exv10w1






Exhibit 10.1




 





DEBTOR IN POSSESSION FINANCING

AGREEMENT




Dated as of ___, 2009




by and between




CANARGO ENERGY CORPORATION

as debtor and debtor-in-possession and

as Borrower, and




PERSISTENCY, as Lender




 





 









 








TABLE OF CONTENTS




[To Be Completed]




 









 





DEBTOR IN POSSESSION FINANCING AGREEMENT




     DEBTOR IN POSSESSION FINANCING AGREEMENT by and between CANARGO ENERGY CORPORATION, a Delaware
corporation, debtor in possession (“Borrower” or “CanArgo”) and PERSISTENCY, a Cayman Islands
limited company (“Lender” or “Persistency”) dated as of October ___, 2009.



WITNESSETH:



WHEREAS, CanArgo is currently in default of its obligations to Persistency in an amount through
the date hereof of $12,726,116, and is also in default of its obligations to certain other
creditors of Canargo; and



WHEREAS, CanArgo, Persistency and certain other creditors of CanArgo have entered into a Plan
Support and Lock —Up Agreement dated as of August 6, 2009 (the “Plan Support Agreement”) pursuant
to which the parties thereto have agreed to support a proposed chapter 11 plan for CanArgo (the
“Plan”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”); and



WHEREAS, pursuant to a binding Commitment Letter dated October 22, 2009 (the “Commitment Letter”)
and to provide financing to Borrower so that it may pursue confirmation of the Plan, Lender has
agreed to provide to Borrower a debtor-in-possession credit facility in an amount of up to
$1,200,000 (the “Commitment”) consisting of a multiple draw term loan in an aggregate principal
amount at any time outstanding not to exceed the Commitment, and the Lender has agreed to provide
such facility upon the terms and conditions set forth in this Agreement and the other loan
documents referenced herein; and



WHEREAS, on October 28, 2009, the Borrower commenced a case, Case No. 09-16453 (AJG) (the “Chapter
11 Case”) under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York (the “Bankruptcy Court”), and the Borrower has retained possession of
its assets and is authorized under the Bankruptcy Code to continue the operation of its business as
debtor-in-possession.



NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein,
the parties hereto agree as follows:




ARTICLE I.




DEFINITIONS; CERTAIN TERMS




     Section 1.01 Definitions. As used in this Agreement, the following terms shall have
the respective meanings indicated below, such meanings to be applicable equally to both the
singular and plural forms of such terms:



     “Action” has the meaning specified therefor in Section 8.11.



     “Advance” has the meaning ascribed thereto in Section 2.01(a).



 









 





     “Affiliate” means, with respect to any Person, any other Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under common control with,
such Person. For purposes of this definition, “control” of a Person means the power, directly or
indirectly, either to (i) vote 50% or more of the Capital Stock having ordinary voting power for
the election of directors of such Person or (ii) direct or cause the direction of the management
and policies of such Person whether by contract or otherwise.



     “Agreement” means this Debtor In Possession Financing Agreement, including all amendments,
modifications and supplements and any exhibits or schedules to any of the foregoing, and shall
refer to the Agreement as the same may be in effect at the time such reference becomes operative.



     “Assignment and Acceptance” has the meaning ascribed thereto in Section 8.05(b).



     “Authorized Officer” means, with respect to any Person, the chief executive officer, chief
financial officer, president, executive vice president or treasurer of such Person.



     “Availability” means, at any time, an amount equal to the difference between the Commitment
and the aggregate outstanding principal amount of the Loan at such time, less the Professionals Fee
and Expense Deposit.



     “Bankruptcy Code” has the meaning specified therefor in the recitals hereto.



     “Bankruptcy Court” has the meaning specified therefor in the recitals hereto.



     “Borrower” has the meaning specified therefor in the preamble hereto.



     “Borrower Counsel” has the meaning specified therefor in Section 6.01(f).



     “Bridge Loan” means that certain loan made by Persistency to CGuern at the request of Borrower
and CGuern under a loan agreement dated October 14, 2009.



     “Budget” has the meaning specified therefor in Section 6.01(a).



     “Business Day” means any day other than a Saturday, Sunday or other day on which commercial
banks in New York City are authorized or required to close.



     “CanArgo” has the meaning specified therefor in the preamble hereto.



     “CanArgo Group” means CanArgo, together with all of its direct and indirect subsidiaries (as
fully described in Exhibit I).



     “Capital Expenditures” means, with respect to any Person for any period, the sum of (i) the
aggregate of all expenditures by such Person and its Subsidiaries during such period that in
accordance with GAAP are or should be included in “property, plant and equipment” or in a similar
fixed asset account on its balance sheet, whether such expenditures are paid in cash or financed
and including all Capitalized Lease Obligations paid or payable during such period, and (ii) to the
extent not covered by clause (i) above, the aggregate of all expenditures by such



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Person and its Subsidiaries during such period to acquire by purchase or otherwise the business or fixed assets
of, or the Capital Stock of, any other Person.




     “Capital Stock” means (i) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated and whether or not
voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and
all partnership, membership or other equity interests of such Person.



     “Capitalized Lease” means, with respect to any Person, any lease of real or personal property
by such Person as lessee which is (i) required under GAAP to be capitalized on the balance sheet of
such Person or (ii) a transaction of a type commonly known as a “synthetic lease” (i.e., a lease
transaction that is treated as an operating lease for accounting purposes but with respect to which
payments of rent are intended to be treated as payments of principal and interest on a loan for
Federal income tax purposes).



     “Capitalized Lease Obligations” means, with respect to any Person, obligations of such Person
and its Subsidiaries under Capitalized Leases, and, for purposes hereof, the amount of any such
obligation shall be the capitalized amount thereof determined in accordance with GAAP.



     “Carve-Out Expenses” means (i) all unpaid fees required to be paid to the Clerk of the
Bankruptcy Court and to the Office of the United States Trustee under Section 1930(a) of the
Bankruptcy Code (“Court Costs”), (ii) an amount to satisfy unpaid fees and expenses of the
attorneys, accountants and other professionals retained by the Debtors that are appointed by the
Bankruptcy Court in the Chapter 11 Case pursuant to Sections 327, 328, 330, or 331 of the
Bankruptcy Code (“Professionals”) and solely to the extent provided for in the Chapter 11
Professionals Fees Line Item (defined below), and subject to any additional limitations set forth in the
Orders (collectively, the “Pre-Default Professional
Expenses”), which are incurred prior to the day
following delivery by the Lender of a Carve-Out Trigger Notice whether or not allowed prior to or
after such date, and (iii) Court Costs and allowed and unpaid fees and expenses of Professionals
(“Post-Default Professional Expenses”) incurred on and after the first day after the delivery of a
Carve-Out Trigger Notice in an aggregate amount not to exceed $50,000; provided, however, that
nothing herein shall be deemed to limit the ability of any party to object to any Professional’s
fees and expenses and reimbursement thereof in accordance with the Bankruptcy Code and Federal
Rules of Bankruptcy Procedure and applicable local rules and any applicable order of the Bankruptcy
Court; and provided further, that the total amount of Carve-Out Expenses (including any permitted
variances hereunder) shall not exceed two hundred seventy five thousand dollars ($275,000.00) plus
Court Costs (the “Overall Carve-Out Cap”), exclusive of the Post-Default Professional Expenses.



     “Carve-Out Trigger Notice” mean a written notice delivered by the Lender to the Borrower and
its counsel which notice may be delivered at any time following the occurrence and during the
continuation of an Event of Default.



     “CGuern” means CanArgo Ltd. (Guernsey).



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     “CGuern Group” means CGuern and the direct and indirect subsidiaries of CGuern which include
all of the Company’s operating subsidiaries, all of which are more fully described in Exhibit
II.



     “Chapter 11 Case” has the meaning specified therefor in the recitals hereto.



     “Chapter 11 Professionals Fees Line Item” means the amounts set forth in the Chapter 11
Professional Fees line item contained in the Budget in respect of fees and expenses incurred by
Professionals, as may be amended with Lender’s written consent in its discretion pursuant to
Section 2.06.



     “Closing Fees” has the meaning ascribed thereto in Section 2.03(a).



     “Collateral” has the meaning ascribed thereto in the Security Agreement and Pledge Agreement,
as applicable.



     “Commitment” has the meaning specified therefor in the recitals hereto.



     “Conversion” has the meaning ascribed thereto in Section 2.04.



     “Conversion Date” means the effective date of the Conversion.



     “Court Costs” has the meaning ascribed to such term in the definition of the term “Carve-Out
Expenses.”



     “Cure Period” has the meaning ascribed thereto in Section 7.01(a).



     “Debtors” means collectively the Borrower, the Pledgors and the Guarantors.



     “Default” means an event which, with the giving of notice or the lapse of time or both, would
constitute an Event of Default.



     “Disclosure Statement” means the Disclosure Statement as filed initially in the Chapter 11
Case and as subsequently approved by the Bankruptcy Court.



     “Default Interest” means the interest charged upon the amount of the outstanding Obligations
due and payable upon the occurrence of an Event of Default and during its continuance at the
Post-Default Rate.



     “Dollar,” “Dollars” and the symbol “$” each means lawful money of the United States of
America.



     “Effective Date” means the date on which the Plan becomes effective, as provided therein.



     “Event of Default” has the meaning ascribed thereto in Section 7.01.



     “Excess Budget Variance” has the meaning ascribed thereto in Section 6.01(a).



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     “Exchange Act” means the Securities Exchange Act of 1934, as amended.



     “Exit Draw” means an Advance in an amount, if any, that in all cases shall be less than or
equal to the Availability at the Effective Date and immediately prior to making such Advance, which
is required for the Bankruptcy Court to confirm the Plan, which Advance shall be made upon
satisfaction of the following conditions: (i) the Exit Draw Advance not exceeding the Availability
on such date; (ii) Borrower having complied in all respects with this Agreement, including without
limitation the Budget, and all other Loan Documents, through the date of the Exit Draw and with
respect to the Exit Draw; and (iii) the prior entry of a Final Order confirming the Plan. For the
avoidance of doubt, the Exit Draw shall only be made and used for payment of amounts set forth in
the Budget or otherwise disclosed to and expressly agreed to by Lender.



     “Filing Date” means the date on which the Chapter 11 Case was commenced.



     “Final Financing Order” means the order of the Bankruptcy Court approving this Agreement and
the Loan Documents, including the Loan, substantially in the form of the Interim Financing Order
and otherwise in form and substance reasonably satisfactory to the Lender, which order shall be in
full force and effect and has not been vacated, modified, or amended in any material respect
(without the express written joinder or consent of the Lender), reversed, overturned or stayed.



     “Final Maturity Date” means the date which is the earliest of (i) the day which is ninety (90)
days after the Filing Date (unless for purposes of this clause (i), there is a Final Maturity Date
Extension in which case, the day which is one hundred twenty (120) days after the Filing Date),
(ii)the Conversion Date, or (iii) the date the Loan becomes due and payable upon the occurrence of
an Event of Default and the expiration of any applicable grace period.



     “Final Maturity Date Extension” means a one-time thirty (30) day extension of the ninety (90)
day period provided in clause (i) of the definition of the term Final Maturity Date to one hundred
twenty (120) days, as provided in Section 2.05 hereof.



     “Final Order Entry Date” means the date on which the Final Financing Order shall have been
duly signed and entered by the Bankruptcy Court.



     “Final Order” means an order of the Bankruptcy Court which is no longer subject to appeal and
as to which no appeal is pending.



     “Financial Statements” means the unaudited preliminary consolidated balance sheet of the
Borrower and its Subsidiaries for the Fiscal Year ended December 31, 2008 and the related unaudited
preliminary consolidated statement of operations, shareholders’ equity and cash flows for the
Fiscal Year then ended as filed with the SEC on March 3, 2009 by CanArgo as an Exhibit to a Current
Report on Form 8-K.



     “First Day Orders” means all orders entered by the Bankruptcy Court on or shortly after the
Filing Date or based on motions or applications filed on the Filing Date.



     “Fiscal Year” means the fiscal year of the Borrower ending on December 31 of each year.



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     “GAAP” means generally accepted accounting principles in effect from time to time in the
United States, applied on a consistent basis.



     “Governmental Authority” means any nation or government, any federal, state, city, town,
municipality, county, local or other political subdivision thereof or thereto and any department,
commission, board, bureau, instrumentality, agency or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.



     “Guarantees” means the collective reference to the Subsidiary Guarantees.



     “Guarantors” means, collectively, (i) Ninotsminda Oil Company Limited, a company incorporated
and existing in the Republic of Cyprus, (ii) CanArgo (Nazvrevi) Limited, a company incorporated and
existing in the Bailiwick of Guernsey, British Isles, (iii) CanArgo Norio Limited, a company
incorporated and existing in the Republic of Cyprus, (iv) CanArgo Limited, a company incorporated
and existing in the Bailiwick of Guernsey, British Isles, (v) CanArgo Samgori Limited, a company
incorporated and existing in the Bailiwick of Guernsey, British Isles, (vi) CanArgo Georgia
Limited, a company incorporated and existing in the Republic of Georgia, (vii) CanArgo Services
(UK) Limited, a company incorporated and existing in England, (viii) any other entity who, as of
the Interim Facility Effective Date, will become a party to a Subsidiary Guarantee Agreement with
the Lender guaranteeing the Obligations of the Borrower under the Agreement, and (ix) NewCo, as and
when it is formed.



     “Highest Lawful Rate” means, with respect to the Lender, the maximum non-usurious interest
rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged
or received on the Obligations under laws applicable to the Borrower or the Lender which are
currently in effect or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable
laws now allow.



     “Indebtedness” means, with respect to any Person, without duplication, (i) all indebtedness of
such Person for borrowed money; (ii) all obligations of such Person for the deferred purchase price
of property or services (other than trade payables or other accounts payable incurred in the
ordinary course of such Person’s business); (iii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments or upon which interest payments are
customarily made; (iv) all reimbursement, payment or other obligations and liabilities of such
Person created or arising under any conditional sales or other title retention agreement with
respect to property used and/or acquired by such Person, even though the rights and remedies of the
lessor, seller and/or lender thereunder may be limited to repossession or sale of such property;
(v) all Capitalized Lease Obligations of such Person; (vi) all obligations and liabilities,
contingent or otherwise, of such Person, in respect of letters of credit, acceptances and similar
facilities; (vii) all contingent obligations; and (viii) all obligations referred to in clauses (i)
through (vii) of this definition of another Person secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien upon property
owned by such Person, even though such Person has not assumed or become liable for the payment of
such Indebtedness. The Indebtedness of any Person shall include the



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Indebtedness of any partnership of or joint venture in which such Person is a general partner or a joint venturer.




     “Indemnitees” has the meaning ascribed thereto in Section 8.13.



     “Indemnified Matters” has the meaning ascribed thereto in Section 8.13.



     “Insolvency Proceeding” means any proceeding commenced by or against any Person under any
provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, assignments for
the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar relief.



     “Interim Facility Amount” means the maximum principal amount of the Loan approved by the
Bankruptcy Court in the Interim Financing Order to be made available to the Borrower prior to the
date of entry of the Final Financing Order.



     “Interim Facility Effective Date” has the meaning specified therefore in Section 4.01.



     “Interim Financing Order” means the interim order of the Bankruptcy Court, substantially in
the form of Exhibit A hereto, approving this Agreement and the other Loan Documents, and
otherwise in form and substance reasonably satisfactory to the Lender , which order shall be in full force and effect and has
not been vacated, modified, amended (without the express written consent of the Lender), reversed,
overturned or stayed in any material respect.



     “Interim Order Entry Date” means the date on which the Interim Bankruptcy Court Order shall
have been duly signed and entered by the Bankruptcy Court.



     “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended (or any successor
statute thereto) and the regulations thereunder.



     “Knowledge” means, when referring to the knowledge of Borrower or the Subsidiaries, the actual
and not constructive knowledge of Vincent McDonnell or Jeffrey Wilkins.



     “Lease” means any lease of real property to which the Borrower is a party as lessor or lessee.



     “Lender” has the meaning specified therefor in the preamble hereto.



     “Lien” or “Liens” means singularly or collectively, any mortgage, deed of trust, pledge, lien
(statutory or otherwise), security interest, charge or other encumbrance or security or
preferential arrangement of any nature, including, without limitation, any conditional sale or
title retention arrangement, any Capitalized Lease and any assignment, deposit arrangement or
financing lease intended as, or having the effect of, security.



     “Loan” means a loan made by the Lender to the Borrower pursuant to Section 2.01.



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     “Loan Documents” means this Agreement, the Promissory Note, the Interim Financing Order, the
Final Financing Order, the Security Agreement, the Pledge Agreement, the Subsidiary Guarantee
Agreement and all other agreements, instruments, and other documents executed and delivered
pursuant hereto or thereto or otherwise evidencing or securing the Loan or any other Obligations.



     “Loan Request” has the meaning ascribed thereto in Section 2.02.



     “Material Adverse Change” means a material adverse effect on (i) the ability of the Debtors to
perform their respective obligations under this Agreement or any other Loan Documents, or (ii) the
businesses as conducted by the Debtors as of the Filing Date taken as a whole, but excluding any
effect resulting from or relating to (a) the effects of the Chapter 11 Case on the Debtors, or (b)
any public announcement of this Agreement or the Chapter 11 Case, but including any Insolvency
Proceeding of a Subsidiary.



     “Material Contract” means any contract or other agreement (other than the Loan Documents),
written or oral, of Borrower or a Subsidiary as to which the breach, nonperformance, cancellation
or failure to renew by any party thereto would cause a Material Adverse Change.



     “NewCo” means the company to be incorporated and exist in the Bailiwick of Guernsey, British
Isles, to enable the consummation of the transactions set forth in the Plan, which shall become the
sole shareholder of CanArgo (Guernsey) and which shall have no liabilities at the time of the
transfers made to it pursuant to the Plan other than debt issued pursuant to the Plan.



     “NewCo Preferred Stock” has the meaning ascribed thereto in Section 2.04.



     “Non-Material Professional Expenses Budget Variance” means, for any monthly period under the
Budget, a variance of not more than thirty-five percent (35%) above the Chapter 11 Professionals
Fees Line Item during such period; provided that under no circumstances shall cumulative fees and
expenses by Professionals exceed the Overall Carve-Out Cap.



     “Non-Material Non- Professional Expenses Budget Variance” means, for any monthly period under
the Budget, a variance in aggregate expenses for the period (excluding Professionals fees and
expenses and any Reasonable Unforeseen Operational Expenditure) of not more than ten percent (10%)
above the Operating Budget.



     “Non-Material Production Budget Variance” means for a given month cumulative oil and gas
production for such period that is not less than eighty-five percent (85%) in the aggregate of
anticipated cumulative gas and oil production during such period, as such items are set forth in
the Budget during such period.



     “Obligations” means all present and future indebtedness, obligations, indemnities and
liabilities of the Debtors to the Lender under the Loan Documents, whether or not the right of
payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, disputed, undisputed, legal, equitable, secured, unsecured, and whether or not
such claim is discharged, stayed or otherwise affected by the Chapter 11 Case. Without limiting the
generality of the foregoing, the Obligations of the Borrower under the Loan



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Documents include (a) the obligation to pay principal, Default Interest, charges, expenses, fees, attorneys’ fees and
disbursements, indemnities and other amounts payable by such Person under the Loan Documents, and
(b) the obligation of such Person to reimburse any amount in respect of any of the foregoing that
the Lender (in its sole discretion) may elect to pay or advance on behalf of such Person.




     “Operating Budget” for a given period shall mean all of the expenses set forth in the Budget
for such period other than the Chapter 11 Professional Fees Line Item for such period.



     “Operating Lease Obligations” means all obligations for the payment of rent for any real or
personal property under leases or agreements to lease, other than Capitalized Lease Obligations.



     “Orders” means the Interim Financing Order and the Final Financing Order.



     “Overall Carve-Out Cap” has the meaning ascribed to such term in the definition of the term
“Carve-Out Expenses.”



     “Permitted Indebtedness” means the Indebtedness set forth on a Schedule to this Agreement.



     “Permitted Investments” means, in each case, as permitted by Section 345 of the Bankruptcy
Code or pursuant to orders entered by the Bankruptcy Court, (i) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or issued by any agency
thereof and backed by the full faith and credit of the United States, in each case maturing within
six months from the date of acquisition thereof; (ii) commercial paper, maturing not more than 270
days after the date of issue rated P-1 by Moody’s or A1 by Standard & Poor’s; (iii) certificates of
deposit maturing not more than 270 days after the date of issue, issued by commercial banking
institutions and money market or demand deposit accounts maintained at commercial banking
institutions, each of which is a member of the Federal Reserve System and has a combined capital
and surplus and undivided profits of not less than $500,000,000; (iv) repurchase agreements having
maturities of not more than 90 days from the date of acquisition which are entered into with major
money center banks included in the commercial banking institutions described in clause (iii) above
and which are secured by readily marketable direct obligations described in clause (i) above; (v)
money market accounts maintained with mutual funds having assets in excess of $2,500,000,000; and
(vi) tax exempt securities rated A or better by Moody’s or A+ or better by Standard & Poor’s.



     “Permitted Liens” means:



     (a) Liens securing the Obligations;



     (b) (i) royalties, overriding royalties, reversionary interests, production payments and
similar burdens which are in existence on the date hereof and disclosed on a Schedule hereto; (ii)
sales contracts or other arrangements for the sale of production hydrocarbons which would not (when
considered cumulatively with the matters discussed in clause (i) above) deprive any Debtor of any
material right in respect of its assets or properties (except for rights customarily granted with
respect to such contracts and arrangements); (iii) statutory Liens for taxes or other



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assessments that are not yet delinquent (or that, if delinquent, have been disclosed on a Schedule and
are being contested in good faith by appropriate proceedings, levy and execution thereon
having been stayed and continue to be stayed and for which Borrower has set aside on its books
adequate reserves in accordance with GAAP); (iv) easements, rights of way, servitudes, permits,
surface leases and other rights in respect to surface operations, pipelines, grazing, logging,
canals, ditches, reservoirs or the like, conditions, covenants and other restrictions, and
easements of streets, alleys, highways, pipelines, telephone lines, power lines, railways and other
easements and rights of way on, over or in respect of any Debtor’s assets or properties and that do
not individually or in the aggregate, cause a Material Adverse Change (or if they exist as of the
date hereof, are disclosed or summarized on a Schedule); (v) rights reserved to or vested in any
Governmental Authority to control or regulate a Debtor’s assets and properties in any manner, and
all applicable laws, rules and orders from any Governmental Authority; and (vi) those Liens as to
which payment and enforcement is stayed under the Bankruptcy Code or pursuant to orders of the
Bankruptcy Court;




     (c) Liens existing on the Filing Date that are disclosed in the Schedules; and



     (d) deposits and pledges of cash securing (i) obligations incurred in respect of workers’
compensation, unemployment insurance or other forms of governmental insurance or benefits, (ii) the
performance of bids, tenders, leases, contracts (other than for the payment of money) and statutory
obligations or (iii) obligations on surety or appeal bonds, but only to the extent such deposits or
pledges are incurred or otherwise arise in the ordinary course of business and secure obligations
not past due or as to which payment and enforcement is stayed under the Bankruptcy Code or pursuant
to orders of the Bankruptcy Court, and which are disclosed on a Schedule.



     “Permitted Priority Lien” shall mean any valid, perfected non-avoidable Permitted Liens
existing on the Filing Date.



     “Permitted Professional Expenses” means the fees and expenses of Professionals for a given
period of time, subject to allowance by the Bankruptcy Court, which do not exceed the Chapter 11
Professionals Fees Line Item in the Budget plus the Non-Material Professional Expenses Budget
Variance associated with that period of time, that are payable as Carve-Out Expenses hereunder.



     “Person” means an individual, corporation, limited liability company, partnership,
association, joint-stock company, trust, unincorporated organization, joint venture or other
enterprise or entity or Governmental Authority.



     “Plan” means a plan of reorganization as filed initially in the Chapter 11 Case and as
subsequently approved by the Bankruptcy Court.



     “Pledge Agreement” means the two pledge agreements in substantially the forms of Exhibit
B by and between the Pledgor and Lender, as the same may be amended or supplemented in
accordance therewith, by which the Pledgor pledges the shares of CGuern to Lender, under both New
York law and Guernsey law.



     “Pledgor” means Borrower.



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     “Post-Closing Fees” has the meaning ascribed to such term in Section 2.03(b) hereof.



     “Post-Default Rate” means a rate of interest per annum equal to the lower of fifteen percent
(15%) or the Highest Lawful Rate.



     “Post-Default Professional Expenses” and “Pre-Default Professional Expenses” have the meanings
ascribed to such terms in the definition of the term “Carve-Out Expenses.”



     “Professionals” has the meaning ascribed to such term in the definition of the term “Carve-Out
Expenses.”



     “Professionals Fee and Expense Deposit” means a deposit of cash by Lender into a separate
account established by Lender in the amount of the aggregate post-petition amount of the Chapter 11
Professionals Fees Line Item, which shall occur upon entry of the Final Financing Order and be
subject to Section 2.02(c) hereof.



     “Promissory Note” means a term promissory note of the Borrower, made payable to the order of
the Lender, evidencing the Indebtedness resulting from the making by the Lender to the Borrower of
the Loan, in the form of Exhibit C as such promissory note may be amended, supplemented,
restated, modified or extended from time to time, and any promissory note or notes issued in
exchange or replacement therefor.



     “Property” means any right or interest in or to property of any kind whatsoever, whether real,
personal or mixed and whether tangible or intangible.



     “Reasonable Unforeseen Operational Expenditure” shall have the meaning set forth in Section
6.01(c).



     “Requisite Priority” means, subject to the Carve-Out Expenses:



     (i) pursuant to Bankruptcy Code § 364(c)(2), a first priority, perfected Lien upon the
Borrower’s right, title and interest in, to and under the Collateral that is not otherwise
encumbered by a valid, perfected, non-avoidable Permitted Priority Lien on the Filing Date; and



     (ii) pursuant to Bankruptcy Code § 364(c)(3), a second priority, perfected Lien upon the
Borrower’s right, title and interest in, to and under all Collateral that is subject to a Permitted
Priority Lien on the Filing Date.



     “SEC” means the Securities and Exchange Commission or any other similar or successor agency of
the Federal government administering the Securities Act.



     “Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute,
and the rules and regulations of the SEC thereunder, all as the same shall be in effect from time
to time hereof.



     “Security Agreement” means the security agreement by and between the Borrower and the Lender
in substantially the form of Exhibit D as the same may be amended or supplemented in
accordance therewith.



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     “Subsidiary” means, with respect to any Person at any date, any corporation, limited or
general partnership, limited liability company, trust, estate, association, joint venture or other
business entity (i) the accounts of which would be consolidated with those of such Person in such
Person’s consolidated financial statements if such financial statements were prepared in accordance
with GAAP or (ii) of which more than 50% of (A) the outstanding Capital Stock having (in the
absence of contingencies) ordinary voting power to elect a majority of the board of directors or
other managing body of such Person, (B) in the case of a partnership or limited liability company,
the interest in the capital or profits of such partnership or limited liability company or (C) in
the case of a trust, estate, association, joint venture or other entity, the beneficial interest in
such trust, estate, association or other entity business is, at the time of determination, owned or
controlled directly or indirectly through one or more intermediaries, by such Person.



     “Subsidiary Guarantee Agreement” means the Subsidiary Guarantee Agreement in the form of
Exhibit E to be executed and delivered by each of the Guarantors, as the same may be
amended or supplemented in accordance therewith.



     “Uniform Commercial Code” or “UCC” has the meaning specified therefor in Section 1.03.



     Section 1.02 Terms Generally. The definitions of terms herein shall apply equally to
the singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The
word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the
context requires otherwise, (a) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person’s successors and assigns, (c) the
words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer
to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, and Exhibits shall be
construed to refer to Articles and Sections of, and Exhibits to, this Agreement, (e) all references
herein to Schedules shall be construed to refer to Schedules hereto and (f) the words “asset” and
“property” shall be construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities, accounts and contract
rights. References in this Agreement to “determination” by the Lender include good faith estimates
by the Lender (in the case of quantitative determinations) and good faith beliefs by the Lender (in
the case of qualitative determinations).



     Section 1.03 Accounting and Other Terms. Unless otherwise expressly provided herein,
each accounting term used herein shall have the meaning given it under GAAP applied on a basis
consistent with those used in preparing the Financial Statements. All terms used in this Agreement
which are defined in Article 8 or Article 9 of the Uniform Commercial Code as in effect from time
to time in the State of New York (the “Uniform Commercial Code”) and which are not otherwise
defined herein shall have the same meanings herein as set forth therein,



12









 




provided that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of New York on
the date hereof shall continue to have the same meaning notwithstanding any replacement or
amendment of such statute except as the Lender may otherwise determine.




     Section 1.04 Time References. Unless otherwise indicated herein, all references to
time of day refer to Eastern Standard Time or Eastern Daylight Saving Time, as in effect in New
York City on such day. For purposes of the computation of a period of time from a specified date to
a later specified date, the word “from” means “from and including” and the words “to” and “until”
each means “to but excluding”; provided, however, that with respect to a computation of fees or
interest payable to the Lender, such period shall in any event consist of at least one full day.



ARTICLE II.




THE LOAN




     Section 2.01 Commitment.



     (a) Subject to the terms and conditions and relying upon the representations, warranties and
covenants herein set forth, and subject to the Interim Financing Order and the Final Financing
Order, the Lender agrees, on the terms and conditions hereinafter set forth, to make a multiple
draw term loan (the “Loan”) to the Borrower in an aggregate principal amount at any time
outstanding not to exceed the Commitment. Within the limit of the amount of the Commitment and
subject to the other terms set forth herein, the Borrower shall receive advances under the Loan
(each an “Advance”), on or after the Interim Facility Effective Date, pursuant to this Article II,
and as provided herein. Any amount advanced under the Loan once repaid or prepaid may not be
reborrowed.



     (b) Notwithstanding the foregoing, (i) no Advance shall be requested if such Advance would
exceed the Availability before giving effect to such Advance, (ii) prior to the date of entry of
the Final Financing Order, the aggregate outstanding principal amount of the Loan shall not exceed
the Interim Facility Amount and (iii) no Loan shall be made or requested in excess of either such
amount.



     Section 2.02 Advances; Carve-Out Expenses/Professionals Fee And Expense Deposit;
Repayment; Other Mechanics.



     (a) Making of Advances. As a condition precedent to the making of each Advance, the
Lender shall have received a written loan request (in the form of Exhibit G, together with
a schedule of the payments to be made by the Borrower with the
proceeds thereof, a “Loan Request”)
together with telephonic notice thereof, from the Borrower on or before 12:00 noon (New York City
time) on the date which is three (3) Business Days prior to the date of the Advance requested under
the Loan. Each Advance must be in a minimum amount of $30,000, and if greater shall be in integral
multiples of $10,000, and shall be made by Lender in immediately available funds wire transferred
for deposit in an account designated in the Loan Request. The Lender may act without liability upon
the basis of written, telecopied or telephonic notice believed by the Lender in good faith to be
from the Borrower (or from any Authorized




13












 




Officer thereof designated in writing purportedly from the Borrower to the Lender). The Lender
shall be entitled to rely conclusively on any Authorized Officer’s authority to request an Advance
under the Loan on behalf of the Borrower until the Lender receives written notice to the contrary.
The Lender shall have no duty to verify the authenticity of the signature appearing on any Loan
Request. Advances shall be requested only to the extent permitted under this Agreement. For the
avoidance of doubt, the Exit Advance and the Professionals Fee and Expense Deposit are contemplated
Advances under the Loan.




     (b) Carve-Out Expenses. The Lender shall, subject to the terms and conditions set
forth in this Agreement, permit Borrower to pay Carve-Out Expenses, including by seeking Advances
of the Loan to pay same, including any necessary Advance of the Loan to pay Post-Default
Professional Expenses, in each case only to the extent permitted under Section 6.01(b) and only if
all terms and conditions associated with requesting Advances (including without limitation
utilization of all available cash prior to seeking an Advance) have all been satisfied. Nothing
herein shall increase the Commitment and nothing in herein shall allow Borrower to pay Carve-Out
Expenses in excess of the Overall Carve-Out Cap. In consideration of Lender’s agreement with
respect to the Carve-Out Expenses, Borrower and its estate shall, and hereby are deemed to, waive
any claims against the Collateral under Section 506(c) of the Bankruptcy Code.



     (c) Professional Fee Reserve and Professionals Fee and Expense Deposit. No later than
the date of the hearing on confirmation of the Plan, and upon receipt of notice of the amount by
which the Professional Fee Reserve (as defined in the Plan) is to be funded, to the extent that
Borrower does not have cash from operations to fund the Professional Fee Reserve (in the manner and
as provided in Section 6.01(b)), funds shall be transferred from the Professionals Fee and Expense
Deposit to the Professional Fee Reserve with respect to amounts incurred and allowed to be paid
under this Agreement. If a Carve-Out Trigger Notice is delivered by the Lender, then upon the
Bankruptcy Court’s final allowance of Professionals’ fees and expenses, to the extent that Borrower
does not have cash from operations to pay such amounts (in the manner and as provided in Section
6.01(b)), Professionals shall be entitled to be paid from the Professionals Fee and Expense Deposit
with respect to amounts incurred and allowed to be paid under this Agreement. Amounts from the
Professionals Fee and Expense Deposit transferred to the Professional Fee Reserve or paid to
Professionals shall be Advances. To the extent that the Professional Fee Reserve is fully or
partially funded or Professionals are fully or partially paid, as applicable, by Borrower’s use of
cash from operations (in the manner and as provided in Section 6.01(b)), the amount of the
Professionals Fee and Expense Deposit shall be reduced by the amount of such funding and the amount
of such reduction shall be refunded to Lender and Availability shall increase by the amount so
refunded. The Final Financing Order shall expressly refer to this provision.



     (d) Repayment of Loan. The aggregate outstanding principal of the Loan, as well as
all other amounts due hereunder or under the other Loan Documents shall be due and payable in cash
on the Final Maturity Date unless converted in accordance with the Conversion. All payments under
this Agreement to the Lender shall be made by wire transfer of immediately available funds for
deposit in an account designated in writing by the Lender to the Borrower at least three (3)
Business Days prior to the date of payment thereof. If any payment shall become due on a day that
is not a Business Day, such payment shall be made on the next succeeding day



14









 







that is a Business Day. All payments under this Agreement to the Lender shall be applied
first to any fees and expenses or indemnity amounts due hereunder, then to accrued interest, if
any, and thereafter to the outstanding principal balance hereof.



     (e) Evidence of Debt. The Loan made by the Lender to the Borrower shall be evidenced
by a Promissory Note, duly executed by the Borrower, dated the Interim Facility Effective Date, and
delivered to and made payable to the order of the Lender in a principal amount equal to the
Commitment. The Lender shall enter on the grid attached to the Promissory Note, the sum of all
Advances made by the Lender, including the amounts of principal and Default Interest and any other
amounts due, if any, payable and paid to the Lender from time to time hereunder. All entries on
the grid shall be presumed to be correct, final and conclusive absent manifest error, and be prima
facie evidence of the existence and amounts of the obligations recorded therein; provided, that,
the failure of the Lender to enter such amounts or any error therein shall not in any manner affect
the obligation of the Borrower to repay the Loan in accordance with the terms of this Agreement.
Upon five (5) days’ written request to Lender, Borrower shall be entitled to a copy of the grid
attached to the Promissory Note, reflecting the sum of all Advances made by the Lender, including
the amounts of principal and Default Interest and any other amounts due, if any, payable and paid
to the Lender from time to time hereunder as of the time of Borrower’s request.



     (f) Interest. Prior to an Event of Default, the Loan shall not bear interest on the
principal amount thereof from time to time outstanding.



     (g) Default Interest. From and after an Event of Default (unless specifically waived
in writing or cured before the expiration of any applicable grace period), the principal of the
Loan, and any other Obligations of the Borrower under this Agreement and the other Loan Documents
shall bear interest, from the date such Event of Default occurred until the date, if any, such
Event of Default is cured or waived in writing in accordance herewith, at a rate per annum equal at
all times to the Post-Default Rate and shall be payable together with any payments of principal.



     (h) Computation of Interest at the Post Default Rate. All Default Interest shall be
computed on the basis of a year of 360 days for the actual number of days, including the first day
but excluding the last day, elapsed.



     (i) Reduction of Commitment; Prepayment of Loan.




     (i) Commitment. The Commitment shall terminate on the earliest to occur of (i)
an Event of Default, (ii) the Final Maturity Date, (iii) the date on which the full amount
of the Commitment has been advanced to the Borrower, and (iv) the Conversion Date.




     (ii) Optional Prepayment. The Borrower may prepay without penalty or premium
the principal of the Loan, in whole or in part, with prior written consent of the Lender.



15









 





     Section 2.03 Fees.



     (a) On or prior to the Interim Facility Effective Date, the Borrower shall reimburse the
Lender for all of the Lender’s reasonable fees and expenses (including professional fees and
expenses) incurred on or after February 5, 2009 and through the day before the Interim Facility
Effective Date in connection with the negotiation and preparation of the Plan and related documents
in the aggregate amount of $388,854 (“Closing Fees”). Lender shall have the right to directly draw
down on the Loan for payment of the Closing Fees and such amounts shall constitute an Advance under
the Loan.



     (b) Lender’s reasonable fees and expenses (including professional fees and expenses) incurred
on or after the Interim Facility Effective Date and not to exceed the aggregate amount of $141,146
(“Post-Closing Fees”) shall be added to the outstanding balance of the Loan and Lender shall have
the right to directly draw down on the Loan for payment of the Post-Closing Fees and such amounts
shall constitute an Advance under the Loan; provided that to the extent Lender’s reasonable fees
and expenses (including professional fees and expenses) exceed such amount, the Commitment shall be
deemed to have been increased by such amount and such amount only.



     Section 2.04 Conversion. Subject to the occurrence of the Effective Date, the entire
outstanding and accrued but unpaid amount of all the Obligations including, for the avoidance of
doubt, all principal, interest, fees, charges, costs and expenses of the Debtors due and payable or
that may become due and payable under the Loan Documents at such time shall be automatically
converted on the Effective Date (the “Conversion”), with no further action required of the Debtors
or Lender, into shares of convertible preferred stock of NewCo (“NewCo Preferred Stock”) at a
conversion rate of one whole share of NewCo Preferred Stock for each $1.00 in the outstanding and
accrued but unpaid amount of the Obligations and the Debtors will each be released from any and all
liability under the Loan and the Loan Documents. For the avoidance of doubt, no fractional shares
of NewCo Preferred Stock will be issued and instead the conversion ratio shall be appropriately
adjusted to avoid the issuance of any such fractional shares.



     (a) Final Maturity Date Extension. There shall be a Final Maturity Date Extension if
on or before ten (10) days before the Final Maturity Date (excluding a Final Maturity Date
Extension) the following conditions are met:



     (b) Borrower delivers to Lender a written certification certifying that as of the date of the
certification, there is no Default or Event of Default, nor with the lapse of time would there be
any Default or Event of Default, under the Loan Documents, except that the hearing on confirmation
of the Plan shall not yet have occurred;



     (c) Borrower delivers to Lender a written certification certifying that at the Final Maturity
Date (excluding a Final Maturity Date Extension) Borrower anticipates that there will be no Default
or Event of Default, nor with the lapse of time would there be any Default or Event of Default,
under the Loan Documents, except that the hearing on confirmation of the Plan shall not yet have
occurred, and the Effective Date will not have occurred at or before such time; and



16









 





     (d) The hearing on confirmation of the Plan has been scheduled to occur before the expiration
of the Final Maturity Date as extended by the Final Maturity Date Extension.



     Section 2.05 Legal Budget. The Chapter 11 Professional Fees Line Item in the Budget
is based on an orderly pre-arranged bankruptcy proceeding designed to culminate in confirmation and
implementation of the Plan.



     (a) If events or contingencies occur after the commencement of the Chapter 11 Case that would,
in Borrower Counsel’s reasonable opinion, result in legal work not contemplated in the Chapter 11
Professional Fees Line Item in the Budget, Borrower shall cause Borrower Counsel to immediately
notify Borrower and Lender in writing of such development and to provide Borrower Counsel’s best
reasonable estimate of the expected time at which the material portion of such work will be
commenced and the amount of incremental legal expense Borrower Counsel expects would result from
performing such unforeseen work. Borrower and Borrower Counsel shall promptly meet with Lender to
discuss the developments and, thereafter, Lender shall in its sole discretion either (1) agree in
writing to an amendment to the Chapter 11 Professional Fees Line Item in the Budget, or (2) if an
Event of Default then exists under the Agreement or would result were Borrower Counsel to undertake
such unforeseen work (by exceeding the amounts set forth in the Chapter 11 Professionals Fees Line
Item for the applicable period), declare an Event of Default under this Agreement and deliver a
Carve-Out Trigger Notice. Notwithstanding the foregoing, in view of the uncertainty surrounding
the timing of and decisions with respect to such unforeseen work, (i) up to $5,000 in
Professionals’ fees and expenses can be incurred by Borrower with respect to such work prior to
Lender’s receipt of Borrower Counsel’s written notice, and (ii) in the event Lender has not made a
decision by the time specified in Borrower Counsel’s written notice for commencement of the
material portion of such work, reasonable incremental fees and expenses consistent with the
estimate in such written notice that are incurred after such specified time through the time of
Lender’s decision, provided that such amounts do not exceed $25,000 in the aggregate, shall be
considered to be a Permitted Professional Expense, provided that Borrower otherwise complies with
this Section.



     (b) If after the commencement of the Chapter 11 Case, Professionals’ fees for a given month
are accruing in a manner such that, in Borrower Counsel’s reasonable opinion, such fees will exceed
the amount in the Chapter 11 Professional Fees Line Item in the Budget for such month by an amount
that is greater than the Non-Material Professional Expenses Budget Variance amount for such month,
Borrower shall cause Borrower Counsel to immediately notify Borrower and Lender in writing of such
development and to provide Borrower Counsel’s best reasonable estimate of the total variance above
the Chapter 11 Professional Fees Line Item in Budget for such month. Borrower and Borrower Counsel
shall promptly meet with Lender to discuss the developments and, thereafter:



     (c) If in Lender’s reasonable judgment Borrower Counsel demonstrates to Lender that the excess
variance for such month represents work contemplated in the Chapter 11 Professional Fees Line Item
in the Budget to be done in a subsequent period (and within the amount contemplated by the Budget
in that future period), then no Event of Default shall be declared; or



17









 





     (d) If in Lender’s reasonable judgment, Borrower Counsel has not demonstrated to Lender that
the excess variance for such month represents work contemplated in the Chapter 11 Professional Fees
Line Item in the Budget to be done in a subsequent period, Lender shall in its sole discretion
either (1) agree in writing to an amendment to the Chapter 11 Professional Fees Line Item in the
Budget, or (2) if an Event of Default then exists under the Agreement or would result were Borrower
Counsel to undertake such work (by exceeding the amounts set forth in the Chapter 11 Professionals
Fees Line Item for the applicable period), declare an Event of Default under this Agreement and
deliver a Carve-Out Trigger Notice.



ARTICLE III.




SECURITY AND ADMINISTRATIVE PRIORITY




     Section 3.01 Collateral; Grant of Lien and Security Interest.



     As security for the full and timely payment and performance of all of the Obligations and in
accordance with the Security Agreement, the Borrower hereby and thereby, as of the Interim Order
Entry Date, assigns, pledges, transfers and grants to the Lender, a first priority security
interest in and to and Lien on all of the Collateral (subject to the Carve-Out Expenses as provided
herein and in the Orders), all as further provided in the Loan Documents.



     Section 3.02 Administrative Priority. The Borrower agrees that the Obligations of the
Borrower shall constitute allowed administrative expenses in the Chapter 11 Case, having priority
over all administrative expenses of and unsecured claims against the Borrower now existing or
hereafter arising, of any kind or nature whatsoever, including, without limitation, all
administrative expenses of the kind specified in, or arising or ordered under, Sections 105, 326,
328, 503(b), 506(c), 507(a), 507(b), 546(c), 726 and 1114 of the Bankruptcy Code (whether or not
such expenses or claims may become secured by a judgment lien or other non-consensual lien, levy or
attachment), subject only to Carve-Out Expenses as provided and permitted in this Agreement.



     Section 3.03 Grants, Rights and Remedies. The Liens and security interests granted
pursuant to Section 3.01 hereof and pursuant to the Security Agreement and the administrative
priority granted pursuant to Section 3.02 hereof may be independently granted by the Loan Documents
and by other Loan Documents hereafter entered into. This Agreement, the Orders and such other Loan
Documents supplement each other, and the grants, priorities, rights and remedies of the Lender
hereunder and thereunder are cumulative, but the provisions of the Interim Financing Order, the
Final Financing Order and this Agreement shall control in the event of any express conflict.



     Section 3.04 No Filings Required. The Liens and security interests referred to herein
and in the Security Agreement shall be deemed valid and perfected by entry of the Interim Financing
Order or the Final Financing Order, as the case may be, and entry of the Interim Financing Order or
the Final Financing Order, as the case may be shall have occurred on or before the date of the
initial Loan hereunder. The Lender shall not be required to file any financing statements,
mortgages, notices of Lien or similar instruments in any jurisdiction or filing office or to take
any other action in order to validate or perfect the Lien and security



18









 







interest granted by or pursuant to this Agreement, the Interim Financing Order or any other
Loan Document.



     Section 3.05 Survival. The Liens, lien priority, administrative priorities and other
rights and remedies granted to the Lender pursuant to this Agreement, the Security Agreement, the
Orders and the other Loan Documents (specifically including, but not limited to, the existence,
perfection and priority of the Liens and security interests provided herein and therein, and the
administrative priority provided herein and therein) shall not be modified, altered or impaired in
any manner by any other financing or extension of credit or incurrence of debt by the Borrower
(pursuant to Section 364 of the Bankruptcy Code or otherwise), or by any dismissal or conversion of
any of the Chapter 11 Case, or by any other act or omission whatsoever, other than the Conversion.



ARTICLE IV.




CONDITIONS TO LOANS




     Section 4.01 Condition Precedent to Effectiveness and the Initial Loan. This Agreement
shall become effective as of the Business Date (the “Interim Facility Effective Date”) when each of
the following conditions precedent shall have been satisfied in a manner reasonably satisfactory to
the Lender or waived:



     (a) Interim Financing Order. The Interim Financing Order shall have been entered by
the Bankruptcy Court and the Lender shall have received a copy of such order signed by the judge in
the Chapter 11 Case, and such order shall be in full force and effect and shall not have been
reversed, stayed, modified or amended absent prior written consent of the Lender.



     (b) Payment of Fees, Etc. The Borrower shall have paid on or before the Interim
Facility Effective Date or simultaneously with the first Advance all Closing Fees.



     (c) Representations and Warranties; No Event of Default. The following statements
shall be true and correct: (i) All representations and warranties contained in Article V or in the
Subsidiary Guaranty Agreement, Security Agreement and Pledge Agreement are true and correct in all
material respects on and as of the Interim Facility Effective Date as though made on and as of such
date (except for such representations and warranties as are made as of specific date which shall be
true and correct as of such date in all material respects) and (ii) no Default or Event of Default
shall have occurred and be continuing on the Interim Facility Effective Date or would result from
this Agreement or the other Loan Documents becoming effective in accordance with its or their
respective terms, both immediately before and immediately after giving effect to the initial Loan.



     (d) Delivery of Documents. Borrower shall have (1) executed and delivered to Lender
the Security Agreement, Pledge Agreement and such other documents necessary to grant to Lender a
perfected first priority security interest in and Lien on the Collateral, except as permitted under
this Agreement and the Security Agreement, and (2) caused the Pledgors and Guarantors to execute
and deliver to Lender the Pledge Agreements and the Subsidiary Guaranty



19









 







Agreements to which they are respectively parties and such documents shall have been executed
and delivered to Lender.



     (e) Intercompany Balances. Borrower shall have satisfactorily confirmed to Lender
that no member of the CGuern Group owes any amount to any CanArgo Group Member that is not a CGuern
Group member.



     Section 4.02 Conditions Precedent to Subsequent Advances. The obligation of the
Lender to make the subsequent Advance or other funding or other financial accommodations under the
Loan hereunder after the Interim Facility Effective Date is subject to the fulfillment, in a manner
reasonably satisfactory to the Lender, of each of the following conditions precedent:



     (a) Final Financing Order. The Final Financing Order shall have been entered by the
Bankruptcy Court (i) approving the terms of this Agreement, authorizing the transactions
contemplated hereby and by the Security Agreement and Pledge Agreement, and granting Lender
perfected, valid, and enforceable first priority Liens and security interests upon all Collateral,
except as permitted under this Agreement and the Security Agreement; (ii) prohibiting any Liens
that would be senior to or pari passu with the Liens securing the Obligations (except as permitted
under this Agreement and the Security Agreement); (iii) authorizing and directing Borrower to pay
Lender’s fees and expenses in connection with or payable under this Agreement and the Security
Agreement; (iv) containing such other terms and conditions as Lender may reasonably determine
consistent with the provisions of this Agreement; and (v) such Final Financing Order shall be in
full force and effect and shall not have been reversed, stayed, modified or amended, absent prior
written consent of the Lender and the Borrower.



     (b) Payment of Fees, Etc., and Bridge Loan. The Borrower shall have paid all fees,
costs, expenses and taxes then payable by the Borrower pursuant to this Agreement and the other
Loan Documents and shall have repaid in full all amounts outstanding under the Bridge Loan,
including, if necessary, by resort to an Advance to pay same.



     (c) Representations and Warranties; No Event of Default. The following statements
shall be true and correct, and the submission by the Borrower to the Lender of a Loan Request with
respect to the Advance, and the Borrower’s acceptance of the proceeds of the Advance, shall be
deemed to be a representation and warranty by the Borrower on the date of such advance that: (i)
the representations and warranties contained in Article V and in each other Loan Document,
certificate or other writing delivered to the Lender pursuant hereto or thereto on or prior to the
date of the Advance are true and correct in all material respects on and as of such date as though
made on and as of such date (except for such representations and warranties as are made as of
specific date which shall be true and correct as of such date in all material respects), (ii) at
the time of and after giving effect to the making of the Advance and the application of the
proceeds thereof, no Default or Event of Default has occurred and is continuing or would result
from the making of the advance to be made on such date and (iii) the conditions set forth in this
Section 4.02 have been satisfied as of the date of such request.



     (d) Notices. The Lender shall have received a Loan Request.




20












 





ARTICLE V.




REPRESENTATIONS AND WARRANTIES




     Section 5.01 Representations and Warranties. The Borrower hereby represents and
warrants to the Lender, as follows:



     (a) Organization and Good Standing. Borrower is a corporation duly organized, validly
existing and upon payment of outstanding corporate franchise taxes and fees shall be in good
standing under the laws of Delaware and has all requisite corporate power and authority to carry on
its business as now conducted.



     (b) Authorization. The execution, delivery and performance by Borrower of this
Agreement, the Security Agreement and Pledge Agreement to which it is a party, are within
Borrower’s corporate power; have been duly authorized by all necessary or proper corporate action
and on the Interim Facility Effective Date and on each subsequent funding date, will be authorized
by an Order which remains in full force and effect and has not been amended, stayed or vacated;
will not violate any applicable law in any material respect (other than violations the enforcement
of which will be stayed by virtue of the filing of the Chapter 11 Case); to Borrower’s Knowledge
does not require the consent or approval of any Governmental Authority or any other Person (other
than entry of the applicable Order) and except such consents as have been obtained or which, if
failed to be obtained, would not result in a Material Adverse Change or the necessity for which has
either been stayed or eliminated by virtue of the filing of the Chapter 11 Case.



     (c) Valid Obligation. Subject to the entry of and the terms of the Interim Financing
Order and the Final Financing Order, this Agreement, the Security Agreement and Pledge Agreement to
which the Borrower is a party, constitute valid and legally binding obligations of Borrower,
enforceable against Borrower in accordance with their terms.



     (d) Non-contravention of Other Instruments. Borrower is not in violation or default
(i) of any provision of its Certificate of Incorporation or Bylaws, or (ii) in any material respect
of any post-petition instrument, judgment, order, writ, decree or to Borrower’s Knowledge any
Material Contract to which it is a party or by which it is bound which violation or default would
have a Material Adverse Change in Borrower or its Subsidiaries, taken as a whole (other than
conflicts, breaches and defaults the enforcement of which will be stayed by virtue of the filing of
the Chapter 11 Case). Other than for conflicts, breaches and defaults resulting, or the
enforcement of which will be stayed, by virtue of the filing of the Chapter 11 Case or any order of
the Bankruptcy Court, the execution, delivery and performance of this Agreement and the Security
Agreement, and the consummation of the transactions contemplated hereby and thereby, will, to
Borrower’s Knowledge, not result in any such violation or be in conflict with or constitute, with
or without the passage of time and giving of notice, either a material default under any such
post-petition provision, instrument, judgment, order, writ, decree or Material Contract (including
but not limited to any credit agreements, guaranties or debt related agreements to which Borrower
or any Affiliate of Borrower may be a party) or, to Borrower’s Knowledge an event that results in
the creation of any Lien, charge or encumbrance upon any material assets of Borrower or its
Subsidiaries or to Borrower’s Knowledge the suspension,



21









 




revocation, impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to Borrower, its business or operations or any of its assets
or properties, which could reasonably be expected to result in a Material Adverse Change.




     (e) Budget and Financial Information. The Budget and financial information provided
to the Lender concerning the Borrower and the Subsidiaries have been prepared in good faith and in
all material respects fairly represent, as applicable, the past, present and anticipated financial
status and performance of the Borrower and its direct and indirect Subsidiaries for the periods
described therein; provided, however, Lender acknowledges there is no certainty with respect to the
future status and performance or financial results of the Borrower or any of its direct or indirect
Subsidiaries, none of which may be realized in whole or in part.



ARTICLE VI.




COVENANTS OF THE BORROWER




     Section 6.01
Affirmative Covenants. So long as the principal amount of the
Loan or any other Obligation (whether or not due) shall remain unpaid or the Lender shall have any
Commitment hereunder, the Borrower covenants as provided below (unless any such covenant is waived
in a specific prior writing by Lender):



     (a) Budget; Weekly Variance Reports. Borrower shall operate in accordance with the
four-month budget agreed upon by the Borrower and the Lender attached hereto as Exhibit F
(the “Budget”), which budget reflects on a line-item basis the Borrower’s anticipated cumulative
production and disbursements on a weekly basis and all necessary and required cumulative expenses
(subject, on a monthly basis, to a (i) Non-Material Non-Professional Expenses Budget Variance, (ii)
a Non-Material Production Budget Variance and (iii) Non-Material Professional Expenses Budget
Variance, each such deviation to be exclusive of any variance attributable to fluctuating exchange
rates (if in a month, actual relevant expenses exceed the stated variance for (i) or (iii), or
actual production is less than the stated variance in (ii), such an event is referred to herein as
an “Excess Budget Variance”)) which the Borrower expects to incur during each month of the Budget.
The Borrower shall provide the Lender with a weekly variance report reflecting the actual cash
receipts for any oil and gas sales during the preceding week, actual production of oil and gas for
the preceding week, and disbursements for each weekly period during the term of the Loan within
three (3) Business Days after the end of such weekly period, and showing the percentage variance of
actual production and disbursements from those reflected in the Budget for such period. Borrower
shall also provide Lender a mid-month production estimate based on the samples the Company
historically has taken within three (3) Business Days after the 15th of each month and shall
provide Lender with a monthly definitive production report within three (3) Business Days after the
conclusion of a month, in each case showing percentage variance of estimated or actual production
from the numbers reflected in the Budget for such period.



     (b) Use of Cash, Seeking Advances and Use of Loan Proceeds. Prior to making a Loan
Request, Borrower shall utilize all available cash on hand and cash from operations to meet
expenses contemplated by the Budget and Borrower shall only make a Loan Request hereunder



22









 




to the extent the Borrower reasonably believes that it will have insufficient cash on hand and
cash from operations to fund its budgeted expenditures. Borrower shall only upstream cash from
operations from its Subsidiaries in order to pay due and payable expenses of Borrower contemplated
by the Budget. Further, except with respect to a Reasonable Unforeseen Operational Expenditure,
Borrower shall cause its Subsidiaries to only expend cash from operations to pay due and payable
expenses of such Subsidiaries as contemplated by the Budget. The proceeds of any Advance under the
Loan shall be used solely to fund post-petition operating expenses in strict accordance with the
Budget (allowing for any Non-Material Professional Expenses Budget Variance and any Non-Material
Non-Professional Expenses Budget Variance) and Closing Fees and, as applicable, Post-Closing Fees.




     (c) Unforeseen Operational Events. In the event that an unforeseen operational event
(e.g., an accident or equipment damage) causes Borrower to reasonably conclude that an operational
expenditure should be made in order to best preserve the value of the assets of Borrower and its
Subsidiaries, Borrower shall promptly notify Lender of the unforeseen operational event, the amount
and nature of the proposed unforeseen expenditure Borrower believes should be made and reasons
supporting such expenditure. If such expenditure, aggregated with any Reasonable Unforeseen
Operational Expenditures previously made, does not exceed $50,000, such expenditure shall
automatically be deemed a “Reasonable Unforeseen Operational Expenditure”, and upon written notice
to Lender, shall be excluded from the calculation of an Excess Budget Variance.



     (d) Reporting Requirements. Borrower shall furnish or cause to be furnished to
Lender:




     (i) promptly after the filing thereof, electronic copies of all pleadings, motions,
applications, financial information and other papers and documents filed by the Borrower in
the Chapter 11 Case, which papers and documents shall also be given or served on the
Lender’s counsel;




     (ii) promptly after the sending thereof, copies of all written reports given by the
Borrower to any official or unofficial creditors’ committee in the Chapter 11 Case, other
than any such reports subject to privilege;




     (iii) promptly after submission to any Governmental Authority, all documents and
information furnished to such Governmental Authority in connection with any investigation of
the Borrower other than routine inquiries by such Governmental Authority;




     (iv) as soon as possible, and in any event within three (3) days after the occurrence
of an Event of Default or the occurrence of any event or development that could reasonably
be expected to result in a Material Adverse Change, the written statement of an Authorized
Officer of the Borrower setting forth the details of such Event of Default, other event,
development that could reasonably be expected to result in a Material Adverse Change and the
action which the Borrower and its Subsidiaries propose to take with respect thereto;



23









 






     (v) promptly after the commencement thereof but in any event not later than five (5)
days after service of process with respect thereto on, or the obtaining of Knowledge thereof
by, the Borrower, notice of each action, suit or proceeding before any court or other
Governmental Authority or other regulatory body or any arbitrator which, if adversely
determined, could reasonably be expected to result in a Material Adverse Change;




     (vi) as soon as possible and in any event within five (5) days after execution, receipt
or delivery thereof copies of any material notices that the Borrower executes or receives in
connection with any Material Contract;




     (vii) as soon as possible after filing with the SEC, copies of all periodic or episodic
Reports required to be filed pursuant to the Exchange Act and all registration statements,
prospectuses, notices or other documents required to be filed pursuant to the Securities Act
and which are matters of public record;




     (viii) promptly upon receipt thereof, copies of all financial reports (including,
without limitation, management letters), if any, submitted to the Borrower by its auditors
in connection with any annual or interim audit of the books thereof; and




     (ix) promptly upon request, such other information concerning the condition or
operations, financial or otherwise, of the Borrower as the Lender may from time to time may
reasonably request.



     (e) Inspection Rights. Permit, and cause each of its Subsidiaries to permit, the
Lender or any agents or representatives thereof at any time and from time to time upon reasonable
notice to Borrower and during normal business hours, to examine and make copies of and abstracts
from its records and books of account, to visit and inspect its properties, to verify materials,
leases, notes, accounts receivable, deposit accounts and other assets, to conduct audits, physical
counts, valuations, appraisals or examinations and to discuss its affairs, finances and accounts
with any of its directors, officers, managerial employees, independent accountants or other
representatives. In furtherance of the foregoing, the Borrower hereby authorizes its independent
accountants, and the independent accountants of each of its Subsidiaries, to discuss the affairs,
finances and accounts of the Borrower and/or such Subsidiaries (independently or together with
representatives of such Person) with the agents and representatives of the Lender in accordance
with this Section 6.01(d).



     (f) Delivery of Fee Statements. Borrower shall cause Borrower’s legal counsel
(“Borrower Counsel”) to deliver to Lender within five (5) Business Days after the 15th
day of each calendar month under the Budget a reasonably accurate short written statement of fees
and disbursements accrued by Borrower Counsel for that month through the 15th day
(“Mid-Month Fee Statement”). Borrower shall also cause Borrower Counsel to deliver to Lender
within nine (9) Business Days after the end of each month a detailed fee and disbursement statement
of fees and disbursements accrued by Borrower Counsel the prior month (“Monthly Fee Statement”).
Any Mid-Month Fee Statement or Monthly Fee Statement, whether or not paid, shall not exceed the
amount of the Permitted Professionals Expenses budgeted for such month.



24









 





     Section 6.03 Negative Covenants. So long as the principal amount of the Loan or any
other Obligation (whether or not due) shall remain unpaid or the Lender shall have any Commitment
hereunder, the Borrower shall not and shall cause each of its Subsidiaries to not (unless any such
covenant is waived in a specific prior writing by Lender):



     (a) Interim Financing Order; Final Financing Order; Administrative Priority; Lien
Priority; Payment of Claims.




     (i) seek, consent to or suffer to exist any modification, stay, vacation or amendment
of the Interim Financing Order or the Final Financing Order except for modifications and
amendments agreed to in writing by the Lender;




     (ii) suffer to exist a priority for any administrative, expense or unsecured claim
against the Borrower (now existing or hereafter arising of any kind or nature whatsoever,
including without limitation any administrative expenses of the kind specified in Sections
503(b) and 507(b) of the Bankruptcy Code) equal or superior to the priority of the Lender in
respect of the Obligations (except for Carve-Out Expenses and Permitted Liens);




     (iii) suffer to exist any Lien on the Collateral having a priority equal or superior to
the Lien in favor of the Lender in respect of the Collateral except for Permitted Liens and
Permitted Priority Liens, to the extent set forth in the definition of “Requisite Priority”;
and




     (iv) pay any administrative expense claims except (i) those within the definition of
the term “Carve-Out Expenses” subject to the other terms hereof and the Orders, (ii) any
Obligations due and payable hereunder, and (iii) other administrative expense claims
incurred in the ordinary course of the business of the Borrower or its Chapter 11 Case, in
each case to the extent provided for in the Budget and section 6.01(a) hereof.



     (b) Fundamental Changes; Dispositions. Wind-up, liquidate or dissolve itself (or
permit or suffer any thereof), except for any merger or consolidation of the Borrower in connection
with the consummation of a plan of reorganization in the Chapter 11 Case or merge, consolidate or
amalgamate with any Person, or convey, sell, lease or sublease, transfer or otherwise dispose of,
whether in one transaction or a series of related transactions, all or any part of its business,
property or assets, whether now owned or hereafter acquired (or agree to do any of the foregoing),
or purchase or otherwise acquire, whether in one transaction or a series of related transactions,
all or substantially all of the assets of any Person (or any division thereof) (or agree to do any
of the foregoing), or permit any of its Subsidiaries to do any of the foregoing, provided that the
Borrower and its Subsidiaries may (A) sell production in the ordinary course of business, (B)
dispose of obsolete or worn-out equipment in the ordinary course of business, and (C) sell or
otherwise dispose of other non-material property or assets for cash in an aggregate amount not less
than the fair market value of such property or assets.



     (c) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any
change in the nature of its business as carried on at the date hereof.



25









 





     (d) Loan Advances, Investments, Etc. Make or commit or agree to make any loan,
advance, guarantee of obligations, other extension of credit or capital contributions to, or hold
or invest in or commit or agree to hold or invest in, or purchase or otherwise acquire or commit or
agree to purchase or otherwise acquire any shares of the Capital Stock, bonds, notes, debentures or
other securities of, or make or commit or agree to make any other investment in, any other Person
(other than shares, bonds, notes, debentures or other securities issued by any of its
Subsidiaries), or purchase or own any futures contract or otherwise become liable for the purchase
or sale of currency or other commodities at a future date in the nature of a futures contract, or
permit any of its Subsidiaries to do any of the foregoing, except for: (i) investments existing on
the date hereof, but not any increase or modification thereof, as set forth in a Schedule hereto,
and (ii) Permitted Investments, all as contemplated by the Budget.



     (e) Lease Obligations. Create, incur or suffer to exist, or permit any of its
Subsidiaries to create, incur or suffer to exist, any obligations as lessee (i) for the payment of
rent for any real or personal property in connection with any sale and leaseback transaction, or
(ii) for the payment of rent for any real or personal property under leases or agreements to lease
other than Capitalized Lease Obligations and Operating Lease Obligations existing on the date
hereof, which have been disclosed to Lender.



     (f) Capital Expenditures. Make or commit or agree to make, or permit its Subsidiaries
to make or commit or agree to make, any Capital Expenditure except as otherwise provided in the
Budget.



     (g) Subsidiaries’ Cash and Assets. Upstream cash or assets from Subsidiaries or
transfer cash or assets out of Subsidiaries except to meet expense items set forth in the Budget,
or as agreed to in a prior writing by Lender.



ARTICLE VII.




EVENTS OF DEFAULT




     Section 7.01 Events of Default. The occurrence and continuance of any of the
following events shall be a default under this Agreement (an “Event of Default”):



     (a) Except as otherwise provided herein, a breach by Borrower or any Subsidiary of any
covenant, agreement, representation or warranty under the Loan Documents or any Order to which it
is a party or by which it is bound, as the case may be, and such breach shall remain unremedied for
ten (10) days after the date written notice of such default shall have been given by the Lender to
the Borrower (a “Cure Period”); provided that there shall be no Cure Period for breaches of the
following covenants, agreements, representations or warranties: Section 2.02(b) — exceeding
payments permitted under Carve-Out Expenses; Section 2.02(c) — failing to make repayment of the
Loan on the Final Maturity Date if there is no Conversion; Section 2.03(a) — failing to pay
Closing Fees; Section 5.01(c) —breach of the representation and warranty that this Agreement
creates a legal, valid, binding and enforceable obligation; Section 5.01(d)(ii) —  breach of the
representation and warranty that this Agreement does not contravene another agreement or instrument
that would cause a Material Adverse Change; Section 5.01(e) — breach of the representation and
warranty that Budget presented in good faith; Section 6.01(b) — failing



26









 




to properly use/upstream cash, to use proceeds of Advances, to abide Budget; Section 6.01(c)
— exceeding amounts permitted to be incurred/spent on an unforeseen operational event; Section
6.01(d)(iv) — failing to provide notice within 3 days of a Material Adverse Change; Section
6.01(d)(v) — failing to provide notice within 5 days of action that could result in a Material
Adverse Change; Section 6.02(a)(i) — modification of an Order without Lender’s consent; Section
6.02(a)(iv) — improper payments; Section 6.02(b) — occurrence of a fundamental change; and
Section 6.02 (c) — (g) (certain negative covenants); and provided further that there shall be a
seven (7) day Cure Period for breaches of the following covenants, agreements, representations or
warranties: Section 2.06 (Legal Budget); Section 6.01(a) (failing to provide weekly variance
reports, inspection rights); Section 6.02(a)(ii) (equal or senior claim); Section 6.02(a)(iii)
(equal or senior lien);




     (b) Any deviation from the Budget constituting an Excess Budget Variance, or any breach of the
Overall Carve-Out Cap; provided, that, with respect to an Excess Budget Variance
based substantially on a production variance in excess of a Non-Material Production Budget Variance
which production variance is due to a mechanical problem at a well site, Lender agrees to meet with
and reasonably and in good faith discuss such problem with Borrower before declaring a default
based on such variance;



     (c) Any challenge in a legal proceeding, after the Final Order Entry Date, to the validity or
enforceability of this Agreement, the Security Agreement, the Pledge Agreement, the Subsidiary
Guaranty Agreement or any Order or any term hereunder or thereunder which has not been stayed or
dismissed within ten (10) days of the commencement of such proceeding; provided that if such
challenge is initiated or supported by Borrower there shall be no Cure Period;



     (d) An order scheduling a hearing on confirmation of the Plan is not entered by the Court
within twenty five (25) days of the Filing Date and such hearing is not scheduled for a date that
is within seventy five (75) days of the Filing Date; provided that Borrower shall request a date
that is within forty-five (45) days of the Filing Date;



     (e) Confirmation of the Plan is denied or the Plan is not confirmed within ninety (90) days
after the Filing Date (unless there is a Final Maturity Date Extension, in which case, the Plan is
not confirmed within one hundred and twenty (120) days after the Filing Date);



     (f) Borrower in the reasonable determination of Lender does not in good faith seek the timely
confirmation of the Plan;



     (g) An “Event of Default” has occurred and is continuing under and as defined in the Security
Agreement or Pledge Agreement or the Plan Support Agreement and such Event of Default, if capable
of being remedied, shall remain unremedied for ten (10) days after the date written notice of such
default shall have been given by the Lender to the Borrower, except as set forth in the proviso to
clause (a) above;



     (h) The filing of any motion to approve a sale of all or a substantial portion of the
Borrower’s assets unless the Lender consents;



27









 





     (i) Action by any party in the Chapter 11 Case to cause or support, whether directly or
indirectly, any claims against Lender or the claims held by Lender and if such action is filed it
is not dismissed within twenty (20) days of the filing thereof (provided that there shall be no
cure period if the direct or indirect action is made by or supported by the Borrower);



     (j) An order with respect to any of the Chapter 11 Case shall be entered by the Bankruptcy
Court appointing, or the Borrower shall file an application for an order with respect to the
Chapter 11 Case seeking the appointment of, (i) a trustee under Section 1104, or (ii) an examiner
with expanded powers;



     (k) an order with respect to any of the Chapter 11 Case shall be entered by the Bankruptcy
Court converting such Chapter 11 Case to a Chapter 7 case or dismissing the Chapter 11 Case;



     (l) The occurrence of a Material Adverse Change in the condition or business prospects
(financial or otherwise) of the Borrower or the Subsidiaries, taken as a whole (other than any
action taken or proposed to be taken in accordance with the Plan or the Loan Documents); and



     (m) The filing of a motion to approve post-petition financing that will be secured by Liens on
the Collateral that are pari passu or senior to the Liens granted to Lender in connection herewith,
except as contemplated or permitted under the Loan Documents.



     Section 7.02 Remedies on Default, etc.



     (a) Acceleration.




     (i) Subject to Section 7.02(d), if an Event of Default has occurred and is continuing,
the Lender may at any time at its option, by notice or notices to the Borrower, declare the
Loan then outstanding to be immediately due and payable and terminate the Commitment.




     (ii) Subject to the provisions of Section 7.02(d), upon the Loan becoming due and
payable under this Section 7.02, the entire unpaid principal amount of the Loan, plus all
accrued and unpaid Default Interest thereon (to the full extent permitted by applicable
law), shall be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived.



     (b) Other Remedies. Subject to the provisions of Section 7.02(d), if any
Default or Event of Default has occurred and is continuing, and irrespective of whether the Loan
has become or has been declared immediately due and payable under Section 7.02(a), the Lender may
proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained herein or in any Loan
Document, or for an injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise or otherwise exercise
all rights and remedies provided for under the Loan Documents, including foreclosing upon any or
all of the Collateral and the automatic stay applicable in Borrower’s Chapter 11 Case shall be
inapplicable to any such action.



28









 





     (c) Costs and Expenses. Borrower shall pay all costs and expenses of amending,
administering, implementing, collecting, defending, declaring and enforcing Lender’s rights under
this Agreement, any other Loan Document or other instrument or agreement delivered in connection
with any of the Loan Documents, including searches and filings at all times, and Lender’s
reasonable attorneys’ fees which are actually incurred.



     (d) Rescission. At any time after the Loan has been declared due and payable pursuant
to Section 7.02(a), the Lender, by written notice to the Borrower, may, at its sole discretion,
rescind and annul any such declaration and its consequences if (a) the Borrower has paid all
principal that is due and payable and is unpaid other than by reason of such declaration, and all
Default Interest on such overdue principal, if any, to the extent permitted by applicable law at
the Post-Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have been cured or have been waived, and
(c) no order has been entered for the payment of any monies due pursuant hereto by the Bankruptcy
Court. No rescission and annulment under this Section 7.02(d) will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.



     (e) No Waivers or Election of Remedies. No course of dealing and no delay on the part
of Lender in exercising any right, power or remedy shall operate as a waiver thereof or otherwise
prejudice its rights, powers or remedies. No right, power or remedy conferred by this Agreement or
by any other Loan Document upon Lender shall be exclusive of any other right, power or remedy
referred to herein or therein or now or hereafter available at law, in equity, by statute or
otherwise.



ARTICLE VIII.




MISCELLANEOUS




     Section 8.01 Notices, Etc. All notices and other communications provided for
hereunder shall be in writing and shall be both emailed and mailed, telecopied or delivered,



     (a) if to the Borrower, at the following address:



     Attention: Vincent McDonnell, Chief Executive Officer



	 	 	 
	CanArgo Energy Corporation 

150 Buckingham Palace Road

	 	Fax: 0044 207 730 1136

Phone: 0044 207 730 1134
	London SW1W 9TR UK
	 	 
	 
	 	 
	with a copy to:
	 	 
	 
	 	 
	Peter A. Basilevsky, Esq.

	 	Telephone: (212) 818-9200
	Satterlee Stephens Burke & Burke LLP
	 	Telecopier: (212) 818-9606
	230 Park Avenue, Suite 1130
	 	 
	New York, NY 10169
	 	 






29









 






     (b) if to the Lender, by email to the email address legal@persistencycapital.com and at the
following address:



     Andrew J. Morris


     Persistency



     c/o Persistency Capital LLC



     1270 Avenue of theAmericas



     Suite 2100



     New York NY 10020



     Telephone: 212-554-1813



     Telecopier: 646-619-4642




     with a copy to:



     John R. Ashmead, Esq.



     Seward & Kissel LLP



     One Battery Park Plaza



     New York, New York 10004




     Telephone: 212-574-1200




     Telecopier: 212-480-8421


or, as to each party, at such other address as shall be designated by such party in a written
notice to the other parties complying as to delivery with the terms of this Section 8.01. All such
notices and other communications shall be effective, (i) if mailed, when received or three days
after deposited in the U.S. mails or ten days if deposited in foreign mails, whichever occurs
first, (ii) if telecopied, when transmitted and confirmation received, or (iii) if delivered, upon
delivery, except that notices to the Lender pursuant to Article II shall not be effective until
received by the Lender.




     Section 8.02 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, and no consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lender, and then such waiver or
consent shall be effective only in the specific instance and for the specific purpose for which
given.



     Section 8.03 No Waiver; Remedies, Etc. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any right under the Loan
Document preclude any other or further exercise thereof or the exercise of any other right. The
rights and remedies of the Lender provided herein and in the other Loan Documents are cumulative
and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of
the Lender under the Loan Documents against any party thereto are not conditional or contingent on
any attempt by the Lender to exercise any of its rights under any other Loan Documents against such
party or against any other Person.



30









 





     Section 8.04 Severability. Any provision of this Agreement, which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provision in any other jurisdiction.



     Section 8.05 Assignments.



     (a) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns (including, except for
the right to request a Loan, any trustee succeeding to the rights of the Borrower pursuant to
Chapter 11 of the Bankruptcy Code or pursuant to any conversion to a case under Chapter 7 of the
Bankruptcy Code); provided, however, that the Borrower may not assign or transfer any of its rights
hereunder, or under the other Loan Documents, without the prior written consent of the Lender and
any such assignment without the Lender’s prior written consent shall be null and void.



     (b) The Lender may assign all or a portion of its rights and obligations under this Agreement
to an Affiliate or, with the consent of the Borrower (not to be unreasonably withheld or delayed),
to another Person. Upon execution, delivery and acceptance, of an Assignment and Acceptance (the
“Assignment and Acceptance”), the Lender shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of the Lender’s rights and obligations under this
Agreement, the Lender shall cease to be a party hereto). Notwithstanding the foregoing, should
there exist an Event of Default which is not capable of being remedied or for which the applicable
cure period has expired, Lender may assign its rights and obligations under the Loan Documents to
any person without the consent of Borrower.



     Section 8.06 Further Assurances. Borrower shall from time to time, and at all times
after the security constituted by this Agreement shall have become enforceable, execute all such
further instruments and documents and do all such things as Lender may reasonably deem desirable
for the purpose of obtaining the full benefit of this Agreement and of the rights, title, interest,
powers, authorities and discretions conferred on Lender by this Agreement and the other Loan
Documents, including by (without limitation), as the case may be, executing any additional
instruments and documents as aforesaid. Borrower hereby irrevocably appoints Lender its
attorney-in-fact for it and in its name and on its behalf and as its act and deed to execute, seal
and deliver and otherwise perfect any deed, assurance, agreement, instrument or act which it may
deem desirable for any of the purposes of this Agreement; provided that Lender shall not exercise
such power until this Agreement shall have become enforceable.



     Section 8.07 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of which shall be
deemed to be an original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement by telecopier shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any party delivering
an executed counterpart of this Agreement by telecopier also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed counterpart



31









 




shall not affect the validity, enforceability, and binding effect of this Agreement. The
foregoing shall apply to each other Loan Document mutatis mutandis.




     Section 8.08 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK EXCEPT AS GOVERNED BY THE BANKRUPTCY
CODE AND EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT.



     Section 8.09 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE
BANKRUPTCY COURT OR IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY
OF THIS AGREEMENT, THE BORROWER AND THE LENDER EACH HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER AND
THE LENDER EACH HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS
AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO
THE BORROWER OR THE LENDER, AS APPLICABLE, AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 8.01
AND TO THE SECRETARY OF STATE OF THE STATE OF NEW YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10)
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PARTIES HERETO TO SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST EACH OTHER IN ANY OTHER JURISDICTION. THE PARTIES HERETO EACH HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.



     Section 8.10 WAIVER OF JURY TRIAL, ETC. THE BORROWER AND THE LENDER HEREBY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT,
DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION
THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN



32









 




CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE BORROWER CERTIFIES THAT NO OFFICER,
REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE
LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE
FOREGOING WAIVERS. THE BORROWER HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE LENDER FOR ENTERING INTO THIS AGREEMENT.




     Section 8.11 Consent by the Lender. Except as otherwise expressly set forth herein to
the contrary, if the consent, approval, satisfaction, determination, judgment, acceptance or
similar action (an “Action") of the Lender shall be permitted or required pursuant to any provision
hereof or any provision of any other agreement to which the Borrower is a party and to which the
Lender has succeeded thereto, such Action shall be required to be in writing.



     Section 8.12 No Party Deemed Drafter. Each of the parties hereto agrees that no party
hereto shall be deemed to be the drafter of this Agreement.



     Section 8.13 Indemnification. In addition to the Borrower’s other Obligations under
this Agreement, the Borrower agrees to defend, protect, indemnify and hold harmless the Lender and
all of their respective officers, directors, employees, attorneys, consultants and agents
(collectively, the “Indemnitees”) from and against any and all losses, damages, liabilities,
obligations, penalties, fees, reasonable costs and expenses (including, without limitation,
reasonable attorneys’ fees, costs and expenses) incurred by such Indemnitees, whether prior to or
from and after the Interim Facility Effective Date, whether direct, indirect or consequential, as a
result of or arising from or relating to or in connection with any of the following: (i) the
negotiation, preparation, execution or performance or enforcement of this Agreement, any other Loan
Document or of any other document executed in connection with the transactions contemplated by this
Agreement or the other Loan Documents, (ii) the Lender’s furnishing of funds to or for the account
of the Borrower under this Agreement, including, without limitation, the management of the such
Loan, (iii) any matter relating to the financing transactions contemplated by this Agreement or the
other Loan Documents or by any document executed in connection with the transactions contemplated
by this Agreement or the other Loan Documents, or (iv) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto
(collectively, the “Indemnified Matters”); provided, however, that the Borrower shall not have any
obligation to any Indemnitee under this Section 8.13 for any Indemnified Matter caused by the gross
negligence or willful misconduct of such Indemnitee, as determined by a final judgment of a court
of competent jurisdiction.



     Section 8.14 Binding Effect. This Agreement shall become effective when it shall have
been executed by the Borrower and the Lender and when the conditions precedent set forth in Section
4.01 hereof have been satisfied or waived in writing by the Lender, and thereafter shall be binding
upon and inure to the benefit of the Borrower and the Lender, and their respective successors and
assigns (including, except for the right to request a Loan, any trustee succeeding to the rights of
the Borrower pursuant to Chapter 11 of the Bankruptcy Code or pursuant to any conversion to a case
under Chapter 7 of the Bankruptcy Code), except that the Borrower shall



33









 




have no right to assign its rights hereunder or any interest herein without the prior written
consent of the Lender, and any assignment by the Lender shall be governed by Section 8.05 hereof.




     Section 8.15 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the transactions contemplated
hereby and shall not be contradicted or qualified by any other agreement, oral or written, before
the date hereof.



     Section 8.16 Confidentiality. The parties hereto have entered into that certain Common
Interest Agreement dated as of February 9, 2009 and hereby agree that they shall be and shall cause
their respective Affiliates, successors and assigns to be bound by the provisions of that Agreement
until the first anniversary of the Final Maturity Date.



     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their
respective officers thereunto duly authorized, as of the date first above written.



	 	 	 	 	 
	BORROWER:



CANARGO ENERGY CORPORATION

 	 
	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 
	LENDER:



PERSISTENCY

 	 
	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 



34









 






	 	 	 	 	 



Exhibit I




CanArgo Energy Corporation and Its Direct and Indirect Subsidiaries

 





	 	 	 
	Legal Name	 	Incorporation
	 
	1    CanArgo Energy Corporation

	 	Delaware
	2    CanArgo Oil & Gas Inc

	 	Ontario, Canada
	3    CanArgo Limited

	 	Ontario, Canada
	4    Fountain Oil Ukraine Limited

	 	New Brunswick, Canada
	5    UK-RAN Oil Corporation

	 	New Brunswick, Canada
	6    Fountain Oil Canada Limited

	 	New Brunswick, Canada
	7    Focan Limited

	 	New Brunswick, Canada
	8    EOR Canada Limited

	 	New Brunswick, Canada
	9    CanArgo Acquisition Corporation

	 	 New Brunswick, Canada
	10    Ninotsminda Oil Company Limited

	 	 Cyprus
	11    CanArgo Oil Boryslaw Limited

	 	Cyprus
	12    CanArgo Norio Limited

	 	Cyprus
	13    Groundline Limited

	 	Cyprus
	14    Lateral Vector Resources Limited
(formerly Longtex Limited)
	 	Cyprus
	15    Courtway Limited

	 	Cyprus
	16    CanArgo Limited

	 	Guernsey
	17    CanArgo (Nazvrevi) Limited

	 	Guernsey
	18    CanArgo Power Corporation Limited

	 	Guernsey
	19    CanArgo (Kaspi) Limited

	 	Guernsey
	20   Argonaut Well Services Limited

	 	Guernsey
	21   CanArgo Samgori Limited

	 	Guernsey
	22    CanArgo Services (UK) Limited

	 	England
	23    Sagarejo Power Company LLC

	 	Georgia
	24    Georgian British Oil Co Ninotsminda

	 	Georgia
	25    Georgian British Oil Company Nazvrevi

	 	Georgia
	26    Georgian British Oil Company Norio

	 	Georgia
	27    Ninotsminda Services Limited

	 	Georgia
	28    CanArgo Georgia Limited

	 	Georgia
	29    Ninotsminda Oil Company Limited

	 	 Jersey
	30    CanArgo Norio Limited

	 	Jersey






 









 






Exhibit II




CGUERN and its Direct and Indirect Subsidiaries




	 	 	 
	Legal Name	 	Incorporation
	 
	1   Ninotsminda Oil Company Limited

	 	Cyprus
	2   CanArgo Oil Boryslaw Limited

	 	Cyprus
	3   CanArgo Norio Limited

	 	Cyprus
	4   Groundline Limited

	 	Cyprus
	5   Lateral Vector Resources Limited (formerly Longtex Limited)

	 	Cyprus
	6   Courtway Limited

	 	Cyprus
	7   CanArgo Limited

	 	Guernsey
	8   CanArgo (Nazvrevi) Limited

	 	Guernsey
	9   CanArgo Power Corporation Limited

	 	Guernsey
	10   CanArgo (Kaspi) Limited

	 	Guernsey
	11   Argonaut Well Services Limited

	 	Guernsey
	12   CanArgo Samgori Limited

	 	Guernsey
	13   CanArgo Services (UK) Limited

	 	England
	14   Sagarejo Power Company LLC

	 	Georgia
	15   Georgian British Oil Co Ninotsminda

	 	Georgia
	16   Georgian British Oil Company Nazvrevi

	 	Georgia
	17   Georgian British Oil Company Norio

	 	Georgia
	18   Ninotsminda Services Limited

	 	Georgia
	19   CanArgo Georgia Limited

	 	Georgia
	20   Ninotsminda Oil Company Limited

	 	Jersey
	21   CanArgo Norio Limited

	 	Jersey