Exhibit 10.5
THIS SECURITY INTEREST AGREEMENT is made on October 29, 2009
BETWEEN:

(1)   CANARGO ENERGY CORPORATION, a Delaware corporation and
debtor-in-possession (the “Debtor”); and   (2)   PERSISTENCY, a Cayman Islands
limited company (the “Secured Party”).

RECITALS

(A)   The Secured Party has agreed to advance loans to the Debtor pursuant to
the terms of a financing agreement dated on or about the date of this security
agreement made between the Debtor and the Secured Party, as amended, varied,
supplemented, extended, renewed, restated, novated or replaced from time to time
(the “Financing Agreement”).   (B)   The Debtor is the sole legal and beneficial
owner of the Charged Property (as defined below).   (C)   It is a requirement of
the Financing Agreement that the Debtor enters into this security agreement.  
(D)   It is expressly understood by the parties that Secured Party shall not
seek to enforce its rights hereunder unless it is permitted to do so under the
Loan Documents and Financing Orders (as such terms are defined below).

IT IS AGREED as follows:

1.   INTERPRETATION   1.1   In this security agreement, including the recitals,
the following words and expressions shall have the meaning set out against them
(unless the context requires otherwise):       “at any time” includes from time
to time and for the time being;       “Business Day” means a day (other than a
Saturday and Sunday) on which banks are open for normal business in New York and
Guernsey;       “certificate” means a certificate of title to securities;      
“Charged Property” means the assets listed in schedule 1 to this security
agreement;       “Collateral” means the Charged Property and any Derivative
Asset at any time subject to the security interest created under this security
agreement;       “Company” means CanArgo Limited, a company incorporated in
Guernsey with number 32825, whose registered office is Martello Court, Admiral
Park, St Peter Port,

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    Guernsey and whose shares or other securities are the subject of the
security created under this security agreement;       “Default Rate” shall have
the same meaning as “Post-Default Rate” as defined in the Financing Agreement;  
    “Derivative Asset” means any dividend, distribution, interest on dividends
and distributions, stock, share or other security, right, money or other
intangible moveable property at any time after the date of this security
agreement derived from or accruing, offered or created in relation to, or issued
in substitution for, all or any part of the Charged Property;       “Event of
Default” means any of the events referred to in clause 6;       “Expenses” means
all costs (including legal costs), charges, expenses, losses, liabilities and
damages (and any taxes or duties payable on any such items) (in each case, on a
full indemnity basis) suffered or incurred by the Secured Party or its attorney,
delegate, sub-delegate or other appointee, arising out of or in connection with
all or any part of the Indebtedness;       “Indebtedness” means any and all
present and future moneys, obligations and liabilities in any currency or
currencies (whether actual or contingent and whether owed solely or jointly and
whether as principal or surety or in any other capacity whatsoever) which shall,
from time to time (whether due on demand or upon notice or at fixed dates), be
or become due, owing or incurred by the Debtor to the Secured Party under or in
connection with (a) the Loan Documents and (b) this security agreement
(including all Expenses);       “Law” means the Security Interests (Guernsey)
Law, 1993;       “Loan Documents” shall have the meaning ascribed thereto in the
Financing Agreement;       “Pledge Agreement” means the pledge agreement dated
on or about the date of this security agreement made between the Debtor and the
Secured Party, as amended, varied, supplemented, extended, renewed, restated,
novated or replaced from time to time with respect to the Security Interest
granted to the Secured Party in the Collateral under and in accordance with the
laws of the State of New York;       “Security Interest” means any lien, charge,
bond, mortgage, pledge, assignment, hypothecation, title retention, security
interest, equitable interest, trust arrangement or any other agreement or
arrangement of any kind having the effect of creating security;       “transfer”
includes assignment.   1.2   References to the Secured Party include its
successors, assigns and nominees and any branch or agent of the Secured Party in
Guernsey or elsewhere. References to the Debtor include its successors in title
and permitted assigns (as the case may be).

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1.3   In this security agreement, unless the context otherwise requires:

  (a)   references to a person shall include any body corporate or
unincorporate;     (b)   words denoting the singular shall include the plural
and vice versa;     (c)   words denoting a gender shall include the other gender
and the neuter and neuter references shall include all genders;     (d)  
references to recitals, clauses, sub-clauses, paragraphs, sub-paragraphs and
schedules are references to recitals, clauses, sub-clauses, paragraphs and
sub-paragraphs of, and to schedules to, this security agreement;     (e)   any
reference to any statute or statutory provision shall include a reference to any
order, ordinance or regulation made under it and any such reference shall be
construed as a reference to such statute, statutory provision, order, ordinance
or regulation as amended, modified, consolidated, extended, re-enacted or
replaced from time to time;     (f)   a reference to “assets” includes
properties, revenues and rights of every description;     (g)   a reference to
“authorisation” includes an authorisation, consent, approval, resolution,
licence, exemption, filing, recording, registration and notarisation;     (h)  
words and expressions contained in this security agreement shall, unless
otherwise defined, bear the same meaning as in the Financing Agreement; and    
(i)   a time of day is a reference to Guernsey time.

1.5   Unless otherwise defined in this security agreement or the Financing
Agreement or unless the context otherwise requires, words and expressions
contained in this security agreement shall bear the same meaning as in the Law.
  1.6   The recitals of, and schedules to, this security agreement form part of
this security agreement and any references to this security agreement shall
include those recitals and schedules.   1.7   Any reference to this security
agreement and to any agreement or document referred to in it shall be a
reference to this security agreement or such agreement or document as amended,
varied, supplemented, extended, restated, renewed, novated or replaced from time
to time.   1.8   Clause headings are for ease of reference only and shall not
affect the construction of this security agreement.   2.   SECURITY INTEREST

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2.1   In consideration of the Secured Party making available or continuing to
make available to the Debtor loan facilities under the Financing Agreement, the
Debtor covenants to the Secured Party to pay and discharge the Indebtedness and
to perform and observe all its other obligations to the Secured Party on their
respective due dates and as a continuing security to the Secured Party for such
payment, discharge, performance and observance, all as may be required under the
Financing Agreement and other Loan Documents, the Debtor, as legal and
beneficial owner of the Collateral (save as set out in this security agreement),
with the intention of creating a security interest in the Collateral in favour
of the Secured Party, pursuant to the provisions of the Law, hereby:

  (a)   undertakes to deliver to the Secured Party (or its nominee), upon
execution and delivery of this security agreement, the certificates relating to
the Charged Property so that the Secured Party (or its nominee) shall have
possession of those certificates, subject to the terms of this security
agreement; and     (b)   assigns, transfers and otherwise makes over to the
Secured Party (or its nominee) title to the Charged Property and assigns all
right, title and interest in and to the Derivative Assets.

2.2   The Debtor undertakes, upon execution and delivery of this security
agreement and otherwise at any time as the Secured Party shall require,:

  (a)   to deliver immediately to the Secured Party, subject to the provisions
of this security agreement, executed but undated instruments of transfer for
that part of the Collateral capable of being so transferred (but with the name
of the transferee and the consideration left blank) and such other documentation
as the Secured Party may require, at any time, in order to enable the Secured
Party, at any time, to vest title to that part of the Collateral in itself or
its nominee or any purchaser;     (b)   to execute a notice of assignment to the
Collateral in the form set out in schedule 2, to give effect to the relevant
provisions of the Law;     (c)   to deposit with the Secured Party immediately,
all certificates relating to the Collateral including any certificate which the
Debtor receives in relation to the Collateral at any time after completion of
this security agreement;     (d)   to assign, transfer or otherwise make over to
the Secured Party, immediately on receipt of a request from the Secured Party,
at any time, subject to the provisions of this security agreement and the Law,
title to any of the Collateral not held by the Secured Party at that time and
execute a notice of assignment (in a form provided by the Secured Party)
pursuant to the provisions of the Law;     (e)   upon demand by the Secured
Party and at the Debtor’s expense, to do promptly all acts and things and to
sign, seal, execute and deliver promptly all documents and deeds as the Secured
Party may require, pursuant to the provisions of this security agreement or the
Law, to:

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  (i)   perfect, preserve or protect the security interest created or intended
to be created by this security agreement over the Collateral, including (without
limitation) the control of, or title to, any part of the Collateral;     (ii)  
enable the Secured Party (or its appointee) to exercise any rights, powers,
discretion or remedies in respect of any part of the Collateral; and     (iii)  
give effect to any application, sale or disposal pursuant to the provisions of
this security agreement or the Law (as the case may be).

2.3   The Debtor agrees that:

  (a)   the security interests created in accordance with the terms of clause
2.1 shall exist concurrently;     (b)   all certificates relating to the
Collateral in the possession of the Secured Party (or its nominee) at any time
shall be held by the Secured Party (or its nominee), subject to the provisions
of this security agreement;     (c)   title to all of the Collateral held by the
Secured Party (or its nominee) at any time shall be held by the Secured Party
(or its nominee) subject to the provisions of this security agreement.

2.4   If and in so far as the provisions of clause 2.1 shall not be effective to
create or perfect a security interest in any part of the Collateral, the Debtor
shall hold that part of the Collateral on trust for the Secured Party.

2.5   If, at any time, any other certificate relating to any such Collateral is
deposited with, or title to any intangible moveable property forming part of the
Collateral is transferred to, the Secured Party (or its nominee), any such other
certificate or property shall, without further notice or agreement, become
subject to the provisions of this security agreement, except that the provisions
of clause 4.1 shall take effect on the date on which any such certificate is so
deposited or title is transferred.

3.   CONTINUING SECURITY AND ITS PRESERVATION

3.1   The security interest created by this security agreement shall be a
continuing security for the Indebtedness for the benefit of the Secured Party,
notwithstanding the fluctuation in the level of liability under the Indebtedness
or the partial payment, discharge, performance or observance of the Indebtedness
and shall:

  (a)   not be discharged or affected by any act, omission, matter or thing
(whether or not it is known to the Debtor or the Secured Party) which, but for
this provision, would reduce, release or otherwise prejudice any of the Debtor’s
liability and obligations under this security agreement, in whole or in part;

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  (b)   remain binding on the Debtor notwithstanding any amalgamation,
reconstruction, reorganisation, merger, sale or transfer by or involving the
Secured Party or the Debtor; and     (c)   be additional to, and shall not merge
with or be in any way prejudiced or affected by, any other guarantee, indemnity,
Security Interest, right or remedy, now or at any time after the date of this
security agreement, held by or in favour of the Secured Party for any of the
Indebtedness including (without limitation) any rights of set-off or
counterclaim.

3.2   The Secured Party may concede or compromise any claim that any payment,
security or other disposition is liable to avoidance or restoration.   3.3   The
Debtor hereby irrevocably and unconditionally waives any right it may have
whatsoever under the laws of Guernsey or elsewhere at any time (whether or not
now existing) of first requiring the Secured Party (or any trustee or agent on
its behalf) to proceed against or enforce any other rights or security against,
or claim payment from, any person before enforcing this security agreement and
this security agreement shall take effect without the benefit to the Debtor of
the droit de discussion.   4.   REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS    
  Representations and Warranties   4.1   The Debtor represents and warrants to
the Secured Party that, save as provided in this security agreement, and subject
to entry of the Financing Orders:

  (a)   subject to the security interest created by this security agreement, the
Debtor is the sole legal and beneficial owner of the Collateral and all rights
in relation to it;     (b)   save for the security interest created by this
security agreement (or Permitted Priority Liens and the Carve-Out Expenses), no
part of the Collateral or any right in relation to it is subject to any Security
Interest, right of set-off, pre-emption right, option to purchase or similar
rights whatsoever, no claim or counterclaim has been made or threatened by any
person in relation to any such rights in connection with the Collateral nor are
there any circumstances which may give rise to any such claim or threat and
there are no agreements, rights or other matters which affect or might affect:

  (i)   all or any part of the Collateral or any rights in relation to it;    
(ii)   the validity or enforceability of this security agreement;     (iii)  
the ability of the Debtor to perform its obligations under this security
agreement;

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  (c)   the Debtor is duly incorporated under the laws of Delaware and has full
capacity, power and authority to enter into this security agreement and be bound
by its terms;     (d)   this security agreement constitutes legal, valid and
binding obligations of the Debtor and creates a valid and effective security
interest under the Law, in each case, enforceable against the Debtor in
accordance with its terms;     (e)   the creation of the security interest
pursuant to the terms of this security agreement and the performance of any of
the transactions contemplated in this security agreement does not and shall not
contravene any restriction to which all or any part of the Collateral may be
subject of which the Debtor has Knowledge;     (f)   by entering into this
security agreement and by taking any action or entering into any documents in
connection with this security agreement, to the Knowledge of Debtor, none of the
Debtor or any of its directors or other officers shall be violating or be in
breach of:

  (i)   any provision of any agreement, arrangement or undertaking to which it
is a party or which otherwise affects it or its respective securities or
material assets which violation or breach shall have a material adverse effect;
    (ii)   its Certificate of Incorporation or Bylaws ; or     (iii)   any law
or regulation or any judgement, order, injunction, ruling or award, in any
material respect, of any court, judicial, administrative or governmental
authority or arbitrator of which Debtor has Knowledge and by or to which the
Debtor or any of its assets, businesses or securities is bound or subject or
otherwise affected which violation shall have a material adverse effect;

  (g)   to the Knowledge of Debtor, no event has occurred or circumstance exists
which constitutes or, with the giving of notice, lapse of time and/or a relevant
determination, would constitute an Event of Default;     (h)   the Company is
duly incorporated under the laws of Guernsey and the Charged Property
constitutes all the issued share capital of the Company and such share capital
is fully paid up or credited as fully paid up.

    Undertakings   4.2   The Debtor undertakes to the Secured Party that
(subject to the Financing Orders, Loan Documents, Permitted Priority Liens and
Carve-Out Expenses):

  (a)   during the subsistence of the security created or intended to be created
under or pursuant to the provisions of this security agreement:

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  (i)   the Debtor shall (subject to the security interest created by this
security agreement) continue to be the sole beneficial owner of the Collateral
and to all rights in relation to it and shall not permit any person, other than
the Secured Party (or its nominee), to be registered as holder of the Collateral
or any part of it;     (ii)   the Debtor shall not and shall not agree or
attempt to, and shall procure that no person shall or shall agree or attempt to,
at any time, other than with the Secured Party’s prior written consent, create,
grant, extend or permit to subsist any Security Interest, right of set-off,
option to purchase or other similar rights whatsoever on, over or affecting all
or any part of the Collateral or any rights in relation to it. The prohibition
in this sub-paragraph shall apply to any Security Interest, right of set-off,
option to purchase or other similar right which ranks or purports to rank in
point of security in priority to, pari passu with, or subsequent to, the
security constituted (or intended to be created) under the terms of this
security agreement;     (iii)   the Debtor shall not, and shall procure that no
person shall, take or omit to take or agree or attempt to take or omit to take,
any action which might or shall:

  (aa)   materially depreciate, jeopardise or otherwise prejudice the value to
the Secured Party of all or any part of the Collateral;     (bb)   alter or
dilute the rights attaching to any of the Collateral;     (cc)   affect the
validity or enforceability of this security agreement;     (dd)   affect the
ability of the Debtor to perform its obligations under this security agreement;

  (iv)   the Debtor shall not (and shall procure that no person shall) assign,
surrender, sell, transfer or otherwise dispose of all or any part of the
Collateral or any rights in relation to it or agree to do so;

  (b)   until payment, discharge or performance in full of the Indebtedness, the
Charged Property shall continue to constitute all the issued share capital of
the Company; and     (c)   immediately procure the amendment of the Company’s
articles of incorporation in the form set out in the draft special resolution
contained in schedule 3.

4.3   The representations, warranties and undertakings in clauses 4.1 and 4.2
are made on the date of this security agreement and are deemed to be repeated on
each date on which any of the representations and warranties and undertakings in
the Financing Agreement are repeated with reference to the facts and
circumstances then existing.

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5.   VOTING AND OTHER RIGHTS

5.1   For so long as the Collateral or any part of it is registered in the name
of the Debtor or its nominee and remains subject to the Security Interest
granted hereunder, the Debtor undertakes that (subject to the Financing Orders
and the Loan Documents):

  (a)   it shall, and shall procure that its nominee shall, comply with all
obligations and conditions assumed by, and imposed on, the Debtor in respect of
the Collateral or any relevant part;     (b)   in relation to the exercise or
performance or observance by it or its nominee of the rights, privileges, powers
and obligations in relation to the Collateral, it shall, and shall procure that
its nominee shall:

  (i)   not exercise or perform or observe any such rights, privileges, powers
and obligations without the prior written consent of the Secured Party;     (ii)
  comply, without delay, with any instructions given to it or its nominee by the
Secured Party for the exercise and performance or observance of any such rights,
privileges, powers and obligations;

(c)   it shall, and shall procure that its nominee shall, provide to the Secured
Party or its nominee any executed form of proxy or other document reasonably
required in order for the Secured Party to exercise all voting rights in
relation to such Collateral; provided, that, until an Event of Default shall
occur and be continuing the Secured Party hereby agrees and confirms that the
Debtor shall have all and the exclusive voting power with respect to such
securities and any other shares, securities or other equity interests
constituting Collateral; provided, further, that the Debtor shall not exercise
such rights in any way that would have a material adverse effect on the value of
the Collateral; and   (d)   it shall, and shall procure that its nominee shall,
promptly forward to the Secured Party a copy of all notices, correspondence
and/or other communications it receives in relation to the Collateral.

5.2   [Reserved.]   5.3   For so long as the Collateral or any part of it is
registered in the name of the Debtor or its nominee at any time after the
occurrence of an Event of Default which is continuing (subject to the Financing
Orders and the Loan Documents), the Debtor shall immediately exercise, perform
or observe, or cause to be exercised, performed or observed, in such manner as
the Secured Party may, in its absolute discretion, direct, such voting and other
rights, powers, privileges and obligations relating to the Collateral which may
be exercised, performed or observed by the registered holder of the Collateral
or other holder of such rights, powers, privileges and obligations.   6.  
EVENTS OF DEFAULT

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6.1   Each of the following events shall constitute an “Event of Default” under
this security agreement.:

  (a)   the occurrence of an “Event of Default” as defined in the Financing
Agreement; or     (b)   any breach or failure by the Debtor to discharge,
observe or perform any of its obligations falling due under or pursuant to any
provision of this agreement, which, if any such breach or failure is capable of
being cured, is not cured within 5 business days after written notice of such
breach or failure has been provided to Debtor.

6.2   The Debtor shall promptly notify the Secured Party of the occurrence of an
Event of Default or of any circumstances likely, in the reasonable opinion of
the Debtor, to give rise to an Event of Default at such time as it first obtains
Knowledge of any such Event of Default or any such circumstance.

7.   REMEDIES ON DEFAULT

7.1   Upon the occurrence of an Event of Default, subject to the Financing
Orders, the Loan Documents and clause 7.2 below, the Secured Party may:

  (a)   (if it has not already done so), complete the instruments of transfer of
the securities forming all or part of the Collateral on behalf of the Debtor and
any nominee of the Debtor;     (b)   serve notice on the Debtor specifying the
particular Event of Default and after any such service of notice the Secured
Party may, in accordance with the provisions of the Law, sell or apply all or
any part of the Collateral in such manner and for such consideration (whether
payable or deliverable immediately or by instalments), as the Secured Party may,
in its absolute discretion, determine; and     (c)   give a good discharge for
any money received in exercise of its power of sale and for any right, money or
property receivable in respect of all or any of the Collateral.

7.2   All proceeds received by the Secured Party in respect of any sale of,
collection from, or other realisation upon, all or any part of the Collateral
(less any expenses of holding, preparing for sale, selling or the like, which
shall include the Secured Party’s reasonable attorneys’ fees and legal expenses
and subject to the Financing Orders and the Loan Documents) shall be applied to
the Indebtedness, and to the extent of any excess of such proceeds, to the
payment to the Debtor or upon the order of the Debtor, unless otherwise required
by applicable law. Notwithstanding the foregoing and anything herein to the
contrary, all proceeds received by the Secured Party in respect of the
Collateral shall be subject to the prior payment of the Carve-Out Expenses
having priority of payment over the Obligations to the extent set forth in
clause “first” of the definition of Agreed Administrative Expense Priorities as
it appears in the

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    Financing Agreement and the Permitted Priority Liens in accordance with the
Requisite Priority.   7.3   The Secured Party shall not be liable (in the
absence of bad faith or willful misconduct):

  (a)   for any failure to apply or distribute the proceeds of sale of all or
any part of the Collateral in accordance with the provisions of the Law, if the
Secured Party applies or distributes such proceeds in good faith in accordance
with this Agreement, without further enquiry and in accordance with the
information expressly known to it at the time of such application or
distribution;     (b)   to account for any other loss on realisation or for any
default or omission for which it might be liable, in each case, as a consequence
of entering into possession of any part of the Collateral, in the absence of bad
faith or willful misconduct.

7.4   Where a power of sale or application is exercised by the Secured Party in
respect of part only of the Collateral, the security interest created under this
security agreement shall remain in effect over that part of the Collateral in
respect of which the Secured Party has not exercised its power of sale or
application, as the case may be.   7.5   Any Derivative Asset received by the
Debtor after the occurrence of an Event of Default shall be held by the Debtor
on trust for the Secured Party and shall be transferred promptly to the Secured
Party or as it directs, on demand, or, failing such demand, on receipt by the
Debtor.   8.   DELEGATION AND POWER OF ATTORNEY   8.1   After the occurrence of
an Event of Default which is continuing, the Secured Party may delegate, by
power of attorney or in any other manner, to any person any right, power or
discretion exercisable by the Secured Party under this security agreement. Any
such delegation may be made upon the terms (including a power to sub-delegate)
and subject to any regulations that the Secured Party may think fit.   8.2   By
way of security, the Debtor irrevocably and severally appoints each of the
Secured Party and any of the Secured Party’s attorneys, delegates, sub-delegates
or other appointees, as the Debtor’s attorney, to do all such acts and things
and to sign, seal, execute and deliver all such documents and deeds, in the name
and on behalf of the Debtor, which the Debtor is obliged to do or execute or may
do or execute under or in relation to this security agreement and the Collateral
(or any part of it) and to do all such other acts and things and sign, seal,
execute and deliver all such other documents and deeds, deemed necessary or
desirable, in the absolute discretion of the Secured Party, in connection with
this security agreement or all or any part of the Collateral or for the purpose
of perfecting, protecting, preserving and enforcing the security interest
created or intended to be created by this security agreement. The Debtor further
covenants with the Secured Party to ratify and confirm any exercise of this
power of attorney by any attorney pursuant to its appointment under this clause.

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9.   EXPENSES       Consistent with the provisions of the Loan Documents and the
Financing Orders (including specifically payment of any unpaid Carve-Out
Expenses), the Debtor shall pay to the Secured Party, in the currency (if the
Secured Party so requires) incurred by the Secured Party, all Expenses suffered
or incurred by the Secured Party or its attorney, delegate, sub-delegate or
other appointee and, pending reimbursement, such outstanding Expenses shall form
part of the Indebtedness and shall bear interest (both before and after
judgement) at the Default Rate from the date the Secured Party or its appointee
incurred the relevant Expenses until such expenses and the interest on them is
irrevocably paid in full. To the extent that Debtor pays any Expenses pursuant
to the Loan Documents such payments shall be paid in lieu of and shall not be in
addition to any Expenses payable hereunder and vice versa, it being acknowledged
and agreed by the Secured Party that the execution and delivery of this security
agreement by Debtor is merely to further secure the Secured Party and not to
duplicate Debtor’s expenses in respect of the security interests granted
hereunder and under the Loan Documents.   10.   NOTICES   10.1   Any notice,
demand or other document to be given or made pursuant to this security agreement
or the Law to the Debtor or the Secured Party (as the case may be) shall be
given or made when:

  (a)   personally delivered to it; or     (b)   posted by prepaid first class
post to it at its registered office; or     (c)   sent by fax to any fax number
recorded for it in clause 10.4 below.

10.2   Any notice, demand or other document to be given or made to the Debtor
pursuant to the provisions of clause 10.1 shall be deemed to have been received:

  (a)   immediately upon delivery; or     (b)   48 hours after posting; or    
(c)   immediately after receipt of a successful receipt answerback provided that
the fax is sent during normal business hours on a Business Day in the place of
receipt / it is sent before 3p.m. on a Business Day at the place of receipt,
failing which it shall be deemed to be received at 9a.m. on the next Business
Day in that place.

    In proving service it shall be sufficient to prove:

  (i)   in the case of personal service, that it was handed to the party or
delivered to or left in an appropriate place for receipt of letters at its
address;

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  (ii)   in the case of a letter sent by post, that the letter was properly
addressed, stamped and posted or sent by recorded delivery;     (iii)   in the
case of faxes, that it was properly addressed and despatched to the number of
the relevant party and there was a successful receipt answerback,

    provided that any notice, demand or other document given under the terms of
clause 10.1 but not received on a Business Day in the place of receipt shall be
deemed to have been given on the next Business Day in that place.   10.3   Any
notice, demand or other document to be given to the Secured Party shall only be
effective on actual receipt by the Secured Party, by or on behalf of the person
whose details are set out in clause 10.4 in relation to the Secured Party (or as
otherwise notified, at any time, to the Debtor by the Secured Party).   10.4  
The address and fax number for service of any notice, demand or other document
to be sent pursuant to the provisions of clause 10.1 are (subject to any
amendment by written notice to the relevant party in accordance with the terms
of this clause) as follows:

     
The Secured Party:
  Andrew J. Morris
 
  Persistency
 
  c/o Persistency Capital LLC
 
  1270 Avenue of the Americas
 
  Suite 2100
 
  New York NY 10020
 
  Fax: (646) 619-4642
 
  Phone: (212) 554-1813
 
   
with a copy to:
  John R. Ashmead, Esq.
 
  Seward & Kissel LLP
 
  One Battery Park Plaza
 
  New York, NY 10004
 
  Fax: (212) 480-8421
 
  Phone: (212) 574-1200
 
   
The Debtor:
  CanArgo Energy Corporation
 
  [Address]
 
  Fax: (206) 834-7688
 
  Phone: (206) 682-8322

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with a copy to:
  Peter Basilevsky, Esq.
 
  Satterlee Stephens Burke & Burke LLP
 
  230 Park Avenue
 
  New York, NY 10169
 
  Fax: (212) 818-9606
 
  Phone: (212) 818-9200

11.   REDEMPTION OF SECURITY   11.1   Subject to the Debtor having no liability
(whether actual or contingent) or other obligation outstanding in respect of the
Indebtedness to the Secured Party and subject to the terms of the Indebtedness
having been satisfied in full, the Secured Party shall, as soon as reasonably
practicable, at the request and cost of the Debtor, re-assign, release or
otherwise discharge the security constituted by or pursuant to this security
agreement and pay to the Debtor all dividends, other distributions, interest or
other income paid on and received by the Secured Party in respect of any part of
the Collateral and not applied in discharge of the Indebtedness.   11.2   Where
any discharge is made in whole or in part or any arrangement is made on the
faith of any payment, security or other disposition (including, without
limitation, any discharge or arrangement made in relation to this security
agreement) which is avoided or must be restored on insolvency, liquidation or
otherwise, without limitation, the security interest created or intended to be
created in, and the liability of the Debtor under, this security agreement shall
continue as if the discharge or arrangement had not occurred.   12.   ASSIGNMENT
AND SUCCESSORS   12.1   Subject to the Loan Documents and Financing Orders, the
Secured Party shall have a full and unfettered right to assign and transfer all
or any part of its rights and obligations under this security agreement to any
person, at any time.   12.2   The Debtor shall not assign or otherwise transfer
all or any part of its rights, benefits or obligations arising under this
security agreement.   12.3   This security agreement is binding on and
enforceable against the Debtor’s successors in title.   13.   MISCELLANEOUS  
13.1   Every provision contained in this security agreement shall be severable
and distinct from every other such provision and if, at any time, under the laws
of any jurisdiction, any such provision is or becomes invalid, illegal or
unenforceable, such consequences shall not affect the validity, legality and
enforceability of:

  (a)   the other provisions of this security agreement in that jurisdiction;
and

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  (b)   that and any of the other provisions of this security agreement in any
other jurisdiction.

13.2   This security agreement may be executed in any number of counterparts,
each of which shall be an original and which together shall constitute one and
the same instrument.   13.3   Any failure by the Secured Party to exercise or
any delay by it in exercising any right, power or remedy available to it under
the provisions of this security agreement or under the law or otherwise shall
not operate as a waiver of any such right, power or remedy and any single or
partial exercise of any such right, power or remedy shall not prevent any
further exercise of that or any other right, power or remedy. Any right, power
or remedy of the Secured Party under this security agreement may be waived
specifically and in writing only.   13.4   The rights, powers and remedies
provided in this security agreement are cumulative and are not exclusive of any
rights, powers and remedies provided by the law.   13.5   This security
agreement and/or appropriate financing statements to cover the Collateral may
also be filed in the appropriate jurisdiction(s) in the United States, to, to
the extent possible, obtain a perfected security interest in the Collateral;
provided, however, that doing so shall not in any way affect the extent and
validity of this security agreement or its effect under the laws of Guernsey,
including, without limitation, the charge provided herein as a matter of the
laws of Guernsey. The Pledge Agreement shall not be deemed to be in conflict
with this security agreement and the parties acknowledge that the purpose of the
two agreements is to ensure that the Secured Party obtains a perfected security
interest in the Collateral.   13.6   In any conflict in interpretation between
this security agreement and the Loan Documents, the provisions of the Loan
Documents shall control; provided, that, if any such conflict would defeat the
requirements for obtaining valid security under the Security Interests
(Guernsey) Law, 1993, in such instance the Loan Documents shall not control.  
13.7   It is understood that notwithstanding anything herein, Secured party
shall have no right to exercise rights against, and shall do nothing with
respect to, the Collateral except as permitted herein and under the Loan
Documents and Financing Orders.   14.   GOVERNING LAW AND JURISDICTION   14.1  
This security agreement is governed by, and shall be construed in accordance
with, the laws of Guernsey.   14.2   The Debtor hereby, and subject to the Loan
Documents and Financing Orders, after an Event of Default that is continuing:

  (a)   agrees that all disputes howsoever arising under, from, or in connection
with this security agreement shall be governed exclusively by, and shall be
determined in accordance with, the laws of Guernsey in the Guernsey courts;

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  (b)   irrevocably waives, and agrees not to raise, any objection it may have
now or at any time after the date of this security agreement to:

  (i)   the venue for any action or proceedings arising out of, or in connection
with, this security agreement;     (ii)   any claim that any action or
proceedings arising out of, or in connection with, this security agreement have
been brought in an inconvenient forum or otherwise; and

  (c)   irrevocably agrees that any judgement or order of a Guernsey court
resulting from any action or proceedings brought in accordance with the
provisions of this clause, shall be conclusive and binding on it and may be
enforced against it in any court of any other jurisdiction.

14.3   Subject to the Loan Documents and Financing Orders, after an Event of
Default which is continuing, nothing contained in this clause shall limit the
right of the Secured Party to take any action or proceedings arising out of, or
in connection with, this security agreement in any other court of competent
jurisdiction, nor shall taking any such action or proceedings in one or more
jurisdictions preclude any such action or proceedings being taken in any other
jurisdiction (whether or not concurrently).

IN WITNESS WHEREOF the parties have executed this security agreement on the date
first appearing on page 1 above.
CANARGO ENERGY CORPORATION

         
By:
 
 
        Name: Vincent McDonnell         Title: President    
 
        PERSISTENCY    

         
By:
 
 
        Name: Andrew Morris         Title: Authorized Signatory    

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SCHEDULE 1
The Charged Property
[ ] shares of £[ ] each comprising all the issued share capital of the Company.

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SCHEDULE 2
Part I
NOTICE OF ASSIGNMENT

     
From:
   
PERSISTENCY
  CANARGO ENERGY
 
  CORPORATION
 
    (the “Assignee”)  
(the “Assignor”)

2009

     
To:
  CanArgo Limited (the “Company”)
 
  [registered address]

Dear Sirs
Security interest agreement between the Assignor and the Assignee dated
2009 (the “Security Agreement”)
Notice of assignment and security interest
We, the Assignor and the Assignee, hereby give you, the Company, notice that,
pursuant to the terms of the Security Agreement, the Assignor has given a
security interest to the Assignee (inter alia) by way of assignment of all its
right, title and interest to [ ] shares of £[ ] each in the capital of the
Company (the “Shares”) and to any dividend, distribution, interest or other
income, at any time after the date of the Security Agreement, derived from or
accruing, offered or created in relation to, or issued in substitution for, all
or any part of the Shares (the “Derivative Assets”).
Instructions to the Company
As registered holder of the Shares, the Assignor, hereby irrevocably authorises
and instructs the Company:

(a)   to forward to the Assignee all notices, correspondence and/or other
communications it receives in relation to the Shares and/or any Derivative
Assets or any instructions given to you from time to time in relation to the
Shares and/or any Derivative Assets;   (b)   to follow instructions received by
you from the Assignee in priority to instructions received from the Assignor
with respect to the Shares and/or any Derivative Assets until such time as the
Assignee advises you in writing otherwise;   (c)   to give to the Assignee all
information which the Assignee may request, from time to time, in writing, in
respect of all or any part of the Shares and/or any Derivative Assets;

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(d)   to notify the Assignee in writing in connection with any proposed issue or
transfer to the Assignor or its nominee of further shares in the Company.

The Assignor hereby confirms that it (and not the Assignee) shall be responsible
for the payment of all calls, fees, duties, taxes, expenses and other amounts
due from time to time to the Company or otherwise arising in respect of all or
any of the Shares and the Derivative Assets.
The contents of this notice may not be revoked, amended or varied without the
prior written consent of the Assignee.
We should be grateful if you would sign and return to the Assignor and the
Assignee the enclosed form of acknowledgement in relation to this notice.
This notice is governed by and shall be construed in accordance with Guernsey
law.
Yours faithfully

          PERSISTENCY    
 
       
By:
 
 
        Name:         Title:    
 
        and    
 
        CANARGO ENERGY CORPORATION
 
       
By:
 
 
        Name:         Title:    

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Part II
ACKNOWLEDGEMENT
CANARGO LIMITED
2009

     
To:
  PERSISTENCY (the “Assignee”)

       CANARGO ENERGY CORPORATION (the “Assignor”)
Dear Sirs
Security interest agreement between the Assignor and the Assignee dated ___,
October,2009 (the “Security Agreement”)
We, CanArgo Limited (the “Company”), hereby acknowledge receipt of a notice of
assignment (the “Notice”) dated ___ October, 2009 to us from the Assignee and
the Assignor in relation to (inter alia) security interests given by the
Assignor to the Assignee, pursuant to the terms of the Security Agreement in
respect of the Shares and the Derivative Assets (as defined in the Notice).
The Company’s confirmations
In consideration of the Assignee providing to the Debtor (as defined in the
Security Agreement) certain loan facilities from time to time, by executing this
letter, the Company hereby:

  (i)   acknowledges the security created under the Security Agreement in
relation to the Shares and the Derivative Assets;     (ii)   accepts the
authorisations and instructions to it as set out above and undertakes to comply
with them;     (iii)   confirms that it has not received notice of any prior
assignment nor of any other security interest of any kind whatsoever given over
or in respect of the Shares, the Derivative Assets or any other rights in
relation to the Shares;     (iv)   confirms that it is not aware of any dispute
between the Assignor and any person claiming under it nor of any other opposing
or conflicting claims in relation to any of the Shares or the Derivative Assets
or any action whatsoever in respect of any of them;     (v)   undertakes to
notify the Assignee prior to a request from a third party to approve the
transfer of any of the Shares or shares comprised in the Derivative Assets to
any person (other than the Assignee or its nominee) during the subsistence of
the Security Agreement;

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  (vi)   undertakes not to exercise any rights of set-off, counterclaim,
retention or deduction or any lien or other rights of security that it may have
from time to time over all or any of the Shares or any Derivative Assets; and  
  (vii)   undertakes to inform the Assignee, immediately in writing, if the
Company becomes aware of any dispute, security interest of any kind whatsoever,
claim or purported exercise of any rights over or in relation to any of the
Shares, the Derivative Assets or any other rights in relation to the Shares.

This acknowledgement is governed by and shall be construed in accordance with
Guernsey law.
Yours faithfully
Duly authorised signatory
for and on behalf of
CANARGO LIMITED

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SCHEDULE 3
SPECIAL RESOLUTION

22

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          DEBTOR:    
 
        CANARGO ENERGY CORPORATION    
 
       
By:
 
 
        Name:         Title:    
 
        SECURED PARTY:    
 
        PERSISTENCY      
By:
 
 
        Name:         Title:    

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      DATED   2009

BETWEEN
CANARGO ENERGY CORPORATION
and
PERSISTENCY
 

SECURITY INTEREST AGREEMENT
relating to shares in the capital of CanArgo Limited

 
(OZANNES LOGO) [u07840u0784000.gif]
Advocates and Notaries Public P.O. Box 186 1 Le Marchant Street St. Peter Port
Guernsey GY1 4HP Channel Islands
Telephone +44 (0) 1481 723466 Fax +44 (0) 1481 714653 advocates@ozannes.com
www.ozannes.com

 

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INDEX

              Clause       Page number number            
1.
  Interpretation     1  
2.
  Security Interest     3  
3.
  Continuing Security and its Preservation     5  
4.
  Representations, Warranties and Undertakings     6  
5.
  Voting and Other Rights     9  
6.
  Events of Default     9  
7.
  Remedies on Default     10  
8.
  Delegation and Power of Attorney     11  
9.
  Expenses     12  
10.
  Notices     12  
11.
  Redemption of Security     14  
12.
  Assignment and Successors     14  
13.
  Miscellaneous     14  
14.
  Governing Law and Jurisdiction     15  
 
    Schedules
 
   
1
  The Charged Property     17  
2
  Notice of assignment     18  
3
  Special Resolution     22