AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 2004
REGISTRATION NO. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CANARGO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 91-0881481
(State or other jurisdiction of (I.R.S. Employer Number)
incorporation or organization)
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P.O. BOX 291, ST PETER PORT
GUERNSEY, GY1 3RR, BRITISH ISLES
+(44) 1481 729 980
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
DR. DAVID ROBSON
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
P.O. BOX 291, ST PETER PORT
GUERNSEY, GY1 3RR, BRITISH ISLES
+(44) 1481 729 980
(Name, address, including zip code, and telephone number,
including area code of agent for service)
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COPIES TO:
JOVI TENEV, ESQ. PETER A. BASILEVSKY, ESQ.
LANCE MYERS, ESQ. SATTERLEE STEPHENS BURKE & BURKE LLP
HOLLAND & KNIGHT LLP 11TH FLOOR, 230 PARK AVENUE
195 BROADWAY NEW YORK, NY 10169
NEW YORK, NY 10007 (212) 818-9200
(212) 513-3200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective for the common
stock being offered in the Initial Offering and for the remaining balance of the
securities registered under this Registration Statement, from time to time as
determined by the Registrant.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
(Continued on next page)
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
(Continued from previous page)
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PRICE(1)(2) PRICE(1)(3) FEE(4)
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Common Stock, par value $.10 per share..... 75,000,000 $0.74 $55,500,000 $7,032
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Debt Securities............................
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Preferred Stock, par value $.10 per
share(5).................................
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Common Stock, par value $.10 per
share(1)(2)..............................
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Warrants(7)(8).............................
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Units(1)(9)................................
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Stock Purchase Contracts(6)................
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Total...................................... $150,000,000 $19,005.00
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(1) There are being registered under this Registration Statement an aggregate of
75,000,000 shares of common stock as shall have an aggregate initial
offering price of $55,500,000 (the "Initial Offering") and such
indeterminate number of additional shares of common stock and preferred
stock of the Registrant, such indeterminate number of warrants of the
Registrant, and such indeterminate principal amount of debt securities of
the Registrant, as shall have an aggregate initial offering price not to
exceed $150,000,000. If any debt securities are issued at an original issue
discount, then the securities registered shall include such additional debt
securities as may be necessary such that the aggregate initial public
offering price of all securities issued pursuant to this Registration
Statement will equal $150,000,000. Any securities registered under this
Registration Statement (other than in the Initial Offering) may be sold
separately or as units with other securities registered under this
Registration Statement. The initial offering price of the common stock to be
sold in the Initial Offering is estimated pursuant to Rule 457(c) solely for
the purposes of computing the registration fee based upon the average of the
high and low prices of the CanArgo common stock, as reported on the American
Stock Exchange Composite Transactions Tape on May 18, 2004. The proposed
maximum initial offering price for the remaining securities registered under
this Registration Statement will be determined, from time to time, by the
Registrant in connection with the issuance by the Registrant of such
securities.
(2) Other than for the shares of common stock to be offered and sold in the
Initial Offering, not specified with respect to each class of securities to
be registered pursuant to General Instruction II.D of Form S-3 under the
Securities Act.
(3) Estimated solely for the purpose of calculating the registration fee. Any
offering of debt securities denominated in any foreign currency or currency
unit will be treated as the equivalent in U.S. dollars based on the exchange
rate applicable to the purchase of such debt securities from the Registrant.
No separate consideration will be received for common stock, preferred
stock, warrants or debt securities that are issued upon conversion or
exchange of debt securities or preferred stock registered hereunder.
(4) Calculated pursuant to Rule 457 of the rules and regulations under the
Securities Act.
(5) Including such indeterminate number of shares of preferred stock as may from
time to time be issued (i) at indeterminate prices or (ii) upon conversion
or exchange of any debt securities, stock purchase contracts, stock purchase
units registered hereunder, to the extent any such debt securities, stock
purchase contracts, or stock purchase units are, by their terms, convertible
into preferred stock.
(6) Including such indeterminate number of shares of common stock as may from
time to time be issued (i) at indeterminate prices or (ii) upon conversion
or exchange of debt securities, stock purchase contracts, units, or
preferred stock registered hereunder, to the extent any of such debt
securities, stock purchase contracts, units, or shares of preferred stock
are, by their terms, convertible into common stock.
(7) Including such indeterminate number of warrants as may from time to time be
issued at indeterminate prices, representing rights to purchase certain of
the common stock, preferred stock, and debt securities registered hereunder.
(8) Including warrants to purchase common stock, warrants to purchase preferred
stock and warrants to purchase debt securities.
(9) Including units comprised of such indeterminate number of securities
registered hereunder as may from time to time be issued at indeterminate
prices.
The information in this preliminary prospectus supplement and 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. We will deliver to purchasers of these securities a final prospectus
supplement and prospectus. This prospectus supplement and prospectus do not
constitute an offer to sell these securities and do not constitute the
solicitation of an offer to buy these securities in any state where the offer or
sale is not permitted.
FILED PURSUANT TO RULE 424(b)(3) AND RULE 424(c)
REGISTRATION NO. 333-
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EXPLANATORY NOTE
THIS REGISTRATION STATEMENT CONTAINS TWO FORMS OF PROSPECTUS SUPPLEMENTS: ONE TO
BE USED IN CONNECTION WITH AN OFFERING IN THE UNITED STATES AND ONE TO BE USED
IN A CONCURRENT OFFERING OUTSIDE THE UNITED STATES. THE TWO FORMS OF
PROSPECTUSES ARE IDENTICAL EXCEPT FOR THE COVER PAGES AND CERTAIN ANNEXES TO BE
APPENDED TO THE INTERNATIONAL PROSPECTUS SUPPLEMENT AND IDENTIFIED ON THE COVER
PAGE OF SUCH PROSPECTUS SUPPLEMENT. THE U.S. PROSPECTUS SUPPLEMENT IS INCLUDED
IN THIS REGISTRATION STATEMENT. THE U.S. PROSPECTUS SUPPLEMENT IS FOLLOWED BY
THE ALTERNATIVE COVER PAGES TO BE USED IN THE INTERNATIONAL PROSPECTUS
SUPPLEMENT. THE ALTERNATE COVER PAGES ARE LABELED "ALTERNATE PAGES FOR
INTERNATIONAL PRELIMINARY PROSPECTUS SUPPLEMENT."
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PRELIMINARY PROSPECTUS SUPPLEMENT
TO PRELIMINARY PROSPECTUS DATED , 2004
SUBJECT TO COMPLETION, DATED MAY 19, 2004
75,000,000 SHARES
(CANARGO ENERGY CORPORATION LOGO)
CANARGO ENERGY CORPORATION
COMMON STOCK
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CanArgo common stock is traded on the American Stock Exchange and the Oslo
Stock Exchange under the symbol "CNR." The last reported sale price of CanArgo
common stock on the American Stock Exchange Composite Transactions Tape on May
18, 2004 was $0.74 per share and on the Oslo Stock Exchange was Norwegian kroner
("NOK") 5.06. On May 18, 2004, one U.S. dollar equaled NOK 6.88 as reported on
www.oanda.com.
YOU MUST CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE S-10 OF THIS
PROSPECTUS SUPPLEMENT AND ON PAGE 4 IN THE ACCOMPANYING PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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PER SHARE TOTAL
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Initial price to public..................................... $ $
Placing Agent[s]' commissions............................... $ $
Proceeds, before expenses, to CanArgo....................... $ $
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The shares of common stock being offered hereby are being offered on a
global "best efforts, any and all" basis through ABG Sundal Collier, Inc. and
potentially one or more additional placing agents acting as Placing Agent[s] in
the United States and ABG Sundal Collier Norge ASA and potentially one or more
additional placing agents acting as Placing Agent[s] outside the United States.
The Company has agreed to indemnify the Placing Agent[s] against certain
liabilities including those arising under the Securities Act of 1933, as
amended. The Placing Agent[s] expect[s] to deliver the shares to U.S. investors
against payment in New York, New York on , 2004. See "Plan of
Distribution" in this prospectus supplement for further details.
ABG SUNDAL COLLIER, INC.
Prospectus Supplement dated , 2004.
PROSPECTUS SUPPLEMENT SUMMARY
The following summary highlights selected information contained in this
prospectus supplement and accompanying 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
supplement and attached prospectus and the information incorporated by reference
herein carefully, including the "Risk Factors" section. Non-U.S. investors may
be delivered additional supplementary information regarding us and the Offering
in the form of Annexes to this prospectus supplement and accompanying prospectus
to the extent such information is not set forth in the prospectus supplement or
accompanying prospectus or is not incorporated by reference herein and is
required to be furnished under the laws of the jurisdictions in which such
investors may be located. Unless the context requires otherwise, all references
to the prospectus supplement and accompanying prospectus includes all such
Annexes.
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
When describing natural gas: Mcf = thousand cubic feet
MMcf = million cubic feet
Bcf = billion cubic feet
When describing oil: bbl = barrel
Mbbls = thousand barrels
MMbbls = million barrels
When comparing natural gas to oil: 6 Mcf of gas = 1 bbl of oil equivalent
Boe = barrel of oil equivalent
Mboe = thousand barrels of oil equivalent
MMboe = 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 subsidiaries and associated or affiliated companies. These
companies are generally focused on one of our projects, and this
S-1
structure assists in maintaining separate cost centers for these different
projects. CanArgo and its principal active subsidiaries are as follows:
[FLOWCHART]
Our principal activities are oil and gas exploration, development and
production, principally in the Republic of Georgia, and to a lesser extent in
Kazakhstan and Azerbaijan. We direct most of our efforts and resources to the
development of the Ninotsminda Field, our recently acquired interest in Samgori
Field and our exploration and appraisal program in Georgia. As we own certain
drilling rigs and equipment, we also have a secondary interest in the provision
of oilfield services to third parties in the oil and gas industry, principally
in Georgia. In 2003, 97.2% of our total revenues were from oil and gas sales and
2.8% from oilfield services. Our management and technical staff have substantial
experience in our areas of operation. Our principal product is crude oil, and
the sale of crude oil is our principal source of revenue.
[MAP GRAPHIC]
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
S-2
additional exploitation opportunities, or exploration prospects which management
believes have significant potential. We believe that our cash flow at current
oil prices and current rates of production from operations and our financial
resources, including the drawdown on the Standby Equity Distribution Agreement
("Equity Line of Credit") being provided by Cornell Capital Partners, L.P. for
up to $20,000,000 as described in our Registration Statement on Form S-3 filed
with the SEC on May 6, 2004 (Reg. No. 333-115261), and the receipt of proceeds
from the sale of certain non-core assets, will provide us with the ability to
complete our near term development program on the Ninotsminda Field and our
newly acquired interest in the Samgori Field, while our current exploration
drilling program in Georgia is being funded primarily by third parties.
Our business strategy is focused on the following:
FURTHER DEVELOPMENT OF EXISTING PROPERTIES
We intend to further develop our properties that have established oil and
gas resources. We seek to add proved reserves and increase production through
the use of advanced technologies, including detailed technical analysis of our
properties, horizontal drilling, utilization of under-balanced and coiled tubing
drilling, multilateral drilling, drilling new structures from existing locations
and selectively recompleting existing wells. We also plan to drill step-out
wells to expand known field limits.
GROWTH THROUGH EXPLOITATION AND EXPLORATION
We conduct an active technology-driven exploitation and exploration program
that is designed to complement our property acquisition and development drilling
efforts with moderate to high-risk exploration projects that have greater
reserve potential. We generate exploration prospects through the analysis and
integration of geological and geophysical data and the interpretation of seismic
data. We intend to manage our exploration expenditures through the optimal
scheduling of our drilling program and, if considered appropriate, selectively
reducing our participation in certain exploratory prospects through sales of
interests to industry partners.
PURSUIT OF STRATEGIC ACQUISITIONS
We continually review opportunities to acquire producing properties,
leasehold acreage and drilling prospects and seek to acquire operational control
of properties that we believe have significant exploitation and exploration
potential. We are especially focused on increasing our holdings in fields and
basins from which we leverage existing infrastructure and resources.
See the accompanying prospectus for additional information regarding our
business.
Our address is P.O. Box 291, St Peter Port, Guernsey, GY1 3RR, British
Isles, and our telephone number is +(44) 1481 729 980.
S-3
THE OFFERING
COMMON STOCK OFFERED BY THE
COMPANY....................... Up to 75,000,000 shares ("Offered Shares") in a
global "best efforts, any and all" offering
through the Placing Agent[s] (the "Offering").
See "Plan of Distribution." This number
represents 66% of our current outstanding
stock.
OFFER PRICE................... $ per Offered Share
MINIMUM SUBSCRIPTION.......... shares
AGGREGATE GROSS OFFERING
PROCEED....................... Assuming a maximum Offering $
COMMON STOCK TO BE OUTSTANDING
AFTER THE OFFERING............ Up to shares
USE OF PROCEEDS............... The proceeds from the subscriptions for the
Offered Shares will be added to working capital
and used for general corporate purposes. In
particular, we will seek to advance our
development, appraisal and exploration programs
in the Republic of Georgia. See "Use of
Proceeds" for a complete description.
CONDITIONS TO THE COMPLETION
OF THE OFFERING............... Subscriptions for Offered Shares are contingent
upon: receipt of the approval of stockholders
at a special meeting of stockholders scheduled
to be held on May 28, 2004 for the public or
private issuance by the Company of up to 75
million shares of common stock in one or more
offerings; the listing of the Offered Shares on
the American Stock Exchange; the approval of
the Oslo Stock Exchange to the listing of the
Offered Shares on such Exchange; and customary
conditions and deliveries.
THE OFFER PERIOD.............. Commencing , 2004 until the earlier of
the Closing Date for the subscription for all
the Offered Shares or 10:00 am United States
Eastern Daylight Savings Time ( , Oslo Time)
on , 2004, unless extended by the Company
to a time and date not later than 10:00 am
United States Eastern Daylight Savings Time
( , Oslo Time) on , 2004 (see "Plan of
Distribution").
SETTLEMENT AND CLOSING DATE... Settlement of the subscriptions for Offered
Shares sold in the United States will take
place in New York, N.Y. and those sold outside
the United States will take place in Oslo,
Norway upon completion of the Offer Period
against payment therefor in United States
Dollars at closings expected to occur on or
about 10:00 am United States Eastern Daylight
Savings Time ( , Oslo Time) on , 2004
(the "Closing Date"). Delivery of the Offered
Shares will take place within three (3)
business days after the Closing Date. Investors
will have to indicate whether they wish to
accept delivery of their Offered Shares in
certificated form or by registration of their
Offered Shares in book entry form with the
Depository Trust Company (or on its Norwegian
equivalent, the VPS System) in their executed
subscription agreements. (See "Plan of
Distribution").
EXPENSES OF THE OFFERING...... CanArgo has agreed to pay all commissions and
other costs and expenses of the Offering,
including without limitation, all
S-4
expenses of the Placing Agent[s] and all
listing, legal, accounting, printing and
registration fees, currently estimated at $
assuming a maximum Offering. Investors will
bear all other costs of the Offering,
including, without limitation, all fees and
expenses of their attorneys and accountants and
other advisors.
LISTING....................... The Offered Shares subscribed for in the
Offering have been approved for listing on the
American Stock Exchange (subject to receipt of
official notice of issuance from the Company)
and the listing of the Offered Shares on the
Oslo Stock Exchange is conditioned upon issue
and publication of a prospectus in Norway
according to the Norwegian Securities Trading
Act and the Norwegian Stock Exchange
regulations. Trading is expected to commence
within three business days following the
Closing Date.
THE AMERICAN STOCK EXCHANGE
SYMBOL........................ CNR
THE OSLO STOCK EXCHANGE
SYMBOL........................ CNR
TAX MATTERS................... Investors are advised to seek advice from their
own tax consultants in order to determine the
particular tax consequences to them
attributable to their investment in the Offered
Shares, including, without limitation, the
relevance or effect of any domestic or foreign
tax laws or treaties. Non-U.S. investors should
consider the matters discussed in the section
of the prospectus supplement entitled "Certain
United States Federal Tax Considerations to
Non-United States Holders" and in the chapter
entitled "Taxation" in Annex A attached to the
prospectus supplement and accompanying
prospectus to be delivered to them in
conformity with the Norwegian Securities
Trading Act and the Norwegian Stock Exchange
regulations.
The above information is based on 113,613,505 shares of common stock
outstanding as of May 11, 2004.
RECENT DEVELOPMENTS
On February 11, 2004, we entered into an Equity Line of Credit with Cornell
Capital Partners, L.P. Pursuant to the Equity Line of Credit, we may, at our
discretion, periodically sell to Cornell Capital Partners, L.P. shares of common
stock for a total purchase price of up to US$20,000,000. For each share of
common stock purchased under the Equity Line of Credit, Cornell Capital
Partners, L.P. will pay 97% of the lowest volume weighted closing bid price of
our common stock on the Oslo Stock Exchange or other principal market on which
our common stock is traded for the five days immediately following the notice
date. Cornell Capital Partners, L.P. is a private limited partnership whose
business operations are conducted through its general partner, Yorkville
Advisors, LLC. Further, we have agreed to pay Cornell Capital Partners, L.P. 5%
of the proceeds that we receive under the Equity Line of Credit. In addition, we
engaged Newbridge Securities Corporation, a registered broker-dealer, to advise
us and to act as our exclusive placement agent in connection with the Equity
Line of Credit pursuant to the Placement Agent Agreement dated February 11,
2004. For its services, Newbridge Securities Corporation received 30,799
restricted shares of our common stock. A Registration Statement on Form S-3 was
filed with the SEC on May 6, 2004 (Reg. No. 333-115261) in respect of the shares
of common stock to be issued pursuant to the Equity Line of Credit.
S-5
In February 2004 we announced that we had obtained State regulatory
approval to an agreement to obtain 50% of the Contractor's interest in Samgori
(Block XI(B)) Production Sharing Contract (the "Samgori PSC") in the Republic of
Georgia and a 50% controlling interest in the license holder and operating
company for Block XI(B) covering the Samgori Oil Field from Georgian Oil Samgori
Limited. Georgian Oil Samgori Limited is a wholly owned subsidiary of the State
Oil Company, Georgian Oil. The other conditions contained in the agreement were
satisfied on April 16, 2004 and on April 19, 2004 we announced that we had
completed the acquisition.
The original Contractor party to the Samgori PSC, National Petroleum
Limited ("NPL"), has an option to reacquire its Contractor's interest in the
Samgori PSC and its 50% interest in the operating company in the event that the
agreed work program is not completed by December 2006. Furthermore, NPL has
outstanding costs and expenses estimated at up to $37,000,000 in relation to the
Samgori PSC which are recoverable by NPL receiving 30% of annual net profits
from the Field until such costs have been fully repaid. After these costs are
repaid from either Field production or other production covered under the
Samgori PSC, NPL shall continue to receive 5% of annual net profits from the
Field.
Upon completion of the acquisition we had a contractual obligation to issue
4 million shares of CanArgo Common Stock to Europa Oil Services Limited
("Europa"), an unaffiliated British Virgin Islands company in connection with a
consultancy agreement with Europa in relation to this acquisition. On April 19,
2004, Europa was issued 4 million restricted shares of CanArgo common stock in
an arms length transaction. A further 12 million shares of CanArgo Common Stock
are issuable upon certain production targets being met from future developments
under the Samgori PSC. The common stock to be issued to Europa has been included
in our Registration Statement filed on May 6, 2004.
On April 1, 2004 one of our subsidiaries, Ninotsminda Oil Company Limited
("NOC") entered into a new 12-month crude oil sales agreement with an existing
buyer, Sveti Limited, for the sale of up to 7,500 metric tonnes (approximately
57,000 barrels) of oil per month ("Sveti Agreement"). The Sveti Agreement
replaces two existing crude oil sales agreements pursuant to which Sveti Limited
had provided $2.3 million security for the right to lift oil under such
agreements (the "Security Payment"). The Security Payment is extended to the new
Sveti Agreement where it remains at NOC's disposal for the contract period. At
the end of the 12 months, the Security Payment will be repaid through the
delivery of additional crude oil equal to the value of the security.
On May 5, 2004, the Sveti Agreement was terminated and a new agreement was
concluded with another party, Primrose Financial Group, on the same terms and
conditions with exception that the monthly quantity was increased to 8,400
metric tonnes (approximately 64,000 barrels) of oil per month (the "PFG
Agreement"). In accordance with the termination agreement, the Security Payment
shall be deemed to be a deposit payment made in favour of NOC under the terms of
the PFG Agreement and shall be repaid at the end of the contract period which
will be March 2005.
On April 21, 2004, the common stock began trading on the American Stock
Exchange under the symbol "CNR".
On April 26, 2004, we entered into a loan and warrant agreement with an
unaffiliated party, Salahi Ozturk in an arms length transaction. Upon execution
of the agreement, Mr Ozturk has an obligation to advance to us a loan of
$1,000,000 to be drawn down in one tranche, for the purpose of funding our
short-term working capital requirements including the acquisition of long lead
equipment. Interest is payable on the loan at the rate of 7.5% per annum. The
term of the loan is 6 months from the date of draw down. However, in the event
that we raise in excess of $10 million by way of an equity offering then the
loan is repayable within 7 days of receipt by us of the proceeds of the
offering. In consideration for Mr Ozturk advancing the loan, we have a
contractual obligation to issue to Mr Ozturk a warrant to subscribe for
1,000,000 shares of CanArgo common stock at an exercise price of $1.05 per
share. Mr Ozturk, can exercise the warrant at any time, for the period of 5
years from the date of the agreement. As at May 11, 2004, the warrants have been
issued but remain unexercised.
S-6
On April 29, 2004, we entered into a further loan and warrant agreement
with CA Fiduciary Services Limited, as Settlement Trustees of The SP525A
Settlement ("CA Fiduciary"), an unaffiliated party in an arms length
transaction. Upon execution of the agreement, CA Fiduciary has an obligation to
advance to us a loan of L170,000 ($300,900) to be drawn down in one tranche, for
the purpose of funding our short-term working capital requirements including the
acquisition of long lead equipment. Interest is payable on the loan at a rate of
7.5% per annum. The term of the loan is 6 months from the date of draw down.
However, in the event that we raise in excess of $10 million by way of an equity
offering then the loan is repayable within 7 days of receipt by us of the
proceeds of the offering. In consideration for CA Fiduciary advancing the loan,
we have a contractual obligation to issue to CA Fiduciary a warrant to subscribe
for 300,000 shares of CanArgo common stock at an exercise price of $1.05 per
share. CA Fiduciary, can exercise the warrant at any time, for the period of 5
years from the date of the agreement. As at May 11, 2004, the warrants have been
issued but remain unexercised.
On March 23, 2004, we held a special meeting at which stockholders approved
an increase in the number of shares of common stock that the Company is
authorized to issue from 150,000,000 to 300,000,000 shares.
On May 18, 2004, we held our annual meeting of stockholders at which: the
incumbent board of directors consisting of David Robson, the Chairman, President
and Chief Executive Officer, and Vincent McDonnell, the Chief Financial Officer
of the Company, respectively, and Messrs. Russ Hammond, Nils Trulsvik and
Michael Ayre, independent directors, were re-elected; the Company's 2004 Long
Term Stock Incentive Plan was approved; and the selection of L J Soldinger
Associates LLC as the Company's auditors for the 2004 fiscal year was ratified.
S-7
SUMMARY FINANCIAL AND OPERATING DATA
We have provided in the tables below our selected financial and operating
data. The financial information for each of the years in the five-year period
ended December 31, 2003 has been derived from our audited financial statements.
The financial information for the three-month periods ended March 31, 2004 and
2003 has been derived from our unaudited financial statements. You should read
the following financial information in conjunction with our consolidated
financial statements and related notes that we have incorporated by reference in
the accompanying prospectus.
YEAR ENDED DECEMBER 31,
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2003 2002 2001 2000 1999
------------ ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
INCOME STATEMENT DATA:
Total revenues............. $ 8,105 $ 5,486 $ 4,575 $ 7,010 $ 2,783
Net loss from continuing
operations............... (756) (5,478) (11,313) (2,401) (8,119)
Loss attributable to common
stock.................... (7,322) (5,328) (13,218) (2,151) (8,473)
Net loss from continuing
operations per common
share
Basic.................... (0.01) (0.06) (0.14) (0.04) (0.31)
Diluted.................. (0.01) (0.06) (0.14) (0.04) (0.31)
Net cash provided by (used
in) operating
activities............... $ 4,431 $ 1,635 $ (6,289) $ 7,881 $ (1,210)
BALANCE SHEET DATA (AT YEAR
END):
Working capital............ $ 3,235 $ 10,646 $ 14,590 $ 23,315 $ 2,729
Total assets............... $ 74,015 $ 70,736 $ 70,312 $ 82,849 $ 43,948
Long-term debt(a).......... $ 2,816 $ 891 $ 514 $ -- $ --
Shareholders' equity....... $ 56,708 $ 62,105 $ 65,800 $ 72,426 $ 37,863
Common shares issued and
issuable at end of
year..................... 105,617,988 97,356,206 92,008,446 75,950,681 37,352,922
------------
(a) Included in "Liabilities held for sale" in our annual financial statements
included in our Annual Report on Form 10-K, as amended, for the fiscal year
ended December 31, 2003.
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)
----------------------
2004 2003
------------- ------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Total revenues.............................................. $3,360 $1,141
Net income (loss)........................................... $1,522 $ (907)
Income (loss) attributable to common stock.................. $1,522 $ (907)
Net income (loss) per common share
Basic..................................................... $ 0.01 $(0.01)
Diluted................................................... $ 0.01 $(0.01)
S-8
MARCH 31, DECEMBER 31,
2004 2003
(UNAUDITED) (AUDITED)
------------ ------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
BALANCE SHEET DATA:
Total debt -- held for sale.............................. $ 4,321 $ 3,876
Shareholders' equity..................................... $ 59,192 $ 56,708
Common shares issued and issuable at end of period....... 109,627,089 105,617,988
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2003 2002 2001 2000 1999
------ -------- ------- ------- -------
OPERATING DATA:
Gross Proved Reserves at December 31(1):
Oil (Mbbls)(2)............................. 6,762 4,150 5,061 18,300 18,800
Natural Gas (Bcf).......................... 2,985 8,048 16,751 45,000 35,275
Total Gross Proved Reserves (Mboe)(3)... 7,260 5,491 7,853 25,800 24,679
Reserve Replacement Ratio(4).......... (381)% (394)% (1,601)% 743% 1,473%
Reserve Life (years)(5).................... 9.4 12.9 10.6 27.3 80.0
Finding and Development Costs per
boe(3)(6)............................... $ 2.88 $ (12.62) $ (1.89) $ 3.28 $ 1.19
Average Daily Production:
Oil (bbls/day)(2).......................... 1,905 801 1,133 1,312 1,138
Natural Gas (MMcf/day)..................... 109 212 1,110 722 1,146
Total Production (boe/day)(3)........... 1,923 836 1,318 1,432 1,329
Average Production Costs per boe(3).......... $ 1.50 $ 5.04 $ 3.26 $ 2.46 $ 2.19
---------------
(1) Our oil and gas reserves are attributable to our interest under the
Ninotsminda Production Sharing Contract ("Ninotsminda PSC") in Georgia where
we have 100% interest in the Contractor's share. Under the Ninotsminda PSC,
up to 50% of petroleum produced under the contract ("Production") is
allocated to Ninotsminda Oil Company ("NOC") for the recovery of the
cumulative allowable capital, operating and other project costs associated
with the Ninotsminda Field and exploration in Block XI(E). NOC pays 100% of
the costs incurred in the project as the sole contractor party under the
Ninotsminda PSC. The balance of Production is allocated on a 70/30 basis
between Georgian Oil and NOC respectively. While NOC continues to have
unrecovered costs, it will receive 65% of Production (profit petroleum).
After recovery of its cumulative capital, operating and other allowable
project costs, NOC will receive 30% of Production. Thus, while NOC is
responsible for all of the costs associated with the Ninotsminda PSC, it is
only entitled to receive 30% of Production after cost recovery. The
allocation of a share of Production to Georgian Oil, however, relieves NOC
of all obligations it would otherwise have to pay the Republic of Georgia
for taxes, duties and levies related to activities covered by the
Ninotsminda PSC. Georgian Oil and NOC take their respective shares of oil
production in kind, and they market their oil independently, however gas is
marketed jointly.
(2) Includes crude oil, condensate and natural gas liquids.
(3) 6 Mcf of natural gas = 1 boe.
(4) Total reserve additions for the year, including revisions and net of
property sales, divided by annual production.
(5) Total proved reserves at year-end divided by annual production.
(6) Total capitalized costs incurred for the year, excluding capitalized
interest and property sales, divided by total reserve additions for the
year, including revisions.
S-9
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 the risks
set forth in the accompanying prospectus and all other information contained or
incorporated by reference in this prospectus supplement and any applicable
prospectus supplements, before investing in our common stock. The risks
described below and in the accompanying prospectus are not the only ones facing
us. 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.
WE HAVE EXPERIENCED LOSSES FROM OPERATIONS.
We have experienced recurring losses. For the fiscal years ended December
31, 2003, 2002, 2001, 2000 and 1999, our recorded net losses of $7,322,000,
$5,328,000, $13,218,000, $2,151,000 and $8,473,000, respectively. 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, $0 in 2000 and $5,694,000
in 1999. No assurance can be given, however, that we will not experience
operating losses or additional writedowns in the future.
WE ARE DELINQUENT IN FILING OUR 2002 AND 2003 INCOME TAX AND INFORMATION
RETURNS.
We have not filed any of our required 2002 or 2003 income tax or
information returns required by various governmental authorities. Failure to
file these returns timely may carry significant penalties and interest, which
may have a significant impact on our financial condition. We are taking steps to
rectify the matter. We have not accrued for any penalties or interest which we
may be required to pay in either our Form 10-K for the fiscal year ended
December 31, 2003 or in our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2004 as the amounts could not be estimated.
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 reducing costs,
generating funds from internal sources including the sale of certain non-core
assets, 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. If
these operating cash flows are not realized, or proceeds of additional
financings, and in particular the final $1,000,000 payment from the sale of our
interest in CanArgo Standard Oil Products Limited, are not received, or the SEC
fails to declare effective our Registration Statement on Form S-3 filed on May
6, 2004 for the issuance of our common stock to Cornell Capital Partners, L.P.
under the Equity Line of Credit Agreement signed February 11, 2004 for up
$20,000,000, adjustments may have to be made to our business plan which will
limit our development and exploration activities. Based upon the current level
of operations, we believe that our cash flow from operations as well as
borrowing capabilities will be adequate to meet our anticipated requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments for the next twelve months.
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. 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.
S-10
OUR CURRENT OPERATIONS ARE DEPENDENT ON THE SUCCESS OF THE NINOTSMINDA AND
SAMGORI FIELDS AND OUR GEORGIAN EXPLORATION ACTIVITIES.
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 Republic of
Georgia, exploration in that area and some ancillary activities closely related
to the Ninotsminda Field project. This decision is based on management's
assessment of the promise of the Ninotsminda Field area. However, our focus on
the Ninotsminda Field has over the past several years resulted in overall losses
for us and we only achieved profitability in the last quarter of 2003. We cannot
assure investors that the exploration and development plans for the Ninotsminda
Field will be successful. For example, the Ninotsminda Field may not produce
sufficient quantities of oil and gas to justify the investment we have made and
are planning to make in the Field, and we may not be able to produce the oil and
gas at a sufficiently low cost or to market the oil and gas produced at a
sufficiently high price to generate a positive cash flow and a profit. In April
2004, we announced that we had concluded the acquisition of a 50% interest in
Samgori (Block XI(B)) 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 and license area will be successful. Our Georgian exploration program 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" at page 6 in the accompanying prospectus
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.
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.
LIMITED TRADING VOLUME IN OUR COMMON STOCK MAY CONTRIBUTE TO PRICE VOLATILITY.
Our common stock was only recently listed for trading on the American Stock
Exchange. Prior to the listing on the American Stock Exchange, our stock was
traded on the Over the Counter Bulletin Board ("OTCBB") in the United States and
on the Oslo Stock Exchange. Following the listing on the American Stock
Exchange, our stock is traded both on the American Stock Exchange and on the
Oslo Stock Exchange. During the twelve months ended December 31, 2003, the
average daily trading volume for our common stock on the Oslo Stock Exchange as
reported by Yahoo was 1,226,611 shares and on the OTCBB as reported by Bloomberg
was 65,874 shares. Even if we achieve a wider dissemination as to the shares
offered by us, we are uncertain as to whether a more active trading market in
our common stock will develop. As a result, relatively small trades may have a
significant impact on the price of our common stock.
S-11
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.
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.
WE HAVE A SIGNIFICANT NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE.
At May 1, 2004, we had 113,613,505 shares of common stock outstanding of
which 320,210 shares were held by affiliates. In addition, at May 1, 2004, we
had 46,085 shares issuable upon exchange of CanArgo Oil & Gas Inc. Exchangeable
Shares without receipt of further consideration, 4,254,833 shares of common
stock subject to outstanding options granted under certain stock option plans
(of which 4,210,833 shares were vested at May 1, 2004), 1,550,000 shares
issuable upon exercise of outstanding warrants and up to 35,475,919 shares of
common stock reserved for issuance under our existing option plans and in
connection with certain existing contractual arrangements, including 23,000,000
shares issued pursuant to an Equity Line of Credit, entered into in February
2004 with Cornell Capital Partners, L.P. 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, as amended. The shares of common stock
issuable upon exercise of the stock options have been or will be registered
under the Securities Act. In addition, an aggregate of 34,612,888 shares of
common stock issuable pursuant to certain contractual arrangements, including
under the Equity Line of Credit are subject to certain registration rights and,
therefore, will be eligible for resale in the public market after a registration
statement covering such shares 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 its equity securities.
For a description of the Equity Line of Credit you should see the discussion in
our Annual Report on Form 10-K, as amended, for the fiscal year ended December
31, 2003, which is incorporated by reference herein and in our Registration
Statement filed on May 6, 2004.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS
OFFERING AND MAY EXPERIENCE ADDITIONAL DILUTION IN THE FUTURE.
As of May 1, 2004 there were (a) an aggregate of 41,280,752 shares of
common stock reserved for issuance pursuant to certain issued and outstanding
options and warrants and certain existing contractual arrangements, including
the Equity Line of Credit, and (b) 46,085 shares of common stock issuable upon
the exchange of the CanArgo Oil & Gas Inc. Exchangeable Shares. Any exercise of
such options and warrants, as well as any issuances pursuant to such contractual
arrangements and upon exchange of the Exchangeable Shares, will take place at a
time when we would be able, in all likelihood, to obtain funds from the sale of
our common stock at prices higher than the exercise or issuance price thereof.
In addition, we are offering up to an additional 75,000,000 shares of common
stock in the Offering or approximately 66% of our outstanding shares of common
stock. As a result, investors in the Offered Shares may incur substantial
dilution of their investment as the issuance of such a significant number of
additional securities, or even the possibility thereof, may depress the market
price of such securities. Furthermore, the options and warrants and certain of
the contractual arrangements contain provisions providing for adjustment of the
exercise or issue price and the number of securities issuable upon the exercise
thereof. The issuance and sale of the shares of common stock upon the exercise
of all or a portion of the outstanding options and warrants, or pursuant to
existing contractual arrangements or upon exchange of the Exchangeable Shares
may result in a significant increase in the number of shares of common stock
that will be traded on the American Stock Exchange and the Oslo Stock Exchange
and, accordingly, may have an adverse effect on the price of the common stock.
In addition, investors will be subject to
S-12
immediate dilution in the net tangible book value per share immediately after
the Offering is concluded. Finally, we may also acquire other companies or
properties or finance operations in the future by issuing equity, which may
result in additional dilution. See "Dilution".
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, including the attached prospectus and 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, 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 supplement and our
accompanying 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:
- the market prices of oil and gas;
- uncertainty of drilling results, reserve estimates and reserve
replacement;
- operating uncertainties and hazards;
- economic and competitive conditions;
- natural disasters and other changes in business conditions;
- inflation rates;
- legislative and regulatory uncertainties and changes;
- financial market conditions;
- accuracy, completeness and veracity of information received from third
parties;
- wars and acts of terrorism or sabotage;
- political and economic uncertainties of foreign governments; and
- future business decisions.
In light of these risks, uncertainties and assumptions, the events
anticipated by our forward-looking statements might not occur or might not occur
as anticipated. We undertake no obligation to update or revise our
forward-looking statements, whether as a result of new information, future
events or otherwise.
S-13
USE OF PROCEEDS
Assuming a maximum offering, we expect the net proceeds from this offering
of common stock to be approximately $50 million, after deducting commissions
payable to the Placing Agent[s] and estimated expenses of the Offering that we
will pay. We will add the net proceeds to working capital and use them for
general corporate purposes. In particular, we expect to use the net proceeds
from this Offering, together with existing available funds, to fund primarily
the development of our Georgian assets, including the appraisal of the recent
Manavi discovery and the implementation of a planned horizontal development
program of up to 15 wells on our Ninotsminda Field and the recently acquired
Samgori Field. We may also fund further acquisitions, although no material
acquisitions are probable at this time. Depending on the level of funds which we
raise from the Offering, we expect to prioritize the use of funds as outlined in
the following table:
LEVEL OF FUNDS
USE OF FUNDS OBTAINED
------------ ---------------
($ MILLIONS)
50 30 20
Ninotsminda Development..................................... 10 7.5 5
Samgori Development......................................... 10 7.5 5
Manavi Appraisal/Development................................ 15 15 10
Other Appraisals Georgian Properties........................ 5 -- --
Capital Items............................................... 10 -- --
While we may use an unspecified portion of the net proceeds to acquire
additional property interests, equipment or companies that complement our
business, we have no current plans, agreements or commitments with respect to
these matters.
The timing, nature and amount of our actual expenditures will depend upon
numerous factors, including the amount of net proceeds we receive from the
Offering, the results of our appraisal and development activities, unforeseen
business opportunities and operational problems that may arise, as well as the
amount of cash, if any, generated by our operations. We will retain broad
discretion in the allocation and use of the net proceeds of the Offering. We
currently intend to invest the funds in short-term, investment grade,
interest-bearing securities until such time as funds are needed in our
operations.
S-14
CAPITALIZATION
The following table sets forth as of March 31, 2004:
- our actual capitalization; and
- our as-adjusted capitalization showing the effects of our receipt of the
estimated net proceeds from the sale of the shares we are selling in this
Offering.
MARCH 31, 2004
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
----------- -----------
(UNAUDITED)
(IN THOUSANDS)
TOTAL DEBT:
Current and long term debt -- continuing operations....... $ -- $ --
Current and long term debt -- discontinued operations..... $ 4,321 $
-----------
Total debt.................................................. $ 4,321 $
STOCKHOLDERS' EQUITY:
Common stock, par value $0.10; authorized -- 300,000,000
shares; shares issued and outstanding -- 109,627,089 at
March 31, 2004......................................... $ 10,963
Capital in excess of par value............................ $ 146,500 $
Accumulated other comprehensive income.................... $ 315 $ ( )
Accumulated deficit....................................... $ (98,586) ( )
-----------
Total stockholders' equity.................................. $ 59,192 $
-----------
TOTAL CAPITALIZATION........................................ $ 63,513 $
===========
DILUTION
At March 31, 2004, our net tangible book value was approximately $59.2
million or $0.54 per share of common stock. Our net tangible book value per
share represents the amount of our total tangible assets less the amount of
total liabilities, divided by the number of shares of common stock outstanding.
Without giving effect to any changes in net tangible book value after March 31,
2004, other than the sale of the shares offered hereby and receipt of the net
proceeds therefrom, our net tangible book value at March 31, 2004 would have
been approximately $ or $ per share. This represents an immediate
increase in net tangible book value of $ per share of Common Stock held by
our existing stockholders and an immediate dilution of $ per share to new
investors purchasing shares at the public offering price. The following table
illustrates the dilution in net tangible book value per share to new investors
as of March 31, 2004.
Assumed public offering price per share..................... $
Net tangible book value per share before Offering........... $0.54
Increase in net tangible book value per share attributable $
to the Offering...........................................
Pro forma net tangible book value per share after the $
offering..................................................
Dilution per share to new investors......................... $
The foregoing table assumes no exercise of any outstanding options or
warrants or issuances of common stock pursuant to existing contractual
arrangements or in exchange for CanArgo Oil & Gas Inc. Exchangeable Shares. To
the extent such options and warrants are exercised or additional shares issued
at prices lower than the public offering price, there will be further dilution
to new investors.
S-15
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
CanArgo has a listing on the American Stock Exchange ("AMEX") where our
common stock trades under the symbol "CNR" and on the Oslo Stock Exchange
("OSE") where our common stock trades under the symbol "CNR." Until April 21,
2004 our common stock also traded on the OTCBB under the symbol "GUSH".
The following table sets forth the high and low sales prices of the common
stock on the OSE and the high and low bid prices on the OTCBB for the periods
indicated. Average daily trading volume on these markets during these periods is
also provided. OTCBB data is provided by the NASDAQ Trading and Market Services
and/or published financial sources and OSE and AMEX data are derived from
published financial sources. The over-the-counter quotations reflect
inter-dealer prices, without retail mark-up, markdown or commissions, and may
not represent actual transactions. Sales prices on the OSE were converted from
Norwegian kroner into United States dollars on the basis of the daily exchange
rate for buying United States dollars with Norwegian kroner announced by the
central bank of Norway as of , 2004. Prices in Norwegian kroner are
denominated in "NOK." For historical price verification in Norway please see
http://ose.no or http://uk.table.finance.yahoo.com/k?s=CNR&g=d and for exchange
rate conversion $/NOK for the corresponding dates please see
www.oanda.com/convert/fxhistory.
OCTBB OSE
--------------------- -----------------------
AVERAGE AVERAGE
DAILY DAILY
FISCAL QUARTER ENDED HIGH LOW VOLUME HIGH LOW VOLUME
-------------------- ---- ---- ------- ---- ---- ---------
March 31, 2002........................ 0.36 0.26 32,697 0.36 0.25 550,687
June 30, 2002......................... 0.38 0.19 3,508 0.32 0.14 250,000
September 30, 2002.................... 0.20 0.05 9,156 0.20 0.05 256,500
December 31, 2002..................... 0.15 0.04 29,404 0.08 0.04 712,500
March 31, 2003........................ 0.11 0.03 35,575 0.06 0.04 273,079
June 30, 2003......................... 0.22 0.05 41,739 0.24 0.05 1,127,948
September 30, 2003.................... 0.47 0.10 29,714 0.49 0.16 1,936,776
December 31, 2003..................... 0.69 0.26 107,109 0.54 0.27 1,582,019
March 31, 2004........................ 1.22 0.48 719,195 1.22 0.44 6,378,789
We began trading on AMEX on April 21, 2004 and as such it is not possible
to provide highest and lowest prices for our stock for a complete quarter. For
the period from April 21, 2004 until May 10, 2004 the average daily volume of
our stock on AMEX was 334,554. The highest and lowest prices for our stock
during this period were $1.04 and $0.57, respectively.
At May 18, 2004, the closing price of our common stock on the OSE and AMEX
was $0.735 and $0.74, respectively. On May 18, 2004 one U.S. dollar equalled
6.88 Norwegian kroner.
On April 29, 2004 the number of holders of record of our common stock was
approximately 8,500. We have not paid any cash dividends on our common stock.
DIVIDEND POLICY
We currently intend to retain future earnings, if any, for use in our
business and, therefore, do not anticipate paying any cash dividends in the
foreseeable future. The payment of future dividends, if any, will depend, among
other things, on our results of operations and financial condition and on such
other factors as our Board of Directors may, in its discretion, consider
relevant.
S-16
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
TO NON-UNITED STATES HOLDERS
GENERAL
This is a summary of certain U.S. federal tax considerations of the
ownership and disposition of our common stock by a non-U.S. holder as we define
that term below. We assume in this summary that our common stock will be held as
a capital asset (generally, property held for investment). We do not discuss all
aspects of U.S. federal taxation that may be important to particular non-U.S.
holders in light of their individual investment circumstances, such as special
tax rules that would apply if, for example, a non-U.S. holder is a dealer in
securities, financial institution, bank, insurance company, tax-exempt
organization, partnership or owner of more than 5% of our common stock.
For purposes of this summary, a "non-U.S. holder" means a holder of our
common stock who, for U.S. federal income tax purposes, is not a U.S. person.
The term "U.S. person" means any one of the following:
- a citizen or resident of the U.S.;
- a corporation, partnership, or other entity created or organized in the
U.S. or under the laws of the U.S. or of any political subdivision of the
U.S.;
- an estate, the income of which is includible in gross income for U.S.
federal income tax purposes regardless of its source; or
- a trust, if (A) a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust or (B) the trust has a valid election in effect under applicable
U.S. Treasury Regulations to be treated as a U.S. person.
This summary is based upon the Internal Revenue Code of 1986, as amended,
U.S. Treasury Regulations, judicial precedent, administrative rulings and
pronouncements, and other applicable authorities, all as in effect on the date
of this prospectus. These authorities are subject to differing interpretations
or change, possibly with retroactive effect. We have not sought, and will not
seek, any ruling from the U.S. Internal Revenue Service, which we refer to in
this summary as the IRS, with respect to the tax considerations discussed below.
There can be no assurance that the IRS will not take a position contrary to the
tax considerations discussed below or that any position taken by the IRS would
not be sustained.
We strongly urge you to consult your tax advisor about the U.S. federal tax
consequences of holding and disposing of our common stock, as well as any tax
consequences that may arise under the laws of any foreign, state, local, or
other taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder will generally be subject to
withholding of U.S. federal income tax at a rate of 30% of the gross amount
paid. If the dividend is effectively connected with the conduct of a trade or
business in the U.S. by the non-U.S. holder, the dividend will be subject to
U.S. federal income tax imposed on net income on the same basis that applies to
U.S. persons generally, and, for corporate holders under certain circumstances,
the branch profits tax.
Non-U.S. holders should consult any applicable income tax treaties that may
provide for a reduction of, or exemption from, withholding taxes. Under U.S.
Treasury Regulations, to obtain a reduced rate of withholding under an income
tax treaty, a non-U.S. holder generally will be required to provide
certification as to that non-U.S. holder's entitlement to treaty benefits. These
U.S. Treasury Regulations also provide special rules to determine whether, for
purposes of applying an income tax treaty, dividends that we pay to a non-U.S.
holder that is an entity should be treated as paid to holders of interests in
that entity.
S-17
GAIN ON DISPOSITION
A non-U.S. holder generally will not be subject to U.S. federal income tax,
including by way of withholding, on gain recognized on a sale or other
disposition of our common stock unless any one of the following is true:
- the gain is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder;
- the non-U.S. holder is a nonresident alien individual present in the U.S.
for 183 or more days in the taxable year of the disposition and certain
other requirements are met;
- the non-U.S. holder is subject to tax pursuant to provisions of the U.S.
federal income tax law applicable to certain U.S. expatriates; or
- we are or have been during certain periods a "U.S. real property holding
corporation" for U.S. federal income tax purposes.
If we are or have been a U.S. real property holding corporation, a non-U.S.
holder will generally not be subject to U.S. federal income tax on gain
recognized on a sale or other disposition of our common stock provided that:
- the non-U.S. holder does not hold, and has not held during certain
periods, directly or indirectly, more than 5% of our outstanding common
stock; and
- our common stock is and continues to be traded on an established
securities market for U.S. federal income tax purposes.
We believe that our common stock will be traded on an established
securities market for this purpose in any quarter during which it is listed on
the American Stock Exchange.
If we are or have been during certain periods a U.S. real property holding
corporation and the above exception does not apply, a non-U.S. holder will be
subject to U.S. federal income tax with respect to gain realized on any sale or
other disposition of our common stock as well as to a withholding tax, generally
at a rate of 10% of the proceeds. Any amount withheld pursuant to a withholding
tax will be creditable against a non-U.S. holder's U.S. federal income tax
liability.
Gain that is effectively connected with the conduct of a trade or business
in the U.S. by the non-U.S. holder will be subject to the U.S. federal income
tax imposed on net income on the same basis that applies to U.S. persons
generally, and, for corporate holders under certain circumstances, the branch
profits tax, but generally will not be subject to withholding. Non-U.S. holders
should consult any applicable income tax treaties that may provide for different
rules.
UNITED STATES FEDERAL ESTATE TAXES
Our common stock that is owned or treated as owned by an individual who is
not a citizen or resident of the U.S., as specifically defined for U.S. federal
estate tax purposes, on the date of that person's death will be included in his
or her estate for U.S. federal estate tax purposes, unless an applicable estate
tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the IRS and to each non-U.S. holder the amount
of dividends that we paid to a holder, if any, and the amount of tax that we
withheld on those dividends. This information may also be made available to the
tax authorities of a country in which the non-U.S. holder resides. Backup
withholding tax generally will not apply to dividends that we pay on our common
stock to a non-U.S. holder at an address outside the U.S. Payments of the
proceeds of a sale or other taxable disposition of our common stock by a U.S.
office of a broker are subject to both backup withholding at a rate of 28% and
information reporting, unless the holder certifies as to its non-U.S. holder
status under
S-18
penalties of perjury or otherwise establishes an exemption. Information
reporting requirements, but not backup withholding tax, will also apply to
payments of the proceeds of a sale or other taxable disposition of our common
stock by a foreign office of a U.S. broker or a foreign broker with certain
types of relationships to the U.S., unless the holder certifies as to its
non-U.S. holder status under penalties of perjury and certain other conditions
are met or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts that we withhold
under the backup withholding rules will be refunded or credited against the
non-U.S. holder's U.S. federal income tax liability if certain required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
CanArgo Energy Corporation is offering up to 75,000,000 shares ("Offered
Shares") of its common stock in a global "best efforts, any and all" offering
(the "Offering"). Initially, ABG Sundal Collier Norge ASA ("ABGSC") and
potentially one or more additional placing agents (the "International Placing
Agent[s]") on behalf of CanArgo will offer shares outside the United States, and
ABG Sundal Collier, Inc. and potentially one or more additional placing agents
(the "U.S. Placing Agent[s]" and together with the International Placing
Agent[s] collectively, the "Placing Agent[s]") on behalf of CanArgo will offer
shares in the United States. CanArgo and the Placing Agent[s] have entered into
placing agreements with respect to the shares being offered. Among the
conditions in the placing agreements are that:
- Our stockholders approve the issuance of up to 75,000,000 shares of
common stock in satisfaction of the requirements of the American Stock
Exchange;
- The representations and warranties made by us to the Placing Agent[s] are
true; and
- We deliver customary closing documents to the Placing Agent[s].
None of the Placing Agent[s] is obligated to purchase any of the Offered
Shares and they will be acting solely on behalf of CanArgo as agents.
CanArgo will pay a total commission to the Placing Agent[s] of %, which
represents $ per Offered Share.
The Offered Shares will be offered and subscribed for by the investors at
the public offering price listed on the cover page of this prospectus
supplement, in United States dollars. If all the shares are not sold at the
initial price to public, CanArgo may change the offering price and the other
selling terms.
The Placing Agent[s] will solicit subscriptions for shares with a minimum
investment being required in the amount of shares, although we reserve the
right to waive this requirement in individual cases. Each prospective investor
will be requested to execute a subscription agreement pursuant to which the
investor will select the manner of settlement of the Offered Shares whether by
delivery by electronic book entry at the Depository Trust Company ("DTC") or,
for foreign investors, in the VPS system in Norway, or delivery versus payment
through DTC or the VPS system, and will make certain representations and
warranties. Prospective U.S. investors may also elect to receive their Offered
Shares in certificated form.
Settlement of the purchased Offered Shares is anticipated to take place
within three days after closing.
The subscription agreement and any dispute arising out of, or in connection
with, the prospectus supplement and accompanying prospectus shall be governed by
the laws of the State of Delaware and settled exclusively by U.S. courts.
CanArgo estimates that its total expenses of the offering of common stock,
including commissions, will be approximately $ , assuming a maximum
Offering. The common stock has been approved for listing, subject to official
notice of issuance, on the American Stock Exchange under the symbol "CNR" and on
the Oslo Stock Exchange, subject to the final approval by the Oslo Stock
Exchange of the
S-19
Prospectus Supplement and accompanying Prospectus including the Exhibits
attached thereto, under the symbol "CNR."
CanArgo has agreed to indemnify the Placing Agent[s] against certain
liabilities, including liabilities under the Securities Act. ABGSC in the past
has performed investment banking and other financial services for CanArgo and
has received compensation for these services. ABGSC or its affiliates may in the
future provide investment banking and other financial services to CanArgo or its
affiliates for which it will receive compensation.
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. Certain
legal matters have been passed upon for the Placing Agent[s] by Advokatfirmaet
Selmer DA, Oslo, Norway, and Holland & Knight LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 2003 and for the
year then ended, incorporated in this prospectus by reference from the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 2003
have been audited by L J Soldinger Associates LLC, independent auditors, as
stated in their report, which is incorporated herein by reference, and has been
so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements as of December 31, 2002 and for the
years ended December 31, 2002 and 2001 incorporated in this prospectus by
reference to the Annual Report of Form 10-K, as amended, of CanArgo Energy
Corporation for the year ended December 31, 2003 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The oil and gas reserve data incorporated by reference to our Annual Report
on Form 10-K, as amended, for the year ended December 31, 2003, has been
prepared by Oilfield Production Consultants and such reserve report dated
January 1, 2004 has been incorporated herein in reliance upon the authority of
such firm as experts in estimating proved oil and gas reserves.
S-20
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT
AND ACCOMPANYING PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION
OR REPRESENTATIONS. THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS IS AN
OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS IS CURRENT ONLY AS OF ITS
DATE.
---------------------
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
PROSPECTUS SUPPLEMENT SUMMARY.............. S-1
OIL AND GAS TERMS.......................... S-1
ABOUT CANARGO.............................. S-1
THE OFFERING............................... S-4
RECENT DEVELOPMENTS........................ S-5
SUMMARY FINANCIAL AND OPERATING DATA....... S-8
RISK FACTORS............................... S-10
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS............... S-13
USE OF PROCEEDS............................ S-14
CAPITALIZATION............................. S-15
DILUTION................................... S-15
PRICE RANGE OF COMMON STOCK AND DIVIDEND
POLICY................................... S-16
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS TO
NON-UNITED STATES HOLDERS................ S-17
PLAN OF DISTRIBUTION....................... S-19
LEGAL MATTERS.............................. S-20
EXPERTS.................................... S-20
PROSPECTUS
CANARGO ENERGY CORPORATION................. 1
OUR ADDRESS................................ 2
ABOUT THIS PROSPECTUS...................... 2
RATIO OF EARNINGS TO FIXED CHARGES......... 3
RISK FACTORS............................... 4
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS............... 10
USE OF PROCEEDS............................ 11
SECURITIES WHICH MAY BE OFFERED............ 12
DESCRIPTION OF DEBT SECURITIES............. 12
DESCRIPTION OF CAPITAL STOCK............... 18
DESCRIPTION OF WARRANTS.................... 19
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND
UNITS.................................... 21
PLAN OF DISTRIBUTION....................... 22
LEGAL MATTERS.............................. 24
EXPERTS.................................... 24
WHERE YOU CAN FIND MORE INFORMATION........ 24
INFORMATION INCORPORATED BY REFERENCE...... 25
75,000,000 SHARES
(CANARGO ENERGY CORPORATION LOGO)
CANARGO ENERGY CORPORATION
COMMON STOCK
---------------------------------------------
PROSPECTUS SUPPLEMENT
AND
PROSPECTUS
---------------------------------------------
ABG SUNDAL COLLIER, INC.
, 2004
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND PROSPECTUS DO NOT CONSTITUTE AN OFFER
TO SELL THESE SECURITIES AND DO NOT CONSTITUTE THE SOLICITATION OF AN OFFER TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
INTERNATIONAL PRELIMINARY PROSPECTUS SUPPLEMENT
TO PRELIMINARY PROSPECTUS DATED , 2004
(SUBJECT TO COMPLETION)
ISSUED MAY 19, 2004
75,000,000 SHARES
(CANARGO ENERGY CORPORATION LOGO)
CANARGO ENERGY CORPORATION
COMMON STOCK
CanArgo Energy Corporation is offering up to 75,00,000 shares of its common
stock in a global "best efforts, any and all" offering (the "Offer"). Initially,
ABG Sundal Collier Norge ASA and potentially one or more additional placing
agents (the "International Placing Agent[s]") [are][is] offering shares outside
the United States, and ABG Sundal Collier, Inc. and potentially one or more
additional placing agents (the "U.S. Placing Agent[s]" and together with the
International Placing Agent[s] collectively, the "Placing Agent[s]") are
offering shares in the United States. The Company has agreed to indemnify the
Placing Agent[s] against certain liabilities including those arising under the
United States Securities Act of 1933, as amended. The Placing Agent[s] expect[s]
to deliver the shares against payment in United States Dollars to non-U.S.
investors in Oslo, Norway on , 2004. See "Plan of Distribution" in
this prospectus supplement for further details.
---------------------
The common stock is listed on the American Stock Exchange under the symbol
"CNR" and on the Oslo Stock Exchange under the symbol "CNR." On May 18, 2004,
the last reported sale price of the common stock on the American Stock Exchange
and on the Oslo Stock Exchange was $0.74 and NOK 5.06 per share, respectively.
YOU MUST CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE S-10 OF
THIS PROSPECTUS SUPPLEMENT AND ON PAGE 4 IN THE ACCOMPANYING PROSPECTUS.
------------------------------------
PRICE US$ PER SHARE
------------------------------------
PER SHARE TOTAL
--------- ----------
Initial price to public..................................... $ $
Placing Agent[s]' commissions............................... $ $
Proceeds, before expenses, to CanArgo....................... $ $
---------------------
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND ANY OTHER
SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE DOCUMENTS SPECIFICALLY IDENTIFIED IN THE SECTION IN THE ACCOMPANYING
PROSPECTUS ENTITLED "INFORMATION INCORPORATED BY REFERENCE" HAVE BEEN ATTACHED
TO THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS AS ANNEXES TOGETHER
WITH SUPPLEMENTARY INFORMATION NOT CONTAINED IN THE PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN REGARDING THE
COMPANY AND THE OFFER REQUIRED TO BE DISCLOSED TO PROSPECTIVE INVESTORS UNDER
THE RULES OF THE OSLO STOCK EXCHANGE IN ACCORDANCE WITH THE NORWEGIAN SECURITIES
TRADING ACT AND THE NORWEGIAN STOCK EXCHANGE REGULATION, WHICH SUPPLEMENTARY
INFORMATION IS SET FORTH IN ANNEX A ATTACHED HERETO.
---------------------
The responsibility statements of the board of directors of CanArgo and the
advisors are set forth in Annex A.
---------------------
ABG SUNDAL COLLIER NORGE ASA
Prospectus Supplement dated , 2004.
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
IMPORTANT INFORMATION
This prospectus supplement, prospectus and attached Annexes (collectively,
the "Offer Document") have been approved by Oslo Stock Exchange in accordance
with the Norwegian Securities Trading Act section 5-7 and the Norwegian Stock
Exchange Regulation section 14-4 for the purpose of being distributed as a
prospectus for an offer of CanArgo common shares pursuant to the Norwegian
Securities Trading Act chapter 5 and the Norwegian Stock Exchange Regulation
Chapter 14. The Offer Document has been approved by the Oslo Stock Exchange for
the purpose of being distributed as a prospectus in accordance with the
Norwegian Securities Trading Act chapter 5 and the Norwegian Stock Exchange
Regulation Chapter 14.
Investors must rely upon their own examination of this Offer Document and
should study this Offer Document carefully. Prospective investors should not
construe the contents of this Offer Document as legal, accounting or tax advice,
or as information necessarily applicable to each investor's particular
situation. Each investor should consult its own advisers for independent advice
so that a balanced judgment can be made of the Offer and all that is discussed
and described in this Offer Document.
The delivery of this Offer Document shall under no circumstances create any
implication that the information about CanArgo or any other matters discussed in
this Offer Document is correct as of any time subsequent to its dating.
No person has been authorized to give any information or make any
representation on behalf of CanArgo not contained in this Offer Document, and if
given or made, such information or representation must not be relied upon as
having been authorized. The delivery of this Offer Document shall not, under any
circumstances, create any implication that there has not been any change in the
affairs of CanArgo since the date hereof or that the information in this Offer
Document or in the documents referred to herein is correct as of any time
subsequent to the dates hereof or thereof.
This Offer Document has been produced in the English language. A Norwegian
language summary has also been produced and is included herein. In the event of
any conflict between the contents of the English and Norwegian text, the English
text will take precedence. Any dispute arising out of, or in connection with
this Offer Document shall be governed by the laws of the State of Delaware and
settled exclusively by U.S. courts (see the section entitled "Plan of
Distribution" in the prospectus supplement).
TO UK INVESTORS
This Offer Document is only being, and may only be, distributed to (i)
persons outside the United Kingdom; or to (ii) persons in the United Kingdom who
fall within one or more of the categories of persons set out in Article 19
(Investment Professionals) or Article 49 (High Net Worth Companies,
unincorporated associates, etc.) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2001 (as amended or re-enacted) being persons
sufficiently expert or sufficiently substantial to understand the risks involved
in entering into an investment of the nature described herein and the investment
is only available to such persons (all such persons together being referred to
as "relevant persons"). This Offer Document must not be acted on or relied on by
persons who are not relevant persons. The contents of this Offer Document have
not been approved in accordance with the Financial Services and Markets Act 2000
and neither the London Stock Exchange plc nor any other authority in the United
Kingdom has examined or approved this Offer Document.
TO OTHER INVESTORS NOT RESIDENT IN NORWAY
Investors not resident in Norway are advised that their ability to accept
the Offering may be limited by the laws of their jurisdiction. This Offer is not
being made directly or indirectly in any jurisdiction where prohibited by
applicable law and this Offer Document and related acceptance form may not be
distributed, forwarded or transmitted into or from any jurisdiction where
prohibited by applicable law. This Offer is not being made directly or
indirectly in Australia, Canada or Japan. CanArgo will not make any
IS-1
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
offer to specific persons if such offer requires additional offer documents,
regulatory registration or other measures not already required under Norwegian
law, other than to certain U.S. holders.
FORWARD-LOOKING STATEMENTS
Prospective investors are advised to consider the information in the
prospectus supplement appearing under the section entitled "Cautionary Statement
Regarding Forward-Looking Statements". CanArgo does not intend, and disclaims
any duty or obligation, to update or revise any industry information or forward-
looking statements set forth in this Offer Document to reflect new information,
future events or otherwise.
IS-2
---------------------------------------------------------
---------------------------------------------------------
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]
---------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT AND
ACCOMPANYING PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR
REPRESENTATIONS. THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS IS AN
OFFER TO SELL ONLY THE SHARES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS IS CURRENT ONLY AS OF ITS
DATE.
---------------------
TABLE OF CONTENTS
PAGE
-----
PROSPECTUS SUPPLEMENT
IMPORTANT INFORMATION....................... IS-1
PROSPECTUS SUPPLEMENT SUMMARY............... IS-3
OIL AND GAS TERMS........................... IS-3
ABOUT CANARGO............................... IS-3
THE OFFERING................................ IS-6
RECENT DEVELOPMENTS......................... IS-7
SUMMARY FINANCIAL AND OPERATING DATA........ IS-10
RISK FACTORS................................ IS-12
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS................ IS-15
USE OF PROCEEDS............................. IS-16
CAPITALIZATION.............................. IS-17
DILUTION.................................... IS-17
PRICE RANGE OF COMMON STOCK AND DIVIDEND
POLICY.................................... IS-18
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS TO
NON-UNITED STATES HOLDERS................. IS-19
PLAN OF DISTRIBUTION........................ IS-21
LEGAL MATTERS............................... IS-22
EXPERTS..................................... IS-22
PROSPECTUS
CANARGO ENERGY CORPORATION.................. 1
OUR ADDRESS................................. 2
ABOUT THIS PROSPECTUS....................... 2
RATIO OF EARNINGS TO FIXED CHARGES.......... 3
RISK FACTORS................................ 4
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS................ 10
USE OF PROCEEDS............................. 11
SECURITIES WHICH MAY BE OFFERED............. 12
DESCRIPTION OF DEBT SECURITIES.............. 12
DESCRIPTION OF CAPITAL STOCK................ 18
DESCRIPTION OF WARRANTS..................... 19
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND
UNITS..................................... 21
PLAN OF DISTRIBUTION........................ 22
LEGAL MATTERS............................... 24
EXPERTS..................................... 24
WHERE YOU CAN FIND MORE INFORMATION......... 24
INFORMATION INCORPORATED BY REFERENCE....... 25
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
---------------------------------------------------------
75,000,000 SHARES
(CANARGO ENERGY CORPORATION LOGO)
CANARGO ENERGY CORPORATION
COMMON STOCK
---------------------------------------------
PROSPECTUS SUPPLEMENT
AND
PROSPECTUS
---------------------------------------------
ABG SUNDAL COLLIER NORGE ASA
, 2004
---------------------------------------------------------
---------------------------------------------------------
PRELIMINARY PROSPECTUS
(SUBJECT TO COMPLETION, DATED MAY 19, 2004)
$150,000,000
CANARGO ENERGY CORPORATION
From time to time, we may sell any of the following securities:
- DEBT SECURITIES
- PREFERRED STOCK
- COMMON STOCK
- WARRANTS TO PURCHASE DEBT SECURITIES, PREFERRED STOCK OR COMMON STOCK
- STOCK PURCHASE CONTRACTS AND
- UNITS COMPRISED OF SOME OR ALL OF THESE SECURITIES
We will provide the specific terms of these securities in one or more
supplements to this prospectus. You should read this prospectus and any
prospectus supplement carefully before you invest.
Our common stock is traded on the American Stock Exchange under the trading
symbol "CNR" and on the Oslo Stock Exchange under the trading symbol "CNR". The
applicable prospectus supplement will contain information, where applicable, as
to any other listing (if any) on the American Stock Exchange, the Oslo Stock
Exchange or any securities exchange of the securities covered by the prospectus
supplement.
---------------------
INVESTING IN OUR SECURITIES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 4.
---------------------
THIS PROSPECTUS MAY NOT BE USED TO OFFER OR SELL ANY
SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
---------------------
The securities may be sold directly by us to investors, through agents
designated from time to time or to or through underwriters or dealers. For
additional information on the methods of sale, you should refer to the section
herein entitled "Plan of Distribution." If any underwriters are involved in the
sale of any securities in respect of which this prospectus is being delivered,
the names of such underwriters and any applicable commissions or discounts will
be set forth in a prospectus supplement. The net proceeds we expect to receive
from such sale also will be set forth in a prospectus supplement.
NEITHER THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE SECURITIES TO BE ISSUED
UNDER THIS PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2004
TABLE OF CONTENTS
PAGE
----
CANARGO ENERGY CORPORATION.................................. 1
OUR ADDRESS................................................. 2
ABOUT THIS PROSPECTUS....................................... 2
RATIO OF EARNINGS TO FIXED CHARGES.......................... 3
RISK FACTORS................................................ 4
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 10
USE OF PROCEEDS............................................. 11
SECURITIES WHICH MAY BE OFFERED............................. 12
DESCRIPTION OF DEBT SECURITIES.............................. 12
DESCRIPTION OF CAPITAL STOCK................................ 18
DESCRIPTION OF WARRANTS..................................... 19
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND UNITS........... 21
PLAN OF DISTRIBUTION........................................ 22
LEGAL MATTERS............................................... 24
EXPERTS..................................................... 24
WHERE YOU CAN FIND MORE INFORMATION......................... 24
INFORMATION INCORPORATED BY REFERENCE....................... 25
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
---------------------
i
CANARGO ENERGY CORPORATION
Unless the context requires otherwise, the references to "we," "us," "our,"
"the Company," or "CanArgo" refer collectively to CanArgo Energy Corporation and
its subsidiaries.
CanArgo is an independent oil and gas exploration and production company
incorporated with limited liability under the laws of the State of Delaware,
U.S.A., and headquartered in St Peter Port, Guernsey, British Isles, but not
regulated in Guernsey, currently operating in countries that were a part of the
former Soviet Union. We operate and carry out our activities as a holding
company through a number of subsidiaries and associated or affiliated companies.
These companies are generally focused on one of our projects, and this structure
assists in maintaining separate cost centers for these different projects.
Our principal activities are oil and gas exploration, development and
production, at this time principally in the Republic of Georgia, and to a lesser
extent in Kazakhstan and Azerbaijan. We direct most of our efforts and resources
to the development of the Ninotsminda Field and our exploration program, both
located in Georgia. As we own certain drilling rigs and equipment, we also have
a secondary interest in the provision of oilfield services to third parties in
the oil and gas industry, principally in Georgia. Our management and technical
staff have substantial experience in our areas of operation. Our principal
product is crude oil, and the sale of crude oil is our principal source of
revenue.
Our oil and natural gas reserves and production have been derived
principally through development of the Ninotsminda Field. We typically focus on
properties that either offer us existing production as well as additional
exploitation opportunities, or exploration prospects which management believes
have significant potential. This strategy has resulted in our recent acquisition
in April 2004 of a 50% interest in Samgori (Block XI(B)) Production Sharing
Contract (the "Samgori PSC") in the Republic of Georgia and our recent Manavi
exploration oil discovery. We believe that our cash flow at current oil prices
and current rates of production from operations and our financial resources
including the receipt of proceeds from the sale of certain non-core assets and
drawdown under the Equity Line of Credit agreement with Cornell Capital
Partners, L.P., once the Registration Statement on Form S-3 filed on May 6, 2004
is declared effective, will provide us with the ability to complete our near
term development program on the Ninotsminda and Samgori Fields, while our
current exploration drilling program in Georgia is being funded by third
parties.
Our business strategy is focused on the following:
FURTHER DEVELOPMENT OF EXISTING PROPERTIES
We intend to further develop our properties that have established oil and
gas resources. We seek to add proved reserves and increase production through
the use of advanced technologies, including detailed technical analysis of our
properties, horizontal drilling, utilization of under-balanced and coiled tubing
drilling, multilateral drilling, drilling new structures from existing locations
and selectively recompleting existing wells. We also plan to drill step-out
wells to expand known field limits.
GROWTH THROUGH EXPLOITATION AND EXPLORATION
We conduct an active technology-driven exploitation and exploration program
that is designed to complement our property acquisition and development drilling
efforts with moderate to high-risk exploration projects that have greater
reserve potential. We generate exploration prospects through the analysis and
integration of geological and geophysical data and the interpretation of seismic
data. We intend to manage our exploration expenditures through the optimal
scheduling of our drilling program and, if considered appropriate, selectively
reducing our participation in certain exploratory prospects through sales of
interests to industry partners.
PURSUIT OF STRATEGIC ACQUISITIONS
We continually review opportunities to acquire producing properties,
leasehold acreage and drilling prospects and seek to acquire operational control
of properties that we believe have significant exploitation
1
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
We are incorporated in the State of Delaware, U.S.A., and the address of
our principal executive office is P.O. Box 291, St Peter Port, Guernsey, GY1
3RR, British Isles, and our telephone number is +(44) 1481 729 980. Our internet
website address is www.canargo.com. Our website is an interactive textual
reference only, meaning that the information contained on the website is not
part of this prospectus and is not incorporated in this prospectus by reference.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement filed with the United
States Securities and Exchange Commission (the "SEC") using a "shelf"
registration process. Under this shelf process, we may offer, from time to time,
in one or more offerings:
- shares of our common stock;
- shares of our preferred stock;
- our debt securities;
- warrants to purchase our common stock, preferred stock or debt
securities;
- stock purchase contracts, including contracts obligating holders to
purchase from us and obligating us to sell to holders at a future date a
specified number of shares of common stock, preferred stock, or a number
of shares of common stock or preferred stock to be determined by
reference to a specific formula set forth in the stock purchase contract;
or
- units comprised of a combination of common stock, preferred stock, debt
securities or warrants or all of them.
The total offering price of these securities will not exceed $150,000,000.
This prospectus provides a general description of the securities, we may offer.
Each time we offer securities, we will provide a prospectus supplement
describing the specific amounts, prices and terms of the securities offered. The
prospectus supplement also may add, update or change information contained in
this prospectus.
We may sell the securities to or through underwriters, dealers or agents or
directly to purchasers, and our agents and we reserve the sole right to accept
and to reject in whole or in part any proposed purchase of securities. The
prospectus supplement to be provided each time securities are offered will
provide the names of any underwriters, dealers or agents, if any, involved in
the sale of the securities, and any applicable fee, commission or discount
arrangements with them. See the section entitled "Plan of Distribution."
If the terms of the debt securities described in this prospectus and the
accompanying prospectus supplement vary, you should rely on the information
contained in the prospectus supplement.
You should read both this prospectus and any prospectus supplement,
together with the additional information described under the sections herein
entitled "Where You Can Find More Information" and "Information Incorporated by
Reference."
2
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
each of the following periods:
YEAR ENDED DECEMBER 31, PERIOD ENDED
-------------------------------- MARCH 31,
2003 2002 2001 2000 1999 2004
---- ---- ---- ---- ---- ------------
Ratio of earnings to fixed charges(1)............ (2) (2) (2) (3) (3) 7.65
---------------
(1) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of pre-tax income from continuing operations, before
adjustment for minority interests in consolidated subsidiaries, plus fixed
charges. Fixed charges consist of interest expense, commitment fees, and the
amortization of deferred debt issue costs.
(2) No ratio is presented for the years ending December 31, 2003, 2002 and 2001
as we incurred losses in those years. Losses for those years exceeded fixed
charges by $835,000, $5,564,000 and $11,153,000, respectively.
(3) No ratio is presented for the years ending December 31, 2000 and 1999 as
there were no fixed charges during these periods.
3
RISK FACTORS
You should carefully consider the following risks and uncertainties and all
other information contained in this prospectus, including the documents
incorporated by reference, before you decide whether to purchase our securities.
Any of the following risks, if they materialize, could adversely affect our
business, financial condition and operating results. As a result, the trading
price of our common stock could decline, and you could lose all or part of your
investment.
OUR CURRENT OPERATIONS ARE DEPENDENT ON THE SUCCESS OF THE NINOTSMINDA AND
SAMGORI FIELDS AND OUR GEORGIAN EXPLORATION ACTIVITIES.
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 Republic of
Georgia, exploration in that area and some ancillary activities closely related
to the Ninotsminda Field project. This decision is based on management's
assessment of the promise of the Ninotsminda Field area. However, our focus on
the Ninotsminda Field has over the past several years resulted in overall losses
for us and we only achieved profitability in the last quarter of 2003. We cannot
assure investors that the exploration and development plans for the Ninotsminda
Field will be successful. For example, the Ninotsminda Field may not produce
sufficient quantities of oil and gas to justify the investment we have made and
are planning to make in the Field, and we may not be able to produce the oil and
gas at a sufficiently low cost or to market the oil and gas produced at a
sufficiently high price to generate a positive cash flow and a profit. In April
2004, we announced that we had concluded the acquisition of a 50% interest in
Samgori (Block XI(B)) 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 and license area will be successful. Our Georgian exploration program is
an important factor for future success, and this program may not be successful,
as it carries substantial risk and potential loss. See "Our oil and gas
activities involve risks, many of which are beyond our control" at page 7 for a
description 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 such an event not
fully covered by insurance could have a material adverse effect on our financial
condition and results of operations.
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.
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 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
4
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.
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 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.
WE MAY BE UNABLE TO FINANCE OUR PRESENT OIL AND GAS PROJECTS.
Our ability to finance most of our present oil and gas projects and other
ventures according to present plans is dependent upon obtaining additional
funding. An inability to obtain financing could require us to scale back or
abandon part or all of our project development, capital expenditure, production
and other plans. The availability of equity or debt financing to us or to the
entities that are developing projects in which we have interests is affected by
many factors, including:
- world and regional economic conditions;
- the state of international relations;
- the stability and the legal, regulatory, fiscal and tax policies of
various governments in areas in which we have or intend to have
operations;
- fluctuations in the world and regional price of oil and gas and in
interest rates;
- the outlook for the oil and gas industry in general and in areas in which
we have or intend to have operations; and
- 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.
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.
5
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
operator's control, such as:
- unexpected or unusual geological conditions;
- the recoverability of the oil and gas on an economic basis;
- the availability of infrastructure and personnel to support operations;
- labor disputes;
- local and global oil prices; and
- government regulation and legal and political uncertainties.
Our activities can also be affected by a number of hazards, such as:
- natural phenomena, such as bad weather and earthquakes;
- operating hazards, such as fires, explosions, blow-outs, pipe failures
and casing collapses; and
- 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.
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.
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
6
market economy from a planned economy. New laws have recently been introduced,
and the legal and regulatory regimes in such regions are often vague, containing
gaps and inconsistencies, and are constantly subject to amendment. Application
and enforceability of these laws may also vary widely from region to region
within these countries. Due to this instability, former Soviet Union countries
are subject to certain additional risks including the uncertainty as to the
enforceability of contracts.
Social, economic and legal instability have accompanied these changes due
to many factors which include:
- low standards of living;
- high unemployment;
- undeveloped and constantly changing legal and social institutions; and
- conflicts within and with neighboring countries.
This instability could make continued operations difficult or impossible.
In early 2002, the Georgian government requested assistance from the United
States to combat terrorism in the Pankisi Gorge, a region of Georgia bordering
the separatist Chechnya region of Russia. Although this situation is now
apparently calm, the region remains potentially unstable with the risk of
further terrorist activity. Recently Georgia has 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 Georgia, and specific written support for our
activities, there can be no guarantee that this will continue, or that these
changes will not have an adverse affect on our operations. There are also some
separatist areas within Georgia that may cause instability and potentially
affect our activities.
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.
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.
WE MAY ENCOUNTER TAX RISKS IN THE COUNTRIES IN WHICH WE OPERATE.
Countries in the former Soviet Union frequently add to or amend existing
taxation policies in reaction to economic conditions including state budgetary
and revenue shortfalls. Since we are dependent on international operations,
specifically those in Georgia, we are subject to changing taxation policies
including the possible imposition of confiscatory excess profits, production,
remittance, export and other taxes. While we are not aware of any recent or
proposed tax changes which could materially adversely
7
affect our operations, such changes could occur although we have negotiated
economic stabilization clauses in our production sharing contracts in Georgia
and all current taxes are payable from the State's share of petroleum produced
under the production sharing contracts.
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 such demands or expectations could adversely affect our participation in
such projects or our ability to obtain or maintain necessary licenses and other
approvals.
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 for development of oil and gas
fields in various foreign jurisdictions must be granted by governmental
agencies. These governmental agencies generally have broad discretion in
determining whether to take or approve various actions and matters. In addition,
the policies and practices of governmental agencies may be affected or altered
by political, economic and other events occurring either within their own
countries or in a broader international context.
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:
- global and regional changes in the supply and demand for oil and natural
gas;
- actions of the Organization of Petroleum Exporting Countries;
- weather conditions;
- domestic and foreign governmental regulations;
- the price and availability of alternative fuels;
- political conditions and terrorist activity in the Middle East, Central
Asia and elsewhere; and
- 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.
8
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:
- the amount of recoverable crude oil and natural gas present in a
reservoir;
- the costs that will be incurred to produce the crude oil and natural gas;
and
- 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:
- additional development activity;
- evolving production history; and
- 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 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.
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:
- exploration;
- development;
- production;
- refining;
- marketing;
- transportation;
- occupational health and safety;
- labor standards; and
- 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.
9
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.
OUR ABILITY TO MAKE FUTURE STOCK ISSUANCES AND THE PROVISIONS OF DELAWARE LAW
COULD HAVE ANTI-TAKEOVER EFFECTS.
Our board of directors may at any time issue additional shares of preferred
stock and common stock without any prior approval by the stockholders, which
might impair or impede a third party from making an offer to acquire us. Holders
of outstanding shares have no right to purchase a pro rata portion of additional
shares of common or preferred stock issued by us. In addition, the provisions of
Section 203 of the Delaware General Corporation Law, to which we are subject,
places certain restrictions on third parties who seek to effect a business
combination with a company opposed by our board of directors. See the section
entitled "Delaware Law and Charter and By-Law Provisions" in this prospectus.
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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including any attached prospectus supplement and 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, 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 any prospectus supplement and 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
10
factors that could cause actual results to differ materially from the
expectations reflected in the forward-looking statements include, among others:
- the market prices of oil and gas;
- uncertainty of drilling results, reserve estimates and reserve
replacement;
- operating uncertainties and hazards;
- economic and competitive conditions;
- natural disasters and other changes in business conditions;
- inflation rates;
- legislative and regulatory changes;
- financial market conditions;
- accuracy, completeness and veracity of information received from third
parties;
- wars and acts of terrorism or sabotage;
- political and economic uncertainties of foreign governments; and
- 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.
You are cautioned not to place undue reliance on the forward-looking
statements, which speak only as of the date of this prospectus, any prospectus
supplement or the date of any document incorporated by reference in this
prospectus. We are under no obligation, and expressly disclaim any obligation,
to update or alter any forward-looking statements, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
Except as described in any prospectus supplement, we currently intend to
use the net proceeds from our sale of securities for our general corporate
purposes, which may include but not be limited to the repayment of indebtedness,
additions to our working capital, capital expenditures, funding future
acquisitions or repurchase of outstanding stock.
When we offer a particular series of securities, the prospectus supplement
relating to that offering will describe the intended use of the net proceeds
received from that offering. The actual amount of net proceeds expended on a
particular use will depend on many factors, including:
- future revenue growth, if any;
- future capital expenditures; and
- the amount of cash required by operations.
Some of these factors are beyond our control. Therefore, our board will
retain discretion in the use of the net proceeds.
11
SECURITIES WHICH MAY BE OFFERED
We may offer shares of common stock, shares of preferred stock, debt
securities or warrants to purchase common stock, preferred stock or debt
securities, or stock purchase contracts or units, or any combination of the
foregoing, either individually or as units consisting of one or more securities.
We may offer up to $150,000,000 of securities under this prospectus. If
securities are offered as units, we will describe the terms of the units in a
prospectus supplement.
DESCRIPTION OF DEBT SECURITIES
We may offer any combination of senior debt securities or subordinated debt
securities. Debt securities are unsecured obligations to repay advanced funds.
We may issue the senior debt securities and the subordinated debt securities
under separate indentures between us, as issuer, and the trustee or trustees
identified in the prospectus supplement. The form for each type of indenture
have been filed as exhibits to the registration statement of which this
prospectus is a part.
The prospectus supplement will describe the particular terms of any debt
securities we may offer. The following summaries of the debt securities and the
indentures are not complete. You are urged to read the indentures and the
description of the debt securities included in the prospectus supplement.
GENERAL
We may issue no more than $150,000,000 in principal amount of debt
securities in separate series. We may specify a maximum aggregate principal
amount for the debt securities of any series. The debt securities will have
terms that are consistent with the indentures. Unless the prospectus supplement
indicates otherwise, senior debt securities will be unsecured and unsubordinated
obligations and will rank equally with all our other unsecured and
unsubordinated debt. Subordinated debt securities will be paid only if all
payments due under our senior indebtedness, including any outstanding senior
debt securities, have been made.
The indentures might not limit the amount of other debt that we may incur
and might not contain financial or similar restrictive covenants. The indentures
might not contain any provision to protect holders of debt securities against a
sudden or dramatic decline in our ability to pay our debt.
The prospectus supplement will describe the debt securities and the price
or prices at which we will offer the debt securities. The description will
include:
- The title and form of the debt securities;
- Any limit on the aggregate principal amount of the debt securities or the
series of which they are a part;
- The person to whom any interest on a debt security of the series will be
paid;
- The date or dates on which we must repay the principal;
- The rate or rates at which the debt securities will bear interest, if
any, the date or dates from which interest will accrue, and the dates on
which we must pay interest;
- If applicable, the duration and terms of the right to extend interest
payment periods;
- The place or places where we must pay the principal and any premium or
interest on the debt securities;
- The terms and conditions on which we may redeem any debt security, if at
all;
- Any obligation to redeem or purchase any debt securities, and the terms
and conditions on which we must do so;
- The denominations in which we may issue the debt securities;
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- The manner in which we will determine the amount of principal of or any
premium or interest on the debt securities;
- The currency in which we will pay the principal of and any premium or
interest on the debt securities;
- The principal amount of the debt securities that we will pay upon
declaration of acceleration of their maturity;
- The amount that will be deemed to be the principal amount for any
purpose, including the principal amount that will be due and payable upon
any maturity or that will be deemed to be outstanding as of any date;
- If applicable, that the debt securities are defeasible and the terms of
such defeasance;
- If applicable, the terms of any right to convert debt securities into, or
exchange debt securities for, shares of common stock or other securities
or property;
- Whether we will issue the debt securities in the form of one or more
global securities and, if so, the respective depositaries for the global
securities and the terms of the global securities;
- The subordination provisions that will apply to any subordinated debt
securities;
- Whether any periodic evidence will be required to be furnished as to the
absence of default or as to compliance with the terms of the indenture
and the nature of such evidence;
- Any addition to or change in the events of default applicable to the debt
securities and any change in the right of the trustee or the holders to
declare the principal amount of any of the debt securities due and
payable; and
- Any addition to or change in the covenants in the indentures.
We may sell the debt securities at a substantial discount below their
stated principal amount. The prospectus supplement will describe U.S. federal
income tax considerations, if any, applicable to debt securities sold at an
original issue discount in the prospectus supplement. An "original issue
discount security" is any debt security sold for less than its face value, and
which provides that the holder cannot receive the full face value if maturity is
accelerated. The prospectus supplement relating to any original issue discount
securities will describe the particular provisions relating to acceleration of
the maturity upon the occurrence of an event of default. In addition, we will
describe U.S. federal income tax or other considerations applicable to any debt
securities that are denominated in a currency or unit other than U.S. dollars in
the prospectus supplement.
CONVERSION AND EXCHANGE RIGHTS
The prospectus supplement will describe, if applicable, the terms on which
you may convert debt securities into or exchange them for our common stock or
other securities or property. The conversion or exchange may be mandatory or may
be at your option. The prospectus supplement will describe how the number of
shares of our common stock or other securities or property to be received upon
conversion or exchange would be calculated.
SUBORDINATION OF SUBORDINATED DEBT SECURITIES
Unless the prospectus supplement indicates otherwise, the following
provisions will apply to the subordinated debt securities. The indebtedness
underlying the subordinated debt securities will be payable only if all payments
due under our senior indebtedness, including any outstanding senior debt
securities have been made. If we distribute our assets to creditors upon any
dissolution, winding-up, liquidation or reorganization or in bankruptcy,
insolvency, receivership or similar proceedings, we must first pay all amounts
due or to become due on all senior indebtedness before we pay the principal of,
or any premium or interest on, the subordinated debt securities. In the event
the subordinated debt securities are
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accelerated because of an event of default, we may not make any payment on the
subordinated debt securities until we have paid all senior indebtedness or the
acceleration is rescinded. If the payment of subordinated debt securities
accelerates because of an event of default, we must promptly notify holders of
senior indebtedness of the acceleration.
If we experience a bankruptcy, dissolution or reorganization, holders of
our senior indebtedness may receive more, ratably, and holders of subordinated
debt securities may receive less, ratably, than our other creditors. The
indenture for subordinated debt securities may not limit our ability to incur
additional senior indebtedness.
FORM, EXCHANGE AND TRANSFER
We will issue debt securities only in fully registered form, without
coupons, and, unless the prospectus supplement indicates otherwise, only in
denominations of $1,000 and integral multiples thereof. The holder of a debt
security may elect, subject to the terms of the indentures and the limitations
applicable to global securities, to exchange them for other debt securities of
the same series of any authorized denomination and of similar terms and
aggregate principal amount.
Holders of debt securities may present them for exchange as provided above
or for registration of transfer, duly endorsed or with the form of transfer duly
executed, at the office of the transfer agent we designate for that purpose. We
will not impose a service charge for any registration of transfer or exchange of
debt securities, but may require a payment sufficient to cover any tax or other
governmental charge payable in connection with the transfer or exchange. We will
name the transfer agent in the prospectus supplement. We may designate
additional transfer agents or rescind the designation of any transfer agent or
approve a change in the office through which any transfer agent acts, but we
must maintain a transfer agent in each place in which it will pay on debt
securities.
If we redeem the debt securities, we will not be required to issue,
register the transfer of or exchange any debt security during a specified period
prior to mailing a notice of redemption. We are not required to register the
transfer of or exchange any debt security selected for redemption, except the
unredeemed portion of the debt security being redeemed.
GLOBAL SECURITIES
The debt securities may be represented, in whole or in part, by one or more
global securities that will have an aggregate principal amount equal to that of
all debt securities of that series. Each global security will be registered in
the name of a depository identified in the prospectus supplement. We will
deposit the global security with the depository or a custodian, and the global
security will bear a legend regarding the restrictions on exchanges and
registration of transfer.
No global security may be exchanged in whole or in part for debt securities
registered, and no transfer of a global security in whole or in part may be
registered, in the name of any person other than the depository or any nominee
or successor of the depository unless:
- The depository is unwilling or unable to continue as depository; or
- The depository is no longer in good standing under the Exchange Act or
other applicable statute or regulation.
The depository will determine how all securities issued in exchange for a
global security will be registered.
As long as the depository or its nominee is the registered holder of a
global security, we will consider the depository or the nominee to be the sole
owner and holder of the global security and the underlying debt securities.
Except as stated above, owners of beneficial interests in a global security will
not be entitled to have the global security or any debt security registered in
their names, will not receive physical delivery of certificated debt securities
and will not be considered to be the owners or holders of the global security or
underlying debt securities. We will make all payments of principal, premium and
interest on a
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global security to the depository or its nominee. The laws of some jurisdictions
require that some purchasers of securities take physical delivery of such
securities in definitive form. These laws may prevent you from transferring your
beneficial interests in a global security.
Only institutions that have accounts with the depository or its nominee and
persons that hold beneficial interests through the depository or its nominee may
own beneficial interests in a global security. The depository will credit, on
its book-entry registration and transfer system, the respective principal
amounts of debt securities represented by the global security to the accounts of
its participants. Ownership of beneficial interests in a global security will be
shown only on, and the transfer of those ownership interests will be effected
only through, records maintained by the depository or any such participant.
The policies and procedures of the depository may govern payments,
transfers, exchanges and others matters relating to beneficial interests in a
global security. The trustee and we will assume no responsibility or liability
for any aspect of the depository's or any participant's records relating to, or
for payments made on account of, beneficial interests in a global security.
PAYMENT AND PAYING AGENTS
Unless the prospectus supplement indicates otherwise, we will pay principal
and any premium or interest on a debt security to the person in whose name the
debt security is registered at the close of business on the regular record date
for such interest.
Unless the prospectus supplement indicates otherwise, we will pay principal
and any premium or interest on the debt securities at the office of its
designated paying agent. Unless the prospectus supplement indicates otherwise,
the corporate trust office of the trustee will be the paying agent for the debt
securities.
Any other paying agents we designate for the debt securities of a
particular series will be named in the prospectus supplement. We may designate
additional paying agents, rescind the designation of any paying agent or approve
a change in the office through which any paying agent acts, but it must maintain
a paying agent in each place of payment for the debt securities.
The paying agent will return to us all money paid to it for the payment of
the principal, premium or interest on any debt security that remains unclaimed
for a specified period. Thereafter, the holder may look only to us for payment,
as an unsecured general creditor.
EVENTS OF DEFAULT
Each of the following will constitute an event of default under each
indenture:
- failure to pay the principal of or any premium on any debt security when
due;
- failure to pay any interest on any debt security when due, for more than
a specified number of days past the due date;
- failure to deposit any sinking fund payment when due;
- failure to perform any covenant or agreement in the indenture that
continues for a specified number of days after written notice has been
given by the trustee or the holders of a specified percentage in
aggregate principal amount of the debt securities of that series;
- certain events in bankruptcy, insolvency or reorganization; and
- any other event of default specified in the prospectus supplement.
If an event of default occurs and continues, both the trustee and holders
of a specified percentage in aggregate principal amount of the outstanding
securities of that series may declare the principal amount of the debt
securities of that series to be immediately due and payable. The holders of a
specified percentage in aggregate principal amount of the outstanding securities
of that series may, under certain circumstances,
15
rescind and annul the acceleration if all events of default, other than the
nonpayment of accelerated principal, have been cured or waived.
Except for certain duties in case of an event of default, the trustee will
not be obligated to exercise any of its rights or powers at the request or
direction of any of the holders, unless the holders have offered the trustee
reasonable indemnity. If they provide this indemnification, the holders of a
specified percentage in aggregate principal amount of the outstanding securities
of any series may direct the time, method and place of conducting any proceeding
for any remedy available to the trustee or exercising any trust or power
conferred on the trustee with respect to the debt securities of that series.
No holder of a debt security of any series may institute any proceeding
with respect to the indentures, or for the appointment of a receiver or a
trustee, or for any other remedy, unless:
- the holder has previously given the trustee written notice of a
continuing event of default;
- the holders of a specified percentage in aggregate principal amount of
the outstanding securities of that series have made a written request
upon the trustee, and have offered reasonable indemnity to the trustee,
to institute the proceeding; and
- the trustee has failed to institute the proceeding for a specified period
of time after its receipt of the notification; and
- the trustee has not received a direction inconsistent with the request
within a specified number of days.
MODIFICATION AND WAIVER
The trustee and we may change an indenture without the consent of any
holders with respect to specific matters, including:
- to fix any ambiguity, defect or inconsistency in the indenture; and
- to change anything that does not materially adversely affect the
interests of any holder of debt securities of any series.
In addition, under the indentures, the rights of holders of a series of
notes may be changed by us and the trustee with the written consent of the
holders of at least a majority in aggregate principal amount of the outstanding
debt securities of each series that is affected. However, the trustee and we may
only make the following changes with the consent of the holder of any
outstanding debt securities affected:
- extending the fixed maturity of the series of notes;
- reducing the principal amount, reducing the rate of or extending the time
of payment of interest, or any premium payable upon the redemption, of
any debt securities; or
- reducing the percentage of debt securities the holders of which are
required to consent to any amendment.
The holders of a specified percentage in principal amount of the
outstanding debt securities of any series may waive any past default under the
indenture with respect to debt securities of that series, except a default in
the payment of principal, premium or interest on any debt security of that
series or in respect of a covenant or provision of the indenture that cannot be
amended without each holder's consent.
Except in certain limited circumstances, we may set any day as a record
date for the purpose of determining the holders of outstanding debt securities
of any series entitled to give or take any direction, notice, consent, waiver or
other action under the indentures. In certain limited circumstances, the trustee
may set a record date. To be effective, the action must be taken by holders of
the requisite principal amount of such debt securities within a specified period
following the record date.
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DEFEASANCE
To the extent stated in the prospectus supplement, we may elect to apply
the provisions in the indentures relating to defeasance and discharge of
indebtedness, or to defeasance of certain restrictive covenants, to the debt
securities of any series. The indentures provide that, upon satisfaction of the
requirements described below, we may terminate all of our obligations under the
debt securities of any series and the applicable indenture, known as legal
defeasance, other than our obligation:
- to maintain a registrar and paying agent and hold moneys for payment in
trust;
- to register the transfer or exchange of the debt securities; and
- to replace mutilated, destroyed, lost or stolen debt securities.
In addition, we may terminate our obligation to comply with any restrictive
covenants under the debt securities of any series or the applicable indenture,
known as covenant defeasance.
We may exercise our legal defeasance option even if we have previously
exercised our covenant defeasance option. If we exercise either defeasance
option, payment of the debt securities may not be accelerated because of the
occurrence of events of default.
To exercise either defeasance option as to debt securities of any series,
we must irrevocably deposit in trust with the trustee money and/or obligations
backed by the full faith and credit of the U.S. that will provide money in an
amount sufficient in the written opinion of a nationally recognized firm of
independent public accountants to pay the principal of, premium, if any, and
each installment of interest on the debt securities. We may only establish this
trust if, among other things:
- No event of default shall have occurred or be continuing;
- In the case of legal defeasance, we have delivered to the trustee an
opinion of counsel to the effect that we have received from, or there has
been published by, the IRS a ruling or there has been a change in law,
which in the opinion of our counsel, provides that holders of the debt
securities will not recognize gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will
be subject to federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred;
- In the case of covenant defeasance, we have delivered to the trustee an
opinion of counsel to the effect that the holders of the debt securities
will not recognize gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to
federal income tax on the same amount, in the same manner and at the same
times as would have been the case if such deposit, defeasance and
discharge had not occurred; and
- We satisfy other customary conditions precedent described in the
applicable indenture.
NOTICES
We will mail notices to holders of debt securities as indicated in the
prospectus supplement.
TITLE
We may treat the person in whose name a debt security is registered as the
absolute owner, whether or not such debt security may be overdue, for the
purpose of making payment and for all other purposes.
GOVERNING LAW
The indentures and the debt securities will provide that they are to be
governed by and construed in accordance with the laws of the State of Delaware.
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DESCRIPTION OF CAPITAL STOCK
The following is a description of the common stock classes and preferred
stock we may offer under this prospectus. While the terms we have summarized
below will apply generally to any future common stock or preferred stock that we
may offer, we will describe the particular terms of these securities in more
detail in the applicable prospectus supplement.
GENERAL
Our amended certificate of incorporation authorizes the issuance of up to
300,000,000 shares of common stock, $.10 par value per share, and authorizes the
issuance of up to 5,000,000 shares of preferred stock, $.10 par value per share,
the rights and preferences of which may be established from time to time by the
Board of Directors. As of May 11, 2004, 113,613,505 shares of common stock and
no shares of preferred stock were issued and outstanding.
COMMON STOCK
Holders of common stock are entitled to cast one vote for each share held
of record on all matters submitted to a vote of stockholders, including the
election of directors and are not entitled to cumulate votes for the election of
directors. Since the holders of common stock do not have cumulative voting
rights, holders of more than 50% of the outstanding shares can elect all of the
directors currently sitting on the Board of Directors and holders of the
remaining shares by themselves cannot elect any directors. Except as otherwise
required by law or except as any series or class of preferred stock may provide,
the holders of common stock possess all voting power. Holders of common stock do
not have any preferences or preemptive, conversion, or exchange rights and the
common stock is not subject to any redemption or sinking fund provisions.
Subject to any preferential rights of any shares of preferred stock which may be
outstanding, holders of shares of common stock are entitled to receive dividends
if approved by the Board of Directors and to share ratably in the Company's
assets legally available for distribution to its stockholders in the event of
its liquidation, dissolution or winding-up. Subject to any contractual
restrictions affecting an individual holder or its shares and except as may be
required by law, there are no restrictions on the alienability of the shares of
common stock. All shares of common stock outstanding and to be outstanding upon
completion of this offering are and will be fully paid and non-assessable.
10,688,000 shares of our common stock are currently issuable under our
stock option plans and special stock options and warrants. From these there are
currently 4,254,833 options and 250,000 warrants to purchase common stock
outstanding with a weighted average price of $0.47. There are currently 863,419
options under these plans which remain as yet unissued. Shares issued under
these plans, other than shares issued to affiliates, will be freely tradable in
the public market. In addition to the above there are currently 1,300,000
warrants to purchase common stock outstanding, issued as part of a short-term
funding facility put in place in April 2004. These warrants have an exercise
price of $1.05, and have not as yet been subject to registration.
PREFERRED STOCK
Our authorized preferred stock consists of 5,000,000 shares, par value $.10
per share. No shares are outstanding or currently reserved for issuance. Our
amended certificate of incorporation grants the Board of Directors the authority
to issue by resolution shares of preferred stock in one or more series and to
fix the number of shares constituting any such series, the voting powers, if
any, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof,
including the rate or rates at which, and the other terms and conditions on
which, dividends shall be payable; whether and on what terms the shares
constituting any series shall be redeemable, subject to sinking fund provisions,
or convertible or exchangeable; and the liquidation preferences, if any, of such
series, without any further vote or action by the stockholders. For example, the
Board of Directors is authorized to issue a series of preferred stock that would
have the right to vote, separately or with any other series of preferred stock,
on any proposed amendment to our restated certificate of incorporation, or
18
any other proposed corporate action, including business combinations and other
transactions. The Board of Directors currently does not contemplate the issuance
of any preferred stock and is not aware of any pending or proposed transactions
that would be affected by such issuance.
The authorization of undesignated preferred stock makes it possible for the
Board of Directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
our Company. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management of our Company. The
amendment of any of these provisions would require approval by holders of at
least 66 2/3% of the outstanding common stock.
DELAWARE LAW AND CHARTER AND BY-LAW PROVISIONS
Business Combinations. We are subject to the provisions of Section 203 of
the General Corporation Law of Delaware. Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to specified
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
our outstanding voting stock.
Limitation of Liability; Indemnification. Our charter contains provisions
permitted under the General Corporation Law of Delaware relating to the
liability of officers and directors. The provisions eliminate a director's
liability for monetary damages for a breach of fiduciary duty, except in
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions, which involve intentional misconduct, or a
knowing violation of law. The limitation of liability described above does not
alter the liability of our directors and officers under federal securities laws.
Furthermore, our charter contains provisions to indemnify our directors and
officers to the fullest extent permitted by the General Corporation Law of
Delaware. These provisions do not limit or eliminate our right or the right of
any stockholder to seek non-monetary relief, such as an injunction or rescission
in the event of a breach by a director or an officer of his duty of care to us.
We believe that these provisions will assist us in attracting and retaining
qualified individuals to serve as directors.
Stockholder Action; Special Meeting of Stockholders. Our charter also
provides that any action required or permitted to be taken by our stockholders
may be taken only at a duly called annual or special meeting of stockholders. In
addition, our by-laws provide that special meetings of stockholders may be
called only by the Board of Directors, the Chairman of the Board of Directors,
our President or by the holders of at least 10% of the outstanding shares of
common stock. These provisions could have the effect of delaying stockholder
actions until the next stockholders' meeting, which are favored by the holders
of a majority of our outstanding voting securities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Signature Stock
Transfer, Inc., Dallas, Texas, and the Norwegian sub-registrar for the common
stock is DnB NOR Bank ASA, Oslo, Norway.
DESCRIPTION OF WARRANTS
WARRANTS TO PURCHASE COMMON STOCK OR PREFERRED STOCK
The following summarizes the terms of common stock warrants and preferred
stock warrants we may issue. This description is subject to the detailed
provisions of a stock warrant agreement that we will enter into with a stock
warrant agent we will select at the time of issue. While the terms summarized
below will apply generally to any future warrants to purchase common stock or
preferred stock that we may offer, the applicable prospectus supplement will
describe the particular terms of these securities in more detail.
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General. We may issue stock warrants evidenced by stock warrant
certificates under a stock warrant agreement independently or together with any
securities it offers by any prospectus supplement. If we offer stock warrants,
the prospectus supplement will describe the terms of the stock warrants,
including:
- The offering price, if any;
- The number of shares of common stock or preferred stock purchasable upon
exercise of one stock warrant and the initial price at which the shares
may be purchased upon exercise;
- If applicable, the designation and terms of the preferred stock
purchasable upon exercise of the stock warrants;
- The dates on which the right to exercise the stock warrants begins and
expires;
- U.S. federal income tax consequences;
- Call provisions, if any;
- The currencies in which the offering price and exercise price are
payable; and
- If applicable, any anti-dilution provisions.
Exercise of Stock Warrants. You may exercise stock warrants by
surrendering to the stock warrant agent the stock warrant certificate, which
indicates your election to exercise all or a portion of the stock warrants
evidenced by the certificate. Surrendered stock warrant certificates must be
accompanied by payment of the exercise price in the form of cash or a certified
check. The stock warrant agent will deliver certificates evidencing duly
exercised stock warrants to the transfer agent. Upon receipt of the
certificates, the transfer agent will deliver a certificate representing the
number of shares of common stock or preferred stock purchased. If you exercise
fewer than all the stock warrants evidenced by any certificate, the stock
warrant agent will deliver a new stock warrant certificate representing the
unexercised stock warrants.
No Rights as Stockholders. Holders of stock warrants are not entitled to
vote, to consent, to receive dividends or to receive notice as stockholders with
respect to any meeting of stockholders, or to exercise any rights whatsoever as
stockholders.
WARRANTS TO PURCHASE DEBT SECURITIES
The following summarizes the terms of the debt warrants we may offer. This
description is subject to the detailed provisions of a debt warrant agreement
that we will enter into with a debt warrant agent it selects at the time of
issue. While the terms summarized below will apply generally to any future
warrants to purchase debt securities that we may offer, it will describe the
particular terms of these securities in more detail in the applicable prospectus
supplement.
General. We may issue debt warrants evidenced by debt warrant certificates
independently or together with any securities offered by any prospectus
supplement. If we offer debt warrants, the prospectus supplement will describe
the terms of the warrants, including:
- The offering price, if any;
- The designation, aggregate principal amount and terms of the debt
securities purchasable upon exercise of the warrants and the terms of the
indenture under which the debt securities will be issued;
- If applicable, the designation and terms of the debt securities with
which the debt warrants are issued and the number of debt warrants issued
with each debt security;
- If applicable, the date on and after which the debt warrants and any
related securities will be separately transferable;
- The principal amount of debt securities purchasable upon exercise of one
debt warrant and the price at which the principal amount of debt
securities may be purchased upon exercise;
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- The dates on which the right to exercise the debt warrants begins and
expires;
- U.S. federal income tax consequences;
- Whether the warrants represented by the debt warrant certificates will be
issued in registered or bearer form;
- The currencies in which the offering price and exercise price are
payable; and
- If applicable, any antidilution provisions.
You may exchange debt warrant certificates for new debt warrant
certificates of different denominations and may present debt warrant
certificates for registration of transfer at the corporate trust office of the
debt warrant agent, which will be listed in the prospectus supplement. Warrant
holders do not have any of the rights of holders of debt securities, except to
the extent that the consent of warrant holders may be required for certain
modifications of the terms of an indenture or form of the debt security, as the
case may be, and the series of debt securities issuable upon exercise of the
debt warrants. In addition, warrant holders are not entitled to payments of
principal of and interest, if any, on the debt securities.
Exercise of Debt Warrants. You may exercise debt warrants by surrendering
the debt warrant certificate at the corporate trust office of the debt warrant
agent, with payment in full of the exercise price. Upon the exercise of debt
warrants, the debt warrant agent will, as soon as practicable, deliver the debt
securities in authorized denominations in accordance with your instructions and
at your sole cost and risk. If less than all the debt warrants evidenced by the
debt warrant certificate are exercised, the agent will issue a new debt warrant
certificate for the remaining amount of debt warrants.
DESCRIPTION OF STOCK PURCHASE CONTRACTS AND UNITS
The following is a general description of the terms of the stock purchase
contracts and units we may issue from time to time. Particular terms of any
stock purchase contracts and/or units we offer will be described in the
prospectus supplement relating to such stock purchase contracts and/or units.
We may issue stock purchase contracts, including contracts obligating
holders to purchase from us and obligating us to sell to holders at a future
date a specified number of shares of common stock or preferred stock, or a
number of shares of common stock or preferred stock to be determined by
reference to a specific formula set forth in the stock purchase contract. The
consideration per share of common stock or preferred stock may be fixed at the
time that the stock purchase contracts are issued or may be determined by
reference to a specific formula set forth in the stock purchase contracts. Any
stock purchase contract may include anti-dilution provisions to adjust the
number of shares issuable pursuant to such stock purchase contract upon the
occurrence of certain events.
The stock purchase contracts may be issued separately or as a part of units
consisting of a stock purchase contract and debt securities, warrants, preferred
stock or debt obligations, including U.S. Treasury securities, in each case
securing holders' obligations to purchase common stock or preferred stock under
the stock purchase contracts. The stock purchase contracts may require us to
make periodic or deferred payments to holders of the units, or vice versa, and
such payments may be unsecured. Holders of the stock purchase contracts may be
required to pay their payment obligations at the time the stock purchase
contracts are issued or at the time of settlement. Additionally, holders of the
stock purchase contracts may be required to secure their obligations thereunder
in a specified manner. A copy of each stock purchase contract entered into by us
will be subsequently filed by us in a Current Report on Form 8-K, which will be
incorporated herein by reference, or by amendment to the registration statement
of which this prospectus forms a part.
We may also offer and sell two or more of the securities combined into
units. Particular terms of the units, including their composition, will be
described in the prospectus supplement relating to such units.
21
PLAN OF DISTRIBUTION
These securities may be distributed under this prospectus from time to time
in one or more transactions:
- At a fixed price or prices which may be changed;
- At market prices prevailing at the time of sale on any securities
exchange or market on which the securities may be listed;
- At prices related to prevailing market prices on any securities exchange
or market on which the securities may be listed; or
- At negotiated prices.
Each time we sell securities, we will describe the method of distribution
of the securities in the prospectus supplement relating to the transaction. We
may offer and sell these securities in any one or more of the following ways:
- through underwriters or dealers;
- through agents;
- directly to purchasers; or
- through a combination of such methods of sale.
Each time we sell securities, we will provide a prospectus supplement or
post-effective amendment, as appropriate, that will name any underwriter, dealer
or agent involved in the offer and sale of the securities. We may offer
securities through underwriters, dealers and agents on a firm commitment or best
efforts basis and the nature of any such underwriting or agency will be fully
described in the relevant prospectus supplement or post-effective amendment, as
appropriate. The prospectus supplement or post-effective amendment, as
appropriate, will also set forth the terms of the offering, including the
purchase price of the securities and the proceeds we will receive from the sale
of the securities, any underwriting discounts and other items constituting
underwriters' compensation, public offering or purchase price and any discounts
or commissions allowed or paid to dealers, any commissions allowed or paid to
agents and any securities exchanges on which the securities may be listed.
If underwriters or dealers are used in the sale, the securities will be
acquired by the underwriters or dealers for their own account and may be resold
from time to time in one or more transactions, at a fixed price or prices, which
may be changed, or at market prices prevailing at the time of sale, or at prices
related to such prevailing market prices, or at negotiated prices. The
securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more of
such firms. Unless otherwise set forth in the prospectus supplement, the
obligations of underwriters or dealers to purchase the securities offered will
be subject to certain conditions precedent and the underwriters or dealers will
be obligated to purchase all the offered securities if any are purchased. Any
public offering price and any discounts or concessions allowed or reallowed or
paid by underwriters or dealers to other dealers may be changed from time to
time.
The securities may be sold directly by us or through agents designated by
us from time to time. Any agent involved in the offer or sale of the securities
in respect of which this prospectus is delivered will be named, and any
commissions payable by us to such agent will be set forth in, the prospectus
supplement. Unless otherwise indicated in the prospectus supplement, any such
agent will be acting on a "best efforts, any and all" basis for the period of
its appointment.
To the extent that we make sales to or through one or more underwriters or
agents in at-the-market offerings, we will do so pursuant to the terms of a
distribution agreement between us and the underwriters or agents. If we engage
in at-the-market sales pursuant to a distribution agreement, we will issue and
sell shares of our common stock to or through one or more underwriters or
agents, which may act on an agency basis or on a principal basis. During the
term of any such agreement, we may sell shares on a daily
22
basis in exchange transactions or otherwise as we agree with the underwriters or
agents. The distribution agreement will provide that any shares of our common
stock sold will be sold at prices related to the then prevailing market prices
for our common stock. Therefore, exact figures regarding proceeds that will be
raised or commissions to be paid cannot be determined at this time and will be
described in a prospectus supplement. Pursuant to the terms of the distribution
agreement, we also may agree to sell, and the relevant underwriters or agents
may agree to solicit offers to purchase, blocks of our common stock or other
securities. The terms of each such distribution agreement will be set forth in
more detail in a prospectus supplement to this prospectus. In the event that any
underwriter or agent acts as principal, or any broker-dealer acts as
underwriter, it may engage in certain transactions that stabilize, maintain or
otherwise affect the price of our securities. We will describe any such
activities in the prospectus supplement relating to the transaction.
Offers to purchase the securities offered by this prospectus may be
solicited, and we may make sales of the securities directly to institutional
investors or others, who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any resale of the securities. The terms of
any offer made in this manner will be included in the prospectus supplement
relating to the offer.
We may enter into derivative or other hedging transactions with financial
institutions. These financial institutions may in turn engage in sales of our
common stock to hedge their position, deliver this prospectus in connection with
some or all of those sales and use the shares covered by this prospectus to
close out any short position created in connection with those sales. We may
pledge or grant a security interest in some or all of our common stock covered
by this prospectus to support a derivative or hedging position or other
obligation and, if we default in the performance of our obligations, the
pledgees or secured parties may offer and sell our common stock from time to
time pursuant to this prospectus.
If indicated in the applicable prospectus supplement, we will authorize
underwriters, dealers or agents to solicit offers by certain institutional
investors to purchase securities from us pursuant to contracts providing for
payment and delivery at a future date. Institutional investors with which these
contracts may be made include, among others:
- commercial and savings banks;
- insurance companies;
- pension funds;
- investment companies; and
- educational and charitable institutions.
In all cases, we must approve these purchasers. Unless otherwise set forth
in the applicable prospectus supplement, the obligations of any purchaser under
any of these contracts will not be subject to any conditions except that (a) the
purchase of the securities must not at the time of delivery be prohibited under
the laws of any jurisdiction to which that purchaser is subject and (b) if the
securities are also being sold to underwriters, we must have sold to these
underwriters the securities not subject to delayed delivery.
Underwriters and other agents will not have any responsibility in respect
of the validity or performance of these contracts.
Some of the underwriters, dealers or agents used by us in any offering of
securities under this prospectus may be customers of, engage in transactions
with, and perform services for us in the ordinary course of business.
Underwriters, dealers, agents and other persons may be entitled under
agreements which may be entered into with us to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act and to be reimbursed by us for certain expenses.
23
Subject to any restrictions relating to debt securities in bearer form, any
securities initially sold outside the United States may be resold in the United
States through underwriters, dealers or otherwise.
Each series of securities other than common stock will be new issue of
securities with no established trading market. Any underwriters to whom we sell
securities for public offering and sale may make a market in such securities,
but such underwriters will not be obligated to do so and may discontinue any
market making at any time.
The anticipated date of delivery of the securities offered by this
prospectus will be described in the applicable prospectus supplement relating to
the offering. The securities offered by this prospectus may or may not be listed
on a national securities exchange or a foreign securities exchange. No assurance
can be given as to the liquidity or activity of any trading in the offered
securities.
If more than 10% of the net proceeds of any offering of securities made
under this prospectus will be received by NASD members participating in the
offering or affiliates or associated persons of such NASD members, the offering
will be conducted in accordance with NASD Conduct Rule 2710(c)(8).
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for us by
Satterlee Stephens Burke & Burke LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 2003 and for the
year then ended, incorporated in this prospectus by reference from the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 2003
have been audited by L J Soldinger Associates LLC, independent auditors, as
stated in their report, which is incorporated herein by reference, and has been
so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements as of December 31, 2002 and for the
years ended December 31, 2002 and 2001 incorporated in this prospectus by
reference to the Annual Report of Form 10-K, as amended, of CanArgo Energy
Corporation for the year ended December 31, 2003 have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The oil and gas reserve data incorporated by reference to our Annual Report
on Form 10-K, as amended, for the year ended December 31, 2003, has been
prepared by Oilfield Production Consultants and such reserve report dated
January 1, 2004 has been incorporated herein in reliance upon the authority of
such firm as experts in estimating proved oil and gas reserves.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information and reporting requirements of the
Exchange Act under which we file periodic reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any document we file at the SEC's public reference rooms at the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. Our SEC filings are also available to the public from
the SEC's internet website 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
24
CanArgo Energy Corporation and our common stock, including certain exhibits. You
can get a copy of the registration statement from the SEC at the address listed
above or from its internet website.
Our common stock is listed on the American Stock Exchange under the symbol
"CNR" and also on the Oslo Stock Exchange under the symbol "CNR." Information
about us is also available at the offices of the American Stock Exchange, 86
Trinity Place, New York, NY 10005.
INFORMATION 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. Our SEC file number is 001-32145. We incorporate by
reference the documents listed below and any future filings made by us with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 until this offering of securities has been completed:
- Annual Report on Form 10-K for the fiscal year ended December 31, 2003,
as amended
- Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004
- The description of CanArgo's common stock contained in Form 8-A/12B dated
April 19, 2004
- Definitive Proxy Materials dated February 24, 2004
- Definitive Proxy Materials dated April 19, 2004
- Definitive Proxy Materials dated May 7, 2004
We will provide without charge to each person to whom a copy of this
prospectus is delivered, upon request, a copy of the foregoing documents
(without exhibits). Written or telephone requests for such copies should be
directed to the Corporate Secretary, CanArgo Energy Corporation, PO Box 291, St
Peter Port, Guernsey, GY1 3RR, British Isles, +(44) 1481 729 980.
You should rely only on the information contained in this prospectus and
any prospectus 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 prospectus supplement is
accurate as of its date only. Our business, financial condition, results of
operations and prospects may have changed since that date.
P.O. BOX 291, ST PETER PORT
GUERNSEY, GY1 3RR, BRITISH ISLES
ATTENTION: CORPORATE SECRETARY
+(44) 1481 729 980
25
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the issuance and distribution of the securities
being registered, other than the underwriting discounts and commissions, are set
forth in the following table. All amounts except the Securities and Exchange
Commission registration fee are estimated.
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are estimated to be as follows:
Securities and Exchange Commission registration fee......... $19,005
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Transfer Agent and Registrar fees and expenses.............. *
Listing Fees................................................ *
Miscellaneous............................................... *
-------
Total....................................................... $ *
---------------
* Estimated
The Registrant will bear all of the expenses of the registration of the
securities being offered.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the provisions for indemnification of directors and
officers in the Delaware General Corporation Law, which applies to us, our
Amended Certificate of Incorporation and By-laws provide for indemnification of
directors and officers for all expenses, liabilities and loss, including without
limitation attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement incurred or suffered by such person in any
threatened, pending or completed action, suit or proceeding, including without
limitation an action, suit or proceeding by or in the right of the company,
whether civil, criminal, administrative or investigative to the fullest extent
permitted by the Delaware General Corporation Law.
We maintain policies of insurance under which we and our directors and
officers are insured subject to specified exclusions and deductibles and maximum
amounts, against loss arising from any claim which may be made against us or any
of our directors or officers by reason of any breach of duty, neglect, error,
misstatement, omission or act done or alleged to have been done while acting in
our or their respective capacities.
The Registrant maintains a standard form of officers' and directors'
liability insurance policy which provides coverage to the officers and directors
of the Registrant for certain liabilities, including certain liabilities which
may arise out of this Registration Statement.
II-1
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are filed as part of this Registration Statement:
EXHIBIT
NO. DESCRIPTION
------- -----------
*1.1 Placing Agent Agreement dated , 2004 by and between
ABG Sundal Collier, Inc. and the Registrant
*1.2 Placing Agent Agreement dated , 2004 by and between
ABG Sundal Collier Norge ASA and the Registrant
*1.3 Form of Subscription Agreement
3.1 Certificate of Incorporation of the Registrant, as
amended(1)
3.2 By-laws of the Registrant(2)
4.1 Form of Specimen of Common Stock Certificate(3)
*4.2 Form of Senior Indenture
*4.3 Form of Subordinated Indenture
*4.4 Form of Warrant
*4.5 Form of Certificate of Designation with respect to Preferred
Stock
*5.1 Opinion of Satterlee Stephens Burke & Burke LLP re: legality
of securities being registered
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges
23.1 Consent of LJ Soldinger Associates LLC
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Oilfield Production Consultants
*23.4 Consent of Satterlee Stephens Burke & Burke LLP (included in
their opinion filed as Exhibit 5.1)
24.1 Power of Attorney (included in the signature page to the
Registration Statement)
---------------
* To be filed by amendment or as an exhibit to a report pursuant to Section
13(a), 13(c) or 15(d) of the Exchange Act.
(1) Incorporated by reference from the Company's Proxy Statement, filed May 10,
1999 and May 9, 2000 and Form 8-K filed July 24, 1998 and Form 10-Q filed
May 17, 2004.
(2) Incorporated herein by reference from Post-Effective Amendment No. 1 to Form
S-1 Registration Statement, File No. 333-72295 filed on July 29, 1999.
(3) Incorporated herein by reference to Form 8A /12B filed April 19, 2004.
(b) Financial Statement Schedules
All schedules are omitted because of the absence of the conditions under
which they are required, or because the information called for are included in
the documents incorporated by reference and the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the
II-2
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424 (b) under the
Securities Act of 1933 if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement; provided, however, that paragraph (1)(i) and (1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section 15 (d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13 (a) or Section 15 (d) of the Securities Exchange Act (and, where
applicable, each filing of any employee benefit plan's annual report
pursuant to Section 15 (d) of the Securities Exchange Act) that is
incorporated by reference in the 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.
(5) To file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310 of
the Trust Indenture Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Act.
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, as amended, the
Registrant 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 this 18th day of May 2004.
CANARGO ENERGY CORPORATION
By: /s/ DAVID ROBSON
------------------------------------
Dr. David Robson
Chairman of the Board, President and
Chief Executive 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
Vincent McDonnell, and either of them, the lawful attorney and agent, with power
and authority to do any and all acts and things and to execute any and all
instruments which said attorney and agent, determine may be necessary or
advisable or required to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules or regulations or requirements of the
Securities and Exchange Commission in connection with this Registration
Statement. Without limiting the generality of the foregoing power of authority,
the powers granted include the power and authority to sign the names of the
undersigned officers and directors in the capacities indicated below to this
Registration Statement, to any and all amendments, post-effective amendments,
including, without limitation, post-effective amendments filed pursuant to Rule
462, 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.
CANARGO ENERGY CORPORATION
(Registrant)
By: /s/ DAVID ROBSON
Date: May 18, 2004 ----------------------------------------------
Dr. David Robson
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Date: May 18, 2004 By: /s/ VINCENT MCDONNELL
----------------------------------------------
Vincent McDonnell
Chief Financial and Accounting Officer
Date: May 18, 2004 By: /s/ DAVID ROBSON
----------------------------------------------
David Robson
Director
Date: May 18, 2004 By: /s/ MICHAEL C. AYRE
----------------------------------------------
Michael C. Ayre
Director
Date: May 18, 2004 By: /s/ RUSS HAMMOND
----------------------------------------------
Russ Hammond
Director
Date: May 18, 2004 By: /s/ NILS TRULSVIK
----------------------------------------------
Nils Trulsvik
Director
II-5
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
*1.1 Placing Agent Agreement dated , 2004 by and between
ABG Sundal Collier, Inc. and the Registrant
*1.2 Placing Agent Agreement dated , 2004 by and between
ABG Sundal Collier Norge ASA and the Registrant
*1.3 Form of Subscription Agreement
3.1 Certificate of Incorporation of the Registrant, as
amended(1)
3.2 By-laws of the Registrant(2)
4.1 Form of Specimen of Common Stock Certificate(3)
*4.2 Form of Senior Indenture
*4.3 Form of Subordinated Indenture
*4.4 Form of Warrant
*4.5 Form of Certificate of Designation with respect to Preferred
Stock
*5.1 Opinion of Satterlee Stephens Burke & Burke LLP re: legality
of securities being registered
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges
23.1 Consent of LJ Soldinger Associates LLC
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Oilfield Production Consultants
*23.4 Consent of Satterlee Stephens Burke & Burke LLP (included in
their opinion filed as Exhibit 5.1)
24.1 Power of Attorney (included in the signature page to the
Registration Statement)
*25.1 Statement of Eligibility and Qualification on Form T-1 under
the Trust Indenture Act of 1939, as amended
---------------
* To be filed by amendment or as an exhibit to a report pursuant to Section
13(a), 13(c) or 15(d) of the Exchange Act.
(1) Incorporated by reference from the Company's Proxy Statement, filed May 10,
1999 and May 9, 2000 and Form 8-K filed July 24, 1998 and Form 10-Q filed
May 17, 2004.
(2) Incorporated herein by reference from Post-Effective Amendment No. 1 to Form
S-1 Registration Statement, File No. 333-72295 filed on July 29, 1999.
(3) Incorporated herein by reference to Form 8A/12b filed April 19, 2004.