CANARGO ENERGY CORP.
As filed with the Securities and Exchange Commission on
August 25, 2005
Registration No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CanArgo Energy Corporation
(Exact name of registrant as specified in its charter)
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Delaware |
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91-0881481 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
P.O. Box 291, St Peter Port
Guernsey, GY1 3RR, British Isles
+(44) 1481 729 980
(Address, including zip code, and telephone number,
including area code, of registrants principal executive
offices)
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)
Please forward a copy of all correspondence to:
Peter A. Basilevsky, Esq.
Satterlee Stephens Burke & Burke LLP
11th Floor, 230 Park Avenue
New York, NY 10169
(212) 818-9200
Approximate date of commencement of proposed sale to the
public: From time to time after this Registration Statement
becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following
box. o
If any of the securities being registered on this form are being
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. þ
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Amount of |
Title of Each Class of |
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Amount to be |
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Offering |
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Aggregate |
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Registration |
Securities to be Registered |
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Registered(1) |
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Price per Share(2) |
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Offering Price(2) |
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Fee(2) |
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Common stock, $0.10 par value
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42,459,517 |
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$1.21 |
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$51,376,015 |
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$6,046.96 |
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(1) |
In the event of a stock split, stock dividend or similar
transaction involving the shares of common stock, in order to
prevent dilution, the number of shares registered shall be
automatically increased to cover the additional shares in
accordance with Rule 416 under the Securities Act of 1933. |
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(2) |
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 Transactions Tape on
August 24, 2005, which was $1.21 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.
The information
contained in this prospectus is not complete and may be changed.
We may not sell these securities until the Registration
Statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION DATED
AUGUST 25, 2005.
PROSPECTUS
CANARGO ENERGY CORPORATION
42,459,517 Shares of Common Stock
This prospectus relates to the resale from time to time in one
or more transactions of up to 42,459,517 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 14.
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,
although we will receive the proceeds from the exercise of
certain issued warrants. 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 20.
Our common stock is traded on the American Stock Exchange and
the Oslo Stock Exchange under the symbol CNR. The
last reported sale price of our common stock on the American
Stock Exchange Composite Transactions Tape
on ,
2005 was $ per share and on the Oslo
Stock Exchange was Norwegian kroner
(NOK) .
On ,
2005, one U.S. dollar equaled NOK as
reported on www.oanda.com. All references herein to
$ refer to United States dollars.
See Risk Factors beginning on page 5 to read
about the risks you should consider carefully before buying
shares of our common stock
The selling stockholders and any broker-dealers, agents or
underwriters that participate with them in the distribution of
the common stock may be deemed underwriters, as that term is
defined in the Securities Act, and any commissions received by
them and any profit on the resale of the common stock purchased
by them may be deemed underwriting commissions or discounts
under the Securities Act. Selling stockholders and persons
participating in the offer and sale of their shares will be
subject to the prospective delivery requirements of the
Securities Act. The common stock may be offered and sold by the
selling stockholders in one or more transactions through the
facilities of any stock exchange on which the shares are then
listed for trading, in the over-the-counter market or in
negotiated transactions or a combination of these and other
methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at
negotiated prices. The common stock may be sold either
(a) to a broker or dealer as principal for resale by such
broker or dealer for its account pursuant to this prospectus
(for example, in transactions with a market maker) or
(b) in brokerage transactions, including transactions in
which the broker solicits purchasers or (c) directly to
third persons. See Plan of Distribution beginning on
page 20.
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.
The date of this Prospectus is , 2005
TABLE OF CONTENTS
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.
Unless the context requires otherwise, the references to
we, us, our, the
Company, or CanArgo refer
collectively to CanArgo Energy Corporation and its subsidiaries.
OIL AND GAS TERMS
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When describing natural gas:
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Mcf |
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thousand cubic feet |
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MMcf |
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million cubic feet |
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Bcf |
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billion cubic feet |
When describing oil:
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bbl |
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barrel |
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thousand barrels |
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MMbbls |
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million barrels |
When comparing natural gas to oil:
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6 Mcf of gas |
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1 bbl of oil equivalent |
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Boe |
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barrel of oil equivalent |
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Mboe |
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thousand barrels of oil equivalent |
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MMboe |
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million barrels of oil equivalent |
ABOUT CANARGO
We are an independent oil and gas exploration and production
company incorporated with limited liability under the laws of
the State of Delaware, U.S.A., headquartered in St Peter Port,
Guernsey, British Isles, but not regulated in Guernsey,
operating in countries which were a part of the former Soviet
Union. We operate and carry out our activities as a holding
company through a number of operating subsidiaries and
associated or affiliated companies. Each of these operating
companies is generally focused on one of our projects, and this
structure assists in maintaining separate cost centers for these
different projects.
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Our principal activities are oil and gas exploration,
development and production, principally in the Republic of
Georgia, and to a lesser extent in the Republic of Kazakhstan.
We direct most of our efforts and resources to our exploration
and appraisal program in Georgia, the development of the
Ninotsminda Field in Georgia and appraisal and development of
our Kyzyloy field area in Kazakhstan. Our management and
technical staff have substantial experience in our areas of
operation. Currently our principal product is crude oil, and the
sale of crude oil is our principal source of revenue.
Our oil and natural gas reserves and production have 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. CanArgo has additional
exploratory and developmental oil and gas properties and
prospects in Georgia and owns interests in other oil and gas
projects located in the former Soviet Union. The Company
operates in a global market and has an insignificant market
share in such market. We believe that our cash flow at current
oil prices and current rates of production from operations and
our financial resources, including the proceeds from our recent
issue of Senior Secured Convertible Loan Notes the (the
Senior Secured Notes) for $24,450,000 net after
expenses, as described in this prospectus, should provide us
with the ability to complete our near term development program
on the Ninotsminda Field, our planned appraisal program on the
Manavi oil discovery, as well as our newly acquired Kyzyloy gas
field and adjacent acreage in Kazakhstan.
Our business strategy is focused on the following:
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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, 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.
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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.
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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.
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
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Common stock offered by selling stockholders |
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Up to 42,459,517 shares, subject to anti-dilution
adjustments. This number represents approximately 19.1% of our
current outstanding stock and includes 27,777,778 shares of
common stock to be issued upon |
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conversion of the Senior Secured Notes, subject to adjustment;
2,000,000 shares issuable upon exercise of warrants issued
in conjunction with, and 1,521,739 shares of common stock
to be issued upon conversion of, an outstanding loan made in
August 2004 by Mr. Salahi Ozturk; 11,000,000 shares of
common stock issued in connection with an acquisition
transaction, and 160,000 shares of common stock issued in
connection with a consultancy agreement. |
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Common stock to be outstanding after the offering |
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Up to 253,228,800 shares. |
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Use of proceeds |
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We will not receive any proceeds from the sale of the common
stock. We will however receive the proceeds from the exercise of
the warrant issued to Mr. Ozturk. See Use of
Proceeds for a complete description. We have agreed to pay
all costs and expenses of this offering, including without
limitation, all listing, legal, accounting, printing and
registration fees, currently estimated at approximately $86,000
assuming the offer and sale of all the shares. |
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The American Stock Exchange symbol |
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CNR |
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The Oslo Stock Exchange symbol |
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CNR |
The above information is based on 221,929,283 shares of
common stock outstanding as of August 18, 2005.
RECENT DEVELOPMENTS
On July 25, 2005, we completed a private placement of
$25 million in aggregate principal amount of our Senior
Secured Convertible Loan Notes due July 25, 2009 (the
Senior Secured Notes) with a group of private
investors arranged by Ingalls & Snyder LLC of New York
City pursuant to a Note Purchase Agreement of even date
(the Note Purchase Agreement). The terms of the
Note Purchase Agreement and related agreements are
described in greater detail below in Senior Secured
Notes. The Senior Secured Notes were issued in a
transaction intended to qualify for an exemption from
registration under the Securities Act afforded by
Section 4(2) thereof and Rule 506 of Regulation D
promulgated thereunder. The Senior Secured Notes are convertible
into shares of Common Stock at a conversion price of
$.90 per share subject to adjustment.
On June 7, 2005, we made an offer to acquire 55% of the
ordinary share capital of Tethys Petroleum Investments Limited,
a Guernsey company, (Tethys) which was held by
Provincial Securities Limited (Provincial) and Vando
International Finance Limited (Vando) for 11,000,000
restricted shares of CanArgo common stock. On June 9, 2005,
we completed the acquisition and issued 5,500,000 shares of
CanArgo common stock to Provincial and 5,500,000 shares of
CanArgo common stock to Vando in connection with this
transaction. On June 7, 2005, the closing price of CanArgo
common stock on the American Stock Exchange Transactions Tape
was $0.76 giving the total consideration a market value of
$8,360,000 for the 11 million shares. On completion of the
acquisition, CanArgo held 100% of the ordinary share capital of
Tethys through its subsidiary, CanArgo Limited, and Tethys
became a wholly owned subsidiary of the Company. Tethys owns a
controlling interest in BN Munai LLP which, in turn, owns the
Production Contract for the Kyzyloy gas field and the
Exploration Contract for the surrounding acreage in the Republic
of Kazakhstan.
On April 26, 2005 we signed a Promissory Note (the
Promissory Note) with Cornell Capital Partners, L.P.
(Cornell) whereby Cornell agreed to advance us the
sum of $15,000,000. This amount
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and interest at a rate of 7.5% was payable in either cash or
using proceeds of drawdowns under the Standby Equity
Distribution Agreement with Cornell dated February 11, 2004
(SEDA), within 270 calendar days from the date of
the Promissory Note.
We issued Cornell notice to terminate the SEDA on July 25,
2005, effective on August 24, 2005 and the outstanding
principal and accrued interest on the Promissory Note with
Cornell dated April 26, 2005 was repaid in full in cash on
August 1, 2005.
On August 27, 2004, we entered into an agreement with
Mr. Salahi Ozturk which amended an earlier loan agreement
entered into in April 2004. Under the August agreement, Mr
Ozturk agreed to advance us the sum of $1,050,000 including a
corporate finance fee of $50,000 (the Ozturk Convertible
Loan) repayable on August 28, 2006 (two years and one
day from the date of draw down by the Company) unless it has
previously been converted. Interest is payable at a rate of
7.5% per annum. The Ozturk Convertible Loan is convertible
into shares of common stock (Conversion Stock) at a
price of $0.69 per share, subject to customary
anti-dilution adjustments, which was equivalent to a premium of
15% above the market price of $0.60 in effect when the agreement
was reached. The Company has the option to force conversion of
the Ozturk Convertible Loan if the Companys share price
exceeds $0.96 per share for a period of 20 consecutive
trading days, and provided that the underlying shares have been
registered for resale. No conversion is possible until
August 27, 2005. Under the terms of the agreement,
Mr. Ozturk was issued a warrant to subscribe for
2,000,000 shares of common stock at an exercise price of
$0.63 per share, subject to customary anti-dilution
adjustments (the Ozturk Warrant). The Ozturk Warrant
expires on August 27, 2009. The Ozturk Warrant is
transferable only to non-US persons and may only be exercised
outside the US. The Ozturk Warrant, the shares of common stock
issuable upon exercise of the Ozturk Warrant and the shares of
Conversion Stock are restricted securities as
defined in Rule 144 under the Securities Act and the Ozturk
Warrant was issued and the shares of common stock issuable upon
exercise of the Ozturk Warrant and the shares of Conversion
Stock will be issued in transactions intended to qualify for the
exemption from registration afforded by Section 4(2) of the
Securities Act and Regulation S promulgated under the Act.
Under the terms of the agreement, we undertook to use our best
efforts to register for resale the Conversion Stock and the
shares of our common stock issued upon exercise of the Ozturk
Warrants if they are not freely tradeable and are restricted at
the date of issue under the Securities. Such shares have
included in the registration statement of which this prospectus
forms a part.
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RISK FACTORS
An investment in our common stock is subject to significant
risks and uncertainties which may result in a loss of all or a
part of your investment. You should carefully consider the risks
described below, as well as all other information contained or
incorporated by reference in this prospectus and any applicable
prospectus supplements, before investing in our common stock.
The risks described below are not the only ones facing the
Company. Additional risks not presently known to us or that we
currently deem immaterial may also impair our business
operations and adversely affect the price of our shares.
Risks Associated with our Business
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We Have Experienced Recurring Losses. |
For the fiscal years ended December 31, 2004, 2003, 2002,
2001, and 2000, we recorded net losses of $4,757,000,
$7,322,000, $5,328,000, $13,218,000, and $2,151,000,
respectively, and have an accumulated deficit of $104,866,000 as
at December 31, 2004. The loss in 2003 included a writedown
in our carrying value of the Bugruvativske Field in Ukraine of
$4,790,000 to reflect the estimated recoverable amount from
disposal, a write-off of the $1,275,000 debit balance in
minority interest in Georgian American Oil Refinery
(GAOR) due to a change in the intentions of our
minority interest owner and plan to dispose of the asset, and a
generator unit was impaired by $80,000 to reflect its fair value
less cost to sell. Impairments of oil and gas properties,
ventures and other assets in prior years include writedowns of
$1,600,000 in 2002, $11,160,000 in 2001, and $0 in 2000. No
assurance can be given, however, that we will not experience
operating losses or additional writedowns in the future.
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Our Ability To Pursue Our Activities Is Dependent On Our
Ability To Generate Cash Flows. |
Our ability to continue to pursue our principal activities of
acquiring interests in and developing oil and gas fields is
dependent upon generating funds from internal sources, external
sources and, ultimately, maintaining sufficient positive cash
flows from operating activities. Our financial statements have
been prepared on a basis which assumes that operating cash flows
are realized and/or proceeds from additional financings and/or
the sale of non-core assets are received to meet our cash flow
needs. As a result of our recently concluded private placement
of our Senior Secured Notes, and based upon the current level of
operations, we believe that, coupled with our cash flow from
operations as well as the possibility, if required, of obtaining
third party participation in our projects, we will have adequate
capital to meet our anticipated existing requirements for
working capital, capital expenditures, interest payments and
scheduled principal payments for the next twelve months.
However, development of the oil and gas properties and ventures
in which we have interests involves multi-year efforts and
substantial cash expenditures. Full development of these
properties will require the availability of substantial funds
from internal and/or external sources. Furthermore,
unanticipated investment opportunities and operational
difficulties may require unscheduled capital expenditures which
may, in turn, require additional fund raising. No assurance can
be given that we will be able to secure such funds or, if
available, such funds can be obtained on commercially reasonable
terms.
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Our Current Operations Are Dependent On The Success Of Our
Georgian Exploration Activities and Our Activities on The
Ninotsminda Field. |
To date we have directed substantially all of our efforts and
most of our available funds to the development of the
Ninotsminda Field in the Kura Basin in the eastern part of the
Republic of Georgia, appraisal of the Manavi oil discovery, and
exploration in that area and some ancillary activities in the
Kura Basin area. This decision is based on managements
assessment of the promise of the Kura Basin area. However, our
focus on the Ninotsminda Field has over the past several years
resulted in overall losses for us. We cannot assure investors
that the exploration and development plans for the Ninotsminda
Field will be successful. For example, the Ninotsminda Field may
not produce sufficient quantities of oil and gas and at
sufficient rates to justify the investment we have made and are
planning to make in the Field, and we may not be able to produce
the oil and gas at a sufficiently low cost or to market the oil
and gas produced
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at a sufficiently high price to generate a positive cash flow
and a profit. Furthermore, the maintenance of production levels
from the Ninotsminda Field is subject to regular workover
operations on the wells due to the friable nature of the
reservoir and the need to remove sediment build-up from the
production interval. Such operations will add additional costs
and may not always be successful. In April 2004, we announced
that we had concluded the acquisition of a 50% interest in
Samgori (Block
XIB)
Production Sharing Contract (the Samgori PSC) in the
Republic of Georgia. While management believes that this
Production Sharing Contract area, which includes the Samgori,
Patardzeuli and South Dome Oil Fields (collectively, the
Samgori Field), could provide a significant
opportunity for CanArgo, both for short-term oil development and
for exploration upside, we cannot assure investors that the
development and appraisal plans for the Samgori Field will be
successful. Our Georgian exploration program, particularly in
the Manavi and Norio areas, is an important factor for future
success, and this program may not be successful, as it carries
substantial risk. See Our oil and gas activities involve
risks, many of which are beyond our control below for a
description of a number of these potential risks and losses. In
accordance with customary industry practices, we maintain
insurance against some, but not all, of such risks and some, but
not all, of such losses. The occurrence of an event not fully
covered by insurance could have a material adverse effect on our
financial condition and results of operations.
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Our Operation Of The Ninotsminda Field And Samgori Field
Is Governed By Production Sharing Contracts Which May Be Subject
To Certain Legal Uncertainties. |
Our principal business and assets are derived from production
sharing contracts in the Republic of Georgia. The legislative
and procedural regimes governing production sharing agreements
and mineral use licenses in Georgia have undergone a series of
changes in recent years resulting in certain legal
uncertainties. Our production sharing agreements and mineral use
licenses, entered into prior to the introduction in 1999 of a
new Petroleum Law governing such agreements have not, as yet,
been amended to reflect or ensure compliance with current
legislation. As a result, despite references in the current
legislation grandfathering the terms and conditions of our
production sharing contracts, conflicts between the
interpretation of our production sharing contracts and mineral
use licenses and current legislation could arise. Such
conflicts, if they arose, could cause an adverse effect on our
rights under the production sharing contracts.
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We May Encounter Difficulties In Enforcing Our
Title To Our Properties. |
Since all of our oil and gas interests are currently held in
countries where there is currently no private ownership of oil
and gas in place, good title to our interests is dependent on
the validity and enforceability of the governmental licenses and
production sharing contracts and similar contractual
arrangements that we enter into with government entities, either
directly or indirectly. As is customary in such circumstances,
we perform a minimal title investigation before acquiring our
interests, which generally consists of conducting due diligence
reviews and in certain circumstances securing written assurances
from responsible government authorities or legal opinions. We
believe that we have satisfactory title to such interests in
accordance with standards generally accepted in the crude oil
and natural gas industry in the areas in which we operate. Our
interests in properties are subject to royalty interests, liens
incident to operating agreements, liens for current taxes and
other burdens, none of which we believe materially interferes
with the use of, or affects the value of, such interests.
However, as is discussed elsewhere, there is no assurance that
our title to 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 we operate.
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We Will Require Additional Funds To Implement Our
Long-Term Oil And Gas Development Plans. |
It will take many years and substantial cash expenditures to
develop fully our oil and gas properties. We generally have the
principal responsibility to provide financing for our oil and
gas properties and ventures. Accordingly, we may need to raise
additional funds from outside sources in order to pay for
project development costs. We may not be able to obtain that
additional financing. If adequate funds are
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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.
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We May Be Unable To Finance Our Oil And Gas
Projects. |
Our long term ability to finance most of our present oil and gas
projects and other ventures according to present plans is
dependent upon obtaining additional funding. An inability to
obtain financing in the future could require us to scale back or
abandon part or all of our future project development, capital
expenditure, production and other plans. The availability of
equity or debt financing to us or to the entities that are
developing projects in which we have interests is affected by
many factors, including:
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world and regional economic conditions; |
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the state of international relations; |
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the stability and the legal, regulatory, fiscal and tax policies
of various governments in areas in which we have or intend to
have operations; |
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fluctuations in the world and regional price of oil and gas and
in interest rates; |
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the outlook for the oil and gas industry in general and in areas
in which we have or intend to have operations; and |
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competition for funds from possible alternative investment
projects. |
Potential investors and lenders will be influenced by their
evaluations of us and our projects, including their technical
difficulty, and comparison with available alternative investment
opportunities.
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Our Operations May Be Subject To The Risk Of Political
Instability, Civil Disturbance And Terrorism. |
Our principal oil and gas properties and activities are in the
Republic of Georgia, which is located in the former Soviet
Union. Operation and development of our assets are subject to a
number of conditions endemic to former Soviet Union countries,
including political instability. The present governmental
arrangements in countries of the former Soviet Union in which we
operate were established relatively recently, when they replaced
communist regimes. If they fail to maintain the support of their
citizens, other institutions, including a possible reversion to
totalitarian forms of government, could replace these
governments. As recent developments in Georgia have illustrated,
the national governments in these countries often must deal,
from time to time, with civil disturbances and unrest which may
be based on religious, tribal and local and regional separatist
considerations. Our operations typically involve joint ventures
or other participatory arrangements with the national government
or state-owned companies. The production sharing contracts
covering the Ninotsminda and Samgori Fields are examples 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.
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We Face The Risk Of Social, Economic And Legal Instability
In The Countries In Which We Operate. |
The political institutions of the countries that were a part of
the former Soviet Union have 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
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regulatory regimes in such regions may be vague, containing gaps
and inconsistencies, and are subject to amendment. Application
and enforceability of these laws may also vary widely from
region to region within these countries. Due to this
instability, former Soviet Union countries are subject to
certain additional risks including the uncertainty as to the
enforceability of contracts. Social, economic and legal
instability have accompanied these changes due to many factors
which include:
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low standards of living; |
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high unemployment; |
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under-developed and changing legal and social
institutions; and |
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conflicts within and with neighboring countries. |
This instability could make continued operations difficult or
impossible. The Republic of Georgia has recently democratically
elected a new President following a popular revolt against the
previous administration in November 2003 and has successfully
quelled a potential separatist uprising in one of its regions.
Although the new administration has made public statements
supporting foreign investment in the Republic of 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 the Republic of Georgia that may
cause instability and potentially affect our activities.
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We Face An Inadequate Or Deteriorating Infrastructure In
The Countries In Which We Operate. |
Countries in the former Soviet Union often either have
underdeveloped infrastructures or, as a result of shortages of
resources, have permitted infrastructure improvements to
deteriorate. The lack of necessary infrastructure improvements
can adversely affect operations. For example, we have, in the
past, suspended drilling and testing procedures due to the lack
of a reliable power supply.
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We May Encounter Currency Risks In The Countries In Which
We Operate. |
Payment for oil and gas products sold in former Soviet Union
countries may be in local currencies. Although we currently sell
our oil principally for U.S. dollars, we may not be able to
continue to demand payment in hard currencies in the future.
Most former Soviet Union country currencies are presently
convertible into U.S. dollars, but there is no assurance
that such convertibility will continue. Even if currencies are
convertible, the rate at which they convert into
U.S. dollars is subject to fluctuation. In addition, the
ability to transfer currencies into or out of former Soviet
Union countries may be restricted or limited in the future. We
may enter into contracts with suppliers in former Soviet Union
countries to purchase goods and services in 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.
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We May Encounter Tax Risks In The Countries In Which We
Operate. |
Countries may add to or amend existing taxation policies in
reaction to economic conditions including state budgetary and
revenue shortfalls. Since we are dependent on international
operations, specifically those in Georgia, we may be subject to
changing taxation policies including the possible imposition of
confiscatory excess profits, production, remittance, export and
other taxes. While we are not aware of any recent or proposed
tax changes which could materially adversely affect our
operations, such changes could occur although we have negotiated
economic stabilization clauses in our production sharing
contracts in Georgia and all current taxes are payable from the
States share of petroleum produced under the production
sharing contracts.
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Risks Associated with our Industry.
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We May Be Required To Write-Off Unsuccessful Properties
And Projects. |
In order to realize the carrying value of our oil and gas
properties and ventures, we must produce oil and gas in
sufficient quantities and then sell such oil and gas at
sufficient prices to produce a profit. We have a number of
unevaluated oil and gas properties. The risks associated with
successfully developing unevaluated oil and gas properties are
even greater than those associated with successfully continuing
development of producing oil and gas properties, since the
existence and extent of commercial quantities of oil and gas in
unevaluated properties have not been established. We could be
required in the future to write-off our investments in
additional projects, including the Ninotsminda Field project, if
such projects prove to be unsuccessful.
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Our Oil And Gas Activities Involve Risks, Many Of Which
Are Beyond Our Control. |
Our exploration, development and production activities are
subject to a number of factors and risks, many of which may be
beyond our control. We must first successfully identify
commercial quantities of oil and gas, which is inherently
subject to many uncertainties. Thereafter, the development of an
oil and gas deposit can be affected by a number of factors which
are beyond the operators control, such as:
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unexpected or unusual geological conditions; |
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the recoverability of the oil and gas on an economic basis; |
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the availability of infrastructure and personnel to support
operations; |
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labor disputes; |
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local and global oil prices; and |
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government regulation and legal and political uncertainties. |
Our activities can also be affected by a number of hazards, such
as:
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natural phenomena, such as bad weather and earthquakes; |
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operating hazards, such as fires, explosions, blow-outs, pipe
failures and casing collapses; and |
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environmental hazards, such as oil spills, gas leaks, ruptures
and discharges of toxic gases. |
Any of these factors or hazards could result in damage, losses
or liability for us. There is also an increased risk of some of
these hazards in connection with operations that involve the
rehabilitation of fields where less than optimal practices and
technology were employed in the past, as was often the case in
the countries that were part of the former Soviet Union. We do
not purchase insurance covering all of the risks and hazards or
all of our potential liability that are involved in oil and gas
exploration, development and production.
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We May Have Conflicting Interests With Our
Partners. |
Joint venture, acquisition, financing and other agreements and
arrangements must be negotiated with independent third parties
and, in some cases, must be approved by governmental agencies.
These third parties generally have objectives and interests that
may not coincide with ours and may conflict with our interests.
Unless we are able to compromise these conflicting objectives
and interests in a mutually acceptable manner, agreements and
arrangements with these third parties will not be consummated.
We may not have a majority of the equity in the entity that is
the licensed developer of some projects that we may pursue in
the countries that were a part of the former Soviet Union, even
though we may be the designated operator of the oil or gas
field. In these circumstances, the concurrence of co-venturers
may be required for various actions. Other parties influencing
the timing of events may have priorities that differ from ours,
even if they generally share our objectives. Demands by or
expectations of governments, co-venturers, customers, and others
may affect our strategy regarding the various projects. Failure
to meet
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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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Our Operating Direct And Indirect Subsidiaries And Joint
Ventures Require Governmental Registration. |
Operating entities in various foreign jurisdictions must be
registered by governmental agencies, and production licenses and
contracts for the development of oil and gas fields in various
foreign jurisdictions must be granted by governmental agencies.
These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and
matters. In addition, the policies and practices of governmental
agencies may be affected or altered by political, economic and
other events occurring either within their own countries or in a
broader international context.
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We Are Affected By Changes In The Market Price Of Oil And
Gas. |
Prices for oil and natural gas and their refined products are
subject to wide fluctuations in response to a number of factors
which are beyond our control, including:
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global and regional changes in the supply and demand for oil and
natural gas; |
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actions of the Organization of Petroleum Exporting Countries; |
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weather conditions; |
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domestic and foreign governmental regulations; |
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the price and availability of alternative fuels; |
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political conditions and terrorist activity in the Middle East,
Central Asia and elsewhere; and |
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overall global and regional economic conditions. |
A reduction in oil prices can affect the economic viability of
our operations. There can be no assurance that oil prices will
be at a level that will enable us to operate at a profit. We may
also not benefit from rapid increases in oil prices as the
market for the levels of crude oil produced in Georgia by
Ninotsminda Oil Company Limited can in such an environment be
relatively inelastic. Contract prices are often set at a
specified price determined with reference to world market prices
(often based on the average of a number of quotations for a
marker crude including Dated Brent Mediterranean or
Urals Mediterranean at the time of sale) subject to appropriate
discounts for transportation and other charges which can vary
from contract to contract.
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Our Actual Oil And Gas Production Could Vary Significantly
From Reserve Estimates. |
Estimates of oil and natural gas reserves and their values by
petroleum engineers are inherently uncertain. These estimates
are based on professional judgments about a number of elements:
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the amount of recoverable crude oil and natural gas present in a
reservoir; |
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the costs that will be incurred to produce the crude oil and
natural gas; and |
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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:
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additional development activity; |
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evolving production history; and |
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changes in production costs, market prices and economic
conditions. |
As a result, the actual amount, cost and rate of production of
oil and gas reserves and the revenues derived from sale of the
oil and gas produced in the future will vary from those
anticipated in the reports on the
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oil and gas reserves prepared by independent petroleum
consultants at any given point in time. The magnitude of those
variations may be material. The rate of production from crude
oil and natural gas properties declines as reserves are
depleted. Except to the extent we acquire additional properties
containing proved reserves, conduct successful exploration and
development activities or, through engineering studies, identify
additional productive zones in existing wells or secondary
recovery reserves, our proved reserves will decline as reserves
are produced. Future crude oil and natural gas production is
therefore highly dependent upon our level of success in
replacing depleted reserves.
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Our Oil And Gas Operations Are Subject To Extensive
Governmental Regulation. |
Governments at all levels, national, regional and local,
regulate oil and gas activities extensively. We must comply with
laws and regulations which govern many aspects of our oil and
gas business, including:
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exploration; |
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development; |
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production; |
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refining; |
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marketing; |
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transportation; |
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occupational health and safety; |
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labor standards; and |
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environmental matters. |
We expect the trend towards more burdensome regulation of our
business to result in increased costs and operational delays.
This trend is particularly applicable in developing economies,
such as those in the countries that were a part of the former
Soviet Union where we have our principal operations. In these
countries, the evolution towards a more developed economy is
often accompanied by a move towards the more burdensome
regulations that typically exist in more developed economies.
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We Face Significant Competition. |
The oil and gas industry, including the refining and marketing
of crude oil products, is highly competitive. Our competitors
include integrated oil and gas companies, government owned oil
companies, independent oil and gas companies, drilling and
income programs, and wealthy individuals. Many of our
competitors are large, well-established, well-financed
companies. Because of our small size and lack of financial
resources, we may not be able to compete effectively with these
companies.
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Our Profitability May Be Subject To Changes In Interest
Rates. |
Our profitability may also be adversely affected during any
period of unexpected or rapid increase in interest rates. While
we currently have only limited amounts of long term debt,
increases in interest rates may adversely affect our ability to
raise debt capital to the extent that our income from operations
will be insufficient to cover debt service.
Risks Associated with our Stock.
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Limited Trading Volume In Our Common Stock May Contribute
To Price Volatility. |
Our common stock is listed for trading on the Oslo Stock
Exchange (OSE) in Norway, and on the American Stock
Exchange (AMEX) in New York. Prior to the listing on
the AMEX, our stock was traded on the Over the Counter
Bulletin Board in the United States and on the OSE. During
the 6 months ended June 30, 2005, the average daily
trading volume for our common stock on the OSE was
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2,674,392 shares and 1,983,174 shares on the AMEX both
as reported by Yahoo and the closing price of our stock during
such period ranged from a low of NOK 4.45 and $0.66 to a high of
NOK 12.40 and $1.94 on the OSE and AMEX, respectively, as
reported by Yahoo. As a relatively small company with a limited
market capitalization, even if our shares are more widely
disseminated, 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.
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The Price Of Our Common Stock May Be Subject To Wide
Fluctuations. |
The market price of our common stock could be subject to wide
fluctuations in response to quarterly variations in our results
of operations, changes in earnings estimates by analysts,
changing conditions in the oil and gas industry or changes in
general market, economic or political conditions.
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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.
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We Have A Significant Number Of Shares Eligible For Future
Sale. |
At August 18, 2005, we had 221,929,283 shares of
common stock outstanding of which 940,210 shares were held
by affiliates. In addition, at August 18, 2005, we had
45,270 shares issuable upon exchange of CanArgo
Oil & Gas Inc. Exchangeable Shares without receipt of
further consideration; 10,574,000 shares of common stock
subject to outstanding options granted under certain stock
option plans (of which 4,721,000 shares were vested at
August 18, 2005); 2,300,000 shares issuable upon
exercise of outstanding warrants; up to 2,176,419 shares of
common stock reserved for issuance under our existing option
plans; up to 41,487,017 shares reserved for issuance in
connection with certain existing contractual arrangements,
including 27,777,778 shares upon conversion of the Senior
Secured Notes and 1,521,739 issuable upon conversion of the
Ozturk Convertible Loan. All of the shares of common stock held
by affiliates are restricted or control securities under
Rule 144 promulgated under the Securities Act of 1933. The
shares of common stock issuable upon exercise of the stock
options have been registered under the Securities Act. In
addition, the 41,487,017 shares issued and issuable
pursuant to contractual arrangements, including under the Senior
Secured Notes and the Ozturk Convertible Loan, are subject to
certain registration rights and, therefore, will be eligible for
resale in the public market after the registration statement
covering such shares of which this prospectus forms a part has
been declared effective. Sales of shares of common stock under
Rule 144 or pursuant to a registration statement could have
a material adverse effect on the price of the common stock and
could impair our ability to raise additional capital through the
sale of our equity securities.
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Our Ability To Incur Additional Indebtedness Is Restricted
Under the Terms of the Senior Secured Notes. |
Pursuant to the terms of the Note Purchase Agreement
entered into by and between CanArgo and the purchasers of the
Senior Secured Notes, we may not incur future indebtedness or
issue additional senior or pari passu indebtedness, except with
the prior consent of the beneficial holders of at least 51% of
the outstanding principal amount of the Senior Secured Notes or
in limited permitted circumstances. The definition of
indebtedness in the Note Purchase Agreement encompasses all
customary forms of indebtedness, including, without limitation,
liabilities for deferred consideration, liabilities for borrowed
money secured by any lien or other specified security interest
(except permitted liens), liabilities in respect of letters of
credit or similar instruments (excluding letters of credit which
are 100% cash collateralized) and guarantees in relation to such
forms of indebtedness (excluding parent company guarantees
provided by CanArgo in respect of the indebtedness or
obligations of any of our subsidiaries under any Basic Documents
(as defined in the Note Purchase Agreement)).
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Our Ability To Make Future Stock Issuances, The Terms of
the Senior Secured Notes And The Provisions Of Delaware Law
Could Have Anti-Takeover Effects. |
Our board of directors may at any time issue additional shares
of preferred stock and common stock without any prior approval
by the stockholders, which might impair or impede a third party
from making an offer to acquire us. Holders of outstanding
shares have no right to purchase a pro rata portion of
additional shares of common or preferred stock issued by us.
Further, under the terms of the Senior Secured Notes, in the
event of a Change of Control or a Control
Event we are required to offer to prepay the Senior
Secured Notes which might also dissuade a third party from
making an acquisition offer. See The Selling
Stockholders Senior Secured Notes
Mandatory Prepayment in this prospectus for the definition
of Change of Control and Control Event.
In addition, the provisions of Section 203 of the Delaware
General Corporation Law, to which we are subject, places certain
restrictions on third parties who seek to effect a business
combination with a company opposed by our board of directors.
See the sections entitled Selling Stockholders
Senior Secured Notes and Section 203 of The
Delaware General Corporation Law in this prospectus.
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 (the
Securities Act), as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. When used in
this prospectus, the words estimate,
project, anticipate, expect,
intend, believe, hope,
may and similar expressions, as well as
will, shall and other indications of
future tense, are intended to identify forward-looking
statements. The forward-looking statements are based on our
current expectations and speak only as of the date made. These
forward-looking statements involve risks, uncertainties and
other factors that in some cases have affected our historical
results and could cause actual results in the future to differ
significantly from the results anticipated in forward-looking
statements made in this prospectus. Important factors that could
cause such a difference are discussed in this prospectus,
particularly in the section entitled Risk Factors.
You are cautioned not to place undue reliance on the
forward-looking statements.
Few of the forward-looking statements in this prospectus,
including the documents that are incorporated by reference, deal
with matters that are within our unilateral control. Joint
venture, acquisition, financing and other agreements and
arrangements must be negotiated with independent third parties
and, in some cases, must be approved by governmental agencies.
These third parties generally have interests that do not
coincide with ours and may conflict with our interests. Unless
the third parties and we are able to compromise their various
objectives in a mutually acceptable manner, agreements and
arrangements will not be consummated.
Although we believe our expectations reflected in
forward-looking statements are based on reasonable assumptions,
no assurance can be given that these expectations will prove to
have been correct. Important factors that could cause actual
results to differ materially from the expectations reflected in
the forward-looking statements include, among others:
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the market prices of oil and gas; |
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uncertainty of drilling results, reserve estimates and reserve
replacement; |
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operating uncertainties and hazards; |
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economic and competitive conditions; |
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natural disasters and other changes in business conditions; |
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inflation rates; |
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legislative and regulatory changes; |
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financial market conditions; |
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accuracy, completeness and veracity of information received from
third parties; |
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wars and acts of terrorism or sabotage; |
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political and economic uncertainties of foreign
governments; and |
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future business decisions. |
In light of these risks, uncertainties and assumptions, the
events anticipated by our forward-looking statements might not
occur. We undertake no obligation to update or revise our
forward-looking statements, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from sales of the shares of
common stock covered by this prospectus. We will, however,
receive the proceeds from the exercise of the Ozturk Warrant in
the amount of $1,260,000, assuming the entire Warrant is
exercised. See Recent Developments and The
Selling Stockholders Ozturk Shares herein. All
such proceeds will be used for our working capital purposes.
THE SELLING STOCKHOLDERS
Senior Secured Notes
Of the 42,459,517 shares being offered under this
prospectus, up to 27,777,778 shares, subject to adjustment,
will be acquired by the holders of the Senior Secured Notes. On
July 25, 2005, we entered into a Note Purchase
Agreement with a group of private investors (the
Purchasers) all of whom qualified as
accredited investors under Rule 501(a)
promulgated under the Securities Act. Pursuant to the
Note Purchase Agreement, we issued a note due July 25,
2009 in the aggregate principal amount of $25 million to
Ingalls & Snyder LLC, as nominee for the Purchasers, in
a transaction intended to qualify for an exemption from
registration under the Securities Act pursuant to
Section 4(2) thereof and Regulation D promulgated
thereunder. For purposes hereof each of the Purchasers is deemed
a beneficial holder of the Note and such Purchasers may each be
assigned their own Senior Secured Note as provided in the
Note Purchase Agreement and, accordingly, all such Senior
Secured Notes are referred to herein collectively as the
Senior Secured Note and any such Purchaser or its
assignee is referred to herein as a holder of the Senior Secured
Note.
Interest. The unpaid principal balance under the Senior
Secured Note bears interest (computed on the basis of a 360-day
year of twelve 30-day months) (a) at increasing rates
ranging from 3% from the date of issuance to December 31,
2005; 10% from January 1, 2006 until December 31,
2006; and 15% from January 1, 2007 until final payment,
payable semi-annually, on
June 30th
and
December 30th,
commencing December 30, 2005, until the principal shall
have become due and payable and (b) at 3% above the
applicable rate on any overdue payments of principal and
interest.
Optional Prepayments. We may, at our option, upon at
least not less than 90 days and not more than 120 days
prior written notice, prepay at any time and from time to time
after July 31, 2006, all or any part of the Senior Secured
Note, in a principal amount of not less than $100,000 at the
following Redemption Prices (expressed as percentages of
the principal amount so prepaid): 105% after July 31, 2006;
104% after January 1, 2007; 103% after July 1, 2007;
102% after January 1, 2008; 101% after July 1, 2008,
and 100% after January 1, 2009, together with all accrued
and unpaid interest.
Mandatory Prepayment. We are required to offer to prepay
all, but not less than all, of the Senior Secured Note, on not
less than 15 business days prior written notice, in the event of
an occurrence of a Change of Control or Control Event.
Change in Control is defined to mean
(a) if CanArgo shall at any time cease to be a publicly
held company or cease to have its capital stock traded on an
exchange or (b) a transaction or series of related
transactions pursuant to which (i) at least fifty-one
percent (51%) of
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the outstanding shares of CanArgos common stock or, on a
fully diluted basis, shall subsequent to July 25, 2005 be
owned by any person which is not related to or affiliated with
CanArgo, (ii) if CanArgo merges into or with, consolidates
with or effects any plan of share exchange or other combination
with any person which is not related to or affiliated with
CanArgo, or (iii) if CanArgo disposes of all or
substantially all of its assets other than in the ordinary
course of business and Control Event is
defined to mean (i) the execution by CanArgo or any
material subsidiary of CanArgo which has guaranteed the
indebtedness evidenced by the Note (a CanArgo Group
Member) of any agreement or letter of intent with respect
to any proposed transaction or event or series of transactions
or events which, individually or in the aggregate, may
reasonably be expected to result in a Change in Control, or
(ii) the execution of any written agreement which, when
fully performed by the parties thereto, would result in a Change
in Control.
Conversion. The Senior Secured Note is convertible any
time, in whole or in part, at the option of the Note holder,
into shares of CanArgo common stock (Conversion
Stock) at a conversion price per share of $0.90 (the
Conversion Price), which is subject to adjustment:
(a) if CanArgo issues any equity securities (other than
pursuant to the granting of employee stock options pursuant to
shareholder approved employee stock option plans or existing
outstanding options, warrants and convertible securities) at a
price per share of less than $0.90 per share net of all
fees, costs and expenses in which case the Conversion Price will
be reset to such lower price and (b) in connection with any
stock split, stock dividend, reverse stock split,
reclassification, recapitalization, combination, merger,
consolidation or any similar transaction, in which case the
Conversion Price and number of shares of Conversion Stock will
be appropriately adjusted to reflect any such event, such that
the holders of the Senior Secured Note will receive upon
conversion the identical number of shares of common stock or
other consideration or property to be received by the holders of
the common stock as if the holders had converted the Senior
Secured Note immediately prior to any such event as such amount
would then be adjusted by reason of such stock split, stock
dividend, reverse stock split, reclassification,
recapitalization, combination, merger, consolidation or other
similar transaction. No fractional shares of common stock shall
be issued upon any conversion; instead the Conversion Price
shall be appropriately adjusted so that holders shall receive
the nearest whole number of shares upon any conversion.
In connection with the execution and delivery of the
Note Purchase Agreement, we entered into a Registration
Rights Agreement with the Purchasers pursuant to which we agreed
to register the Conversion Stock for resale under the Securities
Act.
Security. Payment of all amounts due and payable under
the Note Purchase Agreement, the Senior Secured Note and
all related agreements (collectively, the Loan
Documents) is secured by a security interest in all of our
assets, including our principal Guernsey bank account, as well
as, guarantees from each other CanArgo Group Member and pledges
of all of the outstanding capital stock of Ninotsminda Oil
Company Limited, a limited liability company incorporated under
the laws of the Republic of Cyprus; CanArgo Limited, a company
incorporated under the laws of the Bailiwick of Guernsey; and
Tethys Petroleum Investments Limited, a company incorporated
under the laws of the Bailiwick of Guernsey, each of which is an
indirect subsidiary of CanArgo. If we form or acquire a Material
Subsidiary (as defined in the Note Purchase Agreement) we
shall cause such Subsidiary to execute a Subsidiary Guaranty
(other than for certain excepted companies and legal entities)
and thereby become a CanArgo Group Member subject to the
provisions of the Note Purchase Agreement.
Covenants. Under the terms of the Note Purchase
Agreement we are subject to certain affirmative and negative
covenants, which can be waived by the beneficial holders of at
least 51% of the outstanding principal amount of the Senior
Secured Note (the Required Holders), including the
following affirmative and negative covenants, respectively:
(a) providing current information regarding CanArgo and
rights of inspection; compliance with laws; maintenance of
corporate existence, insurance and properties; payment of taxes;
providing additional security; payment of counsel fees for the
Purchasers (not in excess of $100,000) and a placement fee of
$250,000; and termination of the Equity Line of Credit, and
(b) restrictions on: transactions with affiliates; mergers,
consolidations and sales of all of CanArgos assets; liens
(except for certain permitted liens); additional indebtedness,
including senior or pari passu
15
indebtedness (other than certain permitted indebtedness);
changes in our line of business; certain types of payments;
sale-and leasebacks; sales of assets other than in the ordinary
course of business; canceling, terminating, waiving or amending
provisions of, or selling any interests in (other than under
certain circumstances) any of the Basic Agreements (as defined
in the Note Purchase Agreement); and adopting any
anti-take-over defenses except as permitted by the
Note Purchase Agreement. We are not subject to any
financial covenants, such as the maintenance of minimum net
worth or fixed charge coverage ratios, other than the
restriction on our ability to incur additional Indebtedness.
Events of Default. An Event of Default shall
exist if one or more of the following occurs and is continuing:
(i) failure to pay when due any principal and, after
5 days, any interest, payable under the Senior Secured Note
or any Security Document; (ii) default in the performance
of certain enumerated covenants; (iii) default in the
performance or compliance with any other terms which remains
unremedied for 30 days after the earlier of a Responsible
Officer first obtaining actual and not constructive knowledge of
the default or the receipt of notice; (iv) any
representation or warranty made in writing on behalf of CanArgo
or any other CanArgo Group Member proves to have been false or
incorrect in any material respect; (v) customary events
involving bankruptcy, insolvency or reorganization;
(vi) the entry of a final judgment or judgments in excess
of $2,500,000 (uncovered by insurance), which is not discharged
or settled; (vii) violations of The Employee Retirement Act
of 1976, as amended (ERISA) or the Internal Revenue
Code of 1986, as amended, under funding of accrued benefit
liabilities and other matters relating to employee benefit plans
subject to ERISA or foreign pension plans; (viii) any Loan
Document ceases to be in full force and effect (except in
accordance with its terms) or its validity is challenged by
CanArgo or any affiliate; (ix) CanArgo or any other CanArgo
Group Member modifies its Charter Document which results in a
Default or Event of Default or will adversely affect the rights
of Noteholders; or (x) a change occurs in the consolidated
financial condition of CanArgo or in the physical, operational
or financial status of the Properties (as defined in the
Note Purchase Agreement), which change has a Material
Adverse Effect (as defined in the Note Purchase Agreement).
Other than for certain Events of Default that will result in an
automatic acceleration without notice, such as bankruptcy, if an
Event of Default occurs and is continuing, the Required Holders
may at any time at its or their option, by notice to CanArgo,
declare all outstanding Senior Secured Notes to be immediately
due and payable and holders of the Senior Secured Note may
proceed to enforce their rights under the Loan Documents at law
or in equity. CanArgo is responsible for the payment of all
costs of collection, including all reasonable legal fees
actually incurred in connection therewith.
Miscellaneous. The Note Purchase Agreement, the
Senior Secured Note, the Security Agreement, the Subsidiary
Guaranty and the Registration Rights Agreement are all governed
by New York Law and the CanArgo Group Members parties thereto
subject themselves to the jurisdiction of New York Courts and
waive the right to jury trial. The Pledge Agreements and the
Security Interest Agreement relating to CanArgos bank
account are governed by the laws of the Bailwick of Guernsey and
the Republic of Cyprus, as provided therein.
Ozturk Shares
As described in Recent Developments above, pursuant
to an agreement entered into in August 2004, Mr. Salahi
Ozturk, a foreign national, has the right to acquire
1,521,739 shares of CanArgo common stock upon conversion of
the Ozturk Convertible Loan (Conversion Stock),
subject to adjustment,. Furthermore, under the terms of the
Agreement Mr Ozturk has received a warrant to acquire
2,000,000 shares of CanArgo common stock, subject to
adjustment, upon exercise. The warrant was issued and the shares
of common stock issuable upon exercise of the warrant as well as
the Ozturk Conversion Stock will be issued in transactions
intended to qualify for the exemption from registration afforded
by Section 4(2) of the Securities Act and Regulation S
promulgated under such Act. All such shares of common stock are
included herein.
16
Tethys Shares
As described in Recent Developments above, on
June 9, 2005 we concluded a transaction to acquire the
interests of Provincial Securities Limited
(Provincial) and Vando International Finance Limited
(Vando) in Tethys Petroleum Investments Limited
(Tethys). In consideration for its shares in Tethys,
Provincial was issued with 5,500,000 restricted shares of common
stock. Mr. Russell Hammond, a CanArgo director, is an
Investment Advisor of Provincial. Mr. Hammond disclaims
beneficial ownership of the Provincial shares. In consideration
for its shares in Tethys, Vando was issued with 5,500,000
restricted shares of common stock. Mr Salahi Ozturk is the
principal who holds investment control in Vando. On the basis of
the closing price of the CanArgo stock on the American Stock
Exchange Transactions Tape on June 7, 2005 of $0.76 the
total stock issued to Provincial and Vando was valued at
$8,360,000. The shares were issued in a transaction intended to
qualify for an exemption from registration under the Securities
Act afforded by Regulation S promulgated thereunder.
CEOcast Inc Shares
On November 17, 2004, we entered into a consultancy
agreement with CEOcast Inc, an unaffiliated New York
corporation, of which Mr Michael Wachs holds investment control.
Under the terms of the consultancy agreement, CEOcast Inc
provides various investor relations services and strategic
advice to us. As part of the compensation for its services,
CEOcast Inc received 80,000 restricted shares of our common
stock on February 10, 2005, in an arms length transaction.
On May 17, 2005, we entered into a further consultancy
agreement with CEOcast Inc and on June 6, 2005, we issued a
further 80,000 restricted shares of our common stock, also as
compensation for its services and in an arms length transaction.
On the basis of the closing price of the Companys common
stock on February 10, 2005 of $1.38 and on June 6,
2005 of $0.78, the aggregate stock issued to CEOcast Inc was
valued at $172,800. The shares were issued in transactions
intended to qualify for an exemption from registration under the
Securities Act afforded by Section 4(2).
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.
17
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 , 2005. 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 August 18, 2005, we had an aggregate
of 221,929,283 common shares outstanding.
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Percentage of | |
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Outstanding | |
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Shares | |
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Shares | |
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Percentage of | |
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Beneficially | |
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Beneficially | |
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Shares to be | |
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Shares Owned | |
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Common Stock | |
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Owned Prior to | |
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Owned Before | |
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Sold in the | |
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After the | |
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Owned After the | |
Name of Selling Stockholder |
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Offering | |
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Offering (%)(1) | |
|
Offering | |
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Offering | |
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Offering (%) | |
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| |
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| |
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| |
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| |
Salahi Ozturk
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10,121,739 |
(2) |
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4.56 |
(4) |
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3,521,739 |
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6,600,000 |
(4) |
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2.9 |
(4) |
Provincial Securities Limited
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6,520,000 |
(3) |
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2.94 |
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5,500,000 |
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1,020,000 |
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* |
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Vando International Finance Limited
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5,500,000 |
(4) |
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2.48 |
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5,500,000 |
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0 |
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0 |
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CEOcast Inc
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240,000 |
(5) |
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* |
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160,000 |
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80,000 |
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* |
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Ingalls & Snyder Value Partners L.P.
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(6) |
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15,555,556 |
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Nikolaos D Monoyios
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(6) |
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3,333,333 |
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Thomas L Gipson
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(6) |
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2,222,222 |
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Arthur Koenig
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(6) |
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2,222,222 |
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Thomas L Gipson IRA
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(6) |
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1,111,111 |
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Evan Janovic
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(6) |
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611,111 |
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Arthur Ablin
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(6) |
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555,556 |
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Fledgling Associates, LLC
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(6) |
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555,556 |
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Adam Janovic
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(6) |
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444,444 |
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Neil Janovic
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(6) |
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444,444 |
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Anthony Corso
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(6) |
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277,778 |
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John Gilmer
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(6) |
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277,778 |
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Martin Soloman
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(6) |
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166,667 |
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Totals
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42,459,517 |
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(1) |
Applicable percentage of ownership is based on
221,929,283 shares of common stock outstanding as of
August 18, 2005. |
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(2) |
Represents 2,000,000 shares of common stock issuable on
exercise of warrants issued to Mr Ozturk on August 27, 2004
and 1,521,739 shares of common stock issuable upon
conversion of the $1,000,000 Ozturk Convertible Loan,
5,500,000 shares of common stock issued to Vando over which
Mr. Ozturk holds investment control and a further
1,100,000 shares of common stock beneficially owned by
Mr. Ozturk. |
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(3) |
Represents shares issued on June 9, 2005 to Provincial in
connection with the acquisition of Provincials shares in
Tethys. Mr. Russell Hammond, a CanArgo director, is an
Investment Advisor of Provincial. Mr. Hammond disclaims
beneficial ownership of the Provincial shares. |
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(4) |
Represents shares issued on June 9, 2005 to Vando in
connection with the acquisition of Vandos shares in
Tethys. Mr. Salahi Ozturk is the principal who controls
Vando and, accordingly, Vandos shares are included in the
total number of shares beneficially owned by Mr. Ozturk. |
18
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(5) |
Represents 160,000 shares issued on February 10, 2005
and June 6, 2005 pursuant to the Consultancy Agreement
between CEOcast Inc and CanArgo and an additional
80,000 shares of CanArgo common stock beneficially held by
CEOcast Inc which were previously registered for resale under
the Securities Act in a Registration Statement on Form S-3
(Reg. No. 333-115261). |
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(6) |
Represents shares of common stock issuable upon conversion of
Senior Secured Notes issued on July 25, 2005. |
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
conversion of the Notes, the Ozturk Convertible Loan and Ozturk
Warrant in accordance with the anti-dilution adjustment
provisions contained in the Notes, such Loan and Ozturk Warrant.
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 directors duty of loyalty; (2) for acts
or omissions not in good faith or involving intentional
misconduct or a knowing violation of law; (3) for the
payment of unlawful dividends 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.
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.
19
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or
persons who may control us pursuant to the foregoing provisions,
we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Act
and is therefore unenforceable.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law, which
is applicable to CanArgo as a Delaware corporation, prohibits
various business combinations between a Delaware corporation and
an interested stockholder, that is, anyone who
beneficially owns, alone or with other related parties, at least
15% of the outstanding voting shares of a Delaware corporation.
Business combinations subject to Section 203 include
mergers, consolidations, sales or other dispositions of assets
having an aggregate value in excess of 10% of the consolidated
assets of the corporation, and some transactions that would
increase the interested stockholders 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:
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the business combination is approved by the corporations
board of directors prior to the date the person becomes an
interest stockholder; |
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the interested stockholder acquired at least 85% of the voting
stock of the corporation, other than stock held by directors who
are also officers or by specified employee stock plans, in the
transaction in which it becomes an interested
stockholder; or |
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the business combination is approved by a majority of the board
of directors and by the affirmative vote of two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder. |
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 AMEX or the OSE 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 OSE 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:
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in ordinary brokers transactions and transactions in which
the broker solicits purchasers; |
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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; |
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in transactions at the market to or through market
makers in the common stock; |
20
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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; |
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through transactions in options, swaps or other derivatives
which may or may not be listed on an exchange; |
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an exchange distribution in accordance with the rules of such
exchange; |
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in privately negotiated transactions; |
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in transactions to cover short sales; or |
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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 deemed to
be underwriters within the meaning of the Securities
Act in connection with the sale of their shares of common stock.
Because selling stockholders may 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.
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 the selling stockholders and their controlling persons
against certain liabilities, including liabilities under the
Securities Act.
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.
21
Under our agreements with the selling stockholders, we are
required to bear the expenses relating to the registration of
this offering. We estimate that the expenses of the offering to
be borne by us will be approximately $86,000. 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 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 of CanArgo Energy
Corporation for 2003 and 2004, and managements assessment
of the effectiveness of internal control over financial
reporting as of December 31, 2004 incorporated in this
prospectus by reference from CanArgo Energy Corporations
Annual Report on Form 10-K and amended Annual Report on
Form 10-K/A for the year ended December 31, 2004,
which, have been audited by LJ Soldinger Associates LLC,
independent registered public accountants, as stated in their
reports, which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The consolidated financial statements for the year ended
December 31, 2002 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,
2004 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, an independent registered public
accounting firm, 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, 2004, has been prepared by Oilfield
Production Consultants and such reserve report dated
January 1, 2005 has been incorporated herein in reliance
upon the authority of such firm as experts in estimating proved
oil and gas reserves.
22
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of
the Exchange Act under which we file periodic reports, proxy
statements and other information with the Securities and
Exchange Commission (SEC). You may read and copy any
document we file at the SECs public reference rooms at the
Public Reference Section of the SEC, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the
Commissions Regional Offices located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are
also available to the public from the SECs Internet site
at http://www.sec.gov which contains reports, proxy and
information statements and other information regarding issuers
that we file electronically.
This prospectus is part of a registration statement that we
filed with the SEC (registration
number 333- ). 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 Oslo Stock Exchange in Norway
under the symbol CNR and also on The American Stock
Exchange under the symbol CNR. Information about us
is also available at the Oslo Stock Exchange website
(www.ose.no), and at the offices of The American Stock
Exchange, 86 Trinity Place, New York, NY 10005.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to those documents
that are considered part of this prospectus. Later information
that we file with the SEC will automatically update and
supersede this information. We incorporate by reference the
documents listed below and any future filings made by us with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until this offering of
securities has been completed:
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Annual Report on Form 10-K for the year ended
December 31, 2004, as amended |
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Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2005 |
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Quarterly Report on Form 10-Q for the fiscal quarter ended
June 30, 2005 |
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The description of CanArgos common stock contained in
Form 8-A/12B dated April 19, 2004 |
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Revised Definitive Proxy Materials dated March 18, 2005 |
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.
23
42,459,517 Shares
CANARGO ENERGY CORPORATION
Common Stock
PROSPECTUS
, 2005
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
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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.
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SEC Registration Fee
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$ |
6,047 |
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Legal Fees and Expenses
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50,000 |
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Accountants Fees and Expenses
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15,000 |
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Printing Expenses
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10,000 |
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Miscellaneous
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5,000 |
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Total
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$ |
86,047 |
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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 SECs
position with respect to the enforceability of such
indemnification provisions in regard to violations of the
Securities Act.
II-1
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4 |
.1 |
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Note Purchase Agreement dated July 25, 2005 among CanArgo
Energy Corporation and Ingalls & Snyder Value Partners,
L.P. together with the other Purchasers (incorporated herein by
reference from Form 8-K/A dated July 28, 2005). |
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5 |
.1 |
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Opinion of Satterlee Stephens Burke & Burke LLP♠ |
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23 |
.1 |
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Consent of Satterlee Stephens Burke & Burke LLP to the
use of their opinion with respect to the legality of the
securities being registered (included in opinion to be filed as
Exhibit 5.1)♠ |
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23 |
.2 |
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Consent of L J Soldinger Associates LLC |
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23 |
.3 |
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Consent of PricewaterhouseCoopers LLP |
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23 |
.4 |
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Consent of Oilfield Production Consultants |
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24 |
.1 |
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Power of attorney of certain signatories (contained on the
signature page included in Part II of the Registration
Statement) |
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♠ |
To be filed by amendment |
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:
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(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement: |
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(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933; |
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(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; |
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(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; |
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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. |
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(2) That, for the purposes of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof. |
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(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. |
II-2
(b) The undersigned registrant hereby undertakes that for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrants 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form S-3 and has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly
authorized, in St. Peter Port, Guernsey, British Isles, on
August 25, 2005.
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CANARGO ENERGY CORPORATION |
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By: |
/s/ Richard J. Battey |
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Richard J. Battey |
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Chief Financial Officer |
II-4
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 Richard Battey, and either of them, the
lawful attorney and agent, with power and authority to do any
and all acts and things and to execute any and all instruments
which said attorney and agent, determine may be necessary or
advisable or required to enable said corporation to comply with
the Securities Act of 1933, as amended, and any rules or
regulations or requirements of the Securities and Exchange
Commission in connection with this Registration Statement.
Without limiting the generality of the foregoing power of
authority, the powers granted include the power and authority to
sign the names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to
any and all amendments, post-effective amendments and
supplements thereof and to any and all instruments or documents
filed as part of or in connection with such Registration
Statement, and each of the undersigned hereby certifies and
confirms all that said attorney and agent, shall do or cause to
be done by virtue hereof. The Power of Attorney may be signed in
several counterparts.
IN WITNESS WHEREOF, the undersigned has executed this
Power of Attorney as of the dates indicated below.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
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By: |
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/s/ Richard J. Battey
Richard
J. Battey, Chief Financial Officer |
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Date: August 25, 2005 |
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By: |
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/s/ David Robson
David
Robson, Chairman of the Board, President and Chief Executive
Officer and Director |
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Date: August 25, 2005 |
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By: |
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/s/ Vincent McDonnell
Vincent
McDonnell, Executive Director, Chief Operating Officer and Chief
Commercial Officer |
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Date: August 25, 2005 |
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By: |
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/s/ Russ Hammond
Russell
Hammond, Director |
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Date: August 25, 2005 |
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By: |
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/s/ Nils N. Trulsvik
Nils
N. Trulsvik, Director |
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Date: August 25, 2005 |
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By: |
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/s/ Michael Ayre
Michael
Ayre, Director |
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Date: August 25, 2005 |
II-5
EXHIBIT INDEX
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Filed |
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Herewith |
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Exhibit |
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X |
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23.2 |
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Consent of L J Soldinger Associates LLC |
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X |
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23.3 |
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Consent of PricewaterhouseCoopers LLP |
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X |
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23.3 |
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Consent of Oilfield Production Consultants |
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X |
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24.1 |
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Power of attorney of certain signatories (contained on signature
page included in Part II of the Registration Statement) |