exv10w1



 





Exhibit 10.1




PROMISSORY NOTE



May 19, 2004

	 	 
	Jersey City, New Jersey	$1,500,000.00






FOR VALUE RECEIVED IN THE SUM OF $1,500,000, the undersigned, CANARGO ENERGY
CORPORATION, a Delaware corporation (the “Company”), promises to pay CORNELL
CAPITAL PARTNERS, LP (the “Holder”) at 101 Hudson Street, Suite 3700, Jersey
City, New Jersey 07302 or other address as the Holder shall specify in writing,
the principal sum of One Million Five Hundred Thousand (U.S.) Dollars and
00/100 ($1,500,000.00) and will be payable pursuant to the following terms:



1. Amount of Note. The face amount of this Promissory Note (this “Note”) shall
be payable on the earlier of one hundred eighty (180) days from the date hereof
or within sixty (60) days from the date the Company’s Registration Statement on
Form S-3 (the “Registration Statement”) filed on May 6, 2004 is declared
effective (the “Effective Date”) by the Securities and Exchange Commission.
For purposes of clarification, and without limiting the preceding sentence, the
repayment of this Note is in no manner contingent on the Registration Statement
being declared effective by the SEC. In the event the Registration Statement
is declared effective, the Company shall use the net proceeds to be received by
the Company under that certain Standby Equity Distribution Agreement (the
“Standby Equity Distribution Agreement “) dated as
February 11, 2004 towards the
repayment of the obligations due under this Note in accordance with this
Section 1; provided, however, and without limiting the foregoing, all amounts
due under this Note shall be paid in full on the earlier of one hundred eighty
(180) calendar days of the date hereof or sixty (60) days from the Effective
Date, unless an extension is mutually agreed to by the parties in writing.
Failure to pay the obligations in full under this Note within said applicable
period shall result in an event of default. The Company hereby agrees to
escrow up to ten (10) requests for advances under the Standby Equity
Distribution Agreement in an amount not less than One Hundred Fifty Thousand
Dollars ($150,000) or One Million Five Hundred Thousand (U.S.) Dollars
($1,500,000) in total (individually referred to as an “Advance Notice”
collectively referred to as “Advance Notices”) and, on the Effective Date, the
appropriate number of shares of the Company’s Common Stock as required under
Section 2.3 of the Standby Equity Distribution Agreement (the “Escrowed
Shares”). The Escrowed Shares are only an estimation of the shares of the
Company’s common stock necessary to repay the principal amount and interest due
hereunder. In the event that during the life of this Note the Escrowed Shares
are insufficient to repay all amounts due hereunder the Company shall
immediately escrow, pursuant to the irrevocable transfer agent instructions
dated the date hereof (the “Irrevocable Transfer Agent Instructions”) such
number of shares of the Company’s common stock sufficient to repay all amounts
due hereunder. The Advance Notices and the Escrowed Shares will be held in
escrow by the law firm of Butler Gonzalez LLP, which shall release such
requests to the Holder every seven (7) calendar days commencing on the
Effective Date. The Holder may at its sole discretion retain and


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apply the net proceeds of each advance (after deducting any fees owed to the
Holder under the terms of the Standby Equity Distribution Agreement) to the
outstanding balance of this Note as existing from time to time. If this Note
is not paid in full when due, the outstanding principal owed hereunder shall be
due and payable in full together with interest thereon at the rate of twelve
percent (12%) per annum or the highest permitted by applicable law, if lower.
During the term of this Note the Company shall have the option to repay the
amounts due hereunder in immediately available funds and withdraw any Advance
Notices yet to be effected. At the Holder’s option the interest due hereunder
shall be paid when due either in Common Stock or cash.



2. Fee. The Holder shall be entitled to a five percent (5%) commitment fee. The
commitment fee payable hereunder shall be in place of and shall be set off
against the first Seventy Five Thousand Dollars (U.S) ($75,000) of commitment
fees payable under Section 12.4 (b) (i) of the Standby Equity Distribution
Agreement.



3. Waiver and Consent. To the fullest extent permitted by law and except as
otherwise provided herein, the Company waives demand, presentment, protest,
notice of dishonor, suit against or joinder of any other person, and all other
requirements necessary to charge or hold the Company liable with respect to
this Note.



4. Costs, Indemnities and Expenses. In the event of default as described
herein, the Company agrees to pay all reasonable fees and costs incurred by the
Holder in collecting or securing or attempting to collect or secure this Note,
including reasonable attorneys’ fees and expenses, whether or not involving
litigation, collecting upon any judgments and/or appellate or bankruptcy
proceedings. The Company agrees to pay any documentary stamp taxes, intangible
taxes or other taxes which may now or hereafter apply to this Note or any
payment made in respect of this Note, and the Company agrees to indemnify and
hold the Holder harmless from and against any liability, costs, attorneys’
fees, penalties, interest or expenses relating to any such taxes, as and when
the same may be incurred.



5. Event of Default. Upon an Event of Default (as defined below), the entire
principal balance and accrued interest outstanding under this Note, and all
other obligations of the Company under this Note, shall be immediately due and
payable without any action on the part of the Holder, and the Holder shall be
entitled to seek and institute any and all remedies available to it. No remedy
conferred under this Note upon the Holder is intended to be exclusive of any
other remedy available to the Holder, pursuant to the terms of this Note or
otherwise. No single or partial exercise by the Holder of any right, power or
remedy hereunder shall preclude any other or further exercise thereof. The
failure of the Holder to exercise any right or remedy under this Note or
otherwise, or delay in exercising such right or remedy, shall not operate as a
waiver thereof. An “Event of Default” shall be deemed to have occurred upon
the occurrence of any of the following: (i) the Company should fail for any
reason or for no reason to make payment of the outstanding principal balance
plus accrued interest pursuant to this Note within the time prescribed herein
or the Company fails to satisfy any other obligation or requirement of the
Company under this Note and/or the


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Irrevocable Transfer Agent Instructions dated the date hereof; or (ii) any
proceedings under any bankruptcy laws of the United States of America or under
any insolvency, not disclosed to the Holder, reorganization, receivership,
readjustment of debt, dissolution, liquidation or any similar law or statute of
any jurisdiction now or hereinafter in effect (whether in law or at equity) is
filed by or against the Company or for all or any part of its property.



6. Maximum Interest Rate. In no event shall any agreed to or actual interest
charged, reserved or taken by the Holder as consideration for this Note exceed
the limits imposed by New Jersey law. In the event that the interest
provisions of this Note shall result at any time or for any reason in an
effective rate of interest that exceeds the maximum interest rate permitted by
applicable law, then without further agreement or notice the obligation to be
fulfilled shall be automatically reduced to such limit and all sums received by
the Holder in excess of those lawfully collectible as interest shall be applied
against the principal of this Note immediately upon the Holder’s receipt
thereof, with the same force and effect as though the Company had specifically
designated such extra sums to be so applied to principal and the Holder had
agreed to accept such extra payment(s) as a premium-free prepayment or
prepayments.



7. Cancellation of Note. Upon the repayment by the Company of all of its
obligations hereunder to the Holder, including, without limitation, the face
amount of this Note, plus accrued but unpaid interest, the indebtedness
evidenced hereby shall be deemed canceled and paid in full. Except as
otherwise required by law or by the provisions of this Note, payments received
by the Holder hereunder shall be applied first against expenses and
indemnities, next against interest accrued on this Note, and next in reduction
of the outstanding principal balance of this Note.



8. Severability. If any provision of this Note is, for any reason, invalid or
unenforceable, the remaining provisions of this Note will nevertheless be valid
and enforceable and will remain in full force and effect. Any provision of
this Note that is held invalid or unenforceable by a court of competent
jurisdiction will be deemed modified to the extent necessary to make it valid
and enforceable and as so modified will remain in full force and effect.



9. Amendment and Waiver. This Note may be amended, or any provision of this
Note may be waived, provided that any such amendment or waiver will be binding
on a party hereto only if such amendment or waiver is set forth in a writing
executed by the parties hereto. The waiver by any such party hereto of a
breach of any provision of this Note shall not operate or be construed as a
waiver of any other breach.



10. Successors. Except as otherwise provided herein, this Note shall bind and
inure to the benefit of and be enforceable by the parties hereto and their
permitted successors and assigns.




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11. Assignment. This Note shall not be directly or indirectly assignable or
delegable by the Company or the Holder without the prior written consent of the
other not to be unreasonably withheld or delayed.



12. No Strict Construction. The language used in this Note will be deemed to
be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction will be applied against any party.



13. Further Assurances. Each party hereto will execute all documents and take
such other actions as the other party may reasonably request in order to
consummate the transactions provided for herein and to accomplish the purposes
of this Note.



14. Notices, Consents, etc. Any notices, consents, waivers or other
communications required or permitted to be given under the terms hereof must be
in writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) trading day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:



	 	 	 	 	 
	If to Company:	 	CanArgo Energy Corporation
	 	 	P.O. Box 291
	 	 	Suite 10
	 	 	Borough House
	 	 	Rue du Pre
	 	 	St. Peter Port
	 	 	Guernsey GY1 3RR, Channel Islands
	

	 	Attention:
	 	Dr. David Robson/Vincent McDonnell
	 
	 	 	 	 
	

	 	Telephone:
	 	+(44) 1481 729980
	

	 	Facsimile:
	 	+(44) 1481 729982
	 
	 	 	 	 
	With Copy to:	 	McGrigor Donald
	 	 	Pacific House
	 	 	70 Wellington Street
	 	 	Glasgow, G2 6SB United Kingdom
	

	 	Attention:
	 	Paul Davidson
	

	 	Telephone:
	 	+(44) 141 248 6677
	

	 	Facsimile:
	 	+(44) 141 204 1351
	 
	 	 	 	 
	If to the Company:	 	Cornell Capital Partners, L.P.
	 	 	101 Hudson Street, Suite 3700
	 	 	Jersey City, NJ 07302
	

	 	Attention:
	 	Mark A. Angelo







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	 	Telephone:
	 	(201) 985-8300
	

	 	Facsimile:
	 	(201) 985-8266
	 
	 	 	 	 
	With Copy to:	 	Butler Gonzalez LLP
	 	 	1416 Morris Avenue — Suite 207
	 	 	Union, NJ 07083
	

	 	Attention:
	 	David Gonzalez, Esq.
	

	 	Telephone:
	 	(908) 810-8588
	

	 	Facsimile:
	 	(908) 810-0973






or at such other address and/or facsimile number and/or to the attention of
such other person as the recipient party has specified by written notice given
to each other party three (3) trading days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender’s facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.



15. Remedies, Other Obligations, Breaches and Injunctive Relief. The Holder’s
remedies provided in this Note shall be cumulative and in addition to all other
remedies available to the Holder under this Note, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy of the Holder contained herein shall be deemed a waiver of compliance
with the provisions giving rise to such remedy and nothing herein shall limit
the Holder’s right to pursue actual damages for any failure by the Company to
comply with the terms of this Note. Every right and remedy of the Holder under
any document executed in connection with this transaction may be exercised from
time to time and as often as may be deemed expedient by the Holder. The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder and that the remedy at law for any such
breach may be inadequate. The Company therefore agrees that, in the event of
any such breach or threatened breach, the Holder shall be entitled, in addition
to all other available remedies, to an injunction restraining any breach, and
specific performance without the necessity of showing economic loss and without
any bond or other security being required.



16. Governing Law; Jurisdiction. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
the internal laws of the State of New Jersey, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New
Jersey or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of New Jersey. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in Essex County, New Jersey, for the adjudication of any dispute
hereunder or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is
not personally


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subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any manner permitted by law.



17. No Inconsistent Agreements. None of the parties hereto will hereafter
enter into any agreement, which is inconsistent with the rights granted to the
parties in this Note.



18. Third Parties. Nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or entity, other than the
parties to this Note and their respective permitted successor and assigns, any
rights or remedies under or by reason of this Note.



19. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR THE HOLDER TO LOAN TO
THE COMPANY THE MONIES HEREUNDER, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS NOTE AND/OR ANY AND
ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.



20. Entire Agreement. This Note (including the recitals hereto) sets forth the
entire understanding of the parties with respect to the subject matter hereof,
and shall not be modified or affected by any offer, proposal, statement or
representation, oral or written, made by or for any party in connection with
the negotiation of the terms hereof, and may be modified only by instruments
signed by all of the parties hereto.



IN WITNESS WHEREOF, this Note is executed by the undersigned as of the date
hereof.




[SIGNATURE BLOCK ON FOLLOWING PAGE]



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	 	CORNELL CAPITAL PARTNERS, LP

 	 
	 	By:  	Yorkville Advisors, LLC
 	 
	 	Its: General Partner 


	 	 	 	 	 
	 	 	 
	 	By:  	/s/: Mark Angelo
 	 
	 	 	Name:  	Mark Angelo 	 
	 	 	Its:          Portfolio Manager 	 
	 



	 	 	 	 	 
	 	CANARGO ENERGY CORPORATION

 	 
	 	By:  	/s/: Vincent McDonnell
 	 
	 	 	Name:  	Vincent McDonnell 	 
	 	 	Title:  	Director and Chief Financial Officer 	 
	 




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