exv10w1



 





Exhibit
10.1 


CONSENT AND CONVERSION AGREEMENT



This CONSENT AND CONVERSION AGREEMENT (this “Agreement”) is made and entered into as of the 5th day
of June, 2007 by and among:





	(1)	 	CANARGO ENERGY CORPORATION, a Delaware Corporation (the “Company”);
	 
	(2)	 	THE PERSONS whose names are set out in Schedule 1 (the “Senior Noteholders” and individually
a “Senior Noteholder”); and
	 
	(3)	 	CANARGO LIMITED, a company incorporated under the laws of Guernsey (“CanArgo Limited”).





WHEREAS





	(A)	 	On 25 July 2005 the Senior Noteholders entered into a Note Purchase Agreement with the
Company, as amended (the “NPA”) pursuant to which the Company issued US$25,000,000 in
aggregate principal amount of senior secured promissory notes due 25 July 2009 (the “Senior
Secured Notes”) to the Senior Noteholders which are convertible into shares of common stock,
par value $0.10 each, in the Company.
	 
	(B)	 	On or around the date of this Agreement, the Company and the Senior Noteholders have entered
into an amendment to the NPA pursuant to which the Senior Noteholders have acquired the right
to convert an aggregate of US$10,000,000 of the entire outstanding principal amount of the
Senior Secured Notes into Tethys Common Stock at a price of US$2.50 per share of Tethys Common
Stock (the “Amendment Agreement”).
	 
	(C)	 	Certain of the Senior Noteholders are willing to agree to convert US$10 million in aggregate
of their Senior Secured Notes into Tethys Common Stock in accordance with the NPA as amended
by the Amendment Agreement on the terms and subject to the conditions set out in this
Agreement.





IT IS AGREED as follows:





	1	 	DEFINITIONS AND INTERPRETATION






	1.1	 	In this Agreement the following words and expressions shall,
unless the context otherwise requires, have the following
meanings:
	 
	 	 	“Business Day” means any day other than a Saturday, a Sunday or a day on which commercial
banks in New York City, Toronto or London are required or authorized to be closed;
	 
	 	 	“Conversion” has the meaning ascribed in Clause 3.1 of this Agreement;
	 
	 	 	“Conversion Date” means the date five Business Days from the date of satisfaction of the
conditions specified in Clause 2.1 of this Agreement;
	 
	 	 	“Conversion Stock” has the meaning ascribed to it in Clause 3.1 of this Agreement;




 









 












	 	 	“Senior Noteholders” means the record holders of the Senior Secured Notes as of the
Conversion Date;
	 
	 	 	“Tethys” means Tethys Petroleum Limited, a company incorporated under the laws of the
Bailiwick of Guernsey and an indirect subsidiary of the Company;
	 
	 	 	“Tethys Common Stock” means the ordinary shares with a nominal value of $0.10 each in the
capital of Tethys; and
	 
	 	 	“Tethys Share Pledge” means the pledge over certain of the Tethys Common Stock granted to
the Senior Noteholders pursuant to the Security Interest Agreement dated 9 February 2007
by and among CanArgo Limited, Tethys, Ingalls & Snyder LLC and others party thereto.
	 
	1.2	 	Words and expressions defined in the NPA shall have the same
meanings herein except in so far as expressly varied by or
inconsistent with the provisions of this Agreement.
	 
	2	 	CONDITIONS PRECEDENT
	 
	2.1	 	The Senior Noteholders consent to the conversion of, and those
Senior Noteholders whose names are set out in Schedule 1 agree
that they shall convert, an aggregate of US$10 million of the
entire principal amount issued and outstanding under the Senior
Secured Notes into shares of Tethys Common Stock pursuant to the
NPA conditional upon the prior or contemporaneous satisfaction or
waiver of the following conditions:






	 	(a)	 	The Senior Noteholders and the Company shall have entered into the Amendment
Agreement; and
	 
	 	(b)	 	Ingalls & Snyder LLC, as the Security Agent, shall have provided the requisite
consent to release the Conversion Stock from the Tethys Share Pledge.






	2.2	 	Notwithstanding Clause 2.1 the Required Holders (as defined in the
NPA) shall be entitled by notice in writing given to the Company
to waive (to such extent as they may think fit) compliance with
the conditions stated in Clauses 2.1(a) and (b).
	 
	2.3	 	If any of the conditions in Clause 2.1 has not been satisfied or
waived by 8 June 2007 (or by such later date as may be agreed in
writing between the Senior Noteholders, and the Company), then,
without prejudice to any accrued rights of the parties arising in
respect of any of the provisions of this Agreement, this Agreement
shall, thereupon cease to have effect.
	 
	3	 	CONVERSION
	 
	3.1	 	Subject to the terms of Clause 2, on and with effect from the
Conversion Date the Senior Noteholders whose names are set out in
Schedule 1 shall convert US$10 million of the entire outstanding
principal amount of the Senior Secured Notes held by them in
aggregate into 4 million shares of Tethys Common Stock (the
“Conversion Stock”) pursuant to the NPA as amended by the
Amendment Agreement (the “Conversion”). The principal amount of
each of the Senior Secured Notes being converted by each such
Senior Noteholder pursuant to this Agreement is as set out
opposite their respective names in Column (2) of Schedule 1.
	 
	3.2	 	Accrued interest through the Conversion Date in respect of the
Senior Secured Notes being converted shall be payable by the
Company in cash to each of the Senior Noteholders who is




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	 	 	converting Senior Secured Notes in the proportions set out
opposite their respective names in Column (4) of Schedule 1. The
interest payments due to the converting Senior Noteholders
pursuant to this Clause 3.2 shall be paid to the converting Senior
Noteholders on the Conversion Date.
	 
	3.3	 	The Conversion Stock shall be divided amongst the converting
Senior Noteholders in the amounts set out opposite their
respective names in Column (3) of Schedule 1.
	 
	3.4	 	The Conversion Stock to be issued to each converting Senior
Noteholder pursuant to this Clause 3 to effect the Conversion
shall be satisfied by the transfer on the Conversion Date by
CanArgo Limited of the requisite amount of the Conversion Stock
due to each converting Senior Noteholder with full title guarantee
in consideration for the cancellation of an aggregate of US$10
million of the Senior Secured Notes held by the converting Senior
Noteholders.
	 
	4	 	WARRANTS
	 
	4.1	 	The consideration payable to the converting Senior Noteholders for
the conversion of all or part of their Senior Secured Notes into
Tethys Common Stock pursuant to Clause 3 shall be the issue by the
Company of warrants (the “Compensation Warrants”) to purchase up
to an aggregate of 11,111,111 shares, at an exercise price of
US$0.90 per share (subject to adjustment), of the Company’s common
stock par value US$0.10 per share (the “Compensation Warrant
Shares”). The Compensation Warrants issuable to the converting
Senior Noteholders pursuant to this Clause 4.1 shall be issued to
the converting Senior Noteholders on the Conversion Date upon
consummation of the conversion.
	 
	4.2	 	The Compensation Warrants to be issued to the converting Senior
Noteholders shall be substantially in the form set out in Schedule
2, with such changes thereto, if any, as may be approved by the
Required Holders (as defined in the NPA) and the Company in
respect of their respective Compensation Warrants.
	 
	4.3	 	The Compensation Warrants shall be divided amongst the converting
Senior Noteholders in the proportions of the Senior Secured Notes
being converted by them respectively.






	5	 	GENERAL






	5.1	 	Representations and Warranties
	 
	 	 	The Senior Noteholders party hereto hereby repeat their respective representations and
warranties to the Company set forth in the NPA with the same effect as if set forth in
full herein, and, in connection therewith, they hereby further represent, warrant,
acknowledge and agree with the Company that neither the Conversion Stock, the Compensation
Warrants nor the Compensation Warrant Shares (collectively the “Securities”) have been
registered under the United States Securities Act of 1933, as amended (the “Securities
Act”) or any other state, provincial or foreign securities laws (such laws together with
the Securities Act being collectively referred to herein as “Securities Laws”), the
Securities are “restricted securities” as defined in Rule 144 promulgated under the
Securities Act and the Securities may not be sold, transferred or offered for sale except
in compliance with all applicable Securities Laws and the rules and regulations
promulgated thereunder. The certificates evidencing the Securities shall be imprinted
with suitable restrictive legends reflecting the foregoing.





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	5.2	 	Further Assurance
	 
	 	 	The parties shall at their own cost do or procure the doing of all such acts and things
and/or execute or procure the execution of all such documents as are reasonably required
to give effect to the provisions of this Agreement.
	 
	5.3	 	Assignment
	 
	 	 	No party shall be entitled to assign in whole or in part any rights and/or obligations
arising under this Agreement to a third party without the prior written consent of the
other parties.
	 
	5.4	 	Entire Agreement
	 
	 	 	This Agreement together with the NPA constitute the entire agreement among the parties
with respect to the matters dealt with herein and supersedes any previous agreement among
the parties in relation to such matters.
	 
	5.5	 	Variation
	 
	 	 	No variation of this Agreement shall be valid or effective unless made by an instrument in
writing signed by the parties hereto.
	 
	5.6	 	Waiver
	 
	 	 	No waiver by either party of any of the requirements hereof or of any of its rights
hereunder shall be effective unless given in writing and signed by or on behalf of that
party and no forbearance, delay or indulgence by either party in enforcing the provisions
of this Agreement shall prejudice or restrict the rights of that party nor shall any
waiver by that party of any of the requirements hereof or any of its rights hereunder
release the other from full performance of its remaining obligations stated herein.
	 
	5.7	 	Severability
	 
	 	 	Each provision of this Agreement shall be construed separately and (save as otherwise
expressly provided herein) none of the provisions hereof shall limit or govern the extent,
application or construction of any other of them and notwithstanding that any provision of
this Agreement may prove to be illegal or unenforceable the remaining provisions of this
Agreement shall continue in full force and effect.
	 
	5.8	 	Counterparts, Facsimile Execution and Delivery
	 
	 	 	This Agreement may be executed in any number of counterparts and by each of the parties on
separate counterparts each of which when executed and delivered shall be deemed to be an
original, but all the counterparts together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by telecopy
shall be equally effective as the delivery of a manually executed counterpart of this
Agreement.
	 
	5.9	 	Law and Jurisdiction
	 
	5.9.1	 	This Agreement shall be governed by and construed in accordance
with the law of the State of New York.




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	5.9.2	 	Each party hereby submits to the non-exclusive jurisdiction of the
Courts of New York as regards any claim, dispute or matter arising
out of or in connection with this Agreement and its implementation
and effect.
	 
	5.10	 	Binding Effect
	 
	 	 	This Agreement shall be binding upon the parties hereto and their successors in interest
and assigns.
	 
	5.11	 	Notices
	 
	 	 	All notices, demands, elections, requests and communications provided for hereunder shall
be in writing and sent: (a) by telefacsimile if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service (charges
prepaid), or (b) by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any
such notice must be sent:






	 	(i)	 	if to the Senior Noteholders, to Senior Noteholders at their respective
addresses as set forth on the books maintained by the Company, or at such
other address as any Senior Noteholder shall have specified to the Company
in writing,
	 
	 	(ii)	 	if to the Company, to the Company at its principal executive office to
the attention of Chief Executive Officer, or at such other address as the
Company shall have specified to the Senior Noteholders in writing;
	 
	 	(iii)	 	if to CanArgo Limited, to CanArgo Limited at its principal executive
office for the attention of the Chief Executive Officer, or at such other
address as CanArgo Limited shall have specified to the Company in writing.






	 	 	Notices under this Section 5.10 will be deemed given only when actually received.





[signature pages follows]





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IN WITNESS of which the parties have executed and delivered this document as a deed on the date
first before written.




SIGNED by




	 	 	 
	 

For and on behalf of CANARGO

	 	 
	ENERGY CORPORATION
	 	 






	 	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 






	 	 	 
	 


	 	 
	For and on behalf of INGALLS & SNYDER
	 	 
	VALUE PARTNERS L.P.
	 	 






	 	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 






	 	 	 
	 

NIKOLAOS D MONOYIOS

	 	 
	 
	 	 
	 

THOMAS L GIPSON

	 	 
	 
	 	 
	 

ARTHUR KOENIG

	 	 
	 
	 	 
	 

THOMAS L GIPSON IRA

	 	 
	 
	 	 
	 

EVAN JANOVIC

	 	 
	 
	 	 
	 

ARTHUR ABLIN

	 	 






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For and on behalf of FLEDGLING

	 	 
	ASSOCIATES LLC
	 	 
	By: Hartz Trading, Inc., Manager
	 	 






	 	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 






	 	 	 
	 

ADAM JANOVIC

	 	 
	 
	 	 
	 

NEIL JANOVIC

	 	 
	 
	 	 
	 

ANTHONY CORSO

	 	 
	 
	 	 
	 

JOHN GILMER

	 	 
	 
	 	 
	 

MARTIN SOLOMON

	 	 
	 
	 	 
	SIGNED by
	 	 
	 
	 	 
	 

For and on behalf of

	 	 
	CANARGO LIMITED
	 	 






	 	 	 	 	 
	Name:
	 	 	 	 
	 

	 	 

	 	 
	 
	 	 	 	 
	Title:
	 	 	 	 
	 

	 	 

	 	 






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SCHEDULES




SCHEDULE 1




Senior Noteholders




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(3)	 	 
	 	 	(2)	 	Number of shares of	 	(4)
	 	 	Amount of Senior	 	Tethys Common Stock	 	Proportion of
	(1)	 	Secured Note being	 	to be received on	 	Interest Payment
	Name of Senior Noteholders	 	converted (US$)	 	Conversion	 	due on Conversion
	Ingalls & Snyder Value
Partners L.P.
	 	 	5,500,000	 	 	 	2,200,000	 	 	 	55	%
	Arthur Koenig
	 	 	2,000,000	 	 	 	800,000	 	 	 	20	%
	Thomas L Gipson IRA
	 	 	1,000,000	 	 	 	400,000	 	 	 	10	%
	Evan Janovic
	 	 	275,000	 	 	 	110,000	 	 	 	2.75	%
	Arthur Ablin
	 	 	250,000	 	 	 	100,000	 	 	 	2.5	%
	Fledgling Associates LLC
	 	 	250,000	 	 	 	100,000	 	 	 	2.5	%
	Adam Janovic
	 	 	200,000	 	 	 	80,000	 	 	 	2	%
	Neil Janovic
	 	 	200,000	 	 	 	80,000	 	 	 	2	%
	Anthony Corso
	 	 	125,000	 	 	 	50,000	 	 	 	1.25	%
	John Gilmer
	 	 	125,000	 	 	 	50,000	 	 	 	1.25	%
	Martin Solomon
	 	 	75,000	 	 	 	30,000	 	 	 	0.75	%






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SCHEDULE 2




Form
of Warrant Certificate


(Senior Noteholders)




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SCHEDULE 2




FORM OF WARRANT

(Senior Noteholders)



THE WARRANTS REPRESENTED HEREBY AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS
(COLLECTIVELY, THE “WARRANT SECURITIES”), HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY OTHER
JURISDICTION IN RELIANCE UPON EXEMPTIONS FROM SUCH REGISTRATION AFFORDED UNDER THE ACT AND
APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. THE WARRANT SECURITIES REPRESENTED HEREBY MAY
NOT BE OFFERED, SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE ACT OR AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS APPLICABLE (IN WHICH CASE THE ISSUER
SHALL HAVE RECEIVED AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE
ISSUER TO SUCH EFFECT) AND THE PROVISIONS OF ALL OTHER APPLICABLE SECURITIES LAWS ARE OBSERVED.




CANARGO ENERGY CORPORATION




Incorporated Under the Laws of the State of Delaware




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	No. 	 	 	 	 	 	 	 	 Common
	 

	 	 	 	 

	 	 
	 	 	 	 

	 	 
	 	 	 	 	 	 	 	 	Stock Purchase Warrants	 	 






CERTIFICATE FOR COMMON STOCK

PURCHASE WARRANTS



1. Warrant, This Warrant Certificate certifies that
                    , or registered assigns (the “Registered Holder”), is the registered owner of the above
indicated number of Warrants expiring on the Expiration Date, as hereinafter defined. One (1)
Warrant entitles the Registered Holder to purchase one (1) share of the common stock, $.10 par
value (a “Share”), of CanArgo Energy Corporation, a Delaware corporation (the “Company”), from the
Company at a purchase price of $0.90 (the “Exercise Price”) at any time during the Exercise Period,
as hereinafter defined, upon surrender of this Warrant Certificate with the exercise form hereon
duly completed and executed and accompanied by payment of the Exercise Price at the principal
office of the Company.




     Upon due presentment for transfer or exchange of this Warrant Certificate at the principal
office of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and
evidencing in the aggregate a like number of Warrants shall be issued in exchange for this Warrant
Certificate, subject to the limitations provided herein, upon payment of any tax or governmental
charge imposed in connection with such transfer. Subject to the terms hereof the Company shall
deliver Warrant Certificates in required whole number denominations to Registered Holders in
connection with any transfer or exchange permitted hereunder.



     This Warrant is one of several warrants in substantially identical form issued pursuant to the
provisions of that certain Conversion Agreement dated June 5, 2007 by and among the Company,
CanArgo Limited (a company incorporated under the laws of the Island of Guernsey), and the persons



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whose names and addresses are set out in Schedule 1 attached thereto (the “Senior Noteholders” and
individually a “Senior Noteholder”)(the “Conversion Agreement”). Any capitalized terms not
otherwise expressly defined herein shall have the meaning ascribed thereto in the Conversion
Agreement.


2. Restrictive Legends. Each Warrant Certificate shall bear legends substantially in the
form of the legends that appear at the beginning of this Warrant Certificate. Each certificate
representing Shares issued upon exercise of a Warrant, unless such Shares are then registered under
the Securities Act of 1933, as amended (the “Act”), shall bear a legend in substantially the
following form:



“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITES ACT OF
1933, AS AMENDED (THE“ACT”) OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY OTHER
JURISDICTION IN RELIANCE UPON EXEMPTIONS FROM SUCH REGISTRATION AFFORDED UNDER THE ACT AND SUCH
APPLICABLE LAWS OF OTHER JURISDICTIONS. THE SHARES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS UNDER THE ACT IS APPLICABLE (IN WHICH CASE THE ISSUER SHALL HAVE RECEIVED
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER TO SUCH EFFECT)
AND THE PROVISIONS OF ALL OTHER APPLICABLE SECURITIES LAWS ARE OBSERVED.”



Each such certificate representing Shares may also bear such legend relating to the issuance of
such Shares pursuant to any applicable securities laws as counsel for the Company shall reasonably
deem appropriate.



3. Exercise. Subject to the terms hereof: the Warrants, evidenced by this Warrant
Certificate, may be exercised at the Exercise Price in whole or in part at any time during the
period (the “Exercise Period”) commencing on the next Business Day after the Conversion Date as
contemplated by Section 4 of the Conversion Agreement and terminating at the close of business on
the earlier of: (i) July 25, 2009; or (ii) or shall be exercised on such sooner date at the
election of the Company and upon at least thirty (30) days prior written notice to the Registered
Holder in the event that: (a) the Manavi M12 well indicates, by way of an independent engineering
report, sustainable production, if developed, in excess of 7,500 barrels of oil per day or (b) all
the warrants originally issued under that certain Note and Warrant Purchase Agreement dated as of
March 3, 2006 by and among the Company and the purchasers listed therein are exercised by the
holders thereof and the average closing price for the Company’s Common Stock on the American Stock
Exchange or, if the Common Stock is not then listed for trading on the American Stock Exchange
(“AMEX”) then the Oslo Stock Exchange, is above U.S. $2.00 (or its equivalent in NOK, and in any
case adjusted for any stock dividends, stock split, its reverse split, recapitalization or
reorganization) for a period of five consecutive trading days (the “Expiration Date”). The Exercise
Period may also be extended by the Company’s Board of Directors.




     A Warrant shall be deemed to have been exercised in immediately prior to the close of business
on the date (the “Exercise Date”) of the surrender to the Company at its principal offices of this
Warrant Certificate with the exercise form attached hereto executed by the Registered Holder and
accompanied by payment to the Company, in cash or by official bank or certified check, of an amount
equal to the aggregate Exercise Price, in lawful money of the United States of America.



     The person entitled to receive the Shares issuable upon exercise of a Warrant or Warrants
(“Warrant Shares”) shall be treated for all purposes as the holder of such Warrant Shares as of the
close of business on the Exercise Date. The Company shall not be obligated to issue any fractional
share interests in Warrant Shares issuable or deliverable on the exercise of any Warrant or script
or cash with



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respect thereto, but, if Company elects not to issue a fractional share, the Company will pay a
cash adjustment in respect of any fraction of a Warrant Share which would otherwise be issuable in
an amount equal to the same fraction of the amount by which the market price of a Share on the date
of exercise exceeds the Exercise Price, such market price to be determined in good faith by the
Board of Directors of the Company. If more than one Warrant shall be exercised at one time by the
same Registered Holder, the number of full Shares which shall be issuable on exercise thereof shall
be computed on the basis of the aggregate number of full shares issuable on such exercise.



     Promptly, and in any event within ten business days after the Exercise Date, the Company shall
cause to be issued and delivered to the person or persons entitled to receive the same, a
certificate or certificates for the number of Warrant Shares deliverable on such exercise.



     The Company may deem and treat the Registered Holder of the Warrants at any time as the
absolute owner thereof for all purposes, and the Company shall not be affected by any notice to the
contrary. The Warrants shall not entitle the Registered Holder thereof to any of the rights of
shareholders or to any dividend declared on the Shares unless the Registered Holder shall have
exercised the Warrants and thereby purchased the Warrant Shares prior to the record date for the
determination of holders of Shares entitled to such dividend or other right.


4. Net Issue Conversion. Notwithstanding anything in this Warrant to the contrary, the
Registered Holder hereof may, subject to the prior concurrence of the Company, in lieu of
exercising this Warrant in the manner provided above in Section 3, elect to convert this Warrant
into Warrant Shares equal in number to the value of the exercised Warrants by so indicating on the
Form of Election to Purchase attached hereto, in which event the Registered Holder shall receive a
number of Warrant Shares equal to following shall occur.




          [(X multiplied by (Y minus Z)] divided by Y;




          where:




          X = Number of Warrants Converted




          Y = Fair Market Value of one share of Common Stock




          Z = Exercise Price



For purposes of the above, “Fair Market Value” shall equal the closing price for the Company’s
Common Stock on the Exercise Date, as reported on the AMEX or, if the Common Stock is not then
listed for trading on the AMEX, then the dollar equivalent of such closing price as reported on the
Oslo Stock Exchange on the Exercise Date.



5. Reservation of Shares and Payment of Taxes. The Company covenants that it will at all
times reserve and have available from its authorized Common Stock such number of shares as shall
then be issuable on the exercise of outstanding Warrants. The Company covenants that all Warrant
Shares which shall be so issuable shall be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.




     The Registered Holder shall pay all documentary, stamp or similar taxes and other government
charges that may be imposed with respect to the issuance, transfer or delivery of any Warrants and
Warrant Shares on exercise of the Warrants. In the event the Warrants or Warrant Shares are to be
delivered in a name other than the name of the Registered Holder of the Warrant Certificate, no
such



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delivery shall be made unless the person requesting the same has paid the amount of any such taxes
or charges incident thereto.



6. Registration of Transfer. The Warrant Certificates may be transferred in whole or
in part, provided any such transfer complies with all applicable foreign and United States federal
and state securities laws and, if requested by the Company, the Registered Holder delivers to the
Company an opinion of counsel to that effect, in form and substance reasonably acceptable to the
Company. Warrant Certificates to be transferred shall be surrendered to the Company at its
principal office. The Company shall execute, issue and deliver in exchange therefore the Warrant
Certificate or Certificates which the Registered Holder making the transfer shall be entitled to
receive.



     The Company shall keep transfer books at its principal office which shall register Warrant
Certificates and the transfer thereof. On due presentment of any Warrant Certificate for
registration of transfer at such office, the Company shall execute, issue and deliver to the
transferee or transferees a new Warrant Certificate or Certificates representing an equal aggregate
number of Warrants. All Warrant Certificates presented for registration of transfer or exercise
shall be duly endorsed or be accompanied by a written instrument or instruments of transfer in form
and substance satisfactory to the Company. The Company may require payment of a sum sufficient to
cover any tax or other government charge that may be imposed in connection therewith.



     All Warrant Certificates so surrendered, or surrendered for exercise, or for exchange in case
of mutilated Warrant Certificates, shall be promptly cancelled by the Company and thereafter
retained by the Company until the Expiration Date. Prior to due presentment for registration of
transfer thereof the Company may treat the Registered Holder of any Warrant Certificate as the
absolute owner thereof (notwithstanding any notations of ownership or writing thereon made by
anyone other than the Company), and the Company shall not be affected by any notice to the
contrary.


7. Loss or Mutilation. On receipt by the Company of evidence satisfactory as to the
ownership of and the loss, theft, destruction or mutilation of this Warrant Certificate, the
Company shall execute and deliver, in lieu thereof a new Warrant Certificate representing an equal
aggregate number of Warrants. In the case of loss, theft or destruction of any Warrant Certificate,
the individual requesting issuance of a new Warrant Certificate shall be required to indemnify the
Company in an amount satisfactory to the Company. In the event a Warrant Certificate is mutilated,
such Certificate shall be surrendered and canceled by the Company prior to delivery of a new
Warrant Certificate. Applicants for a new Warrant Certificate shall also comply with such other
reasonable regulations as the Company may prescribe.



8. Adjustment of Shares. The number and kind of securities issuable upon exercise of a
Warrant or to be delivered upon the redemption of Warrants hereunder shall be subject to adjustment
from time to time upon the happening of certain events (“Adjustment Event”), as follows:




     (a) If the Company shall, at any time prior to the complete exercise of the Warrants evidenced
hereby, declare or pay to the holders of its outstanding Shares, a dividend payable in any kind of
shares of stock or other securities of the Company, or in property, or otherwise than in cash, the
Registered Holder upon thereafter exercising the Warrants evidenced hereby as herein provided shall
be entitled to receive for the Exercise Price, in addition to one Warrant Share, such additional
share or shares of stock or scrip representing fractions of a share or other securities or property
as the Registered Holder would have received in the form of such dividend if he had been the holder
of record of such Warrant Share on the record date for the determination of common stockholders
entitled to receive such dividend.



     (b) If the Company shall, while any Warrants evidenced hereby remain in force, effect a
recapitalization of such character that the Shares covered hereby shall be changed into or become



13









 







exchangeable for a larger or smaller number of shares, then thereafter, the number of Shares which
the Registered Holder shall be entitled to purchase hereunder, shall be increased or decreased, as
the case may be, in direct proportion to the increase or decrease in the number of Shares of the
Company by reason of such recapitalization, and the Exercise Price (per Share) shall in the case of
an increase in the number of Shares be proportionately reduced, and in the case of a decrease in
the number of shares be proportionately increased.



     (c) In case of any reorganization of the Company (or any other corporation the stock or other
securities of which are at the time receivable upon exercise of a Warrant) or in case the Company
(or any such other corporation) shall merge into or with or consolidate with another corporation or
convey all or substantially all of its assets to another corporation or enter into a business
combination of any form as a result of which the Shares or other securities receivable upon
exercise of a Warrant are converted into other stock or securities of the same or another
corporation, then and in each such case, the Registered Holder of a Warrant, upon exercise of the
purchase right at any time after the consummation of such reorganization, consolidation, merger,
conveyance or combination, shall be entitled to receive, in lieu of the Shares or other securities
to which such Registered Holder would have been entitled had he exercised the purchase right
immediately prior thereto, such stock and securities which such Registered Holder would have owned
immediately after such event with respect to the Shares and other securities for which a Warrant
may have been exercised immediately before such event had the Registered Holder exercised the
Warrant immediately prior to such event.



     (d) In case the Company shall at any time prior to the exercise of a Warrant evidenced hereby
make any distribution of its assets to holders of its Shares by way of a liquidating or partial
liquidating dividend or by way of a return of capital, or other than as a dividend payable out of
earnings or any surplus legally available for dividends under the laws of the state of its
incorporation, then the Registered Holder upon thereafter exercising such Warrant as herein
provided after the date of record for the determination of those holders of Shares entitled to such
distribution of assets, shall be entitled to receive for the Exercise Price, in addition to a
Warrant Share, the amount of such assets (or at the option of the Company, a sum equal to the value
thereof at the time of such distribution to holders of Shares as such value is determined by the
Board of Directors of the Company in good faith) which would have been payable to the Registered
Holder had he been the holder of record of such Warrant Share receivable upon exercise of such
Warrant on the record date for the determination of those entitled to such distribution.



     The Company shall mail to the holder of this Certificate at least twenty (20) days prior to
any Adjustment Event a notice specifying the date on which any such Adjustment Event is to occur
together with a description thereof.



     In each case of an adjustment in the Shares or other securities receivable upon the exercise
of a Warrant, the Company shall promptly notify the Registered Holder of such adjustment. Such
notice shall set forth the facts upon which such adjustment is based.


9. Reduction in Exercise Price .




     The Company’s Board of Directors may, at its sole discretion, reduce the Exercise Price of the
Warrants in effect at any time either for the life of the Warrants or any shorter period of time
determined by the Company’s Board of Directors. The Company shall promptly notify the Registered
Holders of any such reduction in the Exercise Price. Notwithstanding the foregoing, in no event
shall the number of Shares issuable to the holders of the Warrants pursuant to this Section 9 cause
the holders of the Warrants collectively to own in excess of 19.9% of the outstanding Common Stock
of the Company as at the date of the Note Purchase Agreement unless the Company has obtained the
prior approval of its stockholders as required by Section 713 of the AMEX Company Guide as in
effect from time to time, provided,



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however, that the Company shall use commercially reasonable efforts to diligently seek to obtain
such approval of its stockholders.


10. Notices. All notices, demands, elections, requests and communications provided for
hereunder shall be in writing and sent




     (a) by telefacsimile if the sender on the same day sends a confirming copy of such notice by a
recognized overnight delivery service (charges prepaid), or



     (b) by registered or certified mail with return receipt requested (postage prepaid), or




     (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must
be sent:



          (i) if to the Registered Holder or its nominee, to the Registered Holder or its nominee at the
address of the Registered Holder as set forth on the books maintained by the Company, or at such
other address as such Registered Holder or nominee shall have specified to the Company in writing,




          (ii) if to the Company, to the Company at its principal executive office to the attention of
Chief Executive Officer, or at such other address as the Company shall have specified to the holder
of each Warrant in writing.




     Notices under this Section 10 will be deemed given only when actually received.



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11. General Provisions. This Warrant Certificate shall be construed and enforced in
accordance with, and governed by, the laws of the State of Delaware, where the Company maintains
its registered offices. Except as otherwise expressly stated herein, time is of the essence in
performing hereunder. The headings of this Warrant Certificate are for convenience in reference
only and shall not limit or otherwise affect the meaning hereof.




     IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed as of
the                      day of                     , 2007.



	 	 	 	 	 	 	 
	 	 	CanArgo Energy Corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 






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CanArgo Energy Corporation




     The following abbreviations, when used in the inscription on the face of this instrument,
shall be construed as though they were written out in full according to applicable laws or
regulations:



	 	 	 	 	 	 	 
	TEN COM — as tenants in common	 	UNIF GIFT MIN ACT- Custodian	 	 
	TEN ENT — as tenants by the entireties

	 	 


	 	 	 	 
	JR TEN — as joint tenants with right	 	(Cust)
          (Minor)	 	 
	of survivorship and not as tenants in	 	under Uniform Gifts	 	 
	common

	 	to Minor Act                                  .	 	 	 	 
	 

	 	(State) 	 	 	 	 






Additional abbreviations may also be used though not in the above list.




FORM OF ASSIGNMENT




(To be Executed by the Registered Holder if He

Desires to Assign Warrants Evidenced by the

Within Warrant Certificate)




     FOR VALUE RECEIVED                                                              hereby sells,
assigns and transfers (                    ) Warrants, evidenced by the within Warrant Certificate, and does
hereby irrevocably constitute and appoint                                         Attorney to transfer the said
Warrants evidenced by the within Warrant Certificates on the books of the Company, with full power
of substitution.



	 	 	 	 	 	 	 	 	 
	Dated:                                                        
	 	 	 	 	 	                                                       .
Signature	 	 
	 

	 	 

	 	 
	 	 
	 	 





Notice: The above signature must correspond with the name as written upon the Face of the
Warrant Certificate in every particular, without alteration or enlargement or any change
whatsoever.




Signature Guaranteed:



SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK
EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR
MIDWEST STOCK EXCHANGE.




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FORM OF ELECTION TO PURCHASE




(To be Executed by the Holder if he Desires to Exercise

the Warrants Evidenced by the Warrant Certificate)



To CanArgo Energy Corporation:




          [The
undersigned hereby irrevocably elects to exercise                                         
(   ) Warrants, evidenced by the within
Warrant Certificate for, and to purchase thereunder,         
                 
                 
                  (
                  
                 
     
) full shares of Common Stock issuable upon exercise of said
Warrants and delivery of $            
         and payment of any applicable taxes.




     OR



          [The undersigned hereby irrevocably elects to convert                                        
(                                        ) Warrants, evidenced by the within
Warrant Certificate, and to acquire Warrant Shares pursuant to the “Net Issue Conversion” provision
in Section 4 thereof, and, upon payment of any applicable taxes, to acquire Warrant Shares
thereunder.]




          The undersigned hereby warrants and represents that he/it is an “accredited investor” as
defined under Rule 501(a) of the Securities Act of 1933, as amended and accordingly the Warrants
being exercised and the securities deliverable upon exercise thereof have been registered under the
Act or are exempt from registration thereunder.



          Please register the certificates for such share as follows:



Please insert taxpayer identification

Or social security number (if any)            
                                                                 
    .




	 	 	 
	 

(Please print name)

	 	 
	 
	 	 
	 

(Please print address)

	 	 






          If said number of Warrants shall not be all the Warrants evidenced by the within Warrant
Certificate, the undersigned requests that a new Warrant Certificate evidencing the Warrants not so
exercised be registered in the name of the undersigned at the following address and deliver the
Certificate to that address:



	 	 	 
	 

(Please print address)

	 	 






(SIGNATURES CONTINUED ON FOLLOWING PAGE)




	 	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	 

	 	 
	 	Signature:
	 	 

	. 	 






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     NOTICE: The above signature must correspond with the name as written upon the face of the
within Warrant Certificate in every particular, without alteration or enlargement or any change
whatsoever. If the certificate representing the shares is to be registered in a name other than
that in which the within Warrant Certificate is registered, the signature of the holder hereof must
be guaranteed.



Signature Guaranteed:                                                             
                    .


SIGNATURE MUST BE GUARANTEED BY A COMMERCIAL BANK OR MEMBER FIRM OF ONE OF THE FOLLOWING STOCK
EXCHANGES: NEW YORK STOCK EXCHANGE, PACIFIC COAST STOCK EXCHANGE, AMERICAN STOCK EXCHANGE, OR
MIDWEST STOCK EXCHANGE.





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