<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ___________ TO _______________
COMMISSION FILE NUMBER 0-9147
CANARGO ENERGY CORPORATION
------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 91-0881481
- --------------------------------------- ---------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1580, 727 - 7th Avenue SW
Calgary, Alberta, Canada T2P 0Z5
- --------------------------------------- ---------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
403-777-1185
-----------------
(REGISTRANT'S TELEPHONE NUMBER)
----------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL
YEAR, IF CHANGED SINCE LAST REPORT)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of registrant's common stock outstanding on April 30, 1999
was 19,526,324. An additional 1,738,319 shares of common stock are issuable at
any time without additional consideration upon exercise of CanArgo Oil & Gas
Inc. Exchangeable Shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Unaudited
-------------------------
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 705,807 $ 1,924,908
Accounts receivable 381,699 424,367
Advances to operator 252,588 376,890
Inventory 298,149 170,405
Other current assets 300,509 453,476
------------ ------------
Total current assets $ 1,938,752 $ 3,350,046
Property and equipment, net 6,259,741 6,201,936
Oil and gas properties, net, full cost method
(including unevaluated amounts of $13,510,157
and $13,266,368 respectively) 31,069,646 30,137,573
Investments in and advances to oil and gas and
other ventures - net 7,049,182 6,877,974
------------ ------------
TOTAL ASSETS $ 46,317,321 $ 46,567,529
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 1,427,139 $ 821,761
Accrued liabilities 1,255,774 1,162,050
------------ ------------
Total current liabilities $ 2,682,913 $ 1,983,811
Minority interest in subsidiaries 4,464,698 4,552,285
Stockholders' equity:
Preferred stock, par value $0.10 per share -- --
Common stock, par value $0.10 per share 2,126,464 2,101,464
Capital in excess of par value 101,630,441 101,545,941
Accumulated deficit (64,587,195) (63,615,972)
------------ ------------
Total stockholders' equity $ 39,169,710 $ 40,031,433
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 46,317,321 $ 46,567,529
============ ============
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
------------------------
Three Months Ended
MARCH 31, MARCH 31,
1999 1998
---------- -----------
<S> <C> <C>
Operating Revenues:
Oil and gas sales $ 113,667 $ 80,614
---------- -----------
113,667 80,614
---------- -----------
Operating Expenses:
Lease operating expense 66,718 99,517
Direct project costs 68,068 539,406
General and administrative 858,630 1,457,352
Depreciation, depletion and amortization 25,000 117,824
Equity loss from investments in unconsolidated
subsidiaries 21,581 91,431
Impairment of oil and gas properties -- 800,000
---------- -----------
1,039,997 3,105,530
---------- -----------
OPERATING LOSS (926,330) (3,024,916)
---------- -----------
Other Income (Expense):
Interest, net (48,259) 203,574
Other (84,221) 3,225
---------- -----------
TOTAL OTHER INCOME (EXPENSE) (132,480) 206,799
---------- -----------
Minority interest in loss of consolidated
subsidiary 87,587 --
---------- -----------
NET LOSS AND COMPREHENSIVE LOSS $ (971,223) $(2,818,117)
========== ===========
Weighted average number of
common shares outstanding 21,222,976 11,223,744
---------- -----------
NET LOSS PER COMMON SHARE - BASIC $ (0.05) $ (0.25)
---------- -----------
NET LOSS PER COMMON SHARE - DILUTED $ (0.05) $ (0.25)
---------- -----------
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
3
<PAGE> 4
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
------------------------
Three Months Ended
MARCH 31, MARCH 31,
1999 1998
---------- ---------
<S> <C> <C>
Operating activities:
Net loss $ (971,223) $(2,818,117)
Depreciation, depletion and amortization 25,000 117,824
Impairment of oil and gas properties -- 800,000
Equity loss from investments in unconsolidated
subsidiaries 21,581 91,431
Minority interest in loss of consolidated subsidiary (87,587) --
Changes in assets and liabilities:
Accounts receivable 42,668 --
Advances to operator 124,302 --
Inventory (127,744) --
Other current assets 152,967 172,315
Accounts payable 605,378 (164,835)
Accrued liabilities 93,724 (772,399)
---------- -----------
NET CASH USED IN OPERATING ACTIVITIES (120,934) (2,573,781)
---------- -----------
Investing activities:
Restricted cash -- (200,000)
Investments in oil and gas properties (842,573) (73,904)
Purchase of property and equipment (62,805) (1,321)
Investments in and advances to oil and gas and other
ventures (192,789) --
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,098,167) (275,225)
---------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,219,101) (2,849,006)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,924,908 14,164,177
---------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 705,807 $11,315,171
========== ===========
Non cash investing and financing activities:
Issuance of common stock in connection with
acquisition of oil and gas properties $ 109,500 $ --
========== ===========
</TABLE>
See accompanying notes to unaudited consolidated condensed financial statements.
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED)
(1) Basis of Presentation - The interim consolidated condensed financial
statements and notes thereto of CanArgo Energy Corporation and its
subsidiaries (collectively, the Company) have been prepared by management
without audit. In the opinion of management, the consolidated condensed
financial statements include all adjustments, consisting of normal
recurring adjustments, necessary for a fair statement of the results for
the interim period. The accompanying consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 filed with the Securities
and Exchange Commission.
On July 15, 1998 the Company filed with the Delaware Secretary of State
amendments to its Certificate of Incorporation to effect a one-for-two
reverse split of the shares of the Company's Common Stock (the "Reverse
Split") and to change the Company's name from Fountain Oil Incorporated to
CanArgo Energy Corporation. The Reverse Split has been reflected
retroactively in the accompanying financial statements.
Oil and Gas Properties - The Company and the unconsolidated entities for
which it accounts using the equity method account for oil and gas
properties and interests under the full cost method. Under this accounting
method, costs, including a portion of internal costs associated with
property acquisition and exploration for and development of oil and gas
reserves, are capitalized within cost centers established on a
country-by-country basis. Capitalized costs within a cost center, as well
as the estimated future expenditures to develop proved reserves and
estimated net costs of dismantlement and abandonment, are amortized using
the unit-of-production method based on estimated proved oil and gas
reserves. All costs relating to production activities are charged to
expense as incurred.
Capitalized oil and gas property costs, less accumulated depreciation,
depletion and amortization and related deferred income taxes, are limited
to an amount (the ceiling limitation) equal to (a) the present value
(discounted at 10%) of estimated future net revenues from the projected
production of proved oil and gas reserves, calculated at prices in effect
as of the balance sheet date (with consideration of price changes only to
the extent provided by fixed and determinable contractual arrangements),
plus (b) the lower of cost or estimated fair value of unproved and
unevaluated properties, less (c) income tax effects related to differences
in the book and tax basis of the oil and gas properties.
(2) Business Combination
On July 15, 1998, the Company completed the acquisition of all of the
common stock of CanArgo Oil & Gas Inc. ("CAOG") for Common Stock
consideration valued at $19,362,500. CAOG is an oil and gas exploration,
development and production company whose principal operations are located
in the Republic of Georgia. On completion of the acquisition, CAOG became
a subsidiary of the Company, and each previously outstanding share of CAOG
Common Stock was converted into the right to receive 0.8 shares of the
Company's Common Stock, giving the former shareholders of CAOG the right
to receive approximately 47% of the Company's Common Stock. In addition,
the former management of CAOG now holds a majority of the Company's senior
management positions. The transaction was accounted for as a purchase.
Under purchase accounting, CAOG's results have been included in the
Company's consolidated financial statements since the date of acquisition.
5
<PAGE> 6
The business combination will result in the issuance of 9,790,900 shares
of the Company's Common Stock without receipt of additional consideration
by the Company. At March 31, 1999, 7,919,701 of these shares had been
issued. Giving effect to the full issuance of such shares, the number of
shares of the Company's Common Stock outstanding as at March 31, 1999
would be 21,264,643.
(3) Need for Significant Additional Capital, Possible Impairment of Assets
As described in notes 4, 5 and 6 to the condensed consolidated financial
statements, the Company has oil and gas related assets totaling
$44,107,212. In order to recover the carrying value of the proved
properties (principally the Ninotsminda field), among other things, the
Company will be required to raise significant additional capital to
develop the proved properties in order to increase production to a level
that provides positive cash flow and to recover the proved reserves
associated with those properties. Budgeted costs for this development are
approximately $9.5 million to be incurred prior to mid-2000 and
approximately $16 million thereafter. To partially fund this further
development cost, Ninotsminda Oil Company received a $6 million loan
commitment from the International Finance Corporation. However, the
commitment is essentially contingent on the Company providing $2 million
to NOC in the form of a subordinated loan. There is no assurance that the
Company will be able to raise the required funds and therefore that NOC
will be able to draw on the loan. If the Company cannot successfully raise
the required funds to develop the Ninotsminda field, it may not be able to
recover its carrying value.
In addition to the funds needed to develop the Ninotsminda field,
significant additional capital will be required to explore and, if
appropriate develop, the Company's unproved properties and its investment
in oil and gas ventures. This requirement could be met by raising
additional capital, partnering with other industry participants who would
fund all or part of the exploration or development activities in exchange
for an interest in the properties or interests or outright sale of the
properties or interests. The Company is actively seeking industry
partners in connection with its interests in the Stynawske field as well
as its other unproved properties in Eastern Europe. No adjustment to the
carrying value of these properties or interests have been made as of March
31, 1999, pending the outcome of the Company's capital raising or joint
venture activities. However, it substantive joint venture partners are
not obtained or significant capital is not raised the Company may not
recover all or any of the carrying value of those assets. In addition,
even if the Company obtains the means or identifies an industry partner to
explore those properties, there is no assurance that proved reserves will
be found in sufficient quantities to permit the Company to recover its
investment.
The Company has mobilized oil and gas related equipment to Georgia
principally for use in the development of the Ninotsminda field and
ultimately for the exploration and development of certain other unproved
properties in Eastern Europe. If the Ninotsminda field and certain
unproved properties are not successfully developed, the Company may not
recover the remaining carrying value of this equipment.
The Company's investments in Georgian American Oil Refinery and Sagarego
Power Corporation are part of the Company's strategy to successfully
develop the Ninotsminda field and accordingly, ultimate realization of
those investments is tied to the successful development and operation of
that field.
The consolidated financial statements of the Company do not give effect to
any additional impairment in the value of the Company's investment in oil
and gas properties and ventures or other adjustments that would be
necessary if financing cannot be arranged for the development of such
properties and ventures or if they are unable to achieve profitable
operations. The Company's consolidated financial statements have been
prepared under the assumption of a going concern. Failure to arrange such
financing on reasonable terms or failure of such properties and ventures
to achieve profitability would have a material adverse effect on the
financial position, including realization of assets, results of
operations, cash flows and prospects of the Company and ultimately its
ability to continue as a going concern.
6
<PAGE> 7
(4) Property and Equipment, Net
Property and equipment, net of accumulated depreciation and impairment at
March 31, 1999 and December 31, 1998 included the following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1999 1998
--------------------------------------------------------- ------------
ACCUMULATED
COST DEPRECIATION IMPAIRMENT NET NET
----------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Electrically enhanced oil
recovery ("EEOR")
equipment $ 562,953 $ (290,855) $ -- $ 272,098 $ 272,098
Oil and gas related
equipment 8,426,310 -- (2,710,024) 5,716,286 5,653,481
Office furniture, fixtures
and equipment and other 1,090,352 (418,995) (400,000) 271,357 276,357
----------- ------------ ----------- ----------- ----------
PROPERTY AND EQUIPMENT $10,079,615 $ (709,850) $(3,110,024) $ 6,259,741 $6,201,936
=========== ============ =========== =========== ==========
</TABLE>
Oil and gas related equipment includes new or refurbished drilling rigs
and related equipment, substantially all of which has been transported to
the Republic of Georgia for use by the Company in the development of the
Ninotsminda field.
(5) Oil and Gas Properties, Net
The Company has acquired interests in oil and gas properties through share
ownership, joint ventures and joint operating arrangements. A summary of
the Company's oil and gas properties at March 31, 1999 and December 31,
1998 is set out below:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1999 1998
------------------------------------------------------------------ ------------
REPUBLIC OF
GEORGIA CANADA USA OTHER TOTAL TOTAL
----------- ----------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Proved properties $17,426,461 $ 1,637,947 $ 1,174,734 $ -- $20,239,142 $19,530,858
Unproved properties 12,951,701 324,500 -- 233,956 13,510,157 13,266,368
Less: accumulated
depletion and
impairment (194,421) (1,310,498) (1,174,734) -- (2,679,653) (2,659,653)
----------- ----------- ----------- -------- ----------- -----------
TOTAL OIL AND GAS
PROPERTIES, NET $30,183,741 $ 651,949 $ -- $233,956 $31,069,646 $30,137,573
=========== =========== =========== ======== =========== ===========
</TABLE>
Oil and gas properties obtained in connection with the acquisition of CAOG
includes $15,120,000 of properties in the full cost pool and $10,550,500
of unevaluated properties. The Ninotsminda field includes seven producing
wells and since February 1996 has been operated under the terms of a
production sharing contract ("PSC") between Ninotsminda Oil Company
Limited ("NOC") and the Republic of Georgia represented by the state oil
company, Georgian Oil. Unproved properties in the Republic of Georgia
7
<PAGE> 8
include other license areas within the Ninotsminda PSC, as well as other
exploration areas referred to as the Nazvrevi block and Block XIII
operated under the terms of a PSC between the Company's wholly owned
subsidiary, CanArgo Nazvrevi Limited, and the Republic of Georgia.
During the first quarter of 1997, the Company purchased a 60% interest in
a heavy oil property in the Sylvan Lake area in Alberta, Canada for
approximately $1,009,000. During the three months ended March 31, 1998,
the Company recognized impairments aggregating $800,000 on its oil and gas
properties in the Sylvan Lake project as a result of a decline of heavy
oil prices and the quarterly application of the full cost ceiling test.
The impairment relates to proved properties.
Unproved properties and associated costs not currently being amortized and
included in oil and gas properties were $13,510,157 and $13,266,368 at
March 31, 1999 and December 31, 1998 respectively. Unproved oil and gas
properties at March 31, 1999 include costs of $13,185,657 (December 31,
1998 - $12,941,868) with respect to properties in Eastern Europe. These
properties are expected to be evaluated over the next five years.
Remaining costs of $324,500 (December 31, 1998 - $324,500) relate to the
Sylvan Lake field which are expected to be evaluated over the next 12
months. If no proved reserves are added, these properties could result in
additional impairment.
(6) Investments in and Advances to Oil and Gas and Other Ventures
The Company has acquired interests in oil and gas and other ventures
through less than majority interests in corporate and corporate-like
entities. A summary of the Company's net investment in and advances to oil
and gas ventures as of March 31, 1999 and December 31, 1998 is set out
below:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
INVESTMENTS IN AND ADVANCES TO OIL AND GAS AND OTHER VENTURES 1999 1998
------------------------------------------------------------- --------- ------------
<S> <C> <C>
Ukraine - Stynawske Field, Boryslaw
Through 45% ownership of Boryslaw Oil Company $ 6,076,233 $ 5,980,613
Republic of Georgia - Sartichala
Through 12.9% ownership of Georgian American Oil Refinery 1,004,445 1,004,445
Republic of Georgia - Ninotsminda
Through an effective 42.5% ownership Sagarego Power Corporation 564,965 467,796
Ukraine - Lelyaki Field, Pryluki Region
Through an effective 40.5% ownership of Kashtan Petroleum Ltd. 2,435,725 2,435,725
Adygea, Russian Federation - Maykop Field
Through 37% ownership in Intergas JSC 6,710,874 6,710,874
Albania - Gorisht-Kocul Field
Through 50% ownership of the joint venture 2,202,922 2,202,922
----------- -----------
TOTAL INVESTMENTS IN AND ADVANCES TO
OIL AND GAS AND OTHER VENTURES $18,995,164 $18,802,375
------------ -----------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
EQUITY IN PROFIT (LOSS) OF OIL AND GAS AND OTHER VENTURES 1999 1998
--------------------------------------------------------- ---------- ------------
<S> <C> <C>
Ukraine - Stynawske Field, Boryslaw $ (596,461) $ (574,880)
Ukraine - Lelyaki Field, Pryluki Region (2,435,725) (2,435,725)
Adygea, Russian Federation - Maykop Field (1,452,510) (1,452,510)
Albania - Gorisht-Kocul Field (833,191) (833,191)
----------- -----------
CUMULATIVE EQUITY IN PROFIT (LOSS) OF
OIL AND GAS AND OTHER VENTURES $(5,317,887) $(5,296,306)
----------- -----------
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C>
Impairment - Maykop Field $(5,258,364) $(5,258,364)
Impairment - Gorisht-Kocul Field (1,369,731) (1,369,731)
----------- -----------
TOTAL IMPAIRMENT $(6,628,095) $(6,628,095)
----------- -----------
TOTAL INVESTMENTS IN AND ADVANCES TO OIL AND GAS AND OTHER
VENTURES, NET OF EQUITY LOSS AND IMPAIRMENT $ 7,049,182 $ 6,877,974
=========== ===========
</TABLE>
As of March 31, 1999, the Company had net investments in and advances to
oil and gas ventures totaling $5,479,772 (December 31, 1998 - $5,405,733)
which relate to Boryslaw Oil Company, the entity holding the license to
develop the Stynawske field, for which development operations have not yet
begun. Included are advances to Boryslaw Oil Company totaling $1,715,000
and $1,665,000 at March 31, 1999 and December 31, 1998, respectively. Such
advances are recoverable only from future revenue of or payments from
future participants in the venture, if any.
The Company's investment in and advances to Boryslaw Oil Company are
essentially unevaluated properties. At March 31, 1999 and December 31,
1998, there were no material operations or assets (other than unevaluated
properties) of entities being accounted for using the equity method.
Accordingly, no other separate financial information has been presented.
As of March 31, 1999 the Company had remaining net investments in oil and
gas properties and other ventures totaling $38,118,828 (December 31, 1998
- $37,015,547). Of this amount, $5,479,772 (December 31, 1998 -
$5,405,733) relates to the Stynawske field in the Ukraine for which
development operations have not yet begun. Ultimate realization of the
carrying value of the Company's oil and gas properties and ventures will
require production of oil and gas in sufficient quantities and marketing
such oil and gas at sufficient prices to provide positive cash flow to the
Company, which is dependent upon, among other factors, achieving
significant production at costs that provide acceptable margins,
reasonable levels of taxation from local authorities, and the ability to
market the oil and gas produced at or near world prices. In addition, the
Company must mobilize drilling equipment and personnel to initiate
drilling, completion and production activities. The Company expects that
the initial phase of development of the Stynawske field will consist of
the workover of a number of existing wells, with a view towards increasing
production and gathering data for the preparation of a full field
development program. The Company is actively seeking to establish
arrangements under which oil and gas production companies or other
investors would acquire a portion of the Company's interest in the
Stynawske field in return for supplying financing or services to implement
the initial phase of the project. However, if one or more of the above
factors, or other factors, are different than anticipated, these plans may
not be realized, and the Company may not recover its carrying value. The
Company will be entitled to distributions from the various properties and
ventures in accordance with the arrangements governing the respective
properties and ventures.
(7) Accrued Liabilities
Accrued liabilities at March 31, 1999 and December 31, 1998 included the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Professional fees $ 330,000 $ 280,000
Seismic acquisition 814,931 771,207
Taxes payable 61,000 61,000
Other 49,843 49,843
---------- ----------
$1,255,774 $1,162,050
========== ==========
</TABLE>
9
<PAGE> 10
(8) Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
------------------------
NUMBER OF
SHARES ADDITIONAL TOTAL
ISSUED AND PAID-IN ACCUMULATED STOCKHOLDERS'
ISSUABLE PAR VALUE CAPITAL DEFICIT EQUITY
----------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 15,157,868 $1,515,786 $90,549,249 $(63,615,972) $28,449,063
Issuance of common stock
upon exchange of CanArgo
Oil & Gas Inc.
Exchangeable Shares 3,985,576 398,558 7,483,326 -- 7,881,884
Issuance of common stock
in connection with
acquisition of oil and
gas properties 250,000 25,000 84,500 -- 109,500
Net loss -- -- -- (971,223) (971,223)
---------- ---------- ------------ ------------ -----------
19,393,444 1,939,344 98,117,075 (64,587,195) 35,469,224
Shares issuable upon
exchange of CanArgo Oil &
Gas Inc. Exchangeable
Shares without payment of
additional consideration 1,871,199 187,120 3,513,366 -- 3,700,486
---------- ---------- ------------ ------------ -----------
BALANCE, MARCH 31, 1999 21,264,643 2,126,464 $101,630,441 $(64,587,195) $39,169,710
========== ========== ============ ============ ===========
</TABLE>
CanArgo's Board of Directors has adopted resolutions proposing, subject to
stockholder approval, a 1-for-25 reverse stock split of its outstanding
shares of common stock.
(9) Net Loss Per Common Share
Effective December 31, 1997, the Company adopted SFAS No. 128 Earnings Per
Share. Basic and diluted net loss per common share for the periods ended
March 31, 1999 and March 31, 1998 are based on the weighted average number
of common shares outstanding during those periods. The weighted average
numbers of shares issued and issuable without receipt of additional
consideration for the three month periods ended March 31, 1999 and 1998
are 21,222,976 and 11,223,744, respectively. The weighted average number
of shares outstanding at March 31, 1999 excludes 2,754,595 shares issuable
upon exercise of options and warrants because they are anti-dilutive.
(10) Commitments and Contingencies
OIL AND GAS PROPERTIES AND INVESTMENTS IN OIL AND GAS VENTURES
The Company has contingent obligations and may incur additional
obligations, absolute and contingent, with respect to acquiring and
developing oil and gas properties and ventures. At March 31, 1999, the
Company had the contingent obligation to issue an aggregate of 187,500
shares of its Common Stock, subject to the satisfaction of conditions
related to the achievement of specified performance standards by the
Stynawske field project. The Company believes that it has no further
obligation to fund operations of Kashtan Petroleum Ltd. or Intergas JSC.
10
<PAGE> 11
LEGAL PROCEEDINGS AND POTENTIAL CLAIMS
On February 20, 1998, Zhoda Corporation ("Zhoda") filed suit against
CanArgo in the District Court of Harris County, Texas. In 1997, Zhoda sold
to CanArgo shares in a company through which CanArgo acquired most of its
interest in the Lelyaki field project. Part of the consideration which
CanArgo paid to Zhoda consisted of shares of a CanArgo subsidiary which
were exchangeable for shares of CanArgo common stock only upon the
achievement of specified Lelyaki field operating objectives. CanArgo
believes that these objectives were not achieved. In the litigation, Zhoda
asserts that it was wrongfully deprived of the value of the CanArgo shares
it believes it should have received, based upon claims of breach of
contract, breach of fiduciary duty and duty of good faith and fair
dealing, fraud and constructive fraud, fraud in the inducement, negligent
misrepresentation, civil conspiracy, breach of trust, unjust enrichment
and rescission. Zhoda is seeking more than $7,500,000 in damages, return
of the shares transferred to CanArgo, and other relief. The Harris County
District Court has stayed the litigation pending completion of arbitration
proceedings, which are being held in Calgary, Alberta. The arbitration
proceedings are still in the preliminary procedural stage. CanArgo
believes it has meritorious defenses to Zhoda's claims which it intends to
assert vigorously. A judgment in favor of Zhoda could have a material
adverse effect on CanArgo's financial condition, results of operations,
cash flows and prospects.
On March 24, 1998, CanArgo filed an action against Zhoda in the Court of
Queen's Bench of Alberta, Judicial Centre of Calgary, in which CanArgo
seeks to recover $190,000, plus interest, which CanArgo asserts Zhoda owes
CanArgo pursuant to promissory notes and loan agreements. On March 31,
1998, Zhoda filed a statement of defense and a counterclaim in which it
asserted essentially the same claims as were asserted in the Texas action
described above. On the basis of its counterclaim, Zhoda seeks relief
similar to that sought in the Texas action. CanArgo's claim against Zhoda
in the Alberta action is not within the scope of the arbitration
proceeding being conducted in Calgary.
On March 9, 1998, Ribalta Holdings, Inc. ("Ribalta"), which sold to
CanArgo shares in a company through which CanArgo acquired most of its
interest in the Maykop field project, filed suit against CanArgo in the
Third Judicial District Court of Salt Lake County, Utah. Ribalta, however,
has not yet served the complaint on the CanArgo.
In its complaint, Ribalta alleges breach by CanArgo of the contract
governing the sale of the shares it transferred to CanArgo and failure of
a condition in that contract that should have resulted in the termination
of the contract. Ribalta seeks the return of all benefits conferred on
CanArgo pursuant to the contract or damages equal to the value of such
benefits, as well as other relief. Under that contract, as amended, the
maximum consideration to which Ribalta might have been entitled was
$800,000 and 350,000 shares of CanArgo Common Stock. CanArgo believes that
no consideration is payable under that contract because conditions to
payment specified in the contract were not satisfied. A judgment in favor
of Ribalta in this proceeding could have a material adverse impact on
CanArgo's financial condition, results of operations, cash flows and
prospects. CanArgo believes it has meritorious defenses to Ribalta's
claims which it intends to assert vigorously.
POTENTIAL CLAIMS RELATING TO PREVIOUSLY IMPAIRED PROJECTS
As a result of CanArgo's decision to cease active development of the
Lelyaki, Maykop and Gorisht-Kocul projects, CanArgo may be subject to
contingent liabilities in the form of claims from the joint ventures
developing such projects or from others participating in those projects.
CanArgo was advised during the first quarter of 1998 that Intergas and
another shareholder of Intergas were considering asserting such claims in
relation to the Maykop project, but no such claims have yet been asserted.
CanArgo is unable to estimate the range that such claims, if made, might
total. However, if one or more such claims were asserted and determined to
be valid, they could have a material adverse effect on CanArgo's financial
11
<PAGE> 12
position, results of operations, cash flows and prospects. Such claims may
be adjudicated in the host country forum under host country laws.
(11) Segment Information
For the three month periods ended March 31, 1999 and 1998, the Company
operated through one business segment, oil and gas exploration and
production, reflecting its decision to use its electrically enhanced oil
recovery ("EEOR") technology primarily internally as a competitive
advantage to obtain and exploit interests in heavy oil fields and not to
pursue external sales of goods and services related to the EEOR
technology.
Operating revenues for the three month periods ended March 31, 1999 and
1998 by geographical area were as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
OIL AND GAS EXPLORATION, DEVELOPMENT AND
PRODUCTION
Eastern Europe $ 68,000 $ --
Canada 45,667 80,614
-------- -------
TOTAL $113,667 $80,614
======== =======
</TABLE>
Operating profit (loss) for the three month periods ended March 31, 1999
and 1998 by geographical area were as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
OIL AND GAS EXPLORATION, DEVELOPMENT AND
PRODUCTION
Eastern Europe $(336,194) $(1,592,777)
Canada (85,503) (142,985)
--------- -----------
TOTAL $(421,697) $(1,735,762)
CORPORATE EXPENSES $(504,633) $(1,289,154)
--------- -----------
TOTAL $(926,330) $(3,024,916)
========= ===========
</TABLE>
Identifiable assets as of March 31, 1999 and December 31, 1998 by
business segment and geographical area were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
CORPORATE
United States $ 154,756 $ 3,319
Canada 1,117,817 2,304,690
Western Europe 93,632 196,304
----------- -----------
TOTAL $ 1,366,205 $ 2,504,313
OIL AND GAS EXPLORATION,
DEVELOPMENT AND PRODUCTION
Eastern Europe $42,413,878 $41,644,701
Canada 956,513 1,001,733
Western Europe 11,315 13,769
----------- -----------
TOTAL $43,381,706 $42,660,203
OTHER ENERGY PROJECTS
Eastern Europe $ 1,569,410 $ 1,403,013
----------- -----------
IDENTIFIABLE ASSETS - TOTAL $46,317,321 $46,567,529
=========== ===========
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
QUALIFYING STATEMENT WITH RESPECT TO FORWARD-LOOKING INFORMATION
The United States Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for certain forward looking statements. Such forward
looking statements are based upon the current expectations of CanArgo and speak
only as of the date made. These forward looking statements involve risks,
uncertainties and other factors. The factors discussed below under "Forward
Looking Statements" and elsewhere in this Quarterly Report on Form 10-Q are
among those factors that in some cases have affected CanArgo's historic results
and could cause actual results in the future to differ significantly from the
results anticipated in forward looking statements made in this Quarterly Report
on Form 10-Q, future filings by CanArgo with the Securities and Exchange
Commission, in CanArgo's press releases and in oral statements made by
authorized officers of CanArgo. When used in this Quarterly Report on Form 10-Q,
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.
LIQUIDITY, CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION
CanArgo's cash balance at March 31, 1999 is not sufficient to cover
CanArgo's working capital requirements and capital expenditure plans for 1999.
CanArgo's management believes that its current cash, augmented by the
anticipated proceeds of $900,000 from the planned disposition of assets not
central to its operations, should be adequate to continue through the third
quarter of 1999, CanArgo's operations at the same activity level as they have
experienced during the past several months. This would not, however, include any
major expenditures on any of its properties or ventures. No assurances can be
given that CanArgo will be able to complete any asset sales or that the proceeds
from any such asset sales will be as great as CanArgo anticipates.
Current development plans for the Ninotsminda field includes the
drilling of a minimum of three development wells plus five major rehabilitations
of existing wells, with a view towards increasing oil production. The total
budgeted cost of the current development plan is $9,573,000. The development
plan is scheduled to be implemented in 1999 and the first half of 2000, but that
timing is dependent upon funding for the development plan being available
promptly. A key portion of the funding program is not yet in place.
As a considerable amount of infrastructure for the Ninotsminda field
has been put in place by Georgian Oil, increases in oil production are not
expected to increase infrastructure costs substantially. No assurance can be
given, however, that the Ninotsminda field current development plan will be
funded, that the funding will be timely, that the development plan will be
successfully completed, that it will increase production, or that the
Ninotsminda field operating revenues after completion of the development plan
will exceed operating costs.
The extent, cost and timing of a full Ninotsminda field development
plan are highly speculative and will depend significantly upon the results of
the current development program. CanArgo currently projects that the full field
development plan for oil would involve the drilling of nine additional wells,
would cost an additional $16 million, and would require two to three years to
complete. Should Ninotsminda Oil Company attempt to implement such a plan
immediately following completion of the current development plan in
approximately mid-2000, it could require substantial additional funding. It is
unlikely CanArgo could provide such funding unless CanArgo itself obtained
substantial additional funding.
To avoid cutbacks to CanArgo's capital expenditure and working capital
plans, CanArgo is seeking additional capital. Potential sources of funds include
additional equity, project financing, debt financing and the participation of
other oil and gas entities in CanArgo's projects. Based on continuing
discussions including those with major stockholders, investment bankers and
other oil companies, CanArgo believes that such required funds will be
available. However, there is no assurance that such funds will be available, and
if available, will be offered on attractive or acceptable terms.
13
<PAGE> 14
On March 29, 1999, CanArgo was advised that its common stock had been
delisted from The Nasdaq Market System effective at the close of business on
March 29, 1999. The management of CanArgo is assessing the impact the delisting
will have on CanArgo's plans and ability to raise required funds. On March 30,
1999, CanArgo's common stock commenced trading on the OTC Bulletin Board. The
listing of CanArgo common stock on the Oslo Stock Exchange has been a secondary
listing, with the primary listing being on The Nasdaq Stock Market. CanArgo is
appealing The Nasdaq Stock Market delisting decision, but if that appeal does
not result in the readmission of CanArgo common stock to trading on The Nasdaq
Stock Market and CanArgo is unable to establish another primary listing
acceptable to the Oslo Stock Exchange, CanArgo could not maintain its secondary
listing on the Oslo Stock Exchange. While CanArgo could apply for a primary
listing on the Oslo Stock Exchange, administrative requirements of that Exchange
attaching to a primary listing make an Oslo Stock Exchange primary listing not a
feasible alternative for CanArgo.
CanArgo's Board of Directors has adopted resolutions proposing, subject
to stockholder approval, a 1-for-25 reverse stock split of its outstanding
shares of common stock. The purpose of the reverse split is to attempt to
establish a common stock structure that might achieve a bid price in excess of
$5.00 per share so that CanArgo can seek readmission to the Nasdaq National
Market System. There is no assurance, however, that after the reverse split the
common stock will trade at a price that is 25 times its current price or that
the common stock will be relisted on Nasdaq.
In December 1998, Ninotsminda Oil Company entered into a $6,000,000
Loan Agreement with the International Finance Corporation, with the proceeds to
be used principally to fund the development of the Ninotsminda field.
Disbursement of the IFC loan is conditioned upon, among other things, the
funding of a $2,000,000 subordinated loan to Ninotsminda Oil Company from its
shareholders. CanArgo believes that the other shareholder of Ninotsminda Oil
Company will not participate in the subordinated loan and that CanArgo will be
required to fund the entire $2,000,000 in order for Ninotsminda Oil Company to
have access to the IFC funding.
CanArgo does not presently have the resources to fund the $2,000,000
subordinated loan to Ninotsminda Oil Company. CanArgo has filed a registration
statement with the Securities and Exchange Commission under which it proposes to
offer up to 21,264,643 shares of Common Stock. The primary use of proceeds from
the offering would be funding of the $2,000,000 subordinated loan to Ninotsminda
Oil Company. CanArgo could also pursue other financing alternatives, such as a
secured loan, to obtain the resources to fund the subordinated loan. A number of
uncertainties affect CanArgo's financing plans, and no assurances can be given
that:
o the SEC will declare CanArgo's registration statement effective;
o CanArgo will be able to proceed with its offering of common stock or
that such offering will be successful;
o CanArgo will be able to arrange acceptable alternative financing if the
offering is not successfully completed;
o CanArgo will be able to fund the subordinated loan to Ninotsminda Oil
Company; or
o Ninotsminda Oil Company will satisfy the other conditions for the
disbursement of the IFC loan.
In the event CanArgo is successful in generating at least $3,000,000 in
gross proceeds from the sale of Common Stock, CanArgo believes that it will be
able to fund its planned operations through mid-2000. Depending upon the amount
of proceeds generated by the sale of Common Stock, revenue generated by
operations and partial funding of Company projects by third-party participants,
CanArgo believes that it may be required to obtain additional debt or equity
financing by the second half of 2000. No assurances can be given that CanArgo
will be able to obtain such financing or that the financing that is available
will be offered on terms that are attractive or even acceptable to CanArgo.
14
<PAGE> 15
As of March 31, 1999, CanArgo had a working capital deficit of
$744,000, compared to working capital surplus of $1,366,000 as of December 31,
1998. The $2,110,000 decrease in working capital from December 31, 1998 to March
31, 1999 principally reflects a reduction in cash and cash equivalents and an
increase in accounts payable.
Cash and cash equivalents decreased $1,219,000 during the three months
ended March 31, 1999 from $1,925,000 at December 31, 1998 to $706,000 at March
31, 1999, primarily as a result of expenditures on operating activities. Cash
and cash equivalents at March 31, 1999 included $275,000 held by Ninotsminda Oil
Company, a 68.5% owned subsidiary of CanArgo which is developing the Ninotsminda
field, to which CanArgo has limited access.
Accounts receivable decreased from $424,000 at December 31, 1998 to
$382,000 at March 31, 1999. The decrease is primarily as a result of an
allowance for doubtful accounts related to prior oil sales.
Advances to operator decreased from $377,000 at December 31, 1998 to
$253,000 at March 31, 1999 as a result of expenditures by the entity performing
the operations at the Ninotsminda field on behalf and at the direction of
CanArgo.
Inventory increased from $170,000 at December 31, 1998 to $298,000 at
March 31, 1999 as result of placing a portion of CanArgo's oil produced during
the first quarter of 1999 at the Ninotsminda field in storage to be available
for sale in the Georgian domestic and regional market, or in the international
market. At March 31, 1999, 91,000 barrels of oil were in storage. Inventories
are valued at the lower of cost or market.
Other current assets decreased from $453,000 at December 31, 1998 to
$301,000 at March 31, 1999, primarily as a result of the amortization of prepaid
expenses.
Property and equipment, net, increased from $6,202,000 at December 31,
1998 to $6,260,000 at March 31, 1999 primarily as a result of capitalized costs
associated with moving two drilling rigs and related equipment to the Republic
of Georgia from Cyprus and testing of one of the rigs.
Oil and gas properties, net increased from $30,138,000 at December 31,
1998 to $31,070,000 at March 31, 1999 primarily as a result of the evaluation of
seismic data with respect to the Ninotsminda and Nazvrevi fields for $400,000,
capitalization of $262,000 of Ninotsminda Oil Company general and administrative
expenses related to exploration and development activities and acquisition of
certain interests with respect to the Ninotsminda field for $110,000.
Investments in and advances to oil and gas and other ventures, net
increased from $6,878,000 at December 31, 1998 to $7,049,000 at March 31, 1999.
The increase reflects principally advances of $97,000 to CanArgo Power
Corporation with respect to a power project to be located adjacent to the
Ninotsminda field and advances of $96,000 to Boryslaw Oil Company, the entity
developing the Stynawske field project. These investments and advances were
partially offset by CanArgo's $22,000 equity in the loss of Boryslaw Oil Company
in the three months ended March 31, 1999.
As of March 31, 1999 and December 31, 1998, CanArgo had net investments
in and advances to Boryslaw Oil Company totaling $5,480,000 and $5,406,000,
respectively. CanArgo has the responsibility for arranging financing for this
venture, and unless third-party financing can be arranged, CanArgo might have to
supply the capital to finance operations until the venture generates positive
cash flow, which would have the effect of increasing investments in and advances
to oil and gas and other ventures. The amount of such advances may be greater
than the amount of the operating losses recognized by CanArgo, which would cause
such net investment balances to increase. Such investments and advances at the
initial stages of development are essentially unevaluated oil and gas
properties, and such costs may not be recovered if the venture is not
successful. No assurance can be
15
<PAGE> 16
given that CanArgo will be able to arrange third-party financing for such
venture, that CanArgo will have sufficient resources to fund the capital and
operating needs of the venture, or that the venture will be successful.
As a result of CanArgo's suspension of activities relating to the
Lelyaki, Maykop and Gorisht-Kocul field projects, CanArgo may be subject to
contingent liabilities in the form of claims from the ventures developing those
projects and other participants therein. CanArgo was advised during the first
quarter of 1998 that the corporate entity developing the Maykop field project
and a shareholder in that entity were considering such claims, but no such
claims have yet been asserted. CanArgo management is unable to estimate the
range that such claims, if any, might total. However, if any claims were
determined to be valid, they could have a material adverse effect on CanArgo's
financial position, result of operations and cash flows. Any such claims may be
adjudicated in host country forums under host country law.
CanArgo is involved in several lawsuits which are described in Note 10
of notes to unaudited condensed consolidated financial statements. CanArgo could
incur significant costs in defending these lawsuits, and the loss of any of
these lawsuits could have a material adverse effect on the financial condition,
results of operations, cash flows, and prospects of CanArgo.
CanArgo has contingent obligations and may incur additional
obligations, absolute or contingent, with respect to the acquisition and
development of oil and gas properties and ventures in which it has interests
that require or may require CanArgo to expend funds and to issue shares of its
common stock. CanArgo believes that it has no further obligation to fund any
operations relating to the Lelyaki and Maykop field projects. At March 31, 1999,
CanArgo had a contingent obligation to issue 187,500 shares of common stock to a
third party upon satisfaction of conditions relating to the achievement of
specified Stynawske field project performance standards. As CanArgo develops
current projects and undertakes other projects, it could incur significant
additional obligations.
Development of the oil and gas properties and ventures in which CanArgo
has interests involves multi-year efforts and substantial cash expenditures.
Full development of CanArgo's oil and gas properties and ventures will require
the availability of substantial additional financing from external sources.
CanArgo intends where opportunities exist to transfer portions of its interests
in oil and gas properties and ventures to entities in exchange for such
financing. CanArgo generally has the principal responsibility for arranging
financing for the oil and gas properties and ventures in which it has an
interest. There can be no assurance, however, that CanArgo or the entities that
are developing the oil and gas properties and ventures will be able to arrange
the financing necessary to develop the projects being undertaken or to support
the corporate and other activities of CanArgo. There can also be no assurance
that such financing as is available will be on terms that are attractive or
acceptable to or are deemed to be in the best interest of CanArgo, such entities
and their respective stockholders or participants.
Ultimate realization of the carrying value of CanArgo's oil and gas
properties and ventures will require production of oil and gas in sufficient
quantities and marketing such oil and gas at sufficient prices to provide
positive cash flow to CanArgo. Establishment of successful oil and gas
operations is dependent upon, among other factors, the following:
o mobilization of equipment and personnel to implement effectively drilling,
completion and production activities;
o achieving significant production at costs that provide acceptable margins;
o reasonable levels of taxation, or economic arrangements in lieu of
taxation, in host countries; and
o the ability to market the oil and gas produced at or near world prices.
CanArgo has plans to mobilize resources and achieve levels of
production and profits sufficient to recover the carrying value of its oil and
gas properties and ventures. However, if one or more of the above factors, or
other
16
<PAGE> 17
factors, are different than anticipated, these plans may not be realized, and
CanArgo may not recover the carrying value of its oil and gas properties and
ventures. CanArgo will be entitled to distributions from the various properties
and ventures in which it participates in accordance with the arrangements
governing the respective properties and ventures. Until the IFC loan is repaid
by Ninotsminda Oil Company, CanArgo will have the limited ability to transfer
funds from Ninotsminda Oil Company to CanArgo.
Minority interest in subsidiaries at March 31, 1999 of $4,465,000 relates
to the 31.5% interest of the non-controlling shareholder in Ninotsminda Oil
Company.
Year 2000 Compliance
The Year 2000 problem is the result of computer programs being written
using two digits to define the applicable year. If not corrected, any programs
or equipment that have time sensitive components could fail or produce erroneous
results. CanArgo has completed a review of its existing information technology
and non-information technology systems and has upgraded its accounting
information systems to software that the developer represents to be Year 2000
compliant. Except for a limited number of desktop computers utilized by CanArgo
which CanArgo intends to replace, CanArgo believes that the software and
hardware currently used by CanArgo, including oilfield production equipment, is
Year 2000 compliant. The cost of replacing the desktop computers is expected not
to exceed $25,000. Although CanArgo does not expect to incur significant
additional expenditures to address Year 2000 issues, there can be no assurance
that this will be the case.
CanArgo has identified several significant suppliers of goods and
services, primarily in the banking, transportation, refining, utility and
communication sectors, whose inability or failure to become Year 2000 compliant
in a timely manner could have a material adverse effect on CanArgo's business,
financial condition, results of operations or cash flows. CanArgo has reviewed
information from these suppliers, where available, with respect to their Year
2000 compliance and status and continues to monitor their progress. While
disruptions to the local power grid as a result of the Year 2000 problem and
other problems could interfere with CanArgo's ability to produce oil and
continue development activities at the Ninotsminda field, CanArgo anticipates
that the planned addition later this year of independent power generation
capability at the Ninotsminda field, if accomplished, will substantially
mitigate that risk and enable CanArgo to at least produce and store oil. Because
of uncertainties, however, the actual effects of the Year 2000 problem on
CanArgo may be different from its current assessment. Should remedial efforts be
required, the inability of CanArgo or its principal suppliers to become Year
2000 compliant in a timely manner could impact CanArgo's ability to produce,
sell and receive payment for its crude oil on a timely basis and could have a
material adverse effect on CanArgo's business, financial condition, results of
operations or cash flows.
New Accounting Standards
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, and SFAS
No. 131, Disclosure about Segments of an Enterprise and Related Information both
of which were adopted in 1998 without having any material effect on CanArgo's
financial statements. In 1998, FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which will be adopted in the 1999
third quarter financial statements and based on present circumstances would not
have any material effect on CanArgo's financial statements.
RESULTS OF OPERATIONS
Three Month Periods Ended March 31, 1999 and 1998
CanArgo recorded operating revenue of $114,000 during the three month
period ended March 31, 1999 compared with $81,000 for the three month period
ended March 31, 1998. Ninotsminda Oil Company generated $68,000 of revenue in
the three month period ended March 31, 1999. Its net share of the 107,800
barrels of gross production from the Ninotsminda field in the period amounted to
39,000 barrels. From its share, Ninotsminda Oil Company placed 31,431 barrels of
oil into storage to be held for sale into the Georgian local and regional
market. Because lower transportation costs are involved, CanArgo believes that
sales of Ninotsminda oil to customers in the
17
<PAGE> 18
Georgian local and regional market generally yield relatively higher net sales
prices to Ninotsminda Oil Company than sales to other customers. Net sale prices
for Ninotsminda oil sold during the first quarter of 1999 averaged $8.98 per
barrel. Oil production from the Sylvan Lake property in Alberta, Canada
accounted for $46,000 of revenue in the three month period ended March 31, 1999
and substantially all revenue for the three month period ended March 31, 1998.
The operating loss for the three month period ended March 31, 1999
amounted to $926,000 compared with $3,025,000 for the corresponding period in
1998. The decrease in the operating loss is attributable primarily to 1998 costs
associated with CanArgo's involvement in some Eastern European oil and gas
ventures which involvement CanArgo has effectively terminated, 1998 costs
associated with CanArgo's business combination with CanArgo Oil & Gas Inc., and
the impairment of oil and gas properties which amounted to $800,000 in 1998.
Lease operating expenses decreased to $67,000 for the three month
period ended March 31, 1999 as compared to $100,000 for the three month period
ended December 31, 1998. The decrease is primarily as a result of a lower level
of operating activity with respect to the Sylvan Lake property for the three
month period ended March 31, 1999, partially offset by the inclusion of
Ninotsminda field expenses.
Direct project costs decreased to $68,000 for the three month period
ended March 31, 1999, from $539,000 for the three month period ended March 31,
1998, reflecting 1998 costs associated with CanArgo's involvement in some
Eastern European oil and gas ventures which involvement CanArgo has effectively
terminated, partially offset by activity related to the Ninotsminda field.
General and administrative costs decreased to $859,000 for the three
month period ended March 31, 1999, from $1,457,000 for the three month period
ended March 31, 1998. The decrease is primarily attributable to 1998 costs
associated with CanArgo's involvement in some Eastern European oil and gas
ventures which involvement CanArgo has effectively terminated, and 1998 costs
associated with CanArgo's business combination with CanArgo Oil & Gas Inc.,
partially offset by the cost of activity related to the Ninotsminda field.
The decrease in depreciation, depletion and amortization expense from
$118,000 for the three month period ended March 31, 1998 to $25,000 for the
three month period ended March 31, 1999 is attributable principally to the
write-down of the Sylvan Lake properties in 1998 and a decrease in the number of
barrels of oil produced from the Sylvan Lake property for the three month period
ended March 31, 1999, partially offset by depletion related to Ninotsminda field
oil production.
The equity loss from investments in unconsolidated subsidiaries
decreased to $22,000 for the three month period ended March 31, 1999, from
$91,000 for the three month period ended March 31, 1998 as a result of the
substantially lower level of activity conducted through unconsolidated
subsidiaries in 1998, reflecting the termination of CanArgo's involvement in the
development activities of some Eastern European oil and gas ventures conducted
through unconsolidated subsidiaries.
During the three months ended March 31, 1998, CanArgo wrote down its
oil and gas properties in the Sylvan Lake project by an aggregate $800,000 as a
result of a substantial decline of heavy oil prices and the quarterly
application of the full cost ceiling test. There was no comparable write down
during the three months ended March 31, 1999.
CanArgo recorded net other expenses of $132,000 for the three months
ended March 31, 1999, as compared to net other income of $207,000 during the
three months ended March 31, 1998. The principal reason for the decrease is
lower interest income as a result of lower cash balances for the three months
ended March 31, 1999 compared to the same period for the previous year and the
payment of a facility fee pursuant to Ninotsminda Oil Company's $6,000,000 Loan
Agreement with the International Finance Corporation.
The net loss of $971,000 or $0.05 per share for the three month period
ended March 31,1999 compares to a net loss of $2,818,000, or $0.25 per share for
the three month period ended March 31, 1998. As a result of the
18
<PAGE> 19
issuance of shares in connection with the business combination, the weighted
average number of common shares outstanding was substantially higher during the
three month period ended March 31, 1999 than during the three month period ended
March 31, 1998.
FORWARD LOOKING STATEMENTS
The forward looking statements contained in this Item 2 and elsewhere
in this Form 10-Q are subject to various risks, uncertainties and other factors
that could cause actual results to differ materially from the results
anticipated in such forward looking statements. Included among the important
risks, uncertainties and other factors are those hereinafter discussed.
Few of such forward looking statements deal with matters that are
within the unilateral control of CanArgo. 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. Such
third parties generally have interests that do not coincide with those of
CanArgo and may conflict with CanArgo's interests. Unless CanArgo and such third
parties are able to compromise their respective objectives in a mutually
acceptable manner, agreements and arrangements will not be consummated.
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.
CanArgo does not have a majority of the equity in the entity that is be
the licensed developer of some projects that CanArgo may pursue in Eastern
Europe such as the Stynawske field project, even though CanArgo may be the
designated operator of the oil or gas field. In such 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 those of
CanArgo, even if they generally share CanArgo's objectives. As a result of all
of the foregoing, among other matters, the forward looking statements regarding
the occurrence and timing of future events may well anticipate results that will
not be realized.
The availability of equity or debt financing to CanArgo or to the
entities that are developing projects in which CanArgo has interests is affected
by many factors including:
o world economic conditions;
o international relations;
o the stability and policies of various governments;
o fluctuations in the price of oil and gas and the outlook for the oil
and gas industry;
o competition for funds; and
o an evaluation of CanArgo and specific projects in which CanArgo has an
interest.
Rising interest rates might affect the feasibility of debt financing that is
offered. Potential investors and lenders will be influenced by their evaluations
of CanArgo and its projects and comparisons with alternative investment
opportunities. CanArgo's ability to finance all of its 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
CanArgo to scale back its project development, capital expenditure, production
and other plans.
19
<PAGE> 20
The development of oil and gas properties is subject to substantial
risks. Expectations regarding production, even if estimated by independent
petroleum engineers, may prove to be unrealized. There are many uncertainties
inherent in estimating production quantities and in projecting future production
rates and the timing and amount of future development expenditures. Estimates of
properties in full production are more reliable than production estimates for
new discoveries and other properties that are not fully productive. Accordingly,
estimates related to CanArgo's properties are subject to change as additional
information becomes available.
Most of CanArgo's interests in oil and gas properties and ventures are
located in Eastern European countries. Operations in those countries are subject
to certain additional risks including the following:
o enforceability of contracts;
o currency convertibility and transferability;
o unexpected changes in tax rates;
o availability of trained personnel; and
o availability of equipment and services and other factors that could
significantly change the economics of production.
Production estimates are subject to revision as prices and costs
change. Production, even if present, may not be recoverable in the amount and at
the rate anticipated and may not be recoverable in commercial quantities or on
an economically feasible basis. World and local prices for oil and gas can
fluctuate significantly, and a reduction in the revenue realizable from the sale
of production can affect the economic feasibility of an oil and gas project.
World and local political, economic and other conditions could affect CanArgo's
ability to proceed with or to effectively operate projects in various foreign
countries.
Demands by or expectations of governments, co-venturers, customers and
others may affect CanArgo's strategy regarding the various projects. Failure to
meet such demands or expectations could adversely affect CanArgo's participation
in such projects or its ability to obtain or maintain necessary licenses and
other approvals.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not yet effective.
20
<PAGE> 21
PART II - OTHER INFORMATION
CANARGO ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 15, 1999, CanArgo sold 250,000 shares of common stock in
exchange for oil and gas interests in the Republic of Georgia, including
contractual obligations of Ninotsminda Oil Company. The shares were valued at
the market price on the date of issuance in the amount of $109,500.
The offer and sale of the shares was exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), under
Section 4(2) of the Act as a transaction by an issuer not involving a public
offering. The purchaser of the shares represented to CanArgo, among other
things, that it was acquiring the shares for its own account; that it was
acquiring the shares for investment and not with a view toward the distribution
thereof; and that it would not sell the shares without registration under the
Act or an applicable exemption from such registration requirement. The
certificate representing the shares has a restrictive legend endorsed thereon
reflecting the restrictions on transferability arising out of the foregoing
matters, and CanArgo has issued "stop transfer" instructions to its transfer
agent with respect to such shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Management Contracts, Compensation Plans and Arrangements are
identified by an asterisk (*)
2(1) Agreement Relating to the Sale and Purchase of All the Issued
Share Capital of Gastron International Limited dated August 10,
1995 by and among Ribalta Holdings, Inc. as Vendor and Fountain
Oil Incorporated as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from October 19, 1995 Form
8-K).
2(2) Supplemental Agreement Relating to the Sale and Purchase of All
the Issued Share Capital of Gastron International Limited dated
November 3, 1995 by and among Ribalta Holdings, Inc. as Vendor
and Fountain Oil Incorporated as Purchaser, and John Richard Tate
as Warrantor (Incorporated herein by reference from October 19,
1995 Form 8-K).
2(3) Supplemental Deed Relating to the Sale and Purchase of All the
Issued Share Capital of Gastron International Limited dated May
29, 1996 by and among Ribalta Holdings, Inc. as Vendor and
Fountain Oil Incorporated as Purchaser, and John Richard Tate as
Warrantor (Incorporated herein by reference from June 30, 1997
Form 10-Q).
2(4) Memorandum of Agreement between Fielden Management Services Pty,
Ltd., A.C.N. 005 506 123 and Fountain Oil Incorporated dated May
16, 1995 (Incorporated herein by reference from December 31, 1997
Form 10-K/A).
2(5) Amended and Restated Combination Agreement between Fountain Oil
Incorporated and CanArgo Energy Inc. dated as of February 2, 1998
(Incorporated herein by reference from Form S-3 Registration
Statement, File No. 333-48287 filed on June 9, 1998).
2(6) Voting, Support and Exchange Trust Agreement (Incorporated herein
by reference as Annex G from Form S-3 Registration Statement,
File No. 333-48287 filed on June 9, 1998).
21
<PAGE> 22
3(1) Registrant's Certificate of Incorporation and amendments thereto
(Incorporated herein by reference from July 15, 1998 Form 8-K).
3(2) Registrant's Bylaws.
4 Form of 8% Convertible Subordinated Debenture (Incorporated herein by
reference from February 29, 1996 Form 10-QSB).
*10(1) Securities Compensation Plan (Incorporated herein by reference from
August 31, 1994 Form 10-KSB, filed by Electromagnetic Oil Recovery,
Inc., the Company's predecessor).
*10(2) Form of Certificate for Common Stock Purchase Warrants issued pursuant
to the Securities Compensation Plan (Incorporated herein by reference
from Form S-8 Registration Statement, File No. 33-82944 filed on August
17, 1994, filed by Electromagnetic Oil Recovery, Inc., the Company's
predecessor).
*10(3) Form of Option Agreement for options granted to certain persons,
including Directors (Incorporated herein by reference from August 31,
1994 Form 10-KSB, filed by Electromagnetic Oil Recovery, Inc., the
Company's predecessor).
*10(4) Form of Certificate for Common Stock Purchase Warrants issued to
certain investors in August 1994, including Directors (Incorporated
herein by reference from August 31, 1994 Form 10-KSB, filed by
Electromagnetic Oil Recovery, Inc., the Company's predecessor).
*10(5) Restated Employment Agreement between Fountain Oil Incorporated and
Nils N. Trulsvik (Incorporated herein by reference from December 31,
1997 Form 10-K/A).
*10(6) Employment Agreement between Fountain Oil Incorporated and Ravinder S.
Sierra (Incorporated herein by reference from August 31, 1995 Form
10-KSB).
*10(7) Employment Agreement between Fountain Oil Incorporated and Susan E.
Palmer (Incorporated herein by reference from August 31, 1995 Form
10-KSB).
*10(8) Amended and Restated 1995 Long-Term Incentive Plan (Incorporated herein
by reference from September 30, 1998 Form 10-Q).
*10(9) Fee Agreement dated November 15, 1995 between Fountain Oil Incorporated
and Robert A. Halpin (Incorporated herein by reference from August 31,
1996 Form 10-KSB).
*10(10) Fee Agreement between Fountain Oil Incorporated and Eugene J. Meyers
(Incorporated herein by reference from August 31, 1996 Form 10-KSB).
*10(11) Amended Fee Agreement dated December 10, 1996 between Fountain Oil
Incorporated and Robert A. Halpin (Incorporated herein by reference
from December 31, 1996 Form 10-K).
*10(12) Employment Agreement between Fountain Oil Incorporated and Alfred
Kjemperud (Incorporated herein by reference from March 31, 1997 Form
10-Q).
*10(13) Employment Agreement between Fountain Oil Norway AS and Rune Falstad
(Incorporated herein by reference from December 31, 1997 Form 10-K/A).
22
<PAGE> 23
*10(14) Amended and Restated CanArgo Energy Inc. Stock Option Plan
(Incorporated herein by reference from September 30, 1998 Form 10-Q).
*10(15) Workorder between CanArgo Energy Inc. and Nils N. Trulsvik as
Consultant (Incorporated herein by reference from September 30, 1998
Form 10-Q).
*10(16) Consultancy Agreement between CanArgo Energy Corporation and Fincom AS,
Norway (Incorporated herein by reference from September 30, 1998 Form
10-Q).
*10(17) Employment Contract between CanArgo Energy Inc. and Anthony J. Potter
(Incorporated herein by reference from September 30, 1998 Form 10-Q).
*10(18) Workorder between CanArgo Energy Inc. and Alfred Kjemperud as
Consultant (Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
10(19) Convertible Loan Agreement between Ninotsminda Oil Company (NOC) and
International Finance Corporation (IFC) dated December 17, 1998
(Incorporated herein by reference from Form S-1 Registration Statement,
File No. 333-72295 filed on February 12, 1999).
10(20) Put Option Agreement between CanArgo Energy Corporation, JKX Oil & Gas
PLC. and IFC dated December 17, 1998 (Incorporated herein by reference
from Form S-1 Registration Statement, File No. 333-72295 filed on
February 12, 1999).
10(21) Guarantee Agreement between CanArgo Energy Corporation and IFC dated
December 17, 1998 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on February 12, 1999).
10(22) Agreement between Georgian Oil Refinery Company and CanArgo Petroleum
Products Ltd. dated September 26, 1998 (Incorporated herein by
reference from Form S-1 Registration Statement, File No. 333-72295
filed on February 12, 1999).
10(23) Terrenex Acquisition Corporation Option regarding CanArgo (Nazvrevi)
Limited (Incorporated herein by reference from Form S-1 Registration
Statement, File No. 333-72295 filed on February 12, 1999).
27 Financial Data Schedule.
23
<PAGE> 24
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CANARGO ENERGY CORPORATION
Date: May 14, 1999 By: /s/ Michael Binnion
-------------------------------------
Michael Binnion
President and Chief Financial Officer
24
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT FILED WITH
NUMBER EXHIBIT THIS REPORT
- ----------------- -------------------------------------------------------- ---------------
<S> <C> <C>
2(1) Agreement Relating to the Sale and Purchase of All the
Issued Share Capital of Gastron International Limited
dated August 10, 1995 by and among Ribalta Holdings,
Inc. as Vendor and Fountain Oil Incorporated as
Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from October 19,
1995 Form 8-K).
2(2) Supplemental Agreement Relating to the Sale and
Purchase of All the Issued Share Capital of Gastron
International Limited dated November 3, 1995 by and
among Ribalta Holdings, Inc. as Vendor and Fountain
Oil Incorporated as Purchaser, and John Richard Tate
as Warrantor (Incorporated herein by reference from
October 19, 1995 Form 8-K).
2(3) Supplement Deed Relating to the Sale and Purchase of
All the Issued Share Capital of Gastron International
Limited dated May 29, 1996 by and among Ribalta
Holdings, Inc. as Vendor and Fountain Oil Incorporated
as Purchaser, and John Richard Tate as Warrantor
(Incorporated herein by reference from June 30, 1997
Form 10-Q).
2(4) Memorandum of Agreement between Fielden Management Services
Pty, Ltd., A.C.N. 005 506 123 and Fountain Oil Incorporated
dated May 16, 1995 (Incorporated herein by reference from
December 31, 1997 Form 10-K/A).
2(5) Amended and Restated Combination Agreement between Fountain
Oil Incorporated and CanArgo Energy Inc. dated as of
February 2, 1998 (Incorporated herein by reference from Form
S-3 Registration Statement, File No. 333-48287 filed on June
9, 1998).
2(6) Voting, Support and Exchange Trust Agreement
(Incorporated herein by reference as Annex G from Form
S-3 Registration Statement, File No. 333-48287 filed
on June 9, 1998).
3(1) Registrant's Certificate of Incorporation and amendments
thereto (Incorporated herein by reference from July 15, 1998
Form 8-K).
3(2) Registrant's Bylaws. X
4 Form of 8% Convertible Subordinated Debenture
(Incorporated herein by reference from February 29,
1996 Form 10-QSB).
*10(1) Securities Compensation Plan (Incorporated herein by
reference from August 31, 1994 Form 10-KSB, filed by
Electromagnetic Oil Recovery, Inc., the Company's
predecessor).
</TABLE>
1
<PAGE> 26
<TABLE>
<S> <C> <C>
*10(2) Form of Certificate for Common Stock Purchase Warrants
issued pursuant to the Securities Compensation Plan
(Incorporated herein by reference from Form S-8 Registration
Statement, File No. 33-82944 filed on August 17, 1994, filed
by Electromagnetic Oil Recovery, Inc., the Company's
predecessor).
*10(3) Form of Option Agreement for options granted to certain
persons, including Directors (Incorporated herein by
reference from August 31, 1994 Form 10-KSB, filed by
Electromagnetic Oil Recovery, Inc., the
Company's predecessor).
*10(4) Form of Certificate for Common Stock Purchase Warrants
issued to certain investors in August 1994, including
Directors (Incorporated herein by reference from August 31,
1994 Form 10-KSB, filed by Electromagnetic Oil Recovery,
Inc., the Company's predecessor).
*10(5) Restated Employment Agreement between Fountain Oil
Incorporated and Nils N. Trulsvik (Incorporated herein
by reference from December 31, 1997 Form 10-K/A).
*10(6) Employment Agreement between Fountain Oil Incorporated
and Ravinder S. Sierra (Incorporated herein by
reference from August 31, 1995 Form 10-KSB).
*10(7) Employment Agreement between Fountain Oil Incorporated
and Susan E. Palmer (Incorporated herein by reference
from August 31, 1995 Form 10-KSB).
*10(8) Amended and Restated 1995 Long-Term Incentive Plan
(Incorporated herein by reference from September 30, 1998
Form 10-Q).
*10(9) Fee Agreement dated November 15, 1995 between Fountain Oil
Incorporated and Robert A. Halpin (Incorporated herein by
reference from August 31, 1996 Form 10-KSB).
*10(10) Fee Agreement between Fountain Oil Incorporated and
Eugene J. Meyers (Incorporated herein by reference
from August 31, 1996 Form 10-KSB).
*10(11) Amended Fee Agreement dated December 10, 1996 between
Fountain Oil Incorporated and Robert A. Halpin (Incorporated
herein by reference from December 31, 1996 Form 10-K).
*10(12) Employment Agreement between Fountain Oil Incorporated
and Alfred Kjemperud (Incorporated herein by reference
from March 31, 1997 Form 10-Q).
*10(13) Employment Agreement between the Company Oil Norway AS and
Rune Falstad (Incorporated herein by reference from December
31, 1997 Form 10-K/A).
</TABLE>
2
<PAGE> 27
<TABLE>
<S> <C> <C>
*10(14) Amended and Restated CanArgo Energy Inc. Stock Option
Plan (Incorporated herein by reference from September
30, 1998 Form 10-Q).
*10(15) Workorder between CanArgo Energy Inc. and Nils N.
Trulsvik as Consultant (Incorporated herein by
reference from September 30, 1998 Form 10-Q).
*10(16) Consultancy Agreement between CanArgo Energy Corporation and
Fincom AS, Norway (Incorporated herein by reference from
September 30, 1998 Form 10-Q).
*10(17) Employment Contract between CanArgo Energy Inc. and
Anthony J. Potter (Incorporated herein by reference
from September 30, 1998 Form 10-Q).
*10(18) Workorder between CanArgo Energy Inc. and Alfred
Kjemperud as Consultant (Incorporated herein by
reference from Form S-1 Registration Statement, File
No. 333-72295 filed on February 12, 1999).
10(19) Convertible Loan Agreement between Ninotsminda Oil Company
(NOC) and International Finance Corporation (IFC) dated
December 17, 1998 (Incorporated herein by reference from
Form S-1 Registration Statement, File No. 333-72295 filed on
February 12, 1999).
10(20) Put Option Agreement between CanArgo Energy Corporation, JKX
Oil & Gas PLC. And IFC dated December 17, 1998 (Incorporated
herein by reference from Form S-1 Registration Statement,
File No. 333-72295 filed
on February 12, 1999).
10(21) Guarantee Agreement between CanArgo Energy Corporation and
IFC dated December 17, 1998 (Incorporated herein by
reference from Form S-1 Registration Statement, File No.
333-72295 filed on February 12, 1999).
10(22) Agreement between Georgian Oil Refinery Company and
CanArgo Petroleum Products Ltd. dated September 26,
1998 (Incorporated herein by reference from Form S-1
Registration Statement, File No. 333-72295 filed on
February 12, 1999).
10(23) Terrenex Acquisition Corporation Option regarding CanArgo
(Nazvrevi) Limited (Incorporated herein by reference from
Form S-1 Registration Statement, File No. 333-72295 filed on
February 12, 1999).
27 Financial Data Schedule. X
</TABLE>
3
<PAGE> 1
Exhibit 3(2)
BYLAWS
OF
CANARGO ENERGY CORPORATION
A DELAWARE CORPORATION
(As Amended Through May 3, 1999)
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders shall
be held at such place either within or without the State of Delaware as shall be
designated from time to time by the board of directors or stated in the notice
of the meeting.
Section 2. Annual Meeting. Annual meetings of stockholders shall
be as designated from time to time by the board of directors (which shall be in
the case of the first annual meeting not more than thirteen (13) months after
the organization of the corporation and in the case of all other annual
meetings, no more than thirteen (13) months after the date of the prior annual
meeting) and stated in the notice of the meeting, at which they shall elect by a
plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 4. Stockholder List. The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 5. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the certificate of incorporation, may be called by the chairman of
the board, the president or the secretary and shall be called by the chairman of
the board, the president or the secretary at the request in writing of a
majority of the board of directors, or at the request in writing of stockholders
owning 25% or more of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
Section 6. Notice of Special Meetings. Written notice of a
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called, shall be given not less than ten
nor more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
1
<PAGE> 2
Section 7. Quorum. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 8. Voting and Proxies. When a quorum is present at any
meeting, except with respect to the election of directors, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Directors shall be elected by a plurality of the votes cast. Unless otherwise
provided in the certificate of incorporation, each stockholder shall be entitled
to one vote for each share of the capital stock having voting power held by such
stockholder. Each stockholder entitled to vote may vote in person or by a proxy
granted in accordance with Delaware law, but no proxy shall be voted on after
three years from its date, unless the proxy provides for a longer period.
Section 9. Conduct of Meeting. At every meeting of stockholders,
the chairman of the board of directors, or, if a chairman has not been appointed
or is absent, the president, or, if the president is absent, the most senior
vice president present, or in the absence of any such officer, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The secretary, or, in his
absence, the person appointed by the chairman of the meeting, shall act as
secretary of the meeting. The chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as, in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting. Unless and to the extent
determined by the board of directors or the chairman of the meeting, meetings of
stockholders shall not be required to be held in accordance with rules of
parliamentary procedure.
Section 10. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors, or if they do not do so, the chairman of
the meeting, shall appoint one or more inspectors to act at the meeting and make
a written report thereof. Each inspector, before entering upon the discharge of
his duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability. The
inspectors shall: (1) ascertain the number of shares outstanding and the voting
power of each; (2) determine the shares represented at a meeting and the
validity of proxies and ballots; (3) count all votes and ballots; (4) determine
and retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors; and (5) certify their determination
of the number of shares represented at the meeting, and their count of all votes
and ballots. The inspectors may appoint or retain other persons or entities to
assist the inspectors in the performance of the duties of the inspectors.
The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
2
<PAGE> 3
This Section 10 shall not apply to the corporation if it does not
have a class of voting stock that is: (1) listed on a national securities
exchange; (2) authorized for quotation on an inter-dealer quotation system of a
registered national securities association; or (3) held of record by more than
2,000 stockholders.
Section 11. Written Consent. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II
DIRECTORS
Section 1. Number and Term of Office. The number of directors
which shall constitute the whole board shall be not less than three (3) nor more
than nine (9) until changed by amendment to the certificate of incorporation or
by a bylaw amending this Section duly adopted by the stockholders entitled to
vote or by the board of directors. The exact number of directors shall be fixed
from time to time, within the limits specified herein or in the certificate of
incorporation, by a bylaw or amendment thereof duly adopted by the stockholders
or the board of directors. Subject to the foregoing provisions for changing the
number of directors, the number of directors of the corporation is fixed at five
(5). The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected shall
hold office until his successor is elected and qualified. Directors need not be
stockholders.
Section 2. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. A vacancy in the board of directors shall be
deemed to exist under this Section in the case of the death, resignation or
removal of any director and no decrease in the number of directors shall shorten
the term of any incumbent director.
Section 3. Powers. The business and affairs of the corporation
shall be managed by or under the direction of its board of directors which may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the certificate of incorporation or by these
bylaws directed or required to be exercised or done by the stockholders.
Section 4. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and at such place as shall
from time to time be determined by the board.
Section 5. Special Meetings. Special meetings of the board of
directors for any purpose or purposes may be called at any time by one-third of
the directors then in office (rounded up to the nearest whole number) or by the
chairman of the board, the president or the secretary. Notice of the time and
place of special meetings shall be given orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least
forty-eight (48) hours before the date and time of the
3
<PAGE> 4
meeting; or if in writing to each director by first class mail, charges prepaid,
at least five (5) days, or by air courier, charges prepaid, at least three (3)
days, before the date of the meeting. A notice need not specify the purpose of
any regular or special meeting of the board of directors.
Section 6. Quorum. At all meetings of the board a majority of the
authorized number of directors shall constitute a quorum for the transaction of
business and the act of a. majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 7. Written Consent. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 8. Participation in Meetings by Conference Telephone.
Unless otherwise restricted by the certificate of incorporation or these bylaws,
members of the board of directors, or any committee designated by the board of
directors, may participate in a meeting of the board of directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
Section 9. Committees of the Board of Directors. The board of
directors may, by resolution passed by a majority of the whole board, designate
one or more committees, each committee to consist of one or more of the
directors of the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of
the board of directors, shall have and may exercise all the powers and authority
of the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
Section 10. Compensation Of Directors. Unless otherwise
restricted by the certificate of incorporation or these bylaws, the board of
directors shall have the authority to fix the compensation of
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<PAGE> 5
directors. No such compensation shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings or serving on such committees.
Section 11. Removal Of Directors. Unless otherwise restricted by
the certificate of incorporation or by law, any director or the entire board of
directors may be removed, with or without cause, by the holders of a majority of
shares entitled to vote at an election of directors.
ARTICLE III
NOTICES
Section 1. Notices. Whenever, under the provisions of the
statutes or of the certificate of incorporation or of these bylaws, notice is
required to be given to any director or stockholder, such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice to directors may also be given in
the manner set forth in Section 5 of Article 11 of these bylaws.
Section 2. Waiver. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate of incorporation or
of these bylaws, a waiver thereof, in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the corporation shall be
chosen by the Board of Directors and shall be a Chairman of the Board of
Directors (who must be a director), a President, a Chief Executive Officer, a
Chief Financial Officer, and a Secretary. The Board of Directors, in its
discretion, may also choose a Vice Chairman of the Board of Directors (who must
be a director), one or more Vice Presidents, a Treasurer and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law, the Certificate of Incorporation or these Bylaws. The officers of the
corporation need not be stockholders of the corporation nor, except in the case
of the Chairman of the Board of Directors and the Vice Chairman of the Board of
Directors, need such officers be directors of the corporation.
Section 2. Election. The Board of Directors shall elect the
officers of the corporation, who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the corporation
shall hold office until their successors are elected and qualified, or until
their earlier resignation or removal. Any officer may be removed at any time by
the Board of Directors. Any vacancy occurring or existing in any office of the
corporation may be filled by the Board of Directors. The salaries of all
executive officers of the corporation shall be fixed by the Board of Directors
or a duly constituted committee of the Board of Directors to which such
authority is delegated.
Section 3. Chairman of the Board of Directors. The Chairman of
the Board of Directors shall preside at all meetings of the stockholders and of
the Board of Directors. The Chairman of the
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<PAGE> 6
Board of Directors shall have such other powers and duties as may be assigned to
him or her or prescribed for such office from time to time by the Board of
Directors.
Section 4. Vice Chairman of the Board of Directors. The Vice
Chairman of the Board of Directors shall, in the absence of the Chairman of the
Board of Directors, preside at all meetings of the stockholders and of the Board
of Directors and shall have such other powers and duties as may be assigned to
him or her or prescribed for such office from time to time by the Board of
Directors.
Section 5. Chief Executive Officer. The Chief Executive Officer
of the corporation shall have general supervision, direction and control of the
business and affairs of the corporation. The Chief Executive Officer shall have
such other powers and duties as may be assigned to him or her or prescribed for
such office from time to time by the Board of Directors. Except as otherwise
provided in these Bylaws or as delegated by the Chief Executive Officer, all
other officers of the corporation shall report to the Chief Executive Officer.
Section 6. President. The President shall be the Chief Operating
Officer of the corporation and, as such, shall have the general powers and
duties of management associated with the day-to-day operations of the
corporation and shall have such other powers and duties as may be assigned to
him or her or prescribed for such office from time to time by the Board of
Directors or the Chief Executive Officer, if the President is not then serving
as such.
Section 7. Vice Presidents. Each Vice President shall have such
powers and duties as may be assigned to him or her from time to time by the
Board of Directors or the Chief Executive Officer. Any Vice President may be
designated by the Board as an Executive Vice President, Senior Vice President,
Assistant Vice President or any other classification of Vice President.
Section 8. Chief Financial Officer. The Chief Financial Officer
shall have the general powers and duties of management associated with the
general supervision, direction and control of the financial affairs of the
corporation, including financial planning and budgeting and accounting for the
conduct of the corporation's operations, and such other powers and duties as may
be assigned to him or her or prescribed for such office from time to time by the
Board of Directors or the Chief Executive Officer. In the absence of a
Treasurer, the Chief Financial Officer shall perform the duties of the
Treasurer.
Section 9. Secretary. The Secretary shall keep minutes of all
meetings of the Board of Directors, committees of the Board of Directors and
stockholders of the corporation and any action taken by the Board of Directors
or stockholders other than in a meeting. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall have such other powers and duties as may be
assigned to him or her or prescribed for such office by the Board of Directors
or the Chief Executive Officer. If the Secretary shall be unable or shall refuse
to cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, then the Board of Directors or the Chairman
of the Board of Directors or the Vice Chairman of the Board of Directors or the
President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the corporation, and the Secretary
or any Assistant Secretary, if there is one, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature.
Section 10. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall
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<PAGE> 7
disburse the funds of the corporation as may be ordered by the Board of
Directors or the Chief Executive Officer, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer, the Chief
Financial Officer and the Board of Directors, when requested, an accounting of
all his transactions as Treasurer and of the financial condition of the
corporation. The Treasurer shall have such other powers and duties as may be
assigned to him or her or prescribed for such office from time to time by the
Board of Directors, the Chief Executive Officer or the Chief Financial Officer.
The Treasurer shall report to the Chief Executive Officer and to the Chief
Financial Officer.
Section 11. Other Officers. The Board of Directors may designate
such other offices and elect such other officers and prescribe for such offices
and assign to such officers such powers and duties as the Board of Directors may
from time to time deem appropriate. The Chief Executive Officer may also assign
to such officers such powers and duties as the Chief Executive Officer deems
appropriate. The Board of Directors may delegate to the Chief Executive Officer
of the corporation the power to choose and to prescribe the respective powers
and duties of other officers who are not executive officers of the corporation,
such as Assistant Secretaries and Assistant Treasurers.
ARTICLE V
STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the chairman of the board, the chief executive officer, the
president or a vice-president and the treasurer or an assistant treasurer or the
secretary or an assistant secretary of the corporation, certifying the number of
shares owned by him in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified. Upon the declaration of any
dividend upon fully paid shares, the corporation shall declare a dividend on
partly paid shares of the same class, but only upon the basis of the percentage
of the consideration actually paid thereon.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise required by law, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Facsimile Signatures. Any of or all the signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
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<PAGE> 8
Section 3. Transfer of Stock. Transfers of stock shall be made
only upon the transfer books of the corporation kept at an office of the
corporation or by transfer agents designated to transfer shares of the stock of
the corporation. Except where a certificate is issued in accordance with Section
4 of this Article V, an outstanding certificate for the number of shares
involved shall be surrendered for cancellation before a new certificate is
issued therefor.
Section 4. Lost, Stolen or Destroyed Certificates. In the event
of the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the board of directors may
establish concerning proof of such loss, theft or destruction and concerning the
giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the board of directors may establish.
Section 6. Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
Section 1. Right to Indemnification. The corporation shall
indemnify and hold harmless, to the fullest extent permitted by applicable law
as it presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
trustee, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, against all liability and loss suffered and expenses reasonably incurred
by such person in connection therewith. The corporation shall indemnify a person
in connection with a proceeding initiated by such person only if the proceeding
was authorized by the board of directors of the corporation. The corporation may
provide indemnification to employees and agents of the corporation with the same
scope and effect as the indemnification and advancement of expenses provided in
this Article.
Section 2. Payment of Expenses. The corporation shall pay the
expenses incurred by a director or officer of the corporation in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in his capacity as a
director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the director or
officer is not entitled to be indemnified under this Article or otherwise.
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<PAGE> 9
Section 3. Right to Bring Suit. If a claim for indemnification or
payment of expenses under this Article by a director or officer of the
corporation is not paid in full within 30 days after a written claim therefor
has been received by the corporation the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
Section 4. Rights Not Exclusive. The rights conferred on any
person by this Article shall not be exclusive of any other rights which such
person may have or hereafter acquire under any statute, provision of the
corporation's certificate of incorporation, these bylaws, agreement, vote of
stockholders or disinterested directors or otherwise. The corporation shall have
the authority to enter into such agreements as the board of directors deems
appropriate for the indemnification of present or future directors, officers,
employees and agents of the corporation in connection with their service to the
corporation or any other corporation, partnership, joint venture, trust or other
enterprise, including any employee benefit plan, to which such person is
providing services at the request of the corporation.
Section 5. Effect or Modification. Any repeal or modification of
the foregoing provisions of this Article shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
Section 6. Successors. The rights conferred on any person by this
Article shall continue as to a person who has ceased to be a director, officer,
employee or agent of the corporation and shall inure to the benefit of such
person's heirs, executors and administrators.
Section 7. Definition of Corporation. For purposes of this
Article, reference to "the corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
ARTI CLE VII
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws
may be adopted by the stockholders or, if provided in the certificate of
incorporation, by the board of directors. If the power to adopt, amend or repeal
bylaws is conferred upon the board of directors by the certificate of
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal bylaws.
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