors, with the concurrence of the Special
Committee, has set the cash consideration to be paid to the shareholders with
less than one share after the reverse stock split as the greater of (i) 125%
of
the average pre-split closing price per share of our Common Stock as quoted
on
the OTCBB for the forty (40) trading days preceding the first public
announcement of the plan to effect a reverse stock split, or May 20,
2005
(the “Announcement Date”) or (ii) 125% of the average pre-split closing price
per share over the 5 trading days preceding the Effective Date of the reverse
stock split as declared by our Board of Directors (the “Purchase Price”) based
on the number of pre-split shares held, which amount the Board of Directors
believes to represent an amount equal to or greater than the “fair market value”
per share of our Common Stock. Since the Effective Date has not yet occurred,
the final Purchase Price cannot be determined at this time. On the other hand,
because it is set as the greater of the two values, based on the May 20, 2005,
Announcement Date and the average pre-split trading price of our Common Stock
for the forty (40) trading days preceding that date, the minimum Purchase Price
is $1.42.
For
the
forty (40) trading day period from March 24, 2005 through May 19, 2005, our
closing prices ranged from a low of $0.94 to a high of $1.47, with an average
closing price of $1.13975 per share for that period. 125% of that average
closing price is $1.42 per share, which is how we set the minimum Purchase
Price. We will file a Form 8-K with the SEC to inform our shareholders of the
final Purchase Price after the Effective Date has occurred. Our Board of
Directors established the formula for the Purchase Price in good faith, based
upon fairness and other factors it deemed relevant, as described in more detail
in the section “Fairness of the Reverse Stock Split.” If you own 100 or more
shares of our Common Stock immediately prior to the Effective Date, you will
continue to be our shareholder and you will not receive any cash payment for
your shares in connection with the transaction. If and to the extent that the
reverse split would cause you to receive more than one whole share and a
fractional share of our stock, you will not receive a fractional share but
the
amount of shares you actually receive will be rounded up to the next whole
share.
Q:
IF I
OWN FEWER THAN 100 SHARES, IS THERE ANY WAY I CAN CONTINUE TO BE A SHAREHOLDER
AFTER THE TRANSACTION?
A:
If you
currently own fewer than 100 shares of our Common Stock, you can continue to
be
our shareholder after the Effective Date of the reverse stock split by
purchasing, in the open market or in private purchases, enough additional shares
to cause you to own a minimum of 100 shares in a single account immediately
prior to the Effective Date. However, we cannot assure you that any shares
will
be available for purchase prior to the Effective Date.
Q:
IS
THERE ANYTHING I CAN DO TO TAKE ADVANTAGE OF THE OPPORTUNITY TO RECEIVE CASH
FOR
MY SHARES AS A RESULT OF THE TRANSACTION IF I CURRENTLY OWN MORE THAN 100
SHARES?
A:
If you
currently own 100 or more shares, you can receive cash for shares you own as
of
the Effective Date of the reverse stock split if you reduce your ownership
of
our Common Stock to fewer than 100 shares by selling such shares in the open
market or otherwise transferring them. However, we cannot assure you that any
purchaser for your shares will be available prior to the Effective
Date.
Q:
WHAT
HAPPENS IF I OWN A TOTAL OF 100 OR MORE SHARES BENEFICIALLY, BUT I HOLD FEWER
THAN 100 SHARES OF RECORD IN MY NAME AND FEWER THAN 100 SHARES WITH MY BROKER
IN
“STREET NAME”?
A:
An
example of this would be that you have 40 shares registered in your own name
with our transfer agent and you have 60 shares registered with your broker
in
“street name.” Accordingly, you are the beneficial owner of a total of 100
shares, but you do not own 100 shares of record or beneficially in the same
name. If this is the case, as a result of the transaction, you would receive
cash for the 40 shares you hold of record. You will also receive cash for the
60
shares held in street name if your broker or other nominee accepts our offer
for
beneficial owners of fewer than 100 shares of our Common Stock held in the
broker's or nominee's name to receive cash for fractional shares. You can avoid
this result by consolidating your holdings of 100 or more shares in a single
account. If, as expected, the reverse stock split is approved at the Special
Meeting, the Company’s Board of Directors can declare the Effective Date to be
as soon as ten (10) days after the date of the Special Meeting, or August 5,
2005. Accordingly, any consolidating transactions by shareholders should be
completed before that date.
Q:
WHAT
ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION TO ME?
A:
Shareholders who do not receive any cash as a result of the reverse stock split
should not recognize any gain or loss as a result of the reverse stock split.
For shareholders who will continue to be our shareholders after the transaction,
their tax basis and holding period in the shares of our Common Stock should
remain unchanged after the reverse stock split. Shareholders who will be paid
cash for their shares of our Common Stock as a result of this transaction will
generally recognize capital gain or loss for federal income tax purposes. Such
gain or loss will be measured by the difference between the cash received by
such shareholder and the aggregate adjusted tax basis of the shares of Common
Stock held. While we do not purport to provide personal tax advice to any
shareholder, a summary of the material tax consequences of the reverse stock
split can be found in the section “Federal Income Tax
Consequences.”
Q:
AM I
ENTITLED TO DISSENTERS' RIGHTS?
A:
Yes,
under the Colorado Business Corporation Act, those shareholders whose fractional
shares are cancelled and repurchased after the reverse stock split are entitled
to dissenters’ rights in connection with the reverse stock split. See also the
information in the section “Appraisal and Dissenters’ Rights.”
Q:
WHAT
IS THE VOTING RECOMMENDATION OF OUR BOARD OF DIRECTORS?
A:
Our
Board of Directors has determined that the reverse stock split is advisable
and
in the best interests of our unaffiliated shareholders. Our Board of Directors
has therefore unanimously approved the reverse stock split and recommends that
you vote “FOR” approval of this matter at the Special Meeting. See the
information in the section “Recommendation of our Board of
Directors.”
Q:
WERE
THERE ADDITIONAL FACTORS SUPPORTING OUR BOARD'S DETERMINATION TO RECOMMEND
APPROVAL OF THE REVERSE STOCK SPLIT?
A:
In
addition to considering the advantages and disadvantages of the reverse stock
split discussed above, our Board of Directors based its recommendation to
approve such transaction on the following:
| · |
The
determination of our Special Committee appointed in connection with
the
reverse stock split that the reverse stock split is in the Company’s best
interest and is fair to all of our unaffiliated shareholders, including
the proposed cash consideration to be paid to our shareholders who
own
fewer than 100 shares of our Common Stock immediately before the
Effective
Date of the reverse stock split; and
|
| · |
Our
expectations that, in the absence of a split, attempts by our shareholders
to achieve liquidity are likely to be frustrated due to the low average
daily trading volume of shares of our Common Stock, where only a
small
number of shares could be purchased or sold without the risk of
significantly increasing or decreasing the trading
price.
|
Q:
WHAT
IS THE COST TO THE COMPANY TO EFFECT THE REVERSE STOCK SPLIT?
A:
Based
on recent trading prices of our Common Stock, we estimate that the total cash
outlay of the Company in effecting the reverse stock split will be at least
$75,000, most of which will be transactional expenses rather than consideration
paid to shareholders. Based on recent trading prices of our Common Stock, we
estimate that we will pay approximately $30,000 to cash out fractional shares.
We also expect to incur at least $45,200 in legal fees and other costs to effect
the proposed transaction. These amounts could be larger or smaller if the
trading price of our Common Stock changes or if the number of fractional shares
that will be outstanding upon the reverse stock split changes as a result of
purchases or sales of shares of our Common Stock.
Q:
WHAT
SHARES CAN I VOTE?
A:
You
may vote all shares of our Common Stock that you own as of the close of business
on the record date, which is May 27, 2005. These shares include (1) shares
held
directly in your name as the “holder of record,” and (2) shares held for you in
“street name” as the “beneficial owner” through a nominee (such as a broker or
bank). Nominees may have different procedures and, if you own shares in street
name, you should contact them prior to voting.
Q:
SHOULD
I SEND IN MY STOCK CERTIFICATES NOW?
A:
No.
Shortly after the reverse stock split is consummated, if you hold less than
one
share of Common Stock, we will send instructions on where to send your stock
certificates and how you will receive any cash payments you may be entitled
to
receive. Once our transfer agent receives the stock certificate and the
correctly signed paperwork included with the instructions, the cash payment
will
be sent back by the transfer agent within one or two days. Payment to
shareholders who have lost their stock certificates may be delayed on account
of
the need for the Company to post a cash bond with the transfer agent.
Shareholders who hold one full share or more (“Continuing Shareholders”) are not
entitled to any cash payments and should not send in their stock certificates
for reissuance as the lower, post-split, number. The old pre-split stock
certificates remain valid. If a Continuing Shareholder does send a certificate
in for reissuance as a post-split certificate, the shareholder will have to
pay
the transfer agent a fee for issuing a new certificate.
Q:
WHAT
IF I HAVE LOST MY STOCK CERTIFICATE?
A:
If you
hold less than one share of Common Stock after the split and you have destroyed,
misplaced or otherwise cannot locate your stock certificate, a non-refundable
cash bond equal to three percent (3%) of the value of the lost certificate
must
be posted with our transfer agent for a replacement certificate to be issued.
The Company will post the cash bond on behalf of any shareholders who do not
return certificates and deduct the cost of the bond from the cash payment made
to those shareholders.
Q:
CAN I
VOTE MY SHARES WITHOUT ATTENDING THE SPECIAL MEETING?
A:
Whether you hold your shares directly as the shareholder of record or
beneficially in “street name,” you may direct your vote without attending the
Special Meeting. You may vote by signing your proxy card or, for shares held
in
“street name,” by signing the voting instruction card sent to you by your broker
or nominee and mailing it in the enclosed, pre-addressed envelope. If you
provide specific voting instructions, your shares will be voted as you instruct.
If you sign but do not provide instructions, your shares will be voted as
described below in “How are votes counted?”
Q:
CAN I
CHANGE MY VOTE?
A:
You
may change your proxy instructions at any time prior to the vote at the Special
Meeting. For shares held directly in your name, you may change your vote by
signing a new proxy card bearing a later date (which automatically revokes
the
earlier dated proxy card) or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not cause your previously signed
proxy card to be revoked unless you specifically so request. For shares held
beneficially by you in street name, you may change your vote only by submitting
new voting instructions to your broker or nominee. Shares held in street name
may not be voted by you at the meeting other than through voting instructions
submitted to your broker or nominee before the meeting.
Q:
WHAT
ARE THE VOTING REQUIREMENTS TO APPROVE THE REVERSE STOCK SPLIT?
A:
Approval of the reverse stock split will require the affirmative vote of a
majority of the shares represented in person or by proxy at the Special Meeting.
Because our largest shareholder, Samson Oil & Gas N.L., is expected to vote
in favor of the reverse stock split, its passage is virtually assured.
Q:
ARE
THERE ANY SPECIAL VOTING REQUIREMENTS FOR NONAFFILIATED SHAREHOLDERS TO
SEPARATELY APPROVE THE REVERSE STOCK SPLIT?
A:
No.
Based on historical voting patterns at previous shareholder meetings of the
Company, the Board of Directors expects a very low percentage of the shares
held
by unaffiliated shareholders to be voted at the Special Meeting. Accordingly,
the Board determined that it could not practicably require the approval of
a
majority of the unaffiliated shareholders and that it would be unfair to permit
the reverse stock split to be decided by a plurality of the small number of
unaffiliated shareholders who do cast their votes at the Special Meeting.
Q:
DID
THE BOARD OR THE SPECIAL COMMITTEE OBTAIN AN INDEPENDENT APPRAISAL OF THE COMMON
STOCK?
A:
No.
The Board of Directors believes that the cost of an independent appraisal of
the
Common Stock by a reputable investment banking firm would be equal to or greater
than the approximately $30,000 to be paid to the shareholders who are cashed
out
as a result of the reverse stock split. The Board also believes that the
fairness of the Purchase Price, which will be at least twenty five percent
(25%)
higher than recent or historical market prices and at least seven times higher
than the net book value per share, is so indisputably fair to shareholders
that,
under the circumstances, an independent appraisal would not be a prudent use
of
the Company’s limited resources.
Q:
HOW
ARE VOTES COUNTED?
A:
You
may vote “FOR,”“AGAINST” or “ABSTAIN” on the reverse stock split. If you sign
and date your proxy card with no further instructions, your shares will be
voted
“FOR” the approval of the transaction, all in accordance with the
recommendations of our Board of Directors.
Q:
WHERE
CAN I FIND THE VOTING RESULTS OF THE SPECIAL MEETING?
A:
We
will announce preliminary voting results at the Special Meeting and publish
final results in a Current Report on Form 8−K filed with the SEC and by amending
the Schedule 13E−3 filed in connection with the reverse stock split.
Q:
IF THE
REVERSE STOCK SPLIT IS APPROVED BY OUR SHAREHOLDERS, DOES IT STILL HAVE TO
BE
DECLARED BY OUR BOARD OF DIRECTORS?
A:
Yes.
While our Board of Directors may proceed with the reverse stock split at any
time without further notice to or action on the part of our shareholders, the
Board may also determine to delay or abandon the declaration of the reverse
stock split based on new or changed circumstances that, in its sole discretion,
it believes make the declaration of the reverse stock no longer in the best
interests of the Company’s unaffiliated shareholders.
Q:
HOW
WILL WE OPERATE AFTER THE TRANSACTION?
A:
If the
reverse stock split is consummated, and assuming that we have fewer than 300
holders of record after the transaction, we would deregister and no longer
be
subject to the reporting and related requirements of the federal securities
laws
that are applicable to reporting companies. As a result, our Common Stock would
no longer be quoted on the OTCBB. On the other hand, we do not anticipate that
the reverse stock split will have any effect on the conduct of our operations
or
business other than the cost savings anticipated from the discontinuation of
reporting. In all other respects, our business and operations should continue
as
they are currently being conducted.
PROPOSAL
NO. 1
TO
EFFECT A REVERSE STOCK SPLIT
We
are
seeking approval of the reverse stock split described below. If approved by
our
shareholders, and upon subsequent final action of our Board of Directors, we
will effect a 100-to-1 reverse stock split of our Common Stock. Our shareholders
who own fewer than 100 shares of our Common Stock immediately prior to the
Effective Date of the reverse stock split will receive a cash payment for their
fractional shares and will cease to be our shareholders. Our Board of Directors,
with the concurrence of the Special Committee, has set the cash consideration
to
be paid to the shareholders with less than one share after the reverse stock
split as the greater of (i) 125% of the average pre-split closing price per
share of our Common Stock as quoted on the OTCBB for the forty (40) trading
days
preceding the first public announcement of the plan to effect a reverse stock
split, or May 20, 2005 (the “Announcement Date”) or (ii) 125% of the
average pre-split closing price per share over the 5 trading days preceding
the
Effective Date of the reverse stock split as declared by our Board of Directors
(the “Purchase Price”) based on the number of pre-split shares held, which
amount the Board of Directors believes to represent an amount equal to or
greater than the “fair market value” per share of our Common Stock. Since the
Effective Date has not yet occurred, the final Purchase Price cannot be
determined at this time On the other hand, because it is set as the greater
of
the two values, based on the May 20, 2005, Announcement Date and the average
pre-split trading price of our Common Stock for the forty (40) trading days
preceding that date, the minimum Purchase Price is $1.42. That minimum Purchase
Price was calculated as follows: for the forty (40) trading day period from
March 24, 2005 through May 19, 2005, our closing prices ranged from a low of
$0.94 to a high of $1.47, with an average closing price of $1.13975 per share
for that period. 125% of that average closing price is $1.42 per share which
set
the minimum Purchase Price. We will file a Form 8-K with the SEC to inform
our
shareholders of the final Purchase Price after the Effective Date has occurred.
Our shareholders who own 100 or more shares of our Common Stock immediately
prior to the Effective Date of the reverse stock split (“Continuing
Shareholders”) will continue to be our shareholders and will not be entitled to
receive any cash for their fractional share interests resulting from the
transaction, but any fractional shares they receive will be rounded up to a
whole share.
We
may at
some point repurchase shares of Common Stock proposed to be transferred by
one
or more of our Continuing Shareholders if the proposed transfer would cause
the
number of holders of record of our Common Stock to equal or exceed 500 (or
300,
if our assets then exceed $10 million). We might also repurchase shares of
one
or more Continuing Shareholders who, after the reverse stock split, have “odd
lot” shares and cannot otherwise dispose of them on reasonable terms. Because
some of these odd lots of shares may be difficult to sell, particularly if
the
Company’s stock is not quoted on The Pink Sheets or any other securities market
after the reverse stock split, the Company may try to provide some measure
of
liquidity to these shareholders. There is no guarantee, however, that the
Company will have the financial or other resources to make any such repurchases
or that, even if some repurchases are made, the Company will be in a position
to
do so for all or for any significant portion of the shareholders holding odd
lots after the reverse stock split. The price to be paid for any such post-split
repurchases would be the fair market value for such shares as determined by
our
Board of Directors in good faith.
The
following discussion describes in more detail the reverse stock split and its
advantages and disadvantages.
SPECIAL
FACTORS
Background
of the Proposal
In
recent
years, our Common Stock has attracted virtually no market research attention.
There have been consistently low trading volumes resulting in a highly
inefficient market for our shares. The low trading volumes and market
capitalization have also limited our ability to use our Common Stock as a
significant part of our employee compensation and incentives strategy or as
consideration for acquisitions. Our Board of Directors has not raised any
capital through sales of equity securities in a public offering in many years
and has no plans to do so in the foreseeable future. Also, our Board of
Directors has determined that given our size and the absence of sustained
interest by securities research analysts and other factors, we have not enjoyed
an appreciable enhancement in our Company image, which sometimes results from
having reporting company status.
We
incur
substantial direct and indirect costs associated with compliance with the
Exchange Act’s filing and reporting requirements imposed on reporting companies.
The cost of this compliance has increased significantly with the implementation
of the provisions of the Sarbanes-Oxley Act, including but not limited to the
significant costs and burdens of compliance with the forthcoming internal
control evaluation and audit requirements of Section 404 of the
Sarbanes-Oxley Act, more commonly referred to in this Proxy Statement as
Section 404. While the SEC has deferred for one year the application
of
Section 404 to non-accelerated filers like us, the cost of implementing
Section 404’s internal control procedures is expected to be unduly
burdensome and costly for a company as small as Kestrel Energy. We will have
to
incur substantial costs to implement these procedures unless and until we
deregister. Historically, we have also incurred substantial indirect costs
as a
result of, among other things, the management time expended to prepare and
review our public filings, which indirect costs are expected to increase after
Sarbanes-Oxley and particularly Section 404.
In
light
of these circumstances, our Board of Directors believes that it is in our best
interest to undertake the reverse stock split, enabling us to deregister our
Common Stock under the Exchange Act. Deregistering will relieve us of the
administrative burden, cost and competitive disadvantages associated with filing
reports and otherwise complying with the requirements imposed under the Exchange
Act and the Sarbanes-Oxley Act.
History
of the Proposal
Our
Board
of Directors began considering the issues that led to this proposal during
2004.
At that time, officers and directors began to evaluate whether we were achieving
the benefits of being a publicly traded company when weighed against the costs
of maintaining our public reporting obligations, coupled with the limited
liquidity and trading volatility associated with the limited trading volume
of
our Common Stock. While these issues had been discussed by individual members
of
the Board of Directors from time to time for many years, no formal consideration
of taking steps to deregister the Company’s Common Stock had been considered by
the Board. Shortly after Timothy L. Hoops was named President, CEO and CFO
of
the Company on May 15, 2004, however, he began investigating ways to reduce
the
Company’s expenses and thereby decrease the Company’s losses from operations.
Among the expenses that he identified were the legal and accounting fees and
other expenses involved in complying with the Company’s obligations as a public
company. Shortly thereafter, Mr. Hoops raised the possibility of deregistering
the Company’s common stock with Robert J. Pett, the Company’s Chairman of the
Board, noting that costs of remaining a public company were increasing on
account of the passage of the Sarbanes-Oxley Act of 2002 and were expected
to
increase further when the Company was required to comply with Section 404 of
the
Act.
In
October 2004, at a meeting of the Audit Committee of our Board of Directors,
Wheeler Wasoff P.C., our independent auditors, provided information to the
Committee concerning certain recent accounting pronouncements regarding
Section 404 of the Sarbanes-Oxley Act of 2002 and the SEC’s final rules for
the implementation of that provision for smaller public companies like the
Company. Following that meeting, members of the Committee encouraged management
to review the effort and expense that would be necessary to adopt a
comprehensive program to document, evaluate and test our systems of internal
controls for Section 404 readiness and ultimate compliance.
In
December 2004, Mr. Hoops reviewed an article in Securities
Mosaic,
an
on-line securities law and news publication, containing an interview with
Christian Leuz, an economist with the Wharton School and one of three co-authors
of a recently completed study titled "Why Do Firms Go Dark? Causes and Economic
Consequences of Voluntary SEC Registration." The Securities Mosaic article
piqued his interest in the process and popularity of deregistration after
passage of Sarbanes-Oxley, leading him to further investigate the possibility
of
the Company doing so.
On
January
26, 2005, the Company announced in a Form 8-K that, by virtue of a series of
acquisitions of the shares of non-U.S. shareholders of the Company, Samson
held
59.3% of the Company’s Common Stock. The reduced number of shareholders implied
by Samson’s acquisitions led Mr. Hoops to make further inquiries, to legal
counsel and others, concerning the practical steps involved in, and the
consequences of, deregistering the Common Stock. On April 28, 2005, Mr. Hoops
circulated, by e-mail, a memorandum to the other members of the Board in which
he recommended that the Company engage in a reverse stock split and terminate
the registration of its Common Stock under the Exchange Act. By a series of
separate telephonic and face to face communications with individual members
of
the Board between April 28 and May 7, 2005, Mr. Hoops’ recommendations were
discussed by all of the directors, each of whom indicated his assent to pursuing
the possibility of a transaction that would reduce the number of shareholders
below 300 and permit the Company to deregister its Common Stock. Mr. Hoops,
with
the assistance of legal counsel, subsequently reviewed the processes and effect
of various transactions that might cause the number of shareholders to go below
300 and consulted with Mr. Pett concerning the most appropriate transaction.
Mr.
Pett and Mr. Hoops determined that, in their view, a reverse stock split of
at
least 50 to 1 would be the most effective way for the Company to reduce the
number of shareholders below 300.
By
unanimous written consent dated May 7, 2005, the Board of Directors appointed
two directors to a Special Committee of the Board to consider whether the
proposed reverse stock split (a) would be in the best interests of the Company
as a whole and (b) would be substantively and procedurally fair to all of the
Company’s shareholders, including a separate consideration of the fairness to
the Company’s unaffiliated shareholders who receive a cash payment for their
shares after the reverse stock split as well as those unaffiliated shareholders
who would remain shareholders after a split. The Board of Directors selected
Ken
Nickerson and Mr. Hoops to serve on the Committee. Mr. Nickerson was selected
because he is the only director whom the Board considered to be entirely
independent of the Company and of all its affiliates. Mr. Hoops, the Company’s
President and CEO and its only other U.S. director, was selected because he
was
the director most familiar with the details and history of the reverse stock
split proposal and with the market for the Common Stock and the liquidity for
the Company’s smaller shareholders in that market.
The
Board
also determined in that unanimous written consent that it would not require
a
separate vote of disinterested or unaffiliated shareholders. Based on historical
voting patterns, the Board of Directors concluded that a very low percentage
of
the shares held by unaffiliated shareholders were likely to be voted at the
Special Meeting. Accordingly, the Board determined that it could not practicably
require the approval of a majority of the unaffiliated shareholders and that
it
would be unfair to permit the reverse stock split to be decided by a plurality
of the small number of unaffiliated shareholders who do cast their votes at
the
Special Meeting.
Finally,
the Board determined not to seek an independent appraisal of the Common Stock.
The Board reasoned that the cost of an independent appraisal of the Common
Stock
by a reputable investment banking firm would be equal to or greater than the
approximately $30,000 to be paid to the shareholders who are cashed out as
a
result of the reverse stock split. The Board also believe that the fairness
of
the proposed Purchase Price, which was then proposed to be at least twenty
five
percent (25%) higher than recent or historical market prices and at least seven
times higher than the net book value per share, would be so indisputably fair
to
shareholders that, under the circumstances, an independent appraisal would
not
be a prudent use of the Company’s limited resources.
On
May 9,
2005, Messrs. Hoops and Pett met in Colorado to review and consider the terms
of
the reverse stock split proposal, including but not limited to (i) the current
and projected costs of remaining a public company, (ii) the relationship of
the
Company’s revenues, as shown by its fiscal 2004 financial statements, to those
costs, (iii) the cash needed to effect a reverse stock split, (iv) whether
the
most appropriate split would be 50-to-1 or 100-to-1 or some other number, (v)
the out of pocket expenses involved in a reverse stock split or another going
private transaction, (vi) the current and historical market prices for the
Company’s stock on the OTC Bulletin Board, (vii) the actual opportunity for a
sale of shares of the Company’s stock on the OTCBB at a price similar to the
quoted market price, especially for odd lot shareholders and (viii) the effect
on those unaffiliated shareholders who were either cashed out or continued
as
minority shareholders after the split. On the basis of those discussions,
Messrs. Hoops and Pett formulated a proposal to effect a 100-to-1 reverse stock
split of the Company’s Common Stock and to repurchase for cash the shares of
those shareholders who hold less than one whole share after the reverse stock
split. The 100-to-1 split was recommended by Messrs. Hoops and Pett over the
50
to 1 split because (I) doing a split of less than 100-to-1 would not provide
liquidity to some of the Company’s odd lot shareholders (shareholders with less
than 100 shares), even though all odd lot shareholders faced special difficulty
in selling their shares in the limited trading market available for the Common
Stock, (II) the marginal cost of including all the odd lot shareholders was
not
significant, and (III) the further reduction in the number of shareholders
that
would result from including the additional shareholders in the cash out payments
would help ensure that post-split transfers of shares, by securities
depositories or others, would not increase the number of shareholders to the
point that deregistration of the Common Stock would not be available.
The
price
which Messrs. Hoops and Pett initially proposed to pay the cashed out
shareholders was the greater of (i) 125% of the average pre-split closing price
per share of our Common Stock as quoted on the OTCBB for the ten (10) trading
days preceding the first public announcement of the plan to effect a reverse
stock split, or (ii) 125% of the average pre-split closing price per share
over
the 5 trading days preceding the Effective Date of the reverse stock split,
in
both cases based on the number of pre-split shares held. Over the next several
days, Mr. Pett contacted each of the other members of the Board of Directors
by
telephone and solicited their views on the proposal formulated by Messrs. Pett
and Hoops at their May 9 meeting. In those discussions, all of the directors
approved the proposal except that it was agreed that the number of days prior
to
the announcement of the reverse stock split used to measure the pre-announcement
average price would be increased from ten (10) days to forty (40) days.
On
May
19, 2005, the Special Committee met by telephonic conference to review the
final
terms of the proposed reverse stock split. Based on that review, the Special
Committee concluded that (a) the reverse stock split would be in the best
interests of the Company as a whole, (b) the reverse stock split would be
substantively and procedurally fair to all of the Company’s unaffiliated
shareholders, including unaffiliated shareholders who receive a cash payment
for
their shares after the reverse stock split as well as those unaffiliated
shareholders who would remain shareholders after the split, and (c) the amount
of cash consideration to be paid to the unaffiliated shareholders who would
be
cashed out after the reverse stock split was fair to those shareholders since
it
was substantially higher than the amount which those shareholders could have
obtained by a sale in trading markets, if any such sale could even be effected.
The Special Committee immediately reported its findings to the entire Board.
Our
Board
of Directors then unanimously agreed with the recommendation of Messrs. Hoops
and Pett that the increasing costs of operating as a reporting company warranted
deregistering our shares of Common Stock and that the most viable alternative
to
achieve that deregistration was a reverse stock split. In addition, after
considering the conclusions of the Special Committee, our Board of Directors
unanimously and independently determined that the terms of the reverse stock
split were substantively and procedurally fair to all of our unaffiliated
shareholders, including but not limited to those who would be cashed out after
the reverse split, because the amount to be paid to them was almost certainly
greater to the amount that they could have reasonably expected to receive from
a
public or private fair market value sale of their stock in the foreseeable
future. Accordingly, by unanimous written consent dated May 19, 2005, our Board
approved the final terms of the reverse stock split and called the Special
Meeting for a shareholder vote on the transaction.
Purpose
of the Proposal
The
primary purpose of the reverse stock split is to enable us to reduce the number
of our holders of record to fewer than 300. This will allow:
| · |
termination
of the registration of our Common Stock under Section 12(b)
of the
Exchange Act and suspension of our duties to file periodic reports,
proxy
statements and other filings with the SEC and comply with the
Sarbanes-Oxley Act;
|
| · |
elimination
of the administrative burden and expense of maintaining small
shareholders’ accounts; and
|
| · |
all
current “odd lot” shareholders (i.e., those shareholders holding less than
100 shares) to liquidate their shares of our Common Stock at a fair
price,
without having to pay brokerage commissions, because we will pay
all
transaction costs related to the purchase of fractional shares after
the
reverse stock split.
|
Structure
of the Proposal
Our
Board
of Directors has unanimously approved the submission of the reverse stock split
to a vote of our shareholders and recommends the transaction for your approval.
Our Board of Directors has, however, retained the final authority to determine
if and when to effectuate the reverse stock split. Notwithstanding authorization
of the proposed transaction by our current shareholders, our Board of Directors
may elect to delay or even abandon the reverse stock split at any time without
further action by our shareholders. The decision whether to delay or abandon
the
reverse stock split is within the sole discretion of the Board of Directors.
While any such delay or abandonment is highly unlikely, the Board reserves
the
right to delay or abandon the declaration of the reverse stock split if in
the
Board’s judgment, new or changed circumstances make the declaration of the
reverse stock no longer in the best interests of the Company’s unaffiliated
shareholders.
As
of
May 27, 2005, there were 10,673,200 shares of our Common Stock
outstanding and approximately 1,214 holders of record. As of such date,
approximately 1,083 holders of record held fewer than 100 shares
of
our Common Stock. As a result, we believe that the reverse stock split will
reduce the number of our holders of record to approximately 131, while reducing
the number of outstanding shares to approximately 106,632 shares. The shares
we
purchase will be retired and the outstanding shares eliminated by the reverse
stock split will become authorized but unissued shares.
Effects
on Shareholders with Fewer Than 100 Shares of Common Stock
If
the
reverse stock split is implemented, shareholders holding fewer than
100 shares of our Common Stock immediately before the reverse stock
split,
sometimes referred to as “Cashed Out Shareholders,” will:
| · |
not
receive a fractional share of Common Stock as a result of the reverse
stock split;
|
| · |
receive
cash equal to the Purchase Price of the shares of our Common Stock
they
held immediately before the reverse stock split in accordance with
the
procedures described in this Proxy
Statement;
|
| · |
not
be required to pay any service charges or brokerage commissions in
connection with the reverse stock
split;
|
| · |
not
receive any interest on the cash payments made as a result of the
reverse
stock split; and
|
| · |
have
no further ownership interest in our Company and no further voting
rights.
|
Cash
payments to Cashed Out Shareholders as a result of the reverse stock split
will
be subject to income taxation if the cash payment exceeds a shareholder’s tax
basis. For a discussion of the federal income tax consequences of the reverse
stock split, please see the section of this Proxy Statement entitled
“Federal Income Tax Consequences.”
If
you do
not currently hold at least 100 shares of Common Stock in a single account
and you want to continue to hold shares of our Common Stock after the reverse
stock split, you may do so by taking either of the following
actions:
| · |
Purchase
a sufficient number of additional shares of our Common Stock in the
open
market or privately and have them registered in your name and consolidated
with your current record account, if you are a record holder, or
have them
entered in your account with nominee (such as your broker or bank)
in
which you hold your current shares so that you hold at least
100 shares of our Common Stock in your account immediately
before the
Effective Date of the reverse stock split;
or
|
| · |
If
you hold an aggregate of 100 or more shares in one or more accounts,
consolidate your accounts so that you hold at least 100 shares
of our
Common Stock in one account immediately before the Effective
Date.
|
In
either
case, you will have to act far enough in advance so that the purchase of any
shares of our Common Stock and/or consolidation of your accounts containing
shares of our Common Stock is completed by the close of business prior to the
Effective Date of the reverse stock split. We recommend that our shareholders
consolidate their holdings before or as of the date of the Special Meeting.
If,
as expected, the reverse stock split is approved at the Special Meeting, the
Company’s Board of Directors can declare the Effective Date to be as soon as ten
(10) days after the date of the Special Meeting, or August 5, 2005. Accordingly,
any consolidating transactions by shareholders should be completed before that
date.
Effects
on Shareholders with 100 or More Shares of Common Stock
If
the
reverse stock split is consummated, shareholders holding 100 or more shares
of
our Common Stock immediately before the reverse stock split, referred to herein
as Continuing Shareholders, will:
| · |
continue
to be our shareholders and will be the only persons entitled to vote
as
shareholders after the consummation of the reverse stock
split;
|
| · |
not
receive cash for any of their shares of our Common Stock and would
not
receive any fractional shares, but the number of shares received
would be
rounded up to the next whole number of shares;
and
|
| · |
likely
experience a reduction in liquidity (which may be significant) with
respect to their shares of our Common Stock, because if our Common
Stock
continues to be quoted, it will only be quoted in the Pink Sheets,
which
is a less widely followed quotation service than the OTCBB. Even
if our
Common Stock is quoted in the Pink Sheets after the reverse stock
split,
of which there can be no assurance, there may be no trading market
at all
in our Common Stock. In order for our Common Stock to continue to
be
quoted in the Pink Sheets after the split, a number of brokerage
firms
must elect to act as a market maker for our Common Stock and sponsor
our
shares. However, because we will not file reports with the SEC, there
can
be no assurance that any brokerage firm will be willing to act as
a market
maker for our shares of Common
Stock.
|
Effects
on the Company
If
consummated, the reverse stock split will affect the registration of our Common
Stock under the Exchange Act, as we intend to apply for termination of such
registration as soon as practicable after the consummation of the reverse stock
split.
We
have
no current plans to issue additional shares of our Common Stock after the
reverse stock split, but we reserve the right to do so at any time and from
time
to time at such prices and on such terms as our Board of Directors determines
to
be in our best interests. Continuing Shareholders will not have any preemptive
or other preferential rights to purchase any shares of our Common Stock that
we
may issue in the future, unless such rights are specifically granted to the
shareholders.
After
the
reverse stock split has been consummated, we may repurchase shares of our Common
Stock, in privately negotiated sales or in other transactions. The timing of
when we seek to repurchase shares in the future will depend on a number of
factors, including our financial condition, operating results and available
capital at the time. For example, we may repurchase the shares of some of our
Continuing Shareholders who, after the reverse stock split, hold odd lots of
our
Common Stock. In addition, we may be required at various times in the future
to
repurchase shares of our Common Stock in order to prevent the number of our
holders of record from equaling or exceeding 300 (or, if we have total assets
of
$10 million or more, 500). We cannot predict the likelihood, timing or prices
of
such purchases and they may well occur without regard to our financial condition
or available cash at the time.
We
expect
that, upon the completion of the reverse stock split, the shares of our Common
Stock beneficially owned by our directors and executive offices will comprise
approximately 8% of the then issued and outstanding shares of our Common Stock,
and will be approximately the same after the Effective Date of the reverse
stock
split. We also expect that our largest shareholder, Samson Oil & Gas
N.L., will continue to hold in excess of 77% of our outstanding shares after
the
Effective Date of the reverse stock split.
The
par
value of the shares of our Common Stock will continue to be no par value per
share following consummation of the reverse stock split.
Schedule
13E-3 Filing
The
reverse stock split is considered a “going private” transaction as defined in
Rule 13e-3 promulgated under the Exchange Act, because, if consummated,
it
is intended to terminate the registration of our Common Stock under
Section 12(b) of the Exchange Act and suspend our duty to file periodic
reports with the SEC. Consequently, we have filed a Rule 13e-3 Transaction
Statement on Schedule 13E-3 with the SEC. We will amend that Schedule
13E-3
to reflect the final Purchase Price after it has been determined.
Advantages
of the Proposal
Cost
Savings
As
a
result of recent corporate governance scandals and the legislative and
litigation environment resulting from those scandals, the costs of being a
public reporting company in general, and the costs of our remaining a public
reporting company in particular, are expected to continue to increase in the
near future. Newly-enacted legislation, such as the Sarbanes-Oxley Act, will
likely continue to have the effect of increasing the compliance burdens and
potential liabilities of being a public reporting company as well as increase
audit fees and other costs of compliance, such as securities counsel fees,
increased outside director fees and greater potential liability faced by our
officers and directors. We also incur substantial indirect costs as a result
of,
among other things, our management’s time expended to prepare and review our
public filings. Because we have only one executive officer at this time, these
indirect costs have been substantial.
Our
Board
of Directors believes that, by deregistering our shares of Common Stock and
suspending our periodic reporting obligations, we will realize annual cost
savings of approximately $250,000. These estimated annual cost savings reflect,
among other things: (i) a reduction in audit, legal, engineering and
other
fees required for publicly held companies, (ii) the elimination of various
internal costs associated with filing periodic reports with the SEC,
(iii) the reduction or elimination of the cost of officers and directors
liability insurance, and (iv) the reduction or elimination of various
clerical and other expenses, including printing, stock transfer and proxy
solicitation expenses.
Preparing
for compliance with Section 404 would require significant expenditures
during the initial fiscal year of compliance, including costs related to
computer software and hardware and fees to third parties for compliance
planning, assessment, documentation and testing. Based on published reports
of
the costs incurred by other companies and estimates of potential service
providers, management estimates the one time fees that would be paid to third
parties and other costs that would be incurred by the Company during the initial
year of compliance with Section 404 would be between $300,000 and $700,000.
In addition, the estimated annual costs and cost savings do not include other
costs that management and the Board of Directors believe are substantial, though
difficult or impossible to quantify, such as internal expenses related to the
recordkeeping and shareholder relations efforts involved with being a public
reporting company and the increased risk of liability associated with being
a
reporting company.
Opportunity
for Cashed Out Shareholders to Sell Their Holdings at or Above
the
Then Current Market Trading Price, Without Brokerage Fees or
Commissions
In
connection with the reverse stock split, our Board of Directors determined
that
a fair price for this transaction to Cashed Out Shareholders is the Purchase
Price as set forth in the section “To Effect a Reverse Stock Split” of this
Proxy Statement, because it provides them an opportunity to liquidate their
holdings at a fair price without brokerage commissions.
Ability
to Control Decision Whether to Remain as a Shareholder
Another
factor considered by our Board of Directors in determining the fairness of
the
transaction to our unaffiliated shareholders is that current holders of fewer
than 100 shares of our Common Stock can remain as our shareholders, even if
the
reverse stock split is consummated, by acquiring additional shares so that
they
own at least 100 shares of our Common Stock immediately before the
Effective Date of the reverse stock split. Conversely, shareholders that own
100
or more shares of our Common Stock can reduce their holdings to fewer than
100 shares by selling shares prior to the transaction. Our Board of
Directors considered the structure of the transaction to be substantively and
procedurally fair to our unaffiliated shareholders because it allows them a
measure of control over the decision of whether to remain shareholders after
the
transaction, or to receive the cash consideration offered in connection with
the
reverse stock split, if the transaction is consummated.
Operational
Flexibility
Another
advantage of effectuating the reverse stock split relates to operational
flexibility. Our Board of Directors believes that consummating the reverse
stock
split and ending our status as a public reporting company will enable management
to concentrate its efforts on our long-term growth, free from the constraints
and distractions of public ownership. Our Board of Directors believes that
we
will benefit more if their business decisions can be made with a view toward
long-term growth and with less emphasis on the effect of decisions upon the
short-term earnings and the consequent short-term effect of such earnings on
the
market value of our Common Stock.
No
Material Change in Percentage Ownership of Continuing
Shareholders
An
estimated 10,566,568 out of 10,673,200 shares of our Common Stock would
be
eliminated as a result of the reverse stock split, but the percentage ownership
of Continuing Shareholders would be approximately the same as it was prior
to
the reverse stock split. For example, our officers and directors currently
beneficially own approximately 8% of the outstanding shares of our Common Stock
and will beneficially own approximately the same number of shares of our Common
Stock following completion of the reverse stock split. Even though it is
unlikely that any affiliated shareholders will be cashed out after the reverse
stock split, we believe that structuring the transaction in a manner that
preserves the approximate percentage ownership of the Continuing Shareholders,
whether affiliated or unaffiliated, supports the fairness of the transaction
to
all the unaffiliated shareholders.
Disadvantages
of the Proposal
Substantial
or Complete Reduction of Public Sale Opportunities for Our
Shareholders
Following
the transaction, we anticipate that the already limited market for shares of
our
Common Stock will be reduced or eliminated altogether. Our shareholders may
no
longer have the option of selling their shares of our Common Stock in a public
market. While shares may be quoted in the Pink Sheets for some period of time,
any such market for our Common Stock may be highly illiquid after the suspension
of our periodic reporting obligations.
Loss
of Certain Publicly Available Information
Upon
terminating the registration of our Common Stock under the Exchange Act, our
duty to file periodic reports with the SEC would be suspended. The information
regarding our operations and financial results that is currently available
to
the general public and our investors will not be available after we have
terminated our registration. Upon the suspension of our duty to file reports
with the SEC, investors seeking information about us may have to contact us
directly to receive such information. We cannot assure you that we will be
in a
position to provide the requested information to an investor. While our Board
of
Directors acknowledges the circumstances in which such termination of publicly
available information may be disadvantageous to some of our shareholders, our
Board of Directors believes that the overall benefit to the Company to no longer
be a public reporting company substantially outweighs the disadvantages to
those
shareholders.
Possible
Significant Decline in the Value of Our Shares
Because
of the limited liquidity for the shares of our Common Stock following the
consummation of the reverse stock split and the diminished opportunity for
our
shareholders to monitor actions of our management due to the lack of public
information, Continuing Shareholders may experience a decrease in the value
of
their shares of our Common Stock, which decrease may be
significant.
Inability
to Participate in Any Future Increases in Value of Our Common
Stock
Cashed
Out Shareholders will have no further financial interest in the Company and
thus
will not have the opportunity to participate in any potential appreciation
in
the value of our shares, including without limitation if we were to become
a
public reporting company again in the future. Our Board of Directors determined
that this factor does not make the transaction unfair to unaffiliated
shareholders, because those shareholders who wish to remain shareholders after
the reverse stock split can do so by acquiring additional shares so that they
own at least 100 shares of our Common Stock before the reverse stock
split.
Alternative
Transactions Considered
In
making
the determination to submit the reverse stock split for approval by our
shareholders, our Board of Directors considered the feasibility of certain
other
alternative transactions, as described below, each of which was ultimately
rejected because of its disadvantages:
| · |
Issuer
Tender Offer.
Our Board of Directors considered the feasibility of an issuer tender
offer to repurchase the shares of our Common Stock held by our
unaffiliated shareholders. A principal disadvantage of this type
of
transaction relates to our ability to secure the debt financing needed
to
effect a tender offer in which there is full participation by unaffiliated
shareholders. Even though less than 1,800,000 of our 10,673,200
outstanding shares are held by non-affiliates, a tender offer to
repurchase all of those shares at the $1.42 minimum Purchase Price
would
require approximately $2.5 million in cash, which far exceeds the
Company’s financial resources. In addition, due to the voluntary nature of
such a transaction, we would have no assurance that the transaction
would
result in a sufficient number of shares being tendered. Moreover,
the
rules regarding the treatment of our shareholders in a tender offer,
including pro-rata acceptance of offers from our shareholders, make
it
difficult to ensure that we would be able to significantly reduce
the
number of holders of record to a level below
300.
|
| · |
Odd-Lot
Repurchase Program.
Our Board of Directors also considered the feasibility of a transaction
in
which we would announce to our shareholders that we would repurchase,
at a
designated price per share, the shares of our Common Stock held by
any
shareholder who holds fewer than a specified number of shares and
who
offers such shares for sale pursuant to the terms of the program.
A
principal disadvantage of such an approach, however, results from
the
voluntary nature of the program. Because our shareholders would not
be
required to participate the program, we could not be certain at the
outset
whether a sufficient number of odd-lot shareholders would participate
and
thereby result in the number of holders of record being reduced to
below
300. In terms of timing, such a program, especially after giving
effect to
any extensions of deadlines for tendering into the program, would
likely
necessitate a longer time frame than that of the reverse stock
split.
|
| · |
Maintaining
The Status Quo.
Our Board of Directors also considered maintaining the status quo.
In that
case, we would continue to incur the expenses of being a public reporting
company without enjoying the benefits traditionally associated with
public
reporting company status. See “Summary Term Sheet-- WHAT ARE SOME OF THE
REASONS FOR DEREGISTERING NOW?”.
|
Fairness
of the Reverse Stock Split
A
Special
Committee of our Board of Directors, comprised of Timothy L. Hoops,
our
President and CEO, and Kenneth Nickerson, an independent outside director (the
“Special Committee”), has considered the terms, purpose, alternatives and
effects of the reverse stock split and has determined that the transaction
is in
our best interests and is substantively and procedurally fair to all of our
unaffiliated shareholders. In their deliberations concerning the fairness of
the
proposed Purchase Price, the Special Committee specifically considered current
market prices for the Common Stock, historical market prices for the stock,
the
net book value per share (according to the Company’s quarterly report for the
period ended March 31, 2005, approximately $0.21, up from the approximately
$0.18 shown in the annual report on Form 10-K for the year ended June 30, 2004),
as well as the general lack of liquidity for the Company’s Common Stock. The
determination of the Special Committee was then reviewed by our Board of
Directors which, based on similar considerations, independently determined
that
the proposed reverse stock split was in the best interests of the Company and
was fair to the Company’s unaffiliated shareholders, including both those who
are being cashed out as a result of the split and those who will continue to
be
shareholders of the Company after the split, and unanimously resolved to submit
the reverse stock split to our shareholders for approval.
In
evaluating the fairness of the reverse stock split with respect to the
unaffiliated shareholders in particular, the Special Committee and the Board
of
Directors both noted that the transaction would not differentiate among
shareholders on the basis of affiliate status since the sole determining factor
in whether a shareholder will become a Cashed Out Shareholder or a Continuing
Shareholder as a result of the reverse stock split is the number of shares
held
by such shareholder as of the Effective Date of the reverse stock split. The
Special Committee and the Board of Directors also noted that the percentage
ownership of each Continuing Shareholder, whether affiliated or unaffiliated,
will be almost exactly the same as it was prior to the reverse stock
split.
The
Special Committee and the Board of Directors considered the advantages and
disadvantages of the reverse stock split discussed in the sections “Advantages
of the Proposal” and “Disadvantages of the Proposal” in reaching its conclusion
as to the substantive fairness of the reverse stock split to our unaffiliated
shareholders. Neither the Special Committee nor the Board of Directors assigned
a specific weight to each advantage and disadvantage in a formulaic fashion,
but
both of them placed special emphasis on the opportunity for Cashed Out
Shareholders to sell their holdings without brokerage fees or commissions,
as
well as the significant cost and time savings for the Company and the resulting
benefit to the affiliated and unaffiliated Continuing Shareholders.
We
have
not made any special provision in connection with the reverse stock split to
grant shareholders access to our corporate files or to obtain counsel or
appraisal services at our expense. Neither the Special Committee nor the Board
of Directors determined that these steps were necessary to ensure the fairness
of the reverse stock split. In particular, the Board of Directors determined
that such steps would be costly, time consuming and would not provide any
meaningful additional benefits. The Board of Directors believes that this Proxy
Statement, together with our other filings with the SEC, provide adequate
information for our shareholders to make an informed decision with respect
to
the transaction.
Special
Interests of Affiliated Persons in the Transaction
In
considering the recommendation of our Board of Directors and the Special
Committee with respect to the reverse stock split, our shareholders should
be
aware that our executive officer and directors have interests in the
transaction, which are in addition to, or may be different from, our
shareholders generally. These interests may create potential conflicts of
interest including, but not limited to, the significant increase in legal
exposure for members of boards of directors of public reporting companies,
especially in the aftermath of recent legislation and related regulations.
While
there are still significant controls, regulations and liabilities for directors
and executives officers of unregistered companies, the legal exposure for the
members of our Board of Directors and our executive officer will be reduced
after the reverse stock split.
Samson
Oil & Gas N.L., our largest shareholder, holds approximately 77% of our
outstanding shares has indicated that it will vote its shares of our Common
Stock in favor of authorizing the reverse stock split. While Samson has not
made
any binding commitment so to vote its shares, its expected vote in favor of
the
reverse stock split means that the passage of the resolution is highly
likely.
Costs/Source
of Funds And Expenses
Based
on
estimates of the record ownership of shares of our Common Stock, the number
of
shares outstanding and other information as of May 27, 2005, and assuming that
approximately 18,000 shares are cashed out, we estimate that the total funds
required to consummate the reverse stock split will be at least $75,000, of
which approximately $30,000 will be used to pay the consideration to
shareholders entitled to receive cash for their shares of our Common Stock
and
$45,200 will be used to pay the costs of the reverse stock split, as
follows:
|
Legal
fees and expenses
|
|
$
|
30,000
|
|
|
Mailing
costs and transfer agent fees
|
|
|
15,200
|
|
| |
|
$
|
45,200
|
|
We
intend
to fund these costs using cash on hand generated from operations.
Federal
Income Tax Consequences
Summarized
below are material federal income tax consequences to us and to our shareholders
resulting from the reverse stock split, if consummated. This summary is based
on
the provisions of the Internal Revenue Code of 1986, as amended, more commonly
referred to as the Code, the Treasury Regulations, issued pursuant thereto,
and
published rulings and court decisions in effect as of the date hereof, all
of
which are subject to change. This summary does not take into account possible
changes in such laws or interpretations, including amendments to the Code,
other
applicable statutes, Treasury Regulations and proposed Treasury Regulations
or
changes in judicial or administrative rulings; some of which may have
retroactive effect. No assurance can be given that any such changes will not
adversely affect the federal income tax consequences of the reverse stock
split.
This
summary does not address all aspects of the possible federal income tax
consequences of the reverse stock split and is not intended as tax advice to
any
person or entity. In particular, and without limiting the foregoing, this
summary does not consider the federal income tax consequences to our
shareholders in light of their individual investment circumstances nor to our
shareholders subject to special treatment under the federal income tax laws
(for
example, tax exempt entities, life insurance companies, regulated investment
companies and foreign taxpayers), or who hold, have held, or will hold our
Common Stock as part of a straddle, hedging, or conversion transaction for
federal income tax purposes. In addition, this summary does not address any
consequences of the reverse stock split under any state, local or foreign tax
laws.
We
will
not obtain a ruling from the Internal Revenue Service or an opinion of counsel
regarding the federal income tax consequences to our shareholders as a result
of
the reverse stock split. Accordingly, you are encouraged to consult your own
tax
advisor regarding the specific tax consequences of the proposed transaction,
including the application and effect of state, local and foreign income and
other tax laws.
This
summary assumes that you are one of the following: (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an
estate the income of which is subject to United States federal income tax
regardless of its source, or (iv) a trust if a United States court can
exercise primary supervision over the trust’s administration and one or more
United States persons are authorized to control all substantial decisions of
the
trust. This summary also assumes that you have held and will continue to hold
your shares as capital assets for federal income tax purposes.
You
should consult your tax advisor as to the particular federal, state, local,
foreign, and other tax consequences, applicable to your specific
circumstances.
We
believe that the reverse stock split will be treated as a tax-free
“recapitalization” for federal income tax purposes. This should result in no
material federal income tax consequences to us or to our shareholders who do
not
receive cash in the transaction. However, if you are receiving cash in the
transaction, you may not qualify for tax-free “recapitalization” treatment for
federal income tax purposes.
Shareholders
Who Do Not Receive Cash in Connection with the Reverse
Stock
Split
If
you
(1) continue to hold Common Stock directly immediately after the reverse
stock split, and (2) you receive no cash as a result of the reverse
stock
split, you should not recognize any gain or loss in the reverse stock split
for
federal income tax purposes. Your aggregate adjusted tax basis in your shares
of
our Common Stock held immediately after the reverse stock split will be equal
to
your aggregate adjusted tax basis in such shares held immediately prior to
the
reverse stock split and you will have the same holding period or periods in
your
Common Stock as you had in such Common Stock immediately prior to the reverse
stock split.
Shareholders
Who Receive Cash in Connection with the Reverse Stock
Split
If
you
(1) receive cash in exchange for fractional shares as a result of the
reverse stock split, (2) you do not continue to hold any Common Stock
directly immediately after the reverse stock split, and (3) you are
not
related to any person or entity that holds Common Stock immediately after the
reverse stock split, you will recognize capital gain or loss on the reverse
stock split for federal income tax purposes, with such gain measured by the
difference between the cash you received for your cashed-out shares and your
aggregate adjusted tax basis in such Common Stock.
If
you
receive cash in exchange for fractional shares of our Common Stock as a result
of the reverse stock split, but either continue to directly own stock
immediately after the reverse stock split, or are related to a person or entity
who continues to hold stock immediately after the reverse stock split, will
recognize capital gain or loss in the same manner as set forth in the previous
paragraph, provided that your receipt of cash either is “not essentially
equivalent to a dividend,” or constitutes a “substantially disproportionate
redemption of stock,” as described below.
| · |
“Not
Essentially Equivalent to a Dividend.”
You will satisfy the “not essentially equivalent to a dividend” test if
the reduction in your proportionate interest in us resulting from
the
reverse stock split (taking into account for this purpose the Common
Stock
owned by persons related to you) is considered a “meaningful reduction”
given your particular facts and circumstances. In other cases, the
Internal Revenue Service has ruled that a small reduction by a minority
shareholder whose relative stock interest is minimal and who exercises
no
control over the affairs of a corporation will satisfy this
test.
|
| · |
“Substantially
Disproportionate Redemption of Stock.”
The receipt of cash in the reverse stock split will be a “substantially
disproportionate redemption of stock” for you if the percentage of the
outstanding shares of our Common Stock owned by you (and by persons
related to you) immediately after the reverse stock split is (a) less
than 50% of all outstanding shares and (b) less than 80% of
the
percentage of shares of our Common Stock owned by you immediately
before
the reverse stock split.
|
In
applying these tests, you will be treated as owning shares of our Common Stock
actually or constructively owned by certain individuals and entities related
to
you. If your receipt of cash in exchange for Common Stock is not treated as
capital gain or loss under any of the tests, it will be treated first as
ordinary dividend income to the extent of your ratable share of our current
and
accumulated earnings and profits, then as a tax-free return of capital to the
extent of your aggregate adjusted tax basis in your shares, and any remaining
amount will be treated as capital gain. See “Capital Gain and Loss” and “Special
Rate for Certain Dividends,” below.
Capital
Gain and Loss
For
individuals, net capital gain (defined generally as your total capital gains
in
excess of capital losses for the year) recognized upon the sale of capital
assets that have been held for more than 12 months generally will be
subject to tax at a rate not to exceed 15%. Net capital gain recognized from
the
sale of capital assets that have been held for 12 months or less will
continue to be subject to tax at ordinary income tax rates. Capital gain
recognized by a cerebrate taxpayer will continue to be subject to tax at the
ordinary income tax rates applicable to corporations. There are limitations
on
the deductibility of capital losses.
Special
Rate for Certain Dividends
In
general, dividends are taxed at ordinary income rates. However, you may qualify
for a 15% rate of tax on any cash received in the reverse stock split
that
is treated as a dividend as described above, if (i) you are an individual
or other non-corporate Shareholder, (ii) you have held the shares of
our
Common Stock with respect to which the dividend was received for more than
60 days during the 120-day period beginning 60 days before the
ex-dividend date, as determined under the Code, and (iii) you were not
obligated during such period (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property. You are urged to consult with your tax advisor regarding your
applicability for, and the appropriate federal, state, local, foreign or other
tax treatment of, any such dividend income.
Backup
Withholding
Shareholders
will be required to provide their social security or other taxpayer
identification numbers (or, in some instances, additional information) to the
Transfer Agent in connection with the reverse stock split to avoid backup
withholding requirements that might otherwise apply. The letter of transmittal
will require each Shareholder to deliver such information when the Common Stock
certificates are surrendered following the Effective Date of the reverse stock
split. Failure to provide such information may result in backup withholding
at a
rate of 28%.
As
explained above, the amounts paid to you as a result of the reverse stock split
may result in dividend income, capital gain income, or some combination of
dividend and capital gain income to you depending on your individual
circumstances. You should consult your tax advisor as to the particular federal,
state, local, foreign, and other tax consequences of the transaction, in light
of your specific circumstances.
THE
PRECEDING DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE
REVERSE STOCK SPLIT IS GENERAL AND DOES NOT INCLUDE ALL CONSEQUENCES TO EVERY
SHAREHOLDER UNDER FEDERAL, STATE, LOCAL, OR FOREIGN TAX LAWS. ACCORDINGLY,
EACH
SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF THE REVERSE STOCK SPLIT, INCLUDING THE APPLICABILITY
AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES
IN
APPLICABLE LAW.
Appraisal
and Dissenters’ Rights
If
the
reverse stock split is effected, our shareholders are entitled to assert
dissenter’s rights and obtain payment of the fair value of their shares, under
Article 113 of the Colorado Business Corporation Act, Colo. Rev. Stat. Section
7-113-101 et seq., a copy of which is attached hereto at Attachment A (the
“Colorado Dissenter’s Rights Statute”). To exercise the right to dissent, (1) a
shareholder (“Dissenting Shareholder”) must provide written notice to us of his
or her intent to demand payment for his or her shares before the vote is taken
at the Special Meeting on proposal No. 1, (2) the Dissenting Shareholder must
not vote in favor of proposal No. 1 at the meeting, and (3) the Dissenting
Shareholder must comply with the other provisions of the Colorado Dissenter’s
Rights Statute. A failure by a Dissenting Shareholder to not vote against
Proposal No. 1 will not constitute a waiver of his or her dissenters’ rights,
but that a vote against Proposal No. 1 does not satisfy the written notice
of
demand for payment which must be provided to the Company before the vote is
taken at the Special Meeting. If shareholder approval is obtained and the
reverse stock split is effected, we will provide written notice of the
transaction to the Dissenting Shareholder along with an explanation of the
procedures for the Dissenting Shareholder to demand payment and deliver his
or
her stock to us. The Dissenting Shareholder will then have not less than 30
days
after the notice to comply with the procedures to preserve the dissenters’
rights. If a Dissenting Shareholder is dissatisfied with the payment or offer,
the Dissenting Shareholder is entitled to follow the procedures in the Colorado
Dissenter’s Rights Statute. The foregoing discussion of the law relating to
dissenters’ rights is not a complete statement of such rights and is qualified
in its entirety by reference to Attachment A. THIS
DISCUSSION AND ATTACHMENT A SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER OF OUR
STOCK WHO WISHES TO EXERCISE STATUTORY DISSENTERS RIGHTS OR WHO WISHES TO
PRESERVE THE RIGHT TO DO SO BECAUSE FAILURE TO STRICTLY COMPLY WITH SUCH
PROCEDURES WILL RESULT IN THE LOSS OF DISSENTERS RIGHTS.
Recommendation
of Our Board Of Directors
Our
Board
of Directors has unanimously determined that the reverse stock split is
substantively and procedurally fair to, and in the best interests of, us and
our
unaffiliated shareholders.
THE
BOARD
OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE
REVERSE STOCK SPLIT.
Please
note that voting “FOR” the proposal does not mean that the reverse stock split
will be consummated. By voting “FOR” the proposal, you are giving our Board of
Directors the discretion to reject (and not implement) the reverse stock split.
If for any reason the reverse stock split is not approved, or, if approved,
not
implemented, the shares of our Common Stock will not be deregistered under
the
Exchange Act or no longer quoted by the OTCBB, unless and until such time as
we
are eligible to do so and our Board of Directors decides to do so.
Because
our largest shareholder, Samson Oil & Gas N.L., is expected to vote in favor
of Proposal No. 1, its passage is virtually assured. Accordingly, we
expect
that few, if any, shareholders will actually attend the meeting in person.
While
one or more of the directors will be available at the meeting to answer
shareholder questions, we do not intend to present additional information
concerning the proposal at the Special Meeting. Even if you decide to attend
the
Special Meeting in person, which you are free to do, we urge you to sign and
date the enclosed Proxy and return it promptly to us in the enclosed envelope
(which requires no additional postage if mailed in the United States). Mailing
in your Proxy to us will not affect your right to vote in person if you attend
the Special Meeting or to change your Proxy any time before the Special
Meeting.
MARKET
FOR COMMON STOCK AND DIVIDEND POLICY
Market
Information for Our Common Stock
Our
common stock trades over-the-counter on the OTC Bulletin Board under the symbol
“KEST.” The following table sets forth the quarterly high and low sales prices
for our last two fiscal years and the first three quarters of this fiscal year.
These quotations reflect inter-dealer prices, without retail mark-up, markdown
or commission and may not necessarily represent actual
transactions.
| Fiscal Year June 30,
2003 |
|
| |
Sales
Price
|
| |
High
|
Low
|
| First Quarter |
$0.74
|
$0.22
|
| Second Quarter |
0.70
|
0.17
|
| Third Quarter |
0.65
|
0.29
|
| Fourth Quarter |
0.55
|
0.10
|
| Fiscal Year June 30,
2004 |
|
| |
Sales
Price
|
| |
High
|
Low
|
| First Quarter |
$0.40
|
$0.31
|
| Second Quarter |
0.35
|
0.31
|
| Third Quarter |
0.85
|
0.40
|
| Fourth Quarter |
0.85
|
0.52
|
| Fiscal Year June 30,
2005 |
|
| |
Sales
Price
|
| |
High
|
Low
|
| First Quarter |
$0.85
|
$0.60
|
| Second Quarter |
0.83
|
0.45
|
| Third Quarter |
1.60
|
0.70
|
Dividend
Policy
While
there are no covenants or other aspects of any finance agreements or bylaws
that
restrict the declaration or payment of cash dividends, we have not paid any
dividends on our Common Stock and do not expect to do so in the foreseeable
future.
THE
COMPANY
General
Information
We
were
incorporated under the laws of the State of Colorado on November 1, 1978. Our
principal business is the acquisition, either alone or with others, of interests
in proved developed producing oil and gas leases, and exploratory and
developmental drilling. Our executive offices are located at 1726 Cole Blvd.,
Suite 210, Lakewood, Colorado 80401 and our phone number is
(303)295-0344.
Control
Person
Samson
Oil & Gas N.L., an investment corporation registered in Australia and traded
on the Australian Stock Exchange Limited, currently owns approximately 77%
of
our outstanding Common Stock. To the Company’s knowledge there will be no change
in control if the reverse stock split is effected.
Our
Directors and Officers
Set
forth
below are the names of all of our directors and executive officers, their ages,
all positions and offices held by each such person, the period during which
he
has served as such, and the principal occupations and employment of such persons
during at least the last five years.
Timothy L.
Hoops,
age 49,
has been our President since May 15, 2004 and a Director since June 1,
1992. He also previously served as our President and Chief Executive Officer
from June 1, 1992 until August 15, 2001, when he resigned from those positions,
but he remained as a consultant to us. On July 1, 2002, Mr. Hoops was hired
as
our Operations Manager, and on May 15, 2004, the Board of Directors named him
as
our President, Chief Executive Officer, Chief Financial Officer and Secretary.
Mr. Hoops is a petroleum geologist with 26 years experience in the
continental USA and Australia. Mr. Hoops was the President and a Director
of the our wholly owned subsidiary, Victoria Exploration, Inc., an independent
oil and gas producer, where he had served as an officer and Director since
1987
until it was merged into us in June 2001. He was a Director and President of
Kestrel Energy California, Inc. (“KEC”), a former wholly owned subsidiary and
oil and gas producer, from March 1997 until it was acquired by Victoria
Petroleum N.L. in May 2000. After the acquisition, he remained as a Director
and
he became Vice President and Assistant Secretary. He has also been a Director
of
Victoria International Petroleum N.L., an Australian oil and gas company, and
of
Victoria Petroleum N.L., its parent, since 1987. Mr. Hoops was Exploration
Manager for Royal Resources Corporation, a publicly held Denver based company
engaged in the exploration and development of oil and gas, from 1984 to 1987.
Prior to 1984, Mr. Hoops was employed by Amoco Production, Cities Service
and Santa Fe Energy. Mr. Hoops is a 1979 graduate of the Colorado School
of
Mines, with a degree in geology.
Robert J.
Pett,
age 57,
was appointed as a Director on June 1, 1992 and Chairman of the Board
on
January 16, 1995. Mr. Pett served as our Secretary, Treasurer and Vice President
during various periods from June 1992 to January 1995. Mr. Pett has been a
director of Victoria International Petroleum N.L. since 1986 and he has been
Chairman of Victoria Petroleum N.L. for 21 years. He is currently Chairman
of
Kestrel Energy California, Inc. After the acquisition of Kestrel Energy
California in May 2000, Mr. Pett was also appointed as its President. Mr. Pett
was a Director of Victoria Exploration, Inc. until it was merged into us in
June
2001. Mr. Pett holds a Masters Degree in Economics (Queens University,
Canada).
John
T. Kopcheff,
age 57,
was appointed as a Director on January 16, 1995. He served as Vice President
-
International from January 16, 1995 until June 30, 2002. He also held the same
positions at Victoria Exploration, Inc. until it was merged into us in June
2001. He was also the Vice President - International and a Director at Kestrel
Energy California, Inc. until it was merged in May 2000. He remained as a
Director and became its Secretary. Mr. Kopcheff is a geologist with
35
years experience in petroleum in Australia, Southeast Asia, United States,
South
America and the North Sea, both in field geological operations and management.
Mr. Kopcheff has been a Director of Victoria International Petroleum
N.L.
since 1986, and a Director of Victoria Petroleum N.L. since 1984. Prior to
his
appointment with us, he provided various services to us relating to its
international exploration activities on a consulting basis. He received a
Bachelor of Science degree with honors from the University of Adelaide in
1970.
Kenneth
W. Nickerson,
age 85,
is an independent petroleum and mineral geologist with over 55 years experience.
He was appointed as a Director on December 16, 1992. From 1981 until
1988,
Mr. Nickerson served as President, Director and Chief Operating Officer
of
Royal Resources Corporation, a publicly held Denver based company engaged in
the
exploration and development of oil and gas. Since then Mr. Nickerson
has
worked as a consulting geologist for various energy companies.
Mr. Nickerson is a 1948 graduate of the Colorado School of Mines with
a
degree in geological engineering.
Mark
A.E. Syropoulo,
age 53,
was appointed as a Director on January 14, 1998. Mr. Syropoulo has been
an
independent corporate consultant since 1994 and has during that time provided
services to various entities in the natural resources, information technology
and investment sectors, principally in Australia. He also acted as a consultant
to us from May 1997 until January 1998. From 1987 to 1993, Mr. Syropoulo was
managing director of Anglo Pacific Resources Limited, a United Kingdom mining
and oil company associated with Anglovaal Holdings Limited, a major South
African mining house. Mr. Syropoulo is a graduate of mathematics and economics
and an honors graduate in economics of the University of Natal Durban, South
Africa.
Neil
T. MacLachlan,
age 63,
was appointed as a Director on September 27, 2000. He is the Chairman and major
shareholder in Markham Associates, a London based corporate investment and
advisory business. He is also a non-executive director of Samson Oil & Gas
N.L. (“Samson”) and Titan Resources Ltd., both publicly traded Australian mining
companies. Mr. MacLachlan has over 29 years investment banking experience gained
in Europe, Southeast Asia and Australia. Mr. MacLachlan was employed by Barrick
Gold Corporation as Executive Vice President Asia from 1993 to 1997. He was
a
former director of Wardley Holdings and James Capel & Co. Limited,
investment banking subsidiaries of the Hong Kong and Shanghai Banking
Corporation. Mr. MacLachlan graduated from Manchester University in 1964 with
a
Bachelor of Science in Biochemistry and he took the post graduate Business
Studies course at London Polytechnic at Rutherford College.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth the number of shares beneficially owned on May 27,
2005 for our executive officer and directors, and by all of our executive
officers and directors as a group and beneficial owners of 5% or more of our
Common Stock. For purposes of this disclosure, the amount of our Common Stock
beneficially owned is the aggregate number of shares of the Common Stock
outstanding on such date plus an amount equal to the aggregate amount of Common
Stock which could be issued upon the exercise of stock options and a convertible
note within 60 days of such date.
|
Name
and Address of Beneficial Owners Officers and Directors
|
Shares
of
Common
Stock Beneficially Owned Prior to the Reverse Stock Split
|
Aggregate
Percentage of Common Stock Prior to the Reverse Stock
Split
|
Approximate
Number of Shares of Common Stock Beneficially Owned Following the
Reverse
Stock Split
|
Aggregate
Percentage of Common Stock Following the Reverse Stock
Split
|
|
Timothy
L. Hoops
1726
Cole Blvd., Suite 210
Lakewood,
CO 80401
|
256,664(1)
|
2.4%
|
2,568
|
2.4%
|
|
Robert
J. Pett
2
The Esplanade, 36th Flr.
Perth
6000
Western
Australia
|
123,795(2)
|
1.1%
|
1,238
|
1.1%
|
|
John
T. Kopcheff
2
The Esplanade, 36th Flr.
Perth
6000
Western
Australia
|
181,589(3)
|
1.7%
|
1,816
|
1.7%
|
|
Kenneth
W. Nickerson
10780
Hanson St.
Johannesburg,
MI 49751
|
70,081(4)
|
<1%
|
701
|
<1%
|
|
Mark
A.E. Syropoulo
Lot
42 Gumboil Road
Cooroy
Queensland 4563
Australia
|
175,000(5)
|
1.6%
|
1,750
|
1.6%
|
|
Neil
T. MacLachlan
1
Victoria Square
London
SWIW OQY
England
|
59,800(6)
|
<1%
|
598
|
<1%
|
|
All
Directors and Officers as Group (6 Persons)
|
866,929(7)
|
7.6%
|
8,671
|
7.6%
|
(1) Includes
vested options to purchase 228,754 shares.
(2) Includes
vested options to purchase up to 113,795 shares.
(3) Includes
vested options to purchase up to 167,589 shares.
(4) Consists
of vested options to purchase up to 70,081 shares.
(5) Includes
vested options to purchase up to 155,000 shares.
(6) Includes
vested options to purchase up to 35,000 shares.
(7) Includes
vested options to purchase up to 770,219 shares.
|
Name
and Address of
5%
or More Beneficial Owners
|
Shares
of Common Stock Beneficially Owned Prior to the Reverse Stock
Split
|
Aggregate
Percentage of Common Stock Prior to the Reverse Stock
Split
|
Approximate
Number of Shares of Common Stock Beneficially Owned Following the
Reverse
Stock Split
|
Aggregate
Percentage of Common Stock Following the Reverse Stock
Split
|
|
Samson
Oil & Gas N.L(1).
2
The Esplanade, 36th Flr.
Perth
6000
Western
Australia
|
8,179,977
|
76.7%
|
81,800
|
76.7%
|
|
The
Equitable Life Assurance Society(2)
City
Place House
55
Basinghall St.
London
EC2V 5DR
England
|
840,000
|
7.9%
|
8,400
|
7.9%
|
(1)
The
directors of Samson are Malcolm Alec Burns, Neil Thacker MacLachlan, , David
Thornwald Cairns, Terry Barr and Denis Ivan Rakich, also Secretary, as indicated
in the most recent Schedule 13D filed with the SEC on May 24, 2005.
(2)
The
directors of Equitable Life are Roger Quintin Bowley, Peter Anthony Davis,
Shaun
Munro Kinnis, Peter Martin, Alan Nash, Jennifer Anne Page, David William James
Price, ;Roy Henry Ranson, John Richard Sclater, Ian Peter Sedgwick, Jonathan
Francis Taylor, David George Thomas, Alan George Tritton, and David William
Wilson and an Assistant General Manager is C.E. Duddridge, as indicated in
the
most recent Schedule 13D filed with the SEC on June 18, 1997.
Certain
Relationships and Related Transactions with
Affiliates
On
January 24, 2003, we borrowed $400,000 from R&M Oil and Gas, Ltd., of which
Timothy L. Hoops, one of our Directors and our President and Chief Executive
Officer, is a partner. That loan is due on January 31, 2005,
bears
interest at 12.5% per annum and is secured by our oil and gas interests in
Grady
County, Oklahoma. In the event of a default under the terms of the R&M loan,
and the sale of the collateral securing the loan, we would receive any remaining
proceeds after payment to R&M of its expenses in connection with such
sale(s) and any indebtedness due and payable to R&M under the loan. The
proceeds from the R&M loan were used to retire our outstanding debt to
Samson Oil & Gas N.L. at that time and reduce the our accounts payable
position. The R&M loan was approved unanimously by our Board of Directors,
with Mr. Hoops abstaining, which evaluated its fairness as an arms length
transaction. On October 13, 2004, the due date for the R&M loan was extended
to January 31, 2006.
On
February 4, 2003, we repaid Samson Oil & Gas N.L. in full, including all
accrued interest and fees, with $327,143.15 in cash and the transfer of our
remaining 25,000,000 shares of Victoria Petroleum N.L. (“VP”) common
stock.
On
May 5,
2003, we entered into a Line of Credit Agreement with Barry D.
Lasker,
our then President, Chief Executive Officer and a Director for a maximum loan
to
us of $200,000. Under the terms of the agreement all outstanding amounts were
due on May 4, 2005 and bore interest at 10% per annum. The loan could also
be
converted, at Mr. Lasker’s election, into shares of our Common Stock at $0.40
per share. The initial proceeds of the loan consisted of $40,000 cash and
forgiveness of approximately $152,000 of unpaid wages and unreimbursed business
expenses owed to Mr. Lasker by us. The Lasker loan was secured by our
oil
and gas interests in Campbell County, Wyoming. In the event of a default under
the terms of the Lasker loan, and the sale of the collateral securing the loan,
we would receive any remaining proceeds after payment to Mr. Lasker of his
expenses in connection with such sale(s) and the indebtedness due and payable
to
him under the loan. Like the R&M loan, the Lasker loan was approved as an
arms length transaction by our entire Board of Directors with Mr. Lasker
abstaining.
On
February 24, 2004, the Lasker loan was assigned by Mr. Lasker to Samson Oil
& Gas N.L. for $200,000, the current outstanding principal balance. After
the assignment, the terms and conditions of the loan were the same as the terms
and conditions of the Lasker loan, except for the deletion of a provision
providing for acceleration upon termination of Mr. Lasker’s employment. On
October 29, 2004, the loan now held by Samson was extended to May 5,
2006.
On
June
8, 2004, we borrowed $50,000 from VP with an 8% interest rate which is to be
paid on repayment of the loan. This is an unsecured loan due on
demand.
In
a Form
8-K dated January 26, 2005, filed with the SEC on January 31, 2005, it was
announced that Samson Exploration N.L., now Samson Oil & Gas N.L.
(“Samson”), owned 6,306,675 shares of our Common Stock, including the loan
described above, representing 59% of our Common Stock outstanding at that time,
and was now deemed to control us. Presently, Samson beneficially owns 8,179,977
shares, or approximately 77% of our outstanding Common Stock.
In
a Form
8-K dated June 2, 2005, filed with the SEC on June 6, 2005, it was announced
that Samson had converted the loan described above into 500,000 shares of our
Common Stock at $0.40 per share.
We
have
recently negotiated in an arms length transaction with Samson for a new line
of
credit for a maximum loan of $3,500,000. Under the terms of the agreement,
all
outstanding amounts are due in three years and bears interest at 5.25%. The
loan
can be converted, at Samson’s election, into shares of our Common Stock at $1.50
per share. The Samson loan will be secured by our oil and gas interests in
Campbell, Converse, Sublette, and Sweetwater counties in Wyoming and Lea County,
New Mexico. In the event of a default under the terms of the loan, and the
sale
of the collateral securing the loan, we would receive any remaining proceeds
after payment to Samson of its expenses in connection with such sale(s). We
expect to close on this loan on or about June 30, 2005.
OTHER
MATTERS
Available
Information
Because
the reverse stock split will constitute a “going private” transaction, we have
filed a Rule 13e-3 Transaction Statement on Schedule 13E-3 with
respect to the reverse stock split. The Schedule 13E-3 contains additional
information about us and the reverse stock split. Copies of the
Schedule 13E-3 are available for inspection and copying at our executive
offices during regular business hours by any of our shareholders, or
representative of a shareholder who has been so designated in writing, or by
request directed to Secretary, Kestrel Energy, Inc., 1726 Cole Boulevard,
Suite 210, Lakewood, Colorado 80401, telephone number (303) 295-0344. The
Schedule 13E-3 is also available on the SEC’s website at http://www.sec.gov.
Where
You Can Find More Information
As
permitted by the SEC, this Proxy Statement omits certain information contained
in the Schedule 13E-3. The Schedule 13E-3, including any amendments
and exhibits filed or incorporated by reference as a part of it, is available
for inspection or copying as set forth above. Statements contained in this
Proxy
Statement or in any document incorporated in this Proxy Statement by reference
regarding the contents of any document are not necessarily complete and each
of
these statements is qualified in its entirety by reference to that document
filed as an exhibit with the SEC.
We
are
currently subject to the reporting requirements of the Securities Exchange
Act
of 1934, as amended, and, therefore, we file annual, quarterly and periodic
reports, proxy statements and other information with the SEC. You may read
and
copy any document filed by us with the SEC at the SEC’s public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC
at
1-800-732-0330 for further information about the operation of the public
reference room. Our SEC filings are also available to the public at the SEC’s
web site at http://www.sec.gov.
We
have
incorporated herein by reference the following documents, which have been filed
by us with the SEC under the Securities Exchange Act of 1934, as
amended.
· Amendment
No. 1 to our Annual Report on Form 10-KSB for the fiscal year
ended
June, 2004;
· our
Quarterly Reports on Form 10-QSB for the quarters ended September 30,
3004, December 31, 2004 and March 31, 2005; and
· our
Current Reports on Form 8-K filed since July 1, 2004.
Other
Matters at the Meeting
The
Board
of Directors knows of no other matter to be brought before the 2005 Special
Meeting. If other matters properly come before the Meeting, the persons named
in
the accompanying Proxy will vote in accordance with their best judgment the
Proxies solicited and received by the Company.
ATTACHMENT
A
DISSENTERS’
RIGHTS UNDER THE COLORADO BUSINESS CORPORATION ACT
§
7-113-101. Definitions
For
purposes of this article:
|
|
(1)
|
“Beneficial
shareholder” means the beneficial owner of shares held in a voting trust
or by a nominee as the record
shareholder.
|
|
|
(2)
|
“Corporation”
means the issuer of the shares held by a dissenter before the corporate
action, or the surviving or acquiring domestic or foreign corporation,
by
merger or share exchange of that
issuer.
|
|
|
(3)
|
“Dissenter”
means a shareholder who is entitled to dissent from corporate action
under
section 7-113-102 and who exercises that right at the time and in
the
manner required by part 2 of this
article.
|
| |
(4)
|
“Fair
value”, with respect to a dissenter’s shares, means the value of the
shares immediately before the effective date of the corporate action
to
which the dissenter objects, excluding any appreciation or depreciation
in
anticipation of the corporate action except to the extent that exclusion
would be inequitable.
|
| |
(5)
|
“Interest”
means interest from the effective date of the corporate action until
the
date of payment, at the average rate currently paid by the corporation
on
its principal bank loans or, if none, at the legal rate as specified
in
section 5-12-101, C.R.S.
|
| |
(6)
|
“Record
shareholder” means the person in whose name shares are registered in the
records of a corporation or the beneficial owner of shares that are
registered in the name of a nominee to the extent such owner is recognized
by the corporation as the shareholder as provided in section
7-107-204.
|
| |
(7)
|
“Shareholder”
means either a record shareholder or a beneficial
shareholder.
|
§
7-113-102. Right to dissent
| |
(1)
|
A
shareholder, whether or not entitled to vote, is entitled to dissent
and
obtain payment of the fair value of the shareholder’s shares in the event
of any of the following corporate
actions:
|
(a) Consummation
of a plan of merger to which the corporation is a party if:
| |
|
|
(I)
|
Approval
by the shareholders of that corporation is required for the merger
by
section 7-111-103 or 7-111-104 or by the articles of incorporation;
or
|
| |
|
|
(II)
|
The
corporation is a subsidiary that is merged with its parent corporation
under section 7-111-104;
|
| |
|
(b)
|
Consummation
of a plan of share exchange to which the corporation is a party as
the
corporation whose shares will be
acquired;
|
| |
|
(c)
|
Consummation
of a sale, lease, exchange, or other disposition of all, or substantially
all, of the property of the corporation for which a shareholder vote
is
required under section 7-112-102(1);
and
|
| |
|
(d)
|
Consummation
of a sale, lease, exchange, or other disposition of all, or substantially
all, of the property of an entity controlled by the corporation
if the
shareholders of the corporation were entitled to vote upon the
consent of
the corporation to the disposition pursuant to section
7-112-102(2).
|
| |
(1.3)
|
A
shareholder is not entitled to dissent and obtain payment, under
subsection (1) of this section, of the fair value of the shares of
any
class or series of shares which either were listed on a national
securities exchange registered under the federal “Securities Exchange Act
of 1934”, as amended, or on the national market system of the national
association of securities dealers automated quotation system, or
were held
of record by more than two thousand shareholders, at the time
of:
|
| |
|
(a)
|
The
record date fixed under section 7-107-107 to determine the shareholders
entitled to receive notice of the shareholders’ meeting at which the
corporate action is submitted to a
vote;
|
| |
|
(b)
|
The
record date fixed under section 7-107-104 to determine shareholders
entitled to sign writings consenting to the corporate action;
or
|
| |
|
(c)
|
The
effective date of the corporate action if the corporate action is
authorized other than by a vote of
shareholders.
|
| |
(1.8)
|
The
limitation set forth in subsection (1.3) of this section shall not
apply
if the shareholder will receive for the shareholder’s shares, pursuant to
the corporate action, anything
except:
|
|
|
|
(a)
|
Shares
of the corporation surviving the consummation of the plan of merger
or
share exchange;
|
| |
|
(b)
|
Shares
of any other corporation which at the effective date of the plan
of merger
or share exchange either will be listed on a national securities
exchange
registered under the federal “Securities Exchange Act of 1934”, as
amended, or on the national market system of the national association
of
securities dealers automated quotation system, or will be held of
record
by more than two thousand
shareholders;
|
| |
|
(c)
|
Cash
in lieu of fractional shares; or
|
| |
|
(d)
|
Any
combination of the foregoing described shares or cash in lieu of
fractional shares.
|
(2) Deleted
by amendment, L. 96, p. 1321, § 30, effective June 1, 1996.
| |
(2.5)
|
A
shareholder, whether or not entitled to vote, is entitled to dissent
and
obtain payment of the fair value of the shareholder’s shares in the event
of a reverse split that reduces the number of shares owned by the
shareholder to a fraction of a share or to scrip if the fractional
share
or scrip so created is to be acquired for cash or the scrip is to
be
voided under section 7-106-104.
|
| |
(3)
|
A
shareholder is entitled to dissent and obtain payment of the fair
value of
the shareholder’s shares in the event of any corporate action to the
extent provided by the bylaws or a resolution of the board of
directors.
|
| |
(4)
|
A
shareholder entitled to dissent and obtain payment for the shareholder’s
shares under this article may not challenge the corporate action
creating
such entitlement unless the action is unlawful or fraudulent with
respect
to the shareholder or the
corporation.
|
§
7-113-103. Dissent by nominees and beneficial owners
| |
(1)
|
A
record shareholder may assert dissenters’ rights as to fewer than all the
shares registered in the record shareholder’s name only if the record
shareholder dissents with respect to all shares beneficially owned
by any
one person and causes the corporation to receive written notice which
states such dissent and the name, address, and federal taxpayer
identification number, if any, of each person on whose behalf the
record
shareholder asserts dissenters’ rights. The rights of a record shareholder
under this subsection (1) are determined as if the shares as to which
the
record shareholder dissents and the other shares of the record shareholder
were registered in the names of different
shareholders.
|
| |
(2)
|
A
beneficial shareholder may assert dissenters’ rights as to the shares held
on the beneficial shareholder’s behalf only
if:
|
| |
|
(a)
|
The
beneficial shareholder causes the corporation to receive the record
shareholder’s written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters’ rights;
and
|
| |
|
(b)
|
The
beneficial shareholder dissents with respect to all shares beneficially
owned by the beneficial
shareholder.
|
| |
(3)
|
The
corporation may require that, when a record shareholder dissents
with
respect to the shares held by any one or more beneficial shareholders,
each such beneficial shareholder must certify to the corporation
that the
beneficial shareholder and the record shareholder or record shareholders
of all shares owned beneficially by the beneficial shareholder have
asserted, or will timely assert, dissenters’ rights as to all such shares
as to which there is no limitation on the ability to exercise dissenters’
rights. Any such requirement shall be stated in the dissenters’ notice
given pursuant to section
7-113-203.
|
§
7-113-201. Notice of dissenters’ rights
| |
(1)
|
If
a proposed corporate action creating dissenters’ rights under section
7-113-102 is submitted to a vote at a shareholders’ meeting, the notice of
the meeting shall be given to all shareholders, whether or not entitled
to
vote. The notice shall state that shareholders are or may be entitled
to
assert dissenters’ rights under this article and shall be accompanied by a
copy of this article and the materials, if any, that, under articles
101
to 117 of this title, are required to be given to shareholders entitled
to
vote on the proposed action at the meeting. Failure to give notice
as
provided by this subsection (1) shall not affect any action taken
at the
shareholders’ meeting for which the notice was to have been given, but any
shareholder who was entitled to dissent but who was not given such
notice
shall not be precluded from demanding payment for the shareholder’s shares
under this article by reason of the shareholder’s failure to comply with
the provisions of section 7-
113-202(1).
|
| |
(2)
|
If
a proposed corporate action creating dissenters’ rights under section
7-113-102 is authorized without a meeting of shareholders pursuant
to
section 7-107-104, any written or oral solicitation of a shareholder
to
execute a writing consenting to such action contemplated in section
7-107-104 shall be accompanied or preceded by a written notice stating
that shareholders are or may be entitled to assert dissenters’ rights
under this article, by a copy of this article, and by the materials,
if
any, that, under articles 101 to 117 of this title, would have been
required to be given to shareholders entitled to vote on the proposed
action if the proposed action were submitted to a vote at a shareholders’
meeting. Failure to give notice as provided by this subsection (2)
shall
not affect any action taken pursuant to section 7-107-104 for which
the
notice was to have been given, but any shareholder who was entitled
to
dissent but who was not given such notice shall not be precluded
from
demanding payment for the shareholder’s shares under this article by
reason of the shareholder’s failure to comply with the provisions of
section 7- 113-202(2).
|
§
7-113-202. Notice of intent to demand payment
| |
(1)
|
If
a proposed corporate action creating dissenters’ rights under section
7-113-102 is submitted to a vote at a shareholders’ meeting and if notice
of dissenters’ rights has been given to such shareholder in connection
with the action pursuant to section 7-113-201(1), a shareholder who
wishes
to assert dissenters’ rights shall:
|
| |
|
(a)
|
Cause
the corporation to receive, before the vote is taken, written notice
of
the shareholder’s intention to demand payment for the shareholder’s shares
if the proposed corporate action is effectuated;
and
|
| |
|
(b)
|
Not
vote the shares in favor of the proposed corporate
action.
|
| |
(2)
|
If
a proposed corporate action creating dissenters’ rights under section
7-113-102 is authorized without a meeting of shareholders pursuant
to
section 7-107-104 and if notice of dissenters’ rights has been given to
such shareholder in connection with the action pursuant to section
7-113-201(2) a shareholder who wishes to assert dissenters’ rights shall
not execute a writing consenting to the proposed corporate
action.
|
| |
(3)
|
A
shareholder who does not satisfy the requirements of subsection (1)
or (2)
of this section is not entitled to demand payment for the shareholder’s
shares under this article.
|
§
7-113-203. Dissenters’ notice
| |
(1)
|
If
a proposed corporate action creating dissenters’ rights under section
7-113-102 is authorized, the corporation shall give a written dissenters’
notice to all shareholders who are entitled to demand payment for
their
shares under this article.
|
| |
(2)
|
The
dissenters’ notice required by subsection (1) of this section shall be
given no later than ten days after the effective date of the corporate
action creating dissenters’ rights under section 7-113-102 and
shall:
|
| |
|
(a)
|
State
that the corporate action was authorized and state the effective
date or
proposed effective date of the corporate
action;
|
| |
|
(b)
|
State
an address at which the corporation will receive payment demands
and the
address of a place where certificates for certificated shares must
be
deposited;
|
| |
|
(c)
|
Inform
holders of uncertificated shares to what extent transfer of the
shares
will be restricted after the payment demand is
received;
|
| |
|
(d)
|
Supply
a form for demanding payment, which form shall request a dissenter
to
state an address to which payment is to be
made;
|
| |
|
(e)
|
Set
the date by which the corporation must receive the payment demand
and
certificates for certificated shares, which date shall not be less
than
thirty days after the date the notice required by subsection (1)
of this
section is given;
|
| |
|
(f)
|
State
the requirement contemplated in section 7-113-103(3), if such requirement
is imposed; and
|
| |
|
(g)
|
Be
accompanied by a copy of this
article.
|
§
7-113-204. Procedure to demand payment
| |
(1)
|
A
shareholder who is given a dissenters’ notice pursuant to section 7-113-
203 and who wishes to assert dissenters’ rights shall, in accordance with
the terms of the dissenters’
notice:
|
| |
|
(a)
|
Cause
the corporation to receive a payment demand, which may be the payment
demand form contemplated in section 7-113-203(2)(d), duly completed,
or
may be stated in another writing;
and
|
| |
|
(b)
|
Deposit
the shareholder’s certificates for certificated
shares.
|
| |
(2)
|
A
shareholder who demands payment in accordance with subsection (1)
of this
section retains all rights of a shareholder, except the right to
transfer
the shares, until the effective date of the proposed corporate action
giving rise to the shareholder’s exercise of dissenters’ rights and has
only the right to receive payment for the shares after the effective
date
of such corporate action.
|
| |
(3)
|
Except
as provided in section 7-113-207 or 7-113-209(1)(b), the demand for
payment and deposit of certificates are
irrevocable.
|
| |
(4)
|
A
shareholder who does not demand payment and deposit the shareholder’s
share certificates as required by the date or dates set in the dissenters’
notice is not entitled to payment for the shares under this
article.
|
§
7-113-205. Uncertificated shares
| |
(1)
|
Upon
receipt of a demand for payment under section 7-113-204 from a shareholder
holding uncertificated shares, and in lieu of the deposit of certificates
representing the shares, the corporation may restrict the transfer
thereof.
|
| |
(2)
|
In
all other respects, the provisions of section 7-113-204 shall be
applicable to shareholders who own uncertificated
shares.
|
§
7-113-206. Payment
| |
(1)
|
Except
as provided in section 7-113-208, upon the effective date of the
corporate
action creating dissenters’ rights under section 7-113-102 or upon receipt
of a payment demand pursuant to section 7-113-204, whichever is later,
the
corporation shall pay each dissenter who complied with section 7-113-204,
at the address stated in the payment demand, or if no such address
is
stated in the payment demand, at the address shown on the corporation’s
current record of shareholders for the record shareholder holding
the
dissenter’s shares, the amount the corporation estimates to be the fair
value of the dissenter’s shares, plus accrued
interest.
|
| |
(2)
|
The
payment made pursuant to subsection (1) of this section shall be
accompanied by:
|
| |
|
(a)
|
The
corporation’s balance sheet as of the end of its most recent fiscal year
or, if that is not available, the corporation’s balance sheet as of the
end of a fiscal year ending not more than sixteen months before the
date
of payment, an income statement for that year, and, if the corporation
customarily provides such statements to shareholders, a statement
of
changes in shareholders’ equity for that year and a statement of cash flow
for that year, which balance sheet and statements shall have been
audited
if the corporation customarily provides audited financial statements
to
shareholders, as well as the latest available financial statements,
if
any, for the interim or full-year period, which financial statements
need
not be audited;
|
| |
|
(b)
|
A
statement of the corporation’s estimate of the fair value of the
shares;
|
| |
|
(c)
|
An
explanation of how the interest was
calculated;
|
| |
|
(d)
|
A
statement of the dissenter’s right to demand payment under section 7-
113-209; and
|
| |
|
(e)
|
A
copy of this article.
|
§
7-113-207. Failure to take action
| |
(1)
|
If
the effective date of the corporate action creating dissenters’ rights
under section 7-113-102 does not occur within sixty days after the
date
set by the corporation by which the corporation must receive the
payment
demand as provided in section 7-113-203, the corporation shall return
the
deposited certificates and release the transfer restrictions imposed
on
uncertificated shares.
|
| |
(2)
|
If
the effective date of the corporate action creating dissenters’ rights
under section 7-113-102 occurs more than sixty days after the date
set by
the corporation by which the corporation must receive the payment
demand
as provided in section 7-113-203, then the corporation shall send
a new
dissenters’ notice, as provided in section 7-113-203, and the provisions
of sections 7-113-204 to 7-113-209 shall again be
applicable.
|
§
7-113-208. Special provisions relating to shares acquired after announcement
of
proposed corporate action
| |
(1)
|
The
corporation may, in or with the dissenters’ notice given pursuant to
section 7-113-203, state the date of the first announcement to news
media
or to shareholders of the terms of the proposed corporate action
creating
dissenters’ rights under section 7-113-102 and state that the dissenter
shall certify in writing, in or with the dissenter’s payment demand under
section 7-113-204, whether or not the dissenter (or the person on
whose
behalf dissenters’ rights are asserted) acquired beneficial ownership of
the shares before that date. With respect to any dissenter who does
not so
certify in writing, in or with the payment demand, that the dissenter
or
the person on whose behalf the dissenter asserts dissenters’ rights
acquired beneficial ownership of the shares before such date, the
corporation may, in lieu of making the payment provided in section
7-113-206, offer to make such payment if the dissenter agrees to
accept it
in full satisfaction of the demand.
|
|
|
(2)
|
An
offer to make payment under subsection (1) of this section shall
include
or be accompanied by the information required by section
7-113-206(2).
|
§
7-113-209. Procedure if dissenter is dissatisfied with payment or
offer
| |
(1)
|
A
dissenter may give notice to the corporation in writing of the dissenter’s
estimate of the fair value of the dissenter’s shares and of the amount of
interest due and may demand payment of such estimate, less any payment
made under section 7-113-206, or reject the corporation’s offer under
section 7-113-208 and demand payment of the fair value of the shares
and
interest due, if:
|
| |
|
(a)
|
The
dissenter believes that the amount paid under section 7-113-206 or
offered
under section 7-113-208 is less than the fair value of the shares
or that
the interest due was incorrectly
calculated;
|
| |
|
(b)
|
The
corporation fails to make payment under section 7-113-206 within
sixty
days after the date set by the corporation by which the corporation
must
receive the payment demand; or
|
| |
|
(c)
|
The
corporation does not return the deposited certificates or release
the
transfer restrictions imposed on uncertificated shares as required
by
section 7-113-207(1).
|
| |
(2)
|
A
dissenter waives the right to demand payment under this section unless
the
dissenter causes the corporation to receive the notice required by
subsection (1) of this section within thirty days after the corporation
made or offered payment for the dissenter’s
shares.
|
§
7-113-301. Court action
| |
(1)
|
If
a demand for payment under section 7-113-209 remains unresolved,
the
corporation may, within sixty days after receiving the payment demand,
commence a proceeding and petition the court to determine the fair
value
of the shares and accrued interest. If the corporation does not commence
the proceeding within the sixty-day period, it shall pay to each
dissenter
whose demand remains unresolved the amount
demanded.
|
| |
(2)
|
The
corporation shall commence the proceeding described in subsection
(1) of
this section in the district court for the county in this state
in which
the street address of the corporation’s principal office is located or, if
the corporation has no principal office in this state, in the district
court for the county in which the street address of its registered
agent
is located, or, if the corporation has no registered agent, in
the
district court for the city and county of Denver. If the corporation
is a
foreign corporation without a registered agent, it shall commence
the
proceeding in the county in which the domestic corporation merged
into, or
whose shares were acquired by, the foreign corporation would have
commenced the action if that corporation were subject to the first
sentence of this subsection
(2).
|
| |
(3)
|
The
corporation shall make all dissenters, whether or not residents of
this
state, whose demands remain unresolved parties to the proceeding
commenced
under subsection (2) of this section as in an action against their
shares,
and all parties shall be served with a copy of the petition. Service
on
each dissenter shall be by registered or certified mail, to the address
stated in such dissenter’s payment demand, or if no such address is stated
in the payment demand, at the address shown on the corporation’s current
record of shareholders for the record shareholder holding the dissenter’s
shares, or as provided by law.
|
| |
(4)
|
The
jurisdiction of the court in which the proceeding is commenced under
subsection (2) of this section is plenary and exclusive. The court
may
appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers
have
the powers described in the order appointing them, or in any amendment
to
such order. The parties to the proceeding are entitled to the same
discovery rights as parties in other civil
proceedings.
|
| |
(5)
|
Each
dissenter made a party to the proceeding commenced under subsection
(2) of
this section is entitled to judgment for the amount, if any, by which
the
court finds the fair value of the dissenter’s shares, plus interest,
exceeds the amount paid by the corporation, or for the fair value,
plus
interest, of the dissenter’s shares for which the corporation elected to
withhold payment under section
7-113-208.
|
§
7-113-302. Court costs and counsel fees
| |
(1)
|
The
court in an appraisal proceeding commenced under section 7-113-301
shall
determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The
court
shall assess the costs against the corporation; except that the court
may
assess costs against all or some of the dissenters, in amounts the
court
finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment
under
section 7-113-209.
|
| |
(2)
|
The
court may also assess the fees and expenses of counsel and experts
for the
respective parties, in amounts the court finds
equitable:
|
| |
|
(a)
|
Against
the corporation and in favor of any dissenters if the court finds
the
corporation did not substantially comply with part 2 of this article;
or
|
| |
|
(b)
|
Against
either the corporation or one or more dissenters, in favor of any
other
party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good
faith
with respect to the rights provided by this
article.
|
| |
(3)
|
If
the court finds that the services of counsel for any dissenter were
of
substantial benefit to other dissenters similarly situated, and that
the
fees for those services should not be assessed against the corporation,
the court may award to said counsel reasonable fees to be paid out
of the
amounts awarded to the dissenters who were
benefited.
|
APPENDIX
A
PRELIMINARY
PROXY CARD
PROXY
CARD
PROXY
Kestrel
Energy, Inc.
1726
Cole Boulevard, Suite 210
Lakewood,
Colorado 80401
This
proxy is solicited on behalf of the Board of Directors
The
undersigned hereby appoints Timothy L. Hoops and Melissa Temple as Proxies,
each
with the power to appoint his or her substitute, and hereby authorizes them
to
represent and to vote, as designated below, all shares of common stock of
Kestrel Energy, Inc. held of record by the undersigned on May 27, 2005 at the
special meeting of shareholders to be held on July 26, 2005 or any adjournment
thereof.
|
1.
|
TO
APPROVE, SUBJECT TO FINAL ACTION BY OUR BOARD OF DIRECTORS, A 100-TO-1
REVERSE STOCK SPLIT OF OUR COMMON STOCK, WITH THE RESULT THAT (I)
HOLDINGS
PRIOR TO SUCH SPLIT OF FEWER THAN 100 SHARES OF COMMON STOCK WILL
BE
CONVERTED TO A FRACTIONAL SHARE, WHICH WILL THEN BE IMMEDIATELY CANCELLED
AND CONVERTED INTO A RIGHT TO RECEIVE THE CASH CONSIDERATION DESCRIBED
IN
THE PROXY STATEMENT, AND (II) AFTER THESE CANCELLATIONS, WE WILL
HAVE
FEWER THAN 300 RECORD SHAREHOLDERS ALLOWING US TO DEREGISTER THE
COMMON
STOCK UNDER THE SECURITIES EXCHANGE ACT OF 1934, AND THUS AVOID THE
COSTS
ASSOCIATED WITH BEING A PUBLIC REPORTING
COMPANY
|
FOR
__________
AGAINST
__________
ABSTAIN
__________
|
2.
|
In
their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the
meeting.
|
This
proxy, when properly executed, will be voted in the manner directed herein
by
the undersigned shareholder. If no direction is made, this proxy will be voted
FOR proposal 1 above.
Please
sign exactly as your name appears below. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee
or
guardian, please give full title as such. If a corporation, please sign in
full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
Dated
____________,
2005 __________________________________
Signature
______________________________
Signature
if held jointly
PLEASE
MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE