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                                                                    EXHIBIT 10.2

                           CANARGO ENERGY CORPORATION
                            PLACEMENT AGENT AGREEMENT

                                                  Dated as of: February 11, 2004

Newbridge Securities Corporation
1451 Cypress Creek Road, Suite 204
Fort Lauderdale, Florida 33309

Ladies and Gentlemen:

      The undersigned, CanArgo Energy Corporation, a Delaware corporation (the
"Company"), hereby agrees with Newbridge Securities Corporation (the "Placement
Agent") and Cornell Capital Partners, LP, a Delaware Limited Partnership (the
"Investor"), as follows:

      1.    Offering. The Company hereby engages the Placement Agent to act as
its exclusive placement agent in connection with the Standby Equity Distribution
Agreement dated the date hereof (the "Standby Equity Distribution Agreement"),
pursuant to which the Company shall issue and sell to the Investor, from time to
time, and the Investor shall purchase from the Company (the "Offering") up to
Twenty Million Dollars ($20,000,000) of the Company's common stock (the
"Commitment Amount"), par value $0.10 per share (the "Common Stock"), at price
per share equal to the Purchase Price, as that term is defined in the Standby
Equity Distribution Agreement. The Placement Agent services shall consist of
reviewing the terms of the Standby Equity Distribution Agreement and advising
the Company with respect to those terms.

      All capitalized terms used herein and not otherwise defined herein shall
have the same meaning ascribed to them as in the Standby Equity Distribution
Agreement. Where a representation, covenant, or warranty given by a parties
hereto is qualified by "to the knowledge of" or "to the best knowledge of" or
words of similar effect than the knowledge of the party giving such
representation, warrant, or covenant shall be the knowledge of its executive
officers. The Investor will be granted certain registration rights with respect
to the Common Stock as more fully set forth in the Registration Rights Agreement
between the Company and the Investor dated the date hereof (the "Registration
Rights Agreement"). The documents to be executed and delivered in connection
with the Offering, including, but not limited, to the Company's reports as filed
under the Securities Exchange Act of 1934, as amended (the "1934 Act") and the
respective rules and regulations promulgated thereunder including without
limitation, the Company's latest Quarterly Report on Form 10-Q as filed with the
United States Securities and Exchange Commission (the "SEC"), this Agreement,
the Standby Equity Distribution Agreement, the Registration Rights Agreement,
and the Escrow Agreement dated the date hereof (the "Escrow Agreement"), are
referred to sometimes hereinafter collectively as the "Offering Materials." The
Company's Common Stock purchased by the Investor hereunder is sometimes referred
to hereinafter as the "Securities." The Placement Agent shall not be obligated
to sell any Securities.

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      2.    Compensation.

      Upon the execution of this Agreement, the Company shall consent to issue
to the Placement Agent or its designee within ten (10) trading days from the
date hereof, thirty thousand seven hundred ninety nine thousand (30,799), shares
of the Company's Common (the "Placement Agent's Shares"). The Placement Agent
shall be entitled to "piggy-back" registration rights, which shall be triggered
upon registration of any shares of Common Stock by the Investor with respect to
the Placement Agent's Shares pursuant to the Registration Rights Agreement dated
the date hereof.

      3.    Representations, Warranties and Covenants of the Placement Agent.

                  1.    The Placement Agent represents, warrants and covenants
as follows:

                              i.    The Placement Agent has the necessary power
to enter into this Agreement and to consummate the transactions contemplated
hereby.

                              ii.   The execution and delivery by the Placement
Agent of this Agreement and the consummation of the transactions contemplated
herein will not result in any violation of, or be in conflict with, or
constitute a default under, any agreement or instrument to which the Placement
Agent is a party or by which the Placement Agent or its properties are bound, or
any judgment, decree, order or, to the Placement Agent's knowledge, any statute,
rule or regulation applicable to the Placement Agent. This Agreement when
executed and delivered by the Placement Agent, will constitute the legal, valid
and binding obligation of the Placement Agent, enforceable in accordance with
its terms, except to the extent that (a) the enforceability hereof or thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws from time to time in effect and affecting the rights of creditors
generally, (b) the enforceability hereof or thereof is subject to general
principles of equity, or (c) the indemnification provisions hereof or thereof
may be held to be in violation of public policy.

                              iii.  Upon receipt and execution of this
Agreement, the Placement Agent will promptly forward copies of this Agreement to
the Company or its counsel and the Investor or its counsel.

                              iv.   The Placement Agent will not intentionally
take any action that it reasonably believes would cause the Offering to violate
the provisions of the Securities Act of 1933, as amended (the "1933 Act"), the
1934 Act, the respective rules and regulations promulgated thereunder (the
"Rules and Regulations") or applicable "Blue Sky" laws of any state or
jurisdiction, including without limitation by engaging in any form of general
solicitation in connection with the Offering or by violating the provisions of
Rules 3b-3, 10a-1, and 10a-2 under the 1934 Act or any amendments thereto or
replacements therefore.

                              (i)   The Placement Agent is a member of the
National Association of Securities Dealers, Inc., and is a broker-dealer
registered as such under the 1934 Act and under the securities laws of the
states in which the Securities will be offered or sold by the Placement Agent
unless an exemption for such state registration is available to the Placement
Agent. The Placement Agent is in material compliance with the rules and
regulations applicable

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to the Placement Agent generally and applicable to the Placement Agent's
participation in the Offering.

                              (ii)  The fees to be received by the Placement
Agent hereunder comply with all requirements of the National Association of
Securities Dealers, Inc., including without limitation, all regulations
regarding underwriting compensation.

      4.    Representations and Warranties of the Company.

                  2.    The Company represents and warrants as follows:

                              i.    The execution, delivery and performance of
each of this Agreement, the Standby Equity Distribution Agreement, the Escrow
Agreement, and the Registration Rights Agreement has been or will be duly and
validly authorized by the Company and is, or with respect to this Agreement, the
Standby Equity Distribution Agreement, the Escrow Agreement, and the
Registration Rights Agreement will be, a valid and binding agreement of the
Company, enforceable in accordance with its respective terms, except to the
extent that (a) the enforceability hereof or thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect and affecting the rights of creditors generally, (b) the
enforceability hereof or thereof is subject to general principles of equity or
(c) the indemnification provisions hereof or thereof may be held to be in
violation of public policy. The Securities to be issued pursuant to the
transactions contemplated by this Agreement and the Standby Equity Distribution
Agreement have been duly authorized and, when issued and paid for in accordance
with this Agreement, the Standby Equity Distribution Agreement and the
certificates/instruments representing such Securities, will be valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, except to the extent that (1) the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws from time
to time in effect and affecting the rights of creditors generally, and (2) the
enforceability thereof is subject to general principles of equity. All corporate
action required to be taken for the authorization, issuance and sale of the
Securities has been duly and validly taken by the Company.

                              ii.   The Company has a duly authorized, issued
and outstanding capitalization as set forth herein and in the Standby Equity
Distribution Agreement. The Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
the agreements described herein and as described in the Standby Equity
Distribution Agreement, dated the date hereof and the agreements described
therein. All issued and outstanding securities of the Company, have been duly
authorized and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission or preemptive rights with respect thereto
and are not subject to personal liability solely by reason of being security
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company. As of the date hereof, the
authorized capital stock of the Company consists of 150,000,000 shares of Common
Stock, par value $0.10 per share and 5,000,000 shares of Preferred Stock of
which 105,617,958 shares of Common Stock and no shares of Preferred Stock were
issued and outstanding as of the date thereof.

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                              iii.  The Common Stock to be issued in accordance
with this Agreement and the Standby Equity Distribution Agreement has been duly
authorized and, when issued and paid for in accordance with this Agreement and
the Standby Equity Distribution Agreement, the certificates/instruments
representing such Common Stock will be validly issued, fully-paid and
non-assessable; the holders thereof will not be subject to personal liability
solely by reason of being such holders; such Securities are not and will not be
subject to the preemptive rights of any holder of any security of the Company.

                              iv.   The Company has good and marketable title
to, or valid and enforceable leasehold estates in, all items of real and
personal property necessary to conduct its business (including, without
limitation, any real or personal property stated in the Offering Materials to be
owned or leased by the Company), free and clear of all liens, encumbrances,
claims, security interests and defects of any material nature whatsoever, other
than those set forth in the Offering Materials and statutory liens including
without limitation for taxes not yet due and payable.

                              v.    There is no litigation or governmental
proceeding pending or, to the best of the Company's knowledge, threatened
against, or involving the properties or business of the Company, except as set
forth in the Offering Materials.

                              vi.   The Company has been duly organized and
validly exists as a corporation in good standing under the laws of the State of
Delaware. Except as set forth in the Offering Materials, the Company does not
own or control, directly or indirectly, an interest in any other corporation,
partnership, trust, joint venture or other business entity. The Company is duly
qualified or licensed and in good standing as a foreign corporation in each
jurisdiction in which the character of its operations requires such
qualification or licensing and where failure to so qualify would have a material
adverse effect on the Company and its Subsidiaries, taken as a whole. The
Company has all requisite corporate power and authority, and all material and
necessary authorizations, approvals, orders, licenses, certificates and permits
of and from all governmental regulatory officials and bodies (domestic and
foreign) to conduct its businesses as described in the Offering Materials. Any
disclosures in the Offering Materials concerning the effects of foreign,
federal, state and local regulation on the Company's businesses as currently
conducted are correct in all material respects and do not omit to state a
material fact required to make statements made in light of the circumstances,
not misleading. The Company has all corporate power and authority to enter into
this Agreement, the Standby Equity Distribution Agreement, the Registration
Rights Agreement, and the Escrow Agreement, to carry out the provisions and
conditions hereof and thereof, and all consents, authorizations, approvals and
orders required in connection herewith and therewith have been obtained, except
for such consents as may be required under applicable Securities Laws as set
forth in the Offering Materials . No consent, authorization or order of, and no
filing with, any court, government agency or other body is required by the
Company for the issuance of the Securities or execution and delivery of the
Offering Materials except for applicable Securities Laws. To the best of the
Company's knowledge, in the past five (5) years, the Company has not incurred
any liability arising under or as a result of the application of any of the
provisions of the 1933 Act, the 1934 Act or the Rules and Regulations.

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                              vii.  There has been no material adverse change
in the condition of the Company, financial or otherwise, from the latest dates
as of which such condition is set forth in the Offering Materials, and the
outstanding debt, the property and the business of the Company conform in all
material respects to the descriptions thereof contained in the Offering
Materials.

                              viii. Except as set forth in the Offering
Materials, the Company is not in material breach of, or in material default
under, any term or provision of any material indenture, mortgage, deed of trust,
lease, note, loan or Standby Equity Distribution Agreement or any other material
agreement or instrument evidencing an obligation for borrowed money, or any
other material agreement or instrument to which it is a party or by which it or
any of its properties may be bound or affected. The Company is not in violation
of any provision of its charter or by-laws or to the Company's knowledge in
violation of any material franchise, license, permit, judgment, decree or order,
to the Company's knowledge or in violation of any material statute, rule or
regulation in any material respect. Neither the execution and delivery of the
Offering Materials nor the issuance and sale or delivery of the Securities, nor
the consummation of any of the transactions contemplated in the Offering
Materials nor the compliance by the Company with the terms and provisions hereof
or thereof, has conflicted with , or has resulted in a breach of, any of the
terms and provisions of, or has constituted a default under, or has resulted in
the creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or pursuant to the terms of any indenture, mortgage,
deed of trust, note, loan or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company may be bound or to which any of the property or assets of the Company is
subject except (a) where such default, lien, charge or encumbrance would not
have a material adverse effect on the Company and its subsidiaries, taken as a
whole, or (b) as described in the Offering Materials; nor will such action
result in any violation of the provisions of the charter or the by-laws of the
Company or, assuming the due performance by the Placement Agent of its
obligations hereunder, any material statute or any material order, rule or
regulation applicable to the Company of any court or of any foreign, federal,
state or other regulatory authority or other government body having jurisdiction
over the Company.

                              ix.   Subsequent to the dates as of which
information is given in the Offering Materials, and except as may otherwise be
indicated or contemplated herein or therein and the securities offered pursuant
to the Standby Equity Distribution Agreement dated the date hereof, the Company
has not (a) issued any securities or incurred any liability or obligation,
direct or contingent, for borrowed money, or (b) entered into any transaction
other than in the ordinary course of business, or (c) declared or paid any
dividend or made any other distribution on or in respect of its capital stock.
Except as described in the Offering Materials, the Company has no outstanding
obligations to any officer or director of the Company.

                              x.    To the best of the Company's knowledge ,
there are no claims against the Company for services in the nature of a finder's
or origination fee with respect to the sale of the Common Stock or any other
arrangements, agreements or understandings that may affect the Placement Agent's
compensation, as determined by the National Association of Securities Dealers,
Inc.

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                              xi.   The Company owns or possesses, free and
clear of all liens or encumbrances and rights thereto or therein by third
parties (other than statutory liens and liens or encumbrances that do not have a
material adverse effect on the business or financial condition of the Company
and its subsidiaries, taken as a whole), the requisite licenses or other rights
to use all trademarks, service marks, copyrights, service names, trade names,
patents, patent applications and licenses necessary to conduct its business
(including, without limitation, any such licenses or rights described in the
Offering Materials as being owned or possessed by the Company) as currently
being conducted and, except as set forth in the Offering Materials, to the
Company's knowledge there is no claim or action by any person pertaining to, or
proceeding, pending or threatened, which challenges the exclusive rights of the
Company with respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications and licenses used in the
current conduct of the Company's businesses (including, without limitation, any
such licenses or rights described in the Offering Materials as being owned or
possessed by the Company) except any claim or action that would not have a
material adverse effect on the Company and its subsidiaries; taken as a whole,
and to the knowledge of the Company, the Company's and its subsidiaries current
products, services or processes do not infringe on the patents currently held by
any third party.

                              xii.  Except as described in the Offering
Materials, the Company is not under any obligation to pay material royalties or
fees of any kind whatsoever to any third party with respect to any trademarks,
service marks, copyrights, service names, trade names, patents, patent
applications, licenses or technology it has developed, uses, employs other than
to their respective licensors (other than pursuant to standard paid-up licensing
arrangements of general application).

                              xiii. Subject to the performance by the Placement
Agent and the Investor of their respective obligations hereunder and under the
Standby Equity Distribution Agreement, the Escrow Agreement, and the
Registration Rights Agreement, the offer and sale of the Securities complies, in
all material respects with the requirements of Rule 506 of Regulation D
promulgated by the SEC pursuant to the 1933 Act and any other applicable federal
and state laws, rules, regulations and executive orders. Neither the Offering
Materials nor any amendment or supplement thereto nor any documents prepared by
the Company in connection with the Offering will contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. All statements of material facts in the
Offering Materials are true and correct as of the date such statements are made.

                              xiv.  To the knowledge of the Company all material
taxes which are due and payable from the Company have been paid in full or
adequate provision has been made for such taxes on the books of the Company,
except for those taxes disputed in good faith by the Company

                              xv.   None of the Company nor any of its officers,
directors, or, to the Company's knowledge, employees or agents, nor to the
Company's knowledge any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or

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official or employee of any governmental agency or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who is or may be in a position to help or
hinder the business of the Company (or assist it in connection with any actual
or proposed transaction) which (A) would reasonably be likely to subject the
Company to any material damage or penalty in any civil, criminal or governmental
litigation or proceeding, or (B) if not given in the past, would reasonably be
likely to have had a materially adverse effect on the assets, business or
operations of the Company and its subsidiaries, taken as a whole, as reflected
in any of the financial statements contained in the Offering Materials.

      5.    Representations, Warranties and Covenants of the Investor.

                  3.    The Investor represents, warrants and covenants as
follows:

                              i.    The Investor has the necessary legal power
and authority to enter into this Agreement, the Standby Equity Distribution
Agreement, the Escrow Agreement, and the Registration Rights Agreement and to
consummate the transactions contemplated hereby and thereby.

                              ii.   The execution and delivery by the Investor
of this Agreement the Standby Equity Distribution Agreement, the Escrow
Agreement, and the Registration Rights Agreement and the consummation of the
transactions contemplated herein and therein will not result in any violation
of, or be in conflict with, or constitute a default under, any agreement or
instrument to which the Investor is a party or by which the Investor or its
properties are bound, or any judgment, decree, order or, to the Investor's
knowledge, any statute, rule or regulation applicable to the Investor. This
Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement, and
the Registration Rights Agreement when executed and delivered by the Investor,
will constitute the legal, valid and binding obligations of the Investor,
enforceable in accordance with their respective terms, except to the extent that
(a) the enforceability hereof or thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, (b) the enforceability
hereof or thereof is subject to general principles of equity, or (c) the
indemnification provisions hereof or thereof may be held to be in violation of
public policy.

                              iii.  The Investor will promptly forward copies of
any and all due diligence questionnaires compiled by the Investor to the
Placement Agent.

                              (i)   The Investor is an Accredited Investor (as
defined under Rule 501 of Regulation D promulgated under the 1933 Act).

                              (ii)  The Investor is acquiring the Securities for
the Investor's own account as principal, not as a nominee or agent, for
investment purposes only, and not with a view to, or for, resale, distribution
or fractionalization thereof in whole or in part and no other person has a
direct or indirect beneficial interest in such Securities. Further, the Investor
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities.

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                              (iii) The Investor acknowledges that the offering
and sale of the Securities is intended to be exempt from registration under the
1933 Act by virtue of Section 3(b) and 4(2) of the 1933 Act and the provisions
of Regulation D promulgated thereunder ("Regulation D"). In furtherance thereof,
the Investor represents and warrants as follows (it being acknowledged by the
Investor that the Placement Agent and the Company will both rely on the accuracy
and completeness of such representations and warranties in connection with
establishing the availability of an exemption from such registration under the
1933 Act:

                                    (a)   The Investor has the financial ability
to bear the economic risk of the Investor's investment, has adequate means for
providing for the Inventor's current needs and personal contingencies and has no
need for liquidity with respect to the Investor's investment in the Company;

                                    (b)   The Investor or any person acting on
their behalf has such knowledge and experience in financial tax and business
matters as to be capable of evaluating the merits and risks of, and bearing the
economic risks entailed by, an investment in the Company and of protecting its
interests in connection with this transaction. It recognizes that its investment
in the Company involves a high degree of risk. and

                                    (c)   The Investor or any person acting on
its behalf will not intentionally take any action that it reasonably believes
would cause the Offering to violate the provisions of the Securities Act of
1933, as amended (the "1933 Act"), the 1934 Act, the respective rules and
regulations promulgated thereunder (the "Rules and Regulations") or applicable
"Blue Sky" laws of any state or jurisdiction, including without limitation by
engaging in any form of general solicitation in connection with the Offering or
by violating the provisions of Rules 3b-3, 10a-1, and 10a-2 under the 1934 Act
or any amendments thereto or replacements therefor);.

                              (iv)  The Investor has been given the opportunity
for a reasonable time prior to the date hereof to ask questions of, and receive
answers from, the Company or its representatives concerning the terms and
conditions of the Offering, and other matters pertaining to this investment, and
has been given the opportunity for a reasonable time prior to the date hereof to
obtain such additional information in connection with the Company in order for
the Investor to evaluate the merits and risks of purchase of the Securities, to
the extent the Company possesses such information or can acquire it without
unreasonable effort or expense. The Investor is not relying on the Placement
Agent or any of its affiliates with respect to the accuracy or completeness of
the Offering Materials or for any economic considerations involved in this
investment.

      6.    Certain Covenants and Agreements of the Company.

      The Company covenants and agrees at its expense and without any expense to
the Placement Agent as follows:

      A.    To advise the Placement Agent and the Investor of any material
adverse change in the Company's financial condition, prospects or business or of
any development materially affecting the Company or rendering untrue or
misleading any material statement in the Offering

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Materials occurring at any time as soon as the Company is either informed or
becomes aware thereof.

      B.    To use its commercially reasonable efforts to cause the Common Stock
issuable in connection with the Standby Equity Distribution Agreement to be
qualified or registered for sale on terms consistent with those stated in the
Registration Rights Agreement and under the securities laws of such
jurisdictions as the Placement Agent and the Investor shall reasonably request.
Qualification, registration and exemption charges and fees shall be at the sole
cost and expense of the Company.

      C.    For so long as the Registration Rights Agreement is in effect, upon
written request, to provide and continue to provide the Placement Agent and the
Investor copies of all quarterly financial statements and audited annual
financial statements prepared by or on behalf of the Company, other reports
prepared by or on behalf of the Company for public disclosure and all documents
delivered to the Company's stockholders, which are not generally available on
the SEC's web site www.sec.gov, as the same may be in effect from time to time.

      D.    To deliver, during the registration period of the Standby Equity
Distribution Agreement, to the Investor upon the Investor's request, within
forty five (45) days, a statement of its income for each such quarterly period,
and its balance sheet and a statement of changes in stockholders' equity as of
the end of such quarterly period, all in reasonable detail, certified by its
principal financial or accounting officer; (ii) within ninety (90) days after
the close of each fiscal year, its balance sheet as of the close of such fiscal
year, together with a statement of income, a statement of changes in
stockholders' equity and a statement of cash flow for such fiscal year, such
balance sheet, statement of income, statement of changes in stockholders' equity
and statement of cash flow to be in reasonable detail and accompanied by a copy
of the certificate or report thereon of independent auditors if audited
financial statements are prepared; and (iii) a copy of all documents, reports
and information furnished to its stockholders at the time that such documents,
reports and information are furnished to its stockholders in each such case as
such information is not generally available on the SEC's web site www.sec.gov,
as the same may be in effect from time to time.

      E.    To comply in all material respects with the terms of the Offering
Materials.

      F.    To ensure that any transactions between or among the Company, or any
of its officers, directors and affiliates be on terms and conditions that are no
less favorable to the Company, than the terms and conditions that would be
available in an "arm's length" transaction with an independent third party.

      7.    Indemnification and Limitation of Liability.

      A.    The Company hereby agrees that it will indemnify and hold the
Placement Agent and each officer, director, shareholder, employee or
representative of the Placement Agent and each person controlling, controlled by
or under common control with the Placement Agent within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act or the SEC's Rules and
Regulations promulgated thereunder (the "Rules and Regulations"), harmless from
and against any and all loss, claim, damage, liability, cost or expense
whatsoever (including, but

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not limited to, any and all reasonable legal fees and other expenses and
disbursements incurred in connection with investigating, preparing to defend or
defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Placement Agent or such indemnified person of the
Placement Agent may become subject under the 1933 Act, the 1934 Act, the Rules
and Regulations, or any other federal or state law or regulation, common law or
otherwise, arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in (a) Section 4 of this
Agreement, (b) the Offering Materials (except those written statements relating
to the Placement Agent given by the Placement Agent for inclusion therein), (c)
any application or other document or written communication executed by the
Company or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Common Stock under the securities laws
thereof, or any state securities commission or agency; (ii) the omission or
alleged omission from documents described in clauses (a), (b) or (c) above of a
material fact required to be stated therein or necessary to make the statements
therein not misleading; or (iii) the breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement. The Company further
agrees that upon demand by an indemnified person, at any time or from time to
time, it will promptly reimburse such indemnified person for any loss, claim,
damage, liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Company has indemnified such person pursuant
hereto except for any loss, claim, damage, liability, cost or expense incurred
by any Indemnified Party as a result of (i) its gross negligence or willful
misconduct or (ii) material breach of any representation, warranty, covenant or
agreement made by the Placement Agent in this Agreement or (iii) any false or
misleading information provided to the Company in writing by one of the
Placement Agent's Indemnified Persons specifically for inclusion in the Offering
Materials, including, without limitation, any registration statement filed under
the 1933 Act pursuant to the terms of the Registration Rights Agreement.
Notwithstanding the foregoing provisions of this Paragraph 7(A), any such
payment or reimbursement by the Company of fees, expenses or disbursements
incurred by an indemnified person in any proceeding in which a final judgment by
a court of competent jurisdiction (after all appeals or the expiration of time
to appeal) is entered against the Placement Agent or such indemnified person
based upon specific finding of fact that the Placement Agent or such indemnified
person's (i) gross negligence or willful misconduct or (ii) material breach of
any representation, warranty, covenant, or agreement made by the Placement Agent
in this Agreement, or (iii) the provision of false or misleading information to
the Company in writing by one of the Placement Agent's indemnified person
specifically for inclusion in the Offering Materials, including, without
limitation, any registration statement filed under the 1933 Act pursuant to the
terms of the Registration Rights Agreement will be promptly repaid to the
Company.

      B.    The Placement Agent hereby agrees that it will indemnify and hold
the Company and each officer, director, shareholder, employee or representative
of the Company, and each person controlling, controlled by or under common
control with the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act or the Rules and Regulations, harmless from and
against any and all loss, claim, damage, liability, cost or expense whatsoever
(including, but not limited to, any and all reasonable legal fees and other
expenses and disbursements incurred in connection with investigating, preparing
to defend or defending

                                      -10-
<PAGE>

any action, suit or proceeding, including any inquiry or investigation,
commenced or threatened, or any claim whatsoever or in appearing or preparing
for appearance as a witness in any action, suit or proceeding, including any
inquiry, investigation or pretrial proceeding such as a deposition) to which the
Company or such indemnified person of the Company may become subject under the
1933 Act, the 1934 Act, the Rules and Regulations, or any other federal or state
law or regulation, common law or otherwise, arising out of or based upon (i) the
Placement Agent's or such Indemnified Person's gross negligence or willful
misconduct or (ii) the material breach of any representation, warranty, covenant
or agreement made by the Placement Agent in this Agreement, or (iii) any false
or misleading information provided to the Company in writing by one of the
Placement Agent's indemnified persons specifically for inclusion in the Offering
Materials including, without limitation, any registration statement filed under
the 1933 Act pursuant to the terms of the Registration Rights Agreement.

      C.    The Investor hereby agrees that it will indemnify and hold the
Placement Agent and each officer, director, shareholder, employee or
representative of the Placement Agent, and each person controlling, controlled
by or under common control with the Placement Agent within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act or the Rules and
Regulations, harmless from and against any and all loss, claim, damage,
liability, cost or expense whatsoever (including, but not limited to, any and
all reasonable legal fees and other expenses and disbursements incurred in
connection with investigating, preparing to defend or defending any action, suit
or proceeding, including any inquiry or investigation, commenced or threatened,
or any claim whatsoever or in appearing or preparing for appearance as a witness
in any action, suit or proceeding, including any inquiry, investigation or
pretrial proceeding such as a deposition) to which the Placement Agent or such
indemnified person of the Placement Agent may become subject under the 1933 Act,
the 1934 Act, the Rules and Regulations, or any other federal or state law or
regulation, common law or otherwise, arising out of or based upon (i) the
conduct of the Investor or its officers, employees or representatives in its
acting as the Investor for the Offering, (ii) the material breach of any
representation, warranty, covenant or agreement made by the Investor in the
Offering Materials, or (iii) any false or misleading information provided to the
Placement Agent by one of the Investor's indemnified persons.

      D.    The Placement Agent hereby agrees that it will indemnify and hold
the Investor and each officer, director, shareholder, employee or representative
of the Investor, and each person controlling, controlled by or under common
control with the Investor within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act or the Rules and Regulations, harmless from and
against any and all loss, claim, damage, liability, cost or expense whatsoever
(including, but not limited to, any and all reasonable legal fees and other
expenses and disbursements incurred in connection with investigating, preparing
to defend or defending any action, suit or proceeding, including any inquiry or
investigation, commenced or threatened, or any claim whatsoever or in appearing
or preparing for appearance as a witness in any action, suit or proceeding,
including any inquiry, investigation or pretrial proceeding such as a
deposition) to which the Investor or such indemnified person of the Investor may
become subject under the 1933 Act, the 1934 Act, the Rules and Regulations, or
any other federal or state law or regulation, common law or otherwise, arising
out of or based upon the material breach of any representation, warranty,
covenant or agreement made by the Placement Agent in this Agreement.

                                      -11-
<PAGE>

      E.    Promptly after receipt by an indemnified party of notice of
commencement of any action covered by Section 7(A), (B), (C) or (D), the party
to be indemnified shall, within five (5) business days, notify the indemnifying
party of the commencement thereof; the omission by one (1) indemnified party to
so notify the indemnifying party shall not relieve the indemnifying party of its
obligation to indemnify any other indemnified party that has given such notice
and shall not relieve the indemnifying party of any liability outside of this
indemnification if not materially prejudiced thereby. In the event that any
action is brought against the indemnified party, the indemnifying party will be
entitled to participate therein and, to the extent it may desire, to assume and
control the defense thereof with counsel chosen by it which is reasonably
acceptable to the indemnified party. After notice from the indemnifying party to
such indemnified party of its election to so assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under such
Section 7(A), (B), (C), or (D) for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof, but
the indemnified party may, at its own expense, participate in such defense by
counsel chosen by it, without, however, impairing the indemnifying party's
control of the defense. Subject to the proviso of this sentence and
notwithstanding any other statement to the contrary contained herein, the
indemnified party or parties shall have the right to choose its or their own
counsel and control the defense of any action, all at the expense of the
indemnifying party if (i) the employment of such counsel shall have been
authorized in writing by the indemnifying party in connection with the defense
of such action at the expense of the indemnifying party, or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses of one additional counsel shall be borne by the
indemnifying party; provided, however, that the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstance, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for all such indemnified parties. No
settlement of any action or proceeding against an indemnified party shall be
made without the consent of the indemnifying party.

      F.    In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Section 7(A) or 7(B)
is due in accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the Company and the Placement
Agent shall contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with the
investigation or defense of same) which the other may incur in such proportion
so that the Placement Agent shall be responsible for such percent of the
aggregate of such losses, claims, damages and liabilities as shall equal the
percentage of the gross proceeds paid to the Placement Agent and the Company
shall be responsible for the balance; provided, however, that no person guilty
of fraudulent misrepresentation within the meaning of Section 11(f) of the 1933
Act shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7(F), any person
controlling, controlled by or under common control with the Placement Agent, or
any partner, director, officer, employee,

                                      -12-
<PAGE>

representative or any agent of any thereof, shall have the same rights to
contribution as the Placement Agent and each person controlling, controlled by
or under common control with the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act and each officer of the Company and each
director of the Company shall have the same rights to contribution as the
Company. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against the other party
under this Section 7(D), notify such party from whom contribution may be sought,
but the omission to so notify such party shall not relieve the party from whom
contribution may be sought from any obligation they may have hereunder or
otherwise if the party from whom contribution may be sought is not materially
prejudiced thereby.

      G.    The indemnity and contribution agreements contained in this Section
7 shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified person or any termination
of this Agreement.

      H.    Each of the parties hereto hereby waives, to the fullest extent
permitted by law, any right to or claim of any punitive, exemplary, incidental,
indirect, special, consequential or other damages (including, without
limitation, loss of profits) against each other and the Placement Agent and such
parties each officer, director, shareholder, employee or representative of the
placement agent and each person controlling, controlled by or under common
control with the Placement Agent within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act or the Rules and Regulations arising out of
any cause whatsoever (whether such cause be based in contract, negligence,
strict liability, other tort or otherwise). Notwithstanding anything to the
contrary contained herein, the aggregate liability of the Placement Agent and
each officer, director, shareholder, employee or representative of the Placement
Agent and each person controlling, controlled by or under common control with
the Placement Agent within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act or the Rules and Regulations shall not exceed the
compensation received by the Placement Agent pursuant to Section 2 hereof. This
limitation of liability shall apply regardless of the cause of action, whether
contract, tort (including, without limitation, negligence) or breach of statute
or any other legal or equitable obligation.

      8.    Payment of Expenses.

      The Company hereby agrees to bear all of the expenses in connection with
the Offering, including, but not limited to the following: filing fees, printing
and duplicating costs, advertisements, postage and mailing expenses with respect
to the transmission of Offering Materials, registrar and transfer agent fees,
escrow agent fees and expenses, fees of the Company's counsel and accountants,
issue and transfer taxes, if any.

      9.    Conditions of Closing.

      The Closing shall be held at the offices of the Investor or its counsel
pursuant to the terms of the Standby Equity Distribution Agreement. The
obligations of the parties hereunder shall be subject to the continuing accuracy
of the representations and warranties of the parties hereto herein as of the
date hereof and as of the Date of Closing (the "Closing Date") with respect to
the parties hereto, as the case may be, as if it had been made on and as of such
Closing Date; the

                                      -13-
<PAGE>

accuracy on and as of the Closing Date of the statements of the parties hereto
made pursuant to the provisions hereof; and the performance by the parties
hereto on and as of the Closing Date of its covenants and obligations hereunder
and to the following further conditions:

      A.    At or prior to the Closing, the Company, the Investor and the
Placement Agent shall have been furnished such documents, certificates and
opinions as it may reasonably require for the purpose of enabling them to review
or pass upon the matters referred to in this Agreement and the Offering
Materials, or in order to evidence the accuracy, completeness or satisfaction of
any of the representations, warranties or conditions herein contained.

      B.    At and prior to the Closing, (i) there shall have been no material
adverse change nor development involving a prospective change in the condition
or prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the Offering
Materials that would require to be disclosed in the Registration Statement; (ii)
there shall have been no transaction, not in the ordinary course of business
except the transactions pursuant to the Standby Equity Distribution Agreement
entered into by the Company on the date hereof which has not been disclosed in
the Offering Materials or to the Placement Agent in writing; (iii) except as set
forth in the Offering Materials, the Company shall not be in default under any
provision of any instrument relating to any outstanding material indebtedness
for which a waiver or extension has not been otherwise received; (iv) except as
set forth in the Offering Materials, the Company shall not have issued any
securities (other than those to be issued as provided in the Offering Materials)
or declared or paid any dividend or made any distribution of its capital stock
of any class and there shall not have been any material adverse change in the
indebtedness (long or short term) or material trade payable debt or liabilities
or obligations of the Company and its Subsidiaries taken as a whole (contingent
or otherwise) ; (v) no material amount of the assets of the Company shall have
been pledged or mortgaged, except as indicated in the Offering Materials; and
(vi) no action, suit or proceeding, at law or in equity, against the Company and
its Subsidiaries or affecting any of their properties or businesses shall be
pending or threatened before or by any court or federal or state commission,
board or other administrative agency, domestic or foreign, wherein an
unfavorable decision, ruling or finding would reasonably be likely to materially
adversely affect the businesses, or financial condition or income of the Company
and its Subsidiaries taken as a whole, except as set forth in the Offering
Materials; (vii) no action, suit or proceeding, at law or in equity, against any
party hereto or affecting any of its properties or businesses shall be pending
or threatened before or by any court or federal or state commission, board or
other administrative agency, domestic or foreign, wherein an unfavorable
decision, ruling or finding would reasonably be likely to materially adversely
affect such party's ability to consummate the transactions contemplated by this
Agreement, the Standby Equity Distribution Agreement, the Escrow Agreement, or
the Registration Rights Agreement.

      C.    If requested at Closing the Investor and the Placement Agent shall
receive a certificate of the Company signed by an executive officer and chief
financial officer, dated as of the applicable Closing, to the effect that the
conditions set forth in subparagraph (B) above have been satisfied and that, as
of the applicable closing, the representations and warranties of the Company set
forth herein are true and correct.

                                      -14-
<PAGE>

      D.    The Placement Agent shall have no obligation to insure that (x) any
check, note, draft or other means of payment for the Common Stock will be
honored, paid or enforceable against the Investor in accordance with its terms,
or (y) subject to the performance of the Placement Agent's obligations and the
accuracy of the Placement Agent's representations and warranties hereunder, (1)
the Offering is exempt from the registration requirements of the 1933 Act or any
applicable state "Blue Sky" law or (2) the Investor is an Accredited Investor.

      10.   Termination.

      This Agreement shall be co-terminus with, and terminate upon the same
terms and conditions as those set forth in, the Standby Equity Distribution
Agreement. The rights and the obligations of the Investor and the Company under
the Registration Rights Agreement, and the rights and obligations of the
Placement Agent and the Company shall survive the termination of this Agreement
unabridged.

      11.   Miscellaneous.

      A.    This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all which shall be deemed to be
one and the same instrument.

      B.    Any notice required or permitted to be given hereunder shall be
given in writing and shall be deemed effective when deposited in the United
States mail, postage prepaid, or when received if personally delivered or faxed
(upon confirmation of receipt received by the sending party), addressed as
follows to such other address of which written notice is given to the others):

If to Placement Agent, to:          Newbridge Securities Corporation
                                    1451 Cypress Creek Road, Suite 204
                                    Fort Lauderdale, Florida 33309
                                    Attention: Doug Aguililla
                                    Telephone: (954) 334-3450
                                    Facsimile: (954) 229-9937

If to the Company, to:              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 McDonell
                                    Telephone: +(44) 1481 729980
                                    Facsimile: +(44) 1481 729982

With a copy to:                     McGrigor Donald
                                    Pacific House
                                    70 Wellington Street
                                    Glasgow, G2 6SB United Kingdom

                                      -15-
<PAGE>

                                    Attention: Paul Davidson
                                    Telephone: +(44) 141 248 6677
                                    Facsimile: +(44) 141 204 1351

If to the Investor:                 Cornell Capital Partners, LP
                                    101 Hudson Street - Suite 3606
                                    Jersey City, New Jersey 07302
                                    Attention: Mark A. Angelo
                                               Portfolio Manager
                                    Telephone: +1 (201) 985-8300
                                    Facsimile: +1 (201) 985-8266

With Copies to:                     Butler Gonzalez LLP
                                    1416 Morris Avenue - Suite 207
                                    Union, New Jersey 07083
                                    Attention: David Gonzalez, Esq.
                                    Telephone: +1 (908) 810-8588
                                    Facsimile: +1 (908) 810-0973
                                    Butler Gonzalez LLP

                  4.    This Agreement shall be governed by and construed in all
respects under the laws of the State of Delaware, without reference to its
conflict of laws rules or principles. Any suit, action, proceeding or litigation
arising out of or relating to this Agreement shall be brought and prosecuted in
such federal or state court or courts located within the State of New Jersey as
provided by law. The parties hereby irrevocably and unconditionally consent to
the jurisdiction of each such court or courts located within the State of New
Jersey and to service of process by registered or certified mail, return receipt
requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so commenced has been commenced in an inconvenient
forum.

                  5.    This Agreement and the other agreements referenced
herein contain the entire understanding between the parties hereto and may not
be modified or amended except by a writing duly signed by the party against whom
enforcement of the modification or amendment is sought.

                  6.    If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      -16-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.

                                    COMPANY:
                                    CANARGO ENERGY CORPORATION

                                    By: _____________________________
                                    Name: Vincent McDonell
                                    Title: Director and Chief Financial Officer

                                    PLACEMENT AGENT:
                                    NEWBRIDGE SECURITIES CORPORATION

                                    By: ______________________________
                                    Name: Guy S. Amico
                                    Title: President

                                    INVESTOR:
                                    CORNELL CAPITAL PARTNERS, LP

                                    By: Yorkville Advisors, LLC
                                    Its: General Partner

                                    By:_________________________________
                                    Name: Mark A. Angelo
                                    Title: Portfolio Manager

                                      -17-<PAGE>

                                                                    EXHIBIT 10.3

                                ESCROW AGREEMENT

      THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
February 11, 2004 by CANARGO ENERGY CORPORATION, a Delaware corporation (the
"Company"); CORNELL CAPITAL PARTNERS, LP, a Delaware limited partnership (the
"Investor"); and BUTLER GONZALEZ LLP (the "Escrow Agent").

                                   BACKGROUND

      WHEREAS, the Company and the Investor have entered into an Standby Equity
Distribution Agreement (the "Standby Equity Distribution Agreement") dated as of
the date hereof, pursuant to which the Investor will purchase the Company's
Common Stock, par value $0.10 per share (the "Common Stock"), at a price per
share equal to the Purchase Price, as that term is defined in the Standby Equity
Distribution Agreement, for an aggregate price of up to Twenty Million Dollars
($20,000,000). The Standby Equity Distribution Agreement provides that on each
Advance Date the Investor, as that term is defined in the Standby Equity
Distribution Agreement, shall deposit the Advance pursuant to the Advance Notice
in a segregated escrow account to be held by Escrow Agent and the Company shall
deposit shares of the Company's Common Stock, which shall be purchased by the
Investor as set forth in the Standby Equity Distribution Agreement, with the
Escrow Agent, in order to effectuate a disbursement to the Company of the
Advance by the Escrow Agent and a disbursement to the Investor of the shares of
the Company's Common Stock by Escrow Agent at a closing to be held as set forth
in the Standby Equity Distribution Agreement (the "Closing").

      WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds
and the shares of the Company's Common Stock deposited with it in accordance
with the terms of this Agreement.

      WHEREAS, in order to establish the escrow of funds and shares to effect
the provisions of the Standby Equity Distribution Agreement, the parties hereto
have entered into this Agreement.

      NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as
follows:

      1.    Definitions. The following terms shall have the following meanings
when used herein:

            a.    "Escrow Funds" shall mean the Advance funds deposited in
immediately available funds with the Escrow Agent pursuant to this Agreement.

            b.    "Joint Written Direction" shall mean a written direction
executed by the Investor and the Company directing Escrow Agent to disburse all
or a portion of the Escrow Funds or to take or refrain from taking any action
pursuant to this Agreement.

            c.    "Common Stock Joint Written Direction" shall mean a written
direction executed by the Investor and the Company directing Investor's Counsel
to disburse all

<PAGE>

or a portion of the shares of the Company's Common Stock or to refrain from
taking any action pursuant to this Agreement.

      2.    Appointment of and Acceptance by Escrow Agent.

            a.    The Investor and the Company hereby appoint Escrow Agent to
serve as Escrow Agent hereunder. Escrow Agent hereby accepts such appointment
and, upon receipt by wire transfer of the Escrow Funds in accordance with
Section 3 below, agrees to hold, invest and disburse the Escrow Funds in
accordance with this Agreement.

            b.    The Investor and the Company hereby appoint the Escrow Agent
to serve as the holder of the shares of the Company's Common Stock which shall
be purchased by the Investor. The Escrow Agent hereby accepts such appointment
and, upon receipt via D.W.A.C or receipt of the certificates representing of the
shares of the Company's Common Stock in accordance with Section 3 below, agrees
to hold and disburse the shares of the Company's Common Stock in accordance with
this Agreement.

            c.    The Company hereby acknowledges that the Escrow Agent is
counsel to the Investor in connection with the transactions contemplated and
referenced herein. The Company agrees that in the event of any dispute arising
in connection with this Escrow Agreement or otherwise in connection with any
transaction or agreement contemplated and referenced herein, the Escrow Agent
shall be permitted to continue to represent the Investor and the Company will
not seek to disqualify such counsel unless the Escrow Agent has breached the
provisions of this Agreement and is itself a possible defendant in any action
commenced by either party hereto.

      3.    Creation of Escrow Account/Common Stock Account.

            a.    On or prior to the date of this Agreement the Escrow Agent
shall establish an escrow account for the deposit of the Escrow Funds entitled
as follows: CanArgo Energy Corporation/Cornell Capital Partners, LP. The
Investor will wire immediately available funds to the account of the Escrow
Agent as follows:

BANK:                               Wachovia, N.A. of New Jersey

ROUTING #:                          031201467

ACCOUNT #:                          2020000659170

NAME ON ACCOUNT:                    Butler Gonzalez LLP as Escrow Agent

NAME ON SUB-ACCOUNT:                CanArgo Energy Corporation/Cornell Capital
                                    Partners, LP Escrow account

            b.    On or prior to the date of this Agreement the Escrow Agent
shall, if requested by the Company, establish an account for the D.W.A.C. of the
shares of Common Stock. If the Company so elects, the Company will deliver
D.W.A.C. shares of the Company's Common Stock to the account of the Escrow Agent
as follows:

                                       2
<PAGE>

BROKERAGE FIRM:                     Crown Financial Group
CLEARING HOUSE:                     Fiserv
ACCOUNT #:                          56797702
DTC #:                              0632
NAME ON ACCOUNT:                    Butler Gonzalez LLP Escrow Account

      4.    Deposits into the Escrow Account. The Investor agrees that it shall
promptly deliver all monies for the payment of the Common Stock to the Escrow
Agent for deposit in the Escrow Account.

      5.    Disbursements from the Escrow Account.

            a.    At such time as Escrow Agent has collected and deposited
Escrow Funds in the total amount of the Advance and has received such Common
Stock via D.W.A.C from the Company or pursuant to the delivery of one or more
certificates representing the shares of Common Stock (the "Certificates") which
are to be issued to the Investor pursuant to the Standby Equity Distribution
Agreement, the Escrow Agent shall notify the Company and the Investor. The
Escrow Agent will continue to hold such funds until the Investor and Company
execute and deliver a Joint Written Direction directing the Escrow Agent to
disburse the Escrow Funds pursuant to Joint Written Direction at which time the
Escrow Agent shall wire the Escrow Funds to the Company. In disbursing such
funds, Escrow Agent is authorized to rely upon such Joint Written Direction from
Company and may accept any signatory from the Company listed on the signature
page to this Agreement and any signature from the Investor that Escrow Agent
already has on file. Simultaneous with delivery of the executed Joint Written
Direction to the Escrow Agent the Investor and Company shall execute and deliver
a Common Stock Joint Written Direction to the Escrow Agent directing the Escrow
Agent to release via D.W.A.C or by delivery of the Certificates to the Investor
the shares of the Company's Common Stock. In releasing such shares of Common
Stock the Escrow Agent is authorized to rely upon such Common Stock Joint
Written Direction from Company and may accept any signatory from the Company
listed on the signature page to this Agreement and any authorized signature from
the Company that the Escrow Agent has on file.

      In the event the Escrow Agent does not receive the amount of the Advance
from the Investor or the shares of Common Stock to be purchased by the Investor
from the Company, the Escrow Agent shall notify the Company and the Investor and
in no event will the shares of Common Stock or the Certificates be released to
the Investor until such shares are received.

      In the event that the Escrow Agent has not received the Common Stock to be
purchased by the Investor from the Company, in no event will the Escrow Funds be
released to the Company until such shares are received by the Escrow Agreement.
For purposes of this Agreement, the term "Certificates" shall mean Common Stock
certificates to be evidencing the shares of Common Stock to be purchased
pursuant to the respective Advance Notice pursuant to the Standby Equity
Distribution Agreement.

      6.    Deposit of Funds. The Escrow Agent is hereby authorized to deposit
the Escrow Funds in the Escrow Account.

                                       3
<PAGE>

      7.    Suspension of Performance: Disbursement Into Court.

            a.    Escrow Agent. If at any time, there shall exist any dispute
between the Company and the Investor with respect to holding or disposition of
any portion of the Escrow Funds or the Common Stock or any other obligations of
Escrow Agent hereunder, or if at any time Escrow Agent is unable to determine,
to Escrow Agent's sole satisfaction, the proper disposition of any portion of
the Escrow Funds or Escrow Agent's proper actions with respect to its
obligations hereunder, or if the parties have not within thirty (30) days of the
furnishing by Escrow Agent of a notice of resignation pursuant to Section 9
hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent
may, in its sole discretion, take either or both of the following actions:

                  i.    Suspend the performance of any of its obligations
(including without limitation any disbursement obligations) under this Escrow
Agreement until such dispute or uncertainty shall be resolved to the sole
satisfaction of Escrow Agent or until a successor Escrow Agent shall be
appointed (as the case may be); provided however, Escrow Agent shall continue to
invest the Escrow Funds in accordance with Section 8 hereof; and/or

                  ii.   petition (by means of an interpleader action or any
other appropriate method) any court of competent jurisdiction in any venue
convenient to Escrow Agent, for instructions with respect to such dispute or
uncertainty, and to the extent required by law, pay into such court, for holding
and disposition in accordance with the instructions of such court, all funds
held by it in the Escrow Funds, after deduction and payment to Escrow Agent of
all fees and expenses (including court costs and attorneys' fees) payable to,
incurred by, or expected to be incurred by Escrow Agent in connection with
performance of its duties and the exercise of its rights hereunder.

                  iii.  Escrow Agent shall have no liability to the Company, the
Investor, or any person with respect to any such suspension of performance or
disbursement into court, specifically including any liability or claimed
liability that may arise, or be alleged to have arisen, out of or as a result of
any delay in the disbursement of funds held in the Escrow Funds or any delay in
or with respect to the delivery of any Certificates to the Investor or any delay
in or with respect to any other action required or requested of Escrow Agent,
provided, any such delay in or with respect to the disbursement of any funds, or
delivery of any Certificates or any other action required or requested of Escrow
Agent hereunder was not in breach of any express joint instruction received from
the Investor and the Company or was unjustified and unreasonable.

      8.    Investment of Escrow Funds. The Escrow Agent shall deposit the
Escrow Funds in a non-interest bearing money market, mutually acceptable to the
Company and the Investor, unless the Escrow Agent receives a Joint Written
Direction to the contrary signed by the Investor and the Company. .

      9.    Resignation and Removal of Escrow Agent. Escrow Agent may resign
from the performance of its duties hereunder at any time by giving thirty (30)
days' prior written notice to the parties or may be removed, with or without
cause, by the parties, acting jointly, by furnishing a Joint Written Direction
to Escrow Agent, at any time by the giving of ten (10) days' prior written
notice to Escrow Agent as provided herein below. Upon any such notice of

                                       4
<PAGE>

resignation or removal, the representatives of the Investor and the Company
identified in Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a
successor Escrow Agent hereunder, which shall be a commercial bank, trust
company or other financial institution with a combined capital and surplus in
excess of $10,000,000.00. Upon the acceptance in writing of any appointment of
Escrow Agent hereunder by a successor Escrow Agent, such successor Escrow Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Escrow Agent, and the retiring Escrow
Agent shall be discharged from its duties and obligations under this Escrow
Agreement, but shall not be discharged from any liability for actions taken as
Escrow Agent hereunder prior to such succession. After any retiring Escrow
Agent's resignation or removal, the provisions of this Escrow Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Escrow Agent under this Escrow Agreement. The retiring Escrow Agent shall
transmit all records pertaining to the Escrow Funds and shall deliver all funds
held by it as the Escrow Funds and Certificates to the successor Escrow Agent,
after making copies of such records as the retiring Escrow Agent deems advisable
and after deduction and payment to the retiring Escrow Agent of all fees and
expenses (including court costs and reasonable attorneys' fees) payable to,
incurred by, or expected to be incurred by the retiring Escrow Agent in
connection with the performance of its duties and the exercise of its rights
hereunder.

      10.   Liability of Escrow Agent.

            a.    Escrow Agent shall have no liability or obligation with
respect to the Escrow Funds or the Certificates (collectively, the "Escrow
Property") except for Escrow Agent's willful misconduct or gross negligence,
provided, however the Escrow Agent shall treat the Escrow Property with at least
the same duty of care as it deals with its own property and provided, further,
however, the Escrow Agent shall keep the Escrow Property free and clear of all
liens, charges, and encumbrances arising by, through or under the Escrow Agent.
Escrow Agent's sole responsibility shall be for the safekeeping, investment, and
disbursement of the Escrow Property in accordance with the terms of this
Agreement. Escrow Agent shall have no implied duties or obligations and shall
not be charged with knowledge or notice or any fact or circumstance not
specifically set forth herein. Escrow Agent may rely upon any instrument, not
only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein, which Escrow Agent
shall in good faith believe to be genuine, to have been signed or presented by
the person or parties purporting to sign the same and conform to the provisions
of this Agreement. In no event shall Escrow Agent be liable for incidental,
indirect, special, and consequential or punitive damages. Escrow Agent shall not
be obligated to take any legal action or commence any proceeding in connection
with the Escrow Property, any account in which Escrow Property is deposited,
this Agreement or the Standby Equity Distribution Agreement, or to appear in,
prosecute or defend any such legal action or proceeding. Escrow Agent may
consult legal counsel selected by it in the event of any dispute or question as
to construction of any of the provisions hereof or of any other agreement or its
duties hereunder, or relating to any dispute involving any party hereto, and
shall incur no liability and shall be fully indemnified from any liability
whatsoever in acting in accordance with the opinion or instructions of such
counsel. The Company and the Investor jointly and severally shall promptly pay,
upon demand, the reasonable fees and expenses of any such counsel and Escrow
Agent is hereby authorized to pay such fees and expenses from funds held in
escrow.

                                       5
<PAGE>

            b.    The Escrow Agent is hereby authorized, in its sole discretion,
to comply with orders issued or process entered by any court with respect to the
Escrow Property, without determination by the Escrow Agent of such court's
jurisdiction in the matter. If any portion of the Escrow Property is at any time
attached, garnished or levied upon under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order, or in any case any order judgment or
decree shall be made or entered by any court affecting such property or any part
thereof, then and in any such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ judgment or decree
which it is advised by legal counsel selected by it, binding upon it, without
the need for appeal or other action; and if the Escrow Agent complies with any
such order, writ, judgment or decree, it shall not be liable to any of the
parties hereto or to any other person or entity by reason of such compliance
even though such order, writ judgment or decree may be subsequently reversed,
modified, annulled, set aside or vacated.

      11.   Indemnification of Escrow Agent. From and at all times after the
date of this Agreement, the parties jointly and severally, shall, to the fullest
extent permitted by law and to the extent provided herein, indemnify and hold
harmless Escrow Agent and each director, officer, employee, attorney, agent and
affiliate of Escrow Agent (collectively, the "Indemnified Parties") against any
and all actions, claims (whether or not valid), losses, damages, liabilities,
costs and expenses of any kind or nature whatsoever (including without
limitation reasonable attorney's fees, costs and expenses) incurred by or
asserted against any of the Indemnified Parties from and after the date hereof,
whether direct, indirect or consequential, as a result of or arising from or in
any way relating to any claim, demand, suit, action, or proceeding (including
any inquiry or investigation) by any person, including without limitation the
parties to this Agreement, whether threatened or initiated, asserting a claim
for any legal or equitable remedy against any person under any statute or
regulation, including, but not limited to, any federal or state securities laws,
or under any common law or equitable cause or otherwise, arising from or in
connection with the negotiation, preparation, execution, performance or failure
of performance of this Agreement or any transaction contemplated herein, whether
or not any such Indemnified Party is a party to any such action or proceeding,
suit or the target of any such inquiry or investigation; provided, however, that
no Indemnified Party shall have the right to be indemnified hereunder for
liability finally determined by a court of competent jurisdiction, subject to no
further appeal, to have resulted solely from the gross negligence or willful
misconduct of such Indemnified Party or any breach of this Agreement by such
Indemnified Party. If any such action or claim shall be brought or asserted
against any Indemnified Party, such Indemnified Party shall promptly notify the
Company and the Investor hereunder in writing, and the Investor or the Company,
as they shall agree between themselves, shall assume the defense thereof,
including the employment of counsel and the payment of all expenses. Such
Indemnified Party shall, in its sole discretion, have the right to employ
separate counsel (who may be selected by such Indemnified Party in its sole
discretion) in any such action and to participate and to participate in the
defense thereof, and the fees and expenses of such counsel shall be paid by such
Indemnified Party, except that the Investor and/or the Company shall be required
to pay such fees and expense if (a) the Investor or the Company agree to pay
such fees and expenses, or (b) the Investor and/or the Company shall fail to
assume the defense of such action or proceeding or shall fail, in the sole
discretion of such Indemnified Party, to employ counsel reasonably satisfactory
to the Indemnified Party in any such action or proceeding, (c) the Investor and
the Company are the plaintiff in any such action or proceeding or (d) the named
or

                                       6
<PAGE>

potential parties to any such action or proceeding (including any potentially
impleaded parties) include both Indemnified Party the Company and/or the
Investor and Indemnified Party shall have been advised by counsel that there may
be one or more legal defenses available to it which are different from or
additional to those available to the Company or the Investor. The Investor and
the Company shall be jointly and severally liable to pay fees and expenses of
counsel pursuant to the preceding sentence, except that any obligation to pay
under clause (a) shall apply only to the party so agreeing. All such fees and
expenses payable by the Company and/or the Investor pursuant to the foregoing
sentence shall be paid from time to time as incurred, both in advance of and
after the final disposition of such action or claim, provided, however, that in
the event that the Indemnified Party shall be determined in any such action or
proceeding to have acted with gross negligence or willful misconduct or shall
have been found to have breached this Agreement, then the Indemnified Party
shall reimburse the party paying all such fees and expenses for any amounts
advanced in respect thereof. The obligations of the parties under this section
shall survive any termination of this Agreement, and resignation or removal of
the Escrow Agent shall be independent of any obligation of Escrow Agent.

      12.   Expenses of Escrow Agent. Except as set forth in Section 11 the
Company shall reimburse Escrow Agent for all of its reasonable out-of-pocket
expenses, including attorneys' fees, travel expenses, telephone and facsimile
transmission costs, postage (including express mail and overnight delivery
charges), copying charges and the like as outlined in Section 12.4 of the
Standby Equity Distribution Agreement dated the date hereof. All of the
compensation and reimbursement obligations set forth in this Section shall be
payable by the Company, upon demand by Escrow Agent. The obligations of the
Company under this Section shall survive any termination of this Agreement and
the resignation or removal of Escrow Agent.

      13.   Warranties.

            a.    The Investor makes the following representations and
warranties to the Escrow Agent and Investor's Counsel:

                  i.    The Investor has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.

                  ii.   This Agreement has been duly approved by all necessary
action of the Investor, including any necessary approval of the limited partner
of the Investor, has been executed by duly authorized officers of the Investor's
general partner, enforceable in accordance with its terms.

                  iii.  The execution, delivery, and performance of the Investor
of this Agreement will not violate, conflict with, or cause a default under the
agreement of limited partnership of the Investor, any applicable law or
regulation, any court order or administrative ruling or degree to which the
Investor is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement.

                  iv.   Mark A. Angelo has been duly appointed to act as the
representative of Investor hereunder and has full power and authority to
execute, deliver, and perform this Agreement, to execute and deliver any Joint
Written Direction, to amend, modify,

                                       7
<PAGE>

or waive any provision of this Agreement, and to take any and all other actions
as the Investor's representative under this Agreement, all without further
consent or direction form, or notice to, the Investor or any other party.

                  v.    No party other than the parties hereto have, or shall
have any lien, claim or security interest in the Escrow Property or any part
thereof. No financing statement under the Uniform Commercial Code is on file in
any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Escrow Funds or any part thereof.

                  vi.   All of the representations and warranties of the
Investor contained herein are true and complete as of the date hereof and will
be true and complete at the time of any disbursement from the Escrow Funds.

            b.    The Company makes the following representations and warranties
to Escrow Agent and, the Investor:

                  i.    The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, and has
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder.

                  ii.   This Agreement has been duly approved by all necessary
corporate action of the Company, including any necessary shareholder approval,
has been executed by duly authorized officers of the Company, enforceable in
accordance with its terms.

                  iii.  The execution, delivery, and performance by the Company
of this Escrow Agreement is in accordance with the Standby Equity Distribution
Agreement and will not violate, conflict with, or cause a default under the
certificate of incorporation or bylaws of the Company, any applicable law or
regulation, any court order or administrative ruling or decree to which the
Company is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement.

                  iv.   David Robson and Vincent McDonnell, or either of them,
has been duly appointed to act as the representative of the Company hereunder
and has full power and authority to execute, deliver, and perform this
Agreement, to execute and deliver any Joint Written Direction, to amend, modify
or waive any provision of this Agreement and to take all other actions as the
Company's Representative under this Agreement, all without further consent or
direction from, or notice to, the Company or any other party.

                  v.    No party other than the parties hereto shall have, any
lien, claim or security interest in the Escrow Property or any part thereof. No
financing statement under the Uniform Commercial Code is on file in any
jurisdiction claiming a security interest in or describing (whether specifically
or generally) the Escrow Property or any part thereof.

                  vi.   All of the representations and warranties of the Company
contained herein are true and complete as of the date hereof and will be true
and complete at the time of any disbursement from the Escrow Funds.

                                       8
<PAGE>

      14.   Consent to Jurisdiction and Venue. In the event that any party
hereto commences a lawsuit or other proceeding relating to or arising from this
Agreement, the parties hereto agree that the United States District Court for
the District of New Jersey shall have the sole and exclusive jurisdiction over
any such proceeding. If all such courts lack federal subject matter
jurisdiction, the parties agree that the Superior Court Division of New Jersey,
Chancery Division of Hudson County shall have sole and exclusive jurisdiction.
Any of these courts shall be proper venue for any such lawsuit or judicial
proceeding and the parties hereto waive any objection to such venue. The parties
hereto consent to and agree to submit to the jurisdiction of any of the courts
specified herein and agree to accept the service of process to vest personal
jurisdiction over them in any of these courts.

      15.   Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
delivery to any overnight courier, or when transmitted by facsimile transmission
and addressed to the party to be notified as follows:

If to Investor, to:               Cornell Capital Partners, LP
                                  101 Hudson Street - Suite 3606
                                  Jersey City, New Jersey 07302
                                  Attention: Mark Angelo
                                  Telephone: + 1 (201) 985-8300
                                  Facsimile: +1 (201) 985-8266

If to Escrow Agent, to:           Butler Gonzalez LLP
                                  1416 Morris Avenue - Suite 207
                                  Union, New Jersey 07083
                                  Attention: David Gonzalez, Esq.
                                  Telephone; +1 (908) 810-855
                                  Facsimile: +1 (908) 810-0973

If to Company, to:                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 McDonell
                                  Telephone: + (44) 1481 729980
                                  Facsimile: + (44) 1481 729982

With a copy to:                   McGrigor Donald
                                  Pacific House
                                  70 Wellington Street
                                  Glasgow, G2 6SB United Kingdom
                                  Attention: Paul Davidson

                                       9
<PAGE>

                                  Telephone: + (44) 141 248 6677
                                  Facsimile: + (44) 141 204 1351

      Or to such other address as each party may designate for itself by like
notice.

      16.   Amendments or Waiver. This Agreement may be changed, waived,
discharged or terminated only by a writing signed by the parties of the Escrow
Agent. No delay or omission by any party in exercising any right with respect
hereto shall operate as waiver. A waiver on any one occasion shall not be
construed as a bar to, or waiver of, any right or remedy on any future occasion.

      17.   Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition, or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

      18.   Governing Law. This Agreement shall be construed and interpreted in
accordance with the internal laws of the State of Delaware without giving effect
to the conflict of laws principles thereof.

      19.   Entire Agreement. This Agreement constitutes the entire Agreement
between the parties relating to the holding, investment, and disbursement of the
Escrow Funds and sets forth in their entirety the obligations and duties of the
Escrow Agent with respect to the Escrow Funds and the shares of the Company's
Common Stock.

      20.   Binding Effect. All of the terms of this Agreement, as amended from
time to time, shall be binding upon, inure to the benefit of and be enforceable
by the respective heirs, successors and assigns of the Investor, the Company, or
the Escrow Agent.

      21.   Execution of Counterparts. This Agreement and any Joint Written
Direction may be executed in counter parts, which when so executed shall
constitute one and same agreement or direction.

      22.   Termination. Upon the first to occur of the termination of the
Standby Equity Distribution Agreement dated the date hereof or the disbursement
of all amounts in the Escrow Funds and the Certificates into court pursuant to
Section 7 hereof, this Agreement shall terminate and Escrow Agent shall have no
further obligation or liability whatsoever with respect to this Agreement or the
Escrow Funds and the shares of the Company's Common Stock.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       10
<PAGE>

      IN WITNESS WHEREOF the parties have hereunto set their hands and seals the
day and year above set forth.

                                     CANARGO ENERGY CORPORATION

                                     By: _______________________________________
                                     Name: Vincent McDonell
                                     Title: Director and Chief Financial Officer

                                     CORNELL CAPITAL PARTNERS, LP

                                     By: Yorkville Advisors, LLC
                                     Its: General Partner

                                     By: _______________________________________
                                     Name: Mark A. Angelo
                                     Title: Portfolio Manager

                                     BUTLER GONZALEZ LLP

                                     By: _______________________________________
                                     Name: David Gonzalez, Esq.
                                     Title: Partner

                                       11

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