As filed with the Securities and Exchange Commission on May 6 2004
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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CANARGO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 91-0881481
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. BOX 291, ST PETER PORT
GUERNSEY, GY1 3RR, BRITISH ISLES
+(44) 1481 729 980
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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DR. DAVID ROBSON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
P.O. BOX 291, ST PETER PORT
GUERNSEY, GY1 3RR, BRITISH ISLES
+(44) 1481 729 980
(Name, address, including zip code, and telephone number,
including area code of agent for service)
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Please forward a copy of all correspondence to:
PETER A. BASILEVSKY, ESQ.
SATTERLEE STEPHENS BURKE & BURKE LLP
11TH FLOOR, 230 PARK AVENUE
NEW YORK, NY 10169
(212) 818-9200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE PER SHARE (2) OFFERING PRICE (2) FEE (2)
- --------------------------- -------------- ------------------- ------------------ ------------
Common stock, $0.10 par value 35,880,799 $0.675 $24,219,539 $3,069
(1) In the event of a stock split, stock dividend or similar transaction
involving the shares of common stock, in order to prevent dilution, the
number of shares registered shall be automatically increased to cover
the additional shares in accordance with Rule 416 under the Securities
Act of 1933.
(2) Estimated solely for the purpose of calculating the registration fee;
computed in accordance with Rule 457(c) on the basis of the average of
the high and low price for the Common Stock as reported on the American
Stock Exchange on May 04, 2004, which was US$0.675 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
********************************************************************************
SUBJECT TO COMPLETION
DATED MAY 6, 2004.
PROSPECTUS
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CANARGO ENERGY CORPORATION
[CANARGO ENERGY CORPORATION LOGO]
35,880,799 SHARES OF COMMON STOCK
This prospectus relates to the resale from time to time in one or more
transactions of up to 35,880,799 shares of common stock of CanArgo Energy
Corporation ("CanArgo") by certain of our stockholders who received or have the
right to receive their shares in private placements in connection with certain
completed corporate transactions. Please refer to "Selling Stockholders"
beginning on page 15.
The prices at which the selling stockholders may sell their shares in this
offering will be determined by the prevailing market price for the shares or in
negotiated transactions. We will not receive the proceeds from the sale of the
shares; however, we will receive proceeds from the sale of common stock under a
certain Standby Equity Distribution Agreement dated as of February 11, 2004 with
Cornell Capital Partners, L.P. ("Equity Line of Credit"). All expenses of
registration of the shares which may be offered hereby under the Securities Act
of 1933, as amended ("Securities Act") will be paid by us (other than
underwriting discounts and selling commissions, and fees and expenses of
advisors to any of the selling stockholders). See "Plan of Distribution" at
page 21.
Our common stock is traded on the American Stock Exchange under the symbol
"CNR". On April 21, 2004, the closing sale price of our common stock on The
American Stock Exchange was US$0.96 per share. Our common stock is also traded
on the Oslo Stock Exchange in Norway (Symbol: "CNR.OL").
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SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT THE RISKS YOU SHOULD
CONSIDER CAREFULLY BEFORE BUYING SHARES OF OUR COMMON STOCK
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Cornell Capital Partners, L.P. is an "underwriter" within the meaning of the
Securities Act in connection with the sale of common stock under the Equity Line
of Credit. Cornell Capital Partners, L.P. will pay a net purchase price of 97%
of our market price as calculated in the Equity Line of Credit agreement. With
the exception of Cornell Capital Partners, L.P., no other underwriter or person
has been engaged to facilitate the sale of shares of common stock in this
offering.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is May o, 2004
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TABLE OF CONTENTS
PROSPECTUS 1
PROSPECTUS SUMMARY 3
ABOUT CANARGO 3
THE OFFERING 4
RECENT DEVELOPMENTS 5
RISK FACTORS 7
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 14
USE OF PROCEEDS 15
THE SELLING STOCKHOLDERS 15
EQUITY LINE OF CREDIT 18
LIMITATION OF LIABILITY AND INDEMNIFICATION 20
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW 21
PLAN OF DISTRIBUTION 21
LEGAL MATTERS 24
EXPERTS 24
WHERE YOU CAN FIND MORE INFORMATION 24
DOCUMENTS INCORPORATED BY REFERENCE 24
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PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus and the information incorporated
by reference herein carefully, including the "Risk Factors" section.
ABOUT CANARGO
Unless the context requires otherwise, the references to "we", "us", "our", the
"Company", or "CanArgo" refer collectively to CanArgo Energy Corporation and its
subsidiaries.
CanArgo is an independent oil and gas exploration and production company
headquartered in St Peter Port, Guernsey, British Isles operating in countries
that are part of the former Soviet Union. We operate and carry out our
activities as a holding company through a number of subsidiaries and associated
companies. These companies are generally focused on one of our projects, and
this structure assists in maintaining separate cost centers for these different
projects.
Our principal activities are oil and gas exploration, development and
production, principally in the Republic of Georgia, and to a lesser extent in
Kazakhstan. We direct most of our efforts and resources to the development of
the Ninotsminda Field and our exploration program, both located in Georgia. As
we own certain drilling rigs and equipment, we also have a secondary interest in
the provision of oilfield services to third parties in the oil and gas industry,
principally in Georgia. In 2003, 97.2% of our total revenues were from oil and
gas sales and 2.8% from oilfield services. Our management and technical staff
have substantial experience in our areas of operation. Our principal product is
crude oil, and the sale of crude oil is our principal source of revenue.
Our oil and natural gas reserves and production have been derived principally
through development of the Ninotsminda Field. We typically focus on properties
that either offer us existing production as well as additional exploitation
opportunities, or exploration prospects which management believes have
significant potential. We believe that our cash flow at current oil prices and
current rates of production from operations and our financial resources
including the receipt of proceeds from the sale of certain non-core
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assets will provide us with the ability to complete our near term development
program on the Ninotsminda Field, while our current exploration drilling program
in Georgia is being funded by third parties.
Our business strategy is focused on the following:
Further Development of Existing Properties
We intend to further develop our properties that have established oil and gas
resources. We seek to add proved reserves and increase production through the
use of advanced technologies, including detailed technical analysis of our
properties, horizontal drilling using under-balanced coiled tubing drilling,
multilateral drilling, drilling new structures from existing locations and
selectively recompleting existing wells. We also plan to drill step-out wells to
expand known field limits.
Growth Through Exploitation and Exploration
We conduct an active technology-driven exploitation and exploration program that
is designed to complement our property acquisition and development drilling
efforts with moderate to high-risk exploration projects that have greater
reserve potential. We generate exploration prospects through the analysis and
integration of geological and geophysical data and the interpretation of seismic
data. We intend to manage our exploration expenditures through the optimal
scheduling of our drilling program and, if considered appropriate, selectively
reducing our participation in certain exploratory prospects through sales of
interests to industry partners.
Pursuit of Strategic Acquisitions
We continually review opportunities to acquire producing properties, leasehold
acreage and drilling prospects and seek to acquire operational control of
properties that we believe have significant exploitation and exploration
potential. We are especially focused on increasing our holdings in fields and
basins from which we leverage existing infrastructure and resources.
For the year ended December 31, 2003, we generated revenues in the amount of
approximately US$8,105,000 and a net loss of approximately US$7,322,000. All of
our proven oil and gas reserves are attributable to the Ninotsminda Field
located in the Republic of Georgia which, as of January 1, 2004 amounted to
approximately 6.762 million barrels of oil and 2.985 billion cubic feet of gas
of which approximately 4.395 million barrels of oil and 1.941 cubic feet of gas
accrue to the benefit of our operating subsidiary, the Ninotsminda Oil Company
Limited under the Production Sharing Contract for the Ninotsminda Field, after
deduction of the State Oil Company's share, which includes all Georgian taxes,
levies and duties. These Production Sharing Contract volumes accrue to our
benefit for the recovery of capital, repayment of operating costs and our share
of profit from operations. For a discussion in greater detail of our business
including our reserves and our interests in undeveloped acreage as of the end of
our fiscal year ended December 31, 2003, our drilling results and the financial
results of operations for our last fiscal year, you should read our Annual
Report on Form 10-K for the fiscal year ended December 31, 2003 as filed with
the SEC, which is incorporated by reference herein. See " Where You Can Obtain
Additional Information" below.
Our address is P.O. Box 291, St Peter Port, Guernsey, GY1 3RR, British Isles,
and our telephone number is +(44) 1481 729 980.
THE OFFERING
COMMON STOCK OFFERED BY
SELLING STOCKHOLDERS............... Up to 35,880,799 shares based on current
market prices. This number represents
approximately 31.58% of our current
outstanding stock and includes 23,000,000
shares of common stock to be issued under
the Equity Line of Credit agreement,
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425,000 shares of common stock issued, and a
further 425,000 shares of common stock to be
issued to Cornell Capital Partners, L.P. in
connection with the Equity Line of Credit
agreement, 30,799 shares of common stock to
be issued to our placement agent in
connection with the Equity Line of Credit
and 12,000,000 shares of common stock issued
in connection with certain acquisition
transactions. In the event that we draw down
US$600,000 under the equity line, which is
the maximum permitted advance within a six
day period, we would be required to issue
582,524 shares of common stock on April 20,
2004, based on the lowest volume weighted
average price of US$1.03 as reported on the
Oslo Stock Exchange on that date.
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING................ Up to 149,494,304 shares.
USE OF PROCEEDS................... Except for the proceeds from the sale of our
common stock pursuant to the Equity Line of
Credit, we will not receive any proceeds
from the sale of the common stock. See "Use
of Proceeds" and "Equity Line of Credit" for
a complete description.
THE AMERICAN STOCK
EXCHANGE SYMBOL................... CNR
The above information is based on 113,613,505 shares of common stock outstanding
as of April 21, 2004.
RECENT DEVELOPMENTS
In February 2004 we announced that we had obtained State regulatory approval to
an agreement to obtain 50% of the Contractor's interest in Block XIB (Samgori)
Production Sharing Contract (the "Samgori PSC") in the Republic of Georgia and a
50% controlling interest in the license holder and operating company for Block
XIB covering the Samgori Oil Field from Georgian Oil Samgori Limited. Georgian
Oil Samgori Limited is a wholly owned subsidiary of the State Oil Company,
Georgian Oil. The other conditions contained in the agreement were satisfied on
April 16, 2004 and on April 19, 2004 we announced that we had completed the
acquisition.
Upon completion of the acquisition we had a contractual obligation to issue 4
million shares of CanArgo Common Stock to Europa Oil Services Limited
("Europa"), an unaffiliated British Virgin Islands company in connection with a
consultancy agreement with Europa in relating to this acquisition. On April 16,
2004 Europa was issued with 4 million restricted shares of CanArgo common stock
in an arms length transaction. A further 12 million shares of CanArgo Common
Stock are issuable upon certain production targets being met from future
developments under the Samgori PSC.
On April 21, 2004, the common stock began trading on The American Stock Exchange
under the symbol "CNR".
5
EQUITY LINE OF CREDIT
On February 11, 2004, we entered into an Equity Line of Credit with Cornell
Capital Partners, L.P. Pursuant to the Equity Line of Credit, we may, at our
discretion, periodically sell to Cornell Capital Partners, L.P. shares of common
stock for a total purchase price of up to US$20,000,000. For each share of
common stock purchased under the Equity Line of Credit, Cornell Capital
Partners, L.P. will pay 97% of the lowest volume weighted closing bid price of
our common stock on the Oslo Stock Exchange or other principal market on which
our common stock is traded for the five days immediately following the notice
date. Cornell Capital Partners, L.P. is a private limited partnership whose
business operations are conducted through its general partner, Yorkville
Advisors, LLC. Further, we have agreed to pay Cornell Capital Partners, L.P. 5%
of the proceeds that we receive under the Equity Line of Credit. In addition, we
engaged Newbridge Securities Corporation, a registered broker-dealer, to advise
us and to act as our exclusive placement agent in connection with the Equity
Line of Credit pursuant to the Placement Agent Agreement dated February 11,
2004. For its services, Newbridge Securities Corporation received 30,799
restricted shares of our common stock. See "Equity Line of Credit" below for
further details.
6
RISK FACTORS
An investment in our common stock is subject to significant risks and
uncertainties which may result in a loss of all or a part of your investment.
You should carefully consider the risks described below, as well as all other
information contained or incorporated by reference in this prospectus and any
applicable prospectus supplements, before investing in our common stock. The
risks described below are not the only ones facing the Company. Additional risks
not presently known to us or that we currently deem immaterial may also impair
our business operations and adversely affect the price of our shares.
CURRENT OPERATIONS DEPENDENT ON SUCCESS OF THE NINOTSMINDA FIELD AND
GEORGIAN EXPLORATION
We have directed substantially all of our efforts and most of our available
funds to the development of the Ninotsminda Field in the Republic of Georgia,
exploration in that area and some ancillary activities closely related to the
Ninotsminda Field project. This decision is based on management's assessment of
the promise of the Ninotsminda Field area. However, our focus on the Ninotsminda
Field has over the past several years resulted in overall losses for us and we
only achieved profitability in the last quarter of 2003. We cannot assure
investors that the exploration and development plans for the Ninotsminda Field
will be successful. For example, the Ninotsminda Field may not produce
sufficient quantities of oil and gas to justify the investment we have made and
are planning to make in the Field, and we may not be able to produce the oil and
gas at a sufficiently low cost or to market the oil and gas produced at a
sufficiently high price to generate a positive cash flow and a profit. Our
subsidiary, Ninotsminda Oil Company Limited, through which we are developing the
Ninotsminda Field, has also entered into certain short term supply and purchase
agreements for natural gas production from the Ninotsminda Field on a fixed
price basis. Our Georgian exploration program is an important factor for future
success, and this program may not be successful, as it carries substantial risk.
See "Oil and Gas Activities Involve Risks, many of which are Beyond Our Control"
at page 8 for a description of these risks.
ADDITIONAL FUNDS NEEDED FOR LONG-TERM OIL AND GAS DEVELOPMENT PLANS
It will take many years and substantial cash expenditures to develop fully our
oil and gas properties. We generally have the principal responsibility to
provide financing for our oil and gas properties and ventures. Accordingly, we
may need to raise additional funds from outside sources in order to pay for
project development costs. We may not be able to obtain that additional
financing. If adequate funds are not available, we will be required to scale
back or even suspend our operations or such funds may only be available on
commercially unattractive terms. The carrying value of the Ninotsminda Field may
not be realized unless additional capital expenditures are incurred to develop
the Field. Furthermore, additional funds will be required to pursue exploration
activities on our existing undeveloped properties. While expected to be
substantial, without further exploration work and evaluation the amount of funds
needed to fully develop all of our oil and gas properties cannot at present be
quantified.
POSSIBLE INABILITY TO FINANCE PRESENT OIL AND GAS PROJECTS
Our ability to finance most of our present oil and gas projects and other
ventures according to present plans is dependent upon obtaining additional
funding. An inability to obtain financing could require us to scale back or
abandon part or all of our project development, capital expenditure, production
and other plans. The availability of equity or debt financing to us or to the
entities that are developing projects in which we have interests is affected by
many factors, including:
o world and regional economic conditions;
o the state of international relations;
o the stability and the legal, regulatory, fiscal and tax policies of various
governments in areas in which we have or intend to have operations;
o fluctuations in the world and regional price of oil and gas and in interest
rates;
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o the outlook for the oil and gas industry in general and in areas in which
we have or intend to have operations; and
o competition for funds from possible alternative investment projects.
Potential investors and lenders will be influenced by their evaluations of our
projects, including their technical difficulty, in comparison with available
alternative investment opportunities.
WRITE OFF OF UNSUCCESSFUL PROPERTIES AND PROJECTS
In order to realize the carrying value of our oil and gas properties and
ventures, we must produce oil and gas in sufficient quantities and then sell
such oil and gas at sufficient prices to produce a profit. We have a number of
unevaluated oil and gas properties. The risks associated with successfully
developing unevaluated oil and gas properties are even greater than those
associated with successfully continuing development of producing oil and gas
properties, since the existence and extent of commercial quantities of oil and
gas in unevaluated properties have not been established. We could be required in
the future to write off our investments in additional projects, including the
Ninotsminda Field project, if such projects prove to be unsuccessful.
OIL AND GAS ACTIVITIES INVOLVE RISKS, MANY OF WHICH ARE BEYOND OUR CONTROL
Our exploration, development and production activities are subject to a number
of factors and risks, many of which may be beyond our control. We must first
successfully identify commercial quantities of oil and gas, which is inherently
subject to many uncertainties. Thereafter, the development of an oil and gas
deposit can be affected by a number of factors which are beyond the operator's
control, such as:
o unexpected or unusual geological conditions;
o the recoverability of the oil and gas on an economic basis;
o the availability of infrastructure and personnel to support operations;
o local and global oil prices; and
o government regulation and legal and political uncertainties.
Our activities can also be affected by a number of hazards, such as:
o labor disputes;
o natural phenomena, such as bad weather and earthquakes;
o operating hazards, such as fires, explosions, blow-outs, pipe failures and
casing collapses; and
o environmental hazards, such as oil spills, gas leaks, ruptures and
discharges of toxic gases.
Any of these hazards could result in damage, losses or liability for us. There
is also an increased risk of some of these hazards in connection with operations
that involve the rehabilitation of fields where less than optimal practices and
technology were employed in the past, as was often the case in the countries
that comprise the former Soviet Union. We do not purchase insurance covering all
of the risks and hazards that are involved in oil and gas exploration,
development and production.
RISK OF POLITICAL INSTABILITY AND TERRORISM WITH RESPECT TO FOREIGN OPERATIONS
Our principal oil and gas properties and activities are in the Republic of
Georgia, which is located in the former Soviet Union. Operation and development
of these assets is subject to a number of conditions endemic to former Soviet
Union countries, including political instability. The present governmental
arrangements in countries of the former Soviet Union in which we operate were
established relatively recently, when they replaced communist regimes. If they
fail to maintain the support of their citizens, other institutions, including a
possible reversion to totalitarian forms of government, could replace these
governments. Our operations typically involve joint ventures or other
participatory arrangements with the national government or state-owned
companies.
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The production sharing contract covering the Ninotsminda Field is an example of
such arrangements. As a result of such dependency on government participants,
our operations could be adversely affected by political instability, terrorism,
changes in government institutions, personnel, policies or legislation, or
shifts in political power. There is also the risk that governments could seek to
nationalize, expropriate or otherwise take over our oil and gas properties
either directly or through the enactment of laws and regulations which have an
economically confiscatory result. We are not insured against political or
terrorism risks because management deems the premium costs of such insurance to
be currently prohibitively expensive.
RISK OF SOCIAL, ECONOMIC AND LEGAL INSTABILITY
The political institutions of the countries of the former Soviet Union have
recently become more fragmented, and the economic institutions of these
countries have recently converted to a market economy from a planned economy.
New laws have recently been introduced, and the legal and regulatory regimes in
such regions are often vague, containing gaps and inconsistencies, and are
constantly subject to amendment. Application and enforceability of these laws
may also vary widely from region to region within these countries. Due to this
instability, former Soviet Union countries are subject to certain additional
risks including the uncertainty as to the enforceability of contracts.
In early 2002, the Georgian government requested assistance from the United
States to combat terrorism in the Pankisi Gorge, a region of Georgia bordering
the separatist Chechnya region of Russia. Social, economic and legal instability
have accompanied these changes due to many factors which include:
o low standards of living;
o high unemployment;
o undeveloped and constantly changing legal and social institutions; and
o conflicts within and with neighboring countries.
This instability could make continued operations difficult or impossible.
Recently Georgia has democratically elected a new President following a popular
revolt against the previous administration in November 2003. Although the new
administration has made public statements supporting foreign investment in
Georgia, and specific written support for our activities, there can be no
guarantee that this will continue, or that these changes will not have an
adverse affect on our operations. There are also some separatist areas within
Georgia that may cause instability.
TITLE TO PROPERTIES
Since all of the Company's oil and gas interests are currently held in countries
where there is no private ownership of oil and gas in place, good title to the
Company's interests is dependent on the validity and enforceability of the
governmental licenses and production sharing contracts and similar contractual
arrangements that the Company enters into with government entities, either
directly or indirectly. As is customary in such circumstances, the Company
performs a minimal title investigation before acquiring its interests, which
generally consists of conducting due diligence reviews and in certain
circumstances securing written assurances from responsible government
authorities or legal opinions. The Company believes that it has satisfactory
title to such interests in accordance with standards generally accepted in the
crude oil and natural gas industry in the areas in which it operates. The
Company's interests in properties are subject to royalty interests, liens
incident to operating agreements, liens for current taxes and other burdens,
none of which the Company believes materially interferes with the use of, or
affects the value of, such interests. However, as is discussed elsewhere, there
is no assurance that Company's title to its interests will be enforceable in all
circumstances due to the uncertain nature and predictability of the legal
systems in some of the countries in which the Company operates.
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INADEQUATE OR DETERIORATING INFRASTRUCTURE IN THE FORMER SOVIET UNION.
Countries in the former Soviet Union often either have underdeveloped
infrastructures or, as a result of shortages of resources, have permitted
infrastructure improvements to deteriorate. The lack of necessary infrastructure
improvements can adversely affect operations. For example, the lack of a
reliable power supply caused Ninotsminda Oil Company Limited to suspend drilling
of one well and the testing of a second well during the 1998-1999 winter season,
although the availability of electrical power supplies has been more regular
since that time.
CURRENCY RISKS IN FORMER SOVIET UNION COUNTRIES
Payment for oil and gas products sold in former Soviet Union countries may be in
local currencies. Although we currently sell our oil principally for U.S.
dollars, we may not be able to continue to demand payment in hard currencies in
the future. Although most former Soviet Union country currencies are presently
convertible into U.S. dollars, there is no assurance that convertibility will
continue. Even if currencies are convertible, the rate at which they convert
into U.S. dollars is subject to fluctuation. In addition, the ability to
transfer currencies into or out of former Soviet Union countries may be
restricted or limited in the future.
We may enter into contracts with suppliers in former Soviet Union countries to
purchase goods and services in U.S. dollars. We may also obtain from lenders
credit facilities or other debt denominated in U.S. dollars. If we cannot
receive payment for oil and oil products in U.S. dollars and the value of the
local currency relative to the U.S. dollar deteriorates, we could face
significant negative changes in working capital.
TAX RISKS IN FORMER SOVIET UNION COUNTRIES
Countries in the former Soviet Union frequently add to or amend existing
taxation policies in reaction to economic conditions including state budgetary
and revenue shortfalls. Since we are dependent on international operations,
specifically those in Georgia, we are subject to changing taxation policies
including the possible imposition of confiscatory excess profits, production,
remittance, export and other taxes. While we are not aware of any recent or
proposed tax changes which could materially adversely affect our operations,
such changes could occur although we have negotiated economic stabilization
clauses in our production sharing contracts in Georgia and all current taxes are
payable from the State's share of petroleum produced under the production
sharing contracts.
CONFLICTING INTERESTS WITH OUR PARTNERS
Joint venture, acquisition, financing and other agreements and arrangements must
be negotiated with independent third parties and, in some cases, must be
approved by governmental agencies. These third parties generally have objectives
and interests that may not coincide with ours and may conflict with our
interests. Unless we are able to compromise these conflicting objectives and
interests in a mutually acceptable manner, agreements and arrangements with
these third parties will not be consummated.
We may not have a majority of the equity in the entity that is the licensed
developer of some projects, that we may pursue in the countries that comprise
the former Soviet Union, even though we may be the designated operator of the
oil or gas field. In these circumstances, the concurrence of co-ventures may be
required for various actions. Other parties influencing the timing of events may
have priorities that differ from ours, even if they generally share our
objectives. Demands by or expectations of governments, co-venturers, customers,
and others may affect our strategy regarding the various projects. Failure to
meet such demand or expectations could adversely affect our participation in
such projects or our ability to obtain or maintain necessary licenses and other
approvals.
Demand by or expectations of governments, co-venturers, customers and others may
affect our strategy regarding the various projects. Failure to meet such demands
or expectations could adversely affect our participation in such projects or our
ability to obtain or maintain necessary licenses and other approvals.
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GOVERNMENTAL REGISTRATION
Operating entities in various foreign jurisdictions must be registered by
governmental agencies, and production licenses for development of oil and gas
fields in various foreign jurisdictions must be granted by governmental
agencies. These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and matters. In addition,
the policies and practices of governmental agencies may be affected or altered
by political, economic and other events occurring either within their own
countries or in a broader international context.
CHANGES IN THE MARKET PRICE OF OIL AND GAS
Prices for oil and natural gas and their refined products are subject to wide
fluctuations in response to a number of factors which are beyond our control,
including:
o global changes in the supply and demand for oil and natural gas;
o actions of the Organization of Petroleum Exporting Countries;
o weather conditions;
o domestic and foreign governmental regulations;
o the price and availability of alternative fuels;
o political conditions and terrorist activity in the Middle East and
elsewhere; and
o overall global and regional economic conditions.
A reduction in oil prices can affect the economic viability of our operations.
There can be no assurance that oil prices will be at a level that will enable us
to operate at a profit. While crude oil produced by Ninotsminda Oil Company
Limited is sold close to the well head on the basis of world market prices
(price based on the average of a number of quotations for a "marker" crude
including Dated Brent Mediterranean or Urals Mediterranean at the time of sale)
it is subject to an appropriate discount for transportation and other charges
which can vary from contract to contract. Sales in 2003 were at an average
discount of $7.70 to the price of Brent crude oil as quoted in the Platts Crude
Oil Marketwire for Dated Brent Mediterranean compared to an average discount to
the Brent price of $5.09 and $6.29 for sales in 2002 and 2001, respectively. The
higher discount in 2003 was mainly due to significant upfront security payments
being made by the buyer to Ninotsminda Oil Company Limited.
OIL AND GAS PRODUCTION COULD VARY SIGNIFICANTLY FROM RESERVE ESTIMATES
Estimates of oil and natural gas reserves and their values by petroleum
engineers are inherently uncertain. These estimates are based on professional
judgments about a number of elements:
o the amount of recoverable crude oil and natural gas present in a reservoir;
o the costs that will be incurred to produce the crude oil and natural gas;
and
o the rate at which production will occur.
Reserve estimates are also based on evaluations of geological, engineering,
production and economic data. The data can change over time due to, among other
things:
o additional development activity;
o evolving production history; and
o changes in production costs, market prices and economic conditions.
As a result, the actual amount, cost and rate of production of oil and gas
reserves and the revenues derived from sale of the oil and gas produced in the
future will vary from those anticipated in the most recent report on the oil and
gas reserves prepared by Oilfield Production Consultants (OPC), independent
petroleum consultants, as of January 1, 2004. The magnitude of those variations
may be material.
11
The rate of production from crude oil and natural gas properties declines as
reserves are depleted. Except to the extent we acquire additional properties
containing proved reserves, conduct successful exploration and development
activities or, through engineering studies, identify additional productive zones
in existing wells or secondary recovery reserves, our proved reserves will
decline as reserves are produced. Future crude oil and natural gas production is
therefore highly dependent upon our level of success in replacing depleted
reserves.
OIL AND GAS OPERATIONS ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION
Governments at all levels, national, regional and local, regulate oil and gas
activities extensively. We must comply with laws and regulations which govern
many aspects of our oil and gas business, including:
o exploration;
o development;
o production;
o refining;
o marketing;
o transportation;
o occupational health and safety;
o labor standards; and
o environmental matters.
We expect the trend towards more burdensome regulation of our business to result
in increased costs and operational delays. This trend is particularly applicable
in developing economies, such as those in the former Soviet Union where we have
our principal operations. In these countries, the evolution towards a more
developed economy is often accompanied by a move towards the more burdensome
regulations that typically exist in more developed economies.
COMPETITION
The oil and gas industry including the refining and marketing of crude oil
products is highly competitive. Our competitors include integrated oil and gas
companies, government owned oil companies, independent oil and gas companies,
drilling and income programs, and individuals. Many of our competitors are
large, well-established, well-financed companies. Because of our small size and
lack of financial resources, we may not be able to compete effectively with
these companies.
OPERATIONS ARE DEPENDENT ON CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE
Dr David Robson, the Chairman of the Board, President and Chief Executive
Officer of CanArgo, is our executive who has the most experience in the oil and
gas industry and who has the most extensive business relationships in countries
that comprise the former Soviet Union. Our business and operations could be
significantly harmed if Dr Robson were to leave us or become unavailable because
of illness or death. Dr Robson through his consultancy company, Vazon Energy
Limited, has signed a comprehensive Management Services Agreement with a rolling
six-month notice period and a two-year non-competition clause effective from the
date of termination of the agreement. We do not carry key employee insurance on
any of our employees.
FUTURE STOCK ISSUANCES AND THE PROVISIONS OF DELAWARE LAW COULD HAVE
ANTI-TAKEOVER EFFECTS
Our board of directors may at any time issue additional shares of preferred
stock and common stock without any prior approval by the stockholders, which
might impair or impede a third party from making an offer to acquire us. Holders
of outstanding shares have no right to purchase a pro rata portion of additional
shares of common or preferred stock issued by us. In addition, the provisions of
Section 203 of the Delaware General Corporation Law, to which we are subject,
places certain restrictions on third parties who seek to effect a business
combination with a company opposed by the company's board of directors. See the
section
12
entitled "Limitation of Liability and Indemnification--Section 203 of the
Delaware General Corporation Law" in this prospectus.
RISK FACTORS ASSOCIATED WITH OUR STOCK
LIMITED TRADING VOLUME OF OUR COMMON STOCK MAY CONTRIBUTE TO OUR PRICE
VOLATILITY
Our common stock was only recently listed for trading on The American Stock
Exchange. Prior to the listing, our stock was traded on the Over the Counter
Bulletin Board ("OTCBB") in the United States and on the Oslo Stock Exchange,
where our stock also continues to trade. During the twelve months ended December
31, 2003, the average daily trading volume for our common stock on the OTCBB as
reported by Bloomberg was 65,874 shares. Even if we achieve a wider
dissemination as to the shares offered by us, we are uncertain as to whether a
more active trading market in our common stock will develop. As a result,
relatively small trades may have a significant impact on the price of our common
stock.
THE PRICE OF OUR COMMON STOCK MAY BE SUBJECT TO WIDE FLUCTUATIONS
The market price of our common stock could be subject to wide fluctuations in
response to quarterly variations in the Company's results of operations, changes
in earnings estimates by analysts, changing conditions in the oil and gas
industry or changes in general market, economic or political conditions.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE
We have not paid any cash dividends to date on the common stock and there are no
plans for such dividend payments in the foreseeable future.
RISKS ASSOCIATED WITH THIS OFFERING
As of the date that this registration statement is declared effective, up to
US$20 million worth of our common stock may be issued under the Equity Line of
Credit.
o The common stock to be issued under the Equity Line of Credit will be
issued at a 3% discount to the lowest volume weighted average price for the
5 trading days immediately following the notice date of an advance. These
discounted sales could cause the price of our common stock to decline.
o The issuance and sale of shares upon delivery of an advance by Cornell
Capital Partners, L.P. pursuant to the Equity Line of Credit in the amount
of up to US$20,000,000 are likely to result in substantial dilution to the
interests of stockholders. There is no upper limit on the number of shares
that we may be required to issue. This will have the effect of further
diluting the proportionate interest and voting power of holders of our
common stock and may result in a change of control of our Company.
o The continuously adjustable price feature of our Equity Line of Credit
could require us to issue a substantially greater number of shares, which
will cause dilution to existing stockholders. Our obligation to issue
shares upon receipt of an advance pursuant to the Equity Line of Credit is
essentially limitless. The following is an example of the amount of shares
of our common stock issuable in connection with an advance of US$600,000
(the maximum) under the Equity Line of Credit, based upon the lowest volume
weighted average price 25%, 50% and 75% below the volume weighted average
price for our stock on the Oslo Stock Exchange on April 20, 2004.
Number % of
% Below Price Per With Discount of shares Outstanding
Market Share ($) of 3% Issuable Stock
------- ---------- ------------- --------- -----------
25% 0.77 0.75 800,000 0.7
50% 0.52 0.50 1,200,000 1.06
75% 0.26 0.25 2,400,000 2.11
13
As illustrated, the number of shares of common stock issuable in connection
with an advance under the Equity Line of Credit will increase if the lowest
volume weighted price of our stock declines, which will cause dilution to
our existing stockholders.
o The significant downward pressure on the price of our common stock caused
by the sale of significant amounts of common stock under the Equity Line of
Credit could encourage short sales by third parties. Up to US$20 million
worth of our common stock may be issued under the Equity Line of Credit.
Such an event could place further downward pressure on the price of our
common stock. This is especially the case if the shares being placed into
the market exceed the market's ability to take up the increased stock or if
the Company has not performed in such a manner to show that the equity
funds raised will be used to grow the Company. Such an event could place
further downward pressure on the price of common stock. Under the terms of
our Equity Line of Credit the Company may request numerous draw downs
pursuant to the terms of the equity line. Even if the Company uses the
equity line to grow its revenues and profits or invest in assets which are
materially beneficial to the Company the opportunity exists for short
sellers and others to contribute to the future decline of our stock price.
If there are significant short sales of stock, the price decline that would
result from this activity will cause the share price to decline further
which in turn may cause long holders of the stock to sell their shares
thereby contributing to sales of stock in the market. If there is an
imbalance on the sell side of the market for the stock the price will
decline. If this occurs, the number of shares of our common stock that is
issuable pursuant to the Equity Line of Credit will increase, which will
materially dilute existing stockholders' equity and voting rights.
o The selling stockholders intend to sell the shares of common stock being
registered in this offering in the public market. That means that up to
35,880,799 shares of common stock, the number of shares being registered in
this offering may be sold. Such sales may cause the market price of our
stock to decline.
o Existing stockholders will experience significant dilution from the sale of
shares under the Equity Line of Credit. As a result, our net income per
share could decrease in future periods, and the market price of our common
stock could decline. In addition, for a given advance, we will need to
issue a greater number of shares of common stock under the Equity Line of
Credit as our stock price declines. If our stock price is lower, then our
existing stockholders would experience greater dilution.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that are incorporated by reference as
set forth herein under the section entitled "Information Incorporated by
Reference," contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended. When used in
this prospectus, the words "estimate," "project," "anticipate," "expect,"
"intend," "believe," "hope," "may" and similar expressions, as well as "will,"
"shall" and other indications of future tense, are intended to identify
forward-looking statements. The forward-looking statements are based on our
current expectations and speak only as of the date made. These forward-looking
statements involve risks, uncertainties and other factors that in some cases
have affected our historical results and could cause actual results in the
future to differ significantly from the results anticipated in forward-looking
statements made in this prospectus. Important factors that could cause such a
difference are discussed in this prospectus, particularly in the section
entitled "Risk Factors." You are cautioned not to place undue reliance on the
forward-looking statements.
Few of the forward-looking statements in this prospectus, including the
documents that are incorporated by reference, deal with matters that are within
our unilateral control. Joint venture, acquisition, financing and other
agreements and arrangements must be negotiated with independent third parties
and, in some cases,
14
must be approved by governmental agencies. These third
parties generally have interests that do not coincide with ours and may conflict
with our interests. Unless the third parties and we are able to compromise their
various objectives in a mutually acceptable manner, agreements and arrangements
will not be consummated.
Although we believe our expectations reflected in forward-looking statements are
based on reasonable assumptions, no assurance can be given that these
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the expectations reflected in the
forward-looking statements include, among others:
o the market prices of oil and gas;
o uncertainty of drilling results, reserve estimates and reserve replacement;
o operating uncertainties and hazards;
o economic and competitive conditions;
o natural disasters and other changes in business conditions;
o inflation rates;
o legislative and regulatory changes;
o financial market conditions;
o accuracy, completeness and veracity of information received from third
parties;
o wars and acts of terrorism or sabotage;
o political and economic uncertainties of foreign governments; and
o future business decisions.
In light of these risks, uncertainties and assumptions, the events anticipated
by our forward-looking statements might not occur or might not occur as
anticipated. We undertake no obligation to update or revise our forward-looking
statements, whether as a result of new information, future events or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from sales of the shares of common stock
covered by this prospectus, with the exception of the proceeds that we will
receive from the issuance of the shares of common stock under the Equity Line of
Credit. The maximum proceeds we may receive under the Equity Line of Credit is
US$20 million, before deducting expenses and fees associated with the offering.
To the extent that we issue shares of common stock under the Equity Line of
Credit, we will use the proceeds for working capital purposes and to fund
further operations in the Republic of Georgia.
THE SELLING STOCKHOLDERS
EQUITY LINE OF CREDIT
Of the 35,880,799 shares being offered under this prospectus, up to 23,000,000
shares will be acquired by Cornell Capital Partners, L.P. pursuant to the Equity
Line of Credit. We entered into a US$20 million Equity Line of Credit with
Cornell Capital Partners, L.P. on February 11, 2004. Pursuant to the Equity Line
of Credit, we may, at our discretion, periodically issue and sell to Cornell
Capital Partners, L.P. shares of common stock for a total purchase price of up
to US$20 million. For each share of common stock purchased under the Equity Line
of Credit, Cornell Capital Partners, L.P. will pay 97% of, or a 3% discount to,
the lowest volume weighted average price of our common stock. The amount of each
advance is subject to a maximum of US$600,000 per advance, with a minimum of six
trading days between advances.
Cornell Capital Partners, L.P. is an "underwriter" within the meaning of the
Securities Act in connection with the sale of common stock under the Equity Line
of Credit. Under the terms of the Equity Line of Credit, Cornell Capital
Partners, L.P. will retain 5% of each advance under the Equity Line of Credit.
Cornell Capital Partners, L.P. will also receive a commitment fee of 2.34% of
the US$20 million commitment based upon the Market Price (as defined in the
Equity Line of Credit Agreement) for the
15
common stock. Cornell Capital Partners, L.P. have already received US$5,000 in
cash, and 425,000 restricted shares of common stock as a part-payment of this
commitment fee, and will also receive a further and final part-payment of the
commitment fee of US$5,000 in cash and 425,000 restricted shares of common stock
once the SEC declares the registration statement effective or 120 calendar days
from the date of signing of the Equity Line of Credit. Cornell Capital Partners,
L.P. intends to sell any shares purchased under the Equity Line of Credit at the
then prevailing market price. The 3% discount, the 2.34% commitment fee and the
5% retention are underwriting discounts. The 850,000 shares of common stock
received by Cornell Capital Partners, L.P. are included in the shares being
offered under this prospectus. In addition, we engaged Newbridge Securities
Corporation, a registered broker-dealer, to advise us and to act as our
exclusive placement agent in connection with the Equity Line of Credit. For its
services, Newbridge Securities Corporation received 30,799 restricted shares of
our common stock. See "Equity Line of Credit" below for further details.
The shares issued in connection with the Equity Line of Credit will be issued in
transactions intended to qualify for an exemption from registration under the
Securities Act afforded by Section 4(2) thereof and Regulation D promulgated
thereunder by the SEC and may not be offered or sold absent registration under
the Securities Act or pursuant to an applicable exemption from such
registration. We agreed, as soon as practicable after the closing of the Equity
Line of Credit, to prepare and file with the SEC a registration statement
registering the shares on Form S-3, if available, for resale. See "Equity Line
of Credit at page 18.
PROVINCIAL SECURITIES LIMITED, GEORGIAN BRITISH OIL SERVICES COMPANY AND EUROPA
OIL SERVICES LIMITED
The remaining 12,000,000 shares being offered under this prospectus were
acquired by Provincial Securities Limited, Georgian British Oil Services Company
and Europa Oil Services Limited in transactions described below.
On September 4, 2003, we concluded a transaction to acquire the interests of two
of the minority partners, Provincial Securities Limited and Georgian British Oil
Services Company ("GBOSC") in one of our subsidiaries CanArgo Norio Limited. In
consideration for their shares in CanArgo Norio Limited, the minority partners
were issued with 6 million restricted shares of CanArgo common stock. GBOSC was
issued with 3,765,281 shares of CanArgo common stock and Provincial Securities
Limited was issued with 2,234,719 shares of CanArgo Common Stock. On the basis
of the closing price of the Company's stock on September 4, 2003 of $0.28 the
stock issued to GBOSC and Provincial Securities Limited is valued at
$1,054,278.68 and $625,721.32 respectively. Both GBOSC and Provincial Securities
Limited have requested that their shares are issued to a nominee company, Forest
Nominees Limited. The shares were issued in transactions intended to qualify for
an exemption from registration under the Securities Act afforded by Regulation S
promulgated thereunder by the SEC and may not be offered or sold absent
registration under the Securities Act or pursuant to an applicable exemption
from such registration.
On December 12, 2003, we agreed to buy out GBOSC's interest in the Manavi M-11
project farm in agreement by issuing 2 million restricted shares of CanArgo
Common Stock to GBOSC. On the basis of the closing price of the Company's stock
on September 4, 2003 of US$0.33 the stock issued to GBOSC has an aggregate value
of US$660,000. GBOSC also requested that these shares be issued to a nominee
company, Forest Nominees Limited.
On April 19, 2004, we announced that all of the conditions to the agreement to
acquire 50% of the Contractor's interest in the Samgori PSC and a 50% interest
in the license holder and operating company for Block XIB from Georgian Oil
Samgori Limited had been satisfied. Upon completion of the acquisition we had a
contractual obligation to issue 4 million shares of CanArgo Common Stock to
Europa, an unaffiliated British Virgin Islands company, in connection with a
consultancy agreement between us and Europa in terms of which Europa provided
certain consultancy services in relation to the original acquisition. On April
16, 2004 Europa was issued with 4 million restricted shares of CanArgo common
stock in an arms length transaction intended to qualify for an exemption from
registration under the Securities Act afforded by Regulation S promulgated
thereunder. On the basis of the closing price of the Company's stock on April
16, 2004 of US$0.97 on the OTCBB, the stock issued to Europa has an
16
aggregate value of US$3,880,000. A further 12 million shares of CanArgo Common
Stock are issuable upon certain production targets being met from future
developments under the Samgori PSC. See "Recent Developments" at page 5 above
for further details.
Our registration of the shares does not necessarily mean that any selling
stockholder will sell any or all of its shares at any time or from time to time
in one or more transactions.
The following table sets forth the number of shares owned by each of the selling
stockholders. All information contained in the table below is based upon their
beneficial ownership as of April 21, 2004. The shares registered for sale hereby
are restricted and not available for trading on The American Stock Exchange or
on the Oslo Stock Exchange until a Registration Statement filed with the SEC
becomes effective or such shares can otherwise be offered and sold in
transactions exempt from the registration requirements of the Securities Act.
The following table assumes that all of the shares being registered will be
sold. The selling stockholders are not making any representation that any shares
covered by the prospectus will be offered for sale. The selling stockholders
reserve the right to accept or reject, in whole or in part, any proposed sale of
shares. As of April 21, 2004, we had an aggregate of 113,613,505 common shares
outstanding.
SHARES SHARES TO BE PERCENTAGE OF
BENEFICIALLY ACQUIRED UNDER SHARES TO BE SHARES OWNED COMMON STOCK
OWNED PRIOR THE EQUITY SOLD IN THE AFTER THE OWNED AFTER THE
NAME OF SELLING STOCKHOLDER TO OFFERING LINE OF CREDIT OFFERING OFFERING OFFERING (8)(%)
- --------------------------- ------------ -------------- ------------ ------------ ----------------
Cornell Capital Partners, L.P. 425,000(1) 23,000,000 23,850,000(2) 23,850,000 15.95
Forest Nominees Limited 2,234,719(3) -- 2,234,719 2,234,719 1.49
Forest Nominees Limited 3,765,281(4) -- 3,765,281 3,765,281 2.52
Forest Nominees Limited 2,000,000(5) -- 2,000,000 2,000,000 1.34
Europa Oil Services Limited 4,000,000(6) -- 4,000,000 4,000,000 2.65
Newbridge Securities
Corporation 30,799(7) -- 30,799 30,799 0.02
---------- ---------- ---------- ----------
TOTALS 12,455,799 23,000,000 35,880,799 35,880,799
---------- ---------- ---------- ----------
- ----------------
(1) Represents 261,782 shares of common stock issued on December 17, 2003 and
the additional 163,218 shares of common stock issued on February 11, 2004
both issued as a part-payment of the one-time commitment fee in connection
with Equity Line of Credit.
17
(2) The additional 425,000 shares of common stock represents the stock issued
to Cornell Capital Partners, L.P. as a further portion of the one-time
commitment fee upon the earlier of the receipt of confirmation from the SEC
that the registration statement of which this prospectus forms a part is
effective or 120 calendar days from the date of signing of the Equity Line
of Credit.
(3) Represents shares received as consideration for the sale of shares held by
Provincial Securities Limited in CanArgo Norio Limited.
(4) Represents shares received as consideration for the sale of shares held by
Georgian British Oil Services Company ("GBOSC") in CanArgo Norio Limited.
(5) Represents shares issued to GBOSC in connection with the buy out by CanArgo
of GBOSC's interest in the Manavi well M-11 in the Republic of Georgia.
(6) Represents shares issued to Europa Oil Services Limited in connection with
the acquisition of 50% of the Contractor's interest in the Samgori PSC and
a 50% interest in the license holder and operating company for Block XIB
covering the Samgori Oil Field.
(7) Represents shares issued to Newbridge Securities Corporation in connection
with the Placement Agent Agreement between CanArgo, Cornell Capital
Partners, L.P. and Newbridge Securities Corporation dated February 11,
2004.
(8) Based upon a total amount of shares of CanArgo common stock outstanding
after the Offering of 149,494,304.
This prospectus also covers any additional shares of common stock that become
issuable in connection with the outstanding shares being registered by reason of
any stock dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration which results in an increase in
the number of our outstanding shares of common stock and such indeterminate
number of shares of common stock as may from time to time be issued at
indeterminate prices upon exercise of outstanding special stock options and
warrants in accordance with the anti-dilution adjustment provisions contained in
the options and warrants.
EQUITY LINE OF CREDIT
SUMMARY
On February 11, 2004, we entered into a US$20 million Equity Line of Credit with
Cornell Capital Partners, L.P. and terminated the original US$6 million equity
line of credit entered into on December 17, 2003 with Cornell Capital Partners,
L.P.
Cornell Capital Partners, L.P. is a private limited partnership. All operational
and investment decisions of Cornell Capital Partners, L.P. are made by its
general partner, Yorkville Advisors, LLC. Mark Angelo, the managing member of
Yorkville Advisors, LLC, makes the operational and investment decisions on
behalf of Yorkville Advisors, LLC. Mr. Angelo does not have voting control over
the shares beneficially owned by Cornell Capital Partners, L.P. Cornell Capital
Partners, L.P. acquired all shares being registered in this offering in
financing transactions with us, which are described below.
Pursuant to the Equity Line of Credit, we may, at our discretion, periodically
sell to Cornell Capital Partners, L.P. shares of common stock for a total
purchase price of up to US$20 million. Subject to this limitation, we may draw
down up to US$600,000 in any seven day period. For each share of common stock
purchased under the Equity Line of Credit, Cornell Capital Partners, L.P. will
pay 97% of, or a 3% discount to, the lowest volume weighted closing bid price of
our common stock on the Oslo Stock Exchange ("OSE") on which our common stock is
traded for the five days immediately following the notice date. Prices on the
OSE are quoted in Norwegian Kroner ("NOK") and they shall be converted to US$ at
the
18
average closing mid market $/NOK price quoted in the London Financial Times
during such a pricing period. Further, Cornell Capital Partners, L.P. will
retain 5% of each advance under the Equity Line of Credit. The net effect of the
5% discount and the 3% retention is that Cornell Capital Partners, L.P. shall
pay 92% of the applicable lowest volume weighted price for each share of CanArgo
common stock. Cornell Capital Partners, L.P. will also receive a 2.34%
commitment fee on the US$20 million facility based upon the Market Price (as
defined in the Equity Line of Credit agreement). This commitment fee is payable
in two parts. The first part comprised US$5,000 in cash and 425,000 shares of
common stock of which 261,782 shares were issued on December 17, 2003 and
163,218 shares were issued on February 11, 2004. The second part comprising of
US$5,000 in cash, and 425,000 shares of common stock will be paid upon the
earlier of the declaration by the Securities and Exchange Commission ("SEC")
that the registration statement of which this prospectus forms a part is
effective or 120 calendar days from the date of signing of the Equity Line of
Credit.
In addition, we engaged Newbridge Securities Corporation ("Newbridge"), a
registered broker-dealer, to advise us and act as our exclusive placement agent
in connection with the Equity Line of Credit. For its services, Newbridge
received 30,799 restricted shares of our common stock. See "Equity Line of
Credit" below for further details. Newbridge is a registered full service
securities broker-dealer and investment banking provider which forms part of the
integrated financial services company, Newbridge Securities, Inc. Newbridge will
be acting as our exclusive placement agent in which capacity they will be
reviewing the terms of the Equity Line of Credit to ensure that it conforms to
industry standards. Guy Amico, the President of Newbridge, makes the investment
decisions on behalf of Newbridge. Newbridge are independent of and have no
existing relationship with Cornell Capital Partners, L.P.
The effectiveness of the sale of the shares under the Equity Line of Credit is
conditional on us registering the shares of common stock with the SEC. The costs
associated with this registration will be borne by us. There are no other
significant closing conditions to draws under the equity line.
EQUITY LINE OF CREDIT EXPLAINED
Pursuant to the Equity Line of Credit, we may periodically sell shares of common
stock to Cornell Capital Partners, L.P. to raise capital to fund our working
capital needs. The periodic sale of shares is known as an advance. We may
request an advance every seven trading days. A closing will be held six trading
days after such written notice at which time we will deliver shares of common
stock and Cornell Capital Partners, L.P. will pay the advance amount less the 5%
retention. There are no closing conditions for any of the draws other than the
written notice and associated correspondence. We are limited however, on our
ability to request advances under the Equity Line of Credit based on the number
of shares we have registered on this registration statement and potentially the
number of shares we have authorized. The stock issued to Cornell Capital
Partners, L.P. under the Equity Line of Credit will be issued pursuant to both
the American Stock Exchange listing requirements and the Rules of the Oslo Stock
Exchange.
We may request advances under the Equity Line of Credit once the underlying
shares are registered with the SEC. Thereafter, we may continue to request
advances until Cornell Capital Partners, L.P. has advanced US$20 million or
until 24 months after the effective date of the accompanying registration
statement, whichever occurs first.
The amount of each advance is subject to a maximum amount of US$600,000, and we
may not submit an advance notice within seven trading days of a prior advance.
The amount available under the Equity Line of Credit is not dependent on the
price or volume of our common stock. Our ability to request any advance is
conditional upon us registering the shares of common stock with the SEC. In
addition, we may not request advances if the shares to be issued in connection
with such advances would result in Cornell Capital Partners, L.P. owning more
than 9.9% of our outstanding common stock.
We cannot predict the actual number of shares of common stock that will be
issued pursuant to the Equity Line of Credit, in part, because the purchase
price of the shares will fluctuate based on prevailing market conditions and we
have not determined the total amount of advances we intend to draw. Nonetheless,
we can estimate the number of shares of our common stock that will be issued
using certain assumptions.
19
Assuming we issued the number of shares of common stock being registered in the
accompanying registration statement at a recent volume weighted average price of
US$1.03 per share on the OSE, we would issue approximately 19,417,475 shares of
common stock to Cornell Capital Partners, L.P. for gross proceeds of US$20
million. We are registering 23,000,000 shares of common stock for the sale under
the Equity Line of Credit. Accordingly, should the volume weighted average price
per share of our common stock fall below US$0.86 per share we would need to
register additional shares of common stock in order to fully utilize the US$20
million available under the Equity Line of Credit.
There is an inverse relationship between our stock price and the number of
shares to be issued under the Equity Line of Credit. That is, as our stock price
declines, we would be required to issue a greater number of shares under the
Equity Line of Credit for a given advance.
Proceeds used under the Equity Line of Credit will be used in the manner set
forth in the "Use of Proceeds" section of this prospectus. We cannot predict the
total amount of proceeds to be raised in this transaction because we have not
determined the total amount of the advances we intend to draw.
In connection with the Equity Line of Credit, Cornell Capital Partners, L.P.
will retain 5% of each advance. In addition, we have paid Cornell Capital
Partners, L.P. an initial commitment fee of US$5,000 in cash and 425,000 shares
of common stock. Upon SEC approval of this registration statement or 120
calendar days from the date of signing of the Equity Line of Credit we must pay
Cornell Capital Partners, L.P., a further commitment fee in the form of US$5,000
in cash and 425,000 shares in our common stock. We have agreed to indemnify
Cornell Capital Partners, L.P., Newbridge and their respective control persons
against certain liabilities, including liabilities under the Securities Act.
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATION OF LIABILITY
Our Certificate of Incorporation limits or eliminates the liability of our
directors or officers to us or our stockholders for monetary damages to the
fullest extent permitted by the Delaware General Corporation Law. Delaware law
provides that a director of CanArgo will not be personally liable to CanArgo or
our stockholders for monetary damages for a breach of fiduciary duty as a
director, except for liability: (1) for any breach of the director's duty of
loyalty; (2) for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law; (3) for the payment of unlawful
dividends and some other actions prohibited by Delaware corporate law; and (4)
for any transaction resulting in receipt by the director of an improper personal
benefit.
INDEMNIFICATION
Delaware General Corporation Law provides that a corporation may indemnify its
present and former directors, officers, employees and agents (each, an
"indemnitee") against all reasonable expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement incurred in an action, suit or
proceeding, other than in actions initiated by or in the right of the
corporation, to which the indemnitee is made a party by reason of service as a
director, officer, employee or agent, if such individual acted in good faith and
in a manner which he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation and, in the case of a criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. A Delaware
corporation shall indemnify an indemnitee to the extent that he or she is
successful on the merits or otherwise in the defense of any claim, issue or
matter associated with an action, suit or proceeding, including one initiated by
or in the right of the corporation. Our Bylaws provide for indemnification of
directors and officers to the fullest extent permitted by Delaware General
Corporation Law.
Delaware General Corporation Law allows and our Bylaws provide for the advance
payment of an indemnity for expenses prior to the final disposition of an
action, provided that the indemnitee undertakes to repay any such amount
advanced if it is later determined that the indemnitee is not entitled to
indemnification with regard to the action for which the expenses were advanced.
20
Our directors and officers are insured, under policies of insurance maintained
by us, within the limits and subject to the limitations of the policies, against
certain expenses in connection with the defense of actions, suits or
proceedings, to which they are parties by reason of being or having been such
directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons who may control us pursuant to
the foregoing provisions, we have been informed that in the opinion of the SEC
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law, which is applicable to
CanArgo as a Delaware corporation, prohibits various business combinations
between a Delaware corporation and an "interested stockholder," that is, anyone
who beneficially owns, alone or with other related parties, at least 15% of the
outstanding voting shares of a Delaware corporation. Business combinations
subject to Section 203 include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and some transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation. Section 203 prohibits this type of business combination for three
years after a person becomes an interested stockholder, unless:
o the business combination is approved by the corporation's board of
directors prior to the date the person becomes an interest stockholder;
o the interested stockholder acquired at least 85% of the voting stock of the
corporation, other than stock held by directors who are also officers or by
specified employee stock plans, in the transaction in which it becomes an
interested stockholder; or
o the business combination is approved by a majority of the board of
directors and by the affirmative vote of two-thirds of the outstanding
voting stock that is not owned by the interested stockholder.
PLAN OF DISTRIBUTION
Under the terms of the private placements, the shares registered for sale hereby
are restricted and not available for trading on The American Stock Exchange or
the Oslo Stock Exchange until after a Registration Statement filed with SEC
becomes effective or offers and sales of such shares are otherwise exempt from
the registration requirements of the Securities Act. Thereafter, the shares may
be sold or distributed from time to time by the selling stockholders named in
this prospectus, by their donees, pledgees or transferees, or by their other
successors in interest. The selling stockholders may sell their shares at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices at the time of sale, at negotiated prices, or at fixed prices,
which may be changed. Each selling stockholder reserves the right to accept or
reject, in whole or in part, any proposed purchase of shares, whether the
purchase is to be made directly or through agents. We are not aware that any of
the selling stockholders have entered into any arrangements with any
underwriters or broker-dealers regarding the sale of their shares of common
stock. The registration rights available to selling stockholders after the
Registration Statement becomes effective shall terminate at such time as all
shares qualified by this Registration Statement are sold by the selling
stockholder in accordance with this prospectus or in accordance with the
provisions of Rules 144, 144A or their equivalent under the Securities Act, or
have been sold pursuant to a transaction effected through the facilities of the
Oslo Stock Exchange in accordance with the provisions of Rule 904 or are
otherwise freely transferable without restriction under applicable United States
securities laws.
The selling stockholders may offer their shares, subject to the restrictions
outlined above, at various times in one or more of the following transactions:
- - in ordinary brokers' transactions and transactions in which the broker
solicits purchasers;
21
- - in transactions including block trades, in which brokers, dealers or
underwriters purchase the shares as principal and resell the shares for
their own accounts pursuant to this prospectus;
- - in transactions "at the market" to or through market makers in the common
stock;
- - in other ways not involving market makers or established trading markets,
including direct sales of the shares to purchasers or sales of the shares
effected through agents;
- - through transactions in options, swaps or other derivatives which may or
may not be listed on an exchange;
- - an exchange distribution in accordance with the rules of such exchange;
- - in privately negotiated transactions;
- - in transactions to cover short sales; or
- - in a combination of any of the foregoing transactions.
In addition, the selling stockholders also may sell their shares in private
transactions or in accordance with Rules 144, 144A or 904 under the Securities
Act rather than under this prospectus.
From time to time, one or more of the selling stockholders may pledge or grant a
security interest in some or all of the shares owned by them. If the selling
stockholders default in the performance of the secured obligations, the pledgees
or secured parties may offer and sell the shares from time to time. The selling
stockholders also may transfer and donate shares in other circumstances. The
number of shares beneficially owned by selling stockholders who donate or
otherwise transfer their shares will decrease as and when the selling
stockholders take these actions. The plan of distribution for the shares offered
and sold under this prospectus will otherwise remain unchanged, except that the
transferees, donees or other successors in interest will be selling stockholders
for purposes of this prospectus. The selling stockholders may use brokers,
dealers, underwriters or agents to sell their shares. The persons acting as
broker, dealers or agents may receive compensation in the form of commissions,
discounts or concessions. This compensation may be paid by the selling
stockholders or the purchasers of the shares for whom such persons may act as
agent, or to whom they may sell as a principal, or both. The selling
stockholders and any agents or broker-dealers that participate with the selling
stockholders in the offer and sale of the shares may, and, we understand, in the
case of Cornell Capital Partners, L.P., will be deemed to be "underwriters"
within the meaning of the Securities Act in connection with the sale of common
stock under the Equity Line of Credit. Cornell Capital Partners, L.P. will pay
us 97% of the Equity Line of Credit. Cornell Capital Partners, L.P. will pay us
97% of the lowest volume weighted average price of the common stock on the Oslo
Stock Exchange for the five consecutive trading days immediately following the
advance date. In addition, Cornell Capital Partners, L.P. will retain 5% of the
proceeds received by us under the Equity Line of Credit and receive a one-time
commitment fee paid by the issuance of 850,000 shares of common stock which
shall be issued in two equal tranches of 425,000 shares. The 3% discount, the 5%
retention and the 2.34% commitment fee on the US$20 million facility are
underwriting discounts. Such commissions they receive and any profit they
realize on the resale of the shares by them may be deemed to be underwriting
discounts and commissions under the Securities Act. Neither any selling
stockholders nor we can presently estimate the amount of such compensation.
Because selling stockholders may, and, we understand, in the case of Cornell
Capital Partners, L.P. will be deemed to be "underwriters" within the meaning of
the Securities Act, selling stockholders and persons participating in the offer
and sale of their shares will be subject to the prospectus delivery requirements
of the Securities Act.
As an underwriter of the Equity Line common stock, Cornell Capital Partners,
L.P. is subject to the same restrictions as any underwriter, including the
prospectus delivery requirements of Section 5(b)(2) of the Securities Act and
the applicable restrictions of Regulation M, with respect to short selling
activities. Cornell Capital Partners, L.P. and Newbridge Securities Corporation
have agreed that they will not, and that
22
they will cause their affiliates not to, engage in any short sales of or hedging
transactions with respect to our common stock.
Cornell Capital Partners, L.P. was formed in February 2000 as a Delaware limited
partnership. Cornell Capital Partners, L.P. is a domestic hedge fund in the
business of investing in and financing public companies. Cornell Capital
Partners, L.P. does not intend to make a market in our stock or to otherwise
engage in stabilizing or other transactions intended to help support the stock
price. Prospective investors should take these factors into consideration before
purchasing our common stock.
Under the securities laws of certain states, the shares of common stock may be
sold in such states only through registered or licensed brokers or dealers. The
selling stockholders are advised to ensure that any underwriters, brokers,
dealers or agents effecting transactions on behalf of the selling stockholders
are registered to sell securities in all fifty states. In addition, in certain
states the shares of common stock may not be sold unless the shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with. We will pay the entire
expenses incidental to the registration, offering and sale of the shares of
common stock to the public hereunder other than commissions, fees and discounts
of underwriters, brokers, dealers and agents. We have agreed to indemnify
Cornell Capital Partners, L.P., Newbridge and their controlling persons against
certain liabilities, including liabilities under the Securities Act. We estimate
that the expenses of the offering to be borne by us will be approximately
US$80,000, as well as retention of 5% of the gross proceeds received under the
Equity Line of Credit.
The selling stockholders and any other person participating in a distribution of
the securities covered by this prospectus will be subject to applicable
provisions of the Exchange Act and the rules and regulations under the Exchange
Act, including Regulation M, which may limit the timing of purchases and sales
of any of the securities by the selling stockholders and any other such person.
Furthermore, under Regulation M, any person engaged in the distribution of the
securities may not simultaneously engage in market-making activities with
respect to the particular securities being distributed for certain periods prior
to the commencement of or during such distribution. Accordingly, except as noted
below, the selling stockholders are not permitted to cover short sales by
purchasing shares while the distribution is taking place. All of the above may
affect the marketability of the securities and the availability of any person or
entity to engage in market-making activities with respect to the securities.
Under our agreements with the selling stockholders, we are required to bear the
expenses relating to the registration of this offering. The selling stockholders
will bear any underwriting discounts or commissions, brokerage fees, stock
transfer taxes and fees of their legal counsel. The selling stockholders may
agree to indemnify any broker-dealer or agent that participates in transactions
involving sales of the shares against certain liabilities, including liabilities
arising under the Securities Act. The selling stockholders have agreed to
indemnify us against certain liabilities in connection with the offer of the
shares, including liabilities arising under the Securities Act.
If we are notified by a selling stockholder that any material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, we will file a supplement to this prospectus, if
required, pursuant to Rule 424(b) under the Securities Act. In addition, if we
are notified by a selling stockholder that a donee or pledgee intends to sell
more than 500 shares, we will file a supplement to this prospectus.
To the extent required, this prospectus may be amended or supplemented from time
to time to describe a specific plan of distribution. In effecting sales,
broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in the resales.
The selling stockholders may enter into hedging transactions with broker-dealers
in connection with distributions of the shares or otherwise. In such
transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with the selling stockholders. The
selling stockholders also may sell shares short and redeliver the shares to
close out such short positions. The selling stockholders may enter into option
or other transactions with broker-dealers, which require the
23
delivery to the broker-dealer of the shares. The broker-dealer may then resell
or otherwise transfer such shares pursuant to this prospectus. The selling
stockholders also may loan or pledge the shares to a broker-dealer. The
broker-dealer may sell the shares so loaned, or upon a default, the
broker-dealer may sell the pledged shares pursuant to this prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered hereby has been passed upon
for us by Satterlee Stephens Burke & Burke LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 2003 and for then year
ended, incorporated in this prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 2003 have been audited by L
J Soldinger Associates LLC, independent auditors, as stated in their report,
which is incorporated herein by reference, and has been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements as of December 31, 2002 and for the years
ended December 31, 2002 and 2001 incorporated in this prospectus by reference to
the Annual Report on Form 10-K, as amended, of CanArgo Energy Corporation for
the year ended December 31, 2003 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The oil and gas reserve data incorporated by reference to our Annual Report on
Form 10-K for the year ended December, 31, 2003, has been prepared by Oilfield
Production Consultants and such reserve report dated January 1, 2004 has been
incorporated herein in reliance upon the authority of such firm as experts in
estimating proved oil and gas reserves.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of the Exchange Act
under which we file periodic reports, proxy statements and other information
with the Securities and Exchange Commission ("SEC"). You may read and copy any
document we file at the SEC's public reference rooms at the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public from the SEC's
Internet site at http://www.sec.gov which contains reports, proxy and
information statements and other information regarding issuers that we file
electronically.
This prospectus is part of a registration statement that we filed with the SEC
(registration number 333-O). The registration statement contains more
information than this prospectus regarding CanArgo Energy Corporation and our
common stock, including certain exhibits. You can get a copy of the registration
statement from the SEC at the addresses listed above or from its Internet site.
Our common stock is listed on The American Stock Exchange under the symbol
"CNR". Our common stock is also listed on the Oslo Stock Exchange under the
symbol "CNR.OL". Information about us is also available at the offices of the
American Stock Exchange, 86 Trinity Place, New York, NY 10005.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents that are considered part of
24
this prospectus. Later information that we file with the SEC will automatically
update and supersede this information. We incorporate by reference the documents
listed below and any future filings made by us with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until this offering of
securities has been completed:
- - Annual Report on Form 10-K for the year ended December 31, 2003, as amended
- - The description of CanArgo's common stock contained in Form 8-A/12B dated
April 19, 2004
- - Definitive Proxy Materials dated April 19, 2004.
We will provide without charge to each person to whom a copy of this prospectus
is delivered, upon request, a copy of the foregoing documents (without
exhibits). Written or telephone requests for such copies should be directed to
the Corporate Secretary, CanArgo Energy Corporation, PO Box 291, St Peter Port,
Guernsey, GY1 3RR, British Isles, +(44) 1481 729 980.
You should rely only on the information contained in this prospectus and any
supplement. We have not authorized any other person to provide you with
different or additional information. If anyone provides you with different or
additional information, you should not rely on it. This prospectus is not an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in or
incorporated by reference in this prospectus and any supplement is accurate as
of its date only. Our business, financial condition, results of operations and
prospects may have changed since that date.
25
================================================================================
35,880,799 SHARES
[CANARGO ENERGY CORPORATION LOGO]
CANARGO ENERGY CORPORATION
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
MAY o , 2004
================================================================================
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses, all of which are to be
borne by the Company, in connection with the registration, issuance and
distribution of the securities being registered hereby. All amounts are
estimates except the SEC registration fee.
SEC Registration Fee .................................................. $ 3,932
Legal Fees and Expenses ............................................... 55,000
Accountant's Fees and Expenses ........................................ 15,000
Printing Expenses ..................................................... 5,000
Miscellaneous ......................................................... 5,000
-------
Total ................................................................. 83,932
-------
Item 15. Indemnification of Directors and Officers.
Delaware General Corporation Law provides that a corporation may indemnify its
present and former directors, officers, employees and agents (each, an
"indemnitee") against all reasonable expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement incurred in an action, suit or
proceeding, other than in actions initiated by or in the right of the
corporation, to which the indemnitee is made a party by reason of service as a
director, officer, employee or agent, if such individual acted in good faith and
in a manner which he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation and, in the case of a criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. A Delaware
corporation shall indemnify an indemnitee to the extent that he or she is
successful on the merits or otherwise in the defense of any claim, issue or
matter associated with an action, suit or proceeding, including one initiated by
or in the right of the corporation. Our Bylaws provide for indemnification of
directors and officers to the fullest extent permitted by Delaware General
Corporation Law.
Delaware General Corporation Law allows and our Bylaws provide for the advance
payment of an indemnity for expenses prior to the final disposition of an
action, provided that the indemnitee undertakes to repay any such amount
advanced if it is later determined that the indemnitee is not entitled to
indemnification with regard to the action for which the expenses were advanced.
The directors and officers of the registrant are insured, under policies of
insurance maintained by the registrant, within the limits and subject to the
limitations of the policies, against certain expenses in connection with the
defense of actions, suits or proceedings, to which they are parties by reason of
being or having been such directors or officers.
See Item 17(c) below for a discussion of the SEC's position with respect to the
enforceability of such indemnification provisions in regard to violations of the
Securities Act.
Item 16. Exhibits.
The following exhibits are filed as part of this registration statement.
Exhibit
No. Description of Exhibit
- ------- ----------------------
1.1 Standby Equity Distribution Agreement between Cornell Capital
Partners, L.P. and CanArgo Energy Corporation dated February 11, 2004
3.1 Certificate of Incorporation of the Registrant, as amended(1)
3.2 By-laws of the Registrant(2)
4.1 Form of Specimen of Common Stock Certificate(3)
5.1 Opinion of Satterlee Stephens Burke & Burke LLP as to the legality of
the securities being registered (to be filed by amendment)
10.1 Registration Rights Agreement between CanArgo Energy Corporation and
Cornell Capital Partners, L.P. dated February 11, 2004
10.2 Placement Agent Agreement between CanArgo Energy Corporation,
Newbridge Securities Corporation and Cornell Capital Partners, L.P.
dated February 11, 2004
10.3 Escrow Agreement among CanArgo Energy Corporation, Cornell Capital
Partners, L.P. and Butler Gonzalez LLP dated February 11, 2004
10.4 Termination Agreement between CanArgo Energy Corporation and Cornell
Capital Partners, L.P. dated February 11, 2004
10.5 Agreement between CanArgo Samgori Limited and Georgian Oil Samgori
Limited dated January 8, 2004
10.6 Consultancy Agreement between CanArgo Energy Corporation and Europa
Oil Services Limited dated January 8, 2004
23.1 Consent of Satterlee Stephens Burke & Burke LLP to the use of their
opinion with respect to the legality of the securities being
registered (included in opinion filed as Exhibit 5.1)
23.2 Consent of L J Soldinger Associates LLC
23.3 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Oilfield Production Consultants
- ------------------
1 . Incorporated by reference from the Company's Proxy Statement dated April 19,
2004 and Form 8-K filed July 15, 1998
2 . Incorporated herein by reference from Post-Effective Amendment No. 1 to Form
S-1 Registration Statement, File No. 333-72295 filed on July 29, 1999
3. Incorporated herein by reference to Form 8-A/12B filed April 19, 2004
24.1 Power of attorney of certain signatories (contained on the signature page
included in Part II of the Registration Statement)
Item 17. Undertakings.
The registration rights available to selling stockholders after the Registration
Statement becomes effective shall terminate at such time as all shares qualified
by this Registration Statement are sold by the selling stockholders pursuant to
this prospectus or in accordance with the provisions of Rule 144 or its
equivalent under the Securities Act or have been sold pursuant to a transaction
effected through the facilities of the Oslo Stock Exchange in accordance with
the provisions of Rule 904 or are otherwise freely transferable without
restriction under applicable United States securities laws.
(a) Subject to the restrictions noted above, the undersigned registrant hereby
undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereto) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3,
Form S-8 or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 that is incorporated by reference in
this registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of London, England on May 6, 2004.
CANARGO ENERGY CORPORATION
By: /s/ Vincent McDonnell
----------------------------------
Vincent McDonnell
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned officers and directors of CanArgo Energy Corporation, a
Delaware corporation, do hereby constitute and appoint David Robson and Vincent
McDonnell, and either of them, the lawful attorney and agent, with power and
authority to do any and all acts and things and to execute any and all
instruments which said attorney and agent, determine may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power of authority,
the powers granted include the power and authority to sign the names of the
undersigned officers and directors in the capacities indicated below to this
Registration Statement, to any and all amendments, post-effective amendments and
supplements thereof, and to any and all instruments or documents filed as part
of or in connection with such Registration Statement, and each of the
undersigned hereby certifies and confirms all that said attorney and agent,
shall do or cause to be done by virtue hereof. The Power of Attorney may be
signed in several counterparts.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of
the dates indicated below.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
By: /s/ Vincent McDonnell Date: May 6, 2004
---------------------------------------------------
Vincent McDonnell, Chief Financial Officer
By: /s/ David Robson Date: May 6, 2004
---------------------------------------------------
David Robson, Chairman of the Board, President and
Chief Executive Officer and Director
By: /s/ Russ Hammond Date: May 6, 2004
---------------------------------------------------
Russ Hammond, Director
By: /s/ Nils N. Trulsvik Date: May 6, 2004
---------------------------------------------------
Nils N. Trulsvik, Director
By: /s/ Michael Ayre Date: May 6, 2004
---------------------------------------------------
Michael Ayre, Director
EXHIBIT INDEX
FILED
HEREWITH EXHIBIT
- -------- -------------------------------------------------------------------------------------
X 1.1 Standby Equity Distribution Agreement between Cornell Capital Partners, L.P. and
CanArgo Energy Corporation dated February 11, 2004
X 10.1 Registration Rights Agreement between CanArgo Energy Corporation and
Cornell Capital Partners, L.P. dated February 11, 2004
X 10.2 Placement Agent Agreement between CanArgo Energy Corporation, Newbridge Securities
Corporation and Cornell Capital Partners, L.P. dated February 11, 2004
X 10.3 Escrow Agreement among CanArgo Energy Corporation, Cornell Capital Partners,
L.P. and Butler Gonzalez LLP dated February 11, 2004
X 10.4 Termination Agreement between CanArgo Energy Corporation and Cornell
Capital Partners, L.P. dated February 11, 2004
X 10.5 Agreement between CanArgo Samgori Limited and Georgian Oil Samgori Limited
dated January 8, 2004
X 10.6 Consultancy Agreement between CanArgo Energy Corporation and Europa Oil
Services Limited dated January 8, 2004
X 23.2 Consent of L J Soldinger Associates LLC
X 23.3 Consent of PricewaterhouseCoopers LLP
X 23.4 Consent of Oil Production Consultants
X 24.1 Power of attorney of certain signatories (contained on signature page included in
Part II of the Registration Statement)