<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
CANARGO ENERGY CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
CANARGO ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 16, 1999
------------------------
To The Stockholders:
The Annual Meeting of Stockholders of CanArgo Energy Corporation
("CanArgo") will be held at , on , 1999 at a.m. for the
following purposes:
1. To elect five directors to serve until the next Annual Meeting of
Stockholders or until their successors are duly elected and
qualified;
2. To approve an amendment to CanArgo's Certificate of Incorporation to
effect a 1-for-25 reverse stock split of the outstanding Common
Stock;
3. To approval a proposal to amend the 1995 Long-Term Incentive Plan to
increase the number of shares that may be issued thereunder;
4. To ratify the selection of PricewaterhouseCoopers LLP as independent
public accountants of CanArgo for the year ending December 31, 1999;
and
5. To transact such other business as may properly come before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on , 1999
as the record date for determination of the stockholders entitled to notice of
and to vote at the Annual Meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY TO ENSURE THAT YOUR
SHARES WILL BE REPRESENTED AT THE ANNUAL MEETING. THE PROXY CARD MAY BE RETURNED
IN THE ACCOMPANYING ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES. IF YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON EVEN
IF YOU HAVE SENT IN YOUR PROXY CARD.
SUSAN E. PALMER
Secretary
, 1999
<PAGE> 3
CANARGO ENERGY CORPORATION
1580 Guinness House
727 - 7th Avenue SW
Calgary, Alberta, Canada T2P 0Z5
-------------------------------
PROXY STATEMENT
-------------------------------
GENERAL INFORMATION
SOLICITATION, REVOCATION AND VOTING OF PROXIES
The accompanying proxy is solicited by and on behalf of the Board of
Directors of CanArgo Energy Corporation ("CanArgo"), in connection with the
Annual Meeting of Stockholders to be held at a.m. on , 1999, at
, and at any and all adjournments thereof. It is anticipated that this
Proxy Statement and accompanying proxy will first be mailed to stockholders on
or about , 1999.
The accompanying proxy, if properly executed and returned, will be voted as
specified by the stockholder or, if no vote is indicated, the proxy will be
voted FOR each matter specified. As to any other matter of business which may be
brought before the Annual Meeting, a vote may be cast pursuant to the
accompanying proxy in accordance with the judgment of the persons voting the
same, but management does not know of any such other matter of business. A
stockholder may revoke his proxy at any time prior to the voting of shares by
voting in person at the Annual Meeting or by filing with the Secretary of
CanArgo a duly executed proxy bearing a later date or an instrument revoking the
proxy.
The costs of solicitation of proxies will be paid by CanArgo. In addition
to soliciting proxies by mail, CanArgo's officers, directors and other regular
employees, without additional compensation, may solicit proxies personally, by
telephone or by other appropriate means. Banks, brokers, fiduciaries and other
custodians and nominees who forward proxy soliciting material to their
principals will be reimbursed their customary and reasonable out-of-pocket
expenses.
VOTING RIGHTS AND RECORD DATE
The voting securities of CanArgo consist of Common Stock, par value $0.10
per share, and Series Voting Preferred Stock ("Special Voting Stock"), par value
$0.10 per share. Generally, the Common Stock and Special Voting Stock vote as a
single class on all matters. The Common Stock is entitled to one vote per share.
Each of the one hundred (100) shares of Special Voting Stock is entitled to that
number of votes as is equal to one-one hundredth (1/100th) of the number of
Exchangeable Shares ("Exchangeable Shares") issued by CanArgo Oil & Gas Inc., a
subsidiary of CanArgo, as are then outstanding, rounded down to the nearest
whole number. The Special Voting Stock is held of record by Montreal Trust
Company of Canada, which holds such stock in trust for the benefit of the
holders of the Exchangeable Shares. The Special Voting Stock is voted in the
manner directed by the holders of the Exchangeable Shares. The Exchangeable
Shares may be exchanged for shares of Common Stock on a share-for-share basis.
The term "Voting Securities" refers to the Common Stock and the Special Voting
Stock as though they were a single class of voting securities.
Only stockholders of record of CanArgo's Voting Securities as of the close
of business on , 1999 (the "Record Date") will be entitled to vote at
the Annual Meeting. On the Record Date, shares of Common Stock were
issued and outstanding, each of which is entitled to one vote per share. On the
Record Date, Exchangeable Shares were issued and outstanding, and
accordingly each share of Special Voting Stock is entitled to votes. Voting
Securities representing a majority of the votes entitled to be cast at the
Annual Meeting, represented in person or by proxy, constitutes a quorum at the
Annual Meeting. Abstentions and broker non-votes are counted as present for
purposes of determining the existence of a quorum.
1
<PAGE> 4
ELECTION OF DIRECTORS
The Board of Directors has nominated five persons to be elected directors
at the Annual Meeting to hold office until the next Annual Meeting of
Stockholders and until the election of their respective successors. Directors
are elected by a plurality of votes cast; broker non-votes and votes withheld
have no effect on the vote. All proxies received by the Board of Directors will
be voted for the nominees listed below if no direction to the contrary is given.
In the event that any nominee is unable or declines to serve, an event that is
not anticipated, the proxies will be voted for the election of any alternate
nominee who is designated by the Board of Directors.
The nominees for director are:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
- ---- --- --------------------
<S> <C> <C>
Michael R. Binnion.......................... 38 President and Chief Financial Officer
J.F. Russell Hammond(2)..................... 57 Investment Advisor, Provincial Securities Ltd.
Peder Paus(1)............................... 53 Independent Consultant
David Robson................................ 41 Chairman and Chief Executive Officer
Nils N. Trulsvik (2)........................ 50 Partner, The Bridge Group
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
MICHAEL R. BINNION was elected a Director, President and Chief Financial
Officer on July 15, 1998. He has also served as a director, chief financial
officer and secretary of CanArgo Oil & Gas Inc., now a subsidiary of CanArgo,
since March 1997. Mr. Binnion is also president and a director of Terrenex
Acquisition Corporation, an Alberta Stock Exchange listed investment company
which is CanArgo's largest stockholder, and sole director of Ruperts Crossing, a
private investment company. He is also a director of NRI Online Inc., Fintech
Services Ltd. and Smartor Products Inc. Prior to April 1997, he served as chief
financial officer and a director of Trans-Dominion Energy Company, a Toronto
Stock Exchange listed international exploration and production company, for four
years.
J.F. RUSSELL HAMMOND was elected a Director on July 15, 1998. He has also
served as a director of CanArgo Oil & Gas Inc. since June 1997. For over five
years, Mr. Hammond has been an investment advisor to Provincial Securities Ltd.,
a private investment company. Mr. Hammond has been chairman of Terrenex
Acquisition Corporation since 1992.
PEDER PAUS was elected a Director on July 15, 1998 and is an independent
businessman based in Oslo, Norway. Since 1995, he has been a consultant on
investor relations for various companies. From 1981 to 1995, Mr. Paus was chief
executive officer of North Venture Ltd., a shipping and offshore consulting firm
based in London, England.
DAVID ROBSON was elected a Director, Chairman of the Board and Chief
Executive Officer on July 15, 1998. He has also served as a director, chairman
of the board and chief executive officer of CanArgo Oil & Gas Inc. since July
1997; as president of CanArgo Oil & Gas Inc.'s subsidiary, Ninotsminda Oil
Company, since 1996; and as managing director and sole owner of Vazon Energy
Limited, a company which provides consulting services to the energy industry,
since March 1997. From April 1992 until February 1997, Dr. Robson was a senior
officer of JKX Oil & Gas plc, including Managing Director and Chief Executive
Officer. He holds a B.Sc. (Hon) in Geology and a Ph.D in Geochemistry from the
University of Newcastle upon Tyne, and an MBA from the University of
Strathclyde. He is the energy sector representative on the United Kingdom
government's East European Trade Council.
NILS N. TRULSVIK was elected a Director of CanArgo on August 17, 1994. He
has served CanArgo as President and Chief Executive Officer from February 4,
1997 to July 15, 1998 and from November 21, 1994 to March 9, 1995; and as
Executive Vice President from March 9, 1995 to February 4, 1997 and from
September 8, 1994 until November 21, 1994. In August 1998, Mr. Trulsvik became a
partner in a consulting company, The Bridge Group, located in Norway. Mr.
Trulsvik is a petroleum explorationist with extensive
2
<PAGE> 5
experience in petroleum exploration and development throughout the world. Prior
to joining CanArgo, he held various positions with Nopec a.s., a Norwegian
petroleum consultant group of companies of which he was a founder, including
Managing Director from 1987 to 1993 and Special Advisor from 1993 to August
1994.
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
CanArgo's Board of Directors held eleven meetings during the year ended
December 31, 1998. The members of the Audit Committee at the end of 1998 were
Robert A. Halpin, who is not standing for reelection and will be retiring as a
Director at the Annual Meeting, and Peder Paus. The members of the Compensation
Committee at the end of 1998 were J.F. Russell Hammond and Nils N. Trulsvik. The
Audit Committee is responsible for reviewing CanArgo's financial statements,
audit results, internal controls, and accounting principles, policies and
practices. The Audit Committee also recommends to the Board the selection of
CanArgo's outside accounting firm and approves the fees of such firm. The Audit
Committee held four meetings during the year ended December 31, 1998. The
Compensation Committee approves the compensation of CanArgo's executive
officers, oversees the compensation scheme for other Company employees,
administers and grants awards under stock option and other compensation plans,
and recommends to the Board the adoption of retirement and other employee
benefits plans. The Compensation Committee held four meetings during the year
ended December 31, 1998. The Board of Directors has not designated a nominating
committee.
DIRECTORS' COMPENSATION
CanArgo does not currently pay monetary directors' fees, but it does
reimburse out-of-pocket expenses incurred by Directors in attending meetings of
the Board and its committees or otherwise in connection with the conduct of
CanArgo's business. From July 15, 1998 until October 1, 1998, CanArgo paid
non-employee directors fees at the rate of $10,000 per year. Prior thereto,
CanArgo paid non-employee directors (other than Mr. Halpin) fees at the rate of
$14,000 per year plus a fee of $3,000 per year for each committee on which such
non-employee director served. CanArgo also previously paid a fee of $1,000 per
day, other than a day on which the Board met, for each day spent by a
non-employee director on the business of Board committees which exceeded one day
per year with respect to the Compensation Committee and three days per year with
respect to the Audit Committee and the Petroleum Committee.
From January 1998 through July 15, 1998, Robert A. Halpin was compensated
for his services as Vice Chairman of the Board and member of Board committees
pursuant to an agreement which provided for an annual fee of $45,000 plus $1,000
per day for each day of service in excess of 66 days per year. During that
period, CanArgo also provided Mr. Halpin with an office at CanArgo's offices
located in Calgary, Alberta, Canada, and reimbursed Mr. Halpin for his
out-of-pocket expenses in connection with services on behalf of CanArgo.
Mr. Trulsvik may provide consulting services to CanArgo through The Bridge
Group (of which Mr. Trulsvik is a partner) pursuant to a work order dated August
1, 1998 at the rate of $1,200 per day plus expenses. No consulting services were
provided by Mr. Trulsvik during 1998.
From January 1, 1996 to July 15, 1998, Eugene J. Meyers, a non-employee
director until July 15, 1998, provided financial relations consulting services
to CanArgo at the rate of $15,000 per year for 22 days of service, and
thereafter at the rate of $100 per hour ($1,000 maximum per day). CanArgo also
reimbursed him for his out-of-pocket expenses associated with such services.
CanArgo provides automatic grants of non-qualified options to non-employee
directors pursuant to the 1995 Long-Term Incentive Plan. See "Proposal to Amend
the 1995 Long-Term Incentive Plan -- Automatic Option Grants to Non-Employee
Directors."
3
<PAGE> 6
The following table shows the compensation paid to all persons who were
non-employee directors, including their respective affiliates, in their capacity
as such, during the year ended December 31, 1998:
<TABLE>
<CAPTION>
DIRECTORS' FEES
AND OTHER CONSULTING OPTIONS
NAME COMPENSATION PAYMENTS GRANTED
- ---- --------------- ---------- -------
<S> <C> <C> <C>
Robert A. Halpin.......................................... $26,293 $ 0 3,750(3)
J.F. Russell Hammond...................................... 2,137 0 3,750(4)
Stanley D. Heckman(1)..................................... 10,685 0 --
Eugene J. Meyers(1)....................................... 7,537 43,100(2) --
Peder Paus................................................ 2,137 0 3,750(4)
Nils N. Trulsvik.......................................... 1,671 0 --
</TABLE>
- ---------------
(1) Messrs. Heckman and Meyers served as a non-employee directors until July 15,
1998.
(2) Includes $35,600 for services rendered during 1997.
(3) The options were granted on December 31, 1998 at an exercise price of
$0.313, expire on December 30, 2001 and will be 100% vested at June 30,
1999.
(4) The options were granted July 15, 1998 at an exercise price of $1.00, expire
on July 14, 2001 and became 100% vested on January 15, 1999.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows all compensation paid or accrued by CanArgo and
its subsidiaries during the fiscal year ended August 31, 1996, the four month
period ended December 31, 1996 and the years ended December 31, 1997 and
December 31, 1998 to certain executive officers of CanArgo (the "Named
Officers").
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------ -------------
SECURITIES
UNDERLYING ALL OTHER
YEAR SALARY OPTIONS/SARS COMPENSATION ($)
NAME AND PRINCIPAL POSITION ENDED ($) # (5)
--------------------------- ----- ------ ------------- ----------------
<S> <C> <C> <C> <C>
David Robson(1)...................... 12/98 82,500 390,000 --
Nils N. Trulsvik(2).................. 12/98 87,376 -- 3,681
12/97 140,333 -- 6,653
12/96* 51,834 50,000 5,679
8/96 161,241 -- 8,635
Rune Falstad(3)...................... 12/98 112,852 25,000 3,786
12/97 82,952 15,000 3,825
Alfred Kjemperud(4).................. 12/98 133,338 50,000 3,124
12/97 101,296 5,000 5,014
12/96* 38,875 10,000 2,342
</TABLE>
* Four month period ended December 31, 1996.
(1) Mr. Robson has served as Chief Executive Officer since July 15, 1998 and
provides services to CanArgo through Vazon Energy Limited.
(2) Mr. Trulsvik served as President and Chief Executive Officer from February
4, 1997 to July 15, 1998 and as Executive Vice President from March 9, 1995
to February 4, 1997. Included in 1998 salary is $1,671 paid as non-employee
director's fees subsequent to July 31, 1998. See "Directors' Compensation"
and "Employment Contracts."
4
<PAGE> 7
(3) Mr. Falstad has served as Vice President since June 3, 1997, but has not
been deemed an executive officer of CanArgo since October 1998. Included in
1998 salary are payments for consulting services rendered to CanArgo
subsequent to July 31, 1998 pursuant to a contract with FinCom AS, of which
Mr. Falstad was a partner. See "Employment Contracts."
(4) Mr. Kjemperud resigned as Vice President on September 3, 1998. Included in
1998 salary are payments for consulting services rendered by Mr. Kjemperud
to CanArgo subsequent to September 3, 1998 pursuant to a contract with The
Bridge Group. See "Employment Contracts."
(5) Represents CanArgo's contributions to or accruals with respect to individual
retirement and pension plans.
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1998
The following table sets forth information concerning options granted to
the Named Officers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF % OF
SECURITIES TOTAL OPTIONS GRANT DATE
UNDERLYING GRANTED TO PRESENT VALUE(2)
OPTIONS EMPLOYEES EXERCISE EXPIRATION -------------------
NAME GRANTED(1) IN FY 12/98 PRICE DATE PER SHARE TOTAL
---- ---------- ------------- -------- ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
David Robson................. 120,000 16.58% $0.69 10/6/08 $0.3233 $ 38,796
270,000 37.30 1.25 7/16/08 0.5874 158,598
Nils N. Trulsvik............. 0 -- -- -- -- --
Rune Falstad................. 25,000 3.45 0.70 12/16/00 0.1225 3,063
Alfred Kjemperud............. 50,000 6.91 0.70 12/16/00 0.1225 6,125
</TABLE>
(1) The options granted to Mr. Robson vest in three equal installments
commencing on the first anniversary of the grant date and were granted at an
exercise price equal to the fair market value of CanArgo's Common Stock on
the date of grant. The options granted to Messrs. Falstad and Kjemperud are
exercisable only from November 16, 2000 through the expiration date of
December 16, 2000, and were granted at an exercise price equal to 124% of
the fair market value of CanArgo's Common Stock on the date of grant.
Pursuant to the terms of CanArgo's various stock option plans, the
Compensation Committee may, subject to each plan's limits, modify the terms
of outstanding options, including the exercise price and vesting schedule
thereof.
(2) These values were derived using the Black-Scholes option pricing model
applying the following assumptions:
<TABLE>
<CAPTION>
RISK-FREE
EXERCISE PRICE DIVIDEND YIELD VOLATILITY INTEREST RATE EXPECTED TERM
-------------- -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
$0.69 0% 44.76% 5.72% 5 years
1.25 0 44.76 5.72 5 years
0.70 0 44.76 5.69 2.1 years
</TABLE>
These values are not intended to forecast future appreciation of CanArgo's
stock price. The actual value, if any, that an executive officer may
realize from his options (assuming that they are exercised) will depend
solely on the increase in the market price of the shares acquired through
option exercises over the exercise price, measured when the shares are
sold.
5
<PAGE> 8
OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth information concerning the number and
hypothetical value of stock options held by the Named Officers at December 31,
1998.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
HELD AT FISCAL YEAR END AT FISCAL YEAR END(1)
------------------------------ -------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE ($) UNEXERCISABLE ($)
---- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C>
David Robson..................... 75,000 495,000 0 0
Nils N. Trulsvik................. 30,000 0 0 0
Rune Falstad..................... 0 25,000 0 0
Alfred Kjemperud................. 0 50,000 0 0
</TABLE>
(1) The exercise price of all options exceeded the market value of the Common
Stock on December 31, 1998.
EMPLOYMENT CONTRACTS
CanArgo had employment contracts with Nils N. Trulsvik, Rune Falstad and
Alfred Kjemperud which were terminated effective July 31, 1998. The contracts
provided for annual salaries of approximately $150,000 in the case of Mr.
Trulsvik, approximately $125,000 in the case of Mr. Falstad and approximately
$100,000 in the case of Mr. Kjemperud. In addition, each person received an
allowance equal to 12.5% of his base salary, a portion of which was used to
provide minimum life and disability insurance coverage for each such person. The
remainder of such allowance was used by each person for additional life, medical
or accident insurance and to fund individual pension and retirement plans.
CanArgo has entered into consulting arrangements for the services of each
of Messrs. Trulsvik, Falstad and Kjemperud. Mr. Falstad's consulting services
are provided by FinCom AS under an agreement that commenced August 1, 1998 at
the rate of $7,000 per month plus expenses. This agreement has been terminated
effective March 31, 1999. Mr. Kjemperud's consulting services are provided
through The Bridge Group pursuant to a one-year work order commencing August 1,
1998 at the rate of $13,000 per month plus expenses. Mr. Trulsvik's consulting
services would be provided through The Bridge Group pursuant to a work order
dated August 1, 1998 at the rate of $1,200 per day plus expenses.
6
<PAGE> 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 28, 1999 with
respect to beneficial ownership of Common Stock and Exchangeable Shares by each
person known by CanArgo to be the beneficial owner of more than 5% of the sum of
(1) the number of outstanding shares of Common Stock, and (2) the aggregate
number of shares of Common Stock that would be issued upon exchange of
Exchangeable Shares either outstanding or issuable for no additional
consideration, by each Director and Named Officer of CanArgo and by all
Directors and executive officers of CanArgo as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------ -------------------- ----------
<S> <C> <C>
Terrenex Acquisition Corporation............................
1580, 727 - 7th Avenue SW
Calgary, AB, Canada T2P 0Z5 2,355,391(1) 11.04%
Provincial Securities Limited...............................
607 Gilbert House, Barbican
London EC2Y 8BD UK 1,671,250 7.86%
Michael R. Binnion.......................................... 426,159(2) 2.00%
Peder Paus.................................................. 365,894(3) 1.72%
Nils N. Trulsvik............................................ 103,700(4) *
David Robson................................................ 75,000(5) *
J.F. Russell Hammond........................................ 28,750(6) *
Robert A. Halpin............................................ 13,500(7) *
Rune Falstad................................................ 10,500 *
Alfred Kjemperud............................................ 0 0%
All executive officers and..................................
Directors as a group (8 persons) 1,033,003(8) 4.8%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 76,000 shares underlying presently exercisable warrants to acquire
Exchangeable Shares.
(2) Includes 58,333 shares underlying presently exercisable options beneficially
owned by Mr. Binnion. Also includes 127,191 shares, but excludes 2,228,200
shares, beneficially owned by Terrenex Acquisition Corporation of which Mr.
Binnion is president, a director and an approximately 5.4% shareholder. Mr.
Binnion disclaims beneficial ownership of all shares beneficially owned by
Terrenex, other than the 127,191 shares which represent his 5.4%
proportionate interest. See Note (1) above.
(3) Includes 15,715 shares underlying presently exercisable warrants to acquire
Exchangeable Shares and 3,750 shares underlying presently exercisable
options.
(4) Includes 30,000 shares underlying presently exercisable options.
(5) Represents 75,000 shares underlying presently exercisable options.
(6) Represents 28,750 shares underlying presently exercisable options. Excludes
2,355,391 shares owned by Terrenex Acquisition Corporation of which Mr.
Hammond is Chairman, and 1,671,250 shares owned by Provincial Securities
Limited for which Mr. Hammond is an investment advisor, as to which Mr.
Hammond disclaims beneficial ownership.
(7) Includes 7,500 shares underlying presently exercisable options.
(8) See Notes 2-7; also includes 20,000 shares underlying presently exercisable
options held by an executive officer not named in the foregoing table.
7
<PAGE> 10
CHANGE OF CONTROL
On July 15, 1998, CanArgo, then known as Fountain Oil Incorporated,
completed a business combination with CanArgo Oil & Gas Inc. As part of the
business combination, CanArgo Oil & Gas Inc. became a subsidiary of CanArgo, and
CanArgo undertook to issue an aggregate of 9,790,900 shares of CanArgo Common
Stock to the former holders of CanArgo Oil & Gas Inc. common shares. As a
result, the former holders of CanArgo Oil & Gas Inc. common shares became
entitled to receive shares representing approximately 47% of CanArgo's Common
Stock, and Terrenex Acquisition Corporation and Provincial Securities Limited,
which had been the two largest shareholders of CanArgo Oil & Gas Inc., became
the two largest holders of CanArgo Common Stock. Upon consummation of the
business combination, officers of CanArgo Oil & Gas Inc. assumed the senior
management positions in CanArgo. In addition, Michael R. Binnion, J.F. Russell
Hammond and David Robson, who had been directors of CanArgo Oil & Gas Inc., and
Peder Paus, who was a substantial shareholder of Terrenex Acquisition
Corporation, were elected as four of the six members of CanArgo's Board of
Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Nicholas G. Dobrotwir served as Vice President of CanArgo from September
1997 until January 26, 1998. He continues to provide consulting services to
CanArgo. Pursuant to a Memorandum of Agreement dated May 16, 1995 between
Fielden Management Services Pty, Ltd. ("Fielden") and CanArgo, under which
CanArgo acquired its interest in the Stynawske field project during the first
quarter of 1997, CanArgo paid $500,000 and issued 87,500 shares of Common Stock
having a value of $1,060,938 to Fielden in connection with the execution by a
venture in which CanArgo has a substantial interest of an agreement to develop
and operate the Stynawske field project. Mr. Dobrotwir has indirect beneficial
ownership of the 87,500 shares of Common Stock owned by Fielden. Under the
agreement, Fielden has the contingent right to receive up to an additional
187,500 shares of CanArgo's Common Stock upon the satisfaction of conditions
related to the achievement of specified performance standards by the Stynawske
field project.
CanArgo is a 50% shareholder of CanArgo Power Corporation, which in turn
owns 85% of a Georgian private power company. The other 50% of CanArgo Power is
owned by Terrenex Acquisition Corporation, an entity that is affiliated with
three of CanArgo's directors and is itself a principal stockholder of CanArgo.
Michael R. Binnion is President and a director of both CanArgo and Terrenex;
J.F. Russell Hammond is a director of CanArgo and Chairman of Terrenex; and
Peder Paus, a director of CanArgo, is a 12% stockholder of Terrenex. During the
first half of 1998, Terrenex, on behalf of both itself and CanArgo, provided all
of the funds required by CanArgo Power. After the July 1998 business combination
between CanArgo and CanArgo Oil & Gas Inc. was completed, CanArgo reimbursed
Terrenex $398,000, representing half of the amount that had been advanced
through that time. CanArgo and Terrenex have funded CanArgo Power equally since
that time.
In May 1998, Terrenex agreed to lend CanArgo Oil & Gas Inc. up to
$1,000,000 through August 31, 1998 and subsequently advanced the $1,000,000.
CanArgo Oil & Gas Inc. paid Terrenex a $10,000 commitment fee, $50,000 in draw
down fees, and interest at the rate of 1/2% per month. In addition, CanArgo Oil
& Gas Inc. granted Terrenex options exercisable until December 31, 1998 to
acquire 12 1/2% of the stock of the subsidiary holding the Nazvrevi/Block XIII
production sharing contract and 15% of CanArgo Oil & Gas Inc.'s position in any
license received as a result of a consortium submission in response to the
Dagestan tender for offshore drilling and production rights. Either option could
be exercised by Terrenex paying CanArgo that percentage of all amounts expended
by CanArgo through the exercise date on the relevant project equal to the
percentage of the project being acquired by Terrenex through exercise of the
option. The terms of the loan, including the option terms, were negotiated and
approved by the directors of CanArgo Oil & Gas Inc. who had no affiliation with
Terrenex. CanArgo subsequently extended the options through March 31, 1999 in
consideration of the efforts of Terrenex in attempting to arrange financing for
CanArgo. CanArgo repaid the Terrenex loan following completion of the business
combination in July 1998. In recognition of the fact that dealings between
CanArgo and Terrenex subsequent to the business combination might be criticized
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because of Terrenex's position as the largest stockholder of CanArgo and
affiliations with Terrenex that three directors of CanArgo have, Terrenex
decided to permit the options to expire unexercised.
On July 14, 1998, CanArgo Oil & Gas Inc. issued to Peder Paus but retained
in escrow 225,000 of its common shares, which were issued to Mr. Paus for
financial services rendered in connection with the business combination that had
been negotiated between CanArgo, then known as Fountain Oil Incorporated, and
CanArgo Oil & Gas Inc. Upon the consummation of the business combination, Mr.
Paus became a director of CanArgo, and the 225,000 common shares of CanArgo Oil
& Gas Inc. were converted into 180,000 CanArgo Oil & Gas Inc. Exchangeable
Shares, each of which could be exchanged for a share of CanArgo Common Stock.
The shares were issued to Mr. Paus subject to the condition that the financial
services rendered by Mr. Paus result in completed transactions. Although the
business combination closed, post-combination financing that had been
contemplated did not take place. As a result, Mr. Paus and CanArgo Oil & Gas
Inc. agreed in September 1998 that since the condition had not been satisfied,
the shares were not earned and should be canceled. The 180,000 Exchangeable
Shares were subsequently canceled.
PROPOSAL TO APPROVE REVERSE STOCK SPLIT
GENERAL
The Board of Directors has adopted a resolution setting forth a proposed
amendment of CanArgo's Certificate of Incorporation to effect the combination of
twenty-five issued and outstanding shares of CanArgo's Common Stock into one
share (the "Reverse Split"), declaring its advisability, and directing that such
amendment be considered at the Annual Meeting of Stockholders. The Board is
hereby seeking stockholder approval of an amendment to CanArgo's Certificate of
Incorporation to effect the Reverse Split. The Board unanimously recommends that
the stockholders vote FOR this proposal. This proposal requires for approval the
affirmative vote of a majority of the votes represented by the Voting
Securities. Abstentions, broker non-votes and failures of stockholders to vote
all have the effect of a vote against the proposal.
The Reverse Split will be effected by the filing of a Certificate of
Amendment of CanArgo's Certificate of Incorporation with the Secretary of State
of the State of Delaware. The proposed form of the Certificate of Amendment to
effect the Reverse Split is set forth as Appendix A to this Proxy Statement. If
this proposal is approved by the stockholders, the Certificate of Amendment to
effect the Reverse Split will be filed following the Annual Meeting, subject to
the right granted to the Board of Directors to delay or abandon said amendment
without further action by the stockholders should the Board of Directors deem
such delay or abandonment to be in the best interests of CanArgo and its
stockholders. The Board of Directors believes that delay may be appropriate if,
for example, at the time of the Annual Meeting an offering of CanArgo's Common
Stock is in process but has not yet been completed.
The Reverse Split will result in the combination of each twenty-five issued
and outstanding shares of Common Stock into one share of Common Stock. The
Reverse Split will not reduce the 50,000,000 authorized shares of Common Stock,
change the par value of the Common Stock or affect the number of authorized
shares of CanArgo's Preferred Stock. As a result of the Reverse Split, the
interests of CanArgo's stockholders will be represented by approximately
one-twenty-fifth (1/25th) as many shares as before the Reverse Split, but the
Reverse Split will not affect any stockholder's relative rights, preferences,
privileges or priorities, or any stockholder's proportionate equity interest in
CanArgo except for the impact of cash payments for fractional shares.
Pursuant to the terms of CanArgo's Option Plans and certain stock option
agreements, the number of shares issuable upon exercise of outstanding options
will be proportionately reduced and the exercise price per share will be
proportionately increased to reflect the reverse split. Likewise, following the
Reverse Split, each Exchangeable Share issued by CanArgo Oil & Gas Inc. will be
exchangeable for 1/25th of a share of Common Stock.
Fractional shares of Common Stock will not be issued as a result of the
Reverse Split. Stockholders entitled to receive a fractional share of Common
Stock as a consequence of the Reverse Split will instead receive a cash payment
equal to such fraction multiplied by 25 times the fair market value of one share
of
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Common Stock as of the business day immediately preceding the effective date of
the Reverse Split. For this purpose, fair market value shall be deemed to be the
mean between the high and low prices at which CanArgo's Common Stock trades on
the OTC Bulletin Board on the trading day immediately preceding such effective
date, or if it does not so trade, then the price determined by CanArgo's Board
based upon recent trades and bid and asked prices. The interest in CanArgo of
any stockholder who owns less than 25 shares of Common Stock immediately prior
to the effective date of the Reverse Split, other than the stockholder's right
to receive a cash payment in lieu of a fractional share, will terminate on the
effective date of the Reverse Split.
REASONS FOR THE REVERSE SPLIT
Review of Delisting Decision
On March 29, 1999, The Nasdaq Stock Market advised CanArgo that CanArgo's
Common Stock, which since 1995 had been traded on the Nasdaq National Market
System, had been delisted from The Nasdaq Stock Market. As a result of the
delisting, CanArgo Common Stock now trades on the OTC Bulletin Board. The
delisting was based upon CanArgo's failure to meet Nasdaq's continued listing
requirement that the bid price for a listed security be at least $1.00 per
share. The bid price for CanArgo's Common Stock has been below $1.00 since
August 1998. CanArgo had requested an exception to the minimum bid price
requirement while it pursued a plan, including a reverse split of CanArgo's
Common Stock, to increase the bid price for its Common Stock to a level above
$1.00 per share. The Nasdaq Listing Qualifications Panel (the "Panel") that
considered the request, however, rejected it, which resulted in the delisting.
CanArgo has requested a review of the Panel's decision by the Nasdaq
Listing and Hearing Review Council (the "Review Council"). Based upon
discussions with members of the Nasdaq staff, CanArgo's management believes that
one factor that will be taken into consideration by the Review Council is the
bid price for CanArgo Common Stock at the time it reviews the Panel's decision.
If the bid price for CanArgo Common Stock at the time of the review is well in
excess of Nasdaq's continued listing requirement of a $1.00 per share minimum
bid price and particularly if the bid price is in excess of Nasdaq's initial
listing requirement of a $5.00 per share minimum bid price, CanArgo believes
that its prospects for a reversal of the Panel's decision will be enhanced. On
the other hand, if the bid price for CanArgo Common Stock at the time of the
review remains below $1.00 per share, then CanArgo believes that an affirmance
of the Panel's decision is virtually certain. There can be no assurances that an
elevated bid price will cause the Review Council to reverse the Panel's
decision. The Review Council is expected to review the Panel's decision no
earlier than July 1999.
CanArgo's Board of Directors has proposed the 1-for-25 Reverse Split in an
attempt to establish a Common Stock structure that might achieve a bid price in
excess of the $5.00 minimum bid price required under Nasdaq's initial listing
requirements for the National Market System. On April , 1999, the closing
bid price for CanArgo Common Stock on the OTC Bulletin Board was $0. per
share. Although any increase in the bid price for shares of CanArgo Common Stock
may be proportionately less than the decrease in the number of shares
outstanding, the Reverse Split, if approved, should result in a substantially
higher bid price for the shares. That price, however, may not be at the level
the Board had hoped to achieve.
If the Review Council reverses the Panel's decision, CanArgo Common Stock
would be readmitted to trading on The Nasdaq Stock Market. CanArgo does not
expect a decision from the Review Council before October 1999.
For reasons specified below under "Qualification for Listing," CanArgo's
Board of Directors believes that it is important to maximize CanArgo's prospects
for a favorable decision from the Review Council.
Qualification for Listing
The Board of Directors believes that, for a number of reasons, it is in the
best interests of CanArgo and its stockholders for CanArgo's Common Stock to be
listed. If the Review Council affirms the Panel's decision that delisted
CanArgo's Common Stock from The Nasdaq Stock Market, CanArgo will consider
applying for
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listing to The Nasdaq Stock Market or a national securities exchange, provided
it then satisfies the minimum initial listing requirements for the market or
exchange to which the application would be made.
CanArgo's Board of Directors believes that securities listed on The Nasdaq
Stock Market, as compared to securities traded on the OTC Bulletin Board,
generally benefit from:
- smaller percentage spreads between bid and asked prices;
- greater availability of accurate and timely quotations; and
- lower transactions costs.
While securities listed on national securities exchanges trade through an
auction, rather than a bid and asked, regime, the second and third comparisons
are as applicable to national securities exchanges as to The Nasdaq Stock
Market.
Securities listed on the Nasdaq National Market System and national
securities exchanges are exempt from the registration requirements of state
securities laws. This exemption reduces the time and costs associated with
complying with state securities laws when raising capital.
The listing of CanArgo's Common Stock on the Oslo Stock Exchange has been a
secondary listing, with the primary listing being on The Nasdaq Stock Market. If
CanArgo's request for a review of the Panel's decision to delist its Common
Stock from The Nasdaq Stock Market does not result in the readmission of its
Common Stock to trading on The Nasdaq Stock Market and CanArgo is not able to
establish another primary listing acceptable to the Oslo Stock Exchange, CanArgo
could not maintain a secondary listing on the Oslo Stock Exchange. While CanArgo
could apply for a primary listing on the Oslo Stock Exchange, administrative
requirements of that exchange attaching to a primary listing make an Oslo Stock
Exchange primary listing not a feasible alternative for CanArgo. Thus, CanArgo's
ability to maintain its listing on the Oslo Stock Exchange may depend upon its
ability to regain its listing on The Nasdaq Stock Market or to establish another
listing in the United States.
Marketability of Common Stock
CanArgo's Board of Directors believes that the current low per share price
of CanArgo Common Stock has a negative effect on the marketability of
outstanding shares, the cost of transactions involving CanArgo Common Stock, and
the ability of CanArgo to raise additional capital through the issuance of
additional shares of Common Stock.
Some investors view low-priced stocks, even if not classified as penny
stock, as unduly speculative and therefore not potential candidates for
investment. Many institutional investors have internal policies prohibiting the
purchase of or maintenance of positions in low-priced stocks. This has the
effect of limiting the pool of potential purchasers of CanArgo Common Stock at
present price levels.
In addition, the structure of trading commissions tends to have an adverse
impact upon holders of lower-priced stocks, because brokerage commissions on
such stocks generally represent a higher percentage of the sales price than the
commission on higher-priced stocks. Any reduction in brokerage commissions that
results from the Reverse Split, however, could be offset in whole or part by
increased brokerage commissions attaching to sales of odd lots created by the
Reverse Split.
Availability of Additional Shares for Future Issuance
The Board of Directors also believes that it is in the best interests of
CanArgo and its stockholders to adjust CanArgo's capitalization in a manner
conducive to providing CanArgo with the flexibility to consider future issuances
of Common Stock for various corporate purposes.
CanArgo is presently authorized to issue 50,000,000 shares of Common Stock,
of which shares were outstanding on the Record Date, shares
were reserved for issuance in connection with the exchange of Exchangeable
Shares, shares were reserved for issuance in connection with
outstanding options and an additional 187,500 shares were reserved for issuance
in connection with contingent rights to
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acquire Common Stock. In addition, CanArgo has filed a registration statement
with the Securities and Exchange Commission relating to a proposed public
offering of 21,264,643 shares of Common Stock in order to raise additional
equity capital. Were all Exchangeable Shares exchanged for shares of Common
Stock, all options exercised, all other shares reserved pursuant to existing
commitments issued and all shares registered in the registration statement
issued and sold, CanArgo would have authorized but unissued shares
available for issuance.
The Reverse Split will not affect the number of shares which CanArgo is
authorized to issue. Thus, assuming all of the shares reserved pursuant to
existing commitments or in connection with the proposed public offering were
issued and outstanding, CanArgo after the Reverse Split would have approximately
shares available for future issuance. The Reverse Split will thus
provide a sufficient reserve of such shares for the future growth and needs of
CanArgo. CanArgo has no present plans, agreements, or commitments for the
reservation or issuance of additional shares of Common Stock, except in
connection with its stock option plans. See "Proposal to Amend the 1995
Long-Term Incentive Plan." The Board, however, believes that the availability of
such shares will afford CanArgo greater flexibility in considering possible
future issuances of shares for various corporate purposes. Such purposes might
include, without limitation:
- payment of part or all of the consideration required in connection with
the acquisition of interests in oil and gas properties, on-going
businesses or other assets;
- obtaining additional equity capital to strengthen CanArgo's financial
condition and permit the expansion or development of business
opportunities;
- establishment of employee benefit programs to enable CanArgo to retain
and attract qualified personnel; and
- satisfaction of various obligations of CanArgo.
Any issuance of additional shares of Common Stock would be in the
discretion of the Board, which has the authority to determine, subject to
applicable law and the regulations of any stock exchange or comparable entity
such as The Nasdaq National Market to which CanArgo may in the future be subject
(which may require stockholder approval for the issuance of shares in certain
circumstances), whether, when and on what terms to issue shares of Common Stock.
The additional shares will thus be available for issuance from time to time
without further action by the stockholders, thereby enabling CanArgo to avoid
the delays and expenses attendant to obtaining further stockholder approval and
providing CanArgo with the flexibility needed to act promptly when business
opportunities or propitious market conditions for financing present themselves.
The Board may issue Common Stock without first offering such shares to CanArgo's
stockholders, since stockholders do not have preemptive rights with respect to
the Common Stock. Except where shares are issued on a pro rata basis to all
stockholders (such as in a stock dividend or stock split), the issuance of
additional shares of Common Stock, including issuance upon conversion of
securities convertible into Common Stock, would reduce the proportionate
ownership interests in CanArgo held by current stockholders not parties to such
issuances.
The availability for issuance of additional shares of Common Stock could
enable the Board to render more difficult or discourage an attempt to obtain
control of CanArgo. For example, the issuance of shares of Common Stock in a
public or private sale, merger or similar transaction would increase the number
of outstanding shares, thereby diluting the proportionate ownership interest of
a party interested in obtaining control of CanArgo. This effect would be
particularly pronounced if the shares were issued to a party or parties
supportive of the then current management. CanArgo has no present intention to
issue shares of Common Stock to deter a change in control.
EXCHANGE OF CERTIFICATES
After the Reverse Split is effective, each certificate representing shares
of Common Stock will, until surrendered and exchanged as described herein, be
deemed, for all corporate purposes, to evidence ownership of the whole number of
shares of Common Stock into which the shares evidenced by such certificate have
been combined as a result of the Reverse Split and the right to receive from
CanArgo the amount of cash for
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any fractional share. As soon as practicable after the Reverse Split is
effective, CanArgo's transfer agent will mail a transmittal form to each holder
of record of certificates representing pre-split shares of Common Stock. After
receipt of such transmittal form, each holder should complete and return the
transmittal form together with his certificates representing pre-split shares of
Common Stock. Such holder will then receive new certificates representing the
whole number of shares of Common Stock to which he is entitled as a result of
the Reverse Split together with any cash which may be payable in lieu of any
fractional share. The transmittal forms will be accompanied by instructions
specifying other details of the exchange. Stockholders who hold their shares in
"street name" or through a nominee will not receive a transmittal form. Although
stockholders are encouraged to exchange their stock certificates promptly after
receipt of the transmittal form, certificates representing pre-split shares will
constitute "good delivery" in connection with sales, through a broker or
otherwise, of Common Stock. STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE A TRANSMITTAL FORM.
VOTE REQUIRED
The CanArgo Board of Directors unanimously recommends that the stockholders
vote FOR the proposed amendment of CanArgo's Certificate of Incorporation to
effect the Reverse Split. This proposal requires for approval the affirmative
vote of a majority of the votes represented by the Voting Securities.
Abstentions, broker non-votes and failures of stockholders to vote all have the
effect of a vote against the proposal.
PROPOSAL TO AMEND THE 1995 LONG-TERM INCENTIVE PLAN
The Board of Directors is seeking stockholder approval of a proposal to
increase the number of shares of Common Stock that may be issued under CanArgo's
1995 Long-Term Incentive Plan (the "Plan"). The proposed amendment to the Plan
would increase the total number of shares that could be issued under the Plan
from 750,000 to 4,000,000 shares, subject to a limit on the number of
outstanding stock options and stock appreciation rights under the Plan to an
amount that would not exceed 10% of the number of then outstanding shares of
Common Stock. In the event the Reverse Split is effective, the number of shares
referred to in the preceding sentence would be reduced to 30,000 and 160,000,
respectively. See "Securities Subject to the Plan" below.
The Plan was adopted by the Board of Directors on November 14, 1995 and
approved by the stockholders on February 12, 1996. On March 18, 1997, the Board
amended the provisions of the Plan relating to automatic option grants to
non-employee directors to provide for (1) option grants on the last day of any
fiscal year in which CanArgo does not hold a stockholder meeting at which
directors are elected and (2) option grants to the Vice Chairman of the Board if
the then Chairman is an employee of CanArgo.
At March 31, 1999, there were 695,084 shares subject to outstanding options
under the Plan and 54,916 shares available for future option grants. In
connection with its July 1998 combination with CanArgo Oil and Gas Inc., CanArgo
assumed the CanArgo Oil and Gas Inc. Stock Option Plan under which 888,000
shares are subject to outstanding options and 100,000 shares are available for
future option grants. As a result of the limited number of shares available for
option grants under these plans, the Board of Directors believes it would be in
CanArgo's best interests to increase the number of shares available under the
Plan so that CanArgo will be able to continue to grant awards under the Plan to
attract, retain and motivate employees, directors, consultants and advisors.
The following summary of the principal provisions of the Plan is subject to
the full text thereof. Any stockholder may obtain a copy of the Plan upon
written request.
PURPOSE OF THE PLAN
The purpose of the Plan is to further the interests of CanArgo by enabling
employees, directors, consultants and advisors of CanArgo and its subsidiaries,
upon whose judgment, initiative and effort CanArgo is dependent, to acquire a
proprietary interest in CanArgo by ownership of its stock through the exercise
of stock options and stock appreciation rights ("Awards") granted under the
Plan. CanArgo believes that the
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Plan will enable it to attract and retain participants' services and motivate
participants to increase CanArgo's value, and that the Plan will provide CanArgo
with flexibility in compensating such participants. The Plan is not subject to
any provisions of the Employee Retirement Income Security Act of 1974.
SECURITIES SUBJECT TO THE PLAN
The Plan currently authorizes the issuance of 750,000 shares of CanArgo's
Common Stock in connection with Awards granted under the Plan. The Board of
Directors has adopted an amendment to the Plan, subject to stockholder approval,
to increase the total number of shares that may be issued under the Plan from
750,000 to 4,000,000 shares, subject to the limitation that the number of shares
subject to outstanding Awards under the Plan at any time may not exceed an
amount equal to 10% of the number of then outstanding shares of Common Stock.
For example, at March 31, 1999, CanArgo had outstanding options covering 695,084
shares of Common Stock and 19,393,444 shares of Common Stock outstanding. If the
proposed amendment had been in effect at March 31, 1999, CanArgo would have been
able to grant Awards for an additional 1,244,260 shares. As the number of
outstanding shares of Common Stock increases (for example, as a result of option
exercises or in connection with financings), the number of shares available for
Awards under the Plan will also proportionately increase, subject to a maximum
of 4,000,000 shares, as presently constituted.
In the event of any change in the number of outstanding shares of the
Common Stock by reason of recapitalization, reclassification, stock dividend,
stock split, or combination of shares, such as the Reverse Split, or other
similar transactions, appropriate and proportionate adjustment will be made in
the number of shares to which the Plan and outstanding Awards relate and the
exercise price of Awards. The number of shares available under the Plan and all
share amounts referred to herein have been adjusted to give effect to a 1-for-2
reverse stock split of CanArgo's outstanding Common Stock effected on July 15,
1998. If the Reverse Split is approved by the stockholders and becomes
effective, the number of shares authorized under the Plan and subject to
outstanding Awards will be reduced to one-twenty-fifth (1/25th) of the numbers
authorized and outstanding immediately before the effectiveness of the Reverse
Split, and the exercise price per share of outstanding Awards will be
proportionately increased.
ADMINISTRATION
The Plan may be administered either by the Board of Directors or by a
Committee consisting of at least two directors appointed by the Board of
Directors. Currently the Plan is administered by the Compensation Committee
which consists of J.F. Russell Hammond and Nils N. Trulsvik. The Committee has
full authority, subject to the provisions of the Plan, to grant Awards, to
designate the recipients of Awards and terms of the Awards, to establish rules
and regulations which it may deem appropriate for the proper administration of
the Plan, and to interpret and make determinations under the Plan. Members of
the Committee serve at the discretion of the Board.
As non-employee directors of CanArgo, Messrs. Hammond and Trulsvik are only
eligible to receive non-discretionary automatic option grants under the Plan as
described below under "Automatic Option Grants to Non-Employee Directors."
ELIGIBILITY
Awards may be granted to persons who are employees, directors, consultants
and advisors of CanArgo or any subsidiary of CanArgo, provided that non-employee
directors of CanArgo are only eligible to receive non-discretionary automatic
option grants as described below under "Automatic Option Grants to Non-Employee
Directors." The terms "consultant" and "advisor" are not defined in the Plan.
While such terms are generally considered to refer to persons who render
services or advice in a capacity other than as an employee, it will be the
responsibility of the Committee to construe and interpret such terms on a case
by case basis. Awards are not transferable or assignable other than by will or
by the laws of descent and distribution.
At March 31, 1999, CanArgo had employees and six directors
(including four non-employee directors) who were eligible to receive Awards
under the Plan. CanArgo also from time to time retains various consultants and
advisors who would be eligible to receive Awards under the Plan. For information
concerning
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options granted during 1998 to specified executive officers and directors, see
"Election of Directors -- Directors' Compensation" and "Executive Compensation."
TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan may be either incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986
(the "Code") or non-qualified stock options ("Non-qualified Options"). Incentive
Options may be granted only to persons who are employees of CanArgo or any
subsidiary of CanArgo.
Options granted under the Plan expire on such date as is determined by the
Committee, unless earlier terminated as provided in the Plan; except that
Incentive Options may expire no later than ten years after the grant date (five
years with respect to optionees who are more than ten percent stockholders of
CanArgo) and options granted pursuant to a Sub-Plan for persons who are
domiciled in the United Kingdom and subject to taxation therein may expire no
later than seven years from the date of grant.
An option is exercisable at such times as are determined by Committee on
the grant date. The purchase price for shares to be issued upon exercise of an
option is determined by the Committee at the time of grant, but with respect to
an Incentive Option such price may not be less than 100% of the fair market
value of the Common Stock on the grant date (110% of the fair market value in
the case of an optionee who is a more than 10% stockholder of CanArgo).
If the aggregate fair market value (determined at the time an Incentive
Option is granted) of Common Stock for which Incentive Options are exercisable
for the first time during any calendar year exceeds $100,000, the amount of such
excess will be treated as Non-qualified Options.
The exercise price of an option is payable in full at the time of delivery
of the shares in cash or, at the option of the Committee, in shares of CanArgo's
Common Stock, by full recourse promissory note, or by waiver of compensation due
or accrued for services rendered. The use of Common Stock as payment for the
exercise of an option enables an optionee to "pyramid" his options; that is, to
automatically apply the shares received upon the exercise of a portion of an
option to satisfy the exercise price for additional portions of the option. The
effect of pyramiding is to allow an optionee to deliver a relatively small
number of shares in satisfaction of the exercise price of a greater number of
shares under the option. Any promissory note delivered in payment of the
exercise price of an option must provide for interest at a rate sufficient to
avoid imputation of income under the Code and may contain such other terms and
conditions as the Committee deems appropriate, provided that promissory notes of
non-employees must be adequately secured by collateral other than the shares
purchased.
The Committee may grant "reload options" under the Plan. A reload option is
a new option which is automatically granted when the optionee exercises a
previously granted option and pays for the exercise price of the prior option by
delivering already owned shares. The number of reload options is equal to the
number of shares surrendered to pay for the exercise price of the prior option.
If an optionee ceases to be an employee, director, consultant or advisor
for any reason other than death, permanent disability (as defined in the Plan)
or termination for cause (as defined in the Plan), the option expires on the
earlier of (1) the thirtieth day from the date of termination of employment
(unless the Committee provides a longer specified period), or (2) expiration of
the term of the option, but in any event an Incentive Option may expire no later
than three months from the date of termination of employment. Upon the death or
permanent disability of an optionee while an employee, director, consultant or
advisor, the option expires on the earlier of (1) six months from the date of
death or permanent disability (unless the Committee provides an extension of
such six-month period), or (2) expiration of the term of the option, but in any
event an Incentive Option may expire no later than one year from the date of
death or permanent disability. If an optionee's relationship with CanArgo is
terminated for cause, the option expires on the date of such termination. During
the period between termination of the optionee's relationship and expiration of
the option, the option may be exercised only to the extent that it was
exercisable on the date of such termination.
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These and other terms and conditions of the options are set forth in an
agreement entered into between CanArgo and the optionee at the time an option is
granted.
AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS
Non-employee directors of CanArgo are ineligible to receive Awards under
the Plan except pursuant to a Sub-Plan which provides for automatic grants of
Non-qualified Options to non-employee directors. Pursuant to the Sub-Plan,
options to purchase 3,750 shares of Common Stock are automatically granted to
each non-employee director on each of (1) date of each meeting of stockholders
at which a non-employee director is elected or re-elected as a director (or the
last day of the fiscal year if no such meeting was held during the year) and (2)
the date a non-employee is first elected a director if not at a meeting of
stockholders. In addition, a non-employee director will be automatically granted
an option to purchase 3,750 shares of Common Stock on each date such person is
elected or re-elected by the Board of Directors as Chairman of the Board, or as
Vice Chairman if the Chairman is an employee of CanArgo.
The exercise price of each option granted to non-employee directors is
equal to 100% of the fair market value of the Common Stock on the date the
option is granted. Each option is 100% vested six months after the date of
grant. Options expire on the first to occur of three years from the date of
grant or the first anniversary of the date the director ceases to be a director
for any reason. Except as specifically set forth in the Sub-Plan, the options
will be subject to the terms and conditions of the Plan applicable to
Non-qualified Options. The Sub-Plan is administered by the Board of Directors.
Currently, J.F. Russell Hammond, Peder Paus and Nils N. Trulsvik are
eligible to participate in the Sub-Plan. Such persons will each receive options
to purchase 3,750 shares on the date of the Annual Meeting of Stockholders at a
exercise price equal to the fair market value of the Common Stock on that date.
The Board of Directors has not, and does not intend to, appoint a non-employee
director as Vice Chairman of the Board. See "Election of Directors -- Directors'
Compensation" for information concerning options granted to non-employee
directors in 1998.
STOCK APPRECIATION RIGHTS
A stock appreciation right ("SAR") entitles the holder to receive a payment
in cash and/or Common Stock, in the Committee's discretion, equal to the excess
of the fair market value of the Common Stock on the date of exercise over the
exercise price of the SAR. The Committee establishes the exercise price and
vesting schedule of the SAR at the date of grant. Unless otherwise specifically
provided in a participant's agreement, an SAR expires on the first to occur of
(1) the tenth anniversary of the date the SAR was granted; (2) 30 days (subject
to extension) after the holder ceases to be an employee, director, consultant or
advisor for any reason other than death, permanent disability or termination for
cause; (3) six months (subject to extension) after the holder ceases to be an
employee, director, consultant or advisor by reason of death or permanent
disability; and (4) the date a holder is terminated as an employee, director,
consultant or advisor for cause (as defined in the Plan). During the period
between termination of the holder's relationship with CanArgo and expiration of
the SAR, the SAR may only be exercised to the extent that it was vested on the
date of such termination. To date, CanArgo has not granted any SARs.
RESTRICTED STOCK
As a means of enabling a participant to commence his holding period under
Rule 144 of the Securities Act of 1933 with respect to shares of Common Stock
subject to an Award which have not been registered under the 1933 Act, the
Committee may, in its sole discretion, permit a participant to exercise the
non-vested portion of an Award and receive shares of restricted stock upon such
exercise which will vest at the same rate as provided in the Award which was
exercised. If any Award so exercised expires without becoming fully vested, any
restricted stock issued which has not vested must be returned to CanArgo in
exchange for a payment in cash or stock by CanArgo equal to the exercise price
paid for such restricted shares, subject to any legal requirements relating to a
corporation's ability to repurchase its securities. CanArgo has registered the
16
<PAGE> 19
shares issuable under the Plan under the 1933 Act and intends to register the
additional shares authorized if this proposal is approved.
DURATION AND MODIFICATION OF THE PLAN AND AWARDS
No Awards may be granted under the Plan after November 13, 2005. The Board
of Directors may terminate or amend the Plan, except that stockholder approval
is required to increase the total number of shares issuable under the Plan or to
change the designation of the class of persons eligible to receive Incentive
Options.
The Committee may modify or amend the terms of outstanding Awards,
including a change or acceleration of the vesting of an Award, and it may
exchange, cancel or substitute Awards, subject to the consent of the holder of
the Award.
Each outstanding Award will terminate on the date of CanArgo's liquidation
or dissolution, or reorganization, merger or consolidation in which CanArgo is
not the survivor, or the sale of substantially all of the assets of CanArgo or
of more than 80% of the then outstanding stock of CanArgo to another corporation
or entity, unless the surviving or acquiring corporation or entity agrees to
assume the outstanding Awards.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain significant federal income
tax consequences of the Plan based on currently applicable provisions of the
Code and the regulations promulgated thereunder applicable to participants in
the Plan who are subject to taxation in the United States. The majority of the
Plan participants are not residents of the United States or subject to U.S.
taxation.
GRANT OF STOCK OPTIONS. The grant of an Incentive Option or a
Non-qualified Option under the Plan is not a taxable event to the optionee.
EXERCISE OF NON-QUALIFIED STOCK OPTIONS. An optionee will recognize
ordinary income for federal income tax purposes on the date a Non-qualified
Option is exercised. The amount of income recognized is equal to the excess of
the fair market value of the shares acquired on the date of exercise over the
exercise price of such shares.
The optionee's tax basis in the shares acquired upon the exercise of a
Non-qualified Option is equal to the fair market value of the shares on the
exercise date. The optionee will recognize capital gain or loss upon a sale or
exchange of the option shares to the extent of any difference between the amount
realized and the optionee's tax basis in the shares.
EXERCISE OF INCENTIVE STOCK OPTIONS. An optionee will not recognize income
upon the exercise of an Incentive Option. However, the "spread" between the fair
market value of the shares at the time of exercise and the exercise price is
includible in the calculation of alternative minimum taxable income for purposes
of the alternative minimum tax.
If the optionee does not dispose of the shares received upon exercise of
the option within either the two-year period after the Incentive Option was
granted or the one-year period after the exercise of the Incentive Option (the
"ISO holding periods"), the optionee will recognize capital gain or loss when he
disposes of the shares. Such gain or loss will be measured by the difference
between the exercise price and the amount received for the shares at the time of
disposition.
If the shares acquired upon exercise of an Incentive Option are disposed of
before the end of the ISO holding periods, the disposition is a "disqualifying
disposition" which results in the optionee recognizing ordinary income in an
amount generally equal to the lesser of (1) the excess of the value of the
shares on the option exercise date over the exercise price or (2) the excess of
the amount received upon disposition of the shares over the exercise price. Any
excess of the amount received upon disposition of the shares over the value of
the shares on the exercise date will be taxed to the optionee as capital gain.
17
<PAGE> 20
EXERCISE OF STOCK OPTIONS USING STOCK. The delivery of shares of CanArgo
Common Stock already owned by the optionee in payment of the exercise price of a
Non-qualified Option will not result in taxable gain to the optionee, even if
the shares delivered have appreciated in value from the time they were acquired.
Instead, a portion of the shares received upon exercise (equal in number to the
number of shares delivered) will have the same tax basis as, and will be deemed
to have been acquired on the date of acquisition of, the shares delivered by the
optionee. The optionee will recognize ordinary income equal to the fair market
value of the shares received in excess of the number delivered. These additional
shares will have a tax basis equal to their fair market value on the exercise
date, and will be deemed to have been acquired on such date.
The delivery of shares in payment of the exercise price of an Incentive
Option generally will not result in the recognition of gain by the optionee with
respect to the appreciated value of the delivered shares. However, if the shares
delivered were acquired upon exercise of an Incentive Option and have not been
held for the ISO holding periods, the delivery will constitute a disqualifying
disposition of such shares. In any event, no income will be recognized at the
time of exercising an Incentive Option with respect to the difference between
the fair market value of the shares received and the aggregate exercise price.
Under proposed Treasury Regulations, a number of shares acquired pursuant
to the exercise of an Incentive Option equal to the number of shares surrendered
will have a basis and a capital gains holding period equal to those of the
shares surrendered. Shares acquired pursuant to the exercise of an Incentive
Option in excess of the number tendered in payment of the exercise price will
have a zero tax basis with a capital gains holding period beginning on the
exercise date. If any shares acquired pursuant to a stock-for-stock exercise of
an Incentive Option are sold or exchanged before satisfying the ISO holding
periods, in determining the amount of ordinary income recognized, the zero basis
shares will be deemed disposed of first.
STOCK APPRECIATION RIGHTS. A holder recognizes no income at the time an
SAR is granted under the Plan. When an SAR is exercised and settled in cash the
holder will recognize ordinary income in an amount equal to the cash received.
Alternatively, in the case of an SAR settled in shares of Common Stock, the
holder will recognize ordinary income in an amount equal to the fair market
value of the shares acquired at the time of exercise. Such shares will be deemed
to have been acquired on such date and will have a tax basis equal to their fair
market value on such date.
RESTRICTED STOCK. In the case of an exercise of an Award payable in
restricted shares of Common Stock, generally the recipient will recognize
ordinary income in an amount equal to the excess of the fair market value of the
shares on the date the shares are freely tradable and no longer subject to a
substantial risk of forfeiture over the amount paid for such shares, if any,
unless the recipient makes an election under Section 83(b) of the Code to
recognize income at the date of exercise. Such shares will be deemed to have
been acquired on such date and will have a tax basis equal to their fair market
value on such date.
COMPANY DEDUCTIONS. CanArgo (or its subsidiary) generally is entitled to a
deduction for federal income tax purposes at the same time and in the same
amount that the optionee recognizes ordinary income, to the extent that such
income is considered reasonable compensation under the Code. Neither CanArgo nor
any subsidiary is entitled to a deduction with respect to payments that
constitute "excess parachute payments" pursuant to Section 280G of the Code and
that do not qualify as reasonable compensation pursuant to that section. Such
payments also subject the recipients to a 20% excise tax.
Code Section 162(m), enacted in 1993, precludes a public corporation from
taking a deduction in 1994 and subsequent years for compensation in excess of $1
million for its chief executive officer or any of its other four highest paid
officers. Based on the current market price of CanArgo's Common Stock, CanArgo
does not believe that any compensation derived from the exercise of Awards
granted under the Plan, together with other compensation paid to CanArgo's
executive officers, will exceed $1 million in any year for any such officer. If,
however, it appears that such limit could be exceeded at any time in the future,
CanArgo's Board of Directors will determine what action, if any, at that time
would be appropriate in light of Section 162(m).
CanArgo has the right to withhold any sums required by federal, state or
local tax laws to be withheld with respect to the exercise of any Non-qualified
Option or SAR from sums owing to the person exercising such Award or, in the
alternative, may require such person to pay such sums to CanArgo prior to or in
18
<PAGE> 21
connection with such exercise. The Committee, in its sole discretion, may allow
a participant to satisfy such tax withholding obligation by withholding from the
shares receivable upon exercise of a Non-qualified Option or SAR settled in
shares a number of shares which have a fair market value equal to the amount to
be withheld.
VOTE REQUIRED
The Board unanimously recommends that the stockholders vote FOR this
proposal. This proposal requires for approval the affirmative vote of a majority
of the votes represented by the Voting Securities present in person or by proxy
and entitled to vote. Abstentions have the effect of a vote against the proposal
and broker non-votes have no effect on the vote.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
At the recommendation of the Audit Committee, the Board of Directors has
selected PricewaterhouseCoopers LLP, independent public accountants, to audit
the financial statements of CanArgo for the year ending December 31, 1999 and to
perform other appropriate services. PricewaterhouseCoopers LLP audited CanArgo's
financial statements for the year ended December 31, 1998. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Meeting, with the
opportunity to make a statement if they desire to do so, and are expected to be
available to respond to appropriate questions.
The Board of Directors recommends a vote FOR ratification of such
selection. In the event of a negative note on such ratification, the Board of
Directors will select another firm of independent accountants. This proposal
requires for approval the affirmative vote of a majority of the Voting
Securities present in person or by proxy and entitled to vote. Abstentions have
the effect of a vote against the proposal and broker non-votes have no effect on
the vote.
STOCKHOLDER PROPOSALS
Any stockholder intending to submit to CanArgo a proposal for inclusion in
CanArgo's Proxy Statement and proxy for the 2000 Annual Meeting must submit such
proposal so that it is received by CanArgo no later than , 1999, and
such proposal must otherwise comply with Rule 14a-8 under the Securities
Exchange Act of 1934.
If a stockholder submits a proposal at CanArgo's Annual Meeting of
Stockholders to be held in 2000 other than in accordance with Rule 14a-8 and
does not provide notice of such proposal to CanArgo by , 2000, the
holders of any proxy solicited by CanArgo's Board of Directors for use at such
meeting will have discretionary authority to vote with respect to any proposal
as to which timely notice is not given.
DISCRETIONARY AUTHORITY
While the Notice of Annual Meeting of Stockholders calls for the
transaction of such other business as may properly come before the Meeting, the
Board of Directors has no knowledge of any matters to be presented for action by
the stockholders other than as set forth above. The enclosed proxy gives
discretionary authority, however, in the event any additional matters should be
presented.
SUSAN E. PALMER
Secretary
, 1999
19
<PAGE> 22
APPENDIX A
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF CANARGO ENERGY CORPORATION
CanArgo Energy Corporation, a corporation duly organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The Board of Directors of the Corporation has adopted a resolution
setting forth the amendment to the Corporation's Certificate of Incorporation
set forth below and declaring its advisability.
2. Pursuant to a resolution of this Corporation's Board of Directors, an
annual meeting of the stockholders of the Corporation was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of the amendment set forth below.
3. Paragraph (a) of Article Fourth of the Corporation's Certificate of
Incorporation be amended by striking said paragraph (a) and inserting in lieu
thereof the following, so that such paragraph (a) will read in its entirety as
follows:
"(a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is fifty-five million
(55,000,000), in two (2) classes consisting of:
(1) A class consisting of five million (5,000,000) shares of Preferred
Stock, par value ten cents ($.10) per share (the "Preferred
Stock"); and
(2) A class consisting of fifty million (50,000,000) shares of Common
Stock, par value ten cents ($.10) per share (the "Common Stock").
Upon an amendment of this paragraph (a) of Article Fourth that reflects the
inclusion of this sentence becoming effective (the "Effective Date"), each
twenty-five (25) shares of the Corporation's Common Stock, par value ten cents
($.10) per share, issued and outstanding immediately prior to the Effective Date
(the "Old Common Stock") shall be reclassified as, and changed, converted and
combined into, one (1) validly issued, fully paid and non-assessable outstanding
share of Common Stock of the Corporation, without any action on the part of the
holder thereof. No fractional shares shall be issued in connection with such
reclassification. Each stockholder who would otherwise be entitled to receive a
fractional share of Common Stock in connection with such reclassification shall
be entitled to receive, in lieu thereof, a cash payment equal to such fraction
multiplied by twenty-five times the fair market value of one share of the
Corporation's Old Common Stock as of the business day immediately preceding the
Effective Date. For this purpose, fair market value shall be deemed to be the
mean between the high and low prices at which the Corporation's Old Common Stock
trades on the OTC Bulletin Board on the trading day immediately preceding such
Effective Date, or if such Old Common Stock does not so trade, then the fair
market value as determined by the Corporation's Board of Directors based upon
recent trades and bid and asked prices of the Old Common Stock. Each certificate
that immediately prior to the Effective Date represented shares of Old Common
Stock shall upon and after the Effective Date represent (i) that number of
shares of Common Stock into which the shares of Old Common Stock represented by
such certificate shall have been reclassified and (ii) the right to receive cash
in lieu of a fractional share of Common Stock as aforesaid; provided, however,
that each person holding of record a stock certificate or certificates that
immediately prior to the Effective Date represented shares of Old Common Stock
shall receive, upon surrender of such certificate or certificates, (x) a new
certificate or certificates evidencing and
A-1
<PAGE> 23
representing the number of shares of Common Stock to which such person is
entitled pursuant to the foregoing reclassification and (y) a cash payment in
lieu of the issuance of a fractional share of Common Stock as aforesaid."
4. The foregoing amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, CanArgo Energy Corporation has caused this Certificate
to be executed by , its , on this day of ,
1999.
A-2
<PAGE> 24
CANARGO ENERGY CORPORATION
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
, 1999
The undersigned hereby constitutes and appoints and ,
and each of them, the attorneys and proxies of the undersigned with full power
of substitution to appear and to vote all of the shares of the Voting Securities
of CanArgo Energy Corporation held of record by the undersigned on ,
1999 at the Annual Meeting of Stockholders to be held on , 1999, or
any adjournment or postponement thereof, as designated below:
<TABLE>
<S> <C> <C> <C> <C> <C>
(1) ELECTION OF DIRECTORS: [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as to vote for all
indicated to the contrary nominees listed
below) below
Michael R. Binnion, J.F. Russell Hammond, Peder Paus, David Robson, Nils N.
Trulsvik
(INSTRUCTION: To withhold authority to vote for any nominee, line through his
name above.)
</TABLE>
(2) To approve an amendment to the Certificate of Incorporation to effect a
1-for-25 reverse stock split of the outstanding Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To approve a proposal to amend the 1995 Long-Term Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) To ratify the selection of PricewaterhouseCoopers LLP as independent public
accountants of CanArgo for the year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENT
THEREOF.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CANARGO ENERGY
CORPORATION. IF NO VOTE IS INDICATED, THIS PROXY WILL BE VOTED "FOR" EACH OF THE
PROPOSALS.
YOU ARE URGED TO DATE, SIGN AND RETURN PROMPTLY THIS PROXY IN THE ENVELOPE
PROVIDED. IT IS IMPORTANT FOR YOU TO BE REPRESENTED AT THE ANNUAL MEETING. THE
EXECUTION OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ARE
PRESENT AT THE ANNUAL MEETING.
Dated: _____________________ , 1999 ______________________________________
Signature(s)
IMPORTANT: please sign exactly as your name or names appear on this proxy, and
when signing as an attorney, executor, administrator, trustee or guardian, give
your full title as such. If the signatory is a corporation, sign the full
corporate name by duly authorized officer, or if a partnership, sign in
partnership name by authorized person.
<PAGE> 25
CANARGO ENERGY CORPORATION
1995 LONG-TERM INCENTIVE PLAN
(EFFECTIVE NOVEMBER 14, 1995)
(AMENDED AND RESTATED AS OF JULY 15, 1998)
<PAGE> 26
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. PURPOSE..................................................... 1
2. DEFINITIONS................................................. 1
(a) "Award"................................................. 1
(b) "Award Agreement"....................................... 1
(c) "Board"................................................. 1
(d) "Code".................................................. 1
(e) "Committee"............................................. 1
(f) "Common Stock".......................................... 1
(g) "Compensation Committee"................................ 1
(h) "Corporation"........................................... 1
(i) "Director".............................................. 1
(j) "Employee".............................................. 1
(k) "Exchange Act".......................................... 1
(l) "Exercise Price"........................................ 1
(m) "Fair Market Value"..................................... 1
(n) "For Cause"............................................. 2
(o) "Incentive Stock Option"................................ 2
(p) "Non-qualified Stock Option"............................ 2
(q) "Option"................................................ 2
(r) "Participant"........................................... 2
(s) "Plan".................................................. 2
(t) "Purchase Price"........................................ 2
(u) "Pyramiding"............................................ 2
(v) "Reload"................................................ 3
(w) "Share"................................................. 3
(x) "Stock Appreciation Right".............................. 3
(y) "Subsidiary"............................................ 3
(z) "Ten Percent Stockholder"............................... 3
(aa)"Total and Permanent Disability"........................ 3
(bb)"Vest" or "Vesting"..................................... 3
(cc)"Voting Power".......................................... 3
3. EFFECTIVE DATE.............................................. 3
4. ADMINISTRATION.............................................. 4
(a) Administration by the Board or the Committee............ 4
(b) The Committee........................................... 4
(c) Powers of the Committee................................. 4
(d) Committee's Interpretation of the Plan.................. 5
5. PARTICIPATION............................................... 5
(a) Eligibility for Participation........................... 5
(b) Eligibility for Awards.................................. 5
6. SHARES OF STOCK OF THE CORPORATION.......................... 5
(a) Shares Subject to This Plan............................. 5
(b) Adjustment of Shares.................................... 5
(c) Awards Not to Exceed Shares Available................... 5
7. TERMS AND CONDITIONS OF OPTIONS............................. 6
(a) Eligibility for Incentive Stock Options................. 6
(b) Award Agreements........................................ 6
(c) Number of Shares Covered by an Option................... 6
(d) Exercise of Options..................................... 6
(e) Vesting of Options...................................... 6
(f) Term and Expiration of Options.......................... 6
(g) Exercise Price.......................................... 7
(h) Medium and Time of Payment of Purchase Price............ 7
(i) Nontransferability of Options........................... 7
</TABLE>
i
<PAGE> 27
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(j) Termination of Employee, Director, Independent 7
Contractor or Consultant Status for Any Reason Other Than
Death, Total and Permanent Disability or For Cause......
(k) Death of Participant.................................... 8
(l) Total and Permanent Disability of Participant........... 8
(m) Termination For Cause................................... 8
(n) Rights as a Stockholder................................. 8
(o) Modification, Extension, and Renewal of Options......... 8
(p) Other Provisions........................................ 9
(q) No Disqualification of Incentive Stock Options.......... 9
(r) Limitation on Incentive Stock Options................... 9
8. STOCK APPRECIATION RIGHTS................................... 9
(a) Stock Appreciation Right Award Agreements............... 9
(b) Number of Shares Covered by a Stock Appreciation 9
Right...................................................
(c) Stock Appreciation Rights Issued and Exercised Without 9
Payment of Consideration................................
(d) Exercise of Stock Appreciation Rights................... 9
(e) Vesting of Stock Appreciation Rights.................... 9
(f) Term and Expiration of Stock Appreciation Rights........ 10
(g) Exercise and Settlement of a Stock Appreciation Right... 10
(h) Nontransferability of Stock Appreciation Rights......... 10
(i) Termination of Employee, Director, Independent 10
Contractor or Consultant Status for Any Reason Other Than
Death, Total and Permanent Disability or For Cause......
(j) Death of Participant.................................... 11
(k) Total and Permanent Disability of Participant........... 11
(l) Termination For Cause................................... 11
(m) Rights as a Stockholder................................. 11
(n) Modification, Extension, and Renewal of Stock 11
Appreciation Rights.....................................
(o) Other Provisions........................................ 12
9. TERM OF PLAN................................................ 12
10. RECAPITALIZATION, DISSOLUTION, AND CHANGE OF CONTROL........ 12
(a) Recapitalization........................................ 12
(b) Dissolution, Merger, Consolidation, or Sale or Lease of 12
Assets..................................................
(c) Determination by the Committee.......................... 12
(d) Limitation on Rights of Participants.................... 12
(e) No Limitation on Rights of Corporation.................. 12
11. SECURITIES LAW REQUIREMENTS................................. 13
(a) Legality of Issuance.................................... 13
(b) Restrictions on Transfer; Representations of 13
Participant; Legends....................................
(c) Registration or Qualification of Securities............. 13
(d) Exchange of Certificates................................ 13
12. EXERCISE OF UNVESTED OPTIONS................................ 14
(a) Purpose of Section 12................................... 14
(b) Exercise of Non-Vested Awards and Issuance of Restricted 14
Stock...................................................
13. AMENDMENT OF THE PLAN....................................... 14
14. PAYMENT FOR SHARE PURCHASES................................. 14
15. APPLICATION OF FUNDS........................................ 15
16. APPROVAL OF SHAREHOLDERS.................................... 15
17. WITHHOLDING OF TAXES........................................ 15
(a) General................................................. 15
(b) Stock Withholding....................................... 16
18. RIGHTS AS AN EMPLOYEE, DIRECTOR, INDEPENDENT CONTRACTOR OR 16
CONSULTANT..................................................
19. INSPECTION OF RECORDS....................................... 16
</TABLE>
ii
<PAGE> 28
CANARGO ENERGY CORPORATION
1995 LONG-TERM INCENTIVE PLAN
1. PURPOSE
This Plan is intended to provide employees and directors of CanArgo Energy
Corporation ("Corporation") and advisors and consultants rendering services to
the Corporation (collectively "Participants") an opportunity to acquire an
equity interest in the Corporation. The Corporation intends to use the Plan to
attract and retain Participants' services, motivate Participants to increase the
Corporation's value, and have flexibility in compensating Participants.
The Plan allows the Corporation to reward Participants with (i) options to
purchase shares of common stock of the Corporation, and (ii) stock appreciation
rights with respect to shares of common stock of the Corporation. All awards
shall be subject to the terms and conditions provided in this Plan.
2. DEFINITIONS
(a) "AWARD" shall mean any award granted under the Plan, including any
Option or Stock Appreciation Right.
(b) "AWARD AGREEMENT" shall mean, with respect to each Award granted to a
Participant, the signed written agreement between the Corporation and the
Participant setting forth the terms and conditions of the Award.
(c) "BOARD" shall mean the Board of Directors of the Corporation.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" shall mean the committee appointed by the Board in
accordance with Section 4(a) to administer the Plan, or the Board, if it
administers the Plan as provided in Section 4(a).
(f) "COMMON STOCK" shall mean the voting common stock of the Corporation.
(g) "COMPENSATION COMMITTEE" shall mean the Compensation Committee
appointed by the Board.
(h) "CORPORATION" shall mean CanArgo Energy Corporation (formerly Fountain
Oil Incorporated).
(i) "DIRECTOR" shall mean a member of the Board.
(j) "EMPLOYEE" shall mean any individual who is employed, within the
meaning of Section 3401 of the Code and the regulations thereunder, by the
Corporation or any Subsidiary. The Committee shall be responsible for
determining when an Employee's period of employment is deemed to be continued
during an approved leave of absence.
(k) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "EXERCISE PRICE" shall mean:
(i) With respect to an Option, the price per Share at which the Option
may be exercised, as determined by the Committee and as specified
in the Participant's Award Agreement; or
(ii) With respect to a Stock Appreciation Right, the price per Share
which is the base price for determining the future value of the
Stock Appreciation Right, as determined by the Committee and as
specified in the Participant's Award Agreement.
(m) "FAIR MARKET VALUE" shall mean the value of each Share determined as of
any specified date as follows:
(i) If the Shares are traded on any recognized United States
securities exchange, the value per Share shall be the closing
price of the Common Stock on the business day immediately
1
<PAGE> 29
preceding such specified date (or, if there are no sales on that
day the last preceding day on which there was a sale) on the
principal exchange on which the Common Stock is traded;
(ii) If the Shares are not traded on any United States securities
exchange but are traded on any formal over-the-counter quotation
system in general use in the United States, the value per Share
shall be the mean between the closing bid and asked quotations of
the Common Stock on the business day immediately preceding such
specified date (or, if there are no such quotations on that day,
the last preceding day on which there were such quotations) on
the principal system on which the Common Stock is traded; or
(iii) If neither Paragraph (i) nor (ii) applies, the value per Share
shall be determined by the Committee in good faith and based on
uniform principles consistently applied. Such determination shall
be conclusive and binding on all persons.
(n) "FOR CAUSE" shall mean the termination of a Participant's status with
the Corporation as an Employee, Director, advisor or consultant for any of the
following reasons, as determined by the Committee:
(i) The Participant commits a violation of any law, a breach of any
fiduciary duty or an act of dishonesty, fraud, misrepresentation
or moral turpitude which may have a material detrimental impact
on the Corporation's business or prevent the Participant from
effectively performing his or her duties as an Employee,
Director, advisor or consultant for the Corporation; or
(ii) The Participant, as determined in the sole discretion of the
Committee, willfully and habitually neglects to perform the
duties which the Participant is required to perform for the
Corporation or performs such duties other than in good faith and
the Participant fails to correct such conduct within ten (10)
days following the Corporation's delivery to the Participant of a
written notice describing such conduct; or
(iii) The Committee determines that the reason for terminating the
Participant's status with the Corporation constitutes "for cause"
under the Corporation's policies or under any contract between
the Participant and the Corporation.
(o) "INCENTIVE STOCK OPTION" shall mean an Option of the type which is
described in Section 422(b) of the Code.
(p) "NON-QUALIFIED STOCK OPTION" shall mean an Option which is not of the
type described in Section 422(b) or 423(b) of the Code.
(q) "OPTION" shall mean any Option which is granted pursuant to the Plan to
purchase Shares of Common Stock, whether granted as an Incentive Stock Option or
as a Non-qualified Stock Option.
(r) "PARTICIPANT" shall mean any individual to whom an Award has been
granted under the Plan, and such term shall include where appropriate the duly
appointed conservator or other legal representative of a mentally incompetent
Participant and the allowable transferee of a deceased Participant as provided
Sections 7(i) and/or 8(h).
(s) "PLAN" shall mean this CanArgo Energy Corporation 1995 Long-Term
Incentive Plan, as amended. The Plan is effective November 14, 1995.
(t) "PURCHASE PRICE" shall mean, at any specified time, the Exercise Price
of an Option to purchase one Share times the number of Shares subject to such
Option being exercised.
(u) "PYRAMIDING" shall mean, if the Committee in its sole discretion
permits, a Participant's payment, in whole or in part, of the Exercise Price of
an Option made by exchanging a Share or Share(s) of Common Stock that the
Participant had acquired pursuant to the exercise of another Option during the
preceding six months (under this Plan or any other plan or program of the
Corporation) or had otherwise acquired from the Corporation during the preceding
six months without paying full consideration for such Share(s).
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(v) "RELOAD" shall mean the grant of new Options to a Participant who
exercises an Option with previously acquired Shares, with the number of new
Options being equal to the number of Shares the Participant submits to the
Corporation to pay for Options just exercised.
(w) "SHARE" shall mean one authorized share of Common Stock.
(x) "STOCK APPRECIATION RIGHT" shall mean a right issued to a Participant
to receive all or any portion of the future appreciation in the Fair Market
Value of one Share of Common Stock over the Exercise Price of such right. A
Stock Appreciation Right may be settled in cash or Shares in accordance with the
terms and conditions set forth in Section 8.
(y) "SUBSIDIARY" shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation if, at the time
of granting an Option, each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of the voting power in
one of the other corporations in such chain.
(z) "TEN PERCENT STOCKHOLDER" shall mean, for purposes of granting
Incentive Stock Options, any person who owns stock of the Corporation possessing
more than 10% of the combined voting power of all classes of outstanding stock
of the Corporation or any Subsidiary. For purposes of determining whether a
person is a Ten Percent Stockholder:
(i) A person shall be considered the owner of stock that is owned,
directly or indirectly, by or for his or her brothers or sisters,
spouse, ancestors, and lineal descendants;
(ii) Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned
proportionally by or for its shareholders, partners or
beneficiaries, respectively; and
(iii) The term "outstanding stock" shall include all shares of stock
actually issued and outstanding, but shall not include any shares
of stock subject to stock options.
(aa) "TOTAL AND PERMANENT DISABILITY" shall mean with respect to a
Participant who is either an Employee or Director:
(i) The mental or physical disability, either occupational or
non-occupational in cause, which satisfies the definition of
"total disability" in the disability policy or plan provided by
the Corporation covering the Participant; or
(ii) If no such policy or plan is then covering the Participant, the
mental or physical disability which, in the opinion of the
Committee, on the basis of medical evidence satisfactory to it,
prevents the Participant from indefinitely performing the
principal duties of the position the Participant performed when
the disability commenced.
(bb)"VEST" or "VESTING" shall mean the date, event or act prior to which an
Award, in whole or in part, is not exercisable, and as a consequence of which
the Award, in whole or in part, becomes exercisable for the first time.
(cc) "VOTING POWER" shall mean the total combined rights to cast votes at
elections for members of the Corporation's Board of Directors.
3. EFFECTIVE DATE
The Plan was adopted by the Corporation effective November 14, 1995,
subject to the approval of the Corporation's shareholders in accordance with
Section 16.
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4. ADMINISTRATION
(a) ADMINISTRATION BY THE BOARD OR THE COMMITTEE
The Board may appoint a Committee of not less than two Directors, which may
be the Compensation Committee or another Committee, to administer the Plan. In
the event the Board elects to administer the Plan, the Board shall have the
powers and authority otherwise delegated to the Committee in this Plan and all
acts to be performed by the Committee under this Plan shall be performed by the
Board.
(b) THE COMMITTEE
The Committee shall hold meetings at such times and places as it may
determine. For a Committee meeting, if the Committee has two members, both
members must be present to constitute a quorum, and if the Committee has three
or more members, a majority of the Committee shall constitute a quorum. Acts by
a majority of the members present at a meeting at which a quorum is present and
acts approved in writing by all the members of the Committee shall constitute
valid acts of the Committee.
(c) POWERS OF THE COMMITTEE
On behalf of the Corporation and subject to the provisions of the Plan, the
Committee shall have the authority and discretion to:
(i) Prescribe, amend and rescind rules and regulations relating to
the Plan;
(ii) Select Participants to receive Awards;
(iii) Determine the form and terms of Awards;
(iv) Determine the number of Shares or other consideration subject to
Awards;
(v) Determine whether Awards will be granted singly, in combination
or in tandem with, in replacement of, or as alternatives to,
other Awards under the Plan or any other incentive or
compensation plan of the Corporation;
(vi) Construe and interpret the Plan, any Award Agreement and any
other agreement or document executed pursuant to the Plan;
(vii) Correct any defect or omission, or reconcile any inconsistency in
the Plan, any Award or any Award Agreement;
(viii) Determine whether an Award has been earned and/or Vested;
(ix) Determine whether a Participant who is either an Employee or a
Director has incurred a Total and Permanent Disability;
(x) Accelerate or, with the consent of the Participant, defer the
Vesting of any Award and/or the exercise date of any Award;
(xi) Determine if a period of service performed by a consultant, an
advisor or a Director is "continuous" for purposes of the Plan;
(xii) Determine whether a Participant's status with the Corporation as
an Employee, Director, advisor, or consultant has been terminated
For Cause;
(xiii) Authorize any person to execute on behalf of the Corporation any
instrument required to effectuate the grant of an Award as made
by the Committee;
(xiv) With the consent of the Participant, reprice, cancel and reissue,
or otherwise adjust the terms of an Award previously issued to
the Participant;
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(xv) Determine, upon review of relevant information, the Fair Market
Value of the Common Stock; and
(xvi) Make all other determinations deemed necessary or advisable for
the administration of the Plan.
(d) COMMITTEE'S INTERPRETATION OF THE PLAN
The Committee's interpretation and construction of any provision of the
Plan, of any Award granted under the Plan, or of any Award Agreement shall be
final and binding on all persons claiming an interest in an Award granted or
issued under the Plan. No member of the Committee nor any Director shall be
liable for any action or determination made in good faith with respect to the
Plan, and the Corporation shall indemnify and defend a member of the Committee
to the fullest extent provided by law.
5. PARTICIPATION
(a) ELIGIBILITY FOR PARTICIPATION. Subject to the conditions of Section
5(b), all Employees, Directors, consultants, and advisors of the Corporation are
eligible to be selected as Participants by the Committee, in its discretion;
provided however, that any Director who is not also an Employee shall
participate only in the "Outside Directors Sub-Plan" which has been adopted
under this Plan for such outside Directors, as such Sub-Plan may be amended from
time to time. The Committee's determination of an individual's eligibility for
participation shall be final.
(b) ELIGIBILITY FOR AWARDS. The Committee has the authority, in its
discretion, to grant Awards to Participants. A Participant may be granted more
than one Award under the Plan.
6. SHARES OF STOCK OF THE CORPORATION
(a) SHARES SUBJECT TO THIS PLAN
Awards which are granted or issued under this Plan shall be with respect to
the authorized but unissued or reacquired Shares of the Corporation's Common
Stock. The aggregate number of Shares which may be issued upon the exercise of
Options and/or which may be utilized with respect to Stock Appreciation Rights
settled in cash or in Shares under this Plan shall not exceed seven hundred
fifty thousand (750,000) Shares, subject to adjustment under Section 10.
(b) ADJUSTMENT OF SHARES
In the event of an adjustment described in Section 10, then (i) the number
of Shares reserved for issuance under the Plan, (ii) the Exercise Prices of and
number of Shares subject to outstanding Options, (iii) the Exercise Price of and
number of Shares with respect to which there are outstanding Stock Appreciation
Rights, and (iv) any other factor pertaining to outstanding Awards shall be duly
and proportionately adjusted, subject to any required action by the Board or the
shareholders of the Corporation and compliance with applicable securities laws;
provided, however, that fractions of a Share shall not be issued but shall
either be paid in cash at Fair Market Value or shall be rounded up to the
nearest Share, as determined by the Committee; and provided, further, that the
Exercise Price of any Option may not be decreased to below the par value, if
any, of the Shares.
(c) AWARDS NOT TO EXCEED SHARES AVAILABLE
The number of Shares subject to Awards which have been granted under this
Plan at any time during the Plan's term shall not, in the aggregate at any time,
exceed the number of Shares authorized for issuance under the Plan. The number
of Shares subject to a Stock Appreciation Right that is settled in cash shall
count as Shares issued under the Plan and shall not again be available for grant
or issuance under the Plan. The number of Shares subject to an Award which
expires, is canceled, is forfeited or is terminated for any reason, shall again
be available for issuance under the Plan.
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7. TERMS AND CONDITIONS OF OPTIONS
(a) ELIGIBILITY FOR INCENTIVE STOCK OPTIONS
(i) Subject to Section 7(a)(ii), Incentive Stock Options may be
granted only to Employees (irrespective of whether an Employee is
also a Director). Advisors, consultants and Directors who are not
also Employees are not eligible to be awarded Incentive Stock
Options.
(ii) Any Employee who is a Ten Percent Stockholder is eligible to be
granted an Incentive Stock Option only if: (A) the Exercise Price
of each Share subject to such Incentive Stock Option, when
granted, is equal to or exceeds 110% of the Fair Market Value of
a Share; and (B) the term of the Incentive Stock Option does not
exceed five years.
(b) STOCK OPTION AWARD AGREEMENTS
Each Option shall be evidenced by a written Award Agreement which shall set
forth the terms and conditions pertaining to such Option, provided that all such
terms shall be subject to and consistent with this Plan.
(c) NUMBER OF SHARES COVERED BY AN OPTION
Each Option Award Agreement shall state the number of Shares for which the
Option is exercisable, subject to adjustment of such Shares pursuant to Section
10.
(d) EXERCISE OF OPTIONS
Only a Participant may exercise an Option, and the Participant may exercise
an Option only on or after the date on which the Option Vests, as provided in
Section 7(e) below, and only on or before the date on which the term of the
Option expires, as provided in Section 7(f) below.
(e) VESTING OF OPTIONS
Each Award Agreement shall include a Vesting schedule describing the date,
event or act upon which an Option shall Vest, in whole or in part, with respect
to all or a specified portion of the Shares covered by such Option. The
condition shall not impose upon the Corporation any obligation to retain the
Participant in its employ for any period.
(f) TERM AND EXPIRATION OF OPTIONS
Subject to Section 7(q), except as otherwise specifically provided in a
Participant's Award Agreement, the term of an Option shall expire on the first
to occur of the following events:
(i) The tenth anniversary of the date the Option was granted
(substituting "fifth anniversary" for "tenth anniversary" for an
Incentive Stock Option granted to a Ten Percent Stockholder);
(ii) The date determined under Section 7(j)(ii) for a Participant who
ceases to be an Employee, Director, advisor, or consultant of the
Corporation for any reason, other than by reason of death, Total
and Permanent Disability or For Cause;
(iii) The date determined under Section 7(k) for a Participant who
ceases to be an Employee, Director, advisor or consultant of the
Corporation by reason of the Participant's death;
(iv) The date determined under Section 7(l) for a Participant who
ceases to be an Employee or Director of the Corporation by reason
of the Participant's Total and Permanent Disability;
(v) The date determined under Section 7(m) for a Participant who
ceases to be an Employee, Director, advisor or consultant For
Cause;
(vi) On the effective date of a transaction described in Section
10(b); or
(vii) The expiration date specified in the Award Agreement pertaining
to the Option.
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(g) EXERCISE PRICE
Each Award Agreement shall state the Exercise Price for the Shares to which
the Option pertains, subject to the following conditions:
(i) The Exercise Price of an Incentive Stock Option shall not be less
than 100% of the Fair Market Value of the Shares on the date the
Option is granted (substituting "110%" for "100%" for any
Incentive Stock Option granted to a Ten Percent Stockholder); and
(ii) Notwithstanding Section 7(g)(i) above, the Exercise Price of an
Option may not be below the par value, if any, of the Shares.
(h) MEDIUM AND TIME OF PAYMENT OF PURCHASE PRICE
A Participant may exercise an Option by delivering notice to the
Corporation. A Participant exercising an Option shall pay the Purchase Price for
the Shares to which such exercise pertains in full in cash (in U.S. dollars) as
a condition of such exercise, unless the Committee in its discretion allows the
Participant to pay the Purchase Price in a manner allowed under Section 14, so
long as the sum of cash so paid and such other consideration equals the Purchase
Price. The sequential exercise of an Option through Pyramiding is specifically
allowable under the Plan, subject to the consent of the Committee, in its
discretion. The granting of Reload Options is also allowable under the Plan,
subject to the consent of the Committee, in its discretion.
(i) NONTRANSFERABILITY OF OPTIONS
An Option granted to a Participant shall, during the lifetime of the
Participant, be exercisable only by the Participant and shall not be assignable
or transferable. In the event of the Participant's death, an Option is
transferable by the Participant only by will or the laws of descent and
distribution.
(j) TERMINATION OF EMPLOYEE, DIRECTOR, ADVISOR OR CONSULTANT STATUS FOR ANY
REASON OTHER THAN DEATH, TOTAL AND PERMANENT DISABILITY OR FOR CAUSE
(i) For purposes of this Section 7(j), Employee, Director, advisor or
consultant status will be treated as continuing intact while the
Participant is an Employee, Director, advisor or consultant or is
on military leave, sick leave or other bona fide leave of
absence, as determined by the Committee, in its discretion in
accordance with Sections 2(j) or 4(c)(xi). The preceding sentence
notwithstanding, for determinations pertaining to Incentive Stock
Options, Employee status shall be deemed to terminate on the date
that a Participant is no longer eligible to receive an Incentive
Stock Option pursuant to Section 7(a).
(ii) If a Participant ceases to be an Employee, Director, advisor or
consultant for any reason other than death, Total and Permanent
Disability or For Cause, then: (A) the Participant's Options
which are not Vested at the time that the Participant ceases to
be an Employee, Director, advisor or consultant shall be
forfeited; and (B) the Participant's Options which are Vested at
the time the Participant ceases to be an Employee, Director,
advisor or consultant shall expire at 12:00 Midnight on the 30th
day following the date that the Participant ceases to be an
Employee, Director, advisor or consultant (but not beyond the
date that the term of the Option would earlier have expired
pursuant to Section 7(f)), subject to the following:
(A) Pursuant to Section 4(c)(iii), the Committee may provide in a
Director's Award Agreement that a longer specified period may
be substituted for the thirty-day period described above;
(B) Pursuant to Section 7(o), the Committee may, in its sole
discretion, grant an extension of the thirty-day expiration
period described above in order to favor a Participant,
provided that such extension shall be made in writing and
shall provide that all unexercised Options shall expire at
12:00 Midnight on the last day of such extension; and
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(C) Any unexercised Incentive Stock Option shall in any event
expire at 12:00 Midnight on the three month anniversary of
the date the Participant ceases to be an Employee.
(k) DEATH OF PARTICIPANT
If a Participant dies while an Employee, Director, advisor or consultant,
any Option granted to the Participant may be exercised, to the extent it was
Vested on the date of the Participant's death or became Vested as a result of
the Participant's death, at any time within six (6) months after the
Participant's death (but not beyond the date that the term of the Option would
earlier have expired pursuant to Section 7(f) had the Participant's death not
occurred), subject to the following:
(i) Pursuant to Section 7(o), the Committee may, in its sole
discretion, grant an extension of the six-month expiration period
described above in order to favor a Participant, provided that
such extension shall be made in writing and shall provide that
all unexercised Options shall expire at 12:00 Midnight on the
last day of such extension; and
(ii) Any unexercised Incentive Stock Option shall in any event expire
at 12:00 Midnight on the one year anniversary of the
Participant's death.
(l) TOTAL AND PERMANENT DISABILITY OF PARTICIPANT
If a Participant ceases to be an Employee or Director as a consequence of
Total and Permanent Disability, any Option granted to the Participant may be
exercised, to the extent it was Vested on the date that the Participant ceased
to be an Employee or Director or became Vested as a result of Participant's
Total and Permanent Disability, at any time within six (6) months after such
date (but not beyond the date that the term of the Option would earlier have
expired pursuant to 7(f) had the Participant's Total and Permanent Disability
not occurred), subject to the following:
(i) Pursuant to Section 7(o), the Committee may, in its sole
discretion, grant an extension of the six-month expiration period
described above in order to favor a Participant, provided that
such extension shall be made in writing and shall provide that
any unexercised Option shall expire at 12:00 Midnight on the last
day of such extension; and
(ii) Any unexercised Incentive Stock Option shall expire at 12:00
Midnight on the one year anniversary of the date the Participant
ceases to be an Employee by reason of Total and Permanent
Disability.
(m) TERMINATION FOR CAUSE
If a Participant ceases to be an Employee, Director, advisor or consultant
For Cause, any Vested Option granted to the Participant may be exercised no
later than 12:00 Midnight on the date such termination For Cause occurs.
(n) RIGHTS AS A STOCKHOLDER
A Participant shall have no rights as a stockholder of the Corporation with
respect to any Shares for which an Option is exercisable or has been exercised
until the date a stock certificate for such Shares is issued to the Participant.
No adjustment shall be made for dividends (ordinary or extraordinary or whether
in currency, securities, or other property), distributions, or other rights for
which the record date is prior to the date such stock certificate is issued.
(o) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS
Within the limitations of the Plan, the Committee may, in its discretion,
modify, extend or renew any outstanding Option or accept the cancellation of
outstanding Options for the granting of a new Option in substitution therefore.
Notwithstanding the preceding sentence, no modification of an Option shall:
(i) Without the consent of the Participant, alter or impair any
rights or obligations under any Option previously granted or
cause an Incentive Stock Option previously granted to fail to
satisfy all the conditions required to qualify as an Incentive
Stock Option; or
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(ii) Exceed or otherwise violate any limitation set forth in this
Section 7.
(p) OTHER PROVISIONS
An Award Agreement may contain such other provisions as the Committee in
its discretion deems advisable which are not inconsistent with the terms of the
Plan, including but not limited to:
(i) Restrictions on the exercise of the Option;
(ii) Submission by the Participant of such forms and documents as the
Committee may require; and/or
(iii) Procedures to facilitate the payment of the Exercise Price of an
Option under any method allowable under Section 14.
(q) NO DISQUALIFICATION OF INCENTIVE STOCK OPTIONS
Notwithstanding any other provision of the Plan, the Plan shall not be
interpreted, amended or altered, nor shall any discretion or authority granted
under the Plan be exercised, so as to disqualify the Plan under Section 422 of
the Code or, without the consent of the Participant affected, disqualify any
Incentive Stock Option under Section 422 of the Code (except as provided in
Section 7(r)).
(r) LIMITATION ON INCENTIVE STOCK OPTIONS
The aggregate Fair Market Value (determined with respect to each Incentive
Stock Option as of such Incentive Stock Option's date of grant) of all Shares
with respect to which a Participant's Incentive Stock Options become Vested
during any calendar year (under the Plan and under other incentive stock option
plans of the Corporation, if any) shall not exceed US$100,000. Any purported
Incentive Stock Options in excess of such limitation shall be recharacterized as
Non-qualified Stock Options.
8. STOCK APPRECIATION RIGHTS
(a) STOCK APPRECIATION RIGHT AWARD AGREEMENTS
Each Stock Appreciation Right shall be evidenced by a written Award
Agreement which shall set forth the terms and conditions pertaining to such
Stock Appreciation Right, provided that all such terms shall be subject to and
consistent with this Plan.
(b) NUMBER OF SHARES COVERED BY A STOCK APPRECIATION RIGHT
Each Stock Appreciation Right Award Agreement shall state the number of
Shares to which it pertains and the Exercise Price which is the basis for
determining future appreciation, subject to adjustment pursuant to Section 10.
(c) STOCK APPRECIATION RIGHTS ISSUED AND EXERCISED WITHOUT PAYMENT OF
CONSIDERATION
A Stock Appreciation Right shall be issued to and exercised by a
Participant without payment by the Participant of any consideration.
(d) EXERCISE OF STOCK APPRECIATION RIGHTS
Only a Participant may exercise a Stock Appreciation Right, and the
Participant may exercise a Stock Appreciation Right only on or after the date on
which the Stock Appreciation Right vests, as provided in Section 8(e), below,
and only on or before the date on which the Stock Appreciation Right expires, as
provided in Section 8(f) below.
(e) VESTING OF STOCK APPRECIATION RIGHTS
Each Award Agreement shall include a Vesting schedule describing the date,
event or act upon which the Stock Appreciation Right to which it pertains Vests,
in whole or in part. This condition shall not impose upon the Corporation any
obligation to retain the Participant in its employ for any period.
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(f) TERM AND EXPIRATION OF STOCK APPRECIATION RIGHTS
Except as otherwise specifically provided in a Participant's Award
Agreement, the term of a Stock Appreciation Right shall expire on the first to
occur of the following events:
(i) The tenth anniversary of the date the Right was granted;
(ii) The date determined under Section 8(i)(ii) for a Participant who
ceases to be an Employee, Director, advisor or consultant for any
reason, other than by reason of death, Total and Permanent
Disability or For Cause;
(iii) The date determined under Section 8(j) for a Participant who
ceases to be an Employee, Director, advisor or consultant of the
Corporation by reason of the Participant's death;
(iv) The date determined under Section 8(k) for a Participant who
ceases to be an Employee or Director of the Corporation by reason
of the Participant's Total and Permanent Disability;
(v) The date determined under Section 8(l) for a Participant who
ceases to be an Employee, Director, advisor or consultant For
Cause;
(vi) On the effective date of a transaction described in Section
10(b); or
(vii) The expiration date specified in the Award Agreement pertaining
to the Stock Appreciation Right.
(g) EXERCISE AND SETTLEMENT OF A STOCK APPRECIATION RIGHT
A Participant may exercise a Vested Stock Appreciation Right by delivering
notice to the Corporation. The Stock Appreciation Right may be settled in the
form of cash (either in a lump sum payment or in installments), whole Shares, or
a combination thereof, as the Award Agreement prescribes.
(h) NONTRANSFERABILITY OF STOCK APPRECIATION RIGHTS
A Stock Appreciation Right granted to a Participant shall, during the
lifetime of the Participant, be exercisable only by the Participant and shall
not be assignable or transferable. In the event of the Participant's death, a
Stock Appreciation Right is transferable by the Participant only by will or the
laws of descent and distribution.
(i) TERMINATION OF EMPLOYEE, DIRECTOR, ADVISOR OR CONSULTANT STATUS FOR ANY
REASON OTHER THAN DEATH, TOTAL AND PERMANENT DISABILITY OR FOR CAUSE
(i) For purposes of this Section 8(i)(i), Employee, Director, advisor
or consultant status will be treated as continuing intact while
the Participant is an Employee, Director, advisor or consultant
or is on military leave, sick leave or other bona fide leave of
absence, as determined by the Committee, in its discretion in
accordance with Sections 2(j) or 4(c)(xi).
(ii) If a Participant ceases to be an Employee, Director, advisor or
consultant for any reason other than death, Total and Permanent
Disability or For Cause, then: (A) the Participant's Stock
Appreciation Rights which are not Vested at the time that the
Participant ceases to be an Employee, Director, advisor or
consultant shall be forfeited; and (B) the Participant's Stock
Appreciation Rights which are Vested at the time the Participant
ceases to be an Employee, Director, advisor or consultant shall
expire at 12:00 Midnight on the 30th day following the date that
the Participant ceases to be an Employee, Director, advisor or
consultant (but not
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beyond the date that the term of the Stock Appreciation Right
would earlier have expired pursuant to Section 8(f), subject to
the following:
(A) Pursuant to Section 4(c)(iii), the Committee may provide in a
Director's Award Agreement that a longer specified period may
be substituted for the thirty-day period described above; and
(B) Pursuant to Section 8(n), the Committee may, in its sole
discretion, grant an extension of the thirty-day expiration
period described above in order to favor a Participant,
provided that such extension shall be made in writing and
shall provide that all unexercised Stock Appreciation Rights
shall expire at 12:00 Midnight on the last day of such
extension.
(j) DEATH OF PARTICIPANT
If a Participant dies while an Employee, Director, advisor or consultant,
any Stock Appreciation Right granted to the Participant may be exercised, to the
extent it was Vested on the date of the Participant's death or became Vested as
a consequence of the Participant's death, at any time within six (6) months
after the Participant's death (but not beyond the date that the term of the
Stock Appreciation Right would earlier have expired pursuant to Section 8(f) had
the Participant's death not occurred), provided that pursuant to Section 8(n),
the Committee may, in its sole discretion, grant an extension of the six-month
expiration period described above in order to favor a Participant, provided that
such extension shall be made in writing and shall provide that all unexercised
Stock Appreciation Rights shall expire at 12:00 Midnight on the last day of such
extension.
(k) TOTAL AND PERMANENT DISABILITY OF PARTICIPANT
If a Participant ceases to be an Employee or Director as a consequence of
Total and Permanent Disability, any Stock Appreciation Right granted to the
Participant may be exercised, to the extent it was Vested on the date that the
Participant ceased to be an Employee or Director or became Vested as a
consequence of the Participant's Total and Permanent Disability, at any time
within six (6) months after such date (but not beyond the date that the term of
the Stock Appreciation Right would earlier have expired pursuant to 8(f) had the
Participant's Total and Permanent Disability not occurred), provided that
pursuant to Section 8(n), the Committee may, in its sole discretion, grant an
extension of the six-month expiration period described above in order to favor a
Participant, provided that such extension shall be made in writing and shall
provide that any unexercised Option shall expire at 12:00 Midnight on the last
day of such extension.
(l) TERMINATION FOR CAUSE
If a Participant ceases to be an Employee, Director, advisor or consultant
For Cause, any Vested Stock Appreciation Right granted to the Participant may be
exercised no later than 12:00 Midnight on the date such termination For Cause
occurs.
(m) RIGHTS AS A STOCKHOLDER
A Participant shall have no rights as a shareholder of the Corporation with
respect to any Shares to which a Stock Appreciation Right pertains, except for
Stock Appreciation Rights settled in Shares and then not until the date a stock
certificate for such Shares is issued to the Participant. No adjustment shall be
made for dividends (ordinary or extraordinary or whether in currency,
securities, or other property), distributions, or other rights for which the
record date is prior to the date such stock certificate is issued.
(n) MODIFICATION, EXTENSION, AND RENEWAL OF STOCK APPRECIATION RIGHTS
Within the limitations of the Plan, the Committee may, in its discretion,
modify, extend or renew any outstanding Stock Appreciation Right or accept the
cancellation of an outstanding Stock Appreciation Right for the granting of a
new Stock Appreciation Right in substitution therefor. Notwithstanding the
preceding sentence, no modification of a Stock Appreciation Right shall, without
the consent of the Participant, alter or impair any rights or obligations under
any Stock Appreciation Right previously granted.
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(o) OTHER PROVISIONS
An Award Agreement may contain such other provisions as the Committee in
its discretion deems advisable which are not inconsistent with the terms of the
Plan, including but not limited to:
(i) Restrictions on the exercise of the Stock Appreciation Right;
and/or
(ii) Submission by the Participant of such forms and documents as the
Committee may require.
9. TERM OF PLAN
Awards may be granted pursuant to the Plan through the period ending on
November 13, 2005. All Awards which are outstanding on such date shall remain in
effect until they are exercised or expire by their terms. The Plan shall expire
for all purposes on November 13, 2015. The Board is authorized to extend the
Plan for an additional term at any time; however, no Incentive Stock Options may
be granted under the Plan during a term resulting from such extension unless the
extension is approved by the stockholders of the Corporation within one year of
such extension.
10. RECAPITALIZATION, DISSOLUTION, AND CHANGE OF CONTROL
(a) RECAPITALIZATION
Notwithstanding any other provision of the Plan to the contrary, but
subject to any required action by the stockholders of the Corporation and
compliance with any applicable securities laws, the Committee shall make any
adjustments to the class and/or number of Shares covered by the Plan, the number
of Shares for which each outstanding Award pertains, the Exercise Price of an
Option, the Exercise Price of a Stock Appreciation Right, and/or any other
aspect of this Plan to prevent the dilution or enlargement of the rights of
Participants under this Plan in connection with any increase or decrease in the
number of issued Shares resulting from the payment of a Common Stock dividend,
stock split, reverse stock split, recapitalization, combination, or
reclassification or any other event which results in an increase or decrease in
the number of issued Shares without receipt of adequate consideration by the
Corporation (as determined by the Committee).
(b) DISSOLUTION, MERGER, CONSOLIDATION, OR SALE OR LEASE OF ASSETS
Upon the (i) dissolution or liquidation of the Corporation, (ii) merger of
consolidation of the Corporation with another corporation or other entity
pursuant to which the Corporation is not the surviving entity, (iii) sale or
lease of all or substantially all the business assets of the Corporation, or
(iv) the sale of more than 80% of the outstanding Common Stock of the
Corporation, unless the surviving or acquiring corporation or entity agrees to
assume outstanding Awards, each Award granted hereunder shall expire as of the
effective date of such transaction; provided, however, that the Committee may,
in its discretion, give written notice of such event to any Participant who
shall then have the right to exercise his or her Vested Awards prior to the
effective date of such transaction, subject to earlier expiration pursuant to
Sections 7 or 8 (as applicable).
(c) DETERMINATION BY THE COMMITTEE
All adjustments described in this Section 10 shall be made by the Committee
in its discretion, and such determination shall be conclusive and binding on all
persons.
(d) LIMITATION ON RIGHTS OF PARTICIPANTS
Except as expressly provided in this Section 10, no Participant shall have
any rights by reason of any reorganization, dissolution, change of control,
merger or acquisition. Any issuance by the Corporation of Awards shall not
affect, and no adjustment by reason thereof shall be made with respect to, any
Awards previously issued under the Plan.
(e) NO LIMITATION ON RIGHTS OF CORPORATION
The grant of an Award pursuant to the Plan shall not affect in any way the
right or power of the Corporation to make adjustments, reclassifications,
reorganizations, or changes of its capital or business
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structure, or to merge or consolidate, or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
11. SECURITIES LAW REQUIREMENTS
(a) LEGALITY OF ISSUANCE
No Share shall be issued upon the exercise of any Award unless and until
the Committee has determined that:
(i) The Corporation and the Participant have taken all actions
required to register the Shares under the Securities Act of 1933,
as amended (the "Act"), or to perfect an exemption from
registration requirements of the Act, or to determine that the
registration requirements of the Act do not apply to such
exercise;
(ii) Any applicable listing requirement of any stock exchange on which
the Share is listed has been satisfied; and
(iii) Any other applicable provision of state, federal or foreign law
has been satisfied.
(b) RESTRICTIONS ON TRANSFER; REPRESENTATIONS OF PARTICIPANT; LEGENDS
Regardless of whether the offering and sale of Shares under the Plan have
been registered under the Act or have been registered or qualified under the
securities laws of any state, the Corporation may impose restrictions upon the
sale, pledge, or other transfer of such Shares (including the placement of
appropriate legends on stock certificates) if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable to
achieve compliance with the provisions of the Act, the securities laws of any
state, or any other law. If the offering and/or sale of Shares under the Plan is
not registered under the Act and the Corporation determines that the
registration requirements of the Act apply but an exemption is available which
requires an investment representation or other representation, the Participant
shall be required, as a condition to acquiring such Shares, to represent that
such Shares are being acquired for investment, and not with a view to the sale
or distribution thereof, except in compliance with the Act, and to make such
other representations as are deemed necessary or appropriate by the Corporation
and its counsel. Stock certificates evidencing Shares acquired pursuant to an
unregistered transaction to which the Act applies shall bear a restrictive
legend substantially in the following form and such other restrictive legends as
are required or deemed advisable under the Plan or the provisions of any
applicable law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
("ACT"). THEY MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE UNLESS A
REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE
OPINION OF COUNSEL FOR THE ISSUER EITHER SUCH REGISTRATION IS UNNECESSARY IN
ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR THE REGISTRATION PROVISIONS OF
THE ACT DO NOT APPLY TO SUCH PROPOSED TRANSFER.
Any determination by the Corporation and its counsel in connection with any of
the matters set forth in this Section 11 shall be conclusive and binding on all
persons.
(c) REGISTRATION OR QUALIFICATION OF SECURITIES
The Corporation may, but shall not be obligated to, register or qualify the
offering or sale of Shares under the Act or any other applicable law.
(d) EXCHANGE OF CERTIFICATES
If, in the opinion of the Corporation and its counsel, any legend placed on
a stock certificate representing Shares issued pursuant to the Plan is no longer
required, the Participant or the holder of such certificate shall be entitled to
exchange such certificate for a certificate representing the same number of
Shares but lacking such legend.
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12. EXERCISE OF UNVESTED OPTIONS
(a) PURPOSE OF SECTION 12
This Section 12 is intended to apply for the benefit of a Participant prior
to the time Shares held by the Participant are freely transferable under
applicable federal and state securities laws without the Participant holding the
Shares for a minimum period of time (such as the holding period requirement of
Rule 144 adopted by the Securities and Exchange Commission under the Act). It
provides that a Participant with a non-Vested Award may commence this holding
period for the Shares subject to the Award by exercising the non-Vested Award
and receiving Shares of restricted stock which will Vest on the same date as the
Award would have Vested. Any restricted stock issued under this Section 12 for
non-vested Awards which expire pursuant to Section 7 or Section 8, as
applicable, shall be reconveyed to the Corporation at the Exercise Price, if
any, paid by the Participant to the Corporation to acquire such Shares (in cash
and/or in Shares as paid by the Participant), subject, however, to complying
with any legal requirement relating to the Corporation's ability to repurchase
its own securities. In this way, the Participant is able to begin the holding
period for the Shares prior to the date the Award would have Vested.
(b) EXERCISE OF UNVESTED AWARDS AND ISSUANCE OF RESTRICTED STOCK
The Committee, in its sole discretion may:
(i) Grant any Participant the right to exercise any Award prior to
the Vesting of such Award, provided that the Shares issued upon
such exercise shall remain subject to Vesting, as restricted
stock, at the same rate as under the Award so exercised; and/or
(ii) Require the Corporation and the Participant to establish an
escrow arrangement to facilitate the re-transfer to the
Corporation of any Shares of restricted stock which are not
Vested and are to be reconveyed, on or before the applicable date
described in Section 7 or 8, as applicable, for determining the
expiration of the Award pursuant to which such Shares were issued
under this Section 12.
13. AMENDMENT OF THE PLAN
The Committee may, from time to time, terminate, suspend or discontinue the
Plan, in whole or in part, or revise or amend it in any respect whatsoever
including, but not limited to, the adoption of any amendment deemed necessary or
advisable to qualify the Awards under rules and regulations promulgated by the
Securities and Exchange Commission with respect to Employees who are subject to
the provisions of Section 16 of the Exchange Act, or to correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any Award
granted under the Plan, with or without approval of the stockholders of the
Corporation, but if any such action is taken without the approval of the
Corporation's stockholders, no such revision or amendment shall:
(a) Increase the number of Shares subject to the Plan, other than any
increase pursuant to Section 10;
(b) Change the designation of the class of persons eligible to receive
Incentive Stock Options; or
(c) Amend this Section 13 to defeat its purpose.
No amendment, termination or modification of the Plan shall, without the consent
of a Participant, adversely affect the Participant with respect to any Award
previously granted to the Participant.
14. PAYMENT FOR SHARE PURCHASES
Payment of the Purchase Price for any Shares purchased pursuant to the Plan
may be made in cash (in U.S. dollars) or, where expressly approved for the
Participant by the Committee, in its discretion, and where permitted by law:
(a) By check;
(b) By cancellation of indebtedness of the Corporation to the Participant;
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(c) By surrender of Shares that either: (A) have been owned by Participant
for more than six months (unless the Committee permits a Participant to exercise
an Option by Pyramiding, in which event the six months holding period shall not
apply) and have been "paid for" within the meaning of SEC Rule 144 (and, if such
shares were purchased from the Corporation by use of a promissory note, such
note has been fully paid with respect to such Shares); or (B) were obtained by
Participant in the public market;
(d) By tender of a full recourse promissory note having such terms as may
be approved by the Committee and bearing interest at a rate sufficient to avoid
imputation of income under Sections 483 and 1274 of the Code; provided, however,
that Participants who are not Employees shall not be entitled to purchase Shares
with a promissory note unless the note is adequately secured by collateral other
than the Shares; provided, further, that the portion of the Purchase Price equal
to the par value of the Shares, if any, must be paid in cash if required by
state law;
(e) By waiver of compensation due or accrued to Participant for services
rendered;
(f) With respect only to purchases upon exercise of an Option, and provided
that a public market for the Corporation's stock exists:
(i) Through a "same day sale" commitment from the Participant and a
broker-dealer that is a member of the National Association of
Securities Dealers (an "NASD Dealer") whereby the Participant
irrevocably elects to exercise the Option and to sell a portion
of the Shares so purchased to pay for the Exercise Price, and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Corporation;
or
(ii) Through a "margin" commitment from the Participant and an NASD
Dealer whereby the Participant irrevocably elects to exercise the
Option and to pledge the Shares so purchased to the NASD Dealer
in a margin account as security for a loan from the NASD Dealer
in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the
Exercise Price directly to the Corporation; or
(iii) By any combination of the foregoing.
15. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option shall be used for general corporate
purposes.
16. APPROVAL OF SHAREHOLDERS
The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of the outstanding shares present and entitled to vote at
the first annual meeting of shareholders of the Corporation following the
adoption of the Plan by the Board, and in no event later than November 13, 1996.
Prior to such approval, Options and/or Stock Appreciation Rights may be granted
but may not be exercised or settled. Pursuant to Section 13, certain amendments
shall also be subject to approval by the Corporation's shareholders.
17. WITHHOLDING OF TAXES
(a) GENERAL
Whenever Shares are to be issued under the Plan, the Corporation may
require the Participant to remit to the Corporation an amount sufficient to
satisfy foreign, federal, state and local withholding tax requirements prior to
the delivery of any certificate or certificates for such Shares. Whenever, under
the Plan, payments in satisfaction of Stock Appreciation Rights are to be made
in cash, such payment shall be net of an amount sufficient to satisfy foreign,
federal, state, and local withholding tax requirements.
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(b) STOCK WITHHOLDING
When, under applicable tax laws, a Participant incurs tax liability in
connection with the exercise of any Option or the exercise of a Stock
Appreciation Right that is settled in Shares that is subject to tax withholding
and the Participant is obligated to pay the Corporation the amount required to
be withheld, the Committee may at its sole discretion allow the Participant to
satisfy the minimum withholding tax obligation by electing to have the
Corporation withhold from the Shares to be issued the specific number of Shares
having a Fair Market Value equal to the minimum amount required to be withheld,
determined on the date that the amount of tax to be withheld is to be determined
(the "Tax Date"). All elections by a Participant to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Committee and
shall be subject to the following restrictions:
(i) The election must be made on or prior to the applicable Tax Date;
(ii) Once made, then except as provided below, the election shall be
irrevocable as to the particular Shares as to which the election
is made;
(iii) All elections shall be subject to the consent or disapproval of
the Committee; and
(iv) In the event that the Tax Date is deferred until six months after
the delivery of Shares under Section 83(b) of the Code, the
Participant shall receive the full number of Shares with respect
to which the exercise occurs, but (A) such Participant shall be
unconditionally obligated to tender back to the Corporation the
proper number of Shares on the Tax Date, and (B) the Committee
may require the Corporation and the Participant to establish an
escrow arrangement to facilitate the re-transfer of such
re-tendered Shares to the Corporation.
18. RIGHTS AS AN EMPLOYEE, DIRECTOR, ADVISOR OR CONSULTANT
The Plan shall not be construed to give any individual the right to remain
in the employ of the Corporation (or a Subsidiary) or to affect the right of the
Corporation (or such Subsidiary) to terminate such individual's status as an
Employee, Director, advisor or consultant at any time, with or without cause.
The grant of an Award shall not entitle the Participant to, or disqualify the
Participant from, participation in the grant of any other Award under the Plan
or participation in any other plan maintained by the Corporation.
19. INSPECTION OF RECORDS
Copies of the Plan, records reflecting each Participant's Awards and any
other documents and records which a Participant is entitled by law to inspect
shall be open to inspection by the Participant and his or her duly authorized
representative at the office of the Corporation at any reasonable business hour
upon reasonable advance notice from the Participant.
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CANARGO ENERGY CORPORATION
1995 LONG-TERM INCENTIVE PLAN
SUB-PLAN FOR UNITED KINGDOM PARTICIPANTS
(EFFECTIVE NOVEMBER 14, 1995)
(AMENDED AND RESTATED AS OF JULY 15, 1998)
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CANARGO ENERGY CORPORATION
1995 LONG-TERM INCENTIVE PLAN
SUB-PLAN FOR UNITED KINGDOM PARTICIPANTS
1. PURPOSE
This Sub-Plan for United Kingdom Participants (the "United Kingdom
Sub-Plan") is established under the CanArgo Energy Corporation 1995 Long-Term
Incentive Plan (the "Plan"). This Sub-Plan sets forth special terms and
restrictions which apply to all Stock Options granted to a covered Participant
who, on the date the Award is granted, is a "United Kingdom Participant," as
defined as in Section 2(a) of this Sub-Plan. The Corporation has adopted this
Sub-Plan to provide United Kingdom Participants an opportunity to be granted
Stock Option(s) under the Plan which qualify for favorable tax treatment under
current Inland Revenue provisions.
All Stock Options granted pursuant to this Sub-Plan shall be subject to the
terms and conditions provided in the Plan and in this Sub-Plan; provided,
however that except as otherwise specifically provided or as the context
otherwise requires, the terms and conditions of this Sub-Plan shall govern in
the event of a conflict with the terms and conditions of the Plan.
2. DEFINITIONS
Capitalized terms shall have the meanings set forth in Section 2 of the
Plan, and the following additional terms shall have the meanings specified
below:
(a) "UNITED KINGDOM PARTICIPANT" shall mean a Participant who, on the date
a Stock Option is granted to the Participant, is domiciled in the United
Kingdom, is subject to taxation under Inland Revenue provisions as an "employee
resident" or an "ordinarily resident" individual, as such terms are defined for
Inland Revenue purposes, and elects to be covered by this Sub-Plan with respect
to such Stock Option.
(b) "UNITED KINGDOM SUB-PLAN" shall mean this Sub-Plan covering Awards
granted to United Kingdom Participants, as amended.
3. EFFECTIVE DATE
This United Kingdom Sub-Plan was adopted by the Board effective November
14, 1995, as part of and subject to the terms of the Plan.
3. ADMINISTRATION
This United Kingdom Sub-Plan shall be administered in accordance with
Section 4 of the Plan.
5. COVERAGE OF THE UNITED KINGDOM SUB-PLAN
The terms and conditions of this United Kingdom Sub-Plan shall apply only
to United Kingdom Participants who consent in writing to such coverage. A United
Kingdom Participant shall provide such written consent in the Award Agreement
issued with respect to the Award governed by this Sub-Plan, and such consent
shall be irrevocable with respect to such Award, except as specifically
authorized by the Committee in its discretion.
6. MAXIMUM TERM FOR STOCK OPTIONS
All Stock Options which are granted to the United Kingdom Participants and
which are covered by this Sub-Plan shall have a maximum term which in no event
exceeds seven years from the date of the grant of such Stock Options. This
restriction shall be set forth in the Award Agreements issued with respect to
such Stock Options.
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7. AMENDMENTS
The Committee may amend the terms of this United Kingdom Sub-Plan at such
time or times as it deems advisable. If the Committee determines that any
amendment may be applied retroactively or prospectively to an outstanding Stock
Option subject to the terms of this Sub-Plan, the Committee shall first obtain
the written consent of a United Kingdom Participant prior to applying such
amendment to a Stock Option previously issued to such Participant.
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CANARGO ENERGY CORPORATION
1995 LONG-TERM INCENTIVE PLAN
AUTOMATIC GRANT SUB-PLAN FOR OUTSIDE DIRECTORS
(EFFECTIVE NOVEMBER 14, 1995)
(AMENDED AND RESTATED AS OF JULY 15, 1998)
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CANARGO ENERGY CORPORATION
1995 LONG-TERM INCENTIVE PLAN
AUTOMATIC GRANT SUB-PLAN FOR OUTSIDE DIRECTORS
1. PURPOSE
This Automatic Grant Sub-Plan for Outside Directors (the "Outside Directors
Sub-Plan") is established under the CanArgo Energy Corporation 1995 Long-Term
Incentive Plan (the "Plan") to provide each non-Employee Director of the
Corporation (an "Outside Director") an opportunity to be granted Non-qualified
Stock Options under the Plan. The Corporation has adopted this Sub-Plan to
attract and retain qualified Outside Directors and to motivate Outside Directors
to increase the Corporation's value.
All Non-qualified Stock Options granted pursuant to this Sub-Plan shall be
subject to the terms and conditions provided in the Plan and in this Sub-Plan;
provided, however, that except as otherwise specifically provided or as the
context otherwise requires, the terms and conditions of this Sub-Plan shall
govern in the event of a conflict with the terms and conditions of the Plan.
2. DEFINITIONS
Capitalized terms shall have the meanings set forth in Section 2 of the
Plan, and the following additional terms shall have the meanings specified
below:
(a) "OUTSIDE DIRECTOR" shall mean a Director who is not an Employee of the
Corporation or any Subsidiary.
(b) "OUTSIDE DIRECTORS SUB-PLAN" shall mean this Automatic Grant Sub-Plan
for Outside Directors, as amended.
3. EFFECTIVE DATE
The Outside Directors Sub-Plan was adopted by the Board effective November
14, 1995.
4. ADMINISTRATION
The Outside Directors Sub-Plan shall be administered by the Board in
accordance with Section 4 of the Plan.
5. PARTICIPATION
(a) ELIGIBILITY FOR PARTICIPATION. Only Outside Directors shall
participate in this Sub-Plan. The Board's determination of an individual's
eligibility for participation shall be final and binding.
(b) COMMENCEMENT OF PARTICIPATION. An Outside Director shall commence
participation in this Sub-Plan on the date elected or appointed as a Director
(or, for Outside Directors on the effective date of this Sub-Plan, the date
re-elected as a Director). A Director who is an Employee at election or
appointment and who thereafter ceases to be an Employee (thereby becoming an
Outside Director) shall commence participation in this Sub-Plan on the date the
Director is next reelected or reappointed as a Director.
(c) TERMINATION OF PARTICIPATION. An Outside Director's participation in
this Sub-Plan shall terminate on the earlier of (i) the date the Outside
Director ceases to serve as a Director for any reason, or (ii) on the date the
Outside Director becomes an Employee.
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6. AUTOMATIC GRANT OF NON-QUALIFIED STOCK OPTIONS TO OUTSIDE DIRECTORS
(a) AUTOMATIC GRANT OF NON-QUALIFIED STOCK OPTIONS
Non-qualified Stock Options shall be granted to Outside Directors on such
date(s) and in such amounts as specified in Section 6(b), at an Exercise Price
determined pursuant to Section 6(c), and subject to such terms as set forth in
Section 6(d).
(b) DATES OF GRANT AND NUMBER OF OPTIONS GRANTED
(i) Three thousand seven hundred fifty (3,750) Non-qualified Stock
Options shall be granted to each Outside Director on the date the
Outside Director is first elected or appointed to the Board (or
the date re-elected to the Board with respect to those Directors
who are Outside Directors on the effective date of this
Sub-Plan);
(ii) Thereafter, three thousand seven hundred fifty (3,750)
Non-qualified Stock Options shall be granted to each Outside
Director on the date of each meeting of the shareholders of the
Corporation at which such Outside Director is elected or
re-elected, with such grant to be effective immediately following
the adjournment of such meeting; and
(iii) An additional three thousand seven hundred fifty (3,750)
Non-qualified Stock Options shall be granted to an Outside
Director on the day after the annual meeting of shareholders (or
special meeting in lieu of an annual meeting at which all
directors are elected) of the Corporation if on such date he or
she is (y) then serving as Chairman of the Board or (z) then
serving as Vice Chairman of the Board and the Chairman of the
Board is an Employee.
Provided, however, that no Outside Director shall receive more than one
grant pursuant to each of clause (ii) and (iii) in any fiscal year and, provided
further, that if in any fiscal year the Corporation does not hold a meeting of
shareholders which results in the grant of the Options provided for in clauses
(ii) and (iii), then the Options provided for by each of clause (ii) and (iii)
shall be granted on the last day of such fiscal year to the Outside Directors
then serving in the applicable capacities as of such date.
(c) EXERCISE PRICE
The Exercise Price of each Non-qualified Stock Option granted pursuant to
this Sub-Plan shall be equal to 100% of the Fair Market Value of the Shares on
the date the Option is granted.
(d) TERM AND VESTING OF THE NON-QUALIFIED STOCK OPTIONS
Each Non-qualified Stock Option granted pursuant to this Sub-Plan shall be
governed by the following terms:
(i) The term of each Option shall expire on the first to occur of (A)
the third anniversary of the date the Option was granted, or (B)
the first anniversary of the date the Outside Director ceased to
serve as a Director for any reason;
(ii) Each Option shall become one hundred percent (100%) vested on the
six month anniversary of the date the Option was granted; and
(iii) An Outside Director may exercise a Vested Non-qualified Stock
Option at any time but not beyond the date that the term of the
Option expires as provided above.
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