SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
BMB MUNAI, INC.
-----------------------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
Payment of Filing Fee (Check the appropriate box):
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
_________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________________
5) Total fee paid:
_________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:___________________________________
2) Form, Schedule or Registration Statement No.: ____________
3) Filing Party:_____________________________________________
4) Date Filed:_______________________________________________
BMB MUNAI, INC.
202 Dostyk Ave., 4th Floor
Almaty 050051 Kazakhstan
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
The special meeting of stockholders of BMB Munai, Inc., (the "Company")
will be held at The Grand America Hotel, 555 South Main Street, Salt Lake City,
Utah on March 27, 2006, at 10:00 a.m., local time, for the following purposes:
1. To ratify the adoption of a corporate policy governing future
acquisitions of additional oil and gas licenses in exchange
for shares of Company common stock;
2. To amend our Articles of Incorporation to increase the
authorized capital stock of the Company;
3. To transact any other business as may properly come before the
meeting or at any adjournment thereof.
Our Board of Directors has fixed the close of business on February 27,
2006, as the record date for determining stockholders entitled to notice of, and
to vote at, the meeting. A list of stockholders eligible to vote at the meeting
will be available for inspection at the meeting and for a period of 10 days
prior to the meeting during regular business hours at our U.S. office located at
324 South 400 West, Suite 250, Salt Lake City, Utah 84101.
All of our stockholders are cordially invited to attend the meeting in
person. Whether or not you expect to attend the special meeting of stockholders,
your proxy vote is important. To assure your representation at the meeting,
please sign and date the enclosed proxy card and return it promptly in the
enclosed envelope, which requires no additional postage if mailed in the United
States. Should you receive more than one proxy because your shares are
registered in different names or addresses, each proxy should be signed and
returned to assure that all your shares will be voted. You may revoke your proxy
at any time prior to the meeting. If you attend the meeting and vote by ballot,
your proxy will be revoked automatically and only your vote at the meeting will
be counted.
YOUR VOTE IS IMPORTANT
IF YOU ARE UNABLE TO BE PRESENT PERSONALLY, PLEASE MARK, SIGN AND DATE THE
ENCLOSED PROXY, WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, AND RETURN
IT PROMPTLY IN THE ENCLOSED ENVELOPE.
By order of the Board of Directors,
March ___, 2006
-----------------------------------
Boris Cherdabayev, CEO
BMB MUNAI, INC.
202 Dostyk Ave., 4th Floor
Almaty 050051 Kazakhstan
PROXY STATEMENT
GENERAL
SOLICITATION OF PROXIES. This proxy statement is being furnished to the
stockholders of BMB Munai, Inc., a Nevada corporation, in connection with the
solicitation of proxies by our Board of Directors for use at our special meeting
of stockholders to be held at The Grand America Hotel, 555 South Main Street,
Salt Lake City, Utah at 10:00 a.m., local time, on March 27, 2006, or at any
adjournment thereof. A copy of the notice of meeting accompanies this proxy
statement. It is anticipated that the mailing of this proxy statement will
commence on or about March ___, 2006.
COST OF SOLICITATION. We will bear the costs of soliciting proxies. In
addition to the use of the mails, certain directors or officers of our Company
may solicit proxies by telephone, telegram, facsimile, cable or personal
contact. Upon request, we will reimburse brokers, dealers, banks and trustees,
or their nominees, for reasonable expenses incurred by them in forwarding proxy
material to beneficial owners of shares of our common stock.
OUTSTANDING VOTING SHARES. Only stockholders of record at the close of
business on February 27, 2006, the record date for the meeting, will be entitled
to notice of and to vote at the meeting. On the record date, we had 42,198,600
shares of common stock outstanding, which are our only securities entitled to
vote at the meeting, each share being entitled to one vote.
VOTE REQUIRED FOR APPROVAL. Shares of common stock will vote with
respect to each proposal. The corporation law of the State of Nevada provides
that the Board of Directors, without stockholder approval adopt policies with
respect to the issuance of shares to acquire assets whenever reasonably expected
to benefit the Company, as proposed in Proposal One. The Board retains the
right, without stockholder approval, subject to Nevada law, to adopt policies
with respect to the issuance of stock to acquire assets, as well as for other
purposes. No such issuances are presently contemplated. While it is believed
that the policy for the issuance of shares to acquire assets set forth in
Proposal One could be put into effect without authorization by the stockholders,
the Board considered it appropriate to obtain approval of such from the
Company's stockholders.
Under our Bylaws, Proposal Two requires the affirmative vote of a
majority of the votes eligible to be voted by holders of shares represented at
the special meeting in person or by proxy. With respect to Proposal Two votes
may be cast by a stockholder in favor or against the Proposal or a stockholder
may elect to abstain. Since votes withheld and abstentions will be counted for
quorum purposes and are deemed to be present for purposes of the respective
proposals, they will have the same effect as a vote against each matter.
Under the NASD Rules of Fair Practice, brokers who hold shares in
street name have the authority, in limited circumstances, to vote on certain
items when they have not received instructions from beneficial owners. A broker
will only have such authority if (i) the broker holds the shares as executor,
administrator, guardian, trustee or in a similar representative or fiduciary
capacity with authority to vote or (ii) the broker is acting under the rules of
any national securities exchange of which the broker is also a member. Broker
abstentions or non-votes will be counted for purposes of determining the
presence or absence of a quorum at the meeting. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders, but broker
non-votes are not counted for purposes of determining whether a proposal has
been approved.
VOTING YOUR PROXY. Proxies in the accompanying form, properly executed
and received by us prior to the special meeting and not revoked, will be voted
as directed. In the absence of direction from the stockholder, properly executed
proxies received prior to the Special Meeting will be voted For Proposals One
and Two. You may revoke your proxy by giving written notice of revocation to our
Secretary at any time before it is voted, by submitting a later-dated proxy or
by attending the special meeting and voting your shares in person. Stockholders
are urged to sign and date the enclosed proxy and return it as promptly as
possible in the envelope enclosed for that purpose.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of February 27, 2006 we had 42,198,690 shares of our common stock
issued and outstanding. The following table sets forth the beneficial ownership
of our common stock as of that date, for greater than 5% shareholders,
directors, executive officers and for all directors and executive officers as a
group.
Shares of % of
Name Common Stock Class
- ---- ------------ -----
Bakhytbek Baiseitov 1,714,286(1) 4.0%
Georges Benarroch 708,487(2) 1.7%(5)
Boris Cherdabayev 3,742,857(1)(3) 8.7%(5)
Sanat Kasymov 10,000 *
Mirgali Kunayev 127,741(1) *
2
MB-Invest LLC 7,657,143(1) 17.8%
Troy Nilson -0- *
Stephen Smoot -0- *
Valery Tolkachev 100,000(4) *(5)
Toleush Tolmakov 3,180,412 7.5%
- --------------------------------------------------------------------------------
All officers and directors 12,218,487 38.3%(5)
as a group (6 persons)
- --------------------------------------------------------------------------------
TOTAL 17,240,926 40.9%(5)
- --------------------------------------------------------------------------------
* Less than 1%.
(1) MB-Invest LLC, (formerly known as BMB Munai LLC), is a Kazakhstan limited
company, in which Mr. Baiseitov holds a 33.34% interest and Messers.
Cherdabayev and Kunayev each hold 33.33% interests. Therefore, Messers.
Baiseitov, Cherdabayev and Kunayev may be deemed to be the beneficial owners
of our shares that are held by MB-Invest LLC.
(2) The shares attributed to Mr. Benarroch include: i) 390,530 shares held of
record by Credifinance Capital Corp., which are included in this
registration statement. Mr. Benarroch is the president of Credifinance
Capital Corp., and therefore may be deemed to be the beneficial owner of
those shares; ii) an immediately exercisable options to acquire 217,957
shares of our common stock held of record in the name of Credifinance
Securities, Ltd. As the CEO of Credifinance Securities, Ltd., Mr. Benarroch
may be deemed to be the beneficial owner of those shares; iii) an
immediately exercisable option to acquire 68,421 shares of our common stock
held of record by Mr. Benarroch's; and iv) 31,579 shares of common stock
held of record by Mr. Benarroch.
(3) The shares attributed to Mr. Cherdabayev include 3,332,601 shares held of
record by Mr. Cherdabayev and an immediately exercisable option to acquire
410,256 shares of our common stock.
(4) The shares attributed to Mr. Tolkachev include 31,579 shares of common stock
held of record by Mr. Tolkachev and an immediately exercisable option to
acquire 68,421 shares of our common stock.
(5) The percentages reflect the increase in the number of common shares that
would be issued in connection with the exercise of all outstanding warrants
and options.
Messers. Cherdabayev and Kasymov are officers of the Company. Mr.
Tolmakov is an officer of the Company's wholly-owned subsidiary, Emir Oil, LLC.
Messers. Benarroch, Cherdabayev, Nilson, Smoot and Tolkachev are directors of
the Company.
PROPOSAL ONE:
RATIFY THE ACQUISITIONS POLICY AND DUE DILIGENCE
PROTOCOL ADOPTED BY THE BOARD OF DIRECTORS
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All companies engaged in oil and gas exploration and production provide
value to their shareholders through the generation of cash flows from oil and
gas production and expanding reserves. While increased production activities can
increase our proved reserves, over time production activities deplete the oil
and gas reserves of our fields. Therefore, one of our continuing objectives
ought to be to explore every reasonable opportunity to expand our interests in
oil and gas concessions in Kazakhstan.
To date, we have primarily focused our efforts toward increasing our
reserves through the exploration and development of the ADE Block and
acquisition of an extended territory adjacent to the ADE block. We have
established a record of exploration drilling that will continue in the ADE block
and extended territory during the next fiscal year.
We believe that it is now an appropriate time to begin focusing
attention on the expansion of our business through the acquisition of license
rights in other concessions. It will be critical to our long-term success that
all potential acquisitions are properly evaluated and analyzed in a logical,
systematic and uniform way. We believe that adoption of an acquisitions policy
and due diligence protocol will be essential to securing fairness to the Company
in future acquisitions, including potential acquisitions from parties that may
be related to the Company.
On February 27, 2006 our Board of Directors adopted an Acquisitions
Policy and a Due Diligence Protocol (respectively, the "Policy" and "Protocol")
to guide management in the acquisition of oil and gas subsoil user licenses from
private parties in the Republic of Kazakhstan. The Acquisitions Policy that you
are being asked to ratify is set forth below and the Acquisitions Policy and Due
Diligence Protocol is attached to this Proxy Statement as Annex A. Our Board of
Directors recommends ratification of the Policy and Protocol by our
stockholders.
The Policy provides a guideline for determination of the value of a
license territory or a single structure within a license territory in two stages
that will accommodate the need for flexibility to make acquisition of either
early stage exploration territories or more developed territories. Sellers will
be paid in connection with each stage or structure, thus allowing both the
Company and the concession sellers to have reasonable assurance as to the actual
value of reserves being acquired in any licensed territory acquisition.
Initially, a potential acquisition candidate would undergo an extensive
due diligence review consistent with the Protocol to establish a clear
understanding of the license territory and the rights and obligations we would
be acquiring. Management would also gather relevant data and information to
ensure a complete understanding of external factors that could impact the value
of the concession, such as tax and financial obligations, legislative and
regulatory compliance requirements, both in Kazakhstan and the United States,
foreign corrupt practices compliance, employment issues, and potential political
and market risks.
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ACQUISITIONS POLICY
Initial Payment (Stage 1 Valuation and Acquisition Consideration). At
the time of an acquisition, we will have completed our due diligence protocols
for unproven (plus proven, as applicable) properties. The concession will be
valued under a formula that appraises the exploration acreage (generally
unproven) plus any field (generally proven) in accordance with their highest and
best use, respectively.
The formula includes, but is not limited to, the following weighted
factors: dimensions of acreage; quality of existing geological and geophysical
data; quality of existing engineering data; extent of existing oil or gas field
infrastructure; concession oil or gas field equipment and facilities, including
rolling stock; availability and quality of title evidence indicating ownership
of the concession; access to pipelines, refineries, gas processing plants, or
other relevant facilities; concession preservation costs (taxes, annual rentals,
minimum royalty payments); and debt/obligation assumption.
To the extent that unproven property is included within the concession,
the parties to the transaction, with the assistance of independent experts, as
deemed necessary by the transaction parties, shall use the standards for
valuation and apply the relevant methods, namely the sales comparison method,
the prudently-expended-cost method and the discounted net cash flow method. The
results from each appraisal method shall be reconciled in accordance with the
reliability of each result to provide an estimated market value.
To the extent that some proven property is included within the
concession at the time of acquisition, the factors discussed below in Stage 2
will be applied to the proven property. Factors will be identified, weighed, and
agreed upon in negotiations for each property. The standard methods for
valuation of the proven property will be the net present value and, where data
is available, the sales comparison method.
The net present value shall be based upon a formula that includes, but
is not limited to, the following weighted factors: oil and gas quality;
production rates; recoverable reserves; and projected cumulative recoverable
reserves as determined by an independent reserve engineer. The valuation will
result in a gross future cash flow based upon the price per barrel of oil or mcf
of gas from an agreed-upon price index gas as applied to the recoverable
reserves.
Net future cash flow is determined by deducting from gross future cash
flow, taxes and the costs of lease maintenance. Finally, the net present value
of the future cash flow will be calculated by applying a discount rate, which
preferentially has been observed from the market or, alternatively, built up
from the economics of the oil industry in the Republic of Kazakhstan as agreed
between the transaction parties or by an independent expert appointed by the
transaction parties to make such determination.
We will tender as the Initial Payment cash or stock or a combination of
cash and stock issued to the owners of the concession. To the extent shares of
our stock are used as consideration for the acquisition, the number of shares to
5
be issued will be equal to the value of the concession divided by the agreed
upon share price. The share price shall be equal to the average closing price of
our stock, as quoted on the most senior exchange or quotation medium where the
shares are quoted, for a period of time immediately preceding the acquisition
date as agreed between the parties, less a reasonable discount, if the shares
are issued without registration under the federal securities laws of the United
States, as agreed between the parties to the acquisition transaction.
Deferred Payment (Stage 2 Valuation). At the time we complete
exploration stage, present our evaluation of the structure(s) to the State
Reserves Committee of the Ministry of Energy and Mineral Resources of the
Republic of Kazakhstan and receive approval of our reserves, we will have
evaluated the concession structure or structures and will have obtained adequate
reports evaluating geophysical, geological, and reservoir data to define the
concession structure or structures and the reasonably projected areal extent and
characteristics of the reservoir and obtained from the State Reserves Committee
approval of our reserves.
Upon receipt of approval by the State Reserves Committee, we will make
the Deferred Payment based upon a formula that includes, but is not limited to,
the following weighted factors: oil and gas quality; production rates;
recoverable reserves; and projected cumulative recoverable reserves (should the
concession be expanded), as determined by an independent reserve engineer. If
the concession contains more than one structure, each structure may be
independently valued for the Deferred Payment.
The valuation will result in a gross future cash flow based upon the
price per barrel of oil or mcf of gas from an agreed upon price index gas as
applied to the recoverable reserves. From the gross future cash flow, we will
deduct the amount of the Stage 1 payment attributable to the structure or
structures, the costs of lease maintenance and we will re-evaluate taxes paid at
Stage 1 to determine whether an additional deduction for taxes is required.
Finally, the net present value of the future cash flow will be
calculated by applying a discount rate, which preferentially has been observed
from the market or, alternatively, built up from the economics of the oil
industry in the Republic of Kazakhstan, as agreed between the transaction
parties or by an independent expert appointed by the transaction parties to make
such determination..
We will then pay the Deferred Payment either in cash or stock, or a
combination of both based on net present value of the recoverable reserves. As
with Stage 1, to the extent shares of our stock are used as consideration for
the acquisition, the number of shares to be issued will be equal to the net
present value of the concession or structure divided by the agreed upon share
price. The share price shall be equal to the average closing price of our stock,
as quoted on the most senior exchange or quotation medium where the shares are
quoted, for a period of time immediately preceding the acquisition date as
agreed between the parties, less a reasonable discount, if the shares are issued
without registration under the federal securities laws of the United States, as
agreed between the parties to the acquisition transaction.
6
NO DISSENTERS' RIGHTS
No dissenters' rights are available under the Nevada Revised Statutes
or under our current or the proposed Amendment or the Bylaws to any stockholder
who dissents from this proposal.
VOTE REQUIRED
The corporation law of the State of Nevada provides that the Board of
Directors, without stockholder approval adopt policies providing guidelines to
management for the acquisition of assets reasonably expected to benefit the
Company, as proposed in Proposal One. By requesting stockholder ratification of
the Policy and Protocol, the Board is in no way relinquishing its right, without
stockholder approval, subject to Nevada law, to adopt policies and protocols
with respect to the acquisition of assets. While we are contemplating
acquisition of additional concessions, we have not entered into negotiations
with any party. While the Policy and Protocol can be put into effect without
ratification by the stockholders, the Board considers it appropriate to obtain
ratification of such.
The affirmative vote of the holders of a majority of the outstanding
shares of our common stock is required to ratification of the Acquisitions
Policy and Due Diligence Protocol.
OUR BOARD OF DIRECTORS RECOMMENDS THAT OUR STOCKHOLDERS
VOTE "FOR" PROPOSAL ONE TO RATIFY THE
ACQUISITIONS POLICY AND DUE DILIGENCE PROTOCOL
PROPOSAL TWO:
CONSIDER AND APPROVE ADOPTION OF THE AMENDMENT TO THE
ARTICLES OF INCORPORATION OF BMB MUNAI, INC.
We are proposing to amend our Articles of Incorporation to increase our
authorized capital stock from 120,000,000 shares to 520,000,000 shares. A copy
of the Amendment to the Articles of Incorporation of BMB Munai, Inc., that you
are being asked to approve, which we refer to in this Proxy Statement as the
"Amendment," is attached to this Proxy Statement as Annex B. The Board of
Directors has unanimously approved the Amendment and recommends approval and
adoption by the shareholders.
In connection with our desire to grow our business and expand our
reserves through the potential acquisition of additional oil and gas exploration
licenses, we believe that increasing our authorized capital stock is in the best
interest of the Company to ensure we have sufficient shares to negotiate
6
potential acquisitions and reduce the likelihood that we would need to again
amend our Articles of Incorporation for the purpose of increasing our authorized
capital stock, thereby avoiding the costs associated with amendments. We
currently have 120,000,000 shares of authorized capital stock consisting of
100,000,000 common shares and 20,000,0000 preferred shares. We currently have
42,198,690 common shares outstanding and no preferred shares outstanding. By
approving the Amendment, you are voting to increase our authorized common stock
by an additional 400,000,000 shares, resulting in total authorized capital stock
of 520,000,000 consisting of 500,000,000 shares of common stock with a par value
of $0.001 and 20,000,000 shares of preferred stock with a par value of $0.001.
POSSIBLE DILUTION RESULTING FROM INCREASE IN AUTHORIZED COMMON SHARES
We currently have 120,000,000 shares of authorized capital stock. By
voting in favor of Proposal Two, you are voting to increase our authorized
capital stock by an additional 400,000,000 shares for total authorized capital
stock of 520,000,000 consisting of 500,000,000 shares of common stock with a par
value of $0.001 and 20,000,000 shares of preferred stock with a par value of
$0.001. We have no present obligation to issue additional common or preferred
stock, and have not yet designated any rights, preferences, privileges or
classes for the preferred stock. Moreover, we have no present plans to issue
preferred stock. If and/or when we issue additional common stock or any of the
preferred stock in the future you could suffer substantial dilution. You would
suffer dilution in the book value of your shares if the additional capital stock
is sold at prices lower than the price at which you purchased your shares.
Moreover, if the Board of Directors in setting the rights, preferences and
privileges of the preferred stock determines to grant voting rights to the
holders of preferred stock, you could suffer dilution in the percentage of your
voting interest in Company matters. You could also suffer dilution if the Board
of Directors determines to make the preferred shares convertible into common
shares. Similarly, the Board of Directors could grant other rights to the future
holders of preferred stock that could be superior to your rights as a holder of
common stock.
The following table provides a comparison of the material changes
between the current Articles of Incorporation and the proposed Amendment.
Changes to our capital structure
Existing Proposed
Subject Article(s) Existing Provision Article(s) Proposed Provision
- ------- ---------- ------------------ ---------- ------------------
Authorized common IV The total authorized amount of III The total authorized amount of
shares common stock is 100,000,000 common stock is 500,000,000
shares, $0.001 par value per share. shares, $0.001 par value per
share.
7
PROCEDURE FOR AMENDING ARTICLES OF INCORPORATION
Provided that Proposal Two of this proxy is approved, the form of
amendment set forth in the Amendment to the Articles of Incorporation of BMB
Munai, Inc. attached hereto as Annex A will become effective upon filing with
the State of Nevada.
NO DISSENTERS' RIGHTS
No dissenters' rights are available under the Nevada Revised Statutes
or under our current or the proposed Amendment or the Bylaws to any stockholder
who dissents from this proposal.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding
shares of our common stock is required to adopt the proposed Amendment.
OUR BOARD OF DIRECTORS RECOMMENDS THAT OUR STOCKHOLDERS
VOTE "FOR" PROPOSAL TWO TO ADOPT THE
AMENDMENT TO THE ARTICLES OF INCORPORATION
OF BMB MUNAI, INC. TO INCREASE THE AUTHORIZED CAPITAL STOCK
OF THE COMPANY TO 520,000,000 SHARES
OTHER MATTERS
We know of no other matters that are to be presented for action at the
special meeting of stockholders other than those set forth above. If any other
matters properly come before the special meeting of stockholders, the persons
named in the enclosed proxy form will vote the shares represented by proxies in
accordance with their best judgment on such matters.
2006 SHAREHOLDER PROPOSALS
If you wish to include a proposal in the Proxy Statement for the 2006
Annual Meeting of Stockholders, your written proposal must be received by the
Company no later than July 15, 2006. The proposal should be mailed by certified
mail, return receipt requested, and must comply in all respects with applicable
rules and regulations of the Securities and Exchange Commission, the laws of the
State of Nevada and our Bylaws. Stockholder proposals may be mailed to the
Corporate Secretary, BMB Munai, Inc., 324 South 400 West, Suite 250, Salt Lake
City, Utah 84101.
For each matter that you wish to bring before the meeting, provide the
following information:
(a) a brief description of the business and the reason for bringing it
to the meeting;
(b) your name and record address;
8
(c) the number of shares of Company stock which you own; and
(d) any material interest (such as financial or personal interest) that
you have in the matter.
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
We file annual and quarterly reports with the Securities and Exchange
Commission. Stockholders may obtain, without charge, a copy of the most recent
Form 10-KSB (without exhibits) by requesting a copy in writing from us at the
following address:
BMB Munai, Inc.
324 South 400 West, Suite 250
Salt Lake City, Utah 84101
The exhibits to the Form 10-KSB are available upon payment of charges
that approximate reproduction costs. If you would like to request documents,
please do so by March 15, 2006, to receive them before the special meeting of
stockholders.
By order of the Board of Directors,
-----------------------------------------
Boris Cherdabayev, Chairman of the Board
March __, 2006
STOCKHOLDERS ARE REQUESTED TO MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED, SELF-ADDRESSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES. YOUR PROMPT RESPONSE WILL BE HELPFUL, AND YOUR COOPERATION
WILL BE APPRECIATED.
9
Index of Annexes attached to the Proxy Statement
ANNEX A Acquisitions Policy and Due Diligence Protocol
ANNEX B Amendment to the Article of Incorporation of Bekem Metals, Inc.
ANNEX A
BMB MUNAI, INC.
ACQUISITIONS POLICY AND DUE DILIGENCE PROTOCOL
(For Acquisition of Kazakhstani Oil & Gas Concessions)
ACQUISITIONS POLICY
Company will enter into a Purchase and Sale Agreement and applicable
supplemental agreements (collectively the "Agreement") with the acquisition of
each Licensed Territory ("Concession"). Each Agreement will provide for
valuation of the Concession in two stages. The Stage 1 valuation will commence
with due diligence to evaluate unproven and proven (if any) properties and will
result in acquisition of the Concession.
The Stage 2 valuation will result from an analysis of exploration data,
completion of exploration stage and approval of Company reserves by the State
Reserves Committee of the Ministry of Energy and Mineral Resources of the
Republic of Kazakhstan ("Approval of Reserves"). Each Agreement will provide as
consideration a first or initial payment ("Initial Payment") to be made at the
time of closing the acquisition and a second or deferred payment ("Deferred
Payment") to be made at the time the State Reserves Committee approves the
reserves. The acquisition of each Concession will stand on its own and will be
evaluated and valued on its own merits and not in relation to other Concessions
acquired by the Company.
Initial Payment (Stage 1 Valuation and Acquisition Consideration). At
the time of acquisition, Company will have completed its due diligence protocols
for unproven (plus proven, as applicable) properties. The Concession will be
valued under a formula that appraises the exploration acreage (generall
unproven) plus any field (generally proven) in accordance with their highest and
best use, respectively.
The formula includes, but is not limited to, the following weighted
factors: dimensions of acreage; quality of existing geological and geophysical
data; quality of existing engineering data; extent of existing oil or gas field
infrastructure; Concession oil or gas field equipment and facilities, including
rolling stock; availability and quality of title evidence indicating ownership
of the Concession; access to pipelines, refineries, gas processing plants, or
other relevant facilities; concession preservation costs (taxes, annual rentals,
minimum royalty payments); and debt/obligation assumption.
To the extent that unproven property is included within the Concession,
the parties to the transaction, with the assistance of independent experts, as
deemed necessary by the transaction parties, shall use the standards for
valuation and apply the relevant methods, namely the sales comparison method,
the prudently-expended-cost method and the discounted net cash flow method. The
results from each appraisal method shall be reconciled in accordance with the
reliability of each result to provide an estimated Market Value.
A-1
To the extent that some proven property is included within the
Concession at the time of acquisition, the factors discussed below in Stage 2
will be applied to the proven property. Factors will be identified, weighed, and
agreed upon in negotiations for each property. The standard methods for
valuation of the proven property will be the net present value and, where data
is available, the sales comparison method.
The net present value shall be based upon a formula that includes, but
is not limited to, the following weighted factors: oil and gas quality;
production rates; recoverable reserves; and projected cumulative recoverable
reserves as determined by an independent reserve engineer. The valuation will
result in a gross future cash flow based upon the price per barrel of oil or mcf
of gas from an agreed-upon price index gas as applied to the recoverable
reserves.
Net future cash flow is determined by deducting from gross future cash
flow, taxes and the costs of lease maintenance. Finally, the net present value
of the future cash flow will be calculated by applying a discount rate, which
preferentially has been observed from the market or, alternatively, built up
from the economics of the oil industry in the Republic of Kazakhstan as agreed
between the transaction parties or by an independent expert appointed by the
transaction parties to make such determination.
Company will tender as Initial Payment cash or stock or a combination
of cash and stock to be issued to the owners of the Concession. To the extent
shares of Company stock are used as consideration for the acquisition, the
number of shares to be issued will be equal to the value of the Concession
divided by the agreed upon share price. The share price shall be equal to the
average closing price of the Company's stock, as quoted on the most senior
exchange or quotation medium where the shares are quoted, for a period of time
immediately preceding the acquisition date as agreed between the parties, less a
reasonable discount, if the shares are issued without registration under the
federal securities laws of the United States, as agreed between the parties to
the acquisition transaction.
Deferred Payment (Stage 2 Valuation). At the time Company completes
exploration stage, presents its evaluation of the structure(s) to the State
Reserves Committee of the Ministry of Energy and Mineral Resources of the
Republic of Kazakhstan and receives approval of its reserves, Company will have
evaluated the Concession structure or structures and will have obtained adequate
reports evaluating geophysical, geological, and reservoir data to define the
Concession structure or structures and the reasonably projected areal extent and
characteristics of the reservoir and obtained from the State Reserves Committee
approval of its reserves.
Upon receipt of approval by the State Reserves Committee, Company will
make its Deferred Payment based upon a formula that includes, but is not limited
to, the following weighted factors: oil and gas quality; production rates;
recoverable reserves; and projected cumulative recoverable reserves (should the
A-2
Concession be expanded) as determined by an independent reserve engineer. If the
Concession contains more than one structure, each structure may be independently
valued for the Deferred Payment.
The valuation will result in a gross future cash flow based upon the
price per barrel of oil or mcf of gas from an agreed upon price index gas as
applied to the recoverable reserves. From the gross future cash flow, we will
deduct the amount of the Stage 1 payment attributable to each structure, the
costs of lease maintenance and we will re-evaluate taxes paid at Stage 1 to
determine whether an additional deduction for taxes is required.
Finally, the net present value of the future cash flow will be
calculated by applying a discount rate, which preferentially has been observed
from the market or, alternatively, built up from the economics of the oil
industry in the Republic of Kazakhstan, as agreed between the transaction
parties or by an independent expert appointed by the transaction parties to make
such determination..
Company will then pay the Deferred Payment either in cash or stock, or
a combination of both based on net present value of the recoverable reserves. As
with Stage 1, to the extent shares of Company stock are used as consideration
for the acquisition, the number of shares to be issued will be equal to the net
present value of the concession or structure divided by the agreed upon share
price. The share price shall be equal to the average closing price of the
Company's stock, as quoted on the most senior exchange or quotation medium where
the shares are quoted, for a period of time immediately preceding the
acquisition date as agreed between the parties, less a reasonable discount, if
the shares are issued without registration under the federal securities laws of
the United States, as agreed between the parties to the acquisition transaction.
A-3
DUE DILIGENCE PROTOCOL
This Due Diligence Protocol provides a working template (checklist) for the
acquisition of proven and unproven properties, both foreign and domestic. Some
terms and concepts may change to conform to and accommodate Kazakhstani law and
oil field and accounting practices. Due diligence contemplates compliance with
Kazakhstani law for Kazakhstani-owned concessions and applicable United States
or other applicable law for non-Kazakhstani-owned concessions.
Stage 1: Unproven Properties
o Confidentiality agreement with concessionees
o Letters of intent with concessionees
o Scientific Due Diligence.
o Existing geophysical data
o Concession geophysical data
o Public domain geophysical data
o Market geophysical data
o Existing geological data
o Concession geologic reports
o Independent geologic reports
o Geologic Literature Surveys [Inventory articles,
bulletins, professional papers, university libraries,
regulatory agencies]
o Reserve reports [if concession has proven
properties--producing wells]
o Ownership (Title) and Entity Due Diligence
o Identification of buyers
o Interest verification
o Title opinions
o Title insurance
o Concession files (data room)
o License (Concession)
o Rights-of-way
o Easements
o Surface access
A-4
o Gas Purchase Agreements
o Crude Oil Purchase Agreements
o Vendor contacts
o Other permits and licenses
o Consents to assign
o Preferential rights to purchase
o Reversionary interest
o Title encumbrances [mortgages, liens,
materialmen's and mechanics' liens)
o Lease Preservation Issues
o Production histories for proven properties
o Identify shut-in royalty review
o Identify concession rentals
o Identify minimum royalty review
o Production and marketing issues [for proven
properties]
o Accounting/Finance Issues
o Review proper and timely payment of
royalties, minimum royalties, rentals, or
other lease preservation fees
o Review proper and timely payment of ad
valorem, severance, and other taxes
o Identify open AFE's
o Other Considerations
o Pending litigation
o Threatened litigation
o Review seismic, software, and equipment
licenses for restrictions on transfer and
use of confidentiality provisions
o Tax Considerations [see Tax Opinion]
o Operational Considerations
o Right to operate
o Regulatory bonding requirements
o Insurance issues
o Drilling commitments
o Licensing requirements
o Environmental Review
A-5
o Labor and Employment Issues
o Concessionee Charter Documents Review (if company is acquired)
o Certificates of incorporation or Kazakhstani
equivalents
o By-laws or Kazakhstani equivalents
o Minutes stock books or Kazakhstani equivalents
o Certificates of Good Standing or Kazakhstani
equivalents
o Partnership or joint venture agreements
o Review Capitalization of Stockholders (as appropriate)
o Cross-check target/parent-supplied list of
shareholders against stock certificate books
o Confirm existence of pre-emptive rights
o Confirm status of shareholders (attorneys-in-fact,
minors, trustees, etc.)
o Review trust agreements or other agreements for
shares held in fiduciary capacity
o Review ESOP, stock bonus, or other agreements to
issue shares
o Obtain auditors' letters regarding shares and
internal audit procedures
o Review outstanding stock certificates or Kazakgstani
equivalents
o Review Stock Authorization Issues
o Review specific authorizing resolutions
o Consider stockholder approval issues
o Confirm fiduciary or entity powers to approve
o Determine existence of voting trusts, outstanding
proxies, or agreements
o Review Financial Statements
o Obtain past five years' consolidated and
consolidating financial statements with access to
auditors and work papers
o Obtain most recent unaudited statements and
comparable statements for prior year
o Obtain projection statements
o Review auditor's letters to management for five years
o Arrange for review by Company auditors
o Review status of accounts receivable
o Secure credit reports
o Review internal audit reports
A-6
o If Concessionee is U.S. Company
o Foreign Corrupt Practices Act Issues
o Anti-bribery prohibition with respect to
foreign officials to obtain or retain
business or secure improper advantage
o Facilitating payments exception--routine,
non-discretionary governmental action
o Hart-Scott-Rodino Act Compliances (foreign
acquisitions)
o U.S. Treasury Department Office of Foreign
Assets Control (OFAC)
o General concerns in Foreign Acquisitions
o Investigate local bank use requirements
o Investigate restrictions on currency for
local investments
o Investigate restrictions on repatriation of
cash
o Assess devaluation risk
o Investigate limitations on ownership of
property
o Assess expropriation risk
o Assess change of law/regime issues
o Investigate availability of political risk
insurance
o Investigate dispute resolution issues
o Investigate labor/employment issues
o Import/export issues
o Financial Structure (Exploration Phase)
o Cash and/or stock for unproven acreage based upon net
present value of unproven properties (use customary
net present value factors for assessing market value
in area)
o Acreage factor
o Quality of geophysical data factor
o Quality of geology factor
o Existing equipment factor
o Title verification factor
o 80%-20% factor (typically a producing
properties factor)
o Access to pipelines, refinery, gas
processing plants, transportation lines
factor
o Concession preservation factor
o Debt/obligation assumption factor
A-7
o Note: triggering mechanism is closing on
Purchase and Sale Agreement
o Provide for deferred payment and/or stock for second
stage (see Stage 2)
Stage 2: Proven Properties (Post Discovery Phase)
o Due Diligence
o Geophysical
o Drilled well data
o Producing well data
o Engineering reports
o Reserve reports (material balance or volumetric
calculations)
o Establish allocation factors (acreage, net pay,
hydrocarbon pore space, hydrocarbon volume, or
combination of some or all factors)
o Deferred payment structure (factors for issuance of additional
stock)
o Oil quality
o Initial recoverable reserves contributed (Initial
reserves)
o Cumulative reserves (after-acquired property reserves
committed by concessionees)
o Allocation factors
o Note: Each structure may be evaluated independently
and the deferred payment made based upon the
structure valuation, as applicable
o Triggering mechanism: Completion of exploration
stage, presentation of Company's evaluation of the
structure(s) to the State Reserves Committee of the
Ministry of Energy and Mineral Resources of the
Republic of Kazakhstan and receipt of approval of
reserves.
A-8
ANNEX B
AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF
BMB MUNAI, INC.
BMB Munai, Inc. a corporation organized under the laws of the State of
Nevada, on November 30, 2004, hereby adopts the following Amendment to its
Articles of Incorporation pursuant to the provisions of Chapter 78 of Nevada
Revised Statutes (the "Statute"), Sections 78.385 and 78.390.
I
The first paragraph of Article III of the Articles of Incorporation of
BMB Munai, Inc. shall be amended to read as follows:
ARTICLE IV
CAPITAL STOCK
The total number of shares of stock of all classes which the
Corporation has authority to issue 520,000,000 shares, divided into 500,000,000
shares of Common Stock, par value $0.001 per share (herein called the "Common
Stock") and 20,000,000 shares of Preferred Stock, par value $0.001 per share
(herein called "Preferred Stock").
II
The date of the adoption of the foregoing amendments by a duly
constititued quorum of the shareholders was March 27, 2006. The number of shares
outstanding in the Corporation and entitled to vote on the amendment was
42,198,600. All stock in the Corporation is entitled to one vote per share for
each matter coming before the special meeting of the shareholders. The number of
shares that voted in favor of the amendment was ___________. The number of
shares that voted against the above amendments was ____________.
IN WITNESS HEREOF, this Amendment to the Articles of Incorporation have
been executed on this __ day of March, 2007.
By: ___________________________
Adam R. Cook, Secretary
STATE OF UTAH )
:ss.
COUNTY OF SALT LAKE )
On the ____ day of March, 2006, personally appeared before me, a Notary
Public, Adam R. Cook, who acknowledged that he is the Secretary of BMB Munai,
Inc. and that they are authorized to and did execute the above instrument.
_________________________________
Notary Public My Commission Expires: _____________
B-2
Proxy - BMB Munai, Inc.
Special Meeting of Stockholders - March 27, 2006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Boris Cherdabayev and Adam Cook, severally, as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all of the
shares of Common Stock of BMB MUNAI, INC., of record in the name of the
undersigned at the close of business on February 27, 2006, which the undersigned
is entitled to vote at the 2006 Special Meeting of Stockholders of the Company
and at any and all adjournments thereof, with respect to the matters set forth
on the reverse side and described in the Notice of Special Meeting and Proxy
Statement dated March __, 2006, receipt of which is acknowledged.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder(s). IF NO INDICATION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 and 2.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
POSTAGE PRE-PAID ENVELOPE.
(Please See Reverse Side)
[Name and address of shareholder] [ ] Mark this box with an X if you
have made changes to your name or
___________________________________ address details above.
Special Meeting Proxy Card
The Board of Directors recommends a vote FOR the following proposals.
For Against Abstain
1. RATIFICATION OF THE ACQUISITIONS POLICY AND DUE
DILIGENCE PROTOCOL. [ ] [ ] [ ]
2. APPROVAL OF THE AMENDMENT TO THE ARTICLES OF
INCORPORATION OF THE COMPANY TO INCREASE ITS
AUTHORIZED COMMON STOCK TO 500,000,000 SHARES [ ] [ ] [ ]
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED
TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY AND ALL
ADJOURNMENTS THEREOF. [ ] [ ] [ ]
[C] Authorized Signatures - Sign Here - This section must be completed for your
instructions to be executed.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as an attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Signature 1 Signature 2 Date (mm/dd/yyyy)
______________________________ __________________________ / / 2005