Filed Pursuant to Rule 424(b)(3)
File No. 333-43036
Selling Stockholder Prospectus
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This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these
securities in any state where the offer or sale is not permitted.
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[CANARGO LOGO]
25,048,766 SHARES
COMMON STOCK
This prospectus relates to the offer and sale of 25,048,766 shares of common
stock of CanArgo Energy Corporation by certain of our stockholders. None of our
directors or executive officers is selling shares in this offering, and neither
we nor they will receive any proceeds from the sale of the shares offered
hereby. All expenses of registration of the shares which may be offered hereby
under the Securities Act of 1933, as amended, will be paid by us (other than
underwriting discounts and selling commissions, and fees and expenses of
advisors to any of the selling stockholders).
Our common stock is traded in the over-the-counter market (symbol: GUSH). On
August 2, 2000, the closing bid price of the common stock on the OTC Bulletin
Board was $ 1.1563. The common stock is also traded on the Oslo Stock Exchange
(symbol: CNR). The last reported sale price of our common stock on August 2,
2000, was $1.19 per share in the over-the-counter market and 11.00 NOK on the
Oslo Stock Exchange. On August 2, 2000 one U.S. dollar equaled 8.9570 NOK as
reported by the Federal Reserve Bank of New York.
The selling stockholders and any broker-dealers, agents or underwriters that
participate with them in the distribution of the common stock may be deemed
underwriters, as that term is defined in the Securities Act of 1933, as amended,
and any commissions received by them and any profit on the resale of the common
stock purchased by them may be deemed underwriting commissions or discounts
under the Securities Act. The common stock may be offered by the selling
stockholders in one or more transactions through the facilities of any stock
exchange on which the shares are then listed for trading, in the
over-the-counter market or in negotiated transactions or a combination of such
methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The common
stock may be sold either (a) to a broker or dealer as principal for resale by
such broker or dealer for its account pursuant to this prospectus (for example,
in transactions with a market maker) or (b) in brokerage transactions, including
transactions in which the broker solicits purchasers or (c) directly to third
persons. See "Plan of Distribution" beginning on page 15.
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENT IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
THE DATE OF THIS PROSPECTUS IS AUGUST 15, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
Where You Can Find More Information 3
Documents Incorporated by Reference 3
Forward Looking Statements 4
Risk Factors 5
The Company 10
Use of Proceeds 11
The Selling Stockholders 11
Limitation of Liability and Indemnification 14
Plan of Distribution 15
Legal Matters 16
Experts 17
___________________
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission ("SEC"). You may read
and copy any document we file at the SEC's public reference rooms at Judiciary
Plaza Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the Commission's Regional Offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's web site at http://www.sec.gov.
This prospectus is part of a registration statement that we filed with the SEC.
The registration statement contains more information than this prospectus
regarding CanArgo Energy Corporation and our common stock, including certain
exhibits. You can get a copy of the registration statement from the SEC at the
addresses listed above or from its Internet site.
Our common stock is listed on the Over the Counter (OTC) Bulletin Board. Our
common stock is also listed on the Oslo Stock Exchange. Information about us
is also available at those locations.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents that are considered part of this prospectus. Later
information that we file with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934 until this offering of securities has
been completed:
- Annual Report on Form 10-K for the year ended December 31, 1999
- Quarterly Report on Form 10-Q for the three month period ended March 31,
2000
- Current Report on Form 8-K dated June 16, 2000
- Current Report on Form 8-K dated July 20, 2000
- Current Report on Form 8-K dated July 27, 2000
- The description of CanArgo's common stock contained in a Registration
Statement (Reg. File No. 333-72295) filed by CanArgo with the SEC on
Form S-1/A dated June 9, 1999
- Definitive Proxy Materials dated May 9, 2000
<PAGE>
We will provide without charge to each person to whom a copy of this prospectus
is delivered, upon request, a copy of the foregoing documents (without
exhibits). Written or telephone requests for such copies should be directed to
Jason D'Silva, CanArgo Energy Corporation, 1580 Guinness House, 727 Seventh
Avenue SW, Calgary, Alberta, Canada, telephone (403) 777-1185.
You should rely only on the information contained in this prospectus and any
supplement. We have not authorized any other person to provide you with
different or additional information. If anyone provides you with different or
additional information, you should not rely on it. This prospectus is not an
offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should assume that the information appearing in or
incorporated by reference in this prospectus and any supplement is accurate as
of its date only. Our business, financial condition, results of operations and
prospects may have changed since that date.
FORWARD-LOOKING STATEMENTS
The United States Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements in this prospectus. When used in
this prospectus, the words "estimate," "project," "anticipate," "expect,"
"intend," "believe," "hope," "may" and similar expressions, as well as "will,"
"shall" and other indications of future tense, are intended to identify
forward-looking statements. The forward-looking statements are based on our
current expectations and speak only as of the date made. These forward-looking
statements involve risks, uncertainties and other factors that in some cases
have affected our historical results and could cause actual results in the
future to differ significantly from the results anticipated in forward-looking
statements made in this prospectus. Important factors that could cause such a
difference are discussed in this prospectus, particularly in this section and
the section "Risk Factors". You are cautioned not to place undue reliance on the
forward-looking statements.
Few of the forward-looking statements in this prospectus deal with matters that
are within our unilateral control. Joint venture, acquisition, financing and
other agreements and arrangements must be negotiated with independent third
parties and, in some cases, must be approved by governmental agencies. These
third parties generally have interests that do not coincide with ours and may
conflict with our interests. Unless the third parties and we are able to
compromise their various objectives in a mutually acceptable manner, agreements
and arrangements will not be consummated.
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. Finally, due to the developing
nature of the legal regimes in many Eastern European countries where we operate,
our contractual rights and remedies may be subject to certain legal
uncertainties.
We do not have a majority of the equity in the entity that is the licensed
developer of some projects, such as the Stynawske field project, that we may
pursue in Eastern Europe, even though we may be the designated operator of the
oil or gas field. In these circumstances, the concurrence of co-venturers may be
required for various actions. Other parties influencing the timing of events may
have priorities that differ from those of us, even if they generally share our
objectives. As a result of all of the foregoing, among other matters, any
forward-looking statements regarding the occurrence and timing of future events
may well anticipate results that will not be realized. Demands by or
expectations of governments, co-venturers, customers and others may affect our
strategy regarding the various projects. Failure to meet such demands or
expectations could adversely affect our participation in such projects or our
ability to obtain or maintain necessary licenses and other approvals.
<PAGE>
Our ability to finance all of our present oil and gas projects and other
ventures according to present plans is dependent upon obtaining additional
funding. An inability to obtain financing could require us to scale back or
abandon our project development, capital expenditure, production and other
plans. The availability of equity or debt financing to us or to the entities
that are developing projects in which we have interests is affected by many
factors, including:
- world economic conditions;
- international relations;
- the stability and policies of various governments;
- fluctuations in the price of oil and gas and the outlook for the oil and
gas industry;
- competition for funds; and
- 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 us and our projects and comparisons with alternative investment
opportunities.
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider the
risks described below, as well as all other information in this prospectus,
before investing in our common stock. This prospectus contains forward-looking
statements that involve risks and uncertainties. Future events and our actual
results could differ materially from those anticipated in these forward-looking
statements. Some of the important factors that might cause such a difference are
discussed in the various risk factors that follow and in the "Forward-Looking
Statements" section of this prospectus.
OUR FUTURE IS CURRENTLY DEPENDENT ON THE SUCCESS OF THE NINOTSMINDA OIL FIELD
We are directing substantially all of our efforts and most of our available
funds to the development of the Ninotsminda oil field in the Republic of Georgia
and some ancillary activities closely related to the Ninotsminda field project.
We cannot assure investors that our development plans for the Ninotsminda field
will be successful. For example, the Ninotsminda field may not produce
sufficient quantities of oil and gas to justify the investment we have made and
are making in that field, and we may not be able to produce the oil and gas at a
sufficiently low cost or market the oil and gas produced at a sufficiently high
price to generate a positive cash flow and a profit.
OUR OPERATION OF THE NINOTSMINDA OIL FIELD IS GOVERNED BY A PRODUCTION SHARING
CONTRACT WHICH MAY BE SUBJECT TO CERTAIN LEGAL UNCERTAINTIES
Our principal business and assets are derived from production sharing contracts
in the Republic of Georgia. The legislative and procedural regimes governing
production sharing agreements and mineral use licenses in Georgia have undergone
a series of changes in recent years resulting in certain legal uncertainties.
Our production sharing agreements and mineral use licenses, entered into prior
to the introduction in 1999 of a new Petroleum Law governing such agreements
have not, as yet, been amended to reflect or ensure compliance with current
legislation. As a result, despite references in the current legislation
grandfathering the terms and conditions of our production sharing contracts,
conflicts between the interpretation of our production sharing contracts and
mineral use licenses and current legislation could arise. Such conflicts, if
they arose, could cause an adverse effect on our rights under the production
sharing contracts.
To confirm the validity of our Ninotsminda production sharing contract and the
mineral usage license prior to the introduction in 1999 of the petroleum law, in
connection with its preparation of the Convertible Loan Agreement with CanArgo,
IFC received confirmation from the State of Georgia, that among other things:
<PAGE>
i. the State of Georgia recognizes and confirms the validity and
enforceability of the production sharing contract and the license
and all undertakings the State has covenanted with Ninotsminda Oil
Company there under;
ii. the license was duly authorized and executed by the State at the time of
its issuance and remained in full force and effect throughout its
term; and
iii. the license constitutes a valid and duly authorized grant by the State,
being and remaining in full force and effect as of the signing
of this confirmation and the benefits of the license fully extend to
Ninotsminda Oil Company by virtue of its interest in the license
holder and the contractual rights under the production sharing contract.
Despite this confirmation and the grandfathering of the terms of our production
sharing contract in the Petroleum Law, subsequent legislative or other
governmental changes could conflict with, challenge our rights or otherwise
change current operations under the production sharing contract.
OUR INTEREST IN THE NINOTSMINDA FIELD COULD BE FORFEITED OR REDUCED
We currently own 100% of Ninotsminda Oil Company, which has been developing and
producing oil and gas from the Ninotsminda field. If the International Finance
Corporation advances a $6,000,000 loan to Ninotsminda Oil Company, it will have
the right to convert all or part of that loan into common shares of Ninotsminda
Oil Company. If the IFC were to convert all of the loan, our interest in
Ninotsminda Oil Company would be reduced from 100 to 80%. As a result, our share
in the profits, if any, generated by Ninotsminda Oil Company would be reduced.
As of yet CanArgo has not drawn down the IFC loan and does not anticipate doing
so under the existing terms of its agreement with the IFC.
In addition, Ninotsminda Oil Company has pledged substantially all of its assets
to secure the loan it expects to receive from International Finance Corporation,
and we have pledged all of the shares we own in Ninotsminda Oil Company to
secure our guaranty of the repayment of a significant portion of the $6 million
IFC loan. If Ninotsminda Oil Company is unable to repay its loan from the IFC,
it may have to transfer its interest in the Ninotsminda field to the IFC, in
which case we would lose our interest in the Ninotsminda field. Likewise, if we
are called upon to satisfy our guaranty and are unable to do so, we could lose
all or a portion of our stock ownership interest in Ninotsminda Oil Company or
be required to repay the loan on behalf of Ninotsminda Oil Company.
WE COULD BE REQUIRED TO PURCHASE NINOTSMINDA OIL COMPANY SHARES AT PRICES IN
EXCESS OF FAIR MARKET VALUE
In the event that we draw down the IFC loan and the International Finance
Corporation converts all or a portion of its loan to Ninotsminda Oil Company
into shares of Ninotsminda Oil Company stock, it will have the right for a
period that could extend until 2007 to require us to purchase a portion of those
shares at a formula price. That price could exceed the fair market value of the
shares at the time we are required to purchase the shares. We may also not
have sufficient liquidity to purchase the shares.
WE COULD BE REQUIRED TO WRITE OFF THE VALUE OF UNSUCCESSFUL PROPERTIES AND
PROJECTS
In order to realize the carrying value of our oil and gas properties and
ventures, we must produce oil and gas in sufficient quantities and then sell
such oil and gas at sufficient prices to produce a profit. We have a number of
unevaluated oil and gas properties having carrying values totaling $12,531,000
at March 31, 2000, that we have not actively developed. The risks associated
with successfully developing unevaluated oil and gas properties are even greater
than those associated with successfully continuing development of producing oil
and gas properties, because the existence and extent of commercial quantities of
oil and gas in unevaluated properties have not been established. During 1997, we
recorded impairment charges totaling $19.4 million relating to three
unsuccessful ventures. We could be required in the future to write off our
investments in additional projects, including the Ninotsminda field project, if
such projects prove to be unsuccessful or, if we determine not to pursue these
projects.
<PAGE>
WE MAY NOT BE ABLE TO RAISE THE ADDITIONAL FUNDS WE NEED FOR OUR LONG-TERM OIL
AND GAS DEVELOPMENT PLANS
It will take many years and substantial cash expenditures to develop fully our
oil and gas properties. We generally have the principal responsibility to
provide financing for our oil and gas properties and ventures. We estimate that
full development of the Ninotsminda oil field over an additional two to three
year period will cost an additional $16,000,000. Accordingly, we may need to
raise additional funds from outside sources in order to pay for project
development costs beyond those currently budgeted through mid-2001. We may not
be able to obtain that additional financing. If adequate funds are not
available, we will be required to scale back or even suspend our operations.
The carrying value of the Ninotsminda field may not be realized unless
additional capital expenditures are incurred to develop the field. Furthermore,
additional funds will be required to pursue exploration activities on our
existing undeveloped properties.
OUR OIL AND GAS ACTIVITIES INVOLVE RISKS, MANY OF WHICH ARE BEYOND OUR CONTROL
Our exploration, development and production activities are subject to a number
of factors and risks, many of which may be beyond our control. First, we must
successfully identify commercial quantities of oil and gas. The development of
an oil and gas deposit can be affected by a number of factors which are beyond
the operator's control, such as:
- Unexpected or unusual geological conditions.
- The recoverability of the oil and gas on an economic basis.
- The availability of infrastructure and personnel to support operations.
- Local and global oil prices.
- Government regulation and legal uncertainties.
Our activities can also be affected by a number of hazards, such as:
- Labor disputes.
- Natural phenomena, such as bad weather and earthquakes.
- Operating hazards, such as fires, explosions, blow-outs, pipe failures and
casing collapses.
- Environmental hazards, such as oil spills, gas leaks, ruptures and discharges
of toxic gases.
Any of these hazards could result in damage, losses or liability for us. We
experience an increased risk of some of these hazards in connection with
operations that involve the rehabilitation of fields where less than optimal
practices and technology were employed in the past, as was often the case in
Eastern Europe. We do not purchase insurance covering all of the risks and
hazards that are involved in oil and gas exploration, development and
production.
THE DEVELOPMENT OF OUR PROPERTIES IS AFFECTED BY CONDITIONS IN EASTERN EUROPE,
INCLUDING THE REPUBLIC OF GEORGIA
Our principal oil and gas properties, including the Ninotsminda field, are
located in Eastern Europe. Development of these fields is subject to a number of
conditions endemic to Eastern European countries, including:
- Political Instability -- The present governmental arrangements in the Eastern
European countries in which we operate were established relatively recently,
when they replaced Communist regimes. If they fail to maintain the support of
their citizens, these governments could themselves be replaced by other
institutions, including a possible reversion to a totalitarian form of
government. Our operations typically involve joint ventures or other
participatory arrangements with the national government or state-owned
companies. As a result, our operations could be adversely affected by
political instability, changes in government institutions, legislation,
personnel or policies, or shifts in political power. There is also the risk
that governments could seek to nationalize, expropriate or otherwise take
over our oil and gas properties.
- Social and Economic Instability -- The political institutions in Eastern
Europe have recently become more fragmented, and the economic institutions of
Eastern European countries have recently converted to a market economy from a
planned economy. Social and economic instability have accompanied these
changes due to many factors which include:
<PAGE>
- Low standards of living.
- High unemployment.
- Undeveloped legal and social institutions.
- Conflicts with neighboring countries.
This instability can make continued operations difficult or impossible.
- Inadequate or Deteriorating Infrastructure -- Countries in Eastern Europe
often either have underdeveloped infrastructures or, as a result of shortages
of resources, have permitted infrastructure to deteriorate. The lack of
necessary infrastructure can adversely affect operations. For example,
the lack of a reliable power supply caused Ninotsminda Oil Company to suspend
drilling of one well and the testing of a second well during the 1998-99
winter season.
- Currency Risks -- Payment to us for oil and gas products sold in Eastern
European countries may be in local currencies. Although we currently sell our
oil principally for U.S. dollars, we may not be able to continue to demand
payment in hard currencies. Although most Eastern European currencies are
presently convertible into U.S. dollars, there is no assurance that
convertibility will continue. Even if currencies are convertible, the rate at
which they convert into U.S. dollars is subject to fluctuation. In addition,
our ability to transfer currencies into or out of Eastern European countries
may be restricted or limited in the future. We may also enter into contracts
with suppliers in these countries to purchase goods and services in U.S.
dollars. If we cannot receive payment for our oil in U.S. dollars and the
value of the local currency relative to the U.S. dollar deteriorates, we
could face significant negative changes in working capital. We have not,
as of yet, suffered any currency problems to date.
- Tax Risks -- Countries in Eastern Europe frequently add to or amend
existing taxation policies in reaction to economic conditions including state
budgetary and revenue shortfalls. Since we are dependent on international
operations, specifically those in Georgia, we are subject to changing
taxation policies including the possible imposition of confiscatory
excess profits, production, remittance, export and other taxes.
OUR OPERATIONS ARE SIGNIFICANTLY AFFECTED BY CHANGES IN THE MARKET PRICE OF OIL
AND GAS
Prices for oil and natural gas are subject to wide fluctuations in response to a
number of factors which are beyond our control, including:
- Changes in the supply and demand for oil and natural gas.
- Actions of the Organization of Petroleum Exporting Countries.
- Weather conditions.
- Domestic and foreign governmental regulations.
- The price and availability of alternative fuels.
- Political conditions in the Middle East and elsewhere.
- Overall economic conditions.
A reduction in oil prices can affect the economic viability of our operations.
For example, the significant decline in oil prices during 1998 adversely
affected our results of operations and increased our operating loss in 1998.
There can be no assurance that oil prices will be at a level that will enable us
to operate at a profit.
OUR ACTUAL OIL AND GAS PRODUCTION COULD VARY SIGNIFICANTLY FROM OUR RESERVE
ESTIMATES
Estimates of oil and natural gas reserves and their values by petroleum
engineers are inherently uncertain. These estimates are based on professional
judgments about a number of elements including:
- The amount of recoverable crude oil and natural gas present in a reservoir.
- The costs that will be incurred to produce the crude oil and natural gas.
- The rate at which production will occur.
<PAGE>
Reserve estimates are also based on evaluations of geological, engineering,
production and economic data. The data can change over time due to, among other
things:
- Additional development activity.
- Evolving production history.
- Changes in production costs, market prices and economic conditions.
As a result, the actual amount, cost and rate of production of our oil and gas
reserves and the revenues derived from sale of the oil and gas produced in the
future will vary from those anticipated in the most recent report on CanArgo's
oil and gas reserves prepared by Ashton Jenkins Mann as of December 31, 1999.
The magnitude of those variations may be material.
The rate of production from crude oil and natural gas properties declines as
reserves are depleted. Except to the extent we acquire additional properties
containing proved reserves, conduct successful exploration and development
activities or, through engineering studies, identify additional productive zones
in existing wells or secondary recovery reserves, our proved reserves will
decline as reserves are produced. Future crude oil and natural gas production
is therefore highly dependent upon our level of success in replacing depleted
reserves.
OUR OIL AND GAS OPERATIONS ARE SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION
Governments at all levels -- national, regional and local -- regulate oil and
gas activities extensively. We must comply with laws and regulations which
govern many aspects of our oil and gas business, including:
- Exploration.
- Development.
- Production.
- Occupational health and safety.
- Labor standards.
- Environmental matters.
We expect the trend towards more burdensome regulation of our business to result
in increased costs and operational delays. This trend is particularly applicable
in developing economies, such as those in Eastern Europe where we have our
principal operations. In these countries, the evolution towards a more developed
economy is often accompanied by a move towards the more burdensome regulations
that typically exist in the more developed economies.
WE ENCOUNTER COMPETITION
The oil and gas industry can be highly competitive. Our competitors include
integrated oil and gas companies, independent oil and gas companies, drilling
and income programs, and individuals. Many of our competitors are large,
well-established, well-financed companies. Because of our small size and lack of
financial resources, we may not be able to compete effectively with these
companies.
Competition is particularly intense with respect to the acquisition of desirable
undeveloped crude oil and natural gas properties. We anticipate encountering
such competition in connection with any expansion of its activities in Eastern
Europe. The principal competitive factors in the acquisition of such
undeveloped crude oil and natural gas properties include the staff and data
necessary to identify, investigate and acquire interests in such properties,
close working relationships with governmental authorities who control
acquisition, exploration, production and marketing activities in the region, and
the financial resources necessary to acquire and develop such properties. Many
of our competitors have financial resources, staff and facilities substantially
greater than those we currently have or will be able to obtain in the future.
There can be no assurance that we will be able to secure such staff, data, and
financial resources and establish such working relationships to enable us to
expand our operations successfully in Eastern Europe.
<PAGE>
The principal raw materials and resources necessary for the exploration and
production of crude oil and natural gas are interests in prospective properties
under which crude oil and natural gas reserves may be discovered, drilling rigs
and related equipment to explore for such reserves, certain supplies used in
such drilling operations such as drill pipe and drilling fluids and
knowledgeable personnel to conduct all phases of crude oil and natural gas
operations. We must compete for such raw materials and resources with both
major integrated energy companies and independent operators. Although we
believe that our current operating and financial resources are adequate to
preclude any significant disruption of our operations in the immediate future,
the continued availability of such materials and resources, which are sometimes
in short supply, cannot be assured.
WE ARE MOVING OUR OFFICE TO LONDON
Our Board of Directors has approved the move of our administrative and support
office to London. While this is intended to make operations and administration
more efficient there is a risk it could result in less efficient operations and
administration. All key management will be offered positions and a number are
expected to move over the next year, however, should key management determine
not to move, administration and support of operations could be adversely
affected.
FUTURE STOCK ISSUANCES AND THE PROVISIONS OF DELAWARE LAW COULD HAVE
ANTI-TAKEOVER EFFECTS
Our board of directors may at any time issue additional shares of preferred
stock and common stock without any prior approval by the stockholders, which
might impair or impede a third party from making an offer to acquire us.
Holders of outstanding shares have no right to purchase a pro rata portion of
additional shares of common or preferred stock issued by us. In addition, the
provisions of Section 203 of the Delaware General Corporation Law, to which we
are subject, places certain restrictions on third parties who seek to effect a
business combination with a company opposed by the company's board of directors.
See the section entitled "Limitation of Liability and Indemnification-Section
203 of the Delaware General Corporation Law" in this prospectus.
THE PRICE OF OUR COMMON STOCK MAY BE SUBJECT TO WIDE FLUCTUATIONS
The market price of our common stock could be subject to wide fluctuations in
response to quarterly variations in the Company's results of operations, changes
in earnings estimates by analysts, changing conditions in the oil and gas
industry or changes in general market or economic conditions.
WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS IN THE FORESEEABLE FUTURE
We have not paid any cash dividends to date on the common stock and there are no
plans for such dividend payments in the foreseeable future.
THE COMPANY
We are engaged in the acquisition, development, production and exploration of
oil and natural gas reserves. Our activities also include investments in
downstream operations such as refining, marketing and independent power
production. Our properties are concentrated in Eastern Europe and, in particular
the Republic of Georgia. Our management and technical staff have substantial
experience in these areas. Our principal product is crude oil, and the sale of
that oil is our principal source of revenue.
To date our reserves and production have been derived principally through
development of the Ninotsminda field. We typically focus on properties that
either offer us existing production as well as additional exploitation
opportunities, or exploration prospects management believes have significant
potential. We believe that our cash flow from operations and our financial
resources will provide us with the ability to fully develop our current
properties, to finance our current exploration projects and to pursue new
acquisition opportunities in the coming year.
<PAGE>
Our business strategy is focused on the following:
FURTHER DEVELOPMENT OF EXISTING PROPERTIES
We intend to further develop our properties that have established oil. We seek
to add proved reserves and increase production through the use of advanced
technologies, including detailed technical analysis of our properties, drilling
new structures from existing locations and selectively recompleting existing
wells. We also plan to drill step-out wells to expand known field limits.
GROWTH THROUGH EXPLOITATION AND EXPLORATION
We conduct an active technology-driven exploitation and exploration program that
is designed to complement our property acquisition and development drilling
efforts with moderate to high-risk exploration projects that have greater
reserve potential. We generate exploration prospects through the analysis of
geological and geophysical data and the interpretation of seismic data. We
intend to manage our exploration expenditures through the optimal scheduling of
our drilling program and, if considered appropriate, selectively reducing our
participation in certain exploratory prospects through sales of interests to
industry partners.
PURSUIT OF STRATEGIC ACQUISITIONS
We continually review opportunities to acquire producing properties, leasehold
acreage and drilling prospects. We seek to acquire operational control of
properties that we believe have significant exploitation and exploration
potential. We are especially focused on increasing our holdings in fields and
basins from which we leverage existing infrastructure and resources.
RATIONALIZATION OF PROPERTY PORTFOLIO
We intend, where possible, to actively pursue opportunities to reduce and
control operating costs through the consolidation of overlapping operations and
sale of marginal properties.
OUR ADMINISTRATIVE AND SUPPORT OFFICE
Our administrative and support office is currently located at Suite 1580,
Guinness House, 727 - 7th Avenue, S.W., Calgary, Alberta, Canada T2P 0Z5, and
our telephone number is (403) 777-1185. We have recently announced publicly our
intention to transfer our administrative and support office to London, England
over the next year.
USE OF PROCEEDS
The selling stockholders are offering all of the shares of common stock covered
by this prospectus. We will not receive any proceeds from sales of these shares.
THE SELLING STOCKHOLDERS
Of the 25,048,766 shares being offered, 15,660,916 shares were acquired by the
selling stockholders (identified by a "S") pursuant to a private placement of
15,660,916 shares at Norwegian Kroner (NOK) 9.00 per share which was completed
on July 21, 2000. Gross proceeds from the placement were approximately US$ 16.1
million (NOK 141 million). The shares issued in connection with the private
placement were issued in transactions intended to qualify for an exemption from
registration under the Securities Act afforded by Regulation S promulgated
thereunder by the SEC and may not be offered or sold in the United States or to
U.S. persons (as defined in such Regulation) absent registration under the
Securities Act or pursuant to an applicable exemption from such registration.
We agreed, as soon as practicable after the closing of the private placement, to
prepare and file with the SEC a registration statement registering the shares on
Form S-3, if available, for resale.
Of the remaining 9,387,850 shares, 5,333,796 shares were acquired by Terrenex
Acquisition and Provincial Securities Limited in transactions described below.
<PAGE>
On July 15, 1998, CanArgo completed the acquisition of all of the common stock
of CanArgo Oil & Gas Inc. ("CAOG") for consideration payable in shares of
CanArgo common stock. On completion of the acquisition, CAOG became a subsidiary
of CanArgo, and each previously outstanding share of CAOG common stock was
converted into 0.8 Exchangeable Shares of CAOG. The Exchangeable Shares are
exchangeable generally at the option of the holders for CanArgo common stock on
a share-for-share basis and entitle the holders to dividends and other rights
economically equivalent to those to which holders of CanArgo common stock are
entitled. Terrenex and Provincial acquired 1,820,031 and 1,671,250 Exchangeable
Shares, respectively.
CAOG Special Warrants were issued to investors on October 30, 1997 in a private
placement under the CAOG Special Warrant Indenture. Each CAOG Special Warrant
was exercisable without payment of any additional consideration for one unit
consisting of 1.1 CAOG common shares and 0.55 CAOG Stock Purchase Warrants. All
of the CAOG Special Warrants which had not been exercised on or before April 30,
1999 were automatically exercised on that date. Terrenex held 574,200 CAOG
Special Warrants at July 15, 1998 which were exercisable for 459,360
Exchangeable Shares and 229,680 CAOG Stock Purchase Warrants exercisable at an
exercise price of CDN $3.25 through November 1, 1999 (Series A). The CAOG
Special Warrants were acquired by Terrenex in 1997 for CDN $2.20 per CAOG
Special Warrant.
As a result of the acquisition and subsequent exchange into shares of CanArgo
common stock, Terrenex and Provincial respectively held 2,279,391 and 1,671,250
shares of CanArgo common stock.
On August 6, 1999, Terrenex purchased 1,433,155 shares of common stock in
CanArgo's public offering at a price of $0.30 per share. This increased
Terrenex's holdings in CanArgo to 3,712,546 shares.
On May 30, 2000, Provincial sold 50,000 shares of CanArgo common stock in a
private transaction, reducing its holdings in CanArgo to 1,621,250 shares of
common stock.
The remaining 4,054,054 shares of common stock being offered hereunder were
issued to a Dutch affiliate of JKX Oil & Gas plc, in consideration for the sale
to CanArgo by JKX of its 21.2% beneficial interest in Ninotsminda Oil Company.
The shares issued in connection with this transaction were issued under
Regulation S and have not been registered under the Securities Act and may not
be offered or sold in the United States or to U.S. persons (as defined in such
Regulation) absent registration under the Securities Act or pursuant to an
applicable exemption from such registration. On July 21, 2000 JKX's Dutch
affiliate privately sold these 4,054,054 shares to the buyers identified by a
"O" in the table below, each of whom is a not a U.S. person.
Our registration of the shares does not necessarily mean that any selling
stockholder will sell any or all of his, her, or its shares.
The following table sets forth the number of shares owned by each of the selling
stockholders. All information contained in the table below is based upon their
beneficial ownership as of August 2, 2000. The issued shares are restricted and
not available for trading on the Over the Counter (OTC) Bulletin Board until a
Registration Statement filed with the United States Securities and Exchange
Commission becomes effective or such shares can otherwise be offered and sold in
transactions exempt from the registration requirements of the Securities Act.
The following table assumes that all of the shares being registered will be
sold. The selling stockholders are not making any representation that any shares
covered by the prospectus will be offered for sale. The selling stockholders
reserve the right to accept or reject, in whole or in part, any proposed sale of
shares. As of August 4, 2000, CanArgo had an aggregate of 60,388,212 common
shares outstanding.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NUMBER OF SHARES
NUMBER OF SHARES OWNED AND PERCENT
BENEFICIALLY OWNED NUMBERED OF OF OUTSTANDING
PRIOR TO THE SHARES REGISTERED SHARES AFTER THE
NAME OF SELLING STOCKHOLDER OFFERING FOR SALE HEREBY OFFERING
Terrenex Acquisition Corporation(1) 3,712,546 3,712,546 *
S Vital 3,600,807 3,600,807 *
O DnB Markets 2,075,854 2,075,854 *
Provincial Securities Limited(1) 1,621,250 1,621,250 *
O Delphi Aktiv Forvaltning 1,211,200 1,211,200 *
S Gjensidige Kapital 1,088,000 1,088,000 *
S Morgan Stanley 950,000 950,000 *
O DnB Kapitalforvaltning ASA 767,000 767,000 *
S SR Bank 550,000 550,000 *
S Gelesia 500,000 500,000 *
S Storebrand kapita 456,000 456,000 *
S Sundal Collier Derivat konto 424,000 424,000 *
S Sundal C. Forvaltning 400,000 400,000 *
S NSV Invest 350,000 350,000 *
S Trond Havdal 350,000 350,000 *
S Adrian 333,333 333,333 *
S Rasmussen 333,000 333,000 *
S Pesveco 320,000 320,000 *
S Captura 300,000 300,000 *
S Finanskjop 300,000 300,000 *
S BKP 300,000 300,000 *
S Christian Borchgrevink 275,000 275,000 *
S Sverre Stiksrud 250,000 250,000 *
S A. Wilhelmsen 200,000 200,000 *
S SND Invest 200,000 200,000 *
S Storebrand Norge I 200,000 200,000 *
S Storebrand SMB 200,000 200,000 *
S Storebrand Aksje Innland 200,000 200,000 *
S Storebrand Norge 200,000 200,000 *
S Orkla Enskilda Securities pr. kommisjon 200,000 200,000 *
S AKA 150,000 150,000 *
S Arne Hellesto 150,000 150,000 *
S Jens H.Gundersen 110,000 110,000 *
S SE Banken 103,000 103,000 *
S AS Audley 100,000 100,000 *
S C.Emptor Trading 100,000 100,000 *
S Info-team 100,000 100,000 *
S Lars Liaeker 100,000 100,000 *
S Soligstrand AS 100,000 100,000 *
S G&J Holding 100,000 100,000 *
S Fjellstad Holding 100,000 100,000 *
S Glaamene 100,000 100,000 *
S Espen Landgraff 75,000 75,000 *
S Matboden Holding 75,000 75,000 *
S Tor Aksel Voldberg 75,000 75,000 *
S Lars Hillesgt 29 ANS 69,000 69,000 *
S Per Erik Asmyr 60,000 60,000 *
S SE Banken 55,000 55,000 *
S Einar Sohol AS 55,000 55,000 *
S AS Parra 50,000 50,000 *
S Engelsviken Canning as 50,000 50,000 *
S FGH Invest 50,000 50,000 *
S Kjell Fredriksen 50,000 50,000 *
S Laguna 50,000 50,000 *
S Erik Harlem 50,000 50,000 *
S Geir Wicklund 50,000 50,000 *
S Nyboco 50,000 50,000 *
S Finn B Carlsen Eiendom A/S 44,000 44,000 *
S Aker Seil A/S 44,000 44,000 *
S Arne sandaker 44,000 44,000 *
S Erling Storm Holding A/S 44,000 44,000 *
S Arbinsgate A/S 41,000 41,000 *
S Arne Olav Lund 40,000 40,000 *
S Bla seil AS 40,000 40,000 *
S Claus Hoibraaten 40,000 40,000 *
S Manfred Kraus 40,000 40,000 *
S Naeringsvekst Sor 40,000 40,000 *
S Rolf Bjorn Krogstad 40,000 40,000 *
S Sam Juul 40,000 40,000 *
S Tom Vedvik 40,000 40,000 *
S Tore Vedvik 40,000 40,000 *
S Oyvind Sorlie 40,000 40,000 *
S Briskasen 40,000 40,000 *
S Thore Holte 40,000 40,000 *
S Nordic Finans AS 40,000 40,000 *
S Holmestrand Aksjespareklubb 39,000 39,000 *
S Steinar Oyhaugen 39,000 39,000 *
S Atle Helle Eiendom 38,888 38,888 *
S Mads Helle 38,888 38,888 *
S Abacus 37,000 37,000 *
S Jorgen Reme 37,000 37,000 *
S Rune Frones 37,000 37,000 *
--------------------------------------------------------------------------------------------------
SUM 25,048,766 25,048,766
--------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent.
(1) J.F. Russell Hammond, a Director of CanArgo, is an Investment Advisor to
Provincial Securities and Chairman of Terrenex Acquisition Corporation
("Terrenex"). Michael Binnion, President, Director and Chief Financial
Officer of CanArgo, is President, Director and Chief Financial Officer of
Terrenex. Mr. Binnion also owns 7.5% of the outstanding shares of Terrenex.
Peder Paus, a Director of CanArgo, is also a Director of Terrenex and owns
12.2% of the outstanding shares of Terrenex.
<PAGE>
This prospectus also covers any additional shares of common stock that become
issuable in connection with the shares being registered by reason of any stock
dividend, stock split, recapitalization or other similar transaction effected
without the receipt of consideration which results in an increase in the number
of our outstanding shares of common stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
LIMITATION OF LIABILITY
Our certificate of incorporation limits or eliminates the liability of our
directors or officers to us or our stockholders for monetary damages to the
fullest extent permitted by the Delaware General Corporation Law. Delaware law
provides that a director of CanArgo will not be personally liable to CanArgo or
our stockholders for monetary damages for a breach of fiduciary duty as a
director, except for liability: (1) for any breach of the director's duty of
loyalty; (2) for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law; (3) for the payment of unlawful
dividends and some other actions prohibited by Delaware corporate law; and (4)
for any transaction resulting in receipt by the director of an improper personal
benefit.
INDEMNIFICATION
Delaware General Corporation Law provides that a corporation may indemnify our
present and former directors, officers, employees and agents (each, an
"indemnitee") against all reasonable expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement incurred in an action, suit or
proceeding, other than in actions initiated by or in the right of the
corporation, to which the indemnitee is made a party by reason of service as a
director, officer, employee or agent, if such individual acted in good faith and
in a manner which he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation and, in the case of a criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. A Delaware
corporation shall indemnify an indemnitee to the extent that he or she is
successful on the merits or otherwise in the defense of any claim, issue or
matter associated with an action, suit or proceeding, including one initiated by
or in the right of the corporation. Our Bylaws provide for indemnification of
directors and officers to the fullest extent permitted by Delaware General
Corporation Law.
Delaware General Corporation Law allows and our Bylaws provide for the advance
payment of an indemnity for expenses prior to the final disposition of an
action, provided that the indemnitee undertakes to repay any such amount
advanced if it is later determined that the indemnitee is not entitled to
indemnification with regard to the action for which the expenses were advanced.
Our directors and officers are insured, under policies of insurance maintained
by us, within the limits and subject to the limitations of the policies, against
certain expenses in connection with the defense of actions, suits or
proceedings, to which they are parties by reason of being or having been such
directors or officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons who may control us pursuant to
the foregoing provisions, we have been informed that in the opinion of the SEC
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
SECTION 203 OF DELAWARE GENERAL CORPORATION LAW
Section 203 of the Delaware General Corporation Law, which is applicable to
CanArgo as a Delaware corporation, prohibits various business combinations
between a Delaware corporation and an "interested stockholder," that is, anyone
who beneficially owns, alone or with other related parties, at least 15% of the
outstanding voting shares of a Delaware corporation. Business combinations
subject to Section 203 include mergers, consolidations, sales or other
dispositions of assets having an aggregate value in excess of 10% of the
consolidated assets of the corporation, and some transactions that would
increase the interested stockholder's proportionate share ownership in the
corporation. Section 203 prohibits this type of business combination for three
years after a person becomes an interested stockholder, unless:
- the business combination is approved by the corporation's board of
directors prior to the date the person becomes an interest stockholder;
- the interested stockholder acquired at least 85% of the voting stock of
the corporation, other than stock held by directors who are also officers
or by specified employee stock plans, in the transaction in which it
becomes an interested stockholder; or
- the business combination is approved by a majority of the board of
directors and by the affirmative vote of two-thirds of the outstanding
voting stock that is not owned by the interested stockholder.
<PAGE>
PLAN OF DISTRIBUTION
Under the terms of the private placement and the issuance of shares to an
affiliate of JKX Oil & Gas plc described in "The Selling Stockholders" above,
the issued shares are restricted and not available for trading on the Over the
Counter (OTC) Bulletin Board until after a Registration Statement filed with SEC
becomes effective or offers and sales of such shares are otherwise exempt from
the registration requirements of the Securities Act. Thereafter, the shares may
be sold or distributed from time to time by the selling stockholders named in
this prospectus, by their donees, pledgees or transferees, or by their other
successors in interest. The selling stockholders may sell their shares at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices at the time of sale, at negotiated prices, or at fixed prices,
which may be changed. Each selling stockholder reserves the right to accept or
reject, in whole or in part, any proposed purchase of shares, whether the
purchase is to be made directly or through agents. We are not aware that any of
the selling stockholders have entered into any arrangements with any
underwriters or broker-dealers regarding the sale of their shares of common
stock. The registration rights available to selling stockholders after the
Registration Statement becomes effective shall terminate at such time as all
shares qualified by this Registration Statement are sold by the selling
stockholder in accordance with this prospectus or in accordance with the
provisions of Rule 144 or its equivalent under the Securities Act or have
been sold pursuant to a transaction effected through the facilities of the Oslo
Stock Exchange in accordance with the provisions of Rule 904 or are otherwise
freely transferable without restriction under applicable United States
securities laws.
The selling stockholders may offer their shares, subject to the restrictions
outlined above, at various times in one or more of the following transactions:
- in ordinary brokers' transactions and transactions in which the broker
solicits purchasers;
- in transactions involving cross or block trades or otherwise on any
national securities exchange, such as the American Stock Exchange, on
which the common stock may be listed;
- in transactions in which brokers, dealers or underwriters purchase the
shares as principal and resell the shares for their own accounts
pursuant to this prospectus;
- in transactions "at the market" to or through market makers in the common
stock;
- in other ways not involving market makers or established trading markets,
including direct sales of the shares to purchasers or sales of the
shares effected through agents;
- through transactions in options, swaps or other derivatives which may or
may not be listed on an exchange;
- in privately negotiated transactions;
- in transactions to cover short sales; or
- in a combination of any of the foregoing transactions.
In addition, the selling stockholders also may sell their shares in private
transactions or in accordance with Rules 144, 144A or 904 under the Securities
Act rather than under this prospectus.
<PAGE>
From time to time, one or more of the selling stockholders may pledge or grant a
security interest in some or all of the shares owned by them. If the selling
stockholders default in the performance of the secured obligations, the pledgees
or secured parties may offer and sell the shares from time to time. The selling
stockholders also may transfer and donate shares in other circumstances. The
number of shares beneficially owned by selling stockholders who donate or
otherwise transfer their shares will decrease as and when the selling
stockholders take these actions. The plan of distribution for the shares offered
and sold under this prospectus will otherwise remain unchanged, except that
the transferees, donees or other successors in interest will be selling
stockholders for purposes of this prospectus. The selling stockholders may
use brokers, dealers, underwriters or agents to sell their shares. The persons
acting as agents may receive compensation in the form of commissions, discounts
or concessions. This compensation may be paid by the selling stockholders or
the purchasers of the shares for whom such persons may act as agent, or to
whom they may sell as a principal, or both. The selling stockholders and any
agents or broker-dealers that participate with the selling stockholders in
the offer and sale of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act. Any commissions they receive and any profit they
realize on the resale of the shares by them may be deemed to be underwriting
discounts and commissions under the Securities Act. Neither any selling
stockholders nor we can presently estimate the amount of such compensation.
Because selling stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, selling stockholders and persons participating in
the offer and sale of their shares may be subject to the prospectus delivery
requirements of the Securities Act.
The selling stockholders and any other person participating in a distribution of
the securities covered by this prospectus will be subject to applicable
provisions of the Exchange Act and the rules and regulations under the Exchange
Act, including Regulation M, which may limit the timing of purchases and sales
of any of the securities by the selling stockholders and any other such person.
Furthermore, under Regulation M, any person engaged in the distribution of the
securities may not simultaneously engage in market-making activities with
respect to the particular securities being distributed for certain periods
prior to the commencement of or during such distribution. All of the above may
affect the marketability of the securities and the availability of any person or
entity to engage in market-making activities with respect to the securities.
Under our agreements with the selling stockholders, we are required to bear the
expenses relating to the registration of this offering. The selling stockholders
will bear any underwriting discounts or commissions, brokerage fees, stock
transfer taxes and fees of their legal counsel.
If we are notified by a selling stockholder that any material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, we will file a supplement to this prospectus, if
required, pursuant to Rule 424(b) under the Securities Act. In addition, if we
are notified by a selling stockholder that a donee or pledgee intends to sell
more than 500 shares, we will file a supplement to this prospectus.
LEGAL MATTERS
The validity of the shares of common stock offered hereby has been passed upon
for us by Satterlee Stephens Burke & Burke LLP, New York, New York.
EXPERTS
The financial statements incorporated in this prospectus by reference from our
Annual Report on Form 10-K have been audited by PricewaterhouseCoopers LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The oil and gas reserve data incorporated by reference to our Annual Report on
Form 10-K for the year ended December, 31, 1999, has been prepared by Ashton
Jenkins Mann and such reserve report dated March 27, 2000 has been incorporated
herein in reliance upon the authority of such firm as experts in estimating
proved oil and gas reserves.
