Filed
Pursuant to Rule
424(b)(3)
Registration
No.
333-147023
PROSPECTUS
21,882,826
Shares
Common
Shares
The
selling shareholders are offering
21,882,826 common shares. Of these 21,882,826 common shares, 3,162,394 common
shares may be acquired, at the option of the selling shareholders, at a price
of
$1.17 per share upon the conversion of the Series A Subordinated Convertible
Notes due March 31, 2012 (the "Series A Notes"), as such price may be adjusted
in accordance with the terms of the Series A Notes and 18,720,432
common shares may be acquired, at the option of the selling shareholders, at
a
price of $1.17 per share upon the conversion of the Series B Subordinated
Convertible Notes due March 31, 2012 (the "Series B Notes"), as such price
may be adjusted in accordance with the terms of the Series B Notes.
We may force the conversion of the Series A Notes at any time after July 30,
2008, if our common shares trade above $2.05 per share, as may be adjusted,
for
20 days within a period of 30 consecutive trading days. We may force the
conversion of the Series B Notes at any time after September 30, 2008, if
our common shares trade above $2.05 per share, as may be adjusted, for 20 days
within a period of 30 consecutive trading days. The Series A Notes and the
Series B Notes were acquired by the selling shareholders in private
placement transactions. All of these common shares are being sold by the
selling shareholders named in this prospectus, or its transferees, pledgees,
donees or successors-in-interest. The selling shareholders will receive
all proceeds from the sale of the common shares being offered in this
prospectus.
The
selling shareholders may sell these common shares being offered by them
on the
American Stock Exchange, in market transactions, in negotiated transactions
or
otherwise, and at prices and at terms that will be determined by the then
prevailing market price for the common shares or at negotiated prices directly
or through a broker or brokers, who may act as agent or as principal or
by a
combination of such methods of sale. For additional information on the
methods
of sale, you should refer to the section entitled “Plan of Distribution” on page
22.
Our
common shares trade on the American Stock Exchange under the symbol “SCU.”
On January 23, 2008, the closing price of our common shares on the American
Stock Exchange was $0.72. Our common shares also trade on the Toronto
Stock Exchange under the symbol “SME.” On January 23, 2008, the closing
price of our common shares on the Toronto Stock Exchange was
CDN$0.75.
Investing
in our common shares
involves risks. See “Risk Factors” beginning on page
6.
NEITHER
THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The
date
of this prospectus is February 7, 2008.
TABLE
OF
CONTENTS
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-i-
This
summary highlights information
contained elsewhere in this prospectus. It does not contain all of the
information that you should consider before investing in our common shares.
You
should read the entire prospectus carefully. You should read “Risk
Factors” beginning on page 5 for more information about important risks
that you should consider before investing in our common
shares.
As
used in this prospectus, unless
the context otherwise requires, the terms “Storm Cat,” “we,” “our” and “us”
refer to Storm Cat Energy Corporation and its consolidated subsidiaries.
You should assume that all figures are stated in U.S. dollars unless indicated
otherwise.
Storm
Cat Energy
Corporation
General
Storm
Cat
is an independent oil and gas company focused primarily on the exploration,
production and development of large unconventional gas reserves from fractured
shales, coal beds and tight sand formations and, secondarily, from conventional
formations. We were originally incorporated under the laws of British Columbia,
Canada in 2000 as a mineral exploration company named “Toby Ventures,
Inc.” In late 2003 we entered the oil and gas industry. In January
2004, we changed our name to Storm Cat Energy Corporation. The
Company has producing properties in Wyoming’s Powder River Basin (“PRB”) and
Arkansas’s Arkoma Basin (“Fayetteville Shale”) and exploration and development
acreage in Canada. Storm Cat continues to execute on its long-term
strategy of growth through development and the acquisition of prospective
acreage that compliments its existing assets and exploits the abilities of
the
Company’s technical staff. The Company's shares trade on the American
Stock Exchange under the symbol “SCU” and in Canada on the Toronto Stock
Exchange under the symbol “SME.”
The
Company focuses its activities in three core areas: the Powder River Basing
in
Wyoming; the Fayetteville Shale in the Arkoma Basin in Arkansas; and in the
Elk
Valley of British Columbia Canada.
In
the
PRB, as of December 1, 2007, the Company had approximately 41,730
gross and 31,905 net acres. At September 30, 2007 the Company had
approximately 380 wells, of which 339 were
Company-operated. Production from the PRB at September 30, 2007
was 14.7 MMcf/d gross and 7.7 MMcf/d net.
Storm
Cat’s acreage position in the Fayetteville Shale as of December 1, 2007
was 22,678 gross and 17,518 net. As of September 30, 2007
Storm Cat had elected to participate in 16 non-operated Fayetteville Shale
wells. It owns between a 1% and 8% working interest in these wells,
which are at various stages of planning, drilling, completion or
production. The
Company has successfully drilled and completed the first two of its three
planned wells on its Fayetteville Shale project. Well cleanup and post-frac
productivity testing is now being conducted. On
October 11, 2007, the Company completed the drilling and casing of a third
well to its planned vertical and horizontal total depth. Plans are
to complete and test this well during the fourth
quarter.
As
of
December 1, 2007 Storm Cat held approximately 77,775 gross and net acres in
the Company’s Elk Valley coalbed methane project located in southeastern British
Columbia. Nine wells, including five wells drilled in 2006, are currently
in the de-watering and evaluation stage. The Company remains encouraged by
water
and associated gas production rates that are being observed and expects to
make
a determination about the next steps for the project by year-end
2007.
The
Company also has acreage positions in Alberta and Alaska. Storm Cat
owned or controlled as of December 1, 2007 approximately 19,693 gross acres
and 17,453 net acres in the Western Canadian Sedimentary Basin of Alberta,
Canada. At present, the Company is exploring conventional prospects that
may
also present unconventional opportunities. In Alaska, also as of
December 1, 2007, the Company held approximately 24,505 gross and net acres
in
the onshore area of the Cook Inlet Region of Alaska. Storm
Cat drilled one well on this acreage in 2006 and is in the process of
evaluating completion potential and business opportunities associated with
its
acreage.
The
Company previously owned a 30% working interest in the Moose Mountain
exploration project in Saskatchewan, covering 235,830 gross acres of
unconventional natural gas exploration. This property was fully impaired
in the amount of $1.9 million in the third quarter of 2006. We sold our
working interest in this property to avoid plugging and abandonment costs,
but
we retained a 1% overriding royalty interest.
Liquidity
and Capital
Resources
|
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Credit
Facility
|
On
December 27, 2007,
Storm Cat Energy (USA) Corporation (“Storm Cat (USA)”), a wholly owned
subsidiary of Storm Cat, entered into a Credit Agreement (the “Credit
Agreement”), with Wells Fargo Foothill, LLC, as Agent, and the Lenders party
thereto (the “Credit Facility”). The Credit Facility consists of a term
loan facility in an aggregate principal amount of $30.0 million and a revolving
credit facility in an aggregate principal amount of $50.0
million. The borrowing base for the revolving credit facility was
initially set at $25.0 million. The Credit Agreement provides for a
semi-annual evaluation of such amount, determined based on Storm Cat’s oil and
natural gas reserves.
The
Credit Facility
will mature on September 27, 2011 or December 27, 2012 in the event the Series
A
Notes and the Series B Notes due March 31, 2012 are entirely converted into
equity, with no remaining cash payment obligations or are refinanced with a
maturity date not earlier than June 27, 2013.
-1-
Storm
Cat borrowed $43.0 million at the time of execution of the Credit
Agreement, consisting of $30.0 million in term loans and $13.0 million
from the
revolving credit facility. The Credit Facility is available to
provide funds for general corporate purposes, including funding of
capital
expenditures and working capital.
Each
loan
under the Credit Facility bears interest at a base rate or Eurodollar
rate, as
requested by Storm Cat, plus an applicable percentage based on Storm
Cat's usage
of the facility. The applicable margin above the base rate and the
Eurodollar rate for the term loan is 5.75% and 7.00%,
respectively. The applicable margin above the base rate and the
Eurodollar rate for the revolving credit facility ranges from 0.75%
to 1.25% and
2.00% and 2.50%, respectively, in each case depending on Storm Cat’s usage under
the borrowing base. Interest on funds drawn will be paid monthly,
except interest on loans based on the Eurodollar rate will be payable
at the end of each interest period of one, two, three or six months,
and, in any event, at least every three months.
The
Credit
Facility contains affirmative and negative covenants that are customary
for a
facility of this nature. The Credit Facility also contains customary
representations and warranties and customary events of default. The
Credit Facility contains five financial covenants:
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(1)
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Minimum
quarterly EDITDA (as defined in the Credit Agreement) of
$12.75
million for the quarter ending March 31, 2008, $16.6 million for
the quarter ending June 30, 2008, $20.4 million for the quarter
ending September 30, 2008, $23.3 million for the quarter
ending December 31, 2008, $28.3 million for the quarter
ending March 31, 2009, $32.3 million for the quarter ending June 30,
2009, and $37.3 million for the quarter ending September 30, 2009 and
for each quarter ending
thereafter;
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(2)
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Minimum
average daily production for any quarterly period of 16,800
for the
quarter ending March 31, 2008, 23,100 for the quarter ending
June 30,
2008, 28,500 for the quarter ending September 30, 2008, 30,200
for the
quarter ending December 31, 2008, 29,400 for the quarter ending
March 31, 2009, 34,600 for the quarter ending June 30, 2009,
and 40,600
for the quarter ending September 30, 2009 and for each quarter
ending
thereafter;
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(3)
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Minimum
Asset Coverage Ratio (based on a discounted net present value
of "Proved
Reserves"), calculated each quarter, of
1.60:1.00;
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(4)
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Minimum
Interest Coverage Ratio (based on EBIDTA and interest expense
excluding
interest expense associated with the Convertible Notes) of
2.50:1.00 for
the quarter ending March 31, 2008, 2.75:1.00 for the quarter
ending June
30, 2008, 3.00:1.00 for the quarter ending September 30,
2008, 3.25:1.00
for the quarter ending December 31, 2008 and 3.50:1.00 for the
quarter ending March 31, 2009 and for each quarter ending
thereafter;
and
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(5)
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Minimum
Leverage Ratio of 4.30:1.00 for the quarter ending March
31, 2008,
3.30:1.00 for the quarter ending June 30, 2008, 2.70:1.00
for the quarter
ending September 30, 2008, 2.50:1.00 for the quarter
ending December 31, 2008 and for each quarter ending
thereafter.
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For
purposes
of calculating the foregoing covenants, EBITDA shall be calculated
as follows
for the first three fiscal quarters following the Closing Date: (a)
for the
quarter ending March 31, 2008, EBITDA shall be EBITDA for the three-month
period
ending on such date multiplied by four; (b) for the quarter ending
June 30,
2008, EBITDA shall be EBITDA for the six-month period ending on such
date
multiplied by two; (c) for the quarter ending September 30, 2008, EBITDA
shall
be EBITDA for the nine-month period ending on such date multiplied
by 4/3; and
thereafter, EBITDA shall be calculated using EBITDA for the period
of
four quarters ending on the last day of the quarter immediately preceeding
the date of determination for which financial statements are
available.
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Convertible
Note Private
Placement
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On
January
19, 2007, Storm Cat entered into a Series A Note Purchase Agreement for the
private placement of the Series A Notes in a total aggregate principal amount
of
$18.5 million and a Series B Note Purchase Agreement for the private placement
the Series B Notes in a total aggregate principal amount of $31.7
million. The notes were bifurcated into two series because a
shareholder vote was required for issuance of any convertible notes above the
amount issued under the Series A Notes. The Series A Notes and the
Series B Notes are convertible into Storm Cat common shares at a price of
$1.17 per share, as may be adjusted in accordance with the terms of the
Series A Notes or the Series B Notes (as applicable), and the Company may force
the conversion of the Series A Notes or the Series B Notes (as applicable)
at
any time 18 months after the closing date of the applicable issuance that its
common shares trade above $2.05, as may be adjusted, for 20 days within a period
of 30 consecutive trading days. On the day of the agreement, the
$1.17 conversion price was at premium to the Company's stock price of
$1.00.
On
January
30, 2007, Storm Cat closed the private placement of Series A Notes to qualified
institutional and accredited investors in a private placement pursuant to
Regulation D of the Securities Act of 1933, as amended, and exemptions from
Canadian prospectus and registration requirements under National Instrument
45-106. The Series A Notes will mature on March 31, 2012, unless
earlier converted, redeemed or repurchased. The Series A Notes bear
interest at a rate of 9.25% per annum, commencing on January 30,
2007. Interest on the Series A Notes is payable quarterly in arrears
on March 31, June 30, September 30 and December 31 of each year, beginning
on
June 30, 2007.
On
March 29,
2007, the Company held an extraordinary general meeting in which
shareholders authorized the issuance of the underlying shares of the Series
B
Notes. On March 30, 2007, Storm Cat closed on $31.7 million of Series
B Notes to qualified institutional and accredited investors in a private
placement pursuant to Regulation D of the Securities Act of 1933, as amended,
and exemptions from Canadian prospectus and registration requirements under
National Instrument 45-106. The Series B Notes will mature on March 31, 2012,
unless earlier converted, redeemed or repurchased. The Series B Notes
bear interest at a rate of 9.25% per annum, commencing on March 30,
2007. Interest on the Series A Notes is payable quarterly in arrears
on March 31, June 30, September 30 and December 31 of each year, beginning
on
June 30, 2007. In April, 2007, the Company collected $17.4 million in
proceeds on the subscription receivable on its Series B Notes.
As
part of
the private placements, the Company entered into a registration rights agreement
(the “Registration Rights Agreement”) with the investors requiring the Company
to file with the SEC registration statements covering the common shares issuable
upon conversion of the Series A Notes and the Series B Notes. Under
the terms of the Registration Rights Agreement, the Company had thirty days
from
the day of closing both the Series A Notes transaction and the Series B Notes
transaction to file a Form S-1 registration statement with the
SEC. The Company fulfilled this obligation with respect to both the
Series A Notes and the Series B Notes.
-2-
In
Canada, any shares issued on conversion of the Series A and Series B Notes
are
subject to a four month hold period before they can be traded on the Toronto
Stock Exchange. No registration statement equivalent to an S-1 or S-3 is
required. Further detail of the agreement between the Company and the holders
of
the Series A Notes and the Series B Notes is disclosed in three separate
Forms
8-K filed by the Company on January 25, February 5, and April 5,
2007. For additional information on these private placements and the
Company’s obligations in relation to them, you should refer to the section
entitled “Description of Series A Notes and Series B Notes Private Placements"
beginning on page 12.
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GLG
Partners Settlement with
the SEC
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On
June
26, 2007, GLG Partners, L.P., which serves as the investment manager to GLG
North American Opportunity Fund, a selling shareholder in this offering, agreed
to pay more than $3.2 million to settle enforcement actions brought by the
SEC
for illegal short selling in connection with 14 public offerings. GLG Partners,
L.P. did not admit or deny the findings, but consented to the SEC order that
finds, from July 2003 through May 2005, GLG Partners, L.P. violated Rule 105
of
Regulation M on 16 occasions in 14 different public offerings in multiple
funds, including GLG North American Opportunity Fund.
-3-
Acreage
The
following table summarizes the gross and net acreage of properties in which
we
hold an interest as of December 1, 2007:
Storm
Cat Energy Corporation Acreage
as of December 1, 2007
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Area
|
Gross Acres
|
Net Acres
|
|||||
|
Powder
River Basin,
WY
|
|
|
|||||
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Northeast
Spotted Horse
|
6,320
|
5,950
|
|||||
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Jamison
|
723
|
651
|
|||||
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20
Mile
|
760
|
684
|
|||||
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Ford
Ranch (Focus + Ellbogen/Westbrook Leases)
|
4,711
|
3,604
|
|||||
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Sheridan
(State Lease Sale)
|
1,521
|
1,521
|
|||||
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Recluse
(Barrett Acquisition)
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25,200
|
17,000
|
|||||
|
North
Recluse (Petro-Canada Acquisition)
|
2,495
|
2,495
|
|||||
|
Total
|
41,730
|
31,905
|
|||||
|
|
|||||||
|
Fayetteville
Shale,
AR
|
|||||||
|
Jordan
Acquisition
|
16,364
|
12,596
|
|||||
|
Subsequent
Lease Purchases
|
6,314
|
4,922
|
|||||
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Total
|
22,678
|
17,518
|
|||||
|
|
|||||||
|
Cook
Inlet,
AK
|
|||||||
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Mental
Health Trust Leases
|
11,782
|
11,782
|
|||||
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State
Lease Sale Tracts
|
12,723
|
12,723
|
|||||
|
Total
|
24,505
|
24,505
|
|||||
|
|
|||||||
|
Canada
|
|||||||
|
Elk
Valley (BC) - EnCana Drill to Earn
|
77,775
|
77,775
|
|||||
|
Alberta
(AB) - Crown Lease Sale (Wetaskiwin) 12/14/05
|
2,068
|
2,068
|
|||||
|
Alberta
(AB) - Cessford Farm-In (1)
|
3,200
|
2,240
|
|||||
|
Alberta
(AB) - Crown Lease Sale (Redwater) 3/8/06
|
2,529
|
2,529
|
|||||
|
Alberta
(AB) - Crown Lease Sale (Wainwright) 4/19/06
|
3,794
|
3,794
|
|||||
|
Alberta
(AB) - Crown Lease Sale (Wainwright) 5/3/06
|
3,795
|
3,795
|
|||||
|
Alberta
(AB) - Crown Lease Sale (Wetaskiwin) 5/31/06
|
1,107
|
1,107
|
|||||
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Judy
Creek
|
3,200
|
1,920
|
|||||
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Total
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97,468
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95,228
|
|||||
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|
|||||||
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Total
Acres
(1)
|
186,381
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169,156
|
|||||
(1)
Net
acres may be earned pursuant to the farm-in arrangement.
Reserve
Estimates
Total
proved reserves at December 31, 2006 were estimated at 25.0 Bcf equivalent
as
compared to 10.0 Bcf equivalent at December 31, 2005. Our estimated, pre
tax future net revenue discounted at 10% (commonly known as the SEC PV-10
figure) for proved reserves at December 31, 2006 was $32.04 million versus
$29.02 million at year end 2005. The PV-10 calculation used net commodity
prices of $4.46 and $7.72, respectively, CIG Rocky Mountains per million British
thermal units (MMBtu) of natural gas.
Our
total
proved reserve estimates are prepared by independent engineering consultants,
Netherland, Sewell & Associates, Inc. of Houston, Texas and conform to the
definition as set forth in the SEC Regulation S-X Part 210.4-10(a) as clarified
by subsequent Commission Staff Accounting bulletins. The proved reserves
are also in accordance with Financial Accounting Standards Board Statement
No.
69 (SFAS 69).
The
reserve mix is 100% natural gas, with 53.4% categorized as proved developed
and
46.6% proved undeveloped. In accordance with SEC guidelines, proved
reserve estimates do not include any probable or possible reserves which may
exist for our properties.
|
Net Reserves
|
Future Net Revenue (M$/USD)
|
||||||||||
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Category
|
Gas (MMCF)
|
Total
Undiscounted
|
Present Worth
at 10% Discount
|
||||||||
|
Proved
Developed
|
13,368.1
|
$ |
28,892.8
|
$ |
23,927.9
|
||||||
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·
Producing
|
5,184.0
|
$ |
11,083.6
|
$ |
9,852.5
|
||||||
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·
Non-Producing
|
8,184.1
|
$ |
17,809.2
|
$ |
14,075.4
|
||||||
|
Proved
Undeveloped
|
11,647.1
|
$ |
13,051.9
|
$ |
8,108.5
|
||||||
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Total
Proved
|
25,015.3
|
$ |
41,944.7
|
$ |
32,036.4
|
||||||
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Assumes
commodity prices of
$4.46/Mcf CIG Rocky
Mountains
|
-4-
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Other
information
|
Our
common shares trade on the American Stock Exchange (“AMEX”) under the symbol
“SCU” and on the Toronto Stock Exchange (“TSX”) under the symbol “SME.”
Our principal executive offices are located at 1125 17th Street, Suite
2310, Denver, Colorado 80202. Our telephone number is
(303) 991-5070. Our website address is www.stormcatenergy.com.
Except for any documents that are incorporated by reference into this prospectus
that may be accessed from our website, the information available on or through
our website is not part of this prospectus.
-5-
In
evaluating the Company, careful
consideration should be given to the following risk factors. These risks are
not
the only risks facing the Company. Additional risks and uncertainties
not currently known to Storm Cat or that it currently deems to be immaterial
at
present may become material in the future and affect its business, financial
condition and/or operating results, as well as adversely affect the value of
the
Company’s common shares.
Risks
Related to the
Business
Price
volatility may affect
financial condition: The prices of oil and natural gas are
volatile and the Company’s operating results and future rate of growth depend
heavily on prevailing market prices for these resources. A substantial or
extended decline in prices for these resources would have a material adverse
effect on the Company. These prices are affected by numerous factors beyond
Storm Cat’s control, including international economic and political trends, the
effects of inflation, currency exchange fluctuations, interest rates and global
or regional consumption patterns, worldwide and domestic supplies of oil and
gas, the ability of members of the Organization of Petroleum Exporting Countries
(OPEC) to agree to and maintain oil price and production controls, actions
of
governmental authorities, the availability of transportation facilities,
increased production due to new discoveries or improved recovery techniques
and
weather conditions.
Storm
Cat operates in a highly
competitive industry: Storm Cat competes with other energy
development companies for properties, equipment, materials and labor. The
industry is highly competitive in all aspects. Many of the Company’s competitors
have larger operations and greater financial resources. Competition in Storm
Cat’s business may adversely affect its ability to acquire properties, equipment
and materials, attract and retain qualified labor, and attract the necessary
capital to sustain resource exploration and production in the
future.
Oil
and gas exploration is a
speculative undertaking: Oil and gas exploration is a
speculative business. Storm Cat’s future success depends on our ability to
economically locate oil and gas production and reserves in commercial
quantities. The Company’s anticipated exploration and development activities are
subject to reservoir and operational risks. Even when oil and gas is found
in
what are believed to be commercial quantities, reservoir risks, which may be
heightened in new discoveries, may lead to higher costs and/or lower production
than originally anticipated. These risks include the inability to sustain
deliverability at commercially productive levels as a result of decreased
reservoir pressures, large amounts of water, or other factors that might be
encountered. The effects of these factors may result in Storm Cat not receiving
an adequate return on investment capital.
Reserve
quantities and values are
subject to many variables and estimates and actual results may
vary:
This
prospectus contains estimates of the Company’s proved oil and
natural gas reserves and the estimated future net revenues from those reserves.
Any significant negative variance in these estimates could have a material
adverse effect on the Company’s future performance.
Reserve
estimates are based on various assumptions, including assumptions required
by
the SEC relating to oil and natural gas prices, drilling and operating expenses,
capital expenditures, taxes and availability of funds. The process of estimating
reserves is complex. This process requires significant decisions and assumptions
in the evaluation of available geological, geophysical, engineering and economic
data.
Reserve
estimates are dependent on many variables, and therefore, as more information
becomes available, it is reasonable to expect that there will be changes to
the
estimates. Actual future production, oil and natural gas prices, revenues,
taxes, development expenditures, operating expenses and quantities of
recoverable oil and natural gas reserves will most likely vary from those
estimated. Any significant variance could materially affect the estimated
quantities and present value of reserves disclosed by the Company. In addition,
estimates of proved reserves will be adjusted in the future to reflect
production history, results of exploration and development, prevailing oil
and
natural gas prices and other factors, many of which are beyond the Company’s
control.
As
of
December 31, 2006, approximately 46.6% of the Company’s estimated proved
reserves are classified as proved undeveloped. Estimation of proved undeveloped
reserves and proved developed non-producing reserves is generally based on
volumetric calculations rather than the performance data used to estimate
reserves for producing properties. Recovery of proved undeveloped reserves
generally requires significant capital expenditures and successful drilling
operations. Revenues from proved developed non-producing and proved undeveloped
reserves will not be realized until some time in the future. The reserve
estimate includes an estimate of the capital expenditures required to develop
these reserves as well as the timing of such expenditures. Although the Company
has prepared estimates of its proved undeveloped reserves and the associated
development costs in accordance with industry standards, they are based on
estimates, and actual results may vary.
The
present value of estimated reserves, or PV-10, should not be interpreted as
the
current market value of reserves attributable to the Company’s properties. The
10% discount factor, which is required in calculating PV-10 for reporting
purposes, is not necessarily the most appropriate discount factor given actual
interest rates and risks to which the Company’s business or the oil and natural
gas industry in general are subject. The Company has based the PV-10 on prices
and costs as of the date of the reserve estimate, in accordance with applicable
SEC regulations. Actual future prices and costs may be materially higher or
lower. In addition to the price volatility factors discussed above, factors
that
will affect actual future net cash flows, include:
|
·
|
the
amount and timing of actual
production;
|
|
·
|
curtailments
or increases in consumption by oil and natural gas purchasers;
and
|
|
·
|
changes
in governmental regulations or
taxation.
|
As
a
result, the Company’s actual future net cash flows could be materially different
from the estimates included in this prospectus.
-6-
The
Company faces operating risks in
its exploration and production activities: Storm Cat’s
business involves operating risks, including well blowouts, craterings,
explosions, uncontrollable flows of oil, natural gas or well fluids, leaks,
fires, formations with abnormal pressures, pipeline ruptures or spills,
pollution, releases of toxic gas and other environmental hazards and risks,
any
one of which can cause personal injury, damage to property, equipment and the
environment, as well as interruption of operations. Storm Cat maintains
insurance against some, but not all, of these risks. If any of these events
occurred, the Company could face substantial losses that could reduce or even
eliminate funds available for operations.
The
industry is highly
regulated: Storm Cat’s industry is heavily regulated by
federal, state, and local authorities. These regulations control many aspects
of
its business including, among other things, land use, prospecting, the drilling
and spacing of wells, protection of ground water, conservation of soil, safety
standards, site reclamation, restoration, exports, labor standards, occupational
health, waste disposal, toxic substances and other matters. The regulations
and
laws governing the industry are under constant review and may be amended or
expanded. Regulation increases the cost of doing business and decreases
profitability. If Storm Cat fails to comply with these laws and regulations,
it
may be subject to substantial penalties or suspension or termination of
operations.
The
Company’s operations are subject
to complex environmental regulations: Storm Cat’s current
and anticipated future operations require permits from various federal, state
and local governmental authorities and such operations are and will be regulated
by laws and regulations governing various elements of the oil and gas
industries.
The
Company cannot predict what environmental legislation, regulation or policy
will
be enacted or adopted in the future or how in the future laws and regulations
will be administered or interpreted. The recent trend in environmental
legislation and regulation generally is toward stricter standards and this
trend
is likely to continue in the future. This recent trend includes, without
limitation, laws and regulations relating to air and water quality, waste
handling and disposal, the protection of certain species and the preservation
of
certain lands. These regulations may require permits or other authorizations
for
certain activities. These laws and regulations may also limit or prohibit
activities on certain lands lying within wetland areas, areas providing for
habitat for certain species or other protected areas. Compliance with more
stringent laws and regulations, as well as potentially more vigorous enforcement
policies or stricter interpretation of existing laws, may necessitate
significant capital expenditures, may materially affect the results of
operations and business, or may cause material changes or delays in the
Company’s intended activities.
There
can
be no assurance that Storm Cat will be able to obtain all permits required
for
future exploration on reasonable terms or that such laws and regulations, or
new
legislation or modifications to existing legislation, will not have an adverse
effect on any project that might undertaken. The Company’s failure to comply
with applicable laws, regulations and permitting requirements may result in
enforcement actions, including orders issued by regulatory or judicial
authorities causing the Company’s operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment or remedial actions.
Increases
in taxes on energy sources
may adversely affect the Company’s operations: Federal,
state and local governments which have jurisdiction in areas where the Company
operates impose taxes on the oil and natural gas products sold. Historically,
there has been on-going consideration by federal, state and local officials
concerning a variety of energy tax proposals. Such matters are beyond the
Company’s ability to accurately predict or control.
The
Company does not have adequate
cash flow to fund operations and additional debt or equity financing will be
required:
The
Company makes, and will continue to make, significant expenditures to
find, acquire, develop and produce natural gas reserves. If natural gas prices
decrease, or if operating difficulties are encountered that result in cash
flow
from operations being less than expected, the Company may have to reduce capital
expenditures unless additional funds are raised through debt or equity
financing. Debt or equity financing or cash generated by operations may not
be
available to the Company in sufficient amounts or on acceptable terms to meet
these requirements.
Future
cash flows and the availability of financing will be subject to a number of
variables, such as:
|
·
|
the
Company’s success in locating and producing new
reserves;
|
|
·
|
the
level of production from existing wells;
and
|
|
·
|
prices
of natural gas;
|
Issuing
additional equity securities to satisfy the Company’s financing requirements
could cause substantial dilution to existing shareholders. Additional debt
financing could make the Company more vulnerable to competitive pressures and
economic downturns.
Competition
for materials and
services is intense and could adversely affect the Company:
Major oil companies, independent producers, and institutional
and
individual investors are actively seeking oil and gas properties throughout
the
world, along with the equipment, labor and materials required to develop and
operate properties. Shortages for equipment, labor or materials may result
in
increased costs or the inability to obtain such resources as needed. Many of
the
Company’s competitors have financial and technological resources which exceed
those available to the Company.
The
Company’s hedging arrangements
involve credit risk and may limit future revenues from price
increases:
To manage
the Company’s exposure to price risks associated with the sale
of natural gas, the Company periodically enters into hedging transactions for
a
portion of its estimated natural gas production. These transactions may limit
the Company’s potential gains if natural gas prices were to rise substantially
over the price established by the hedge. In addition, such transactions may
expose the Company to the risk of financial loss in certain circumstances,
including instances in which:
-7-
|
·
|
the
Company’s production is less than
expected;
|
|
·
|
the
contractual counterparties fail to perform under the contracts;
or
|
|
·
|
a
sudden, unexpected event, materially impacts natural gas
prices.
|
The
terms
of the Company’s hedging agreements may also require that it furnish cash
collateral, letters of credit or other forms of performance assurance in the
event that mark-to-market calculations result in settlement obligations by
the
Company to the counterparties, which would encumber the Company’s liquidity and
capital resources.
In
addition, hedging transactions using derivative instruments involve basis risk.
Basis risk in a hedging contract occurs when the index upon which the contract
is based is more or less variable than the index upon which the hedged asset
is
based, thereby making the hedge less effective.
The
Company has minimized ineffectiveness by entering into gas derivative contracts
indexed to Colorado Interstate Gas (“CIG”). As the Company’s
derivative contracts contain the same index as the Company’s sale contracts,
this results in hedges that are highly correlated with the underlying hedged
item.
The
marketability of the Company’s
natural gas production is dependent upon infrastructure, such as gathering
systems, pipelines and processing facilities, that the Company does not own
or
control:
The
marketability of the Company’s natural gas production depends in part
upon the availability, proximity and capacity of natural gas gathering systems,
pipelines and processing facilities necessary to move the Company’s natural gas
production to market. The Company does not own this infrastructure and is
dependent on other companies to provide it.
Storm
Cat has a history of net
losses and a current working capital deficit: Since Storm
Cat’s incorporation in May of 2000, it has experienced annual net losses.
In the year ended December 31, 2006 the Company had a net loss of $6.9
million and its cumulative net loss from date of incorporation to December
31,
2005 is $16.6 million. There is no guarantee as to when, if ever, the Company
will realize a net profit. At December 31, 2006 the Company had a
working capital deficit of $15.6 million.
Fluctuations
in foreign currency
exchange rates could adversely affect the business: Storm
Cat maintains accounts in U.S. and Canadian dollars. A material decrease in
the
value of the Canadian dollar relative to the U.S. dollar could negatively impact
the Company’s income statement and share price.
Storm
Cat depends on certain key
personnel: The Company depends heavily on the business and
technical expertise of its management and key personnel. There is little
possibility that this dependence will decrease in the near term. The Company
carries no “key man” life insurance on any of its executives. As operations
expand, Storm Cat will require additional key personnel and related
resources.
Some
of Storm Cat’s directors serve
as officers and directors of other companies: Some of the
Company’s directors are also officers or directors of other companies including
those that are similarly engaged in the business of acquiring, developing and
exploiting oil and gas producing properties. Such associations may give rise
to
conflicts of interest from time to time. The Company’s directors are required by
law to act honestly, in good faith and in the best interest of Storm Cat and
to
disclose any interest that they may have in any competing project or
opportunity. Further, Storm Cat has an internal conflict policy (“Code of
Business Conduct and Ethics”) which addresses directors’ conflicts of interest.
Under the policy, if a conflict of interest arises at a meeting of the Board,
any director with a conflict must disclose his interest and abstain from voting
on such matters. In making the determination as to whether or not the Company
will participate in any project or opportunity, the directors will primarily
consider the degree of risk to it and Storm Cat’s financial position at that
time.
Storm
Cat focuses heavily on
unconventional plays, which rely on technological advances that in the future
may not be effective: Unconventional resources are reserves
from fractured shales, coal beds and tight sand formations and they are a
central element of Storm Cat’s business model. The development of typical
unconventional plays may involve greater extraction and retrieval costs than
are
involved in development of typical conventional plays. Often, the quality
of gas and commercial viability is less known in a typical unconventional
play. Therefore, the process of developing an unconventional play involves
significant expenditures before commercial viability can be ascertained and
presents a risk of cost overruns and inadequate gas recovery.
Further,
technological innovation is a key component to realizing the economic value
of
unconventional plays. The Company continues to explore and rely on
advances in technologies such as drilling, well completion and geophysical
technologies that have helped the viability of the unconventional
play.
Storm
Cat may incur compression
difficulties and expense: As production increases, more
compression is generally required to maximize the production flowing through
the
pipeline. Production costs increase as additional compression is required,
primarily because the compression process requires more fuel. In addition,
the compression process is a mechanical process, and should a breakdown occur,
the Company will be unable to deliver gas until repairs to the machinery are
completed.
Storm
Cat does not obtain title
insurance or other warranties of title with its leases and working
interests: Storm Cat does not obtain title insurance or
other guaranty or warranty of good title with its gas leases and well working
interests. Title insurance is not available for subsurface leases. Accordingly,
third parties may assert claims against the Company’s legal entitlement to the
gas leases and working interests being acquired, irrespective of the Company’s
leases and working well interests. In order to alleviate this risk, Storm Cat
requires a title search and title opinion on all leases prior to drilling.
There
is no assurance, however, that all title defects will be cured prior to
drilling.
-8-
Risks
Related to Storm Cat’s Common
Shares
U.S.
Investors may have difficulty
effecting service of process against some of Storm Cat’s Canadian
directors: Storm Cat is incorporated under the laws of the
Province of British Columbia, Canada. Consequently, it may be difficult for
United States investors to effect service of process in the United States upon
its directors or officers who are not residents of the United States, or to
realize in the United States upon judgments of United States courts predicated
upon civil liabilities under the Exchange Act. A judgment of a U.S. court
predicated solely upon such civil liabilities would probably be enforceable
in
Canada by a Canadian court if the U.S. court in which the judgment was obtained
had jurisdiction, as determined by the Canadian court, in the matter. There
is
substantial doubt whether an original action could be brought successfully
in
Canada against any of such persons or Storm Cat predicated solely upon such
civil liabilities.
Storm
Cat was previously a “Foreign
Private Issuer” and exempt from the Section 16 and the Proxy Rules of
Section 14 of the Securities Exchange Act of 1934: On
June 30, 2006, the Company became a U.S. issuer under the U.S. federal
securities laws. As such, it is subject to certain regulation under U.S.
securities laws, such as Section 16 and the Proxy Rules of Section 14
of the Exchange Act. Prior to June 30, 2006, as a foreign private issuer, Storm
Cat filed its Annual Report on Form 20-F and reported its current events,
including the dissemination of proxy materials and information regarding its
annual meeting of shareholders, on Form 6-K.
Storm
Cat is subject to the
Continued Listing Criteria of the AMEX and the TSX:
Storm Cat’s common shares are listed on AMEX and the
TSX.
In
order
to maintain its listing on AMEX, Storm Cat must maintain certain share prices,
financial and distribution targets, including maintaining a minimum amount
of
shareholders’ equity and a minimum number of public shareholders. In addition to
objective standards, AMEX may delist the securities of any issuer if in its
opinion, the issuer’s financial condition and/or operating results appear
unsatisfactory; if it appears that the extent of public distribution or the
aggregate market value of the security has become so reduced as to make further
dealings on AMEX inadvisable; if the issuer sells or disposes of principal
operating assets or ceases to be an operating company; if an issuer fails to
comply with AMEX’s listing requirements; if an issuer’s common shares sell at
what AMEX considers a “low selling price” and the issuer fails to correct this
via a reverse split of shares after notification by AMEX; or if any other event
shall occur or any condition shall exist which makes further dealings with
AMEX,
in its opinion, unadvisable.
Similarly,
if the Company fails to meet any of the continued listing criteria of the TSX
or
is not in compliance with all TSX requirements applicable to listed companies,
including TSX rules, policies, rulings and procedural requirements and any
additions or amendments which may be made thereto from time to time, the TSX
may
delist the Company’s securities. Without limiting the
generality of the foregoing, the TSX requires that Storm Cat: (i) not issue
any securities without the prior consent of the TSX; (ii) not undergo a
material change in its business or affairs without the prior consent of the
TSX;
(iii) file copies of all written correspondence sent to holders of its listed
securities with the TSX; (iv) not change the provisions attaching to any
warrants, rights or other out standing securities without the prior consent
of the TSX; (v) pay all applicable TSX fees; and (vi) file, at any time
upon demand, such other information or documentation concerning the Company’s
business and affairs as the TSX may reasonably require.
The
TSX
has the right, at any time, to halt or suspend trading in any of listed
securities with or without notice and with or without giving any reason for
such
action, or to delist such securities, provided that the TSX will not delist
the
securities without providing the Company with an opportunity to be
heard.
If
AMEX or the TSX delists Storm Cat’s common shares, investors may face
material adverse consequences, including, but not limited to, a lack of trading
market for its securities, decreased analyst coverage of its securities, and
an
inability for the Company to obtain additional financing to fund
operations.
Storm
Cat’s common shares are traded
on more than one market and this may result in price variations:
Storm Cat’s common shares are traded on AMEX and on the TSX.
Trading in the Company’s common shares on these markets is effected in different
currencies (U.S. dollars on AMEX and Canadian dollars on the TSX) and at
different times, as the result of different time zones, different trading days
and different public holidays in the United States and Canada. Consequently,
the
trading prices of Storm Cat’s common shares on these two markets often differ,
resulting from the factors described herein as well as differences in exchange
rates and from political events and economic conditions in the United States
and
Canada. Any decrease in the trading price of the Company’s common shares on one
of these markets could cause a decrease in the trading price of its common
shares on the other market.
Storm
Cat’s share price has
fluctuated and could continue to fluctuate significantly:
The market price for Storm Cat’s common shares, as well as the
price of shares of other energy companies, has been volatile. Numerous factors,
many of which are beyond the Company’s control, may cause the market price of
its common shares to fluctuate significantly, such as:
|
·
|
Fluctuations
in the Company’s quarterly revenues and earnings and those of its publicly
held competitors;
|
|
·
|
Shortfalls
in operating results from levels forecast by securities
analysts;
|
|
·
|
Announcements
concerning the Company or its
competitors;
|
|
·
|
Changes
in pricing policies by the Company or its
competitors;
|
|
·
|
General
market conditions and changes in market conditions in the industry;
and
|
|
·
|
The
general state of the securities
market.
|
-9-
In
addition, trading in shares of companies listed on AMEX and the TSX, generally,
and trading in shares of energy companies, specifically, has experienced price
and volume fluctuations that have often been unrelated or disproportionate
to
operating performance. These broad market and industry factors may depress
the
Company’s share price, regardless of actual operating results. In addition, if
Storm Cat issues additional shares in financings or acquisitions, its
shareholders will experience additional dilution and the existence of more
shares could decrease the amount that purchasers are willing to pay for the
Company’s common shares.
-10-
This
prospectus and the documents
incorporated herein by reference contain forward-looking statements within
the
meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended, and within
the meaning of Canadian securities legislation:
|
i.
|
any
statements contained herein or therein regarding the prospects for
our
business or any of our services;
|
|
ii.
|
any
statements preceded by, followed by or that include the words “may,”
“will,” “seeks,” “believes,” “expects,” “anticipates,” “intends,”
“continues,” “estimates,” “plans” or similar expressions;
and
|
|
iii.
|
other
statements contained herein or therein regarding matters that are
not
historical facts.
|
Forward-looking
statements in this prospectus and our filings with the SEC include, without
limitation, statements regarding:
|
·
|
financial
position;
|
|
·
|
business
strategy;
|
|
·
|
budgets;
|
|
·
|
amount,
nature and timing of capital
expenditures;
|
|
·
|
drilling
of wells;
|
|
·
|
potential
reserves;
|
|
·
|
timing
and amount of future production of natural gas and
oil;
|
|
·
|
operating
costs and other expenditures;
|
|
·
|
future
net revenues from production and estimates of potential oil and gas
reserves;
|
|
·
|
cash
flow and anticipated liquidity; and
|
|
·
|
prospect
development and property
acquisitions.
|
Our
business and results of operations
are subject to risks and uncertainties, many of which are beyond our ability
to
control or predict. Because of these risks and uncertainties, actual
results may differ materially from those expressed or implied by forward-looking
statements, and investors are cautioned not to place undue reliance on such
statements, which speak only as of the date thereof. In addition to
the specific risk factors described in the section entitled “Risk Factors,”
important factors that could cause actual results to differ materially from
our
expectations and may affect our operations, revenues or the common shares,
include, but are not limited to:
|
·
|
the
effects of competition;
|
|
·
|
risks
associated with oil and gas
exploration;
|
|
·
|
operational
hazards;
|
|
·
|
availability
and cost of material and equipment;
|
|
·
|
availability
of take away capacity of pipelines, processing equipment and
compression;
|
|
·
|
availability
of capital and unexpected substantial variances in capital
requirements;
|
|
·
|
uncertainty
of reserve estimates and timing of development
expenditures;
|
|
·
|
the
impact of petroleum and natural gas price
fluctuations;
|
|
·
|
our
ability to find, acquire, market, develop and produce new
properties;
|
|
·
|
the
threat of terrorist attacks or war;
|
|
·
|
the
impact of current and future laws and governmental
regulations;
|
|
·
|
climactic
conditions;
|
|
·
|
liability
for environmental claims;
|
|
·
|
the
impact of the departure of any key officers;
and
|
|
·
|
general
economic, market or business
conditions.
|
We
do not intend to update these
forward-looking statements except as required by law.
-11-
USE
OF
PROCEEDS
The
proceeds from the sale of the
common shares offered pursuant to this prospectus are solely for the account
of
the selling shareholders. Accordingly, we will not receive any proceeds
from the sale of the common shares offered by this prospectus.
DIVIDEND
POLICY
We
currently intend to retain our future earnings, if any, to finance the further
development and expansion of our business and do not intend to pay dividends
for
the foreseeable future. Any future determination to pay dividends will be at
the
discretion of our board of directors and will depend on our financial condition,
results of operations, capital requirements, restrictions contained in future
financing instruments and other factors our board of directors deems
relevant.
DESCRIPTION
OF
OUR COMMON SHARES
For
a full description of our
common shares, please see the documents identified in the section “Incorporation
by Reference” in this prospectus. As of the date of this prospectus, we
are authorized to issue an unlimited number of common shares. As of
January 23, 2008, we had 81,087,320 issued and outstanding common shares,
and
had reserved an additional (1) 2,126,582 common shares for issuance upon
exercise of outstanding warrants, (2) 4,783,333 common shares for issuance
under
our Amended and Restated Option Share Plan, (3) 100,000 common shares for
issuance under our Restricted Share Unit Plan, (4) 15,841,880 common shares
for
issuance upon conversion of our Series A Notes, and (5) 27,059,829 common
shares
for issuance upon conversion of our Series B Notes. Each common share is
entitled to one vote in the election of directors and other
matters.
The
Series A Note Purchase Agreement, dated as of January 19, 2007, by and among
us
and the investors set forth therein and the Series B Note Purchase Agreement,
dated as of January 19, 2007, by and among us and the investors set forth
therein grants such investors certain preemptive rights to purchase additional
equity. No other shareholders have pre-emptive purchase rights. We
have only one class of shares issued, the common shares. We have
authorized, but not issued, preferred shares.
Our
common shares are issued in registered form, and our transfer agent is
Computershare Investor Services, Inc., 510 Burrard Street, Third Floor,
Vancouver, British Columbia, Canada, V6C 3B9.
DESCRIPTION
OF
SERIES A NOTES AND SERIES B NOTES PRIVATE PLACEMENTS
On
January 30, 2007, we issued $18.5 million aggregate principal amount of the
Series A Notes. The Series A Notes are convertible into 15,841,880 common
shares (based upon the $1.17 conversion price, which is subject to adjustment
as
described below). On the date of the issuance of the Series A Notes,
January 30, 2007, the last sale price of our common shares as reported on the
AMEX was $0.89 per share and the last sale price of our common shares on the
TSX
was CDN$1.04 per share. The total market value of the common shares
underlying the Series A Notes as of January 30, 2007 was approximately $14.1
million based on the last sale price on the AMEX or approximately CDN$16.5
based
on the last sale price on the TSX. On January 29, 2007, there were 80,479,820
common shares issued and outstanding, 64,314,844 of which were held by persons
other than any of the selling shareholders, any of our affiliates or any
affiliate of any of the selling shareholders. The principal terms of the
Series A Notes are described below.
On
March 30, 2007, we issued approximately $31.7 million aggregate
principal amount of the Series B Notes. The Series B Notes are
convertible into 27,059,829 common shares (based upon the $1.17 conversion
price, which is subject to adjustment as described below). On the date of
the issuance of the Series B Notes, March 30, 2007, the last sale
price of our common shares as reported on the AMEX was $0.93 per share and
the
last sale price of our common shares on the TSX was CDN$1.07 per share.
The total market value of the common shares underlying the Series B Notes
as of March 30, 2007 was approximately $25.2 million based on the last
sale price on the AMEX or approximately CDN$28.9 based on the last sale price
on
the TSX. On March 29, 2007, there were 80,939,820 common shares issued and
outstanding, 64,314,844 of which were held by persons other than any of the
selling shareholders, any of our affiliates or any affiliate of any of the
selling shareholders.
The principal terms
of the Series B Notes are as follows.
Conversion
The
Series A Notes and the Series B Notes may, at the option of the holder, be
converted into our common shares at any time. We may force the conversion
of the Series A Notes at any time after July 30, 2008 that our common shares
trade above $2.05, as may be adjusted, for 20 days within a period of 30
consecutive trading days. We may force the conversion of the Series B
Notes at any time after September 30, 2008 that our common shares trade
above $2.05, as may be adjusted, for 20 days within a period of
30 consecutive trading days. The conversion price for the Series A
Notes and the Series B Notes is $1.17, subject to certain adjustments for
stock dividends, stock splits or similar transactions. The conversion price
also
is subject to certain anti-dilution adjustments. Based upon the $1.17
conversion price, the Series A Notes are convertible into 15,841,880 common
shares and the Series B Notes are convertible into 27,059,829 common
shares.
Change
of Control Repayment
Right
Following
a change of control (as defined in the Series A Note Purchase Agreement and
the
Series B Note Purchase Agreement, as applicable) the holders of the Series
A Notes and the holders of the Series B Notes may require us to redeem the
Series A Notes and/or the Series B Notes, as applicable, at a price equal
to a minimum of 110% of the principal amount plus accrued and unpaid
interest. This price may be higher depending on the timing of the change
of control and the consideration received in connection with the change of
control. As defined in the Series A Note Purchase Agreement and the
Series B Note Purchase Agreement, as applicable, changes of control
generally include (1) a consolidation or merger with or into another person
(other than pursuant to a migratory merger solely for the purpose of changing
jurisdictions), (2) a sale, assignment, transfer, conveyance or other
disposition of all our property or assets to another person, (3) being the
subject of a purchase, tender or exchange offer that is accepted by the holders
of more than 50% of the outstanding shares of common stock, and (4) the
consummation of a stock purchase agreement or other business combination with
another person whereby such person acquires more than 50% of the outstanding
shares of common stock.
-12-
Interest
The
Series A Notes and the Series B Notes bear interest at a rate of 9 ¼% per
annum. Interest began accruing on the Series A Notes on January 30, 2007
and on the Series B Notes on March 30, 2007. Interest on the
Series A Notes and the Series B Notes is payable quarterly in arrears on
March 31, June 30, September 30 and December 15 of each year, beginning on
June
30, 2007.
If
we
fail to make any payment of the principal amount of, or interest on, any of
the
Series A Notes and/or the Series B Notes, as applicable, when due, the
unpaid amount will bear interest at a rate of 12% per annum from the date such
amount was due until the date it is paid. If an event of default (as
defined in the Series A Note Purchase Agreement and the Series B Note
Purchase Agreement, as applicable) has occurred and is continuing, the unpaid
amount will bear interest at a rate of 12% per annum.
Events
of Default
Events
of
default under the terms of the Series A Notes and the Series B Notes
include:
|
·
|
failure
to pay to a holder any amount of principal or interest within 30
days of
being due under the Series A Notes or the Series B Notes, as
applicable;
|
|
·
|
any
acceleration
prior to maturity of any of our indebtedness, which indebtedness
so
accelerated is equal to or greater than
$500,000;
|
|
·
|
certain
bankruptcy or insolvency events;
|
|
·
|
the
rendering against us of a final judgment for the payment of money
aggregating in excess of $500,000, which are not, within 60 days,
discharged;
|
|
·
|
failure
to deliver a change of control notice as required by the Series A
Note
Purchase Agreement or the Series B Note Purchase Agreement, as
applicable, within 10 trading days of the consummation of the change
of
control; and
|
|
·
|
a
breach of any covenant or agreement in the Series A Notes or the
Series B Notes, as applicable, or the Series A Note Purchase
Agreement or the Series B Note Purchase Agreement, as applicable, or
subordination agreement and registration rights agreement related
to the
convertible notes.
|
Following
an event of default, each holder of the Series A Notes and each holder of the
Series B Notes, as applicable, has the option to require us to redeem all
or a portion of such holder’s Series A Notes or Series B Notes, as
applicable, at a redemption price equal to a minimum of 110% of the principal
amount of the Series A Notes or the Series B Notes, as applicable, and any
unpaid interest or other payments due on the Series A Notes or the Series B
Notes, as applicable. The redemption price may be higher depending on the
trading price of our common shares at the time of the redemption.
Registration
Rights
As
part
of the private placements of the Series A Notes and the Series B Notes, we
entered into a registration rights agreement with the selling shareholders
and
certain other purchasers of the Series A Notes and the Series B Notes requiring
us to file with the SEC a registration statement covering the common shares
issuable upon conversion of the Series A Notes and the Series B Notes.
Generally, pursuant to the registration rights agreement, if a registration
statement is not filed within 30 days of the closing of the Series A Notes
private placement or the Series B Notes private placement, as applicable,
or is not declared effective within 90 days, or later in certain specified
circumstances, of the closing of the Series A Notes private placement or the
Series B Notes private placement, as applicable, then we will be liable to
make pro rata payments to each selling shareholder and the other purchasers
in
an amount equal to 1.0% of the aggregate amount invested by such selling
shareholder and each other purchaser for each 30-day period or pro rata for
any
portion thereof following such deadlines, but not to exceed 10% of such
aggregate amount invested. Payments to the holders of the Series A Notes
and/or Series B Notes, as applicable, for failure to meet a deadline in the
registration rights agreement are payable in cash, our common shares or a
combination of cash and our common shares. In addition, we have agreed
with the selling shareholders and the other purchasers to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of (1) such time as all of the shares covered by this prospectus have
been disposed of pursuant to and in accordance with the registration statement,
and (2) the date on which the shares (other than shares held by our affiliates)
may be sold pursuant to Rule 144(k) of the Securities Act.
On
June
29, 2007, the Company filed an amended S-1 registration statement for 12,679,486
shares underlying the conversion of the Series A Notes and 8,241,106 shares
underlying the conversion of the Series B Notes. The registration
statement went effective on June 29, 2007. This registration
statement did not include all of the common shares that are issuable upon
conversion of the Series A Notes and the Series B Notes. The Company
was required to file an additional S-1 registration statement to register the
remaining common shares issuable upon conversion of the Series A Notes and
the
Series B Notes and is filing this S-1 registration statement to satisfy this
requirement. The common shares remaining to be registered under the
Series A Notes total 3,162,394 and under the Series B Notes total
18,818,723. The Company has 150 days from the date of filing the
additional registration statement to have the registration statement declared
effective or pay liquidated damages in the amount of 1.0% of the aggregate
purchase price per month ($257,179) to a maximum of 10.0% of the aggregate
purchase price ($2,571,791). Liquidated damages can, at the option of
the Company, be paid in cash or in fully paid and non-assessable common shares
if all equity conditions outlined in the Form S-1 registration statement are
met.
Although
each purchaser of the Series A Notes and the Series B Notes is entitled to
the
same registration rights pursuant to the registration rights agreement, certain
of the purchasers of the Series A Notes and the Series B Notes, that are also
our affiliates, have agreed not to be included in this registration
statement. However, we are still contractually obligated to register the
common shares underlying the Series A Notes and the Series B Notes held by
these
affiliates. This registration statement and a previously filed
registration statement cover 15,841,880 common shares of the 15,841,880 common
shares that are issuable upon conversion of the Series A
Notes. In addition, we are contractually obligated to register
all of the common shares issuable upon conversion of the Series B Notes.
This registration statement and a previously filed registration statement cover
26,961,538 common shares of the 27,059,829 common shares that are issuable
upon
conversion of the Series B Notes. Therefore, we will still be
contractually obligated to register an additional 98,291 common shares issuable
upon conversion of the Series B Notes. We intend to file additional
registration statements covering these common shares over the next 12
months. We may be required to make payments for liquidated damages if we
miss deadlines relating to these future registration
statements.
-13-
Payments
In
connection with the Series A Notes and the Series B Notes, and in addition
to the aggregate principal amount of the Series A Notes and the
Series B Notes due at maturity, or earlier in accordance with the terms of
the Series A Notes and the Series B Notes, we are or may be required
to make the following payments to the selling shareholders.
|
|
Series A Notes
|
Series B Notes
|
|||||||||||||||||||||
|
Payee
|
Approximate
Amount of
Quarterly
Interest
Payments
(1)
|
Liquidated
Damages
(2)
|
Change of
Control
Premium
(3)
and
Redemption
Payment
upon
Event of
Default
(4)
|
Approximate
Amount of
Quarterly
Interest
Payments
(5)
|
Liquidated
Damages
(6)
|
Change of
Control
Premium
(7)
and
Redemption
Payment
upon
Event of
Default
(8)
|
|||||||||||||||||
|
Crestview
Capital Master, LLC
|
$ |
22,000
|
$ |
9,200
|
$ |
92,000
|
$ |
26,000
|
$ |
10,800
|
$ |
108,000
|
|||||||||||
|
LBPB
Nominees Ltd. (for the benefit of GLG North American Opportunity
Funds)
|
$ |
109,000
|
$ |
46,000
|
$ |
460,000
|
$ |
128,000
|
$ |
54,000
|
$ |
540,000
|
|||||||||||
|
Capital
Ventures International
|
$ |
11,000
|
$ |
4,600
|
$ |
46,000
|
$ |
13,000
|
$ |
5,400
|
$ |
54,000
|
|||||||||||
|
Iroquois
Master Fund Ltd.
|
$ |
11,000
|
$ |
4,600
|
$ |
46,000
|
$ |
13,000
|
$ |
5,400
|
$ |
54,000
|
|||||||||||
|
Kellogg
Capital Group LLC
|
$ |
22,000
|
$ |
9,200
|
$ |
92,000
|
$ |
26,000
|
$ |
10,800
|
$ |
108,000
|
|||||||||||
|
William
Herbert Hunt Trust
|
$ |
54,000
|
$ |
23,000
|
$ |
230,000
|
$ |
64,000
|
$ |
27,000
|
$ |
270,000
|
|||||||||||
|
Sandelman
Partners Multi-Strategy Master Fund, Ltd.
|
$ |
33,000
|
$ |
13,800
|
$ |
138,000
|
$ |
38,000
|
$ |
16,200
|
$ |
162,000
|
|||||||||||
|
Summit
Capital Partners, LP
|
$ |
11,000
|
$ |
4,600
|
$ |
46,000
|
$ |
13,000
|
$ |
5,400
|
$ |
54,000
|
|||||||||||
|
Wolverine
Convertible Arbitrage Funds Trading Limited
|
$ |
22,000
|
$ |
9,320
|
$ |
93,200
|
$ |
26,000
|
$ |
10,940
|
$ |
109,400
|
|||||||||||
|
GPC
LX, LLC
|
$ |
2,000
|
$ |
1,030
|
$ |
10,300
|
$ |
3,000
|
$ |
1,210
|
$ |
12,100
|
|||||||||||
|
UBS
AG Canada Branch
|
$ |
54,000
|
$ |
23,000
|
$ |
230,000
|
$ |
64,000
|
$ |
27,000
|
$ |
270,000
|
|||||||||||
|
Small
Ventures USA, LP
|
$ |
0
|
$ |
0
|
$ |
0
|
$ |
12,000
|
$ |
5,000
|
$ |
50,000
|
|||||||||||
|
Guy
O. Dove III
|
$ |
0
|
$ |
0
|
$ |
0
|
$ |
12,000
|
$ |
5,000
|
$ |
50,000
|
|||||||||||
|
Investor
Company and the Nesbitt Burns ITF Millennium Partners LP on behalf
of
Trapeze Asset Management Inc.
|
$ |
69,000
|
$ |
29,700
|
$ |
297,000
|
$ |
198,000
|
$ |
83,940
|
$ |
839,400
|
|||||||||||
|
Investor
Company and Band and Co. on behalf of Trapeze Capital
Corp.
|
$ |
17,000
|
$ |
7,300
|
$ |
73,000
|
$ |
111,000
|
$ |
47,060
|
$ |
470,600
|
|||||||||||
| J. Scott Zimmerman | $ | 0 | $ | 0 | $ | 0 | $ | 231 | $ | 300 | $ | 3,000 | |||||||||||
|
Total
|
$ |
437,000
|
$ |
185,350
|
$ |
1,853,500
|
$ |
747,231
|
$ |
315,450
|
$ |
3,154,500
|
|||||||||||
(1)
These amounts assume that all payments are made when due and there is no event
of default. The first quarterly interest payment was due on June 30,
2007. This payment was larger for each investor because
it covered the period beginning January 30, 2007 through March 31, 2007, in
addition to the interest accrued during the second quarter. All payments
must be made by certified or bank cashier’s check of wire transfer or
immediately available funds at least five business days before the date the
payment is to be made.
(2)
We will be required to pay liquidated damages equal to 1% of the aggregate
purchase price of each Series A Note (a) for each 30 day period that we fail
to
replace a common share certificate with a restrictive legend with common share
certificate without such restrictive legend within three business days of the
investor presenting the required documentation to our transfer agent, and (b)
on
the day of the filing delay or deficiency and every thirtieth day after, if
a
registration statement is not filed by the filing deadline or not declared
effective by the SEC by the effectiveness deadline or maintained as required,
all as set forth in the registration rights agreement (the aggregate liquidated
damages may not exceed 10% of the aggregate purchase price of the Series A
Notes).
(3)
These amounts represent the minimum amount payable if holders of the Series
A
Notes request repayment upon a change of control. These amounts assume
that the change of control occurs after January 30, 2009 and does not take
into
account the alternate calculation of the repayment price based upon the
aggregate consideration received in the change of control transaction.
These amounts also assume there is no unpaid interest at the time of the change
of control. These amounts, in addition to the face value of the Series A
Note, must be paid to the holders of the Series A Notes that request such
repayment upon a change of control.
(4)
These amounts represent the minimum amount payable if holders of the Series
A
Notes request redemption of the Series A Notes upon an event of default.
These amounts assume there is no unpaid interest or other payments due at
the time of the event of default. These amounts may be higher depending on
the trading price of our common shares at the time of the redemption.
These amounts, in addition to the face value of the Series A Note, must be
paid
to the holders of the Series A Notes that request such redemption upon an event
of default.
(5)
These amounts assume that all payments are made when due and there is no event
of default. The first quarterly interest payment was due on June 30,
2007. All payments must be made by certified or bank cashier’s check of
wire transfer or immediately available funds at least five business days before
the date the payment is to be made.
-14-
(6)
We will be required to pay liquidated damages equal to 1% of the aggregate
purchase price of each Series B Note (a) for each 30 day period that we fail
to
replace a common share certificate with a restrictive legend with common
share
certificate without such restrictive legend within three business days of
the
investor presenting the required documentation to our transfer agent, and
(b) on
the day of the filing delay or deficiency and every thirtieth day after,
if a
registration statement is not filed by the filing deadline or not declared
effective by the SEC by the effectiveness deadline or maintained as required,
all as set forth in the registration rights agreement (the aggregate liquidated
damages may not exceed 10% of the aggregate purchase price of the Series
B
Notes).
(7)
These amounts represent the minimum amount payable if holders of the Series
B
Notes request repayment upon a change of control. These amounts assume
that the change of control occurs after March 30, 2009 and does not take into
account the alternate calculation of the repayment price based upon the
aggregate consideration received in the change of control transaction.
These amounts also assume there is no unpaid interest at the time of the change
of control. These amounts, in addition to the face value of the Series B
Note, must be paid to the holders of the Series B Notes that request such
repayment upon a change of control.
(8)
These amounts represent the minimum amount payable if holders of the Series
B
Notes request redemption of the Series B Notes upon an event of default.
These amounts assume there is no unpaid interest or other payments due at the
time of the event of default. These amounts may be higher depending on the
trading price of our common shares at the time of the redemption. These
amounts, in addition to the face value of the Series B Note, must be paid to
the
holders of the Series B Notes that request such redemption upon an event of
default.
We
have
the intention, and a reasonable basis to believe that we will have the financial
ability, to make all payments due and payable pursuant to the Series A Notes
and
the Series B Notes.
Proceeds
From Private Placement of
Series A Notes
In
connection with the private placement of the Series A Notes we received gross
proceeds of approximately $18.5 million and net proceeds after deducting
the placement agent’s fees and offering expenses of approximately
$17.3 million. From the date of issuance of the Series A Notes
through January 30, 2008, we will be required to make interest payments on
the
Series A Notes totaling approximately $1.7 million, assuming that none of the
Series A Notes are converted prior to that date. In addition, we may be
required to make additional payments to the holders of the Series A Notes,
as
set forth in the table above, if (a) we fail to deliver certificates without
a
restrictive legend within the applicable deadline, (b) the registration
statement is not declared effective by the deadline or maintained as required
by
the registration rights agreement, (c) there is a change of control, or (d)
there is an event of default.
The
following table sets forth the gross proceeds received from the private
placement of the Series A Notes and calculates the net proceeds from the private
placement of the Series A Notes after deduction of the payments pursuant to
the Series A Notes. The net proceeds do not include the payment of
any contingent payments, such as liquidated damages or repayment premiums in
the
case of default or a change in control. The net proceeds represent
approximately 45.6% of the gross proceeds.
|
Gross
Proceeds
|
$ |
18,535,000
|
|
|
Approximate
Aggregate Interest Payments (1)
|
$ |
8,858,000
|
|
|
Approximate
Transaction Costs (including Placement Agents Fees)
|
$ |
1,232,000
|
|
|
Net
Proceeds
|
$ |
8,445,000
|
(1)
This
amount assumes all payments are made when due and there is no event of
default. In addition, it assumes that none of the Series A Notes are
converted or repaid prior to maturity.
Proceeds
From Private Placement of
Series B Notes
In
connection with the private placement of the Series B Notes we received
gross proceeds of approximately $31.7 million and net proceeds after
deducting the placement agent’s fees and offering expenses of approximately
$29.8 million. From the date of issuance of the Series B Notes
through March 31, 2008, we will be required to make interest payments on the
Series B Notes totaling approximately $2.9 million, assuming that none
of the Series B Notes are converted prior to this date. In addition,
we may be required to make additional payments to the holders of the
Series B Notes, as set forth in the table above, if (a) we fail to deliver
certificates without a restrictive legend within the applicable deadline, (b)
the registration statement is not declared effective by the deadline or
maintained as required by the registration rights agreement, (c) there is a
change of control, or (d) there is an event of default.
The
following table sets forth the gross proceeds received from the private
placement of the Series B Notes and calculates the net proceeds from the
private placement of the Series B Notes after deduction of the payments
pursuant to the Series B Notes. The net proceeds do not include
the payment of any contingent payments, such as liquidated damages or repayment
premiums in the case of default or a change in control. The net proceeds
represent approximately 47.8% of the gross proceeds.
|
Gross
Proceeds
|
$ |
31,660,000
|
|
|
Approximate
Aggregate Interest Payments (1)
|
$ |
14,642,760
|
|
|
Approximate
Transaction Costs (including Placement Agents Fees)
|
$ |
1,910,000
|
|
|
Net
Proceeds
|
$ |
15,125,240
|
(1)
This
amount assumes all payments are made when due and there is no event of
default. In addition, it assumes that none of the Series B Notes are
converted or repaid prior to maturity.
-15-
BENEFICIAL
OWNERSHIP
OF VOTING SECURITIES
The
following table shows information with respect to beneficial ownership of
our
common shares, as of January 23, 2008, for:
|
·
|
each
of our directors and our executive officers listed in the summary
compensation table provided below, who we refer to as our named executive
officers;
|
|
·
|
all
of our directors and executive officers as a group;
and
|
|
·
|
each
person known by us, including based upon our review of documents
filed by
them with the SEC in respect of the ownership of our common shares,
to
beneficially own five percent or more of either class of our common
shares.
|
We
have
calculated the percentage of beneficial ownership based on 81,087,320 common
shares and outstanding as of the close of business on January 23,
2008.
|
Common Shares
|
|||||||
|
Name of Beneficial Owner
|
Amount and
Nature of
Beneficial
Ownership
(1)
|
Percent
of Class
|
|||||
|
Directors
|
|
|
|||||
|
Michael
O’Byrne (2)
|
351,047
|
*
|
|||||
|
Robert
Penner (3)
|
237,500
|
*
|
|||||
|
Michael
Wozniak (4)
|
197,500
|
*
|
|||||
|
Robert
J. Clark (5)
|
524,848
|
*
|
|||||
|
Jon
Whitney (6)
|
253,134
|
*
|
|||||
|
David
Wight (7)
|
293,986
|
*
|
|||||
|
Joseph
M. Brooker (8)
|
738,925
|
*
|
|||||
|
Executive
Officers
|
|||||||
|
Paul
Wiesner (9)
|
459,912
|
*
|
|||||
|
Keith
Knapstad (10)
|
353,333
|
*
|
|||||
|
All
directors and executive officers as a group
(9 persons)
|
3,410,185
|
4.05
|
|||||
|
Five
Percent
Shareholders
|
|||||||
|
Trapeze
Capital Corp. (11)
|
30,253,333
|
30.85
|
|||||
|
GLG
North American Opportunity Fund (12)
|
8,457,009
|
9.54
|
|||||
|
Touradji
Capital Management (13)
|
6,311,130
|
7.22
|
|||||
|
William
Herbert Hunt Trust Estate (14)
|
4,273,504
|
5.01
|
|||||
|
UBS
AG Canada Branch (15)
|
4,273,504
|
5.01
|
|||||
|
|
*
Represents less than 1%.
|
|
|
(1)
Beneficial ownership is determined under the rules of the SEC and
includes
voting or investment power with respect to the securities. Unless
indicated by footnote, the address for each listed director and
executive
officer is 1125 17th Street, Suite 2310, Denver, Colorado
80202. The number of common shares outstanding used in calculating
the percentage for each listed person includes the common shares
underlying warrants or options held by that person that are currently
exercisable or are exercisable and any restricted share units that
will
vest within 60 days of January 23, 2008, but excludes common shares
underlying warrants or options held by any other
person.
|
|
|
(2)
Includes 275,000 options to purchase common shares that are or
will be
exercisable as of March 23, 2008, and 8,547 common shares issuable
upon the conversion of our Series B
Notes.
|
|
|
(3)
Includes 125,000 options to purchase common shares that are or
will be
exercisable as of March 23,
2008.
|
|
|
(4)
Includes 125,000 options to purchase common shares that are or
will be
exercisable as of March 23,
2008.
|
|
|
(5)
Includes 115,000 options to purchase common shares that are or
will be
exercisable as of March 23, 2008, and 42,735 common shares
issuable upon the conversion of our Series B
Notes.
|
|
|
(6)
Includes 115,000 options to purchase common shares that are or
will be
exercisable as of March 23,
2008.
|
|
|
(7)
Includes 115,000 options to purchase common shares that are or
will be
exercisable as of March 23, 2008, and 25,641 common shares
issuable upon the conversion of our Series B
Notes.
|
|
|
(8)
Mr. Brooker is also the Chief Executive Officer of the
Company.
|
-16-
|
|
(9)
Includes 333,333 options to purchase common shares that are or
will be
exercisable as of March 23, 2008 and 21,368 common shares issuable
upon
the conversion of our Series B
Notes.
|
|
|
(10)
Includes 333,333 options to purchase common shares that are or
will be
exercisable as of March 23,
2008.
|
|
|
(11)
The 30,253,333 shares represent 13,767,776 common shares, 2,126,582
common
shares issuable upon exercise of warrants and 3,162,394 common shares
issuable upon the conversion of the Series A Notes and 11,196,581
common
shares issuable upon the conversion of the Series B Notes. Amounts
shown are beneficially owned by Trapeze Asset Management Inc. and
Trapeze
Capital Corp. which are related entities and filed a Schedule 13D/A
as a
group along with 1346049 Ontario Limited and Randall Abramson. The
address for the group is 22 St. Clair Avenue East, 18th Floor, Toronto,
Ontario, Canada M4T
2S3.
|
|
|
(12)
The 8,457,009 shares represent 3,931,624 common shares issuable upon
the
conversion of the Series A Notes and 4,615,385 common shares
issuable upon the conversion of the Series B Notes. The address for
the group is 1 Curzon Street, London I1J 5HB, United
Kingdom.
|
|
|
(13)
This information was derived from the Schedule 13G/A filed by Touradji
Capital Management LP, Touradji Global Resources Master Fund, Ltd.
and
Paul Touradji with the SEC on February 14, 2007. The 6,311,130
common shares represent 4,915,782 common shares and 1,395,348 shares
issuable upon exercise of warrants. The address for the group is 101
Park Avenue, 48th Floor, New York, NY
10178.
|
|
|
(14)
The 4,273,504 shares represent 1,965,812 common shares issuable upon
the conversion of the Series A Notes and 2,307,692 common shares
issuable
upon the conversion of the Series B Notes. The address for the
shareholder is 1601 Elm Street, Suite 3400, Dallas, TX
75201.
|
|
|
(15)
The 4,273,504 shares represent 1,965,812 common shares issuable upon
the conversion of the Series A Notes and 2,307,692 common shares
issuable
upon the conversion of the Series B Notes. The address for the
shareholder is 161 Bay Street, Suite 4100, P.O. Box 617, Toronto,
Ontario,
Canada M5J 2S1.
|
PRICE
HISTORY
OF THE
SHARES
Our
common shares are traded on the AMEX under the symbol “SCU” and the TSX under
the symbol “SME.” The following tables set forth, for each of the
quarterly periods indicated, the range of high and low sales prices on the
AMEX
and the TSX.
|
Quarterly
High and Low Market
Price for the Two Most Recent Fiscal Years on the
Toronto
Stock Exchange ($
CDN)†
|
|||||||
|
Quarter Ended
|
High
|
Low
|
|||||
| December 31, 2007 | $ | 0.74 | $ | 0.46 | |||
|
September
30, 2007
|
$ |
1.21
|
$ |
0.64
|
|||
|
June
30, 2007
|
$ |
1.34
|
$ |
0.81
|
|||
|
March
31, 2007
|
$ |
1.39
|
$ |
0.76
|
|||
|
December
31, 2006
|
$ |
2.04
|
$ |
1.35
|
|||
|
September
30, 2006
|
$ |
2.60
|
$ |
1.50
|
|||
|
June
30, 2006
|
$ |
3.41
|
$ |
2.11
|
|||
|
March
31, 2006
|
$ |
3.86
|
$ |
2.85
|
|||
|
December
31, 2005
|
$ |
4.36
|
$ |
2.40
|
|||
|
Quarterly
High and Low Market
Price for the Two Most Recent Fiscal Years on the
American
Stock Exchange
($ U.S.)†
|
|||||||
|
Quarter
Ended
|
High
|
Low
|
|||||
| December 31, 2007 | $ | 0.77 | $ | 0.41 | |||
|
September
30, 2007
|
$ |
1.16
|
$ |
0.65
|
|||
|
June
30, 2007
|
$ |
1.19
|
$ |
0.75
|
|||
|
March
31, 2007
|
$ |
1.40
|
$ |
0.70
|
|||
|
December
31, 2006
|
$ |
1.82
|
$ |
1.16
|
|||
|
September
30, 2006
|
$ |
2.50
|
$ |
1.34
|
|||
|
June
30, 2006
|
$ |
3.00
|
$ |
1.85
|
|||
| March 31, 2006 | $ | 3.37 | $ | 2.38 | |||
|
December
31, 2005
|
$ |
3.75
|
$ |
2.01
|
|||
†
We
completed a two-for-one
forward share split on March 31, 2005. All share prices have been adjusted
for the share split effective March 31, 2005.
On
January 23, 2008, the last sale price of our common shares as reported on
the
AMEX was $0.72 per share and the last sale price of our common shares as
reported on the TSX was CDN$0.75 per share. On January 23, 2008, the number
of
our common shareholders of record was 58.
-17-
THE
SELLING
SHAREHOLDERS
We
initially issued the common shares to the selling shareholders, as initial
purchasers in transactions exempt from the registration requirements of the
Securities Act of 1933, as amended (the “Securities Act”). We have agreed
to include in this registration statement the common shares issuable upon the
conversion of the Series A Notes and the Series B Notes.
The
selling shareholders, including their transferees, pledges, donees or other
successors, may from time to time offer and sell pursuant to this prospectus
any
or all of the common shares issuable upon conversion of the Series A Notes
and
the Series B Notes. Any selling shareholder may also elect not to
sell any common shares issuable upon conversion of the Series A Notes and the
Series B Notes held by it. Only common shares issuable upon
conversion of the Series A Notes and the Series B Notes listed below or in
any prospectus supplement hereto may be offered for resale by the selling
shareholders pursuant to this prospectus.
Except
as
otherwise noted below, none of the selling shareholders has, or had, any
position, office or other material relationship with us or any of our affiliates
beyond their investment in or receipt of our securities. In addition, except
as
described below, none of the selling shareholders have participated in prior
securities transactions with the Company. Prior to purchasing the
Series A Notes and the Series B Notes, Trapeze Capital Corp. and Trapeze Asset
Management Inc. (collectively, “Trapeze”), held 13,767,776 common shares
representing approximately 16.98% of our outstanding shares, plus2,126,582
common share purchase warrants, each exercisable to purchase one common
share at a price of CDN$1.90 per share. On September 27, 2006, we issued
7,594,937 common share units, which consisted of 7,594,937 common shares and
2,126,582 common share purchase warrants, and 6,172,839 flow-through shares
to
Trapeze, the only investor in this private placement (the "Trapeze
Transaction"). The following table provides certain information relating
to the Trapeze Transaction. Percentages reflect actual outstanding common
shares as the outstanding common shares were not adjusted to include common
share or common share equivalents ("CSEs") issuable pursuant to the transaction.
|
Common
Shares
|
Common
Share
Warrants(1)
|
Flow-Through
Common
Shares
|
Total
Common Shares and
CSEs
|
|
|
Common
shares and CSEs issued to Trapeze in transaction
|
7,594,937
|
2,126,582
|
6,172,839
|
15,894,358
|
|
Common
shares outstanding prior to transaction
|
66,635,794
|
66,635,794
|
66,635,794
|
66,635,794
|
|
Public
float prior to the transaction (2)
|
65,010,044
|
65,010,044
|
65,010,044
|
65,010,044
|
|
Percentage
of public float issuable in the transaction
|
11.68%
|
3.27%
|
9.50%
|
24.45%
|
|
Price
paid by Trapeze
|
CDN$1.58
(3)
|
CDN$1.80
|
--
|
|
|
Exercise
Price
|
--
|
CDN$1.90
|
--
|
--
|
|
Market
price per common share immediately prior to transaction
|
CDN$1.57
(4)
|
--
|
--
|
--
|
|
Current
market price per common share
|
CDN$0.60
(5)
|
--
|
--
|
--
|
(1)
Each
common share warrant is exercisable through February 27, 2008 at an exercise
price of CDN$1.90 per share.
(2)
Common shares outstanding prior to the transaction that were not held by
Trapeze, any of Trapeze’s affiliates or any of the Company’s
affiliates.
(3)
These
common shares and common share warrants were sold together as a common share
unit. Each unit consisted of one common share and approximately 0.28
of a common share warrant that is exercisable through February 27, 2008 at
an
exercise price of CDN$1.90 per share. The price was CDN$1.58 per
unit.
(4)
On
September 26, 2006, the last sale price of our common shares as reported
on the
Toronto Stock Exchange was CDN$1.57 per share and the last sale price as
reported on the American Stock Exchange was $1.40 per share.
(5)
On
December 12, 2007, the last sale price of our common shares as reported on
the
Toronto Stock Exchange was CDN$0.59 per share and the last sale price as
reported on the American Stock Exchange was $0.59 per share.
On
October 25, 2005, we issued
5,092,328 common shares and 1,527,696 common share warrants to 23 investors,
including Capital Ventures International and Iroquois Master Fund Ltd.
(the
“October 2005 Transaction”). The following table provides certain
information relating to Capital Ventures International’s and Iroquois Master
Fund Ltd.’s investments in the October 2005 Transaction. Percentages reflect
actual outstanding common shares as the outstanding common shares were
not
adjusted to include common share or common share equivalents (“CSEs”) issuable
pursuant to the transaction.
-18-
|
Common
Shares
|
Common
Share Warrants
(1)
|
Total
Common Shares and
CSEs
|
|
|
Common
shares and CSEs issued in transaction
|
5,092,328
|
1,527,696
|
6,620,024
|
|
Common
shares outstanding prior to transaction
|
55,150,493
|
55,150,493
|
55,150,493
|
|
Public
float prior to the transaction (2)
|
51,140,245
|
51,140,245
|
51,140,245
|
|
Percentage
of public float issuable in the transaction
|
9.96%
|
2.99%
|
12.94%
|
|
Common
shares and CSEs issued to selling shareholders:
|
|||
|
Capital
Ventures International
|
697,674
|
209,302
|
906,949
|
|
Percentage
of transaction
|
13.70%
|
13.70%
|
13.70%
|
|
Percentage
of public float
|
1.36%
|
0.41%
|
1.77%
|
|
Iroquois
Master Fund Ltd.
|
116,279
|
34,883
|
151,162
|
|
Percentage
of transaction
|
2.28%
|
2.28%
|
2.28%
|
|
Percentage
of public float
|
0.20%
|
0.07%
|
0.30%
|
|
Price
paid by selling shareholders
|
$2.52
|
--
|
--
|
|
Exercise
Price
|
--
|
$2.52
|
--
|
|
Market
price per common share immediately prior to transaction
|
$2.17
(3)
|
--
|
--
|
|
Current
market price per common share
|
$0.59
(4)
|
--
|
--
|
(1)
Each
common share warrant was exercisable until October 25, 2007 at an exercise
price
of $2.52 per share. None of the warrants were exercised.
(2)
Common shares outstanding prior to the transaction that were not held by
either
of the selling shareholders, any of the selling shareholders’ affiliates or any
of the Company’s affiliates.
(3)
On
October 24, 2005, the last sale price of our common shares as reported on
the
Toronto Stock Exchange was CDN$2.59 per share and the last sale price as
reported on the American Stock Exchange was $2.17 per share.
(4)
On
December 12, 2007, the last sale price of our common shares as reported on
the
Toronto Stock Exchange was CDN$0.59 per share and the last sale price as
reported on the American Stock Exchange was $0.59 per share.
One
of
our selling shareholders, J. Scott Zimmerman was formerly the Company’s
President and Chief Executive Officer and a member of the Company’s board of
directors. Mr. Zimmerman resigned as the President and Chief
Executive Officer effective as of April 9, 2007. As a director and
officer of the Company, Mr. Zimmerman received equity based compensation
as
disclosed in the Company’s annual proxy statements and Section 16 filings.
In addition, Mr. Zimmerman acquired common shares in the open market and
participated in private placements.
On
January 30, 2007, Trapeze purchased Series A Notes in an aggregate principal
amount of $3.7 million, which, upon conversion at $1.17 per share would result
in the issuance of 3,162,394 common shares (subject to adjustment in accordance
with the terms of the Series A Notes). On January 31, 2007, on a
fully-converted basis these Trapeze entities held approximately 22% of our
issued and outstanding voting shares. On March 30, 2007, Trapeze purchased
Series B Notes in an aggregate principal amount of $13.1 million, which, upon
conversion at $1.17 per share would result in the issuance of 11,196,581 common
shares (subject to adjustment in accordance with the terms of the Series B
Notes). For additional information on these private placements see
“Description of Series A Notes and Series B Notes Private Placements”
on page 11. As of December 13, 2007, on a fully converted basis, these
Trapeze entities held approximately 31% of our issued and outstanding voting
shares.
Kellogg
Capital Group LLC is a member of the National Association of Securities Dealers
Regulation, Inc. Crestview Capital Master, LLC, GPC LX, LLC, Capital Ventures
International and UBS AG Canada Branch are the only selling shareholders who
are
affiliated with a registered broker-dealer. Kellogg Capital Group, LLC is
a registered "broker-dealer", and, accordingly, is deemed to be an
underwriter.
We
have
agreed with the selling shareholders to keep the registration statement of
which
this prospectus constitutes a part effective until the earlier of (1) such
time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement, and (2) the date on which
the shares (other than shares held by our Affiliates) may be sold pursuant
to
Rule 144(k) of the Securities Act.
The
following table is prepared based on information supplied to us by the selling
shareholders. Although we have assumed for purposes of the table below
that the selling shareholders will sell all of the shares offered by this
prospectus, because the selling shareholders may offer from time to time all
or
some of their shares covered under this prospectus, or in another permitted
manner, no assurances can be given as to the actual number of shares that will
be resold by the selling shareholders or that will be held by the selling
shareholders after completion of the resales. In addition, the selling
shareholders may have sold, transferred or otherwise disposed of the Series
A or
Series B Notes in transactions exempt from the registration requirements of
the
Securities Act, since the date the selling shareholders provided the information
regarding their securities holdings. Information concerning the selling
shareholders may change from time to time and changed information will be
presented in a supplement to this prospectus if and when necessary and
required. Except as described above, there are currently no agreements,
arrangements or understandings with respect to the resale of any of the shares
covered by this prospectus. Pursuant to the purchase agreements pursuant
to which the conversion of the Series A and Series B Notes were sold, each
of
the selling shareholders warranted and covenanted to us that the selling
shareholder purchased the conversion of the Series A and Series B Notes in
the
ordinary course of business and did not have, directly or indirectly, any
intention of distributing any of the conversion of the Series A or Series B
Notes or the common shares issuable upon conversion of the conversion of the
Series A or Series B Notes or any agreement, arrangement or understanding with
any other persons regarding the distribution of the common shares.
The
common shares offered by this prospectus may be offered from time to time by
the
persons or entities named below:
-19-
|
Shares Beneficially Owned Prior to the Offering
(1)
|
Shares Beneficially Owned After the Offering
(3)
|
||||||||||||||||||||||||||||||||
|
Name of Selling Shareholder
|
Number
|
Number of
Shares
Underlying
Series A
Notes
|
Number of
Shares
Underlying
Series B
Notes
|
Number of
Shares
Underlying
Warrants
|
Percent
(2)
|
Number
of Shares
Offered
|
Number
|
Number of
Shares
Underlying
Series A
Notes
|
Number of
Shares
Underlying
Series B
Notes
|
Number of
Shares
Underlying
Warrants
|
Percent
(2)
|
||||||||||||||||||||||
|
Crestview
Capital Master,
LLC(4)
95
Revere Drive, Suite A
Northbrook,
IL 60062
|
|
0
|
|
786,325
|
923,077
|
0
|
2.06%
|
439,754
|
0
|
|
786,325
|
483,323
|
|
0
|
1.54%
|
||||||||||||||||||
|
LBPB
Nominees Ltd. (for the
benefit of GLG North American Opportunity Fund,
L.P.)(5)
c/o
GLG Parnters, L.P.
One
Curzon Street
London
W1J 5HB
United
Kingdom
|
0
|
|
3,931,624
|
4,615,385
|
0
|
9.54%
|
2,198,769
|
0
|
3,931,624
|
2,416,616
|
0
|
6.26%
|
|||||||||||||||||||||
|
Capital
Ventures
International(6)
c/o
Heights Capital Management
101
California, Suite 3250
San
Francisco, CA 94111
|
0
|
393,162
|
461,539
|
0
|
1.04%
|
219,877
|
0
|
393,162
|
241,662
|
0
|
*
|
||||||||||||||||||||||
|
Iroquois
Master Fund
Ltd.(7)
641
Lexington Avenue
26th
Floor
New
York, NY 10022
|
0
|
|
393,162
|
461,539
|
0
|
1.04%
|
219,877
|
0
|
393,162
|
241,662
|
0
|
*
|
|||||||||||||||||||||
|
Kellogg
Capital Group
LLC(8)
55
Broadway
4th
Floor
New
York, NY 10006
|
481,700
|
786,325
|
923,077
|
0
|
2.65%
|
439,754
|
481,700
|
786,325
|
483,323
|
0
|
2.13%
|
||||||||||||||||||||||
|
William
Herbert Hunt Trust
Estate(9)
1601
Elm Street
Suite
3400
Dallas,
Texas 75201
|
0
|
1,965,812
|
2,307,692
|
0
|
5.01%
|
1,099,384
|
0
|
1,965,812
|
1,208,308
|
0
|
3.77%
|
||||||||||||||||||||||
|
Sandelman
Partners
Multi-Strategy
Master Fund,
Ltd.(10)
c/o
Sandelman Partners LP
500
Park Avenue
New
York, NY 10022
|
0
|
1,179,487
|
1,384,615
|
0
|
3.07%
|
659,631
|
0
|
1,179,487
|
724,984
|
0
|
2.29%
|
||||||||||||||||||||||
|
Summit
Capital Partners,
LP(11)
600
University Street
Suite
2304
Seattle,
WA 98101
|
213,500
|
393,162
|
461,538
|
0
|
1.30%
|
219,877
|
213,500
|
393,162
|
241,661
|
0
|
1.04%
|
||||||||||||||||||||||
|
Wolverine
Convertible
Arbitrage
Funds Trading
Limited(12)
175
West Jackson #208
Chicago,
IL 60604
|
0
|
796,581
|
935,043
|
0
|
2.09%
|
445,454
|
0
|
796,581
|
489,589
|
0
|
1.56%
|
||||||||||||||||||||||
|
GPC
LX,
LLC(13)
c/o
Guggenheim Advisors, LLC
135
East 57th Street
11th
Floor
New
York, NY 10022
|
0
|
88,034
|
103,419
|
0
|
*
|
49,269
|
0
|
88,034
|
54,150
|
0
|
*
|
||||||||||||||||||||||
|
UBS
AG Canada
Branch(14)
161
Bay Street
Suite
4100
P.O.
Box 617
Toronto,
ON M5J 2S1 Canada
|
0
|
1,965,812
|
2,307,692
|
0
|
5.01%
|
1,099,384
|
0
|
1,965,812
|
1,208,308
|
0
|
3.77%
|
||||||||||||||||||||||
|
Small
Ventures USA,
LP(15)
5161
San Felipe
Suite
320
Houston,
TX 77056
|
0
|
0
|
427,350
|
0
|
*
|
203,590
|
0
|
0
|
223,760
|
0
|
*
|
||||||||||||||||||||||
|
Guy
O. Dove,
III
P.O.
Box 796
Middleburg,
VA 20118
|
30,000
|
0
|
427,350
|
0
|
*
|
203,590
|
30,000
|
0
|
223,760
|
0
|
*
|
||||||||||||||||||||||
|
Investor
Company(16)
c/o
TD Waterhouse Canada Inc.
22
St. Clair Ave East
18th
Floor
Toronto,
ON M4T 2S3 Canada
|
9,417,737
|
2,538,462
|
5,942,735
|
1,677,322
|
|
21.45%
|
8,481,197
|
9,417,737
|
0
|
0
|
1,677,322
|
21.45%
|
|||||||||||||||||||||
| Nesbitt
Burns ITF Millennium
Partners LP(16)
1
First Canadian Place
35th
Floor
Toronto,
ON M5X 1HS Canada
|
0
|
|
0
|
1,231,624
|
0
|
1.50%
|
1,231,624
|
0
|
0
|
0
|
0
|
*
|
|||||||||||||||||||||
| Investor
Company(17)
c/o
TD Waterhouse Canada Inc.
22
St. Clair Ave East
18th
Floor
Toronto,
ON M4T 2S3 Canada
|
4,350,039
|
623,932
|
4,008,547
|
449,260
|
10.95%
|
4,632,479
|
4,350,039
|
0
|
0
|
449,260
|
5.89%
|
||||||||||||||||||||||
-20-
|
Band
&
Co.
(17)
c/o
US Bank NA
1555
N. Rivercenter Dr.
Suite
302 – Physicals
Milwaukee,
WI 53212
|
0
|
0
|
13,675
|
0
|
*
|
13,675
|
0
|
0
|
0
|
0
|
*
|
||||||||||||||||||||||
|
J.
Scott
Zimmerman
1550
Larimer Street, No. 265
Denver,
CO 80202
|
1,340,500
|
0
|
25,641
|
27,500
|
|
1.72%
|
25,641
|
1,340,500
|
0
|
0
|
27,500
|
1.69%
|
*
Indicates less than 1%
|
(1)
|
|
Beneficial
ownership is determined under the rules of the SEC and includes
voting or
investment power with respect to the securities.
|
|
(2)
|
|
Percentages
are based on there being 81,087,320 issued and outstanding common
shares.
The number of common shares outstanding used in calculating the
percentage
for each listed selling shareholder includes the common shares
underlying
warrants, options, the Series A Notes and/or the Series B Notes
held by that person, but excludes common shares underlying warrants,
options, the Series A Notes or the Series B Notes held by any
other person.
|
|
(3)
|
|
Assumes
all of the common shares registered are sold.
|
|
(4)
|
|
Stewart
R. Flink, Robert Hoyt and Daniel T. Warsh have investment power
and voting
control over these securities. Crestview Capital Master, LLC is
an
affiliate of a registered broker-dealer.
|
|
(5)
|
|
GLG
Partners, L.P., which serves as the investment manager to GLG North
American Opportunity Fund, may be deemed to be the beneficial owner
of all
shares owned by the GLG North American Opportunity Fund. Each of
Noam
Gottesman, Emmanuel Roman, and Pierre Lagrange, who are Managing
Directors
of the general partner of GLG Partners, L.P., have investment power
and
voting control over these securities, and may be deemed to be the
beneficial owner of all shares owned by the GLG North American
Opportunity
Fund. Each of GLG Partners, L.P., the general partner and Messrs.
Gottesman, Roman and Lagrange disclaim any beneficial ownership
of any
such shares, except for their pecuniary interest
therein.
|
|
(6)
|
|
Heights
Capital Management, Inc., the authorized agent of Capital Ventures
International has discretionary authority to vote and dispose of
the
shares held by Capital Ventures International and may be deemed
to be the
beneficial owner of these shares. Martin Kobinger, in his capacity
as
Investment Manager of Heights Capital Management, Inc., may also
be deemed
to have investment discretion and voting power over the securities
held by
Capital Ventures International. Mr. Kobinger disclaims any such
beneficial
ownership of the securities. Capital Ventures International is
affiliated
with one or more registered broker-dealers.
|
|
(7)
|
|
Joshua
Silverman has investment power and voting control over these securities.
Mr. Silverman disclaims beneficial ownership of these
securities.
|
|
(8)
|
|
Kellogg
Capital Group LLC is a member of the National Association of
Securities Dealers Regulation, Inc., and accordingly is deemed to be
an underwriter. Charles K. Kellogg and Nicholas Cappelleri have
investment power and voting control over these
securities.
|
|
(9)
|
|
J.W.
Beavers, Jr., trustee of the shareholder has investment power and
voting
control over these securities.
|
|
(10)
|
|
Sandelman
Partners, LP has investment power and voting control over these
securities. Sandelman Partners, LP’s general partner is Sandelman Partners
GP, LLC. Jonathan Sandelman is Sandelman Partners GP, LLC’s managing
member and has investment power and voting control over these
securities.
|
|
(11)
|
|
John
Rudolf and Matt Rudolf have investment power and voting control
over these
securities. Summit Capital Partners I, LLC is Summit Capital Partners,
LP’s general partner.
|
|
(12)
|
|
Rob
Bellick has investment power and voting control over these
securities.
|
|
(13)
|
|
GPC
LX, LLC’s limited liability company manager is Guggenheim Advisors, LLC,
which is a wholly owned subsidiary of Guggenheim Alternative Asset
Management, LLC. The Governor and Company of the Bank of Ireland,
through
its subsidiaries, owns a majority of the limited liability company
membership interests in Guggenheim Alternative Asset Management,
LLC. The
investment manager of GPC LX, LLC is Wolverine Asset Management,
LLC.
Christopher Gust is the portfolio manager that oversees the investment
of
assets of GPC LX, LLC on behalf of Wolverine Asset Management,
LLC and has
investment power and voting control over these securities. The
Governor
and Company of the Bank of Ireland, through its subsidiaries, owns
a
majority of IAM Capital Corporation. IAM Capital Corporation is
a
broker/dealer registered with the Securities and Exchange Commission
and
is a member of the National Association of Securities Dealers Regulation,
Inc. IAM Capital Corporation was organized for the limited purpose
of
offering investments in limited partnerships to which IAM Capital
Corporation’s parent, Iridian Asset Management LLC, acts as the investment
advisor.
|
|
|
||
|
(14)
|
|
UBS
AG Canada Branch is an affiliate of a registered broker-dealer.
James E. Estey and Charles Dietz have investment power and voting
control
over these securities.
|
|
(15)
|
|
William
O. Perkins III has investment power and voting control over these
securities.
|
|
(16)
|
Trapeze
Asset Management Inc. is the beneficial owner of these securities.
Randall
Abramson and Trapeze Asset Management Inc., 1346049 Ontario Limited
have
investment power and voting control over Trapeze Asset Management
Inc. and
has investment power and voting control over these
securities.
|
|
|
(17)
|
Trapeze
Capital Corp. is the beneficial owner of these securities. Randall
Abramson and Trapeze Capital Corp., 1346049 Ontario Limited have
investment power and voting control over Trapeze Capital Corp.
and have
investment power and voting control over these
securities.
|
On
January 29, 2007, there were 80,479,820 common shares issued and outstanding,
64,314,844 of which were held by persons other than any of the selling
shareholders, any of our affiliates or any affiliate of any of the selling
shareholders. On March 29, 2007, there were 80,479,820 common shares
issued and outstanding, 64,314,844 of which were held by persons other than
any
of the selling shareholders, any of our affiliates or any affiliate of any
of
the selling shareholders. The table below sets forth certain information
relating to previous resale transactions by the selling
shareholders.
-21-
|
Selling
Shareholder
|
Number of
Common Shares
Registered for
Resale in Prior
Registration
Statements
|
Number of
Common Shares
Registered for
Resale Still Held
by Selling
Shareholder
(1)
|
|
Number of
Registered
Common Shares
Sold by Selling
Shareholder
(1)
|
Number of
Common Shares
Registered for
Resale in this
Transaction
|
|
|||||||||||
|
Crestview
Capital Master, LLC
|
1,269,648
|
1,269,648
|
(2 | ) |
0
|
439,754
|
(3 | ) | |||||||||
|
GLG
North American Opportunity Fund
|
6,348,240
|
6,348,240
|
(2 | ) |
0
|
2,198,769
|
(3 | ) | |||||||||
|
Capital
Ventures International
|
1,541,800
|
844,126
|
(2 | ) |
697,674
|
219,877
|
(3 | ) | |||||||||
|
Iroquois
Master Fund Ltd.
|
785,986
|
669,716
|
(2 | ) |
116,270
|
219,877
|
(3 | ) | |||||||||
|
Kellogg
Capital Group LLC
|
1,269,648
|
1,269,648
|
(2 | ) |
0
|
439,754
|
(3 | ) | |||||||||
|
William
Herbert Hunt Trust Estate
|
3,174,120
|
3,174,120
|
(2 | ) |
0
|
1,099,384
|
(3 | ) | |||||||||
|
Sandelman
Partners Multi-Strategy Master Fund, Ltd.
|
1,904,471
|
1,904,471
|
(2 | ) |
0
|
659,631
|
(3 | ) | |||||||||
|
Summit
Capital Partners, LP
|
634,823
|
634,823
|
(2 | ) |
0
|
219,877
|
(3 | ) | |||||||||
|
Wolverine
Convertible Arbitrage Funds Trading Limited
|
1,286,170
|
1,286,170
|
(2 | ) |
0
|
445,454
|
(3 | ) | |||||||||
|
GPC
LX, LLC
|
142,184
|
142,184
|
(2 | ) |
0
|
49,269
|
(3 | ) | |||||||||
|
UBS
AG Canada Branch
|
3,174,120
|
3,174,120
|
(2 | ) |
0
|
1,099,384
|
(3 | ) | |||||||||
|
Small
Ventures USA, LP
|
223,760
|
223,760
|
(2 | ) |
0
|
203,590
|
(3 | ) | |||||||||
|
Guy
O. Dove, III
|
223,760
|
223,760
|
(2 | ) |
0
|
203,590
|
(3 | ) | |||||||||
| J. Scott Zimmerman | 910,500 | 910,500 | 0 | 25,641 | (3 | ) | |||||||||||
(1)
This information was provided by the selling shareholder in a Selling
Securityholder Questionnaire completed by the selling shareholder in connection
with this registration statement.
(2)
These common shares are underlying warrants and convertible notes held by the
selling shareholder.
(3)
These common shares are underlying the Series A Notes and/or Series B Notes
held by the selling shareholder.
We
are
not aware of any selling shareholder with an existing short position in our
common shares. On June 26, 2007, GLG Partners, L.P., which serves as the
investment manager to GLG North American Opportunity Fund, a selling shareholder
in this offering, agreed to pay more than $3.2 million to settle
enforcement actions brought by the SEC for illegal short selling in connection
with 14 public offerings.
PLAN
OF
DISTRIBUTION
We
are
registering the common shares issuable upon conversion of the Series A Notes
and
the Series B Notes to permit the resale of these common shares by the
holders of the Series A Notes and the Series B Notes from time to time
after the effectiveness of the registration statement. We will not receive
any of the proceeds from the sale by the selling shareholders of the common
shares. We will bear all fees and expenses incident to our obligation to
register the common shares.
The
selling shareholders may sell all or a portion of the common shares beneficially
owned by them and offered hereby from time to time directly or through one
or
more underwriters, broker-dealers or agents. If the common shares are sold
through underwriters or broker-dealers, the selling shareholders will be
responsible for underwriting discounts or commissions or agent’s
commissions. The common shares may be sold in one or more transactions at
fixed prices, at prevailing market prices at the time of the sale, at varying
prices determined at the time of sale, or at negotiated prices. These
sales may be effected in transactions, which may involve crosses or block
transactions:
|
·
|
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
|
|
·
|
in
the
over-the-counter market;
|
|
·
|
in
transactions
otherwise than on these exchanges or systems or in the over-the-counter
market;
|
|
·
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a
broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
short
sales entered into after the effective date of the registration
statement;
|
|
·
|
sales
pursuant to Rule 144;
|
|
·
|
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
-22-
If
the
selling shareholders effect such transactions by selling common shares to or
through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling shareholders or commissions from
purchasers of the common shares for whom they may act as agent or to whom they
may sell as principal (which discounts, concessions or commissions as to
particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales
of the common shares or otherwise, the selling shareholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the common shares in the course of hedging in positions they
assume. The selling shareholders may also sell common shares short and
deliver common shares covered by the registration statement to close out short
positions and to return borrowed shares in connection with such short sales.
The
selling shareholders may also loan or pledge common shares to broker-dealers
that in turn may sell such shares.
The
selling shareholders may pledge or grant a security interest in some or all
of
the Series A Notes, the Series B Notes or common shares issuable upon
conversion thereof owned by them and, if they default in the performance of
their secured obligations, the pledgees or secured parties may offer and sell
the common shares from time to time pursuant to the registration statement
or
any amendment to the registration statement under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, amending, if
necessary, the list of selling shareholders to include the pledgee, transferee
or other successors in interest as selling shareholders under the registration
statement and the related prospectus. The selling shareholders also may transfer
and donate the common shares in other circumstances in which case the
transferees, donees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of the registration statement and the
related prospectus.
The
selling shareholders and any broker-dealer participating in the distribution
of
the common shares may be deemed to be “underwriters” within the meaning of the
Securities Act, and any commission paid, or any discounts or concessions allowed
to, any such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act. Kellogg Capital Group, LLC is a
registered "broker-dealer", and, accordingly, is deemed to be an
underwriter. At the time a particular offering of the common shares is
made, a prospectus supplement, if required, will be distributed which will
set
forth the aggregate amount of common shares being offered and the terms of
the
offering, including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the
selling shareholders and any discounts, commissions or concessions allowed
or
reallowed or paid to broker-dealers.
Under
the
securities laws of some states, the common shares may be sold in such states
only through registered or licensed brokers or dealers. In addition, in some
states the common shares may not be sold unless such shares have been registered
or qualified for sale in such state or an exemption from registration or
qualification is available and is complied with.
There
can
be no assurance that any selling shareholder will sell any or all of the common
shares registered pursuant to the registration statement.
The
selling shareholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of
1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the common shares by the selling shareholders
and
any other participating person. Regulation M may also restrict the ability
of any person engaged in the distribution of the common shares to engage in
market-making activities with respect to the common shares. All of the
foregoing may affect the marketability of the common shares and the ability
of
any person or entity to engage in market-making activities with respect to
the
common shares.
We
will
pay all expenses of the registration of the common shares pursuant to the
registration rights agreement, estimated to be $46,444 in total, including,
without limitation, Securities and Exchange Commission filing fees and expenses
of compliance with state or provincial securities or “blue sky” laws; provided,
however, that a selling shareholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling shareholders
against liabilities, including some liabilities under the Securities Act, in
accordance with the registration rights agreement, or the selling shareholders
will be entitled to contribution. We may be indemnified by the selling
shareholders against civil liabilities, including liabilities under the
Securities Act, that may arise from any written information furnished to us
by
the selling shareholder specifically for use in the registration statement
and
the related prospectus, in accordance with the registration rights agreement,
or
we may be entitled to contribution.
Once
sold
under the registration statement and the related prospectus, the common shares
will be freely tradable in the hands of persons other than our
affiliates.
LEGAL
MATTERS
The
validity of the issuance of the common shares offered by this prospectus will
be
passed upon for us by Bull, Housser & Tupper, LLP, Vancouver, British
Columbia, Canada.
EXPERTS
The
consolidated financial statements incorporated in this prospectus by reference
from our Annual Report on Form 10-K for the year ended December 31, 2006
have been audited by Hein & Associates LLP, an independent registered public
accounting firm, and Amisano Hanson, Chartered Accountants, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firms given upon their authority as experts
in accounting and auditing.
The
reserve estimates in this prospectus have been prepared by Sproule Associates,
Inc., independent reservoir engineers, and Netherland, Sewell & Associates,
Inc. independent reservoir engineers, and have been included in reliance on the
report of such firms given upon their authority as experts in reserve
engineering.
-23-
ENFORCEMENT
OF CIVIL
LIABILITIES
We
are
incorporated under the laws of the Province of British Columbia, Canada.
Further, some of our assets are located outside of the United States.
Consequently, it may be difficult for United States investors to effect service
of process in the United States upon our directors or officers who are not
residents of the United States, or to realize in the United States upon
judgments of United States courts predicated upon civil liabilities under
the
U.S. securities laws. A judgment of a U.S. court predicated solely upon
such civil liabilities would probably be enforceable in Canada by a Canadian
court if the U.S. court in which the judgment was obtained had jurisdiction,
as
determined by the Canadian court, in the matter. There is substantial
doubt whether an original action could be brought successfully in Canada
against
any of such persons or Storm Cat predicated solely upon such civil
liabilities.
WHERE
YOU CAN FIND MORE
INFORMATION
We
have
filed with the SEC, a registration statement on Form S-1, of which this
prospectus is a part, under the Securities Act with respect to the common shares
offered hereby. This prospectus does not contain all of the information
included in the registration statement. Statements in this prospectus
concerning the provisions of any document are not necessarily complete.
You should refer to the copies of the documents filed as exhibits to the
registration statement or otherwise filed by us with the SEC for a more complete
understanding of the matter involved. Each statement concerning these
documents is qualified in its entirety by such reference.
We
are
subject to the informational requirements of the Securities and Exchange Act
of
1934, as amended (the “Exchange Act”), and, accordingly, file reports, proxy
statements and other information with the SEC. The SEC maintains a web
site at http://www.sec.gov that contains reports and information statements
and
other information regarding registrants that file electronically with the
SEC. You may read and copy the registration statement, these reports and
other information at the public reference facility maintained by the SEC at
the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549.
You may obtain information on the operation of the public reference room by
calling the SEC at 1-800-SEC-0330.
You
may
read and copy our SEC reports and other information at the American Stock
Exchange at 86 Trinity Place, New York, New York 10006.
INCORPORATION
BY
REFERENCE
The
SEC
allows us to “incorporate by reference” in this prospectus the information that
we file with them. This means that we can disclose important information
to you in this document by referring you to other filings we have made with
the
SEC. The information incorporated by reference is considered to be part of
this prospectus. We incorporate by reference the documents listed
below:
|
·
|
our
Definitive Proxy Statement on Schedule 14A filed with the SEC on
March 1, 2007 (Commission File No.
001-32628);
|
|
·
|
our
Definitive Proxy Statement on Schedule 14A filed with the SEC on
April 30,
2007 (Commission File No.
001-32628);
|
|
·
|
our
Annual Report on Form 10-K for our fiscal year ended December 31,
2006,
filed with the SEC on March 16, 2007 (Commission File No.
001-32628);
|
|
·
|
our
Quarterly Reports on Form 10-Q for our fiscal quarters ended March
31,
2007, June 30, 2007 and September 30, 2007 filed with the SEC on
May 10,
2007, August 9, 2007 and November 8, 2007 (Commission File No.
001-32628);
|
|
·
|
our
Current Reports on Forms 8-K filed with the SEC on January 25,
February 5,
March 12, April 5, April 10, May 31, June 26, July 11, August
10, September 25, October 1, November 8 and December 28,
2007 (Commission File No. 001-32628) and the Current Report on Form
8-K/A filed with the SEC on May 22, 2007 (Commission File No. 001-32628);
and
|
|
·
|
the
description of our common shares as set forth in our registration
statement on Form 8-A filed with the SEC on September 26, 2005 (Commission
File No. 001-32628).
|
This
prospectus may contain information that updates, modifies or is contrary to
information in one or more of the documents incorporated by reference in this
prospectus. Reports we file with the SEC after the date of this prospectus
may also contain information that updates, modifies or is contrary to
information in this prospectus or in documents incorporated by reference in
this
prospectus. Investors should review these reports as they may disclose a
change in our business, prospects, financial condition or other affairs after
the date of this prospectus.
Upon
your
written or oral request, we will provide at no cost to you a copy of any and
all
of the information that is incorporated by reference in this
prospectus.
|
Requests
for such documents should be directed to:
|
|
|
|
Paul
Wiesner
|
|
Chief
Financial Officer
|
|
Storm
Cat Energy Corporation
|
|
1125
17th Street, Suite 2310
|
|
Denver,
Colorado 80202
|
|
Telephone:
(303) 991-5070
|
You
may
also access the documents incorporated by reference in this prospectus through
our website www.stormcatenergy.com. Except for the specific incorporated
documents listed above, no information available on or through our website
shall
be deemed to be incorporated in this prospectus or the registration statement
of
which it forms a part.
-24-
21,882,826
Shares
Common
Shares