S-3/A
As filed with the Securities and Exchange Commission on
August , 2008
Registration
No. 333-150625
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
AMENDMENT NO. 1
TO
Form S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CanArgo Energy
Corporation
(Exact name of registrant as
specified in its charter)
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Delaware
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91-0881481
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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P.O. Box 291, St Peter
Port
Guernsey, GY1 3RR, British
Isles
+(44) 1481 729 980
(Address, including zip code,
and telephone number, including area code, of registrants
principal executive offices)
Jeffrey Wilkins
Chief Financial
Officer
P.O. Box 291, St Peter
Port
Guernsey, GY1 3RR, British
Isles
+(44) 1481 729 980
(Name, address, including zip
code, and telephone number, including area code of agent for
service)
Please forward a copy of all
correspondence to:
Peter A.
Basilevsky, Esq.
Satterlee Stephens Burke &
Burke LLP
11th Floor, 230 Park
Avenue
New York, NY 10169
(212) 818-9200
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this
Registration Statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following
box. o
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following
box. þ
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a registration statement pursuant to General
Instruction I.D. or a post-effective amendment thereto that
shall become effective upon filing with the Commission pursuant
to Rule 462(e) under the Securities Act, check the
following
box. o
If this form is a post-effective amendment to a registration
statement filed pursuant to General Instructions I.D. filed to
register additional securities or additional classes of
securities pursuant to Rule 413(b) under the Securities
Act, check the following
box. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
Company o
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to Be
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Offering Price per
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Aggregate Offering
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Registration
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Securities to be Registered
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Registered(1)(2)
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Share(3)
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Price(3)
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Fee(3)
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Common stock, $0.10 par value
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259,047,390 Shares(2)
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$0.10
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$25,904,739
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$1,018.06
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Common stock subscription rights
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242,107,390 Rights
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$0.10(3)
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$24,210,739(3)
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$951.48(3)
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Total
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$1,969.54(4)
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(1) |
In the event of a stock split, stock dividend or similar
transaction involving the shares of common stock, in order to
prevent dilution, the number of shares registered shall be
automatically increased to cover the additional shares in
accordance with Rule 416 under the Securities Act of 1933.
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(2) |
Maximum amount of shares issuable upon exercise of all
transferable subscription rights (Rights). Includes
up to a maximum of 16,940,000, in aggregate, shares of
common stock which may be issued to the Standby Underwriters
pursuant to a conditional right for such Standby Underwriters to
elect to receive their commission in shares in lieu of cash.
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(3) |
No consideration will be received by the Registrant for the
issuance of the Rights. The Rights are transferable and may be
reoffered to the public by stockholders. The registration fee
was calculated in accordance with Rule 457(g) on the basis
of the price at which the Rights may be exercised.
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(4) |
$1,902.96 of this total registration fee was paid at the time of
the initial filing of the registration statement.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information contained in this prospectus is not complete and may
be changed. We may not sell these securities until the
Registration Statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION DATED
AUGUST , 2008.
PROSPECTUS
CANARGO ENERGY
CORPORATION
Subscription
Rights to Purchase Shares
of Common Stock at $0.10 per Full Share
We are distributing at no charge to the holders of our common
stock transferable subscription rights (Rights) to
purchase an aggregate of shares of our common
stock. Each Right entitles the subscription rights holder to
purchase one (1) share of our common stock at the
subscription price of $0.10 per full share. Fractional shares of
our common stock will not be issued in this rights offering.
The aggregate purchase price of shares offered in this rights
offering is expected to be approximately $
million. Only stockholders of record as
of p.m., U.S. Eastern time
( Central European Time),
on , 2008, which is the record date for this
rights offering, will be entitled to receive Rights. See the
Rights Offering beginning on page [31].
The eight Standby Underwriters listed in the table in the
Standby Underwriting and Plan of Distribution
section below (collectively, the Standby
Underwriters), have severally agreed to underwrite the
unsubscribed for shares (the Unsubscribed Shares) in
their respective pro rata portions of their respective
underwriting commitments at the subscription price for up to
242,000,000 of such shares in aggregate. See Standby
Underwriting and Plan of Distribution beginning on
page [45].
The Rights will expire if they are not exercised
by p.m., U.S. Eastern time
( Central European Time),
on , 2008 (Expiration Time), which
is the expiration date of this rights offering. We have the
option to extend this rights offering and the period for
exercising your Rights for any reason, subject to the receipt of
the prior consent of the Standby Underwriters if the rights
offering is extended beyond four weeks in length, including if
we determine that changes in the market price of our common
stock warrant an extension or if we decide to give investors
more time to exercise their Rights in this rights offering,
although we do not presently intend to do so. All exercises of
Rights are irrevocable. After the Expiration Time, the
Rights will no longer be exercisable and will have no
value.
You should carefully consider whether or not to exercise, sell
or let lapse your Rights and in doing so you should consider all
of the information about us and this rights offering contained
or incorporated by reference in this prospectus, including the
risk factors set forth or incorporated herein. We are not making
any recommendations as to whether or not you should exercise,
sell or let lapse your Rights.
Our common stock is traded on The American Stock Exchange
(AMEX) and the Oslo Stock Exchange (OSE)
under the symbol CNR. The last reported sale price
of our common stock on the American Stock Exchange Composite
Transactions Tape on , 2008 was
$0. per share and on the OSE was Norwegian
kroner (NOK) .
On , 2008, one U.S. dollar equaled
NOK as reported on www.oanda.com. All
references herein to $ refer to United States
dollars.
We have been advised by the AMEX and the OSE that the Rights
will be traded on the AMEX and OSE under the symbols
and
, respectively, beginning on or
about , 2008, the business day following
commencement of this rights offering,
until p.m. U.S. Eastern time
( Central European Time),
on , 2008, the last business day prior to the
scheduled , 2008 expiration date of this rights
offering. We cannot predict if an active trading market for the
Rights will develop or the price at which such Rights may be
purchased or sold.
See Risk Factors beginning on page [12] to
read about the risks you should consider carefully before
exercising any Rights and buying shares of our common stock.
We have engaged Glitnir Securities AS (Glitnir) to
act as manager and Norwegian subscription agent in connection
with this rights offering. This prospectus will be used by the
Standby Underwriters to sell Unsubscribed Shares (as defined
below) in connection with the standby underwriting arrangements
agreed to with us. Prior to and after the Expiration Time, the
Standby Underwriters may only offer common stock acquired
pursuant to the standby arrangements directly to the public
located outside the United States and who are not
U.S. Persons (as each is defined in Regulation S
promulgated under the United States Securities Act of 1933, as
amended (the Securities Act)) at prices set from
time to time by the Standby Underwriters. Each such price when
set will not exceed the highest price at which a dealer not
participating in the distribution is then offering shares of
common stock to other dealers plus the amount of any concession
to dealers, and an offering price on any calendar day will not
be increased more than once during such day. In effecting such
transactions, the Standby Underwriters may realize profits or
losses independent of the compensation referred to under
Standby Underwriting and Plan of Distribution. The
Standby Underwriters may also make sales to dealers outside the
United States at prices that represent concessions from the
prices at which such shares are then being offered to the
public. The amount of such concessions will be determined from
time to time by the Standby Underwriters. Any common stock so
offered is offered subject to prior sale, when, as and if
received by the Standby Underwriters, and subject to its right
to reject orders in whole or in part, and any commissions
received by the Standby Underwriters and any profit on the
resale of the common stock purchased by the Standby Underwriters
may be deemed underwriting commissions or discounts under the
Securities Act. The Standby Underwriters and any dealers
participating in the offer and sale of the shares will be
subject to the prospectus delivery requirements of the
Securities Act. The common stock may be offered and sold by the
Standby Underwriters in one or more transactions through the
facilities of the OSE on which the shares are then listed for
trading or in negotiated transactions or a combination of these
and other methods of sale. Until the expiration of the
40-day
period beginning from the date hereof, an offer to sell or a
sale of the Rights or the Underlying Shares (as defined below)
within the United States by a broker/dealer may violate the
registration requirements of the Securities Act if such offer to
sell or sale is made otherwise than pursuant to the foregoing.
See Standby Underwriting and Plan of Distribution
beginning on page [45].
Neither the Securities and Exchange Commission nor any state
securities regulators have approved or disapproved these
securities, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per Share
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Total
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Public Offering Price
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$
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0.10
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$
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Proceeds to CanArgo Energy (after expenses)
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$
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$
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Glitnir
Securities AS
The date of this Prospectus is , 2008
TABLE OF
CONTENTS
IMPORTANT
INFORMATION
In connection with the Offering in Norway an offering circular
has been prepared in English (the Norwegian Offering
Circular). The Norwegian Offering Circular has been
prepared in compliance with Norwegian legislation and
regulations, including in accordance with the Norwegian
Securities Trading Act Chapter 7 and the Norwegian
Securities Trading Regulation Chapter 7 for the purpose of
being distributed as a prospectus for an offer of and listing of
Company common shares pursuant to the Norwegian Securities
Trading Act Chapter 7 and the Norwegian Securities Trading
Regulation Chapter 7. The Norwegian Offering Circular has
been approved by Oslo Børs for the purpose of being
distributed as a prospectus in accordance with the Norwegian
Securities Trading Act Chapter 7 and the Norwegian
Securities Trading Regulation Chapter 7. The Norwegian
Offering Circular and this prospectus are the same, except that
the Norwegian Offering Circular contains certain statements
which are required under E.U. Commission Regulation
No. 809/2004
(as amended by E.U. Commission Regulations No. 1787/2006 and
211/2007)
and/or by
the Oslo Børs including responsibility statements made by
our Board of Directors and the Standby Underwriters.
No person is authorized to give any information or to make any
representation not contained in this prospectus in connection
with the Offering and any information or representation not so
contained must not be relied upon as having been authorized by
us or on our behalf or by or on behalf of the manager or the
Standby Underwriters. This prospectus is not intended to provide
the basis of any credit or any other evaluation and should not
be considered as a recommendation by us, the manager or the
Standby Underwriters that any recipient of this prospectus
should acquire or exercise Rights or subscribe for any shares of
common stock being offered in the Offering (Offered
Shares). Each prospective investor should determine for
itself the relevance of the information contained in this
prospectus and its subscription of Offered Shares or its
acquisition or exercise of Rights should be based upon such
investigation as it deems necessary.
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General
Information and Special Notices
The distribution of this prospectus and the Offering is, in
certain jurisdictions, restricted by law, and this prospectus
may not be used for the purpose of, or in connection with, any
offer or solicitation to anyone in any jurisdiction in which
such offer or solicitation is not authorized or to any person to
whom it is unlawful to make such offer or solicitation. This
prospectus does not constitute an offer of or an invitation to
acquire any Rights or to subscribe for Offered Shares in any
jurisdiction in which such offer or invitation would be
unlawful. Persons into whose possession this prospectus comes
shall inform themselves of and observe all such restrictions.
Neither the Company, the manager nor the Standby Underwriters
accept any legal responsibility for any violation by any person,
whether or not a prospective purchaser of Rights or Offered
Shares, of any such restrictions.
This prospectus may not be distributed or otherwise made
available, the Offered Shares may not be directly or indirectly
offered, sold or subscribed, and the Rights may not be directly
or indirectly offered, sold, acquired or exercised in Canada,
Australia or Japan unless such distribution, offering, sale,
acquisition, exercise or subscription is permitted under
applicable laws of the relevant jurisdiction, and the Company
and the Standby Underwriters receive satisfactory documentation
to that effect. The prospectus may not be distributed or
otherwise made available, the Offered Shares may not be directly
or indirectly offered, sold or subscribed and the Rights may not
be directly or indirectly offered, sold, acquired or exercised
in any other jurisdiction, unless such distribution, offering,
sale, acquisition, exercise or subscription is permitted under
applicable laws of the relevant jurisdiction. The Company and
the Standby Underwriters may require receipt of satisfactory
documentation to that effect. Due to such restrictions under
applicable legislation and regulations, the Company expects that
certain investors residing in Canada, Australia, Japan and other
jurisdictions may not be able to receive this prospectus or the
Norwegian Offering Circular and may not be able to exercise
their Rights and subscribe for Offered Shares.
Investors are authorized to use this prospectus solely for the
purpose of considering the acquisition or exercise of the Rights
and subscription for the Offered Shares described in this
prospectus. The Company and other sources identified herein have
provided the information contained in this prospectus. The
manager and the Standby Underwriters make no warranty, express
or implied, as to the accuracy or completeness of such
information, and nothing contained in this prospectus is, or
shall be relied upon as, a promise or representation by the
manager or the Standby Underwriters. Investors may not reproduce
or distribute this prospectus, in whole or in part, and
investors may not disclose any of the contents of this
prospectus or use any information herein for any purpose other
than considering the acquisition or exercise of Rights and the
subscription for Offered Shares. Investors agree to the
foregoing by accepting delivery of this prospectus. Prospective
holders of the Rights and prospective subscribers for the
Offered Shares should make an independent assessment as to
whether the information in this prospectus is relevant, and any
acquisition or exercise of the Rights and any subscription for
the Offered Shares should be based on the examinations that the
holder or subscriber in question may deem necessary. In addition
to their own examination of the Company and the terms of the
Offering, including the merits and risks involved, investors
should rely only on the information contained in this
prospectus, including the risk factors described herein, and any
notices required under any orders, rules or regulations issued
by any Norwegian securities regulators on issuers duties
to disclose information, and the rules of the Oslo Børs
that are published by the Company and that expressly amend this
prospectus or which are filed with the United States Securities
and Exchange Commission and are incorporated by reference herein.
In connection with the Offering, the Standby Underwriters or
their affiliates, acting as investors for their own account, may
sell, acquire or exercise Rights and offer, sell and subscribe
for Offered Shares in the Offering. They may in this capacity
for their own account hold, buy or sell such securities and any
other of the Companys securities and any investments
related thereto, and they may offer or sell such securities or
other investments in contexts other than in connection with the
Offering. References in this prospectus to the Rights being
allocated, acquired or sold and the Offered Shares being
subscribed, offered, sold or acquired should therefore be
considered to comprise such offers or placements of securities
to the Standby Underwriters or their affiliates. The Standby
Underwriters do not intend to disclose the extent of any such
investments or
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transactions other than in compliance with legal or regulatory
requirements to do so. The Standby Underwriters in connection
with the Offering will receive commissions from the Company. In
connection with the Standby Underwriters usual business
activities, the Standby Underwriters and certain companies
affiliated therewith may have provided and may in future provide
investment banking advice and carry on normal banking business
with the Company and its subsidiaries.
The manager and the Standby Underwriters do not make any direct
or indirect representations and do not assume responsibility for
the accuracy and completeness of the information contained in
this prospectus. Neither the delivery of this prospectus nor the
acquisition or exercise of Rights or the subscription of the
Offered Shares shall create any implication that the information
contained in this prospectus is correct as at any time
subsequent to the prospectus date or that there have been no
changes in the affairs of the Company since the date hereof. Any
material change as compared with the contents of this prospectus
will be published as a supplement pursuant to applicable laws,
rules and regulations.
This prospectus may not be forwarded, reproduced or in any other
way redistributed by anyone but the manager, the Standby
Underwriters and the Company. The Rights and the Offered Shares
may be subject to restrictions on transferability and resale
under applicable securities legislation in certain jurisdictions
and may not be acquired, transferred, exercised or resold unless
permitted under applicable securities legislation. Persons into
whose possession this prospectus may come undertake to inform
themselves about and to observe such restrictions. None of the
Company, the manager, or the Standby Underwriters assume any
legal responsibility for any violation of these restrictions by
any person, irrespective of whether such person is a potential
holder of the Rights and a potential subscriber for the Offered
Shares. Prospective holders of the Rights and prospective
subscribers of the Offered Shares should make their own
individual assessment of the legal basis of and consequences of
the Offering, including possible tax consequences and possible
foreign exchange restrictions which may apply, before deciding
whether to invest in the Rights and the Offered Shares.
Potential acquirers of Rights and subscribers of Offered Shares
shall comply with all applicable laws and provisions in
countries or regions in which they acquire, subscribe, offer,
sell or exercise the Rights or the Offered Shares or possess or
distribute this prospectus and shall obtain consent, approval or
permission, as required, for the acquisition of the Rights or
subscription for the Offered Shares.
Notice to
Investors in the European Economic Area
In relation to each Member State of the European Economic Area
which has implemented the EU Directive 2003/71 (together with
all current implementing measures in the individual Member
States, the Prospectus Directive) (each a
Relevant Member State), not including Norway, no
offering of Rights and Offer Shares to the public will be made
in any Relevant Member State prior to the publication of a
prospectus concerning the Rights and the Offered Shares, which
has been approved by the competent authority in such Relevant
Member State or, where relevant, approved in another Relevant
Member State and notified to the competent authority in such
Relevant Member State, all pursuant to the Prospectus Directive,
except that with effect from and including the date of
implementation of the Prospectus Directive in such Relevant
Member State, an offering of Rights and Offered Shares may be
made to the public at any time in such Relevant Member State:
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to legal entities that are authorized or regulated to operate in
the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
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to any legal entity fulfilling at least two of the following
conditions (1) an average of at least 250 employees
during the last financial year; (2) a total balance sheet
of more than 43 million; and (3) an annual net
revenue of more than 50 million, as shown in its last
annual or consolidated accounts;
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to fewer than 100 natural or legal persons (other than qualified
investors as defined in the Prospectus Directive) subject to
obtaining the prior consent of the Standby Underwriters, for any
such offer; or
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in any other circumstances falling within Article 3(2) of
the Prospectus Directive, provided that no such offer of Offered
Shares shall result in a requirement for the publication by the
Company or the Standby Underwriters of a prospectus pursuant to
Article 3 of the Prospectus Directive.
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For the purposes of the above, the expression an offer of
Rights and Offered Shares to the public in relation to
Rights and Offered Shares in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the Offering, the Rights and Offered
Shares so as to enable an investor to decide to exercise or
acquire Rights or subscribe for Offered Shares, as the same may
be varied in that Member State by any measure implementing the
Prospectus Directive in that Member State.
Notice
Concerning Canada, Australia and Japan
This prospectus may not be distributed or otherwise made
available, the Offered Shares may not be directly or indirectly
offered, sold or subscribed, and the Rights may not be directly
or indirectly offered, sold, acquired or exercised in Canada,
Australia or Japan, unless such distribution, offering, sale,
acquisition, exercise or subscription is permitted under
applicable laws of the relevant jurisdiction, and the Company
and the Standby Underwriters receive satisfactory documentation
to that effect. Due to such restrictions under applicable
legislation and regulations, the Company expects that certain
investors residing in Canada, Australia, Japan and other
jurisdictions may not be able to receive this prospectus and may
not be able to exercise their Rights or subscribe for the
Offered Shares. No offering and no solicitation to any person is
being made by the Company in any circumstances that would be
unlawful.
Presentation
of Financial and Certain Other Information
Our audited financial statements as at December 31, 2006
and 2007 and for each of the three years in the three year
period ending December 31, 2007 incorporated by reference
in this prospectus from our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, as amended,
have been prepared in accordance with generally accepted
U.S. accounting principles (GAAP), which
differs in certain respects from International Financial
Reporting Standards as adopted by the EU and the additional
Norwegian disclosure requirements for financial statements of
listed companies. Financial information set forth in such
financial statements and associated schedules has been rounded.
Accordingly, in certain instances, the sum of the numbers in a
column or row may not conform exactly to the total figure given
for that column or row. In addition, certain percentages
presented in such information reflect calculations based upon
the underlying information prior to rounding and, accordingly,
may not conform exactly to the percentages that would be derived
if the relevant calculations were based upon the rounded numbers.
In this prospectus all references to Kroner,
kroner, or NOK are to the currency of
the Kingdom of Norway, all references to
U.S. dollars, U.S. Dollars,
US$, USD, or $ are to the
currency of the U.S., all references to pounds,
pounds sterling. UK £ or
£ are to the currency of the United Kingdom and
all references to Euro, euro and
are to the currency introduced from the start
of the third stage of the European Economic and Monetary Union
pursuant to the Treaty establishing the European Community, as
amended. References to US Eastern time and to
CET refer to local time on the east coast of the
United States and local Central European Time, respectively.
References to the VPS System refer to the securities
clearance and registration system maintained by the Norwegian
Central Securities Depository and DNB NOR bank.
Enforceability
of Judgments
The Company is organized under the laws of the State of Delaware
in the United States, with our domicile in the municipality of
Dover, County of Kent, State of Delaware. All of the members of
our Board of Directors and Executive Management and certain of
the experts named herein are residents of British Isles or other
jurisdictions outside the U.S. All of our assets as well as
the assets of such non-resident persons are located in
jurisdictions outside the U.S.
As a result, it may not be possible for investors to effect
service of process upon such persons or us with respect to
litigation that may arise under U.S. federal securities law
or to enforce against them or us judgments
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obtained in U.S. courts, whether or not such judgments were
made pursuant to civil liability provisions of the federal or
state securities laws of the U.S. or any other laws of the
U.S. We have been advised by our Norwegian counsel that
there is not currently a treaty between the U.S. and Norway
providing for reciprocal recognition and enforceability of
judgments rendered in connection with civil and commercial
disputes and accordingly that a final judgment rendered by a
U.S. court based on civil liability would not be
enforceable in Norway. Considerable uncertainty exists whether
Norwegian courts would allow actions to be predicated on the
securities laws of the U.S. or other jurisdictions outside
Norway.
Foreign
Currency Presentation
We publish our financial statements in United States Dollars.
Certain financial information included in this prospectus
contains conversions of certain Dollar amounts into Kroner
amounts, Pounds Sterling and into Euros at specified rates.
These conversions should not be construed as representations
that the Dollar amounts actually represent such Kroner, Pound or
Euro amounts or could be converted into Kroner, Pounds or Euros
at the rates indicated or at any other rate. In addition,
certain additional information herein has been presented in
U.S. dollars. The conversions in our financial statements
of financial information into other currencies have been made
using the rates disclosed therein. Unless otherwise indicated,
conversions of financial information have been made using the
foreign exchange reference rates set forth on the cover page of
this prospectus.
Independent
Auditors
Our audited consolidated financial statements as at
December 31, 2006 and 2007 and for each of the three years
in the three year period ending December 31, 2007 included
herein by reference have been reported upon by LJ Soldinger
Associates LLC, independent registered public accountants.
Financial
Calendar
We are subject to the periodic reporting requirements and other
disclosure requirements of the U.S. Securities Exchange Act
of 1934, as amended (Exchange Act), and,
accordingly, as an accelerated filer (as defined in the Exchange
Act) we are required to file an Annual Report on
Form 10-K
with the SEC within 75 days after the end of each fiscal
year, which report includes audited consolidated financial
statements among other matters. In addition, we file interim
Quarterly Reports on
Form 10-Q
containing unaudited interim financial information as well as
other required information with the SEC within 40 days
after the end of each of the first three fiscal quarters ended
March 31, June 30 and September 30 in each year. Finally,
in connection with the solicitation of proxies for our Annual
General Meetings we are required to file proxy materials with
the SEC.
Available
Information
See the sections of this prospectus entitled Where You Can
Find More Information and Documents Incorporated by
Reference for information as to how you can obtain
additional information regarding the Company, its business,
financial condition and the Offering. The following documents
have been filed as exhibits with the SEC and can be accessed on
the SECs website www.sec.gov and are available for
inspection at any time: (i) our Amended and Restated
Certificate of Incorporation and Bylaws; (ii) the documents
incorporated by reference in this prospectus as identified in
the section entitled Documents Incorporated by
Reference; and (iii) this prospectus and the
registration statement of which this prospectus forms a part.
v
PROSPECTUS
SUMMARY
The following summary highlights selected information contained
in this prospectus. This summary does not contain all the
information you should consider before investing in the
securities and is qualified in its entirety by the more detailed
information appearing elsewhere in this prospectus. Before
making an investment decision, you should read the entire
prospectus and the information incorporated by reference herein
carefully, including the Risk Factors section.
Unless the context requires otherwise, references to the
Company, CanArgo,
we, us and
our are to CanArgo Energy Corporation and its
subsidiaries. A glossary of certain oil and gas terms and
definitions used in this prospectus is set forth on
page [7]. References to persons comprise references both to
individuals and to legal entities.
The
Company
The Company is an independent oil and gas exploration and
production company engaged in oil and gas exploration,
development and production in Georgia. The Companys
executive offices are located at PO Box 291, St Peter
Port, Guernsey, GY1 3RR, British Isles and its telephone number
is +(44) 1481 729 980.
Risk
Factors
The investment in the common stock or the Rights offered hereby
is subject to risk factors that should be carefully reviewed
prior to determining whether to purchase the common stock or
purchase or exercise the Rights. These factors relate to the
Companys financial condition, risks associated with
operations in Georgia and other countries in the former Soviet
Union, risks inherent in oil and gas operations, and volatility
in our stock price. See Risk Factors beginning on
page [12] below.
The
Offering
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Rights Offering |
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Each record holder of common stock (Record Date
Holder) at the close of business
on , 2008 (the Record Date)
will be distributed at no charge one transferable subscription
right (Right) for each share of common stock held of
record on the Record Date. Each Right will entitle the holder
thereof (Rights Holder) to purchase from the Company
one share of common stock (an Underlying Share) for
a price of $0.10 per share (the Subscription Price).
An aggregate of up to 259,047,390 shares of common stock
will be issued in the Offering upon exercise of the Rights or
pursuant to the Standby Underwriting Agreements (as defined
below), including pursuant to the exercise by the Standby
Underwriters of their conditional rights to acquire up to
16,940,000 shares in lieu of payment of their underwriting
commissions in cash. The Rights will be evidenced by
transferable certificates (the Subscription Rights
Certificates) except for those stockholders who hold their
shares of common stock in the book entry system maintained by
the Depository Trust Company (DTC) or the VPS
System, whose Rights will be evidenced by an electronic book
entry certificate registered with DTC or in the VPS System,
respectively. |
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Conditions to Rights Offering |
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The Rights Offering is conditioned upon compliance with all
requisite regulatory requirements. |
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Basic Subscription Privilege |
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Rights Holders are entitled to purchase, at the Subscription
Price, one Underlying Share for each whole Right held (the
Basic Subscription Privilege). No fractional shares
will be issued. See The |
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Rights Offering Subscription Privileges
Basic Subscription Privilege. |
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Subscription Price |
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$0.10 per Underlying Share, payable in cash. See The
Rights Offering Exercise of Rights by Rights
Holders and Standby Underwriting and Plan of
Distribution Determination of Subscription
Price. |
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Shares of Common Stock Outstanding after Rights Offering |
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As of the Record Date there were shares of
common stock outstanding. A maximum aggregate
of shares of common stock may be issued
pursuant to the Basic Subscription Privilege. Accordingly, after
this Offering, approximately shares of common
stock will be outstanding, assuming the exercise in full by the
Standby Underwriters of their conditional right to receive their
commission in shares in lieu of cash. If only the shares that
are the subject of the Rights Offering are issued (i.e., if the
Standby Underwriters do not exercise their conditional right to
receive their commission in shares in lieu of cash)
approximately shares of common stock will be
outstanding after this Offering. |
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Transferability of Rights |
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The Rights, including the Basic Subscription Privilege, may be
transferred or assigned prior to the Expiration Time. On and
after the Expiration Time unexercised Rights will expire and
will have no value. We have been advised by the AMEX and the OSE
that the Rights will be traded on the AMEX and the OSE under the
symbols and
, respectively, beginning on or
about , 2008,
until p.m., U.S. Eastern time
( CET), on , 2008, the last
business day prior to the scheduled expiration date of the
Rights Offering. |
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If your shares are held of record by a broker,
custodian bank or other nominee on your behalf, including in the
VPS System or in the book entry system maintained by DTC, you
may sell your Rights by contacting your broker, custodian bank
or other nominee through which you hold your common stock. To
sell your Rights, you should complete and return to your broker,
custodian bank or other nominee the form entitled
Beneficial Owner Election Form such that it will be
received well in advance of p.m.,
U.S. Eastern time ( CET),
on , 2008 (which is the latest possible date
and time that the Rights will be traded on the AMEX and the
OSE), the last business day prior to the
scheduled , 2008 expiration date of this Rights
Offering.
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If you are a record holder of a Subscription Rights
Certificate, you may sell your Rights through Computershare (the
U.S. Subscription Agent) in which case, you must
deliver your properly completed and executed Subscription Rights
Certificate, with appropriate instructions, to the U.S.
Subscription Agent. The U.S. Subscription Agent will only
facilitate subdivisions, transfers or sales of Rights
until p.m. U.S. Eastern time
( CET), on , 2008, three
business days prior to the scheduled , 2008
expiration date of this Rights Offering. You may also choose to
sell your Rights through a broker, custodian bank or other
nominee. Foreign registered stockholders and stockholders who
hold
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their shares in the VPS System should see Foreign and
Other Stockholders below and The Rights Offering
Foreign and Other Stockholders and consult the
Norwegian Offering Circular. |
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The deadline to sell your Rights is subject to extension if we
extend the expiration date of this Rights Offering with the
consent of the Standby Underwriters if the Rights Offering is
extended beyond four weeks in length. See The Rights
Offering Methods for Transferring and Selling
Subscription Rights. |
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Expiration Time |
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p.m., U.S. Eastern time
( CET), , 2008, or such later
time to which the Offering may have been extended (the
Expiration Time). See The Rights
Offering Expiration and Extension of the Rights
Offering. Rights not exercised prior to the Expiration
Time will expire and become worthless. |
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Procedure for Exercising Rights |
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Subject to certain limited conditions as described in Risk
Factors, you may exercise your Rights pursuant to the
following steps: |
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If you are a record holder of a Subscription Rights
Certificate, you may exercise your Rights by properly completing
and signing your Subscription Rights Certificate. For the
exercise of a Right to be effective, your Subscription Rights
Certificate, together with full payment of the Subscription
Price, must be received by the U.S. Subscription Agent on or
prior to the Expiration Time of this Rights Offering, and
payment must clear prior to the expiration of this Rights
Offering, provided that if you cannot deliver your Subscription
Rights Certificate to the U.S. Subscription Agent on time and
you are a U.S. record holder, you may follow the guaranteed
delivery procedures described under The Rights
Offering Guaranteed Delivery Procedures. If
you use the mail, we recommend that you use insured, registered
mail, return receipt requested. The described guaranteed
delivery procedures will not be applicable for foreign
registered stockholders or stockholders holding shares through
the VPS System. See The Rights Offering
Exercise of Rights by Rights Holders.
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If you hold shares of our common stock through a
broker, custodian bank or other nominee, we will ask your
broker, custodian bank or other nominee to notify you of this
Rights Offering. If you wish to sell or exercise your Rights,
you will need to have your broker, custodian bank or other
nominee act for you. To exercise your Rights, you should
complete and return to your broker, custodian bank or other
nominee the form entitled Beneficial Owner Election
Form such that it will be received
by p.m., U.S. Eastern time
( CET), on , 2008, the last
business day prior to the Expiration Time of this Rights
Offering. You should receive this form from your broker,
custodian bank or other nominee with the other Rights Offering
materials. You should contact your broker, custodian bank or
other nominee if you do not receive this form. See The
Rights Offering Beneficial Owners.
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If you are a foreign registered stockholder or hold
your shares in the VPS System see Foreign and Other
Stockholders below and The Rights
Offering Foreign and Other Stockholders. |
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No Revocation of Exercise |
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All exercises of Rights are irrevocable, even if you later learn
information that you consider to be unfavorable to the exercise
of your Rights. You should thus not exercise your Rights unless
you are certain that you wish to purchase additional shares of
our common stock at a subscription price of $0.10 per full
share. Rights not exercised prior to the expiration of this
Rights Offering will expire and will be void and no longer
exercisable. Please see Risk Factors for a
discussion relating to the irrevocability of subscription
exercises and The Rights Offering No
Revocation. |
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Persons Holding Common Stock, or Wishing to Exercise
Rights Through Others |
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Persons holding shares of common stock beneficially, and
receiving the Rights issuable with respect thereto, through a
broker, dealer, commercial bank, trust company or other nominee,
as well as persons holding certificates for common stock
directly who would prefer to have such institutions effect
transactions relating to the Rights on their behalf, should
contact the appropriate institution or nominee and request it to
effect such transactions for them. See The Rights
Offering Exercise of Rights by Rights Holders
and The Rights Offering Beneficial
Owners. |
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Issuance of Common Stock |
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Certificates representing shares of common stock purchased
pursuant to the Basic Subscription Privilege will be delivered
to subscribers as soon as practicable after the closing of the
Rights Offering, corresponding Rights have been validly
exercised and payment therefor has been received by the Company
with the exception of those stockholders whose shares are
registered in the VPS System in Norway or are included in the
book entry system maintained by DTC. Such stockholders will not
receive stock certificates and instead will have their
shareholdings appropriately registered in such book entry
systems. |
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Extension of the Rights Offering |
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We have the option to extend this Rights Offering and the period
for exercising your Rights for any reason, subject to the prior
receipt of the consent of the Standby Underwriters if we extend
the Rights Offering beyond four weeks in length, including if we
determine that changes in the market price of our common stock
warrant an extension or if we decide to give stockholders more
time to exercise their Rights in this Rights Offering, although
we do not presently intend to do so. See The Rights
Offering Expiration and Extension of the Rights
Offering. |
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Commissions or Fees |
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We will not charge a brokerage commission or a fee to Rights
Holders for exercising their Rights. However, if you exercise
your Rights through a broker, custodian bank or other nominee,
you will be responsible for any fees charged by your broker,
custodian bank or other nominee. |
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If you sell your Rights, you will be responsible for any
commissions, taxes or broker fees arising from any such sale. If
a |
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Subscription Agent sells Rights for you, it will aggregate and
sell concurrently all Rights being sold on a particular day and
will send you a check for the net proceeds from the sale of any
of your Rights, less a commission and any applicable taxes or
broker fees, as soon as practicable following the sale. Any
sales through a Subscription Agent will be deemed to be effected
at the weighted average net sale price of all Rights sold by the
Subscription Agent on the relevant date of sale. |
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If you sell your Rights through your broker, custodian bank or
other nominee either because you are a beneficial holder or
because you are a record holder that chooses to sell your Rights
through a broker, custodian bank or other nominee, you may
receive a different amount of proceeds than if you are a record
holder and you choose to sell the same amount of Rights through
the Subscription Agent. If you sell your Rights through your
broker, custodian bank or other nominee instead of a
Subscription Agent, your sales proceeds will be the actual sales
price of your Rights less any applicable brokers
commission, taxes or other fees, rather than the weighted
average net sale price of all Rights sold by the Subscription
Agent on the relevant date as described above. |
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Standby Underwriting Commitments |
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The Standby Underwriters named in the table set forth in the
Standby Underwriting and Plan of Distribution
section below (collectively, the Standby
Underwriters) have each severally and not jointly agreed
to underwrite up to a maximum of 242,000,000 of the unsubscribed
for Underlying Shares (the Unsubscribed Shares) at
the Subscription Price per share pro rata to their respective
underwriting commitments as indicated in the table. See
The Rights Offering Standby Underwriting
Commitments and Standby Underwriting and Plan of
Distribution Standby Underwriting Agreements. |
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AMEX and OSE Symbols for Common Stock and Rights |
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CNR is the symbol for the common stock on both the AMEX and OSE;
we have been advised that the AMEX and OSE symbols for the
Rights are
l
and
l,
respectively. |
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Use of Proceeds |
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The proceeds from the Rights Offering, before the payment of
expenses of the Rights Offering, including any compensation due
to the Standby Underwriters, are estimated to be a minimum of
$24,200,000. Of such proceeds: $12,000,000 is expected to be
used for the implementation of a production enhancement program
at the Ninotsminda Field in Georgia which may include the
drilling of a new well in the eastern part of the Field with up
to two horizontal completions and a new vertical well on the
northern flank of the Field; $3,000,000 is expected to be used
for the further evaluation of the Manavi prospect in Georgia
with a focus on the completion of well testing operations at the
M12 well; $1,000,000 will be used to further our farm-out
strategy in respect of our other exploration acreage in Georgia;
$5,000,000 is expected to be used for the repayment of
indebtedness; and $3,200,000 is expected to be used for general
working capital purposes (including payment of the expenses of
the Offering and the commission in respect of the |
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underwriting of the Offering, in the event that the Standby
Underwriters elect to receive their commission in cash). See
Use of Proceeds. |
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Deciding Not to Exercise Subscription Rights |
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You will retain your current number of shares of our common
stock even if you do not exercise your Rights. You are not
required to subscribe in this Rights Offering. However, if you
do not exercise your Rights, the percentage of our common stock
that you own will decrease, and your voting and other rights
will be diluted as a result of the issuance of
approximately shares of our common stock
pursuant to this Rights Offering (assuming this Rights Offering
is fully subscribed and the Standby Underwriters elect to take
their commissions in shares of common stock rather than in
cash). See Dilution. |
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Manager |
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We and Glitnir Securities AS have entered into an engagement
agreement, dated June 26, 2008, pursuant to which Glitnir
is acting as manager and Norwegian Subscription Agent in
connection with this Rights Offering. We will pay a fee and all
expenses of Glitnir in connection with the Rights Offering for
acting as the manager and as Norwegian Subscription Agent. The
fee attributable to the Rights Offering is 2.5% of the gross
proceeds to be raised in the rights offering, or approximately
$600,000. We will also pay all fees and expenses of
Computershare related to its role as U.S. Subscription Agent in
connection with this Rights Offering. See Standby
Underwriting and Plan of Distribution The
Manager. |
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No Recommendations |
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An investment in our common stock must be made pursuant to each
investors evaluation of such investors best
interests. Accordingly, the Company, the manager and the Standby
Underwriters make no recommendations to the holders of our
common stock regarding whether they should exercise, sell or let
lapse their Rights. Stockholders that exercise Rights risk loss
of their investment. We cannot assure you that the market price
for our common stock will be above the Subscription Price or
that anyone purchasing shares at the Subscription Price will be
able to sell those shares in the future at the same price or a
higher price. Neither the manager nor any Standby Underwriter
will engage in any stabilization transactions which may maintain
the market price of our common stock above the Subscription
Price. You are urged to make your decision based on your own
assessment of our business and this Rights Offering. Please see
Risk Factors for a discussion of some of the risks
involved in investing in our common stock and The Rights
Offering No Recommendation. |
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Certain U.S. Federal Income Tax Considerations |
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For U.S. federal income tax purposes, you should not recognize
income or loss upon receipt or exercise of a Right unless the
Rights Offering is part of a disproportionate
distribution within the meaning of the applicable tax
rules (in which case, you may be treated as receiving a
distribution equal to the fair market value of the rights). We
intend to take the position that the Rights Offering will not be
part of a disproportionate distribution, but the law on this
point is unclear. You should consult your own tax advisor as to |
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the tax consequences to you of the receipt, exercise or lapse
of the rights in light of your particular circumstances. See
Certain Income Tax Considerations. |
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Foreign and Other Stockholders |
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We will not mail the Subscription Rights Certificates to
stockholders with addresses that are outside the United States
or that have an army post office or fleet post office address.
The U.S. Subscription Agent will hold these Subscription Rights
Certificates for their account. If you have an address outside
the U.S. or an army post office or a fleet post office address,
to exercise your Rights you must notify the U.S. Subscription
Agent before , U.S. Eastern time,
on , 2008, three business days prior to the
expiration date of the Rights Offering, and with respect to
holders whose addresses are outside the U.S. they must provide
evidence satisfactory to us, such as a legal opinion from local
counsel, that it is lawful for them to receive and exercise
their Rights under applicable law. Stockholders who hold their
shares in the VPS System will be delivered a copy of the
Norwegian Offering Circular and other documents upon request in
order to exercise, subdivide, transfer or sell their Rights and
must follow the procedures set forth therein. See The
Rights Offering Foreign and Other Stockholders
herein. |
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Information Agents |
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If you have questions or need assistance, please contact the U.S
or Norwegian Subscription Agents. U.S. banks and brokerage firms
please call
(800) 962-4284
and foreign banks and brokerage houses please call
+47 22 01 63 00. |
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Shares Outstanding Before this Rights Offering |
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shares of our common stock were outstanding as
of , 2008, which is the Record Date for this
Rights Offering. |
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Shares Outstanding After Completion of this Rights
Offering |
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Assuming no options or other derivative securities of the
Company are exercised or converted prior to the expiration of
this Rights Offering, the Standby Underwriters elect to take
their commissions in cash and the full shares
are subscribed for by our common stockholders (and not by the
Standby Underwriters pursuant to their standby underwriting
commitments), we expect approximately shares
of our common stock will be outstanding immediately after
completion of this Rights Offering. |
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U.S. Subscription Agent |
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Computershare, 350 Indiana Street, Suite 800, Golden, CO
80401; Telephone Number:
(303) 262-0600;
Facsimile Number:
(303) 262-0609 |
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Norwegian Subscription Agent |
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Glitnir Securities AS, Haakon VIIs gate 10,
Postboks 1474 Vika
N-0116 Oslo,
Norway; Telephone Number: +47 22 01 63 00;
Facsimile Number: +47 22 01 63 11 |
As of June 30, 2008 there were 242,107,390 shares of common
stock issued and outstanding.
7
Oil and
Gas Terms
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When describing natural gas:
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Mcf
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thousand cubic feet
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MMcf
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million cubic feet
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Bcf
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billion cubic feet
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When describing oil:
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Bbl
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barrel
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Mbbls
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thousand barrels
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MMbbls
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million barrels
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When comparing natural gas to oil:
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6 Mcf of gas
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1 bbl of oil equivalent
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Boe
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=
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barrel of oil equivalent
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Mboe
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=
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thousand barrels of oil equivalent
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MMboe
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million barrels of oil equivalent
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About
CanArgo
We are an independent oil and gas exploration and production
company incorporated with limited liability under the laws of
the State of Delaware, U.S.A., headquartered in St Peter Port,
Guernsey, British Isles, but not regulated in Guernsey,
operating in Georgia a former part of the former Soviet Union.
We operate and carry out our activities as a holding company
through a number of operating subsidiaries and associated or
affiliated companies. Each of these operating companies is
generally focused on one of our projects, and this structure
assists in maintaining separate cost centers for these different
projects.
Our principal activities are oil and gas exploration,
development and production in Georgia although in the past we
have also operated in other former Soviet Union countries. We
are currently directing all of our efforts and resources to our
exploration and appraisal program in Georgia and the development
of the Ninotsminda Field in Georgia. Our management and
technical staff have substantial experience in our areas of
operation. Currently our principal product is crude oil, and the
sale of crude oil is our principal source of revenue.
Our oil and natural gas reserves and production have to date
been derived principally through development of the Ninotsminda
Field. We are currently focused on properties that either offer
us existing or near term production as well as additional
exploitation opportunities, or exploration prospects which
management believes have significant potential. We have
additional exploratory and developmental oil and gas properties
and prospects in Georgia. We operate in a global market and have
an insignificant market share in such market.
Going
Concern
Our ability to continue to pursue our principal activities of
acquiring interests in and developing oil and gas fields is
dependent upon generating funds from internal sources, external
sources and, ultimately, maintaining sufficient positive cash
flows from operating activities (see Our ability to
pursue our activities is dependent on our ability to generate
cash flows, under Risk Factors starting on
page [12] below).
Our financial statements have been prepared in accordance with
U.S. GAAP, which contemplates continuation of the Company
as a going concern. In respect of the Companys 2007
audited financial statements, the audit opinion issued in the
auditors independent report contained additional
explanatory language to the standard audit report in respect of
the Companys ability to continue as a going concern.
We currently have sufficient cash on hand to support our current
operations through to at least the end of 2008. In order to fund
our planned capital expenditure program and to continue our
operations after 2008, we need to raise substantial funds.
Accordingly, we are pursuing raising additional funds through
the Rights Offering to stockholders. We are also actively
pursuing the farming out of a number of our exploration projects.
8
We will use a portion of the proceeds from the Rights Offering
for a short term production enhancement recovery program at the
Ninotsminda Field in order to generate additional near term cash
flows. We believe that if we improve near term cash flow as a
result of our production enhancement efforts and if we are
eventually able to successfully complete the Manavi 12 well such
that a significant quantity of oil flows are produced, we will
be able to raise additional debt and/or equity funds in order to
continue operations, continue our development plans for the
Ninotsminda Field, properly develop the Manavi Field, continue
appraising the Norio discoveries, and further develop our
business in the region.
Our
Business Strategy
Our business strategy is focused on the following:
Further
Development Of Existing Properties
Assuming available financial resources, we intend to further
develop our properties that have established oil and gas
resources. We seek to add proved reserves and increase
production through the use of advanced technologies, including
conducting further seismic programs and detailed technical
analysis of our properties, horizontal drilling, multilateral
drilling, drilling new structures from existing locations and
selectively recompleting existing wells. We also plan to drill
step-out wells to expand known field limits.
Growth
Through Exploitation And Exploration
Assuming available financial resources, we intend to conduct an
active technology-driven exploitation and exploration program
that will be designed to complement our property acquisition and
development drilling efforts with moderate to high-risk
exploration projects that have greater reserve potential. In the
past we have generated exploration prospects through the
analysis and integration of geological and geophysical data and
the interpretation of seismic data. Assuming available financial
resources, we intend to manage our exploration expenditures
through the optimal scheduling of our drilling program and, if
considered appropriate, selectively reducing our participation
in certain exploratory prospects through farm-outs or sales of
interests to industry partners.
Pursuit
Of Strategic Acquisitions
We continually review opportunities to acquire producing
properties, leasehold acreage and drilling prospects and seek to
acquire operational control of properties that we believe have
significant exploitation and exploration potential. We are
especially focused on increasing our holdings in fields and
basins from which we are able to leverage existing
infrastructure and resources.
Recent
Developments
On January 8, 2008, we announced that we had received a
deficiency letter from AMEX advising the Company that in view of
its continued non-compliance with Section 121(A)(1) and
Section 121(B)(2)a of the continued listing standards of
the AMEX Company Guide, which require that at least a majority
of the directors qualify as independent directors
and that the Audit Committee be comprised of at least three
independent directors, the Company had until January 18,
2008 to submit a plan to the AMEX of steps it has taken, or will
take, in order to regain compliance with these requirements by
no later than April 4, 2008. The Company subsequently
submitted its plan to regain compliance to the Staff of the AMEX
on January 18, 2008.
Effective February 7, 2008, Dr. David Robson, the
Companys former Chief Executive Officer and after his
resignation as Chief Executive Officer in June 2007, the
Non-Executive Chairman and a Non-Executive Director of the Board
of Directors, resigned from the Board. Effective the same date,
Vincent McDonnell
9
became acting Chairman of the Board in addition to his duties
as President and Chief Executive Officer. In connection with
Dr. Robsons departure the Company agreed:
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to make a payment to Vazon Energy Limited (Vazon) of
UK£30,000 in settlement of Dr. Robsons Service
Agreement (Vazon being the company which provided the services
of Dr. Robson); and
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that the 1,800,000 share options granted to Dr. Robson
pursuant to the Companys Long Term Stock Incentive Plans
(LTSIP) will remain valid and be exercisable until
31 December 2008 under the terms of such plans. These
options comprise:
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1,500,000 options granted at an exercise price of $0.65 (issued
September 24, 2004); and
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300,000 options granted at an exercise price of $1.00 (issued
July 27, 2005).
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On February 14, 2008, we announced that the Staff of the
AMEX had determined that the plan submitted by the Company
reasonably demonstrated the Companys ability to regain
compliance with such continued listing standards by the end of
the plan period.
In accordance with the requirements of the AMEX, on
March 18, 2008, we announced that in respect of the
Companys 2007 audited financial statements, the audit
opinion issued in the auditors independent report
contained additional explanatory language to the standard audit
report in respect of the Companys ability to continue as a
going concern. The independent audit report is contained in the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, as amended,
and is available at www.sec.gov.
On March 27, 2008, we announced the appointment of Anthony
J. Perry as an Independent Non-Executive Director of the Board
of the Company and the appointment of Mr. Perry to the
Companys Audit Committee both with effect from April 1,
2008. This appointment meant that we now satisfied the continued
listing requirements of the AMEX for a majority of independent
directors on the Board and three independent directors on the
Audit Committee.
On April 13, 2008, we announced the proposed Rights Offering and
on April 28, 2008 we filed a Current Report on Form 8-K
disclosing the adoption by the Board of Directors of an
amendment to our Amended and Restated Certificate of
Incorporation increasing the number shares of common stock we
are authorized to issue from 500 million shares to one billion
shares and concurrently amending our 2004 Long Term Stock
Incentive Plan (the 2004 Plan) to increase the
number of shares of common stock available for grant under the
2004 Plan from 17.5 million to 35 million, in both cases subject
to obtaining of requisite stockholder approval at the
Companys annual meeting of stockholders. We also disclosed
that the approval of the amendment of the Amended and Restated
Certificate of Incorporation was a condition to the Rights
Offering since the Company otherwise would not have sufficient
authorized shares of common stock to permit the Rights Offering
to proceed.
On April 18, 2008, we announced the scheduled annual
meeting of stockholders to be held on June 26, 2008 at
10.30 a.m. Eastern Time at AMEX, 86 Trinity Place, New
York, NY, 10006, and that only stockholders of record at the
close of business on April 28, 2008 would be entitled to
notice of, and to vote at, such meeting or any adjournments or
postponements thereof.
On June 3, 2008, we announced that as a result of delays
encountered in the review of the Companys proxy materials
by the U.S. Securities and Exchange Commission we had
re-scheduled the annual meeting of stockholders from June 26,
2008 to July 18, 2008 in order to provide the Company with
sufficient time to solicit proxies. This announcement also
contained the time and place of the annual meeting, as well as
the record date for stockholders entitled to notice of, and to
vote at, such meeting or any adjournments or postponements
thereof.
On June 16, 2008, we announced that a group of eight separate
foreign private investors had signed non-binding letters of
intent with the Company detailing the principal terms of a
proposed standby underwriting agreement that upon execution was
expected to provide an aggregate firm commitment to purchase up
to $24.2 million in unsubscribed for shares in the
Companys planned rights issue first announced on April 23,
2008, thus ensuring a successful offering.
10
On June 26, 2008, we publicly updated well testing operations at
the Manavi 12 well in Georgia which was drilled to appraise a
new oil discovery in the Kura Basin. Testing operations focused
on a selected reservoir interval in the Upper Cretaceous
carbonates which was acid fracture stimulated earlier in the
year after the recovery of oil and gas to surface from previous
testing. The results of the current test have identified a
possible oil-water contact in the M12 well which indicates a
potentially significant hydrocarbon column in the Manavi
structure.
On July 21, 2008, we announced the results of the annual meeting
of stockholders held on July 18, 2008 in New York, New York at
which stockholders duly re-elected the incumbent Board of
Directors comprised of Messrs. Vincent McDonnell, Jeffrey
Wilkins, Russ Hammond, Michael Ayre and Anthony Perry; approved
an increase in the authorized shares of common stock from
500,000,000 to 1,000,000,000; and disapproved an increase in the
number of shares of common stock that can be awarded under the
Companys 2004 Plan.
Effective July 21, 2008, the Company amended Article Four of the
Companys Amended and Restated Certificate of Incorporation
to increase the number of authorized shares of common stock, par
value $0.10 per share, from 500,000,000 shares to 1,000,000,000.
The amendment was duly approved at the Companys annual
meeting of stockholders held on July 18, 2008 by the votes of
the holders of at least a majority of all the issued and
outstanding shares of the Company. The capital of the Company
shall not be reduced under or by reason of the said amendment.
On July 24, 2008, we announced that the group of eight separate
foreign private investors who had previously signed non-binding
letters of intent with the Company had severally entered into
substantially identical firm commitment underwriting agreements
with the Company to purchase up to an aggregate of $24.2 million
in unsubscribed for shares in the Rights Offering. Each investor
severally and not jointly undertook, pro rata to its share of
the aggregate underwriting commitment, to purchase, at the same
Subscription Price as common stockholders, shares of CanArgo
common stock not otherwise purchased by stockholders in the
Rights Offering. See Standby Underwriting and Plan of
Distribution beginning on page [45] for further
details concerning the terms of these agreements.
On August 10, 2008, we issued a statement that operations in
Georgia are continuing unaffected by the hostilities between
Georgia and Russia over control of the separatist region of
South Ossetia in the central Caucasus. Oil production
operations, at the present time, continue as normal at the
Companys Ninotsminda Field which is located 35 kilometers
to the east of the capital city Tbilisi and over 100 kilometers
from South Ossetia. As a precautionary measure, the Company has
increased security and the number of personnel on duty at its
production sites. The Company is closely monitoring the
situation and the efforts of the United States, NATO, the
United Nations and the European Union to bring an end to
hostilities.
On August 15, 2008, we issued a further statement that our oil
and gas operations in Georgia remained unaffected by the recent
Russian-Georgian conflict. Oil production from the Ninotsminda
Field is sold on a batch basis with the last sale at the end of
July and the next scheduled sale not due until late September.
Oil production from the Field is generally sold at the Field
gate, transported by the buyer via rail and exported through the
Black Sea port of Batumi which, to date, has not been affected
by the conflict. There is no assurance, however, that our
operations and our ability to market our production will remain
unaffected if relations between Georgia and the Russian
Federation deteriorate and hostilities are resumed.
11
RISK
FACTORS
An investment in our common stock is subject to significant
risks and uncertainties which may result in a loss of all or a
part of your investment. You should carefully consider the risks
described below, as well as all other information contained or
incorporated by reference in this prospectus and any applicable
prospectus supplements, before investing in our common stock.
The risks described below are not the only ones facing the
Company. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business
operations and adversely affect the price of our shares.
Risks
Associated with our Business
Our
operations in Georgia may be adversely affected by the recent
hostilities between Georgia and the Russian
Federation.
The recent hostilities between Georgia and the Russian
Federation over the separatist region of South Ossetia may
interrupt and adversely affect our operations and our ability to
market our production from the Nintosminda Field, in particular
if military operations resume and extend to the areas in which
we operate or interfere with the methods by which we market our
production. Oil production operations, at the present time,
continue as normal at the Companys Ninotsminda Field which
is located 35 kilometers to the east of the capital city Tbilisi
and over 100 kilometers from South Ossetia. As a precautionary
measure, the Company has increased security and the number of
personnel on duty at its production sites. The Company is
closely monitoring the situation and the efforts of the United
States, NATO, the European Union and the United Nations to bring
an end to hostilities. See Recent Developments.
We
have experienced recurring losses.
For the six month period ended June 30, 2008 we recorded net
losses of $2,176,000 and for the fiscal years ended
December 31, 2007, 2006, 2005, 2004, and 2003, we recorded
net losses of $53,777,214, $60,540,851, $12,335,314, $4,611,031,
and $7,473,346, respectively, and have an accumulated deficit of
$233,695,386 as at June 30, 2008. Impairments of oil and
gas properties ventures and other assets included write-downs of
$42,000,000 in 2007 relating to the impairment in the carrying
value of the Ninotsminda Field. The Company may never achieve or
maintain profitability. The Company will need to generate
significant revenues to achieve and maintain profitability. The
Company cannot guarantee that it will be able to generate these
revenues.
Our
ability to pursue our activities is dependent on our ability to
generate cash flows.
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Our ability to continue to pursue our principal activities of
acquiring interests in and developing oil and gas fields is
dependent upon generating funds from internal sources, external
sources and, ultimately, maintaining sufficient positive cash
flows from operating activities. Our financial statements have
been prepared in accordance with U.S. GAAP, which
contemplates continuation of the Company as a going concern. The
Company incurred net losses from continuing operations to common
stockholders of approximately $2,145,000 for the period ended
June 30, 2008 and $65,315,000 $54,432,000 and $12,522,000 for
the years ended December 31, 2007, 2006 and 2005,
respectively. These net losses included non-cash charges related
to depreciation and depletion, impairments, loan interest,
amortization of debt discount, extinguishment of debt and
stock-based compensation of approximately $2,587,000 for the six
month period ended June 30, 2008 and $61,936,000, $48,213,000
and $7,175,000 for the years ended December 31, 2007, 2006
and 2005, respectively.
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In the six month period ended June 30, 2008 and in the years
ended December 31, 2007 and 2006, the Companys
revenues from its Georgian operations did not cover the costs of
its operations. At June 30, 2008 the Company had
unrestricted cash and cash equivalents available for general
corporate use or for use in the Georgian operations of
approximately $3,148,000. For the six month ended June 30, 2008
the Company experienced a net cash outflow from operations of
approximately $808,000 in Georgia and in 2007 the Company
experienced a net cash outflow from operations of approximately
$1,800,000 in Georgia. In addition, the Company has a planned
capital expenditure budget in the near future of
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approximately $12,000,000 in Georgia. The exploration and
development wells currently undergoing or waiting to undergo
production testing in Georgia currently do not produce enough
commercially available quantities of oil and or gas and the
Company will not have sufficient working capital and may have to
delay or suspend its capital expenditure plans and possibly make
cutbacks in its operations. There are no assurances the Company
could raise additional sources of equity financing and the
covenants contained in the Note Purchase Agreements to which the
Company is a party (see Note 9 of the consolidated financial
statements included in the Annual Report on
Form 10-K,
as amended) restrict the Company from incurring additional debt
obligations in excess of $2.5 million unless it receives consent
from Noteholders holding at least 51% in aggregate outstanding
principal amount of the of the Notes covered by such Agreements,
which consent we cannot guarantee.
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Consequently, the aforementioned items raise substantial doubt
about the Companys ability to continue as a going concern.
The Companys ability to continue as a going concern is
dependent upon raising capital through debt and equity financing
on terms desirable to the Company. If the Company is unable to
obtain additional funds when they are required or if the funds
cannot be obtained on terms favorable to the Company, management
may be required to delay, scale back or eliminate its well
development program or license third parties to develop or
market production that the Company would otherwise seek to
develop or market itself, or even be required to relinquish its
interest in the properties or in the extreme situation, cease
operations. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Our
current operations are dependent on the success of our Georgian
exploration activities and our activities on the Ninotsminda
Field.
To date we have directed substantially all of our efforts and
most of our available funds to the development of the
Ninotsminda Field in the Kura Basin in the eastern part of
Georgia, appraisal of the Manavi oil discovery and exploration
in that area and some ancillary activities in the Kura Basin
area. This decision is based on managements assessment of
the promise of the Kura Basin area. However, our focus on the
Ninotsminda Field has over the past several years resulted in
overall losses for us. We cannot assure investors that the
exploration and development plans for the Ninotsminda Field will
be successful. For example, the Ninotsminda Field may not
produce sufficient quantities of oil and gas and at sufficient
rates to justify the investment we have made and are planning to
make in the Field, and we may not be able to produce the oil and
gas at a sufficiently low cost or to market the oil and gas
produced at a sufficiently high price to generate a positive
cash flow and a profit. Our Georgian exploration program,
particularly in the Manavi and Norio areas, is an important
factor for future success, and this program may not be
successful, as it carries substantial risk. See Risks
Associated with our Industry Our oil and gas
activities involve risks, many of which are beyond our
control below for a description of a number of these
potential risks and losses. In accordance with customary
industry practices, we maintain insurance against some, but not
all, of such risks and some, but not all, of such losses. The
occurrence of an event not fully covered by insurance could have
a material adverse effect on our financial condition and results
of operations.
Our
operation of the Ninotsminda Field is governed by a production
sharing contract which may be subject to certain legal
uncertainties.
Our principal business and assets are derived from production
sharing contracts in Georgia. The legislative and procedural
regimes governing production sharing agreements and mineral use
licenses in Georgia have undergone a series of changes in recent
years resulting in certain legal uncertainties. Our production
sharing agreements and mineral use licenses, entered into prior
to the introduction in 1999 of a new Petroleum Law governing
such agreements have not as yet been amended to reflect or
ensure compliance with current legislation. As a result, despite
references in the current legislation grandfathering the terms
and conditions of our production sharing contracts, conflicts
between the interpretation of our production sharing contracts
and mineral use licenses and current legislation could arise.
Such conflicts, if they arose, could cause an adverse effect on
our rights under the production sharing contracts.
13
We may
encounter difficulties in enforcing our title to our
properties.
Since all of our oil and gas interests are currently held in
countries where there is currently no private ownership of oil
and gas in place, good title to our interests is dependent on
the validity and enforceability of the governmental licenses and
production sharing contracts and similar contractual
arrangements that we enter into with government entities, either
directly or indirectly. As is customary in such circumstances,
we perform a minimal title investigation before acquiring our
interests, which generally consists of conducting due diligence
reviews and in certain circumstances securing written assurances
from responsible government authorities or legal opinions. We
believe that we have satisfactory title to such interests in
accordance with standards generally accepted in the crude oil
and natural gas industry in the areas in which we operate. Our
interests in properties are subject to royalty interests, liens
incident to operating agreements, liens for current taxes and
other burdens, none of which we believe materially interferes
with the use of, or affects the value of, such interests.
However, as is discussed elsewhere, there is no assurance that
our title to our interests will be enforceable in all
circumstances due to the uncertain nature and predictability of
the legal systems in some of the countries in which we operate.
We
will require additional funds to implement our long-term oil and
gas development plans.
It will take many years and substantial cash expenditures to
develop fully our oil and gas properties. We generally have the
principal responsibility to provide financing for our oil and
gas properties and ventures. Accordingly, we may need to raise
additional funds from outside sources in order to pay for
project development costs. We may not be able to obtain that
additional financing. If adequate funds are not available, we
will be required to scale back or even suspend our operations or
such funds may only be available on commercially unattractive
terms. The carrying value of the Ninotsminda Field may not be
realized unless additional capital expenditures are incurred to
develop the Field. Furthermore, additional funds will be
required to pursue exploration activities on our existing
undeveloped properties. While expected to be substantial,
without further exploration work and evaluation the amount of
funds needed to fully develop all of our oil and gas properties
cannot at present be quantified.
We may
be unable to finance our oil and gas projects.
Our long term ability to finance most of our present oil and gas
projects and other ventures according to present plans is
dependent upon obtaining additional funding. An inability to
obtain financing in the future could require us to scale back or
abandon part or all of our future project development, capital
expenditure, production and other plans. The availability of
equity or debt financing to us or to the entities that are
developing projects in which we have interests is affected by
many factors, including:
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world and regional economic conditions;
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the state of international relations;
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the stability and the legal, regulatory, fiscal and tax policies
of various governments in the areas in which we have or intend
to have operations;
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fluctuations in the world and regional price of oil and gas and
in interest rates;
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the outlook for the oil and gas industry in general and in areas
in which we have or intend to have operations; and
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competition for funds from possible alternative investment
projects.
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Potential investors and lenders will be influenced by their
evaluations of us and our projects, including their technical
difficulty, and comparison with available alternative investment
opportunities.
Our
operations may be subject to the risk of political instability,
civil disturbance and terrorism.
Our principal oil and gas properties and activities are in
Georgia, which is located in the former Soviet Union.
Operation and development of our assets are subject to a number
of conditions endemic to former Soviet Union countries,
including political instability. The present governmental
arrangements in countries of the former Soviet Union in which we
operate were established relatively recently, when they replaced
communist regimes. If they fail to maintain the support of their
citizens, other institutions, including
14
a possible reversion to totalitarian forms of government, could
replace these governments. As recent developments in Georgia
have illustrated, the national governments in these countries
often must deal with civil disturbances and unrest which may be
based on religious, tribal and local and regional separatist
considerations. Further, as discussed above, relations between
Georgia and the Russian Federation have involved periods of
political tension. Our operations typically involve joint
ventures or other participatory arrangements with the national
government or state-owned companies. The production sharing
contract covering the Ninotsminda Field is an example of such
arrangements. As a result of such dependency on government
participants, our operations could be adversely affected by
political instability, terrorism, changes in government
institutions, personnel, policies or legislation, or shifts in
political power. There is also the risk that governments could
seek to nationalize, expropriate or otherwise take over our oil
and gas properties either directly or through the enactment of
laws and regulations which have an economically confiscatory
result. We are not insured against political or terrorism risks
because management deems the premium costs of such insurance to
be currently prohibitively expensive.
We
face the risk of social, economic and legal instability in the
countries in which we operate.
The political institutions of the countries that were a part of
the former Soviet Union have become more fragmented and the
economic institutions of these countries have converted to a
market economy from a planned economy. New laws have been
introduced, and the legal and regulatory regimes in such regions
may be vague, containing gaps and inconsistencies, and are
subject to amendment. Application and enforceability of these
laws may also vary widely from region to region within these
countries. Due to this instability, former Soviet Union
countries are subject to certain additional risks including the
uncertainty as to the enforceability of contracts. Social,
economic and legal instability have accompanied these changes
due to many factors which include:
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low standards of living;
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high unemployment;
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under-developed and changing legal and social
institutions; and
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conflicts within and with neighboring countries.
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This instability could make continued operations difficult or
impossible. Georgia has democratically elected a President
following a popular revolt against the previous administration
in November 2003 and has successfully quelled a potential
separatist uprising in one of its regions. Although the new
administration has made public statements supporting foreign
investment in Georgia, and has provided specific written support
for our activities, there can be no guarantee that this will
continue, or that these changes will not have an adverse affect
on our operations. There are also some separatist areas within
Georgia that receive support from the Russian Federation that
may cause instability and potentially affect our activities.
We
face an inadequate or deteriorating infrastructure in the
countries in which we operate.
Countries in the former Soviet Union often either have
underdeveloped infrastructures or, as a result of shortages of
resources, have permitted infrastructure improvements to
deteriorate. The lack of necessary infrastructure improvements
can adversely affect operations. For example, we have, in the
past, suspended drilling and testing procedures due to the lack
of a reliable power supply.
We may
encounter currency risks in the countries in which we
operate.
Payment for oil and gas products sold in former Soviet Union
countries may be in local currencies. Although we currently sell
our oil principally for U.S. dollars, we may not be able to
continue to demand payment in hard currencies in the future.
Most former Soviet Union country currencies are presently
convertible into U.S. dollars, but there is no assurance
that such convertibility will continue. Even if currencies are
convertible, the rate at which they convert into
U.S. dollars is subject to fluctuation. In addition, the
ability to transfer currencies into or out of former Soviet
Union countries may be restricted or limited in the future. We
may enter into contracts with suppliers in former Soviet Union
countries to purchase goods and services in
15
U.S. dollars. We may also obtain from lenders credit
facilities or other debt denominated in U.S. dollars. If we
cannot receive payment for oil and oil products in
U.S. dollars and the value of the local currency relative
to the U.S. dollar deteriorates, we could face significant
negative changes in working capital.
We may
encounter tax risks in the countries in which we
operate.
Countries may add to or amend existing taxation policies in
reaction to economic conditions including state budgetary and
revenue shortfalls and political considerations. Since we are
dependent on international operations, specifically those in
Georgia, we may be subject to changing taxation policies
including the possible imposition of confiscatory excess
profits, production, remittance, export and other taxes. While
we are not aware of any recent or proposed tax changes which
could materially adversely affect our operations, such changes
could occur although we have negotiated economic stabilization
clauses in our production sharing contracts in Georgia and all
current taxes are payable from the States share of
petroleum produced under the production sharing contracts.
We
have identified material weaknesses in our internal controls
over financial reporting which, if not remediated, may adversely
affect our ability to timely and accurately meet our financial
reporting responsibilities.
We identified a number of material weaknesses in our internal
controls over financial reporting as of December 31, 2007.
Our management, in consultation with our audit committee, is
continually reviewing the most cost effective way to address
material weaknesses and deficiencies identified. Our failure to
complete this remediation process may adversely affect our
ability to accurately report our financial results in a timely
manner. As at March 31, 2008 we reported that the financial
controller of the Company resigned in March 2008 and had not yet
been replaced. Having a financial controller is a critical
element in our system of internal control over financial
reporting. A new financial controller was appointed June 30,
2008.
We are
currently engaged in outstanding litigation the outcome of which
is not certain.
On September 12, 2005, WEUS Holding Inc (WEUS),
a subsidiary of Weatherford International Ltd, lodged a formal
Request for Arbitration with the London Court of International
Arbitration against the Company in respect of unpaid invoices
for work performed under the Master Service Contract dated
June 1, 2004 between the Company and WEUS for the supply of
under-balanced coil tubing drilling equipment and services
during the first and second quarter of 2005. Pursuant to the
Request for Arbitration, WEUS demand for relief is
$4,931,332. The Company is contesting the claim and has filed a
counterclaim. A three week hearing in the London Court of
International Arbitration has been provisionally scheduled for
February 2009.
On July 27, 2005, GBOC Ninotsminda, an indirect subsidiary
of the Company, received a claim raised by certain of the
Ninotsminda villagers in the Tbilisi Regional Court in respect
of damage caused by the blowout of the N100 well on the
Nintosminda Field in Georgia on September 11, 2004. An
additional claim was received in December 2005 and amended in
March 2006, thus bringing the relief sought pursuant to both
claims to the sum of approximately 314,000,000 GEL
(approximately $222,000,000 at the exchange rate of GEL to US
Dollars in effect on June 30, 2008).
We are defending both cases vigorously. However, predicting the
outcome of any arbitration/litigation inevitably involves an
element of uncertainty. In the event that the Company is found
liable in either action the Company may, among other things, be
required to pay damages and costs (and, even if the Company is
successful, it is unlikely that it will fully recover its own
costs), which could have a material adverse effect on the
Company.
The Company has been named in a complaint with a group of other
defendants by former interest holders of the Lelyaki oil field
in Ukraine. The plaintiffs are seeking damages of approximately
$600,000 CDN (approximately $596,000 at June 30, 2008
exchange rates). The former owners of UK-Ran Oil Company
disposed of their investment in the field prior to selling the
company to CanArgo.
16
Risks
Associated with our Industry.
We may
be required to write-off unsuccessful properties and
projects.
In order to realize the carrying value of our oil and gas
properties and ventures, we must produce oil and gas in
sufficient quantities and then sell such oil and gas at
sufficient prices to produce a profit. We have a number of
unevaluated oil and gas properties. The risks associated with
successfully developing unevaluated oil and gas properties are
even greater than those associated with successfully continuing
development of producing oil and gas properties, since the
existence and extent of commercial quantities of oil and gas in
unevaluated properties have not been established. We could be
required in the future to write-off our investments in
additional projects, including the Ninotsminda Field project, if
such projects prove to be unsuccessful.
Our
oil and gas activities involve risks, many of which are beyond
our control.
Our exploration, development and production activities are
subject to a number of factors and risks, many of which may be
beyond our control. We must first successfully identify
commercial quantities of oil and gas, which is inherently
subject to many uncertainties. Thereafter, the development of an
oil and gas deposit can be affected by a number of factors which
are beyond the operators control, such as:
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unexpected or unusual geological conditions;
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recoverability of the oil and gas on an economic basis;
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availability of infrastructure and personnel to support
operations;
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labor disputes;
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local and global oil prices; and
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government regulation and legal and political uncertainties.
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Our activities can also be affected by a number of hazards, such
as:
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natural phenomena, such as bad weather and earthquakes;
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operating hazards, such as fires, explosions, blow-outs, pipe
failures and casing collapses; and
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environmental hazards, such as oil spills, gas leaks, ruptures
and discharges of toxic gases.
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Any of these factors or hazards could result in damage, losses
or liability for us. There is also an increased risk of some of
these hazards in connection with operations that involve the
rehabilitation of fields where less than optimal practices and
technology were employed in the past, as was often the case in
the countries that were part of the former Soviet Union. We do
not purchase insurance covering all of the risks and hazards or
all of our potential liability that are involved in oil and gas
exploration, development and production.
We may
have conflicting interests with our partners.
Joint venture, acquisition, financing and other agreements and
arrangements must be negotiated with independent third parties
and, in some cases, must be approved by governmental agencies.
These third parties generally have objectives and interests that
may not coincide with ours and may conflict with our interests.
Unless we are able to compromise these conflicting objectives
and interests in a mutually acceptable manner, agreements and
arrangements with these third parties will not be consummated.
We may not have a majority of the equity in the entity that is
the licensed developer of some projects that we may pursue in
the countries that were a part of the former Soviet Union, even
though we may be the designated operator of the oil or gas
field. In these circumstances, the concurrence of co-venturers
may be required for various actions. Other parties influencing
the timing of events may have priorities that differ from ours,
even if they generally share our objectives. Demands by or
expectations of governments, co-venturers, customers, and others
may affect our strategy regarding the various projects. Failure
to meet such demands or expectations could adversely
17
affect our participation in such projects or our ability to
obtain or maintain necessary licenses and other approvals.
Our
operating direct and indirect subsidiaries and joint ventures
require governmental registration.
Operating entities in various foreign jurisdictions must be
registered by governmental agencies and production licenses and
contracts for the development of oil and gas fields in various
foreign jurisdictions must be granted by governmental agencies.
These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and
matters. In addition, the policies and practices of governmental
agencies may be affected or altered by political, economic and
other events occurring either within their own countries or in a
broader international context.
We are
affected by changes in the market price of oil and
gas.
Prices for oil and natural gas and their refined products are
subject to wide fluctuations in response to a number of factors
which are beyond our control, including:
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global and regional changes in the supply and demand for oil and
natural gas;
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actions of the Organization of Petroleum Exporting Countries;
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weather conditions;
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domestic and foreign governmental regulations;
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price and availability of alternative fuels;
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political conditions and terrorist activity in the Middle East,
Central Asia and elsewhere; and
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overall global and regional economic conditions.
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A reduction in oil prices can affect the economic viability of
our operations. There can be no assurance that oil prices will
be at a level that will enable us to operate at a profit. We may
also not benefit from rapid increases in oil prices as the
market for the levels of crude oil produced in Georgia by
Ninotsminda Oil Company Limited can in such an environment be
relatively inelastic. Contract prices are often set at a
specified price determined with reference to world market prices
(often based on the average of a number of quotations for a
marker crude including Dated Brent Mediterranean or
Urals Mediterranean at the time of sale) subject to appropriate
discounts for transportation and other charges which can vary
from contract to contract.
Our
actual oil and gas production could vary significantly from
reserve estimates.
Estimates of oil and natural gas reserves and their values by
petroleum engineers are inherently uncertain. These estimates
are based on professional judgments about a number of elements:
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amount of recoverable crude oil and natural gas present in a
reservoir;
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costs that will be incurred to produce the crude oil and natural
gas; and
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rate at which production will occur.
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Reserve estimates are also based on evaluations of geological,
engineering, production and economic data. The data can change
over time due to, among other things:
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additional development activity;
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evolving production history; and
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changes in production costs, market prices and economic
conditions.
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As a result, the actual amount, cost and rate of production of
oil and gas reserves and the revenues derived from sale of the
oil and gas produced in the future will vary from those
anticipated in the reports on
18
the oil and gas reserves prepared by independent petroleum
consultants at any given point in time. The magnitude of those
variations may be material. The rate of production from crude
oil and natural gas properties declines as reserves are
depleted. Except to the extent we acquire additional properties
containing proved reserves, conduct successful exploration and
development activities or, through engineering studies, identify
additional productive zones in existing wells or secondary
recovery reserves, our proved reserves will decline as reserves
are produced. Future crude oil and natural gas production is
therefore highly dependent upon our level of success in
replacing depleted reserves.
Our
oil and gas operations are subject to extensive governmental
regulation.
Governments at all levels, national, regional and local,
regulate oil and gas activities extensively. We must comply with
laws and regulations which govern many aspects of our oil and
gas business, including:
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exploration;
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development;
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production;
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refining;
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marketing;
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transportation;
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occupational health and safety;
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labor standards; and
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environmental matters.
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We expect the trend towards more burdensome regulation of our
business to result in increased costs and operational delays.
This trend is particularly applicable in developing economies,
such as those in the countries that were a part of the former
Soviet Union where we have our principal operations. In these
countries, the evolution towards a more developed economy is
often accompanied by a move towards the more burdensome
regulations that typically exist in more developed economies.
We
face significant competition.
The oil and gas industry, including the refining and marketing
of crude oil products, is highly competitive. Our competitors
include integrated oil and gas companies, government owned oil
companies, independent oil and gas companies, drilling and
income programs, and wealthy individuals. Many of our
competitors are large, well-established, well-financed
companies. Because of our small size and lack of financial
resources, we may not be able to compete effectively with these
companies.
Our
profitability may be subject to changes in interest
rates.
Our profitability may also be adversely affected during any
period of unexpected or rapid increase in interest rates. While
we currently have only limited amounts of long term debt,
increases in interest rates may adversely affect our ability to
raise debt capital to the extent that our income from operations
will be insufficient to cover debt service.
Risks
Associated with our Stock.
Limited
trading volume in our common stock may contribute to price
volatility.
Our common stock is listed for trading on the Oslo Stock
Exchange (OSE) in Norway, and on the AMEX in New
York. During the year ended December 31, 2007 and for the
first six months of 2008, the average daily trading volume for
our common stock was 2,858,528 shares and 6,163,163 shares on
the OSE and 464,611 and 719,777 shares on the AMEX,
respectively, both as reported by
Yahoo©
and the closing price
19
of our stock during such periods ranged from a low of NOK 0.96
and $0.19 to a high of NOK 9.80 and $1.42 on the OSE and AMEX,
respectively, as reported by
Yahoo©.
As of , 2008, the closing price our stock was
NOK and $ on the OSE and the
AMEX, respectively. As a relatively small company with a limited
market capitalization, even if our shares are more widely
distributed, we are uncertain as to whether a more active
trading market in our common stock will develop. As a result,
relatively small trades may have a significant impact on the
price of our common stock.
The
price of our common stock may be subject to wide
fluctuations.
The market price of our common stock could be subject to wide
fluctuations in response to quarterly variations in our results
of operations, changes in earnings estimates by analysts,
changing conditions in the oil and gas industry or changes in
general market, economic or political conditions.
We do
not anticipate paying cash dividends in the foreseeable
future.
We have not paid any cash dividends to date on the common stock
and there are no plans for such dividend payments in the
foreseeable future. Furthermore, under the terms of our
outstanding Senior Subordinated Convertible Guaranteed Notes due
September 1, 2009 (Subordinated Notes) and 12%
Subordinated Convertible Guaranteed Notes due June 28, 2010
(12% Subordinated Notes and together with the
Subordinated Notes, collectively, the Notes) we are
restricted from paying cash dividends.
We
have a significant number of shares eligible for future
sale.
At June 30, 2008, we had 242,107,390 shares of common
stock outstanding. In addition, at June 30, 2008, we had
45,270 shares issuable upon exchange of CanArgo
Oil & Gas Inc. Exchangeable Shares without receipt of
further consideration; 7,305,000 shares of common stock
subject to outstanding options granted under certain stock
option plans (of which 6,866,667 shares were vested at
June 30, 2008); 22,411,111 shares issuable upon
exercise of outstanding warrants; up to 9,419,667 shares of
common stock reserved for issuance under our existing option
plans; up to 15,437,500 shares reserved for issuance in
connection with certain existing contractual arrangements,
including 10,600,000 shares upon conversion of our
12% Subordinated Notes and 4,650,000 shares upon
conversion of our Subordinated Notes. The shares of common stock
issuable upon exercise of the stock options issued under the
2004 Long Term Stock Incentive Plan have been registered under
the Securities Act. In addition, the 15,437,500 shares issuable
pursuant to contractual arrangements, including under the Notes,
are subject to certain registration rights and are eligible for
resale in the public market after registration statements
covering such shares have been declared effective.
The Company currently has outstanding $4,650,000 in aggregate
principal amount of Subordinated Notes of which Notes in the
respective aggregate principal amounts of $2,906,250 are held by
Ingalls & Snyder and $1,743,750 are held by Penrith
Limited. The Company also has outstanding $10,600,000 in
aggregate principal amount of 12% Subordinated Notes. The 12%
Subordinated Notes are held by Persistency. Both the
Subordinated Notes and the 12% Subordinated Notes are
convertible, at the Noteholders option, into common stock
of the Company. Pursuant to the terms of the Notes the
conversion price of the Notes, which is currently $1.00 per
share, would be re-set upon consummation of the Rights Offering
to $0.10 per share, subject to further possible adjustments in
accordance with the terms of the Notes. Likewise, pursuant to
the terms of warrants to purchase 16,111,111, shares of common
stock issued by the Company, the exercise price of the warrants,
which is currently $1.00 per share, will also be
re-set upon
consummation of the Rights Offering to $0.10 per share subject
to further possible adjustments in accordance with the terms of
the warrants. 5,000,000 of such warrants were issued to Morgan
Stanley & Co. for the account of Persistency as
compensation for Persistency converting/exchanging, in June
2007, $5 million nominal principal amount of the
Subordinated Notes into shares of common stock of Tethys
Petroleum Limited (Tethys) (Tethys being a former
subsidiary of the Company). The remaining 11,111,111 of such
warrants were issued to Ingalls & Snyder (as nominee for
the underlying beneficial owners) as compensation in connection
with the conversion/exchange, in June 2007, of $10 million
nominal principal amount of the Companys $25 million
Senior Secured Notes due July 25, 2009 (the Senior
Notes) into shares of Tethys common stock (all of which
such Senior Notes have since been repaid by the Company).
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The holders of such Notes and warrants, in aggregate, would
currently be entitled to receive a maximum of 36,361,111 shares
of common stock upon conversion of their Notes pursuant to the
Note conversion price of $1.00 per share and the exercise of the
warrants. However, after the Offering, the holders of the Notes
and warrants could receive up to a possible maximum of
173,611,111 shares of common stock upon conversion of their
Notes following the re-set of the conversion price of the Notes
to $0.10 from $1.00 per share and the exercise of certain
warrants (see the table under the Dilution section
below to illustrate the maximum number of shares of common stock
that the holders of the Notes and warrants could receive prior
to and after the Offering).
Such shares of common stock issuable to the Note holders are
subject to contractual registration rights. Sales of shares of
common stock under Rule 144 or pursuant to an effective
registration statement could have a material adverse effect on
the price of the common stock and could impair our ability to
raise additional capital through the sale of our equity
securities (see Dilution below).
This prospectus covers up to an additional 16,940,000 shares of
common stock that may become issuable to the Standby
Underwriters in lieu of cash commissions from the Company
pursuant to the Standby Underwriting Agreements.
This prospectus also covers any additional shares of common
stock that become issuable in connection with the outstanding
shares being registered by reason of any stock dividend, stock
split, recapitalization or other similar transaction effected
without the receipt of consideration which results in an
increase in the number of our outstanding shares of common stock.
Our
ability to incur additional indebtedness is restricted under the
terms of the Notes.
Pursuant to the terms of the Note Purchase Agreements entered
into by and between the Company and the purchasers of the Notes,
we may not incur future indebtedness or issue additional senior
or pari passu indebtedness in excess of
$2.5 million, except with the prior consent of the
beneficial holders of at least 51% of the outstanding principal
amount of each such Notes or in limited permitted circumstances.
The definition of indebtedness in each of the Note Purchase
Agreements encompasses all customary forms of indebtedness,
including, without limitation, liabilities for deferred
consideration, liabilities for borrowed money secured by any
lien or other specified security interest (except permitted
liens), liabilities in respect of letters of credit or similar
instruments (excluding letters of credit which are 100% cash
collateralized) and guarantees in relation to such forms of
indebtedness (excluding parent company guarantees provided by
the Company in respect of the indebtedness or obligations of any
of our subsidiaries under any Basic Documents (as defined in
each of the Note Purchase Agreements)).
Our
ability to make future stock issuances, the terms of the
12% Subordinated Notes and the Subordinated Notes and the
provisions of Delaware law could have anti-takeover
effects.
Our board of directors may at any time issue additional shares
of preferred stock and common stock without any prior approval
by the stockholders, which might impair or impede a third party
from making an offer to acquire us. Holders of outstanding
shares have no right to purchase a pro rata portion of
additional shares of common or preferred stock issued by us.
Further, under the terms of the 12% Subordinated Notes and
the Subordinated Notes, in the event of a Change of
Control or a Control Event we are required to
offer to prepay the Notes which might also dissuade a third
party from making an acquisition offer. See note 9 of the
consolidated financial statements included in the Annual Report
on
Form 10-K
(as amended) for the definition of Change of Control
and Control Event. In addition, the provisions of
Section 203 of the Delaware General Corporation Law, to
which we are subject, places certain restrictions on third
parties who seek to effect a business combination with a company
opposed by our board of directors.
21
Risks
Associated With The Rights Offering
Stockholders
who do not fully exercise their Rights will have their interests
diluted as a result of the issuance of
approximately shares of our common stock
pursuant to the Rights Offering or the equivalent thereof if the
Standby Underwriters purchase Unsubscribed Shares pursuant to
their standby underwriting commitments.
If you choose not to exercise your subscription rights in full,
your relative ownership interest in the Company will be diluted
to the extent other stockholders exercise their subscription
rights. The Rights Offering will result in the issuance of
approximately shares of our common stock. In
addition, pursuant to the Standby Underwriting Agreements, the
Standby Underwriters have agreed to purchase up to
242,000,000 shares of common stock not purchased through
the exercise of Rights.
If no Rights Holders exercise their Rights in this Rights
Offering, the transactions contemplated by the Standby
Underwriting Agreements will result in the issuance of
242,000,000 shares of our common stock to the Standby
Underwriters. Rights Holders who do not exercise their
subscription rights by p.m.,
US Eastern time ( CET),
on , 2008, the scheduled expiration date of the
Rights Offering, or sell their subscription rights
by p.m., US Eastern time
( CET), on , 2008, the last
business day prior to the expiration of the Rights Offering,
will have their Rights expire and be void and no longer
exercisable.
The
Subscription Price determined for the Rights Offering is not
necessarily an indication of our book value or the price at
which our stock may trade.
The Subscription Price of $0.10 per full share for the Rights
Offering was set by an independent committee of the Board of
Directors of the Company in April 2008 after preliminary
discussions with several parties who were initially interested
in underwriting the Rights Offering but not including the
Standby Underwriters. The closing price per share of our common
stock on , 2008, the most recent practicable
date prior to the date of this prospectus, was
$ . The transaction structure approved by our
Board of Directors was designed to afford our existing
stockholders the opportunity to make an additional investment in
the Company through the Rights Offering at the same price as the
Company will receive from the Standby Underwriters. The
Subscription Price does not necessarily bear any relationship to
the book value of our assets, past operations, cash flows,
losses, financial condition or any other established criteria
for value. You should not consider the Subscription Price as an
indication of the value or the price at which our common stock
may trade. After the date of this prospectus, our common stock
may trade at prices above or below the Subscription Price.
You
may not revoke your subscription exercise and could be committed
to buying shares above the prevailing market
price.
Once you exercise your Rights, you may not revoke such exercise
even if you later learn information that you consider to be
unfavorable to the exercise of your Rights. As such, if you
exercise your Rights prior to a subsequent announcement of the
results of operations, you will not be able to revoke your
exercise regardless of such results. In addition, the public
trading market price of our common stock may decline before the
Rights expire. If you exercise your Rights and, afterwards, the
price of our common stock decreases below the Subscription
Price, you will still be committed to buy the shares of our
common stock in this Rights Offering at a price of $0.10 per
full share. Our common stock is traded on the AMEX and the OSE
under the symbol CNR and the last reported closing
sales prices of our common stock on the AMEX and the OSE
on , 2008, the most recent practicable date
prior to the date of this prospectus, was $
and NOK per share, respectively. You should
not exercise your Rights unless you are certain that you wish to
purchase additional shares of our common stock at a price of
$0.10 per full share.
If you
do not act on a timely basis and follow subscription
instructions, your exercise of Rights may be
rejected.
Stockholders that desire to purchase shares in the Rights
Offering must act on a timely basis to ensure that all required
forms and payments are actually received by the relevant
Subscription Agents prior to p.m.,
US Eastern time ( CET),
on , 2008, the scheduled expiration date of the
Rights Offering, provided that if you cannot deliver your
Subscription Rights Certificate to the U.S. Subscription Agent
on time, you may follow
22
the guaranteed delivery procedures described under The
Rights Offering Guaranteed Delivery
Procedures. If you hold shares through the VPS System or
you are a foreign registered stockholder such procedures will
not be available to you. The Norwegian Offering Circular
contains a description of the relevant procedures to be used by
stockholders who hold their shares in the VPS System. If you are
a beneficial owner of shares and you wish to exercise your
rights, you should act on a timely basis to ensure that your
broker, custodian bank or other nominee acts for you and that
all required forms and payments are actually received by your
broker, custodian bank or other nominee prior
to p.m., US Eastern time
( CET), on , 2008, the last
business day prior to the scheduled expiration date of the
Rights Offering to ensure that your broker, custodian bank or
other nominee has sufficient time to deliver such forms and
payments to the subscription agent
by p.m., US Eastern time
( CET), on , 2008, the
scheduled expiration date. In order to do so, you must complete
and return to your broker, custodian bank or other nominee the
form entitled Beneficial Owner Election Form
by p.m., US Eastern time
( CET), on , 2008, the last
business day prior to the scheduled , 2008
expiration date of the Rights Offering. With respect to
exercises of the Rights, we will not be responsible if your
broker, custodian bank or other nominee fails to ensure that all
required forms and payments are actually received by the
Subscription Agents prior to p.m., US
Eastern time ( CET), on ,
2008, the scheduled expiration date of the Rights Offering.
If you fail to complete and sign the required subscription
forms, send an incorrect payment amount, or otherwise fail to
follow the subscription procedures that apply to your exercise
of the Rights in the Rights Offering, the Subscription Agents
may, depending on the circumstances, reject your subscription or
accept it only to the extent of the payment received. Neither we
nor the Subscription Agents undertake to contact you concerning
an incomplete or incorrect subscription form or payment, nor are
we under any obligation to correct such forms or payment. We
will exercise reasonable discretion in determining whether a
subscription exercise properly follows the subscription
procedures.
If you have an address outside the U.S. or an army post
office or a fleet post office address, to exercise your Rights,
you must notify the U.S. Subscription Agent
before p.m., US Eastern time
( CET), on , 2008, three
business days prior to the scheduled , 2008
expiration date, and, with respect to holders whose addresses
are outside the U.S., must provide evidence satisfactory to us,
such as a legal opinion from local counsel that it is lawful for
you to receive and exercise your rights under applicable law.
This procedure does not apply to stockholders holding shares
through the VPS System. The Norwegian Offering Circular contains
a description of the relevant procedures to be followed by such
stockholders. See The Rights Offering Foreign
and Other Stockholders.
No
prior market exists for the subscription rights.
Although we expect the Rights will be traded on the AMEX and the
OSE, the Rights are a new issue of securities with no prior
trading market, and we cannot provide you any assurances as to
the liquidity of the trading market for the Rights. The Standby
Underwriters and the manager have indicated to us that they will
not make a market in the Rights. Subject to certain earlier
deadlines described under The Rights Offering-Methods for
Transferring and Selling Subscription Rights-Sales of
Subscription Rights Through the Subscription Agents, the
Rights are transferable until p.m., US
Eastern time ( CET), on ,
2008, the last business day prior to the
scheduled , 2008 expiration date of the Rights
Offering, at which time they will be no longer transferable. The
Subscription Agents will only facilitate subdivisions or
transfers of the physical Subscription Rights Certificates
until p.m. US Eastern time
( CET), on , 2008, three
business days prior to the scheduled , 2008
expiration date. If you wish to sell your Rights or the
Subscription Agent tries to sell Rights on your behalf in
accordance with the procedures discussed in this prospectus but
such Rights cannot be sold, or if you provide the Subscription
Agent with instructions to exercise the Rights and your
instructions are not timely received by the Subscription Agent
or if you do not provide any instructions to exercise your
Rights, then the Rights will expire and will be void and no
longer exercisable.
If you
make payment of the Subscription Price by uncertified check,
your check may not clear in sufficient time to enable you to
purchase shares in this Rights Offering.
Any uncertified check used to pay for shares to be issued in the
Rights Offering must clear prior to the expiration date of the
Rights Offering, and the clearing process may require five or
more business days. If you
23
choose to exercise your Rights, in whole or in part, and to pay
for shares by uncertified check and your check has not cleared
prior to the expiration date of the Rights Offering, you will
not have satisfied the conditions to exercise your Rights and
will not receive the shares you wish to purchase.
You
may not be able to resell any shares of our common stock that
you purchase pursuant to the exercise of Rights immediately upon
expiration of the Rights Offering or be able to sell your shares
at a price equal to or greater than the Subscription
Price.
If you exercise Rights, you may not be able to resell the common
stock purchased by exercising your Rights until you (or your
broker, custodian bank or other nominee) has received those
shares. Also, you will have no Rights as a stockholder of the
shares you purchased in the Rights Offering until we issue you
such shares. Although we will endeavor to issue the shares as
soon as practicable after completion of the Rights Offering,
including the guaranteed delivery period and after all necessary
calculations have been completed, there may be a delay between
the expiration date of the Rights Offering and the time that the
shares are issued or are entered into a book entry system such
as the one maintained by DTC or the VPS System in Norway.
Moreover, whenever you sell your shares of common stock, you may
be unable to sell them at a price equal to or greater than the
Subscription Price you paid for such shares.
The
U.S. federal income tax treatment of the Rights Offering is
unclear and the receipt of Rights may be treated as a taxable
dividend to you.
If the Rights Offering is part of a disproportionate
distribution under Section 305 of the
U.S. Internal Revenue Code of 1986, as amended, your
receipt of Rights in the Rights Offering may be treated as the
receipt of a distribution equal to the fair market value of the
Rights. Any such distribution would be treated as dividend
income to the extent of the Companys current and
accumulated earnings and profits, with any excess being treated
as a return of capital to the extent thereof and then as capital
gain. A disproportionate distribution is a
distribution or a series of distributions, including deemed
distributions, that has the effect of the receipt of cash or
other property by some stockholders or holders of debt
instruments convertible into stock and an increase in the
proportionate interest of other stockholders in a companys
assets or earnings and profits. The Company has not distributed
any cash or other property with respect to any other class of
the Companys stock and currently does expect to make any
such distribution. In addition, although the Company has Notes
outstanding that are convertible into common stock and has paid
interest on such Notes, under applicable Treasury regulations
the receipt of Rights will not be part of a disproportionate
distribution if a full adjustment is made in the
conversion price of the Notes to reflect the Rights Offering.
The Note Purchase Agreements pursuant to which the convertible
notes were issued require an adjustment to the conversion price
of the Notes as a result of the Rights Offering, and we intend
to make this adjustment. It is unclear whether the adjustment to
the conversion price of the Notes qualifies as a full
adjustment. In addition, although the Company does not
currently plan to make a distribution with respect to any other
class of stock, there can be no assurance that such distribution
will not be made. It is also unclear whether the fact that we
also have outstanding options and warrants could cause the
receipt of the Rights to be part of a disproportionate
distribution. If, contrary to our expectations, the
Company makes a distribution of cash or property with respect to
a class of stock other than its common stock, if the adjustment
to the conversion price of the Notes is not treated as a
full adjustment, or if the existence of our
outstanding options and warrants causes the receipt of the
Rights to be part of a disproportionate distribution, the
receipt of the Rights may be treated as a dividend to you as
described above. The Company believes and intends to take the
position that the Rights Offering is not part of a
disproportionate distribution. Please see Certain Income
Tax Considerations Certain U.S. Federal Income
Tax Considerations for further information on the
treatment of the Rights Offering.
Conditions
to the Rights Offering
The Rights Offering is subject to complying with all requisite
regulatory requirements. There is no assurance that these
requirements will be satisfied.
24
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that are incorporated
by reference as set forth herein under the section entitled
Documents Incorporated by Reference, contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 (the
Securities Act), as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. When used in
this prospectus, the words estimate,
project, anticipate, expect,
intend, believe, hope,
may and similar expressions, as well as
will, shall, could and other
indications of future tense, are intended to identify forward-
looking statements. The forward-looking statements are based on
our current expectations and speak only as of the date made.
These forward-looking statements involve risks, uncertainties
and other factors that in some cases have affected our
historical results and could cause actual results in the future
to differ significantly from the results anticipated in
forward-looking statements made in this prospectus. Important
factors that could cause such a difference are discussed in this
prospectus, particularly in the section entitled Risk
Factors. You are cautioned not to place undue reliance on
the forward-looking statements.
Few of the forward-looking statements in this prospectus,
including the documents that are incorporated by reference, deal
with matters that are within our unilateral control. Joint
venture, acquisition, financing and other agreements and
arrangements must be negotiated with independent third parties
and, in some cases, must be approved by governmental agencies.
These third parties generally have interests that do not
coincide with ours and may conflict with our interests. Unless
the third parties and we are able to compromise their and our
various objectives in a mutually acceptable manner, agreements
and arrangements will not be consummated.
Although we believe our expectations reflected in
forward-looking statements are based on reasonable assumptions,
no assurance can be given that these expectations will prove to
have been correct. Important factors that could cause actual
results to differ materially from the expectations reflected in
the forward-looking statements include, among others:
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the market prices of oil and gas;
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uncertainty of drilling results, reserve estimates and reserve
replacement;
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operating uncertainties and hazards;
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economic and competitive conditions;
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natural disasters and other changes in business conditions;
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inflation rates;
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legislative and regulatory changes;
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financial market conditions;
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|
|
accuracy, completeness and veracity of information received from
third parties;
|
|
|
|
wars and acts of terrorism or sabotage;
|
|
|
|
political and economic uncertainties of foreign
governments; and
|
|
|
|
future business decisions.
|
In light of these risks, uncertainties and assumptions, the
events anticipated by our forward-looking statements might not
occur. We undertake no obligation to update or revise our
forward-looking statements, whether as a result of new
information, future events or otherwise.
USE OF
PROCEEDS
The gross proceeds from the sale of the Underlying Shares
offered hereby are estimated to be $24,210,739 before the
payment of commissions (some or all of which may be paid in
shares of common stock) and customary fees and expenses of the
Rights Offering which are estimated to be $ .
The following
25
table sets out the use of gross proceeds. It is expected that
the Company will incur customary offering fees and expenses:
Use of
Proceeds $000s
|
|
|
|
|
Production enhancement program at the Ninotsminda Field
including:
|
|
|
|
|
the drilling of a new well in the eastern part of
the Field with up to two horizontal completions;
|
|
|
|
|
the drilling of a new vertical well on the northern
flank of the Field;
|
|
|
|
|
the evaluation of new technology such as radial
drilling to produce trapped oil from shallower reservoirs
overlying the main Field area; and
|
|
|
|
|
general workover activity.
|
|
$
|
12.0
|
|
On-going evaluation of the Manavi prospect with a focus on the
completion of well testing operations at the M12 well.
|
|
$
|
3.0
|
|
Progress farm-out strategy in respect of other exploration
acreage
|
|
$
|
1.0
|
|
Repayment of
indebtedness(1)
|
|
$
|
5.0
|
|
General business development and working capital (including
payment of the fees and expenses of the Offering)
|
|
$
|
3.2
|
|
Total
|
|
$
|
24.2
|
|
|
|
|
|
(1)
|
The repayment of indebtedness would comprise payment of the
Companys outstanding Subordinated Notes, which have a
maturity date of September 1, 2009 and currently incur interest
at a rate of 10% per annum.
|
The foregoing table represents managements current best
estimate of the use of gross proceeds from the underwritten
portion of the Rights Offering. However, unforeseen or changing
circumstances may alter the use and allocation of such proceeds.
PRICE
RANGE OF COMMON STOCK AND DIVIDEND POLICY
CanArgo is listed on the OSE where our stock trades under the
symbol CNRand also on the AMEX where our common
stock trades under the symbol CNR. Until
April 21, 2004 our common stock traded on the NASDAQ Over
The Counter Bulletin Board (OTCBB) under the
symbol GUSH.
The following table sets forth the high and low sales prices of
the common stock on the OSE and the AMEX for the periods
indicated. Average daily trading volume on these markets during
these periods is also provided. OSE and AMEX data is derived
from published financial sources. Sales prices on the OSE were
converted from Norwegian kroner into United States dollars on
the basis of the daily exchange rate for buying United States
dollars with Norwegian kroner announced by the central bank of
Norway. Prices in Norwegian kroner are denominated in
NOK. For historical price verification in Norway
please see
http://uk.betastreaming.finance.yahoo.com/q/hp?s
= CNR.OL and for exchange rate conversion $/NOK for the
corresponding dates please see www.oanda.com/convert/fxhistory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OSE
|
|
|
AMEX
|
|
|
|
|
|
|
|
|
|
Average Daily
|
|
|
|
|
|
|
|
|
Average Daily
|
|
|
|
High
|
|
|
Low
|
|
|
Volume
|
|
|
High
|
|
|
Low
|
|
|
Volume
|
|
|
Fiscal Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006
|
|
|
1.58
|
|
|
|
0.63
|
|
|
|
7,025,224
|
|
|
|
1.55
|
|
|
|
0.62
|
|
|
|
1,278,022
|
|
December 31, 2006
|
|
|
1.63
|
|
|
|
1.04
|
|
|
|
2,556,167
|
|
|
|
1.66
|
|
|
|
1.05
|
|
|
|
752,662
|
|
March 31, 2007
|
|
|
1.57
|
|
|
|
0.91
|
|
|
|
3,672,925
|
|
|
|
1.42
|
|
|
|
0.87
|
|
|
|
683,251
|
|
June 30, 2007
|
|
|
1.10
|
|
|
|
0.69
|
|
|
|
2,935,388
|
|
|
|
1.12
|
|
|
|
0.67
|
|
|
|
432,919
|
|
September 30, 2007
|
|
|
1.03
|
|
|
|
0.70
|
|
|
|
2,494,248
|
|
|
|
1.02
|
|
|
|
0.73
|
|
|
|
353,638
|
|
December 31, 2007
|
|
|
0.95
|
|
|
|
0.36
|
|
|
|
2,321,990
|
|
|
|
0.95
|
|
|
|
0.35
|
|
|
|
396,655
|
|
March 31, 2008
|
|
|
0.50
|
|
|
|
0.29
|
|
|
|
4,586,744
|
|
|
|
0.47
|
|
|
|
0.27
|
|
|
|
730,345
|
|
June 30, 2008
|
|
|
0.34
|
|
|
|
0.26
|
|
|
|
3,935,615
|
|
|
|
0.35
|
|
|
|
0.26
|
|
|
|
464,076
|
|
September 30, 2008 (through , 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
At , 2008 the closing price of our common stock
on both the AMEX and the OSE was $ .
On , 2008 one U.S. dollar
equalled Norwegian kroner.
On , 2008 the number of holders of record of
our common stock was approximately 13,000. We have not paid any
cash dividends on our common stock.
Dividend
Policy
We currently intend to retain future earnings, if any, for use
in our business and, therefore, do not anticipate paying any
cash dividends in the foreseeable future. The payment of future
dividends, if any, will depend, among other things, on our
results of operations and financial condition and on such other
factors as our Board of Directors may, in their discretion,
consider relevant. In addition, the terms of our outstanding
notes prohibit us from paying dividends and making other
distributions.
DILUTION
As indicated in the Companys Annual Report on
Form 10-K
(as amended) incorporated by reference herein and in Risk
Factors herein, we face numerous risks. Among the most
significant is our need for additional capital in order to
implement its proposed business plan for 2008. It is our belief,
however, that the proposed Rights Offering presents the best
alternative for stockholders since it permits stockholders to
participate in financing our activities on the same basis that a
third party financing source could be expected to provide funds
to the Company without existing stockholders suffering the same
degree of dilution that a third party financing would create. As
of , 2008, the closing price per share of the
common stock on the AMEX was $ . The
Subscription Price for shares in the Rights Offering of $0.10
per share represents a % discount off such
market price. Upon completion of the Rights Offering the price
at which the Companys outstanding Notes could, at the Note
holders option, be converted into shares of common stock
would be re-set from $1.00 per share to the Subscription Price
of $0.10 per share. Similarly, the exercise price of certain
warrants would be re-set from $1.00 to $0.10. This would result
in a potential increase in the total number of shares of common
stock issuable in connection with the successful completion of
the Rights Offering and the conversion of such Notes and the
exercise of such warrants from a current issued number of shares
of shares as at , 2008
to shares of common stock (assuming the
Standby Underwriters do not exercise their conditional rights to
elect to receive their commission in shares of common stock and
assuming the issue of no other shares (for example pursuant to
option exercises) other than pursuant to the Rights Offering,
the Notes and the warrants) of which shares
would be potentially issuable to the Note holders in aggregate
in respect of Notes and the exercise of certain warrants which
would represent % of the shares of common stock
issued and outstanding under these assumptions.
The Company currently has outstanding $4,650,000 in aggregate
principal amount of Subordinated Notes of which Notes in the
respective aggregate principal amounts of $2,906,250 are held by
Ingalls & Snyder and $1,743,750 are held by Penrith
Limited. The Company also has outstanding $10,600,000 in
aggregate principal amount of 12% Subordinated Notes. The 12%
Subordinated Notes are held by Persistency. Both the
Subordinated Notes and the 12% Subordinated Notes are
convertible, at the Note holders option, into common stock
of the Company. Pursuant to the terms of the Notes the
conversion price of the Notes, which is currently $1.00 per
share, would be re-set upon consummation of the Rights Offering
to $0.10 per share, subject to further possible adjustments in
accordance with the terms of the Notes. Likewise, pursuant to
the terms of warrants to purchase 16,111,000 shares of common
stock issued by the Company, the exercise price of the warrants,
which is currently $1.00 per share, will also be re-set upon
consummation of the Rights Offering to $0.10 per share subject
to further possible adjustments in accordance with the terms of
the warrants. 5,000,000 of such warrants were issued to Morgan
Stanley & Co. for the account of Persistency as
compensation for Persistency converting/exchanging, in June
2007, $5 million nominal principal amount of the Subordinated
Notes into shares of common stock of Tethys Petroleum Limited
(Tethys) (Tethys being a former subsidiary of the
Company). The remaining 11,111,111 of such warrants were issued
to Ingalls & Snyder (as nominee for the underlying
beneficial owners) as compensation in connection with the
conversion/exchange, in June 2007, of $10 million nominal
principal amount of the Companys $25 million Senior
Secured Notes due July 25, 2009 (the Senior
Notes) into shares of Tethys common stock (all of which
such Senior Notes have since been repaid by the Company).
27
The holders of such Notes and warrants, in aggregate, are
currently entitled to receive a maximum of 36,361,111 shares of
common stock upon conversion of their Notes pursuant to the Note
conversion price of $1.00 per share and the exercise of the
warrants. However, after the Offering, the holders of the Notes
and warrants could receive up to a possible maximum of
173,611,111 shares of common stock upon conversion of their
Notes following the
re-set of
the conversion price of the Notes to $0.10 from $1.00 per share
and the exercise of certain warrants. The following table
illustrates the maximum number of shares of common stock that
the holders of the Notes and warrants could receive prior to and
after the Offering:
Maximum number of shares of common stock upon conversion of
Notes and exercise of certain warrants as at June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post Offering
|
|
|
|
Pre-Offering
|
|
|
(reset of Note conversion
|
|
|
|
(Note conversion
|
|
|
price from $1.00 to $0.10
|
|
|
|
price at $1.00 per share
|
|
|
and warrant
|
|
|
|
and warrant exercise
|
|
|
exercise price
|
|
Notes and warrants
|
|
price of $1.00 per share)
|
|
|
from $1.00 to $0.10)
|
|
|
Subordinated Notes
|
|
|
4,650,000
|
|
|
|
46,500,000
|
|
12% Subordinated Notes
|
|
|
10,600,000
|
|
|
|
106,000,000
|
|
Compensation warrants issued in June 2007 in connection with the
conversion/exchange of $10 million of the Companys Senior
Notes into shares of Tethys common stock
|
|
|
11,111,111
|
|
|
|
11,111,111
|
|
Compensation warrants issued in June 2007 in connection with
Persistency converting/exchanging $5 million of the Subordinated
Notes into shares of Tethys common stock
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
Warrants issued in August 2007 private placement
|
|
|
5,000,000
|
|
|
|
5,000,000
|
(1)
|
Total
|
|
|
36,361,111
|
|
|
|
173,611,111
|
|
|
|
|
|
(1)
|
The exercise price of these warrants will not be re-set as a
result of the Rights Offering and will remain at $1.00.
|
The Company determined to conduct a rights offering to existing
stockholders, as opposed to a public or private offering to
third parties, in an attempt to reduce the potential dilution to
existing stockholders that any such offer to third parties would
entail, assuming that the Rights Offering is fully subscribed
for by stockholders. By way of illustration, our net tangible
book value as of June 30, 2008 was approximately
$34.9 million, or $0.15 per share of our common stock
(based upon an aggregate of 242,107,390 shares outstanding
as of June 30, 2008). Net tangible book value per share is
equal to our total net tangible book value, which is our total
tangible assets less our total liabilities divided by the number
of shares of our outstanding common stock. Dilution per share
equals the difference between the amount per share paid by
purchasers of shares of common stock in the Rights Offering and
the pro forma net tangible book value per share of our common
stock immediately after the Rights Offering. Based on the
subscription price of $0.10 per share and before deducting
estimated offering expenses payable by us and the application of
the estimated net proceeds from the Rights Offering, our pro
forma net tangible book value as of June 30, 2008 would
have been approximately $60.1 million, or $0.09 per share
(based upon an aggregate of 657,825,891 shares of our
common stock that would be outstanding following the
consummation of the Rights Offering). The immediately following
statement assumes no exercise of any outstanding options or
warrants or issuances of common stock pursuant to existing
contractual arrangements including upon conversion of the Notes
and exercise of the Companys outstanding warrants issued
to the 12% Subordinated Note holder. Assuming that the
Rights Offering is fully subscribed and that the Standby
Underwriters are not required to purchase any Unsubscribed
Shares and do not exercise their conditional right to be paid
commissions in shares, and that the holders of the Notes and
warrants do not exercise conversion of such Notes and warrants,
the Rights Offering will represent no dilution to subscribers in
the Rights Offering. To the extent such options and warrants are
28
exercised or additional shares are issued pursuant to such
contractual arrangements there will be further dilution to
stockholders.
Set forth below is a table illustrating the effective dilution
to stockholders.
|
|
|
|
|
|
|
$ per share
|
|
Subscription price
|
|
$
|
0.10
|
|
Net tangible book value per share prior to Offering
|
|
$
|
0.15
|
|
Increase per share attributable to the Offering
|
|
($
|
0.06
|
)
|
Pro forma net tangible book value per share after the Offering
|
|
$
|
0.09
|
|
Dilution in pro forma net tangible book value per share to
purchasers
|
|
$
|
0.01
|
|
29
CAPITALIZATION
The following table sets forth our capitalization as of
June 30, 2008:
|
|
|
|
|
on an actual basis; and
|
|
|
|
|
|
on an adjusted basis, before the payment of expenses, including
any compensation due to the Standby Underwriters, and before the
use of proceeds from the Offering to:
|
|
|
|
|
|
reflect the issuance of 242,107,390 shares of common stock
pursuant to the Basic Subscription Privilege.
|
|
|
|
|
|
as further adjusted, assuming the issuance of a further
168,611,111 shares of common stock upon conversion of the
outstanding Subordinated Notes, 12% Subordinated Notes and
exercise of certain warrants issued by the Company.
|
The table should be read in conjunction with our consolidated
financial statements and the notes to those financial statements
included in the documents incorporated by reference in this
prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2008
|
|
|
|
|
|
|
As
|
|
|
As Further
|
|
|
|
Actual
|
|
|
Adjusted
|
|
|
Adjusted
|
|
|
Cash and equivalents
|
|
$
|
3,148,305
|
|
|
$
|
27,359,044
|
|
|
$
|
28,470,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
Notes(1)
|
|
|
4,650,000
|
|
|
|
4,650,000
|
|
|
|
|
|
12% Subordinated
Notes(1)
|
|
|
10,600,000
|
|
|
|
10,600,000
|
|
|
|
|
|
Unamortized debt discount
|
|
|
(2,716,334
|
)
|
|
|
(2,716,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,533,666
|
|
|
|
12,533,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.10; authorized
500,000,000 shares authorized (1,000,000,000 including all
shares newly authorized by stockholders on July 18,
2008) at June 30, 2008; shares issued, issuable and
outstanding 242,107,390 at June 30, 2008, and
484,214,780 as adjusted pursuant to the Basic Subscription
Privilege, and 652,825,891 as further adjusted by the conversion
the Subordinated and 12% Subordinated Notes and the
exercise of certain
warrants(2)
issued by the Company
|
|
|
24,212,096
|
|
|
|
48,422,835
|
|
|
|
65,283,946
|
|
Capital in excess of par value
|
|
|
245,630,928
|
|
|
|
245,630,928
|
|
|
|
245,630,928
|
(3)
|
Accumulated deficit
|
|
|
(233,695,386
|
)
|
|
|
(233,695,386
|
)
|
|
|
(236,459,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
36,147,638
|
|
|
|
60,358,377
|
|
|
|
74,955,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
48,681,304
|
|
|
$
|
72,892,043
|
|
|
$
|
74,955,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Outstanding principal amounts due
September 1, 2009 in respect of the Subordinated Notes and
June 28, 2010 in respect of the 12% Subordinated Notes. The
Notes are convertible into shares of common stock of the
Company. Pursuant to the terms of the Notes the conversion
price, which is currently $1.00 per share, would be reset upon
consummation of the Rights Offering to $0.10 per share, subject
to further possible adjustments in accordance with the terms of
the Notes.
|
|
|
|
(2)
|
|
The Company has outstanding
21,111,111 warrants to purchase shares of common stock. Pursuant
to the terms of 16,111,111 of these warrants, the exercise price
of the warrants, which is currently set at $1.00 per share,
would be re-set to $0.10 per share subject to further possible
adjustments in accordance with the terms of the warrants.
|
|
|
|
(3)
|
|
Excludes any expense related to the
fair value measurement of the change in exercise price of
warrants and debt from $1.00 per share to $0.10 per share.
|
30
THE
RIGHTS OFFERING
The
Rights
The Company is hereby issuing Rights to each holder of record of
common stock (Record Date Holder) as of the close of
business on , 2008 (the Record
Date) at no charge to such Record Date Holder. The Company
is issuing one Right for each share of common stock held on the
Record Date. Each Right will entitle the Rights Holder to
subscribe for one (1) share of common stock. The Rights
will be evidenced by irrevocable and transferable Subscription
Rights Certificates, which are being issued to each Record Date
Holder contemporaneously with the delivery of this prospectus
and Instructions as to Use of Subscription Rights Certificates
(the Instructions). Stockholders who hold their
shares through the VPS System or the book entry system
maintained by DTC will have their accounts credited with the
appropriate number of Rights in lieu of physical delivery of
Subscription Rights Certificates. The Rights Offering is being
underwritten by the Standby Underwriters as to 242,000,000
shares. Accordingly, the total number of shares obtainable
pursuant to the exercise of the Rights and the purchase by the
Standby Underwriters of the Unsubscribed Shares will be
242,107,390 and 242,000,000 shares respectively and the maximum
gross proceeds before expenses of the Offering (including the
Standby Underwriters commission) will be $24,210,739
assuming a fully subscribed Offering and $24,000,000 assuming
that no stockholders exercise their Rights to subscribe under
the Offering. See Use of Proceeds for a description
of the use of the proceeds from the Offering. Additionally, a
further 16,940,000 shares would be issued by the Company in the
event that the Standby Underwriters exercise in full their
conditional right to elect to receive their commission in shares
in lieu of cash (which would increase the net proceeds of the
Rights Offering to the Company by correspondingly reducing the
cash payable to the Standby Underwriters in respect of their
commission). The increase in net proceeds of the Rights Offering
attributable to the election by the Standby Underwriters to take
their commissions in shares would be used by the Company for
general working capital purposes.
If you hold your shares in a brokerage account or through a
custodian bank or other nominee, please see the information
included below in Beneficial Owners.
No
Fractional Shares
No fractional Rights or cash in lieu thereof will be issued or
paid. Instead, only a whole number of shares of common stock are
subject to Rights and are issuable to a Record Date Holder upon
proper exercise of his, her or its Rights. Any fractional number
of shares of common stock subject to Rights issued to a Record
Date Holder will be rounded down to the nearest whole number.
Divisibility
of Subscription Rights Certificates
You may request that the U.S. Subscription Agent divide your
Subscription Rights Certificate into transferable
parts for instance, if you are the record holder for
a number of beneficial holders of our common stock or, if you
desire to do so, to transfer a portion of your Rights. In such
case you should contact the U.S. Subscription Agent who will
provide you with the appropriate forms and information to effect
such subdivision. The U.S. Subscription Agent will only
facilitate subdivisions or transfers of Subscription Rights
Certificates until , U.S. Eastern time
( CET), on , 2008, three
business days prior to the scheduled , 2008
Expiration Time. Accordingly, you should provide sufficient time
to effect any such subdivision and to permit any transferee
sufficient time to exercise any such transferred Rights. Rights
Holders who hold their Rights in the VPS System should see
Foreign and Other Stockholders below and
should consult the Norwegian Offering Circular for the
procedures to be used in subdividing their Rights.
Beneficial owners of common stock who are also the Record Date
Holders of their shares will receive more Rights under certain
circumstances than beneficial owners of common stock who are not
the Record Date Holders of their shares and who do not obtain
(or cause the Record Date Holder of their shares of common stock
to obtain) a separate Subscription Rights Certificate with
respect to the shares beneficially owned by them, including
shares held in an investment advisory or similar account. To the
extent that Record Date Holders or beneficial owners of common
stock who obtain a separate Subscription Rights Certificate
31
receive more Rights, they will be able to subscribe for more
shares pursuant to the Basic Subscription Privilege. Beneficial
owners of common stock who are not also Record Date Holders may
obtain a separate Subscription Rights Certificate upon request
to the nominee Record Date Holder. See
Beneficial Owner below.
Expiration
and Extensions of the Rights Offering
You may exercise your Rights at any time
before p.m., U.S. Eastern time
( CET), on , 2008, the
scheduled Expiration Time for the Rights Offering. Your
Subscription Rights Certificate, together with full payment of
the Subscription Price, must be received by the U.S.
Subscription Agent on or prior to the Expiration Time of the
Rights Offering. If you use the mail, we recommend that you use
insured, registered mail, return receipt requested. If you are a
U.S. stockholder and you cannot deliver your Subscription Rights
Certificate to the U.S. Subscription Agent on time, you may
follow the guaranteed delivery procedures described below under
Guaranteed Delivery Procedures. The
described procedures will not be applicable for stockholders
holding shares through the VPS System or foreign registered
stockholders. The Norwegian Offering Circular contains a
description of the relevant procedures to be followed by
stockholders who hold their Rights and shares in the VPS System.
See Foreign and Other Stockholders below.
We have the option to extend the Rights Offering and the period
for exercising your Rights for any reason, including if we
determine that changes in the market price of our common stock
warrant an extension or if we decide to give investors more time
to exercise their Rights in the Rights Offering, subject to the
consent of the Standby Underwriters if the Rights Offering is
extended beyond four weeks in length, although we do not
presently intend to do so. If we elect to extend the Expiration
Time of the Rights Offering, we will give oral or written notice
to the Subscription Agents on or before the Expiration Time,
followed by the issuance of a press release announcing such
extension no later than 9:00 a.m., U.S. Eastern time
(3 p.m. CET), on the next business day after the most
recently announced Expiration Time. All dates applicable to this
Rights Offering contained in this prospectus assume an
Expiration Time of p.m.,
U.S. Eastern time ( CET)
on , 2008. If we determine to extend the Rights
Offering and the period for exercising your Rights, in the press
release announcing the extension, we will also update all such
dates.
If you do not exercise your Rights
before p.m., U.S. Eastern time
( CET), on , 2008, the
scheduled Expiration Time of the Rights Offering, your
unexercised Rights will expire at the Expiration Time and be
void and no longer exercisable. We will not be obligated to
honor your exercise of Rights if the Subscription Agents receive
the documents relating to your exercise after the Expiration
Time of this Rights Offering, regardless of when you transmitted
the documents, except if you are entitled to use and have timely
transmitted the documents under the guaranteed delivery
procedures described below under Guaranteed
Delivery Procedures.
Subscription
Privileges
Basic
Subscription
Privilege
Each Right will entitle the holder thereof to purchase, at the
Subscription Price, one (1) Underlying Share (the
Basic Subscription Privilege). Each Rights Holder is
entitled to subscribe for that number of whole shares of common
stock that represent all, or any portion of, the Underlying
Shares which may be acquired through the exercise of his, her or
its Rights.
Subscription
Price
The Subscription Price is $0.10 per Underlying Share subscribed
for pursuant to the Basic Subscription Privilege, payable in
cash, as provided below.
Delivery
of Shares
We will deliver the shares of common stock purchased in the
Rights Offering as soon as practicable after the Expiration Time
of the Rights Offering. You will have no rights as a stockholder
of the shares you
32
purchased in the Rights Offering until we issue you such
shares. Although we will endeavor to issue the shares as soon as
practicable after completion of the Rights Offering, including
the guaranteed delivery period and after all necessary
calculations have been completed, there may be a delay between
the Expiration Time of this Rights Offering and the time that
the shares are issued. For those stockholders who have book
entry shares entered with the DTC or registered in the VPS
System we will endeavor cause the appropriate book entries made
as soon as practicable after the Expiration Time of the Rights
Offering.
Your Rights will not be considered exercised unless a
Subscription Agent actually receives from you, your broker,
custodian bank or other nominee, as the case may be, all of the
required documents and your full Subscription Price payment
prior to the Expiration Time of the Rights Offering (currently
scheduled to be p.m. US Eastern time
( CET), on , 2008), except if
you timely transmit the documents under the guaranteed delivery
procedures described below under Guaranteed
Delivery Procedures.
Exercise
of Rights by Rights Holders
Rights Holders residing or located in the United States
(U.S. Rights Holders) may exercise their Rights
by delivering to Computershare (the U.S. Subscription
Agent), at the address specified below, at or prior to the
Expiration Time, the properly completed and executed
Subscription Rights Certificate(s) evidencing those Rights, with
any signatures guaranteed as required, together with payment in
full of the Subscription Price for each Underlying Share
subscribed for pursuant to the Basic Subscription Privilege,
except as provided below with respect to shares held of record
through DTC or the VPS System. Foreign registered stockholders
and stockholders who hold their shares and/or Rights in the VPS
System should see Foreign and Other
Stockholders herein. Payment may be made only by check or
cashiers check drawn upon a U.S. bank, or postal,
telegraphic or express money order, in each case, payable to
Computershare, as U.S. Subscription Agent or (ii) by wire
transfer of immediately available funds to the account
maintained by the U.S. Subscription Agent for the purpose
of accepting subscriptions at Bank, account
number . The Subscription Price will be deemed
to have been received by the U.S. Subscription Agent only upon
(i) clearance of any uncertified check, (ii) receipt
by the U.S. Subscription Agent of any certified check or
cashiers check drawn upon a U.S. bank, or of any postal,
telegraphic or express money order or (iii) receipt of
collected funds in the U.S. Subscription Agents account
designated above. Funds paid by uncertified personal check may
take at least five business days to clear. Accordingly, Rights
Holders who wish to pay the Subscription Price by means of
uncertified personal check are urged to make payment
sufficiently in advance of the Expiration Time to ensure that
such payment is received and clears by such time and are urged
to consider, in the alternative, payment by means of certified
or cashiers check, money order or wire transfer of good
funds. All funds received in payment of the Subscription Price
shall be held by the U.S. Subscription Agent and invested at the
direction of the Company in short-term certificates of deposit,
short-term obligations of the United States or any state or any
agency thereof, or money market mutual funds investing in the
foregoing instruments. The account in which such funds will be
held may not be insured by the Federal Deposit Insurance
Corporation. Any interest earned on such funds will be retained
by the Company.
A Rights Holder may also effect the exercise of the Basic
Subscription Privilege through the facilities of DTC. If your
Rights are held of record through DTC, you may exercise your
Rights by instructing DTC to transfer your Rights from your
account to the account of the U.S. Subscription Agent, together
with (i) certification as to the aggregate number of Rights
you are exercising and the number of shares of our common stock
you are subscribing for under your Rights and (ii) your
Subscription Price payment for each share of our common stock
that you are subscribing for pursuant to your Rights. Rights
Holders who hold their Rights of record through the facilities
of the VPS System should review the procedures described in the
Norwegian Offering Circular regarding the exercise, subdivision,
transfer and sale of their Rights.
33
Delivery
of Subscription Materials
The Subscription Rights Certificates and payment of the
Subscription Price or, if applicable, the Notices of Guaranteed
Delivery, must be delivered by mail, by hand or by overnight
courier to the U.S. Subscription Agent at the following address:
Computershare
350 Indiana Street, Suite 800
Golden, CO 80401
The U.S. Subscription Agents telephone number is
(303) 262-0600
and its facsimile number is
(303) 262-0609.
Guaranteed
Delivery Procedures
If a U.S. Rights Holder wishes to exercise Rights, but time will
not permit such holder to cause the Subscription Rights
Certificate(s) evidencing those Rights to reach the U.S.
Subscription Agent prior to the Expiration Time, such Rights may
nevertheless be exercised if all of the following conditions
(the Guaranteed Delivery Procedures) are met:
(i) the Rights Holder has caused payment in full of the
Subscription Price for each Underlying Share being subscribed
for pursuant to the Basic Subscription Privilege to be received
(in the manner set forth above) by the U.S. Subscription Agent
at or prior to the Expiration Time;
(ii) the U.S. Subscription Agent receives, at or prior to
the Expiration Time, a guarantee notice (a Notice of
Guaranteed Delivery), substantially in the form provided
with the Instructions as to Use of Subscription Rights
Certificates (the Instructions) distributed with the
Subscription Rights Certificates, from a member firm of a
registered national securities exchange or a member of the
Financial Industry Regulatory Authority, Inc.
(FINRA), (an Eligible Institution),
stating the name of the exercising Rights Holder, the number of
Underlying Shares being subscribed for pursuant to the Basic
Subscription Privilege and guaranteeing the delivery to the U.S.
Subscription Agent of the Subscription Rights Certificate(s)
evidencing those Rights within three consecutive days on which
there is trading of the securities on the AMEX (AMEX
Trading Days) following the date of the Notice of
Guaranteed Delivery; and
(iii) the properly completed Subscription Rights
Certificate(s) evidencing the Rights being exercised, with any
signatures guaranteed as required, is received by the U.S.
Subscription Agent within three AMEX Trading Days following the
date of the Notice of Guaranteed Delivery relating thereto. The
Notice of Guaranteed Delivery may be delivered to the U.S.
Subscription Agent in the same manner as Subscription Rights
Certificates at the appropriate address set forth above, or may
be transmitted to the U.S. Subscription Agent by facsimile
transmission at the respective telecopier number set forth
above. Additional copies of the form of Notice of Guaranteed
Delivery are available upon request from the U.S. Subscription
Agent.
Your Notice of Guaranteed Delivery must be delivered in
substantially the same form provided with the Instructions as to
Use of Subscription Rights Certificates, which will be
distributed to you with your Subscription Rights Certificates.
Your Notice of Guaranteed Delivery must come from an Eligible
Institution, or other eligible guarantor institution that is a
member of, or participant in, a signature guarantee program
acceptable to the U.S. Subscription Agent.
Your Notice of Guaranteed Delivery must state:
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the number of Rights represented by your Subscription Rights
Certificates;
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the number of shares of our common stock for which you are
subscribing under your Rights; and
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the eligible guarantor institution guarantees that they will,
within three business days following the date the U.S.
Subscription Agent receives your Notice of Guaranteed Delivery,
deliver to the U.S. Subscription Agent Subscription Rights
Certificates evidencing the Rights you are exercising.
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Your Notice of Guaranteed Delivery may be delivered to the U.S.
Subscription Agent in the same manner as your Subscription
Rights Certificates at the address set forth above under
Delivery of Subscription Materials.
Alternatively, your Notice of Guaranteed Delivery may be
delivered to the U.S. Subscription Agent by facsimile
transmission at (303) 262-0609 and confirm facsimile
receipt by telephone at (303) 262-0600. The U.S.
Subscription Agent will send you additional copies of the Notice
of Guaranteed Delivery if you request them. Please call the
U.S. Subscription Agent at (800) 962-4284 to request
any copies of the Notice of Guaranteed Delivery. Banks and
brokerage firms should call the U.S. Subscription Agent at
(800) 962-4284 to request any copies of the Notice of
Guaranteed Delivery. The Guaranteed Delivery Procedures are not
available to foreign registered stockholders and stockholders
who hold their shares and/or Rights in the VPS System.
MEDALLION GUARANTEE MAY BE REQUIRED
YOUR SIGNATURE ON EACH SUBSCRIPTION RIGHTS CERTIFICATE MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, SUCH AS A
MEMBER FIRM OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A
MEMBER OF THE FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC., OR
A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR
CORRESPONDENT IN THE U.S., SUBJECT TO STANDARDS AND PROCEDURES
ADOPTED BY THE U.S. SUBSCRIPTION AGENT, UNLESS:
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YOUR SUBSCRIPTION RIGHTS CERTIFICATE PROVIDES THAT SHARES ARE TO
BE DELIVERED TO YOU AS RECORD HOLDER OF THOSE SUBSCRIPTION
RIGHTS; OR
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YOU ARE AN ELIGIBLE INSTITUTION.
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Notice to
Beneficial Holders
If you are a broker, custodian bank, trustee or depositary for
securities that holds shares of our common stock for the account
of others as of the Record Date for the Rights Offering, you
should notify the respective beneficial owners of such shares of
this Rights Offering as soon as possible to determine their
intentions with respect to exercising or selling their Rights.
You should obtain instructions from the beneficial owner with
respect to their Rights, as set forth in the instructions we
have provided to you for your distribution to beneficial owners.
If the beneficial owner so instructs, you should complete the
appropriate Subscription Rights Certificates and submit them to
the U.S. Subscription Agent with the proper payment. If you hold
shares of our common stock for the account(s) of more than
one beneficial owner, you may exercise the number of Rights to
which all such beneficial owners in the aggregate otherwise
would have been entitled had they been direct record holders of
our common stock as of the Record Date for this Rights offering,
provided that you, as a nominee record holder, make a proper
showing to the U.S. Subscription Agent by submitting the form
entitled Nominee Holder Certification that was
provided to you with your Rights Offering materials. If you did
not receive this form, you should contact the U.S. Subscription
Agent to request a copy.
Beneficial
Owners
If you are a beneficial owner of shares of our common stock on
the Record Date for this Rights Offering or will receive your
Rights through a broker, custodian bank or other nominee, we
will ask your broker, custodian bank or other nominee to notify
you of this Rights Offering. If you wish to exercise or sell
your Rights, you will need to have your broker, custodian bank
or other nominee act for you.
To indicate your decision to exercise your Rights, you should
complete and return to your broker, custodian bank or other
nominee the form entitled Beneficial Owner Election
Form such that it will be received by p.m.,
U.S. Eastern time ( CET),
on , 2008, the last business day prior to the
scheduled , 2008 Expiration Time of this Rights
Offering. To indicate your decision to sell your Rights, you
should complete and return to your broker, custodian bank or
other nominee the form entitled Beneficial Owner
35
Election Form such that it will be received well in
advance of p.m., U.S. Eastern time
( CET), on , 2008, the last
business day prior to the scheduled , 2008
Expiration Time of this Rights Offering. You should receive this
form from your broker, custodian bank or other nominee with the
other Rights Offering materials. If you wish to obtain a
separate Subscription Rights Certificate, you should contact
your broker, custodian bank or other nominee as soon as possible
and request that a separate Subscription Rights Certificate be
issued to you. You should contact your broker, custodian bank or
other nominee if you do not receive this form, but you believe
you are entitled to participate in this Rights Offering. We are
not responsible if you do not receive the form from your broker,
custodian bank or nominee or if you receive it without
sufficient time to respond.
Calculation
of Subscription Rights Exercised
If an exercising Rights Holder does not indicate the number of
Rights being exercised, or does not forward full payment of the
aggregate Subscription Price for the number of Rights that the
Rights Holder indicates are being exercised, then the Rights
Holder will be deemed to have exercised the Basic Subscription
Privilege with respect to the maximum number of Rights that may
be exercised for the aggregate payment delivered by the Rights
Holder. A Rights Holder who subscribes for fewer than all of the
shares represented by its Subscription Rights Certificates shall
be deemed to have elected not to subscribe for the remaining
shares represented by its Subscription Rights Certificates,
after which such remaining shares shall be purchased by the
Standby Underwriters.
Regulatory
Limits
The Company may determine that it will not issue shares of
common stock to any Rights Holder who is required, in the
Companys sole judgment and discretion, to obtain prior
clearance, approval or non-disapproval from any foreign or
domestic state or federal bank or securities regulatory
authority to own or control such shares unless, prior to the
Expiration Date, evidence of such clearance, approval or
non-disapproval has been provided to the Company. The Company
may also limit the number of shares issuable to any Rights
Holder if, as a result of such exercises of Rights, in the
aggregate or to any Right Holder, there exists a risk, in the
Companys sole judgment and discretion, that certain tax
benefits will be subject to limitation under Section 382 of the
United States Internal Revenue Code of 1986, as amended, or
there exists a risk of any other adverse tax consequence to the
Company.
Issuance
of Common Stock
Certificates representing shares of common stock subscribed for
and issued pursuant to the Basic Subscription Privilege will be
mailed as soon as practicable after the corresponding Rights
have been validly exercised and payment has been received with
the exception of those stockholders whose shares are registered
in the VPS System or are included in the book entry system
maintained by DTC. Such stockholders will not receive stock
certificates and instead will have their shareholdings
appropriately registered in such book entry systems.
Instructions
for Completing your Subscription Rights Certificate
The Instructions accompanying the Subscription Rights
Certificates should be read carefully and followed in detail.
SUBSCRIPTION RIGHTS CERTIFICATES SHOULD BE SENT WITH PAYMENT TO
THE U.S. SUBSCRIPTION AGENT. DO NOT SEND SUBSCRIPTION RIGHTS
CERTIFICATES TO THE COMPANY. THE METHOD OF DELIVERY OF
SUBSCRIPTION RIGHTS CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION
PRICE TO THE U.S. SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND
RISK OF THE RIGHTS HOLDERS. IF SUBSCRIPTION RIGHTS CERTIFICATES
AND PAYMENTS ARE SENT BY MAIL, RIGHTS HOLDERS ARE URGED TO SEND
SUCH MATERIALS BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, AND ARE URGED TO ALLOW A SUFFICIENT NUMBER OF
DAYS TO ENSURE DELIVERY TO THE U.S. SUBSCRIPTION AGENT
36
AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION TIME. BECAUSE
UNCERTIFIED CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, RIGHTS HOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR
PAYMENT, BY MEANS OF CERTIFIED OR CASHIERS CHECK, MONEY
ORDER OR WIRE TRANSFER OF GOOD FUNDS.
Determinations
Regarding the Exercise or Sale of your Subscription
Rights
All questions concerning the validity, form eligibility
(including time of receipt and record ownership) and acceptance
of any exercise of Rights will be determined by the Company,
whose determination will be final and binding. The Company, in
its sole discretion, may waive any defect or irregularity, or
permit a defect or irregularity to be corrected within such time
as it may determine, or reject the purported exercise of any
Right. Subscription Rights Certificates will not be deemed to
have been received or accepted until all irregularities have
been waived or cured within such time as the Company determines,
in its sole discretion. Neither the Company, either Subscription
Agent nor the manager will be under any duty to give
notification of any defect or irregularity in connection with
the submission of Subscription Rights Certificates or incur any
liability for failure to give such notification. The Company
reserves the right to reject any exercise if such exercise is
not in accordance with the terms of the Offering or not in
proper form or if the acceptance thereof or the issuance of
shares of common stock pursuant thereto could be deemed unlawful.
Questions
About Exercising or Selling Subscription Rights
Any questions or requests for assistance concerning the method
of exercising Rights or requests for additional copies of this
Prospectus, the Instructions or the Notice of Guaranteed
Delivery should be directed to the appropriate Subscription
Agent at its address: if to the U.S. Subscription Agent to
350 Indiana Street, Suite 800, Golden, CO 8040 (telephone
(303) 262-0600;); and if to the Norwegian Subscription
Agent to Glitnir Securities AS, Haakon VIIs gate 10,
Postboks 1474 Vika, N-0, 16 Oslo, Norway (telephone
+47 22 01 63 00).
No
Revocation
ONCE A RIGHTS HOLDER HAS PROPERLY EXERCISED THE BASIC
SUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED.
Exercising
a Portion of Your Subscription Rights
If you subscribe for fewer than all of the shares of our common
stock represented by your Subscription Rights Certificate, if
time permits, you will receive from the U.S. Subscription Agent
a new Subscription Rights Certificate representing your
unexercised Rights and you may then subsequently exercise or
sell your unexercised Rights. See Methods for
Transferring and Selling Subscription Rights, below.
Alternatively, you may transfer a portion of your Rights and if
time permits, you will receive from the U.S. Subscription Agent
a new Subscription Rights Certificate representing the Rights
that you did not transfer. However, the U.S. Subscription Agent
will only facilitate subdivisions or transfers of Subscription
Rights Certificates until p.m.,
U.S. Eastern time ( CET),
on , 2008, three business days prior
to p.m., U.S. Eastern time
( CET), on , 2008, the
scheduled Expiration Time of this Rights Offering. See
Foreign and Other Stockholders below if
you are a foreign registered stockholder or hold your Rights in
the VPS System and you wish to subdivide or transfer your
Rights. We will not issue any Subscription Rights Certificates
for unexercised Rights after the Expiration Time of this Rights
Offering.
Your
Funds Will Be Held by the Subscription Agent Until Shares of our
Common Stock Are Issued
The Subscription Agents will hold your payment of the
Subscription Price in a segregated account with payments
received from other Rights Holders until we issue shares of our
common stock to you (or your shares registered in the VPS System
in Norway or are included in the book entry system maintained by
DTC, as the case may be) upon consummation of this Rights
Offering.
37
Methods
for Transferring and Selling Subscription Rights
We have been advised by the AMEX and the OSE that the Rights
will be traded on the AMEX and the OSE under the symbol
and
, respectively, in each case,
beginning on or about , 2008,
until p.m., U.S. Eastern time
( CET), on , 2008, the last
business day prior to the Expiration Time.
You may sell your Rights by contacting your broker or the
institution through which you hold your securities. In addition,
you may sell your Rights through one of the Subscription Agents
as described below. The Subscription Agents will facilitate
sales, subdivisions or transfers of the Rights
until p.m., U.S. Eastern time
( CET), on , 2008, three
business days prior to the scheduled , 2008
Expiration Time. There has been no prior public market for the
Rights, and we cannot assure you that a trading market for the
Rights will develop or, if a market develops, that the market
will remain available throughout the subscription period. We
also cannot assure you of the price at which the Rights will
trade, if at all. If you do not exercise your Rights by the
Expiration Time, your Rights will expire and will be void and no
longer exercisable. See General Considerations
Regarding the Partial Exercise, Transfer or Sale of Subscription
Rights below.
Transfer of Subscription Rights. Persons
receiving Subscription Rights Certificates may transfer Rights
in whole by endorsing the Subscription Rights Certificate for
transfer. Please follow the instructions for transfer included
in the information sent to you with your Subscription Rights
Certificate. If you wish to transfer only a portion of the
Rights, you must deliver your properly endorsed Subscription
Rights Certificate to the U.S. Subscription Agent
before p.m., U.S. Eastern time
( CET), on , 2008, three
business days prior to the scheduled Expiration Time, as the
U.S. Subscription Agent will only facilitate subdivisions or
transfers of the physical Subscription Rights Certificates until
such date and time. With your Subscription Rights Certificate,
you should include instructions to register such portion of the
Rights evidenced thereby in the name of the transferee (and to
issue a new Subscription Rights Certificate to the transferee
evidencing such transferred Rights). You may only transfer whole
Rights and not fractions of a Right. If there is sufficient time
before the expiration of this Rights Offering, the U.S.
Subscription Agent will send you a new Subscription Rights
Certificate evidencing the balance of your Rights that you did
not transfer to the transferee. You may also instruct the U.S.
Subscription Agent to send the Subscription Rights Certificate
to one or more additional transferees. If you wish to sell your
remaining Rights, you may request that the U.S. Subscription
Agent send you certificates representing your remaining Rights
so that you may sell them through your broker or dealer. If you
are a record holder of a Subscription Rights Certificate, you
may sell your Rights through the U.S. Subscription Agent.
If you wish to transfer all or a portion of your Rights, you
must provide transfer instructions to the U.S. Subscription
Agent by p.m., U.S. Eastern time
( CET), on , 2008, three
business days prior to the , 2008 Expiration
Time, in order to allow a sufficient amount of time prior to the
Expiration Time, for the U.S. Subscription Agent to:
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receive and process your transfer instructions; and
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issue and transmit a new Subscription Rights Certificate to your
transferee or transferees with respect to transferred Rights,
and to you with respect to any Rights you retained.
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If you wish to transfer your Rights to any person other than an
eligible guarantor institution, the signatures on your
Subscription Rights Certificate must be guaranteed by an
eligible guarantor institution.
Sales of Subscription Rights Through the U.S. Subscription
Agent. If you hold a Subscription Rights
Certificate and choose not to sell your Rights through your
broker or dealer, you may choose to sell your Rights through the
U.S. Subscription Agent. If you wish to have the U.S.
Subscription Agent seek to sell your Rights, you must deliver
your properly executed Subscription Rights Certificate, with
appropriate instructions, to the U.S. Subscription Agent
by p.m., U.S. Eastern time
( CET), on , 2008, three
business days prior to the scheduled , 2008
Expiration Time. If you want the U.S. Subscription Agent to seek
to sell only a portion of your Rights, you must send the U.S.
Subscription Agent instructions setting forth what you would
like to sell along with your Subscription Rights Certificate
by p.m., U.S. Eastern time
( CET), on , 2008, three
business days prior to the scheduled , 2008
Expiration Time. The deadline to sell your Rights is subject to
extension if we extend the Expiration Time. If there is
sufficient time before the Expiration Time,
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the U.S. Subscription Agent will send you a new Subscription
Rights Certificate evidencing the balance of your Rights that
you did not sell. If the Subscription Agent cannot sell your
Rights by p.m. U.S. Eastern
time ( CET), on , 2008, the
U.S. Subscription Agent will hold your Subscription Rights
Certificate for pick up by you at the U.S. Subscription
Agents hand delivery address provided above OR mail back
to you the Subscription Rights Certificate representing the
unsold Rights.
Foreign registered stockholders and stockholders who hold their
Rights through the VPS System should see
Foreign and Other Stockholders and
stockholders who hold their Rights through the VPS System should
also consult the Norwegian Offering Circular for a description
of the procedures they should use if they wish to sell or
transfer their Rights.
If the U.S. Subscription Agent sells Rights for you, it will
aggregate and sell concurrently all Rights being sold on a
particular day and will send you a check for the net proceeds
from the sale of any of your Rights, less applicable brokerage
commissions, taxes or other expenses, as soon as practicable
following the sale. If your Rights can be sold, the sale will be
deemed to have been made at the weighted average net sale price
of all Rights sold by the U.S. Subscription Agent on the
relevant date of sale calculated as follows: the total proceeds
realized by the U.S. Subscription Agent from all sales effected
on the day that the Rights are sold, net of any applicable
brokerage commissions, taxes and other expenses, divided by the
total number of Rights sold by the U.S. Subscription Agent on
such day, multiplied by the number of Rights sold for such
Rights Holder. We cannot assure you, however, that a market will
develop for the purchase and sale of the Rights or that the U.S.
Subscription Agent will be able to sell your Rights.
IF YOU ARE A RECORD HOLDER AND YOU CHOOSE TO SELL YOUR
SUBSCRIPTION RIGHTS THROUGH THE U.S. SUBSCRIPTION AGENT, YOU
MUST DELIVER YOUR ORDER TO SELL YOUR SUBSCRIPTION RIGHTS TO THE
U.S. SUBSCRIPTION AGENT BY P.M
U.S. EASTERN TIME ( CET), THREE BUSINESS
DAYS BEFORE THE SCHEDULED EXPIRATION TIME. IF LESS THAN ALL
SALES ORDERS RECEIVED BY THE U.S. SUBSCRIPTION AGENT ON A
PARTICULAR DATE ARE FILLED, IT WILL PRORATE THE NET PROCEEDS
FROM THE SALE OF RIGHTS THAT WERE ABLE TO BE EXECUTED AMONG YOU
AND THE OTHER SUBSCRIPTION RIGHTS HOLDERS THAT ELECTED TO SELL
THEIR SUBSCRIPTION RIGHTS ON THAT DATE BASED UPON THE NUMBER OF
SUBSCRIPTION RIGHTS THAT EACH HOLDER HAS INSTRUCTED THE U.S.
SUBSCRIPTION AGENT TO SELL ON SUCH DATE. THE U.S. SUBSCRIPTION
AGENT IS REQUIRED TO SELL YOUR SUBSCRIPTION RIGHTS ONLY IF IT IS
ABLE TO FIND BUYERS.
If you sell your Rights through your broker, custodian bank or
other nominee, you must deliver your order to sell to your
broker, custodian bank or other nominee such that it will be
actually received well in advance
of p.m., U.S. Eastern time
( CET), on , 2008, the last
business day prior to the scheduled , 2008
Expiration Time. You may receive a different amount of proceeds
than if you sell the same amount of Rights through the
Subscription Agent. If you sell your Rights through your broker,
custodian bank or other nominee instead of the U.S. Subscription
Agent, your sales proceeds will be the actual sales price of
your Rights less any applicable brokers commission, taxes or
other fees, rather than the weighted average net sale price of
all Rights sold by the U.S. Subscription Agent on the relevant
date described above.
General Considerations Regarding the Partial Exercise,
Transfer or Sale of Subscription Rights. The
amount of time needed by your transferee to exercise or sell its
Rights depends upon the method by which you, as the transferor,
deliver the Subscription Rights Certificates, the method of
payment made by your transferee and the number of transactions
that you instruct the U.S. Subscription Agent to effect. You
should also allow up to ten business days for your transferee to
exercise or sell the Rights that you transferred to it. Neither
we nor the U.S. Subscription Agent will be liable to a
transferee or transferor of Rights if Subscription Rights
Certificates or any other required documents are not received in
time for exercise or sale prior to the Expiration Time.
Persons receiving Subscription Rights Certificates will
receive a new Subscription Rights Certificate upon a partial
exercise, transfer or sale of Rights only if the U.S.
Subscription Agent receives your properly endorsed Subscription
Rights Certificate no later than p.m.,
U.S. Eastern time ( CET), on ,
2008, three business days before the
scheduled , 2008 Expiration Time. The U.S.
Subscription
39
Agent will not issue a new Subscription Rights Certificate
if your Subscription Rights Certificate is received after that
time and date. If your instructions and Subscription Rights
Certificate are received by the U.S. Subscription Agent after
that time and date, you will not receive a new Subscription
Rights Certificate and therefore will not be able to sell or
exercise your remaining Rights. You are responsible for all
commissions, fees and other expenses (including brokerage
commissions and transfer taxes) incurred in connection with the
purchase, sale or exercise of your Rights, except that we will
pay certain fees of the manager and Subscription Agents
associated with this Rights Offering.
If you do not exercise your Rights by the Expiration Time
( p.m., U.S. Eastern time
( CET), on , 2008), your
Rights will expire and will be void and no longer exercisable.
Foreign
and Other Stockholders
We will not mail Subscription Rights Certificates to
stockholders with addresses that are outside the United States
or that have an army post office or fleet post office address.
The U.S. Subscription Agent will hold these Subscription Rights
Certificates for their account. If you have an address outside
the U.S. or an army post office or a fleet post office address,
to exercise your Rights, you must notify the U.S. Subscription
Agent before , U.S. Eastern time,
on , 2008, three business days prior to the
expiration date of the Rights Offering, and, with respect to
holders whose addresses are outside the U.S., they must provide
evidence satisfactory to us, such as a legal opinion from local
counsel, that it is lawful for them to receive and exercise
their Rights under applicable law. Stockholders who hold their
shares in the VPS System will be notified of the Rights Offering
and will be delivered a copy of the Norwegian Offering Circular
and other documents upon request which set forth the procedures
to be followed in order to exercise, subdivide, transfer or sell
their Rights. The full or partial transfer or sale of Rights
held in the VPS System will follow normal procedures as for the
sale and transfer of common stock, and this will require no
special authorization. The Rights will appear in such
stockholders VPS accounts along with other securities they
may hold, and may be electronically transferred, sold or traded
as such. Settlement for the sale of Rights will follow normal
T+3 cash settlement procedures. Should such stockholders wish to
exercise, transfer or sell Rights they may do this through their
regular stockbroker or instruct their broker or bank (or the
Norwegian Subscription Agent) to perform such action on their
behalf provided that they give such instructions well in advance
of
l
CET on
l,
2008 (which is the latest possible date and time that the Rights
will be traded on the OSE), the last business day prior to the
scheduled
l,
2008 expiration date of the Rights Offering.
The foregoing is only a brief summary of such procedures and is
qualified in its entirety by the description set forth in the
Norwegian Offering Circular and such other documents.
No
Recommendation
An investment in shares of our common stock and any sale of
Rights must be made according to each investors evaluation
of its own best interests and after considering all of the
information in this prospectus, including (i) the risk
factors under the heading Risk Factors beginning on
page [12] of this prospectus, including the risks relating
to this Rights Offering and the risks relating to the Company
and an investment in our common stock and (ii) all of the
other information incorporated by reference in this prospectus.
Neither we, nor the manager, Glitnir Securities AS, nor any of
the Standby Underwriters, nor the U.S. Subscription Agent, are
making any recommendations as to whether or not you should sell,
exercise or let lapse your Rights.
Shares of
Common Stock Outstanding After this Rights Offering
Based on the shares of our common stock
outstanding as of p.m., U.S. Eastern time
( CET), on , 2008, the Record Date of the
Rights Offering, assuming no options or other derivative
securities of the Company are exercised or converted prior to
the expiration of this Rights Offering and the
full shares of our common stock is subscribed
for by our common stockholders (and not by the Standby
Underwriters pursuant to their standby underwriting commitments
and assuming they elect to take their commissions in cash),
approximately shares of our common stock will
be issued and outstanding after the consummation
40
of the Rights Offering, an increase in the number of
outstanding shares of our common stock of
approximately %.
Effects
of Rights Offering on Holders of Our Notes
The conversion rate applicable to the Notes (currently $1.00 per
share) is required to be adjusted when we issue shares at a
price below such conversion price. As a result of this
adjustment, the conversion rate will be adjusted effective on
the consummation of the Rights Offering (and, if applicable, the
standby underwriting), from 1,000 shares of common stock
per $1,000 principal amount of the Notes to 100,000 shares
of common stock per $1,000 principal amount of Notes.
Standby
Underwriting Commitments
Subject to the conditions described below, the Standby
Underwriting Agreements obligate us to sell, and requires the
Standby Underwriters to purchase from us, that number of shares
of common stock underlying the Rights that are not purchased by
our common stockholders in the Rights Offering up to a maximum
aggregate amount of 242,000,000 shares. The price per full
share paid by the Standby Underwriters for such shares will be
the same as the Subscription Price paid by our common
stockholders in the Rights Offering. Under the terms of each of
the substantially identical standby underwriting agreements
between the Company and each of the Standby Underwriters
(collectively the Standby Underwriting Agreements),
the Standby Underwriters are entitled to receive a commission
equal to 7% of the aggregate Subscription Price in respect of
242,000,000 of the shares that are subject of the Rights
Offering whether or not the Rights Offering is successfully
concluded. The Standby Underwriters may elect to receive their
commission in shares in lieu of cash (in which case the cash
equivalent of each share issued in satisfaction of the
commission will be $0.10 per share), provided however, that if a
Standby Underwriter is an existing stockholder it will only
receive a commission for its part of the underwritten amount
that exceeds the amount of shares that it would receive pursuant
to an exercise of its Rights. The Standby Underwriters will
only be entitled to exercise their right to receive their
commission in shares in lieu of cash in the event that the
aggregate number of shares which the Standby Underwriters (and
any of their respective directors, shareholders (record or
beneficial) or associates of any of them) hold or would hold or
otherwise be interested in following their take up of
Unsubscribed Shares and the issue of the commission shares is
not more than 49.999999% of the aggregate issued and outstanding
shares in the capital of the Company immediately following such
share subscriptions. See Standby Underwriting and Plan of
Distribution Standby Underwriting Agreements.
See Standby Underwriting and Plan of Distribution
for further details regarding the terms and conditions of the
standby underwriting commitments.
Effects
of Rights Offering on Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information as
of , 2008 (except as noted otherwise) regarding
ownership of each class of the Companys equity securities
by:
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each director of the Company and each named executive officer of
the Company named in the Summary Compensation Table set forth in
the Companys definitive proxy statement filed
on , 2008 in connection with the annual meeting
of stockholders held on July 18, 2008;
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all directors and executive officers of the Company as a
group; and
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each person known by the Company to be the beneficial owner of
more than 5% of the Companys equity securities.
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41
The table sets forth the potential effects of this rights
offering on such beneficial ownership, assuming (1) all
common stockholders exercise the Rights and (2) the Standby
Underwriters purchase the maximum amount pursuant to the Standby
Underwriter Agreements.
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Percentage of
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Class if the
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Standby
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Underwriters
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Purchase the
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Percentage of
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Maximum
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Class if
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Amount of
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All Common
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Common Stock
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Amount and
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Stockholders
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Pursuant to the
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Nature of
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Fully Exercise
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Standby
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Beneficial
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Subscription
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Underwriter
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Name of Beneficial Owner
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Ownership
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Rights
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Agreements
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Non-Employee Directors
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Russ Hammond
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430,000
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(1)
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*
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*
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Michael Ayre
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670,000
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(2)
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*
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*
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Anthony Perry
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(3)
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*
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*
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Named Executive Officers
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Vincent McDonnell
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1,710,000
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(4)
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*
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*
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Jeffrey Wilkins
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606,000
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(5)
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*
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*
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All Directors and Executive Officers as a Group
(5 persons)
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3,416,000
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(6)
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*
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*
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Security Ownership of More Than 5% Shareholders
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Persistency
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15,600,000
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(7)
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6.44
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%(11)
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3.22
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%(11)
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P.O. Box 309
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Ugland House
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South Church Street
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George Town
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Cayman Islands
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British West Indies
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Persistency Capital, LLC
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15,600,000
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(8)
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6.44
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%(11)
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3.22
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%(11)
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850
7th Avenue
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Suite 701
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New York
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New York 10019
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U.S.A
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Andrew Morris
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15,600,000
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(9)
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6.44
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%(11)
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3.22
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%(11)
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c/o Persistency
Capital, LLC
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850
7th Avenue
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Suite 701
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New York
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New York 10019
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U.S.A
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BlackRock, Inc.
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21,692,200
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(10)
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8.96
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%(11)
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4.48
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%(11)
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40 East
52nd
Street
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New York
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NY 10022
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Caldwell Associates Limited
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(12
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P.O. Box 198
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St. Peter Port
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Guernsey
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GYI 4HU
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Provincial Securities Limited
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(12
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2 Rue Thalberg
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1211 Geneva 1
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Switzerland
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42
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Percentage of
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Class if the
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Standby
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Underwriters
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Purchase the
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Percentage of
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Maximum
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Class if
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Amount of
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All Common
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Common Stock
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Amount and
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Stockholders
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Pursuant to the
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Nature of
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Fully Exercise
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Standby
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Beneficial
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Subscription
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Underwriter
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Name of Beneficial Owner
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Ownership
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Rights
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Agreements
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Heritage Cie S.A.
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(12
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P.O. Box 1507
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2 Rue Thalberg
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1211 Geneva 1
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Switzerland
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* Less
1%
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(1)
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Includes 330,000 shares
underlying presently exercisable options. Does not include
190,000 shares subject to unexercised stock options awarded
to Mr. Julian Hammond, a former employee of the Company and
Mr. Russ Hammonds son. Mr. Hammond disclaims
ownership of his sons shares.
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(2)
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Includes 580,000 shares
underlying presently exercisable options.
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(3)
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Mr. Perry was elected to the
Board on April 1, 2008.
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(4)
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Includes 1,510,000 shares
underlying presently exercisable options.
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(5)
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Includes 546,000 shares
underlying presently exercisable options.
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(6)
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Includes 2,966,000 shares
underlying presently exercisable options held by directors and
executive officers as a group.
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(7)
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Security ownership information for
the beneficial owner is taken from the Form 4 dated
July 27, 2008.
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(8)
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Security ownership information for
the beneficial owner is taken from the Form 4 dated
July 27, 2008.
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(9)
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Security ownership information for
the beneficial owner is taken from the Form 4 dated
July 27, 2008.
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(10)
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Security ownership information for
the beneficial owner is taken from the Form 13G/A filed on
February 8, 2008.
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(11)
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The Class represents Common Stock
outstanding as at April, 18, 2008. This excludes any convertible
shares and warrants attached to outstanding convertible loans at
this date although these shares are included in Forms 13G
filed by convertible note-holders.
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(12)
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We expect that Caldwell Associates
Limited, Provincial Securities Limited and Heritage Cie S.A.
will not purchase the Unsubscribed Shares for investment and
instead they will sell them on the open market or in private
transactions, however, if they do hold their shares for
investment they will each own a maximum of 20.66%, 10.33% and
8.66%, respectively, of the issued and outstanding shares of
common stock assuming that they acquire and hold their entire
allotment of shares, excluding any additional shares they may
elect to acquire in lieu of commissions. See Standby
Underwriting and Plan of Distribution.
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CERTAIN
INCOME TAX CONSIDERATIONS
Certain
U.S. Federal Income Tax Consequences.
The following is a summary of the material U.S. federal
income tax consequences of the acquisition, ownership and
disposition of Rights or Underlying Shares by
U.S. stockholders. This summary deals only with persons
that are U.S. stockholders and that will hold the Rights
and Underlying Shares as capital assets. The discussion does not
cover all aspects of U.S. federal income taxation that may
be relevant to, or the actual tax effect that any of the matters
described herein will have on, the acquisition, ownership or
disposition of Rights or the Underlying Shares by particular
investors, and does not address state, local, foreign or other
tax laws. In particular, this summary does not address tax
considerations applicable to investors that own (directly or
indirectly) 10% or more of our voting shares, nor does this
summary discuss all of the tax considerations that may be
relevant to certain types of investors subject to special
treatment under the U.S. federal income tax laws, such as
certain financial institutions, insurance companies,
partnerships or other entities classified as partnerships for
U.S. federal income tax purposes, investors liable for the
alternative minimum tax, individual retirement accounts and
other tax-deferred accounts, tax-exempt organizations, dealers
in securities or currencies, investors that will hold the
Underlying Shares as part of straddles, hedging transactions or
43
conversion transactions for U.S. federal income tax
purposes or investors whose functional currency is not the
U.S. dollar.
The summary is based on the tax laws of the U.S., including the
Internal Revenue Code of 1986, as amended, its legislative
history, existing and proposed regulations thereunder, published
rulings and court decisions all as of the date hereof and all
subject to change at any time, possibly with retroactive effect.
THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSEQUENCES SET OUT
BELOW IS FOR GENERAL INFORMATION ONLY. ALL PROSPECTIVE
PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISERS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING THE SECURITIES,
INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.
Rights
The tax consequences of the allocation of the Rights will depend
on whether the Rights Offering is part of a
disproportionate distribution within the meaning of
Section 305 of the Code. The Company believes and intends to
take the position, and the following discussion assumes, that
the allocation of the Rights is not part of a disproportionate
distribution for purposes of Section 305 of the Code.
The allocation of the Rights to U.S. stockholders will be
treated for U.S. federal income tax purposes as a
distribution of a stock right with respect to the shares of
common stock held by each stockholder (referred to in this
section as Shares) entitled to receive Rights. The
receipt of the Rights will not be included in the gross income
of a U.S. stockholder. If the fair market value of the
Rights at the time of the distribution equals fifteen percent
(15%) or more of the fair market value of the Shares at such
time the U.S. stockholder will be required to allocate the
adjusted basis of the Shares immediately before the distribution
of the Rights between the Shares and the Rights in proportion to
their relative fair market values immediately after the
distribution. If the fair market value of the Rights at the time
of the distribution is less than fifteen percent (15%) of the
fair market value of the Shares at such time, the
U.S. stockholder will have a basis of zero in the Rights
received unless the U.S. stockholder makes an election to
allocate the adjusted basis of the Shares between the Underlying
Shares and the Rights as described above. Such election must be
made by the U.S. stockholder on the tax return for the year
in which the distribution occurs and must satisfy the
requirements of U.S. Treasury Regulations. The holding
period of the Rights will include the period for which the
U.S. stockholder has held the Shares with respect to which
the Rights are distributed. The holding period of a purchaser of
the Rights will commence on the date of purchase. If a
U.S. stockholder exercises the right to purchase Underlying
Shares, the holding period of the Underlying Shares will
commence on the date of the exercise and will not include any
period for which the holder of the Rights held the Shares with
respect to which the Rights were distributed or the period for
which the holder held the Rights. The exercise of Rights to
purchase Underlying Shares will not cause a U.S. Rights
Holder to recognize income. The U.S. Rights Holders
basis in the Underlying Shares purchased by exercise of the
Rights will equal the sum of the basis, if any, in the Rights
exercised to purchase the Underlying Shares and the amount paid
for the Underlying Shares (including any servicing fee charged
to the U.S. Rights Holder by his broker, bank or trust
company). A sale of the Rights generally will be taxed in the
same manner as described for a sale of Underlying Shares under
Sale or Other Disposition below.
The discussion above relating to the U.S. federal income
tax consequences of the Rights Offering assumes that the Rights
Offering is not part of a disproportionate
distribution within the meaning of Section 305 of the
Code. A disproportionate distribution is a distribution or
series of distributions, including deemed distributions, that
has the effect of the receipt of cash or other property by some
stockholders or holders of debt instruments convertible into
stock (including interest payments to the holders of the debt)
and an increase of a proportionate interest of other
stockholders in a companys assets or earnings and profits.
The Company has not distributed any cash or other property with
respect to any other class of the Companys stock and
currently does not expect to make any such distribution. In
addition, although the Company has Notes outstanding that are
convertible into common stock and on which it has paid interest,
under applicable Treasury regulations the receipt of Rights will
not be part of a disproportionate distribution if a full
44
adjustment is made in the conversion price of the Notes
to reflect the Rights Offering. The Note Purchase Agreements
pursuant to which the Notes were issued require an adjustment to
the conversion price of the Notes as a result of the Rights
Offering, and we intend to make this adjustment. The Treasury
regulations do not directly address the adjustment mechanism
contained in the Note Purchase Agreements pursuant to which the
Notes were issued. Thus, it is uncertain whether the adjustment
to the conversion price required by the Note Purchase Agreements
qualifies as a full adjustment. In addition,
although the Company does not currently plan to make a
distribution with respect to any other class of stock, there can
be no assurance that such distribution will not be made. It is
also unclear whether the fact that we also have outstanding
options and warrants could cause the receipt of the Rights to be
part of a disproportionate distribution. If,
contrary to our expectations, the Company makes a distribution
of cash or property with respect to a class of stock other than
its common stock, if the adjustment to the conversion price of
the Notes is not treated as a full adjustment, or if
the existence of our outstanding options and warrants causes the
receipt of the Rights to be part of a disproportionate
distribution, the Internal Revenue Service may take the position
that a recipient of the Rights has received a distribution equal
to the fair market value of the Rights as of date of the
distribution. Any such distribution would be treated as dividend
income to the extent of the Companys current and
accumulated earnings and profits, with any excess being treated
as a return of capital to the extent thereof and then as capital
gain. The recipients tax basis in such Rights would be
equal to the fair market value of the Rights as of the date of
the distribution.
U.S. stockholders who allow the Rights received by them on
the date of issuance to expire unexercised will not recognize
any gain or loss, and no adjustment will be made to the basis of
their shares of common stock.
Sale or
Other Disposition
Upon a sale or other disposition of Underlying Shares, a
U.S. stockholder generally will recognize capital gain or
loss for U.S. federal income tax purposes equal to the
difference, if any, between the amount realized on the sale or
other disposition and the U.S. stockholders adjusted
tax basis in the Underlying Shares, each determined in
U.S. dollars. This capital gain or loss will be long term
capital gain or loss if the U.S. stockholders holding
period in the Underlying Shares exceeds one year. For a
non-corporate U.S. stockholder, the current maximum
long-term capital gains rate is 15%. Any gain or loss generally
will be U.S. source.
Backup
Withholding and Information Reporting
Payments of dividends and other proceeds with respect to
Underlying Shares in the U.S. by a U.S. paying agent
or other U.S. intermediary will be reported to the Internal
Revenue Service and to the U.S. stockholder as may be
required under applicable regulations. Backup withholding may
apply to these payments if the U.S. stockholder fails to
provide an accurate taxpayer identification number or
certification of foreign or other exempt status or fails to
report all interest and dividends required to be shown on its
U.S. federal income tax returns. Certain
U.S. stockholders (including, among others, corporations)
are not subject to backup withholding. U.S. shareholders
should consult their tax advisers as to their qualification for
exemption from backup withholding and the procedure for
obtaining an exemption.
STANDBY
UNDERWRITING AND PLAN OF DISTRIBUTION
The common stock offered pursuant to the Rights Offering is
being offered by us directly to all holders of our common stock.
We intend to distribute Subscription Rights Certificates, copies
of this prospectus, and certain other relevant documents to
those persons that were holders of our common stock
at p.m., U.S. Eastern time
( CET), on , 2008, the Record
Date for the Rights Offering. In the event that the Rights
Offering is not fully subscribed by the holders of our common
stock, the Standby Underwriters will purchase up to an aggregate
of 242,000,000 Unsubscribed Shares (as defined below) pursuant
to their respective Standby Underwriting Agreements.
45
Determination
of Subscription Price
The Subscription Price was previously determined as a result of
negotiations between the Company and potential standby
underwriters. The Companys objective in establishing the
Subscription Price was the achievement of the targeted proceeds
from the Offering while providing Rights Holders with an
opportunity to make an additional investment in the Company, and
thus avoid an involuntary dilution of their proportionate
ownership position in the Company.
In approving the Subscription Price, the Board of Directors
considered such factors as the alternatives available to the
Company for raising capital, the Companys long and short
term loan obligations, the market price of the common stock, the
business prospects for the Company and the general condition of
the securities markets. There can be no assurance, however, that
the market price of the common stock will not decline during the
subscription period, or that, following the issuance of the
Rights and of the common stock upon exercise of Rights, a
subscribing Rights Holder will be able to sell shares of common
stock purchased in the Rights Offering at a price equal to or
greater than the Subscription Price.
Further, in approving the Subscription Price, the Board of
Directors acted upon the recommendation of a committee composed
of the independent directors of the Board of Directors of the
Company (the Independent Committee) comprised of
Messrs. Michael Ayre, Russ Hammond and Anthony Perry.
Standby
Underwriting Agreements
Prior to the commencement of the Rights Offering, the Company
has entered into substantially identical Standby Underwriting
Agreements pursuant to which each of the Standby Underwriters
has severally and not jointly agreed, subject to certain
conditions, to acquire from the Company at the Subscription
Price on the expiration date, of the Right Offering, up to a
maximum of 242,000,000 of the Underlying Shares (the
Unsubscribed Shares) remaining after the exercise of
the Basic Subscription Privilege by all of the Rights Holders.
The Standby Underwriters have also been granted the right to
receive a commission equal to 7% of the aggregate Subscription
Price in respect of all of the shares the subject of the Rights
Offering which they may elect to receive in shares of common
stock in lieu of cash at a cost per share equal to the
Subscription Price; provided, however, that if a Standby
Underwriter is an existing stockholder it will only receive a
commission for its part of the underwritten amount that exceeds
the pro rata amount of shares that it would receive pursuant to
an exercise of its Rights. Each Standby Underwriter further
agrees that it will not and it will cause its directors,
shareholders (registered or beneficial) or associates not to
deal in any shares if the effect of such dealing would in any
way impinge upon the ability to subscribe for all the
unsubscribed shares without the Standby Underwriter or its
respective directors, shareholders (registered or beneficial) or
associates exceeding a holding of 49.99% of the aggregate issued
shares in the capital of the Company. The Standby Underwriting
Agreements further provide that:
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the underwriting commissions will be paid even if the Company
does not carry out the Rights Offering and in such event will be
paid on December 31, 2008;
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each Standby Underwriter agrees to comply with all applicable
laws and stock exchange regulations and not to sell, offer to
sell or solicit offers to purchase any of the shares it
purchases in the United States or to U.S.
persons or to engage in any directed selling
efforts (as each term is defined in Regulation S
promulgated under the U.S. Securities Act of 1933, as amended)
in the United States;
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among other customary representations and warranties each
Standby Underwriter represents and warrants that it is not a
U.S. person and is not and is not required to be a
member of the U.S. Financial Industry Regulatory Authority, Inc.
or registered as a broker-dealer under Section 15 of the U.S.
Securities Exchange Act of 1934, as amended;
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the subscription period for Underlying Shares shall not exceed
four weeks; and
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the Standby Underwriting Agreements further provide that the
obligations of the Standby Underwriters are conditioned upon the
consummation of the Rights Offering prior to December 31, 2008.
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See The Rights Offering.
46
The names of each Standby Underwriter, together with his or its
maximum commitment amount for Unsubscribed Shares, relationship
to the Company, if any, and maximum number of shares in lieu of
commission, are set forth in the following table:
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Maximum No.
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Relationship to
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Maximum No.
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Name
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Unsubscribed Shares
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Company
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Commission Shares
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Caldwell Associates Limited
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100,000,000
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None
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7,000,000
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P.O. Box 198
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St. Peter Port
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Guernsey
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GYI 4HU
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Provincial Securities Limited
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50,000,000
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See footnote 1
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3,500,000
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2 Rue Thalberg
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1211 Geneva 1
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Switzerland
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Heritage Cie S.A.
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42,000,000
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None
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2,940,000
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P.O. Box 1507
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2 Rue Thalberg
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1211 Geneva 1
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Switzerland
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Salahi Öztürk
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20,000,000
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See footnote 2
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1,400,000
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Strateji Menkul
Deǧerler A.Ş.
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Maya Akar Center Kat: 26
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Büyükdere Cd. No: 100-102
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Esentepe, Istanbul, Turkey
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Oaman Necdel Turkay
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15,000,000
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None
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1,050,000
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Siratcji Menkul
Deǧerler A.Ş.
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Maya Akar Center Kat: 26
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Büyükdere Cd. No: 100-102
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Esentepe, Istanbul, Turkey
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Hasan Gürhan Berker
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5,000,000
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None
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350,000
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Strateji Menkul
Deǧerler A.Ş.
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Maya Akar Center Kat: 26
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Büyükdere Cd. No: 100-102
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Esentepe, Istanbul, Turkey
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Fevzi Bozer
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5,000,000
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None
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350,000
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Strateji Menkul
Deǧerler A.Ş.
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Maya Akar Center Kat: 26
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Büyükdere Cd. No: 100-102
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Esentepe, Istanbul, Turkey
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Hasip Buldanlioǧlu
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5,000,000
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None
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350,000
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Strateji Menkul
Deǧerler A.Ş.
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Maya Akar Center Kat: 26
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Büyükdere Cd. No: 100-102
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Esentepe, Istanbul, Turkey
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Total:
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242,000,000
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None
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16,940,000
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(1)
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Mr. Russ Hammond, a non-employee director of the Company, is
also an Investment Advisor to Provincial Securities Limited who
became a minority shareholder in the Norio and North Kumisi
(Block XIc) Production Sharing Agreement through a farm-in
agreement to the Norio MK72 well. On September 4, 2003 the
Company concluded a deal to purchase Provincial Securities
Limiteds minority interest in CanArgo Norio Ltd. by a
share swap for shares in the Company. The purchase was achieved
by issuing 6 million restricted shares of Common Stock in the
Company to the minority interest holders in CanArgo Norio Ltd.
Of the interests in CanArgo Norio Ltd., Provincial Securities
Limited owned 4% and received 2,234,719 shares of the
Companys Common Stock. Provincial Securities Limited also
had an interest in Tethys Petroleum Limited (formerly named
Tethys Petroleum Investments Limited) (Tethys), a
Guernsey company, established to develop potential projects in
Kazakhstan, in which the Company had a minority interest until
June 2005 when the Company acquired the remaining 55% interest
in Tethys which it did not own. Pursuant to this transaction,
Provincial Securities Limited received 5,500,000 shares of the
Companys Common Stock
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in exchange for its interest in
Tethys. Mr. Hammond did not receive any compensation in
connection with these transactions and disclaims any beneficial
ownership of Provincial Securities Limited or of any shares of
the Companys Common Stock owned by Provincial Securities
Limited. In August 2007, the Company disposed of its interest in
Tethys.
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(2)
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Mr. Salahi Öztürk currently owns warrants to purchase
1,000,000 common shares of our common stock exercisable at $0.63
per share. The warrants expire on April 26, 2009.
Mr. Öztürk currently owns warrants to purchase
1,000,000 shares of common stock exercisable at $0.63 per share.
The warrants expire on April 26, 2009. Pursuant to an
Amended and Restated Loan and Warrant Agreement dated August 27,
2004 Mr. Öztürk advanced a loan, the balance of
which was $1,050,000 on February 14, 2006, the date on
which we exercised our option to force conversion of the loan
into 1,521,739 shares of our common stock.
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The Standby Underwriters are restricted to offering the
Unsubscribed Shares directly to the public located outside the
United States and who are not U.S. Persons (as each is
defined in Regulation S promulgated under the Securities
Act). The Standby Underwriters may also offer the Unsubscribed
Shares through the facilities of the Oslo Stock Exchange to
certain foreign securities dealers at prices which may represent
concessions from the prices at which such shares are then being
offered to the public. The Standby Underwriters may allow, and
such dealers may reallow, a concession to certain brokers and
dealers. The amount of such concessions and reallowances will be
determined from time to time by the Standby Underwriters. In
effecting such transactions, the Standby Underwriters may
realize profits and losses independent of the compensation
referred to below.
Except for the Standby Underwriting Agreements or as otherwise
disclosed in this prospectus, we have not agreed to enter into
any standby or other arrangements to purchase or sell any Rights
or any Underlying shares of our common stock.
The
Manager
We have engaged Glitnir to act as the manager and to provide the
Company with financial advice and assistance in connection with
the Rights Offering, including: giving us advice on the
structuring, timing and project management of the Offering;
assisting us in connection with the preparation of documentation
in relation to the Offering; acting as Norwegian Subscription
Agent for the Offering; and assisting us in the co-ordination of
the closing and settlement of the Offering.
Glitnir shall be entitled the following fees and expenses:
(1) a $10,000 commencement fee, payable irrespective of
whether the Rights Offering is successfully completed or not,
provided however that such commencement fee shall be deducted
from the transaction fees (as next referred to) if the Rights
Offering is completed; (2) transaction fees comprising
(i) an arrangement fee equal to 2.5% of the gross proceeds
of the Rights Offering (but no less than $600,000) and
(ii) a discretionary fee up to 0.5% of the gross proceeds
of the Rights Offering, payable only and entirely at the
Companys discretion, taking into consideration, among
other things, the Companys satisfaction of the services
provided by Glitnir; and (3) Glitnirs costs and
expenses incurred in connection with Glitnirs engagement
(payable irrespective of whether the Rights Offering is
successfully completed or not).
For a period of 12 months from June 26, 2008 (being
the date of Glitnirs engagement by the Company), the
Company is to give Glitnir the right to make an offer or
participate in negotiations for new assignments or transactions
(falling within the scope of Glitnirs engagement in
connection with the Offering), where the Company decides to
appoint an investment firm.
Under the terms of the Companys engagement of Glitnir, the
Company accepts: (1) that neither Glitnir nor any other
member of the Glitnir Group (nor any of its or their respective
owners, directors, officers, employees, consultants and agents)
shall be liable to the Company or any of its directors,
officers, employees, consultants or agents for any claim, loss,
damage, liability, cost or expense suffered by the Company or
any such other person arising out of, or related to, the
engagement, except if caused by gross or willful negligence on
the part of Glitnir; (2) that Glitnir shall under no
circumstances be liable for any indirect or consequential
losses; and (3) that Glitnirs liability towards the
Company shall in all circumstances be limited to the fees due
and payable by the Company to Glitnir pursuant to the engagement.
The Company also agrees to indemnify, defend and hold harmless
Glitnir, the Glitnir Group and their respective owners,
directors, officers, employees, consultants and agents (each an
Indemnified Person) from and against all claims,
actions, proceedings, demands, losses, damages, liabilities,
costs and expenses (1) arising
48
out of or in connection with any untrue statement or alleged
untrue statement of a fact, any material omission or alleged
material omission or misleading statement contained in any
investor presentation, prospectus or other marketing material or
information disclosed or published by the Company in connection
with the engagement and (2) otherwise arising out of or in
connection with the engagement or any other matter or activity
referred to or contemplated in the engagement letter between the
Company and Glitnir or which arise out of any breach by the
Company of any of its obligations, duties or any warranties in
connection with the engagement, which any Indemnified Person may
suffer or incur in any jurisdiction (but in the case of
(2) above such indemnification shall be under exception of
claims, losses, damages, liabilities, costs or expenses that
arise primarily out of or are based primarily upon any action or
failure to act by Glitnir that constitutes gross or willful
negligence on the part of Glitnir).
Neither Glitnir nor any of the Standby Underwriters has prepared
any report or opinion constituting a recommendation or advice to
us or to our stockholders in connection with the Rights
Offering, nor have they prepared an opinion as to the fairness
of the Subscription Price or the terms of the Rights Offering.
Neither Glitnir nor any Standby Underwriter expresses any
opinion or makes any recommendation to the holders of our common
stock as to the purchase by any person of any shares of our
common stock or whether they should sell their Rights or let
them lapse unexercised. Glitnir and the Standby Underwriters
also express no opinion as to the prices at which the Rights and
the shares that are to be distributed in connection with the
Rights Offering may trade if and when they are issued or at any
future time.
Glitnir may in the future provide various investment banking,
financial advisory and other services for us and our affiliates.
In addition, as indicated above, Provincial Securities has in
the past engaged in certain transactions with us and our
affiliates and Mr. Ozturk has loaned the Company money,
which was repaid, for which he also earned warrants to purchase
shares of our common stock.
We estimate that our total expenses of this Offering, excluding
underwriting commissions, will be approximately $.
We have been advised that the Rights will be listed for trading
on the AMEX and the OSE under the symbols and ,
respectively. It is anticipated that trading in the Rights will
commence on or about the second day after the commencement of
the Rights Offering and the issuance of the Rights.
Other than the manager, the Company has not employed any
brokers, dealers or underwriters to solicit the exercise of
Rights in this Rights Offering and no underwriting commissions,
fees or discounts will be paid in connection with this Rights
Offering other than those payable to the Standby Underwriters.
Certain employees of the Company may solicit responses from
stockholders and Rights Holders, but such employees will not
receive any commissions or compensation for such services other
than their normal employment compensation. Computershare is
acting as the US Subscription Agent and the manager is also
acting as the Norwegian Subscription Agent for the Rights
Offering. We will pay all customary fees and expenses for the US
Subscription Agent (the fees of the manager for acting as the
Norwegian Subscription agent are included in its fee described
above) related to the Rights Offering. We have also agreed to
indemnify the Subscription Agents with respect to certain
liabilities that they may incur in connection with the Rights
Offering.
The Company maintains three stock option plans, under which
adjustments to outstanding options may be made to reflect the
impact of the Offering. Likewise, under the terms of the
Companys Subordinated Notes and 12% Subordinated
Notes and certain warrants to purchase shares of common stock
issued by the Company, the respective conversion prices and
exercise prices of such Notes and such warrants will be reset to
$0.10 on successful closing of the Rights Offering resulting in
a possible maximum issue of up to 173,611,111 shares of
common stock upon conversion of the Notes and exercise of such
warrants; provided, however, the Company intends to repay in
advance of their stated maturity date up to $5,000,000 in
aggregate principal amount of such Notes, which if such Notes
are not converted in advance of such payment will reduce such
maximum amount of issuable shares of common stock to
123,611,111. The Company has not been advised of the intentions
of the Noteholders in this regard.
49
LIMITATION
OF LIABILITY AND INDEMNIFICATION
Limitation
of Liability
Our Amended and Restated Certificate of Incorporation limits or
eliminates the liability of our directors to us or our
stockholders for monetary damages to the fullest extent
permitted by the Delaware General Corporation Law. Delaware law
provides that a director of CanArgo will not be personally
liable to CanArgo or our stockholders for monetary damages for a
breach of fiduciary duty as a director, except for liability:
(1) for any breach of the directors duty of loyalty;
(2) for acts or omissions not in good faith or involving
intentional misconduct or a knowing violation of law;
(3) for the payment of unlawful dividends, stock purchases
or redemptions; and some other actions prohibited by Delaware
corporate law; and (4) for any transaction resulting in
receipt by the director of an improper personal benefit.
Indemnification
Delaware General Corporation Law provides that a corporation may
indemnify its present and former directors, officers, employees
and agents (each, an indemnitee) against all
reasonable expenses (including attorneys fees) judgments,
fines and amounts paid in settlement incurred in an action, suit
or proceeding, other than in actions initiated by or in the
right of the corporation, to which the indemnitee is made a
party by reason of service as a director, officer, employee or
agent, if such individual acted in good faith and in a manner
which he or she reasonably believed to be in, or not opposed to,
the best interests of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. A Delaware corporation shall indemnify
an indemnitee to the extent that he or she is successful on the
merits or otherwise in the defense of any claim, issue or matter
associated with an action, suit or proceeding, including one
initiated by or in the right of the corporation. Our Bylaws
provide for indemnification of directors and officers to the
fullest extent permitted by Delaware General Corporation Law.
Delaware General Corporation Law allows and our Bylaws provide
for the advance payment to an indemnitee for expenses prior to
the final disposition of an action, provided that the indemnitee
undertakes to repay any such amount advanced if it is later
determined that the indemnitee is not entitled to
indemnification with regard to the action for which the expenses
were advanced.
Our directors and officers are insured, under policies of
insurance maintained by us, within the limits and subject to the
limitations of the policies, against certain expenses in
connection with the defense of actions, suits or proceedings, to
which they are parties by reason of being or having been such
directors or officers.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons who may control us pursuant to the foregoing provisions,
we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
SECTION 203
OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law, which is
applicable to CanArgo as a Delaware corporation, prohibits
various business combinations between a Delaware corporation and
an interested stockholder, that is, anyone who
beneficially owns, alone or with other related parties, at least
15% of the outstanding voting shares of a Delaware corporation.
Business combinations subject to Section 203 include mergers,
consolidations, sales or other dispositions of assets having an
aggregate market value equal to 10% or more of either the
aggregate market value of the consolidated assets of the
corporation or the aggregate market value of all of the
outstanding stock of the corporation, some transactions that
would increase the interested stockholders proportionate
share ownership in the corporation and any receipt by the
interested stockholder of the benefit, directly or indirectly
(except proportionately as a stockholder of the corporation), of
any loans, advances, guarantees, pledges or other financial
benefits provided by the corporation or any direct or indirect
50
majority-owned subsidiary. Section 203 prohibits this type of
business combination for three years after a person becomes an
interested stockholder, unless:
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the business combination is approved by the corporations
board of directors prior to the date the person becomes an
interest stockholder;
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upon consummation of the transaction which results in the
stockholder becoming an interested stockholder, the interested
stockholder acquired at least 85% of the voting stock of the
corporation, other than stock held by directors who are also
officers or by specified employee stock plans, in the
transaction in which it becomes an interested
stockholder; or
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the business combination is approved by a majority of the board
of directors and by the affirmative vote of two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder at an annual or special meeting of stockholders.
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LEGAL
MATTERS
The validity of the shares of common stock offered hereby has
been passed upon for us by Satterlee Stephens Burke &
Burke LLP, New York, New York.
EXPERTS
The consolidated financial statements of CanArgo Energy
Corporation as of December 31, 2007 and 2006 and for each
of the years in the three year period ending December 31,
2007, incorporated in this prospectus by reference from CanArgo
Energy Corporations Annual Report on
Form 10-K
for the year ended December 31, 2007, as amended, which,
have been audited by L J Soldinger Associates LLC,
independent registered public accountants, as stated in their
reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The oil and gas reserve data incorporated by reference to our
Annual Report on
Form 10-K
for the year ended December 31, 2007, as amended, has been
prepared by Oilfield Production Consultants (OPC) Limited and
such reserve report dated January 1, 2008 has been
incorporated herein in reliance upon the authority of such firm
as experts in estimating proved oil and gas reserves.
WHERE YOU
CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of
the Exchange Act under which we file periodic reports, proxy
statements and other information with the Securities and
Exchange Commission (SEC). You may read and copy any
document we file at the SECs public reference rooms at the
Public Reference Section of the SEC at 100 F Street,
N.E., Washington, DC
20549-7010
and at the Commissions Regional Offices located at 3 World
Financial Center, RM 4300, New York, New York
10281-1022
and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at
1-800-SEC-0330
for further information on the public reference rooms. Our SEC
filings are also available to the public from the SECs
Internet site at
http://www.sec.gov
which contains reports, proxy and information statements and
other information regarding issuers that file electronically.
This prospectus is part of a registration statement that we
filed with the SEC (registration number
333-150625).
The registration statement of which this prospectus forms a part
contains more information than this prospectus regarding CanArgo
Energy Corporation and our common stock, including certain
exhibits. You can get a copy of the registration statement from
the SEC at the addresses listed above or from its Internet site.
You can also obtain information about us from our Internet site
at http://www.canargo.com.
Our common stock is listed on the Oslo Stock Exchange in Norway
under the symbol CNR and also on The American Stock
Exchange under the symbol CNR. Information about us
is also available at the Oslo Stock Exchange website
(www.ose.no), and at the offices of The American Stock
Exchange, 86 Trinity Place, New York, NY 10005.
51
DOCUMENTS
INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those documents
that are considered part of this prospectus. Later information
that we file with the SEC will automatically update and
supersede this information. We incorporate by reference the
documents listed below and any future filings made by us with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until this offering of
securities has been completed:
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Annual Report on
Form 10-K
for the year ended December 31, 2007, as amended;
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Quarterly Reports on
Form 10-Q
for the fiscal quarters ended March 31, 2008 and June 30, 2008;
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The description of CanArgos common stock contained in
Form 8-A/12B
dated April 19, 2004;
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Definitive Proxy Materials filed on June 18, 2008; and
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Current Reports on
Form 8-K
filed on January 8, 2008, February 11, 2008,
February 14, 2008, March 6, 2008, March 28, 2008,
April 28, 2008, June 3, 2008, June 16, 2008, July 7, 2008, July
21, 2008, July 25, 2008, and August 11, 2008.
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We will provide without charge to each person, including any
beneficial owner, to whom a copy of this prospectus is
delivered, upon written or verbal request, a copy of the
foregoing documents. Written or telephone requests for such
copies should be directed to the Corporate Secretary, CanArgo
Energy Corporation, PO Box 291, St Peter Port,
Guernsey, GY1 3RR, British Isles, +(44) 1481 729 980.
You should rely only on the information contained in this
prospectus and any supplement. We have not authorized any other
person to provide you with different or additional information.
If anyone provides you with different or additional information,
you should not rely on it. This prospectus is not an offer to
sell these securities in any jurisdiction where the offer or
sale is not permitted. You should assume that the information
appearing in or incorporated by reference in this prospectus and
any supplement is accurate as of its date only. Our business,
financial condition, results of operations and prospects may
have changed since that date.
52
CANARGO ENERGY
CORPORATION
Subscription Rights to Purchase
Shares
of
Common Stock
PROSPECTUS
, 2008
Until , 2008 all dealers that buy, sell or trade in our
common stock, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
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Item 14.
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Other
Expenses of Issuance and Distribution.
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The following table sets forth the estimated expenses, all of
which are to be borne by the Company, in connection with the
registration, issuance and distribution of the securities being
registered hereby other than underwriting discounts and
commissions. All amounts are estimates except the SEC
registration fee.
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SEC Registration Fee
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$
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1,970
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Legal Fees and Expenses
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Accountants Fees and Expenses
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Printing Expenses
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Subscription Agent Fees and Expenses
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Transfer Agent and Registrar Fees and Expenses
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Miscellaneous
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Total
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$
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The following exhibits are filed as part of this registration
statement.
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Exhibit
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No.
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Description of Exhibit
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Management Contracts, Compensation Plans and Arrangements are
identified by an asterisk (*) Documents filed herewith are
identified by a cross ().
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1(6
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Form of Standby Underwriting Agreement between the Company and
the Standby Underwriters dated July 24, 2008 (Incorporated
by reference to Exhibit 1.0 attached to the
Form 8-K
of CanArgo filed on July 24, 2008).
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3(4
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)
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Certificate of Amendment of the Certificate of Incorporation of
CanArgo Energy Corporation as filed by the Office of the
Secretary of State of Delaware on July 21, 2008
(Incorporated by reference to Exhibit 3.1 attached to the
Form 8-K
of CanArgo filed on July 21, 2008).
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4(1
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)
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Form of Subscription Rights Certificate.
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5(1
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)
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Opinion of Satterlee Stephens Burke & Burke LLP re:
legality of securities being registered.
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10(1
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Managers Engagement Agreement.
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23.1
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Consent of Satterlee Stephens Burke & Burke LLP to the
use of their opinion with respect to the legality of the
securities being registered (included in opinion filed as
Exhibit 5(1)).
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23(2
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)
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Consent of L J Soldinger Associates LLC.
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24(1
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)
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Power of attorney of certain signatories (contained on the
signature page included in Part II of the Registration
Statement).
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99(1
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)
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Form of Instructions as to Use of Subscription Rights
Certificate.
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99(2
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Form of Notice of Guaranteed Delivery for Rights
Certificates.
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99(3
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Form of Letter of Stockholders who are Record Holders.
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99(4
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)
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Form of Letters to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
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99(5
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Form of Letter to Clients who are Beneficial Holders.
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99(6
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)
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Form of Nominee Holder Certification.
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99(7
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)
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Beneficial Owner Election Form.
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99(8
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Form of Notice of Important Tax Information.
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Filed herewith |
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To be filed by amendment |
II-1
a. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the
Calculation of Registration Fee table in the
effective Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
Provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and
(a)(i)(iii) of this section do not apply if the registration
statement is on
Form S-3
or
Form F-3
and the information required to be included in a post-effective
amendment by those paragraphs is contained in reports filed with
or furnished to the Commission by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the Registration
Statement, or is contained in a form of prospectus field
pursuant to Rule 424(b) that is part of the Registration
Statement.
(2) That, for the purposes of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
b. The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, as amended (the Act), each filing of the
registrants annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit
plans annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
c. The undersigned registrant hereby undertakes to
supplement the prospectus, after the expiration of the
subscription period, to set forth the results of the
subscription offer, the transactions by the underwriter during
the subscription period, the amount of unsubscribed securities
to be purchased by the underwriter, and the terms of any
subsequent reoffering thereof. If any public offering by the
underwriter is to be made on terms differing from those set
forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.
d. Insofar as indemnification for liabilities arising under
the Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described
in Item 15 above, or otherwise, the registrant has been
advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification
II-2
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
e. The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the
Act, the information omitted from the form of prospectus filed
as part of a registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by
the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form S-3
and has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
City of London on August 20, 2008.
CANARGO ENERGY CORPORATION
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By:
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/s/ Vincent
McDonnell
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Vincent McDonnell
Chief Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of CanArgo Energy
Corporation, a Delaware corporation, do hereby constitute and
appoint Vincent McDonnell and Jeffrey Wilkins, and either of
them, the lawful attorney and agent, with power and authority to
do any and all acts and things and to execute any and all
instruments which said attorney and agent, determine may be
necessary or advisable or required to enable said corporation to
comply with the Securities Act of 1933, as amended, and any
rules or regulations or requirements of the Securities and
Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing
power of authority, the powers granted include the power and
authority to sign the names of the undersigned officers and
directors in the capacities indicated below to this Registration
Statement, to any and all amendments, post-effective amendments
and supplements thereof and to any and all instruments or
documents filed as part of or in connection with such
Registration Statement, and each of the undersigned hereby
certifies and confirms all that said attorney and agent, shall
do or cause to be done by virtue hereof. The Power of Attorney
may be signed in several counterparts.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the dates indicated below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
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By:
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/s/ Jeffrey
Wilkins
Jeffrey
Wilkins, Chief Financial Officer and Director
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Date: August 20, 2008
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By:
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/s/ Vincent
McDonnell
Vincent
McDonnell, Chairman of the Board,
President and Chief Executive Officer
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Date: August 20, 2008
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By:
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/s/ Russ
Hammond
Russ
Hammond, Director
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Date: August 20, 2008
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By:
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/s/ Anthony
Perry
Anthony
Perry, Director
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Date: August 20, 2008
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By:
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/s/ Michael
Ayre
Michael
Ayre, Director
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Date: August 20, 2008
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By
Vincent McDonnell, Attorney in Fact
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II-4
EXHIBIT INDEX
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Filed
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Herewith
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Exhibit
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4(1
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Form of Subscription Rights Certificate.
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10(1
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Managers Engagement Agreement.
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23(2
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)
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Consent of L J Soldinger Associates LLC.
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24(1
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)
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Power of attorney of certain signatories (contained on the
signature page included in Part II of the Registration
Statement).
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99(1
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)
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Form of Instructions as to Use of Subscription Rights
Certificate.
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99(2
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)
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Form of Notice of Guaranteed Delivery for Rights
Certificates.
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99(3
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Form of Letter of Stockholders who are Record Holders.
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99(4
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Form of Letters to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
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99(5
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Form of Letter to Clients who are Beneficial Holders.
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99(6
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)
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Form of Nominee Holder Certification.
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99(7
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)
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Beneficial Owner Election Form.
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99(8
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)
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Form of Notice of Important Tax Information.
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