Document:

exv10w2

 

Exhibit 10.2

The Security Interests (Guernsey) Law

Certificate of discharge

We, Ingalls & Snyder LLC, a company formed under the laws of New York having its office at 61
Broadway, New York, USA as security agent acting for and on behalf of the Secured Parties (as
defined in the Security Interest Agreement, as defined below), certify that the security interest
created or provided by CanArgo Limited, a company incorporated under the laws of Guernsey having
its registered office at Borough House, Rue du Pre, St. Peter Port, Guernsey under a security
interest agreement dated 25 July 2005 (the “Security Interest Agreement”) is wholly discharged and
hereby assign the Collateral (as defined in the Security Interest Agreement) to CanArgo Limited.

We covenant to deliver to CanArgo Limited the certificates of title to the Securities and (if any)
the Derivative Assets (as each term is defined in the Security Interest Agreement).

We confirm we give this certificate on behalf of and with the authority of each of the Secured
Parties (as defined under the Security Interest Agreement).

Dated: 9th February 2007

	 	 	 	 	 
	INGALLS & SNYDER LLC	 	 
	 
	By:

	 	/s/ Thomas O. Boucher Jr.
	 	 
	 

	 	 	 	 
	Thomas O. Boucher Jr., Manager	 	 
	 
	 	 	 	 
	We accept and agree to the above:	 	 
	 
	 	 	 	 
	CANARGO LIMITED	 	 
	 
	By:

	 	/s/ Dr David Robson
	 	 
	 

	 	 	 	 
	Dr David Robson, Directorexv10w3

 

Exhibit 10.3

CANARGO LIMITED

and

TETHYS PETROLEUM LIMITED

and

INGALLS & SNYDER LLC

and

THE SECURED PARTIES

SECURITY INTEREST AGREEMENT

(SECURITIES)

 

 

CONTENTS

	 	 	 	 	 	 	 
	1
	 	Definitions and Interpretation	 	 	1	 
	2
	 	Grant of Security Interest	 	 	5	 
	3
	 	The Secured Obligations	 	 	6	 
	4
	 	Debtor’s Representations and Warranties	 	 	6	 
	5
	 	Debtor’s Covenants	 	 	8	 
	6
	 	Lien	 	 	10	 
	7
	 	Events of Default	 	 	10	 
	8
	 	Enforcement by the Secured Parties	 	 	14	 
	9
	 	Further Assurance and Power of Attorney	 	 	15	 
	10
	 	Suspense Account	 	 	16	 
	11
	 	Security Continuing and Independent	 	 	16	 
	12
	 	Fees, Costs and Expenses	 	 	17	 
	13
	 	Remedies and Waiver	 	 	17	 
	14
	 	Indemnity and Liability	 	 	18	 
	15
	 	Ruling Off	 	 	18	 
	16
	 	Illegality	 	 	19	 
	17
	 	Certificate of Secured Parties	 	 	19	 
	18
	 	Amalgamation and Consolidation	 	 	19	 
	19
	 	Conversion of Currency	 	 	19	 
	20
	 	Amendment	 	 	20	 
	21
	 	Assignment	 	 	20	 
	22
	 	Notices	 	 	20	 
	23
	 	Counterparts	 	 	21	 
	24
	 	Governing Law and Jurisdiction	 	 	21	 
	SCHEDULE 1	 	 	24	 

 

 

SECURITY INTEREST AGREEMENT

THIS AGREEMENT is made on 9th February 2007

BETWEEN

	(1)	 	CanArgo Limited a company incorporated under the laws of Guernsey having its registered
office at PO Box 291, St Peter Port, Guernsey (the “Debtor”);
	 
	(2)	 	Tethys Petroleum Limited a company incorporated under the laws of Guernsey having its
registered office at PO Box 524, St Peter Port, Guernsey (the “Company”);
	 
	(3)	 	Ingalls & Snyder LLC a company formed under the laws of New York having its office at 61
Broadway, New York, New York, USA as agent for the Secured Parties (the “Security Agent”);
and
	 
	(4)	 	Ingalls & Snyder Value Partners L.P., Nikolaos D. Monoyios, Thomas L. Gipson, Arthur Koenig,
Thomas L. Gipson IRA, Evan Janovic, Arthur Ablin, Fledgling Associates LLC, Adam Janovic, Neil
Janovic, Anthony Corso, John Gilmer, Martin Solomon all care of 61 Broadway, New York, NY
10006, USA as the purchasers (together the “Secured Parties”).

WHEREAS:

This Agreement is made between the parties hereto for the purposes of creating security over the
issued share capital of the Company held by the Debtor.

NOW IT IS HEREBY AGREED AS FOLLOWS:

	1	 	Definitions and Interpretation
	 
	1.1	 	In this Agreement, the following words and expressions shall, except where the context
otherwise requires, have the following meanings:
	 
	 	 	“Affiliate” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Business Day” means any day on which commercial banks are open for full banking business in
Guernsey;

 

 

	 	 	“CanArgo Energy Corporation” means CanArgo Energy Corporation, a company incorporated under
the laws of Delaware, having its registered office at 2711, Centreville Road, Suite 400,
Wilmington, Delaware, 19808 USA;
	 
	 	 	“CanArgo Group Member” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Code” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Collateral” means the Securities, the Derivative Assets and the Derivative Rights;
	 
	 	 	“Default” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Derivative Assets” means all rights, moneys (including without limitation, distributions
and dividends, interest and other property whatsoever which may from time to time at any
time be derived from, accrue on or be offered in respect of, or incidental to or created or
issued in substitution for the Securities whether by way of redemption, exchange,
conversion, rights, bonus, capital reorganisation or otherwise howsoever);
	 
	 	 	“Derivative Rights” means all present and future right, title, benefit and interest in and
to the Derivative Assets including without limitation all rights to subscribe for, convert
other securities into or otherwise acquire any other shares, stock, debentures, debenture
stock, loan stock, bonds or units of a unit trust scheme;
	 
	 	 	“Encumbrance” means any mortgage, charge, pledge, lien, assignment, hypothecation, title
retention, security interest, trust arrangement or any other agreement or arrangement which
has the effect of creating security;
	 
	 	 	“ERISA” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“ERISA Affiliate” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Events of Default” means any of the events or circumstances specified in Clause 7;
	 
	 	 	“Foreign Pension Plan” has the meaning ascribed to it in the Note Purchase Agreement;

 

 

	 	 	“Guarantee” means the Guaranty Agreement dated 25 July 2005 from Ninotsminda Oil Company
Limited and others (including the Debtor) in favour of the Secured Parties;
	 
	 	 	“Knowledge” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Law” means the Security Interests (Guernsey) Law, 1993;
	 
	 	 	“Lien” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Loan Documents” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Material” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Material Adverse Effect” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Multiemployer Plan” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Note Purchase Agreement” means the note purchase agreement dated 25 July 2005 (as amended)
between CanArgo Energy Corporation and the Secured Parties;
	 
	 	 	“Notes” mean the senior secured notes issued to the Secured Parties pursuant to the Note
Purchase Agreement;
	 
	 	 	“Obligations” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Person” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Plan” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Properties” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Redemption Price” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Required Holders” means, at any time, the holders of at least 51 per cent. in principal
amount of the Notes at the time outstanding (exclusive of the Notes then owned by CanArgo
Energy Corporation, any of its Subsidiaries or any of its Affiliates);

 

 

	 	 	“Responsible Officer” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Secured Obligations” shall have the meaning given to it in Clause 3;
	 
	 	 	“Securities” means the shares specified in Schedule 1 and includes all of the Debtor’s
present and future right, title, benefit and interest in and to the Securities;
	 
	 	 	“Security Documents” has the meaning ascribed to it in the Note Purchase Agreement;
	 
	 	 	“Security Period” means the period commencing on the date hereof and terminating on the date
upon which the Required Holders shall have determined that all of the Secured Obligations
have been irrevocably and indefeasibly paid, performed and discharged in full; and
	 
	 	 	“Subsidiary” has the meaning ascribed to it in the Note Purchase Agreement.
	 
	1.2	 	The Secured Parties shall be the “secured parties”, the Debtor shall be the “debtor” and the
Events of Default shall be the “events of default” for the purposes of the Law.
	 
	1.3	 	References to the Secured Parties include their successors and assigns. References to the
Debtor or the Company include their successors and permitted assigns, if any.
	 
	1.4	 	Words and expressions not otherwise defined in this Agreement shall be construed in
accordance with the Law.
	 
	1.5	 	Except where the context otherwise requires, words denoting the singular include the plural
and vice versa, words denoting a gender include every gender and references to persons include
bodies corporate and unincorporate.
	 
	1.6	 	References to Recitals, Clauses and Schedules are, unless the context otherwise requires,
references to recitals and clauses hereof and schedules hereto and references to Sub-clauses
are, unless otherwise stated, references to the sub-clause of the clause in which the
reference appears.

 

 

	1.7	 	The Recitals and Schedules form part of this Agreement and shall have the same force and
effect as if they were expressly set out in the body of this Agreement and any reference to
this Agreement shall include the Recitals and Schedules.
	 
	1.8	 	Any reference to this Agreement or to any agreement or document referred to in this Agreement
shall be construed as a reference to such agreement or document as amended, varied, modified,
supplemented, restated, novated or replaced from time to time.
	 
	1.9	 	Any reference to any statute or statutory provision shall, unless the context otherwise
requires, be construed as a reference to such statute or statutory provision as the same may
have been or may be amended, modified, extended, consolidated, re-enacted or replaced from
time to time.
	 
	1.10	 	Clause headings and the index are inserted for convenience only and shall not affect the
construction of this Agreement.
	 
	2	 	Grant of Security Interest
	 
	2.1	 	Without affecting, and in addition to, the Secured Parties’ other rights under or pursuant to
this Agreement, for the purpose of granting each Secured Party a first priority security
interest in the Collateral pursuant to the Law the Debtor hereby:

	 	(a)	 	assigns the Collateral to the Security Agent; and
	 
	 	(b)	 	delivers and agrees that the Security Agent or its nominees shall have
possession of the certificates of title to the Securities.

	2.2	 	The Debtor hereby agrees that the security interests created by Clause 2.1 may exist
independently and concurrently.
	 
	2.3	 	Pursuant to Section 1(8) of the Law, the Company hereby agrees that it has received notice of
and acknowledges the creation of a security interest over the Securities pursuant to this
Agreement.
	 
	2.4	 	Upon the expiry of the Security Period, the Security Agent shall, at the request and expense
of the Debtor, return to the Debtor the certificates of title to the Securities and/or assign,
transfer or make over title to the Securities to the Debtor (as

 

 

	 	 	appropriate), without recourse or warranty,
executing such documents as may be required to
release the security created by this Agreement
and shall thereby discharge the security created
hereunder.
	 
	3	 	The Secured Obligations
	 
	 	 	The grants of security interest set out in Clause 2.1 shall secure as a continuing security
for the payment and/or discharge on demand of the Guarantee and of all other present or
future obligations, monies and liabilities of the Debtor to the Secured Parties which shall
for the time being (and whether on or at any time after such demand) be or become due, owing
or incurred to any Secured Party by the Debtor whether actually or contingently, solely or
jointly with any other person or as principal or surety and including interest (whether
simple or compound and as well after as before judgment) together with discount, commission
and all other lawful charges and expenses (including, without limitation, legal fees and
other professional fees plus disbursements) of the Secured Parties under the Guarantee
(together the “Secured Obligations”).
	 
	4	 	Debtor’s Representations and Warranties
	 
	 	 	The Debtor hereby represents and warrants to each Secured Party on the date hereof that:

	 	(a)	 	this Agreement constitutes the legal, valid and binding obligations of the
Debtor, and constitutes a valid first priority security interest under the Law,
enforceable against the Debtor in accordance with its terms;
	 
	 	(b)	 	no event has occurred or circumstance exists which constitutes or with the
giving of notice or lapse of time or both would constitute an Event of Default;
	 
	 	(c)	 	the Debtor and David Robson are the sole legal and the Debtor is the sole
beneficial owner of and has good title to the Collateral subject only to the rights
granted in favour of the Secured Parties by this Agreement;
	 
	 	(d)	 	the Securities have been duly authorised and validly issued and are fully paid;

 

 

	 	(e)	 	the Collateral is free from all Encumbrances and rights of set-off other than
those created by this Agreement in favour of the Secured Parties;
	 
	 	(f)	 	the Debtor has the necessary power to execute, deliver and perform its
obligations under this Agreement; and the execution, delivery and performance by the
Debtor of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorised by all necessary corporate action;
	 
	 	(g)	 	all necessary authorisations or approvals or other actions by and notices or
filings with any governmental authority, regulatory body or any other third party to
enable the Debtor to execute, deliver and perform this Agreement and the perfection of
the security interest created hereunder have been obtained and are, in full force and
effect;
	 
	 	(h)	 	the execution, delivery and performance by the Debtor of this Agreement and the
consummation by the Debtor of the transactions contemplated hereby do not:

	 	(i)	 	require any consent or approval of any Person that has not been
obtained and each such consent or approval that has been obtained is in full
force and effect;
	 
	 	(ii)	 	violate any provision of the memorandum and articles of
association of the Debtor;
	 
	 	(iii)	 	violate any provision of any statute, regulation, order,
injunction or judgement applicable to each Debtor which violation could
reasonably be expected to have a Material Adverse Effect; or
	 
	 	(iv)	 	violate, result in a breach of or constitute a default under
any mortgage, indenture or any other material agreement to which the Debtor is
a party or by which it or its property may be bound which violation or breach
could reasonably be expected to have a Material Adverse Effect.

 

 

	 	(i)	 	there are no actions, suits, litigation, administrative proceedings or other
proceedings at law or in equity or by or before any governmental authority or arbitral
tribunal now pending, or to the Knowledge of the Debtor, threatened against or
affecting the Collateral which could reasonably be expected to have a Material Adverse
Effect.

	5	 	Debtor’s Covenants
	 
	 	 	The Debtor covenants and undertakes to the Secured Parties that:

	 	(a)	 	contemporaneously with the execution and delivery of this Agreement and
otherwise from time to time and if and when the Required Holders shall require, it
shall deliver to the Security Agent, or to its order for the rateable benefit of the
Secured Parties:

	 	(i)	 	certificates of title in respect of the Securities, together
with undated and signed duly completed stock transfer forms with the
consideration left blank and all related declarations of nomineeship/trust in
favour of the Secured Parties (if any);
	 
	 	(ii)	 	such other documents as the Required Holders shall acting
reasonably require to protect, maintain or enforce their security interest or
security interests granted hereby; and
	 
	 	(iii)	 	at any time following the occurrence of an Event of Default do
all other acts and things as the Required Holders may acting reasonably require
in order to transfer title of the Collateral or any part of it into the name of
the Security Agent or the name of its nominees;

	 	(b)	 	it will promptly pay all payments to be made or becoming due and discharge any
lien which may arise on any of the Securities;
	 
	 	(c)	 	any of the Collateral not held by the Security Agent (or its nominees) shall be
held on trust for and to the Secured Parties’ order or otherwise as the Required
Holders may require from time to time;

 

 

	 	(d)	 	at any time after the occurrence of an Event of Default which is thereafter
continuing unremedied and unwaived, and if and when the Required Holders shall require,
distributions, dividends, interest or other income declared or payable on any of the
Securities shall be paid or assigned to the Security Agent for the rateable benefit of
the Secured Parties which it shall then be entitled to apply as though they were
proceeds of sale or application provided, however, until the occurrence of an Event of
Default which is continuing, the Debtor shall be entitled to receive and retain all
distributions, dividends, interest or other income declared or payable on any of the
Securities;
	 
	 	(e)	 	at any time after the occurrence of an Event of Default which is thereafter
continuing unremedied and unwaived the Security Agent will forthwith exercise all
voting, consensual and other powers and rights attaching to the Securities in such
manner as the Required Holders may direct from time to time and, in the absence of such
direction, only with the object of preserving or enhancing the value of the Securities
provided, however, until the occurrence of an Event of Default which is continuing,
Debtor shall be entitled to exercise all voting, consensual and other powers and rights
attaching to the Securities;
	 
	 	(f)	 	immediately upon receipt of any report, accounts, circular, offer or notice
received by the Debtor (or, as the case may be, its nominee) in respect of, or which
may affect, the Securities, it shall deliver a copy to the Security Agent with notice
that it relates to this Agreement;
	 
	 	(g)	 	it will not unless authorised in writing by the Required Holders:

	 	(i)	 	except as set out in this Agreement or the Note Purchase
Agreement to any extent sell, assign, grant any option with respect to or
otherwise dispose of or create an Encumbrance over or agree to any extent to
sell, assign, grant any option with respect to, dispose of or encumber the
Collateral; or
	 
	 	(ii)	 	negotiate, settle or waive any claim for loss, damage or other
compensation affecting the Collateral;

 

 

	 	(h)	 	it will do everything in its power to prevent any person from becoming entitled
to claim any right over the Collateral;
	 
	 	(i)	 	it will do or cause to be done everything necessary to help the Security Agent
to:

	 	(i)	 	confirm or protect the interest of the Secured Parties in the
Collateral; and
	 
	 	(ii)	 	exercise any of its or the Secured Parties ’ rights under this
Agreement.

	 	(j)	 	it will charge in favour of the Secured Parties, immediately upon its
acquisition (directly or indirectly) thereof, any and all additional shares of stock or
other securities of the Company not otherwise hereby charged.

	6	 	Lien
	 
	 	 	Without affecting, and in addition to, the grant of security interest and other rights
hereunder, the Debtor hereby agrees that the Secured Parties shall, for so long as any
amount remains outstanding under or in respect of the Secured Obligations, have a lien over
the Securities.
	 
	7	 	Events of Default
	 
	7.1	 	There shall be an Event of Default if there occurs or exists any event described as or
constituting an Event of Default under the Note Purchase Agreement namely:

	 	(a)	 	CanArgo Energy Corporation defaults in the payment of any principal at the
applicable Redemption Price (if any) on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or otherwise;
or
	 
	 	(b)	 	CanArgo Energy Corporation defaults in the payment of any interest on any Note
or in the payment of any expenses due hereunder or under any Security Document for more
than five Business Days after the same becomes due and payable; or

 

 

	 	(c)	 	CanArgo Energy Corporation defaults in the performance of or compliance with
any term contained in sections 9.6, 10.11, 11.2, 11.3, 11.4, 11.6, 11.7, 11.8, 11.9,
11.10 or 11.11 of the Note Purchase Agreement (an extract of such sections from the
Note Purchase Agreement are set out in Schedule 2 hereof); or
	 
	 	(d)	 	CanArgo Energy Corporation defaults in the performance of or compliance with
any term contained in the Note Purchase Agreement (other than those referred to in
paragraphs (a), (b) or (c) above) and such default is not remedied within 30 days after
the earlier of (i) a Responsible Officer obtaining actual and not constructive
knowledge of such default and (ii) CanArgo Energy Corporation receiving written notice
of such default from any holder of a Note (any such written notice to be identified as
a “notice of default” and to refer specifically to paragraph (d) of Section 12 of the
Note Purchase Agreement); or
	 
	 	(e)	 	any representation or warranty made in writing by or on behalf of CanArgo
Energy Corporation or any other CanArgo Group Member or by any officer of CanArgo
Energy Corporation or any other CanArgo Group Member (including the Company) in the
Note Purchase Agreement, in any Security Document or in writing furnished in connection
with the transactions contemplated hereby proves to have been false or incorrect in any
Material respect on the date as of which made; or
	 
	 	(f)	 	CanArgo Energy Corporation or any other CanArgo Group Member including the
Company (i) is generally not paying, or admits in writing its inability to pay, its
debts as they become due, (ii) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii)
makes an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with respect to
it or with respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be

 

 

	 	 	 	liquidated, or (vi) takes corporate action for the purpose of any of the foregoing;
or
	 
	 	(g)	 	a court or governmental authority of competent jurisdiction enters an order
appointing a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, or constituting
an order for relief or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up or
liquidation of CanArgo Energy Corporation or any other CanArgo Group Member including
the Company, or any such petition shall be filed against CanArgo Energy Corporation or
any other CanArgo Group Member including the Company and such petition shall not be
dismissed or stayed pending appeal within 90 days, or are not discharged within 60 days
after the expiration of such stay; or
	 
	 	(h)	 	a final judgment or judgments for the payment of money aggregating in excess of
US$2,500,000 (to the extent not covered by insurance) are rendered against CanArgo
Energy Corporation or any other CanArgo Group Member including the Company and which
judgments are not, within 90 days after entry thereof, bonded, discharged, finally
settled or stayed pending appeal, or are not discharged within 60 days after the
expiration of such stay; or
	 
	 	(i)	 	if (i) any Plan subject to ERISA shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of such
standards or extension of any amortization period is sought or granted under section
412 of the Code, (ii) a notice of intent to terminate any Plan subject to ERISA shall
have been or is reasonably expected to be filed with the Pension Benefit Guaranty
Corporation referred to and defined in ERISA or any successor thereto (“PBGC”) or the
PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint
a trustee to administer any such Plan or the PBGC shall have notified CanArgo Energy
Corporation or any ERISA Affiliate or other Affiliate that a Plan subject to ERISA may
become a subject of any such proceedings, (iii) the aggregate “amount of unfunded
benefit liabilities” (within the meaning of section

 

 

	 	 	 	4001(a)(18) of ERISA) under all Plans subject to ERISA, determined in accordance
with Title IV of ERISA shall exceed US$500,000, (iv) CanArgo Energy Corporation or
any ERISA Affiliate or other Affiliate shall have incurred or is reasonably expected
to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans subject to ERISA in
excess of $500,000, (v) the present value of the accrued benefit liabilities
(whether or not vested) under each Foreign Pension Plan maintained by CanArgo Energy
Corporation or an ERISA Affiliate, determined as of the end of its most recently
ended fiscal year on the basis of actuarial assumptions, each of which is
reasonable, exceeds the current value of the assets of such Foreign Pension Plan
allocable to such benefit liabilities by US$500,000 or more, (vi) either CanArgo
Energy Corporation or any other CanArgo Group Member (including the Company) incurs
a Material liability pursuant to any Foreign Pension Plan which could reasonably be
expected to have a Material Adverse Effect, (vii) CanArgo Energy Corporation or any
ERISA Affiliate or other Affiliate withdraws from any Multiemployer Plan, or (viii)
CanArgo Energy Corporation or any other CanArgo Group Member establishes or amends
any employee welfare benefit plan that provides post-employment welfare benefits in
a manner that would increase the liability of CanArgo Energy Corporation or any
other CanArgo Group Member including the Company thereunder in any Material respect;
and any such event or events described in clauses (i) through (viii) above, either
individually or together with any other such event or events, has a Material Adverse
Effect;
	 
	 	(j)	 	(i) the Note Purchase Agreement, the Notes, any Security Document, or any other
Loan Document ceases to be in full force and effect (except in accordance with its
terms) or is declared null and void or the validity or enforceability is contested or
challenged by CanArgo Energy Corporation, any Affiliate of CanArgo Energy Corporation
(including the Debtor and the Company) or any of their respective partners or
shareholders; (ii) CanArgo Energy Corporation denies that it has any further liability
or obligation under any of the Loan Documents prior to the indefeasible satisfaction in
full of all Obligations under the Loan Documents; or (iii) any of the Liens and
security

 

 

	 	 	 	interest granted to the Secured Parties under the Security Documents cease to be
valid or perfected or cease to have the priority required hereby or under the
Security Documents prior to the indefeasible satisfaction in full of all Obligations
under the Loan Documents, other than as a result of the action or omission by any of
the Secured Parties or holder; or

	 	(k)	 	CanArgo Energy Corporation or any other CanArgo Group Member (including the
Company) modifies or amends any of its constitutional documents in any Material manner
without the Required Holders’ prior written consent, unless any such amendment will not
result in a Default or Event of Default (without regard to this paragraph) and will not
adversely affect the rights of the holders under the Loan Documents; or
	 
	 	(l)	 	a change occurs in the consolidated financial condition of CanArgo Energy
Corporation or in the physical, operational or financial status of the Properties,
which change is not otherwise described in this section and has a Material Adverse
Effect and which has not been remedied pursuant to paragraph (d) above.

	7.2	 	Any failure on the part of the Debtor to discharge any of its obligations and liabilities
and/or to pay any monies to any of the Secured Parties when due under the Guarantee.
	 
	8	 	Enforcement by the Secured Parties
	 
	8.1	 	At any time following the occurrence of an Event of Default, which is thereafter continuing
unremedied and unwaived and provided that the Security Agent has served on the Debtor a notice
specifying the particular Event of Default complained of:

	 	(a)	 	the power of sale or application under the Law shall become exercisable over
the Collateral without any order of the Royal Court of Guernsey;
	 
	 	(b)	 	the power of sale or application may be exercised in such manner and for such
consideration (whether payable immediately, by instalments or otherwise deferred) as
the Required Holders shall in their absolute discretion determine;
	 
	 	(c)	 	for the purposes of this Agreement, references to the exercise of the “power of
sale or application” shall include any method or process by which value is

 

 

	 	 	 	given, allowed or credited by the Required Holders for the Collateral against the
Secured Obligations;

	 	(d)	 	the Security Agent acting at the written instruction of the Required Holders,
may exercise and be entitled to any and all rights of an owner of the Collateral
subject hereto; and
	 
	 	(e)	 	the Security Agent may, at the written instruction of the Required Holders,
collect, receive or compromise and give a good discharge for any and all monies and
claims for monies due and to become due for the time being comprised in the Collateral
subject hereto.

	8.2	 	Neither the Security Agent nor the Required Holders shall be under any liability to the
Debtor for any failure to apply and distribute the proceeds of sale or application of the
Collateral in accordance with the Law if the Required Holders apply or direct the Security
Agent to apply and distribute such proceeds in good faith without further enquiry and in
accordance with the information expressly known to them at the time of the application and
distribution.
	 
	8.3	 	The exercise by the Secured Parties of any right or power of sale or application under this
Clause 8 shall not constitute a waiver or release of nor the exercise of any other right or
power of sale or application held by any Secured Party unless expressly stated in writing.
	 
	8.4	 	For the purposes of this Clause 8, time shall be of the essence with regard to the
performance by the Debtor of the Secured Obligations.
	 
	9	 	Further Assurance and Power of Attorney
	 
	9.1	 	The Debtor agrees that it shall from time to time upon the written request of the Required
Holders promptly do all such things and execute and deliver all such instruments and documents
(including, without limitation, any replacement or supplemental security) as the Required
Holders may consider necessary or desirable for creating the security contemplated hereby,
giving full effect to this Agreement or for securing or protecting the rights of the Secured
Parties hereunder.

 

 

	9.2	 	In accordance with the Powers of Attorney and Affidavits (Bailiwick of Guernsey) Law, 1995
(the “Powers of Attorney Law”), for the purpose of facilitating the exercise of the powers of
the Secured Parties under the Law and the powers given pursuant to this Agreement, the Debtor
hereby irrevocably appoints the Security Agent, acting upon the written instructions of the
Required Holders, as the Debtor’s true and lawful attorney (with full power of substitution
and delegation) with authority in the name of and on behalf of the Debtor upon the occurrence
of an Event of Default which is continuing to sign, execute, seal, deliver, complete,
acknowledge, file, register and perfect any and all assurances, documents, transfers,
instruments, agreements, certificates and consents whatsoever and to do any and all such acts
and things in relation to any matters dealt with in this Agreement and which the Required
Holders may deem necessary or advisable in order to give full effect to this Agreement
(including, without limitation, anything referred to in Clause 8 (Enforcement by the Secured
Parties)) and anything to perfect its security over the Collateral. The Debtor further
covenants with the Secured Parties to ratify and confirm any lawful exercise or purported
exercise of this power of attorney.
	 
	10	 	Suspense Account
	 
	 	 	All monies received, recovered or realised by the Security Agent under this Agreement may,
at the discretion of the Required Holders, be credited to a separate or suspense account for
so long as the Required Holders may think fit without any intermediate obligation on the
part of the Security Agent or the Secured Parties to apply the same in or towards payment
and discharge of the Secured Obligations.
	 
	11	 	Security Continuing and Independent
	 
	 	 	The security constituted by this Agreement:

	 	(a)	 	shall not be discharged by any partial or intermediate payment or performance
of the Secured Obligations;
	 
	 	(b)	 	shall take effect as a security for the whole and every part of the payment or
performance of the Secured Obligations and shall be independent of and in addition to,
and it shall not be prejudiced or be affected by and shall not affect or prejudice, any
other security now or hereafter held by any Secured Party in

 

 

	 	 	 	respect of the payment or performance of all or any part of the Secured Obligations;
and
	 
	 	(c)	 	shall not be in any way discharged, impaired or otherwise affected by reason of
any of the Secured Obligations becoming illegal, void, voidable, invalid or
unenforceable or by reason of any other act, circumstance or omission which might but
for provisions of this Clause 11 constitute a discharge of such security.

	12	 	Fees, Costs and Expenses
	 
	12.1	 	Subject to the provisions of Section 10.9 of the Note Purchase Agreement, the Debtor agrees
to reimburse the Security Agent on demand for all fees (including legal fees), costs and
expenses incurred by the Security Agent in connection with or relating to the negotiation,
preparation and/or execution of this Agreement, the creation, preservation and/or enforcement
of any of the Secured Party’s rights under this Agreement or the exercise or purported
exercise of any of the powers arising pursuant to this Agreement.
	 
	12.2	 	All such fees, costs and expenses shall be reimbursed by the Debtor on a full indemnity
basis.
	 
	13	 	Remedies and Waiver
	 
	 	 	Time shall be of the essence of this Agreement but no failure by the Security Agent or any
Secured Party to exercise, nor any delay by the Security Agent or any Secured Party in
exercising, any right or remedy hereunder shall operate as a waiver hereof nor shall any
single or partial exercise prevent any further or other exercise thereof or the exercise of
any other right or remedy. The rights and remedies provided herein are cumulative and not
exclusive of any rights or remedies provided by law, which may be exercised at the Required
Holders’ discretion.
	 
	14	 	Indemnity and Liability
	 
	14.1	 	The Debtor will indemnify and keep indemnified the Secured Parties and the Security Agent
and/or its nominees (if any) on demand against each and every loss, action, claim, expense
(including legal expenses), cost and liability which the Secured Parties

 

 

or the Security Agent and/or its nominees may incur as holder of the
Collateral or which may be properly incurred in or in connection with the
preservation and/or enforcement of any of the Secured Parties’ rights
under this Agreement or flowing from the exercise or purported exercise
of any of the powers arising under any of the provisions of this
Agreement save where such loss, action, claim, expense, cost or liability
arises as the result of the gross negligence or wilful misconduct of
either of the Security Agent or any of the Secured Parties.

	14.2	 	Without prejudice to any other provision hereof:

	 	(a)	 	the obligations of the Security Agent to the Secured Parties and to the Debtor
shall not be and/or shall be deemed not to be fiduciary in nature;
	 
	 	(b)	 	the provisions of the Trusts (Guernsey) Law, 1989 shall not apply to the
Security Agent in respect of its duties under this Agreement; and
	 
	 	(c)	 	the obligations of the Security Agent to the Secured Parties and to the Debtor
shall be limited to (a) its obligations as expressed in this Agreement and (b) in
accordance with the written authorisation of the Required Holders, where such
authorisation is required.

	14.3	 	Notwithstanding any other provision of this Agreement, hereof neither the Security Agent nor
its nominees nor any of the Secured Parties shall be liable by reason of (a) taking any action
permitted by this Agreement, (b) any neglect or default in connection with the Collateral or
(c) the taking possession or realisation of all or any part of the Collateral, except in the
case of gross negligence or wilful default upon their part.
	 
	15	 	Ruling Off
	 
	 	 	In the event of the affairs of the Debtor being declared en etat de desastre or the
commencement of any form of bankruptcy or insolvency proceeding affecting the Debtor or of
all or any part of this Agreement ceasing for any reason to be binding on the Debtor or if
the Security Agent receives notice (actual or otherwise) of any other or subsequent
Encumbrance affecting the Collateral, the Required Holders may at any time rule off the
Debtor’s obligations. No monies paid thereafter by the Debtor to the

 

 

	 	 	Security Agent for the rateable benefit of the Secured Parties shall thereby discharge or
reduce the amount recoverable pursuant to this Agreement. If the Required Holders in any of
the above cases do not rule off the obligations of the Debtor it shall nevertheless be
treated as if they had done so at the time when the Security Agent first had notice (actual
or otherwise) of the event in question and all payments made by or on behalf of the Debtor
to the Security Agent for the rateable benefit of the Secured Parties shall not operate to
reduce the amount recoverable pursuant to this Agreement.

	16	 	Illegality
	 
	 	 	If at any time one or more of the provisions of this Agreement becomes invalid, illegal or
unenforceable in any respect, that provision shall be severed from the remainder and the
validity, legality and enforceability of the remaining provisions of this Agreement shall
not be affected or impaired in any way.
	 
	17	 	Certificate of Secured Parties
	 
	 	 	Any certificate submitted by the Security Agent to the Debtor as to the amount of the
Debtor’s obligations or any part of them shall (in the absence of manifest error) be
conclusive and binding on the Debtor at the relevant time.
	 
	18	 	Amalgamation and Consolidation
	 
	 	 	The rights and benefits of each Secured Party under this Agreement shall remain valid and
binding for all purposes notwithstanding any change, amalgamation, consolidation, migration
or otherwise which may be made in the constitution of such Secured Party and shall be
available to such entity as shall carry on the business of that Secured Party for the time
being.
	 
	19	 	Conversion of Currency
	 
	 	 	All monies received or held by the Security Agent subject to this Agreement may at any time,
after the occurrence of an Event of Default, be converted into such other currency as the
Required Holders consider necessary or desirable to satisfy the Secured Obligations in that
other currency at the then prevailing spot rate of exchange of the JP Morgan Chase Bank (as
conclusively determined by the Required Holders) for purchasing that other currency with the
original currency.

 

 

	20	 	Amendment
	 
	 	 	No variation or amendment of this Agreement shall be valid unless in writing and signed by
or on behalf of Debtor, the Company and the Security Agent, acting upon written instructions
of the Required Holders.
	 
	21	 	Assignment
	 
	21.1	 	Any Secured Party at any time may grant a participation in or make an assignment or transfer
or otherwise dispose of, the whole or any part of its rights and benefits under this
Agreement. Subject to the provisions of Section 21 of the Note Purchase Agreement, for the
purpose of any such participation, assignment, transfer or disposal, the Security Agent may
disclose information about the Debtor and the financial condition of the Debtor as may have
been made available to the Security Agent by the Debtor or which is otherwise publicly
available.
	 
	21.2	 	Except with the written consent of the Required Holders, neither the Debtor nor the Company
shall assign or transfer all or any part of their respective rights, benefits and/or
obligations under this Agreement.
	 
	22	 	Notices
	 
	 	 	All notices with respect to this Agreement shall be delivered by hand or sent by first class
post to the address of the addressee as set out in this Agreement with respect to the
Security Agent or Section 19 in the Note Purchase Agreement or to such other address as the
addressee may from time to time have notified for the purpose of this Clause 22 or to any
other “proper address” as defined in the Law, or sent by facsimile transmission (“fax”) and
shall be deemed to have been received:

	 	(a)	 	if sent by first class prepaid post, five Business Days after posting;
	 
	 	(b)	 	if delivered by hand, on the day of delivery; and
	 
	 	(c)	 	if sent by fax, at the time of transmission provided that the sender shall
receive a successful transmission report.

If the Debtor is a body corporate registered outside the Island of Guernsey, it shall
appoint a process agent in the Island of Guernsey to accept service of notices pursuant

 

 

to this Agreement on its behalf, such appointment to take effect from the date of this
Agreement, and it shall promptly notify the Security Agent in writing of the identity and
address of such process agent from time to time.

	23	 	Counterparts
	 
	 	 	This Agreement may be executed in any number of counterparts each of which shall be an
original but which shall together constitute one and the same instrument.
	 
	24	 	Governing Law and Jurisdiction
	 
	24.1	 	This Agreement shall be governed by and construed in accordance with the laws of the Island
of Guernsey and the parties hereby irrevocably agree for the exclusive benefit of the Secured
Parties that the courts of the Island of Guernsey are to have jurisdiction to settle any
disputes which arise out of or in connection with this Agreement and that accordingly any
suit, action or proceeding arising out of or in connection with this Agreement (in this Clause
referred to as “Proceedings”) may be brought in such court.
	 
	24.2	 	Nothing contained in this Clause shall limit the right of any Secured Party to take
Proceedings against the Debtor or the Company in any other court of competent jurisdiction nor
shall the taking of proceedings in one or more jurisdiction preclude the taking of Proceedings
in any other jurisdiction, whether concurrently or not.
	 
	24.3	 	The Debtor and the Company each irrevocably waive (and irrevocably agrees not to raise) any
objection which either may have now or hereafter to laying of the venue of any Proceedings in
any such court as referred to in this Clause and any claim that any such Proceedings have been
brought in an inconvenient forum and further irrevocably agree that a judgment in any
Proceedings brought in any such court as is referred to in this Clause shall be conclusive and
binding upon the Debtor and/or the Company (as the case may be) and may be enforced in the
court of any other jurisdiction.

AS WITNESS WHEREOF have caused this Agreement to be duly executed the day and year first above
written.

CANARGO LIMITED

	 	 	 	 	 
	By:

	 	/s/ Dr David Robson	 	 
	 

	 	 

	 	 

 

 

	 	 	 	 	 
	Dr David Robson, Director	 	 
	 
	 	 	 	 
	TETHYS PETROLEUM LIMITED	 	 
	 
	By:

	 	/s/ Elizabeth Landles
 

	 	 
	Elizabeth Landles, Corporate Secretary	 	 
	 
	 	 	 	 
	INGALLS & SNYDER LLC	 	 
	 
	By:

	 	/s/ Thomas O. Boucher Jr.
 

	 	 
	Thomas O. Boucher Jr., Manager	 	 
	 
	 	 	 	 
	INGALLS & SNYDER VALUE PARTNERS L.P.	 	 
	 
	By:

	 	/s/ Thomas O. Boucher Jr.
 

	 	 
	Thomas O. Boucher Jr., General Partner	 	 
	 
	 	 	 	 
	NIKOLAOS D MONOYIOS	 	 
	 
	By:

	 	/s/ Nikolaos D Monoyios
 

	 	 
	Nikolaos D Monoyios	 	 
	 
	 	 	 	 
	THOMAS L GIPSON	 	 
	 
	By:

	 	/s/ Thomas O. Boucher Jr.
 

	 	 
	Thomas O. Boucher Jr., Attorney-in-fact	 	 
	 
	 	 	 	 
	ARTHUR KOENIG	 	 
	 
	By:

	 	/s/ Arthur Koenig
 

	 	 
	Arthur Koenig	 	 
	 
	 	 	 	 
	THOMAS L GIPSON IRA	 	 
	 
	By:

	 	/s/ Thomas O. Boucher Jr.
 

	 	 
	Thomas O. Boucher Jr., Attorney-in-fact	 	 
	 
	 	 	 	 
	EVAN JANOVIC	 	 
	 
	By:

	 	/s/ Evan Janovic
 

	 	 
	Evan Janovic	 	 
	 
	 	 	 	 
	ARTHUR ABLIN	 	 
	 
	By:

	 	/s/ Arthur Ablin
 

	 	 
	Arthur Ablin	 	 

 

 

	 	 	 	 	 
	 
	 	 	 	 
	FLEDGLING ASSOCIATES LLC	 	 
	 
	By:

	 	/s/ Adam Janovic
 

	 	 
	Adam Janovic, Attorney-in-fact	 	 
	 
	 	 	 	 
	ADAM JANOVIC	 	 
	 
	By:

	 	/s/ Adam Janovic
 

	 	 
	Adam Janovic	 	 
	 
	 	 	 	 
	NEIL JANOVIC	 	 
	 
	By:

	 	/s/ Adam Janovic
 

	 	 
	Adam Janovic, Attorney-in-fact	 	 
	 
	 	 	 	 
	ANTHONY CORSO	 	 
	 
	By:

	 	/s/ Anthony Corso
 

	 	 
	Anthony Corso	 	 
	 
	 	 	 	 
	JOHN GILMER	 	 
	 
	By:

	 	/s/ John Gilmer
 

	 	 
	John Gilmer	 	 
	 
	 	 	 	 
	MARTIN SOLOMON	 	 
	 
	By:

	 	/s/ Martin Solomon
 

	 	 
	Martin Solomon	 	 

 

 

SCHEDULE 1

All of the ordinary shares of £0.01 each in the Company registered in the name of the Debtor.

 

 

SCHEDULE 2

Extracts from the Note Purchase Agreement

			
	Section 9.6	 	Change in Control

	 	(a)	 	Notice of Change in Control or Control Event. CanArgo Energy Corporation will,
within five Business Days after any Responsible Officer has actual and not constructive
knowledge of the occurrence of any Change in Control or Control Event, give written
notice of such Change in Control or Control Event to each holder of Notes unless notice
in respect of such Change in Control (or the Change in Control contemplated by such
Control Event) shall have been given pursuant to subparagraph (b) of this Section 9.6.
If a Change in Control has occurred, such notice shall contain and constitute an offer
to prepay Notes as described in Section 9.6(c) and shall be accompanied by the
certificate described in Section 9.6(f).
	 
	 	(b)	 	Condition to Company Action. CanArgo Energy Corporation will not take any
action that consummates or finalises a Change in Control unless: (i) at least 15
Business Days prior to such action it shall have given to each holder of Notes written
notice containing and constituting an offer to prepay Notes as described in Section
9.6(c) accompanied by the certificate described in Section 9.6(f), and (ii)
contemporaneously with the action taken to consummate or finalise any such Change in
Control, it prepays all Notes required to be prepaid in accordance with this Section
9.6.
	 
	 	(c)	 	Offer to Prepay Notes. The offer to prepay Notes contemplated by subparagraphs
(a) and (b) of this Section 9.6 shall be an offer to prepay, in accordance with and
subject to this Section 9.6 all, but not less than all, the Notes held by each holder
(in this case only, “holder” in respect of any Note registered in the name of a nominee
for a disclosed beneficial owner shall mean such beneficial owner) on a date specified
in such offer (the “Proposed Prepayment Date”). If such Proposed Prepayment Date is in
connection with an offer contemplated by subparagraph (a) of this Section 9.6, such
date shall be not less than 30 days and not more than 90 days after the date of such
offer (if the Proposed Prepayment Date shall not be specified in such offer, the
Proposed Prepayment Date shall be the 30th day after the date of such
offer).
	 
	 	(d)	 	Acceptance. A Purchaser may accept the offer to prepay made pursuant to this
Section 9.6 by causing notice of such acceptance to be delivered to CanArgo Energy
Corporation at least 15 days prior to the Proposed Payment Date. A failure by a
Purchaser to respond to an offer to prepay made pursuant to this Section 9.6 shall be
deemed to constitute an acceptance of such offer by such Purchaser.
	 
	 	(e)	 	Prepayment. Prepayment of the Notes to be prepaid pursuant to this Section 9.6
shall be the Redemption Price of such Notes, together with interest on such

 

 

	 	 	 	Notes accrued to the date of prepayment. The prepayment shall be made on the
Proposed Prepayment Date.
	 
	 	(f)	 	Officer’s Certificate. Each offer to prepay the Notes pursuant to this Section
9.6 shall be accompanied by a certificate, executed by a Senior Financial Officer of
CanArgo Energy Corporation and dated the date of such offer, specifying: (i) the
Proposed Prepayment Date; (ii) that such offer is made pursuant to this Section 9.6;
(iii) the principal amount of each Note offered to be prepaid; (iv) the interest that
would be due on each Note offered to be prepaid, accrued to the Proposed Prepayment
Date; (v) that the conditions of this Section 9.6 have been fulfilled; and (vi) in
reasonable detail, the nature and date or proposed date of the Change of Control.
	 
	 	(g)	 	Effect on Required Payments. The amount of each payment of the principal of
the Notes made pursuant to this Section 9.6 shall be applied against and reduce each of
the then remaining principal payments due pursuant to Section 9.6 by a percentage equal
to the aggregate principal amount of the Notes so paid divided by the aggregate
principal amount of the Notes outstanding immediately prior to such payment.
	 
	 	(h)	 	“Change in Control” Defined. “Change in Control” means (a) CanArgo Energy
Corporation shall at any time cease to be a publicly held company or cease to have its
capital stock traded on an exchange; or (b) a transaction or series of related
transactions pursuant to which: (i) at least fifty-one percent
(51%) of the outstanding shares of Common Stock of CanArgo Energy Corporation or, on a fully diluted basis,
shall subsequent to the date of the Note Purchase Agreement be owned by any Person (as
hereinafter defined) which is not related to or Affiliated with CanArgo Energy
Corporation; (ii) CanArgo Energy Corporation merges into or with, consolidates with or
effects any plan of share exchange or other combination with any Person which is not
related to or Affiliated with CanArgo Energy Corporation, or (iii) CanArgo Energy
Corporation disposes of all or substantially all of its assets other than in the
ordinary course of business.
	 
	 	(i)	 	“Control Event” Defined. “Control Event” means:

	 	(i)	 	the execution of any CanArgo Group Member of any agreement or
letter of intent with respect to any proposed transaction or event or series of
transactions or events which, individually or in the aggregate, may reasonably
be expected to result in a Change in Control, or
	 
	 	(ii)	 	the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control.

			
	Section 10.11	 	Termination of Cornell Facilities.

	 	 	Within ten Business days after the Closing, CanArgo Energy Corporation shall deliver to
Purchasers: (a) reasonably satisfactory evidence of the payment of all CanArgo Energy
Corporation’s obligations under the Cornell Facility and any other agreements relating to or
arising out of the Cornell Facility by the payment of the

 

 

	 	 	Cornell Facility in full and in cash with the proceeds from the issuance of the Notes; and
(b) a copy of the notice of termination delivered under the Cornell Facility.

			
	Section 11.2	 	Merger, Consolidation, etc.

	 	 	CanArgo Energy Corporation will not, and will not permit any other CanArgo Group Member to,
consolidate with or merge with any other corporation or convey, transfer or lease
substantially all of its assets in a single transaction or series of transactions to any
Person (except that a Material Subsidiary of CanArgo Energy Corporation may: (x) consolidate
with or merge with, or convey, transfer or lease substantially all of its assets in a single
transaction or series of transactions to, another Material Subsidiary or CanArgo Energy
Corporation; and (y) convey, transfer or lease all of its assets in compliance with the
provisions of Section 11.8 provided immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing).

			
	Section 11.3	 	Liens.

	 	 	CanArgo Energy Corporation will not, and will not permit any other CanArgo Group Member to,
directly or indirectly create, incur, assume or permit to exist (upon the happening of a
contingency or otherwise) any Lien on or with respect to any property or asset (including,
without limitation, any document or instrument in respect of goods or accounts receivable)
of CanArgo Energy Corporation or any such other CanArgo Group Member, whether now owned or
held or hereafter acquired, or any income or profits therefrom, or assign or otherwise
convey any right to receive income or profits, except:

	 	(a)	 	Liens for taxes, assessments or other governmental charges or levies the
payment of which is not at the time required by Section 10.4;
	 
	 	(b)	 	statutory Liens of landlords, Governmental Authorities and Liens of carriers,
operators, vendors, equipment lessors, warehousemen, mechanics, repairmen, suppliers,
workers, construction materialmen and other similar Liens and other like Liens incident
of the exploration, development, operation and maintenance of oil and gas properties,
in each case, incurred in the ordinary course of business for sums not yet due or the
payment of which is not at the time required by Section 10.4;
	 
	 	(c)	 	Liens (other than any Lien imposed by ERISA) incurred or deposits made in the
ordinary course of business: (i) in connection with workers’ compensation, unemployment
insurance and other types of social security or retirement benefits, or (ii) to secure
(or to obtain letters of credit that secure) the performance of tenders, statutory
obligations, surety bonds, appeal bonds, bids, trade contracts, leases (other than
Capital Leases), government contracts, performance bonds, purchase construction or
sales contracts, regulatory obligations and other similar obligations, in each case not
incurred or made in connection with the borrowing of money, the obtaining of advances
or credit or the payment of the deferred purchase price of the property;
	 
	 	(d)	 	any attachment or judgment Lien, not giving rise to an Event of Default;

 

 

	 	(e)	 	leases or subleases granted to others, easements, reservations, servitudes,
permits, conditions, covenants, exceptions, rights-of-way, restrictions and other
similar charges or encumbrances, in each case incidental to, and not interfering with,
the ordinary conduct of the business of CanArgo Energy Corporation or any of its
Subsidiaries, provided that such Liens do not, in the aggregate, materially detract
from value of such property;
	 
	 	(f)	 	any Lien created to secure all or any part of the purchase price, or to secure
Indebtedness incurred or assumed to pay all or any part of the purchase price or cost
of construction, of property (or any improvement thereon) acquired or constructed by
CanArgo Energy Corporation or any other CanArgo Group Member after the date of the
Closing, provided that:

	 	(i)	 	any such Lien shall extend solely to the item or items of such
property (or improvement thereon) so acquired, leased or constructed and, if
required by the terms of the instrument originally creating such Lien, other
property (or improvement thereon) which is an improvement to or is acquired for
specific use in connection with such acquired, leased or constructed property
(or improvement thereon) or which is real property being improved by such
acquired, leased or constructed property (or improvement thereon),
	 
	 	(ii)	 	the principal amount of the Indebtedness secured by any such
Lien shall at no time exceed an amount equal to 80% (but 100% in the case of
property (or improvement thereon) the acquisition of which is financed through
a Capital Lease Obligation) of the lesser of: (A) the cost to CanArgo Energy
Corporation or such other CanArgo Group Member of the property (or improvement
thereon) so acquired or constructed; and (B) the Fair Market Value (as
determined in good faith by the board of directors of CanArgo Energy
Corporation) of such property (or improvement thereon) at the time of such
acquisition or construction,
	 
	 	(iii)	 	any such Lien shall be created contemporaneously with, or
within 180 days after, the acquisition, lease or construction of such property;

	 	(g)	 	Liens securing Indebtedness arising under the Loan Documents;
	 
	 	(h)	 	contractual Liens which arise in the ordinary course of business under and
pursuant to the terms of the Basic Documents or other concessions agreements,
production sharing agreements and contracts; joint venture, exploration, limited or
general partnership, dry hole, bottom hole, acreage contribution, purchase and
acquisition agreements; exploration, production and development licenses; operating
agreements; drilling agreements; oil and gas leases; farm-out and farm-in agreements;
division orders; contracts for the sale, transportation or exchange of oil and natural
gas; unitization and pooling declarations and agreements; area of mutual interest
agreements; overriding and net profits royalty agreements; marketing agreements;
processing agreements; development agreements; gas balancing or deferred production
agreements; injection, repressuring and recycling agreements; salt water or other
disposal agreements; seismic or other geophysical permits or

 

 

	 	 	 	agreements, and other agreements which are usual and customary in the oil and gas
business and are for claims which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with applicable GAAP, provided that any such Lien referred
to in this clause does not materially impair the use of the property covered by such
Lien for the purposes for which such property is held by CanArgo Energy Corporation
or any other CanArgo Group Member or materially impair the value of such property
subject thereto;

	 	(i)	 	Liens arising solely by virtue of any statutory or common law provision
relating to banker’s liens, rights of set-off or similar rights and remedies and
burdening only deposit accounts or other funds maintained with a creditor depository
institution, provided that no such deposit account is a dedicated cash collateral
account or is subject to restrictions against access by the depositor in excess of
those set forth by regulations promulgated by the Board of Governors of the Federal
Reserve System of the United States of America (or any successor Governmental
Authority) or other Governmental Authority and no such deposit account is intended by
CanArgo Energy Corporation or any other CanArgo Group Member to provide collateral to
the depository institution, except in each such case in connection with letter of
credit obligations issued pursuant to or in connection with any Basic Documents or
other agreements referred to in clause (h);
	 
	 	(j)	 	Other Liens not described in clauses (a) to (i) of this Section on the property
of CanArgo Energy Corporation or any Subsidiary in an aggregate amount at any time not
exceeding US$100,000; and
	 
	 	(k)	 	Permitted Encumbrances

			
	Section 11.4	 	Priority

	 	 	CanArgo Energy Corporation shall not, without
the consent of the Required Holders issue any
Indebtedness with priority over, or pari
passu with, the Notes.

			
	Section 11.6	 	Restricted Payments.

	 	 	CanArgo Energy Corporation will not make any Restricted Payments, except: (a) CanArgo Energy
Corporation may declare and pay (i) dividends with respect to its Equity Interests payable
solely in additional shares of its Equity Interests or Indebtedness and (ii) interest and
principal on Indebtedness owed by CanArgo Energy Corporation to another CanArgo Group Member
in either case which does not contravene the provisions of the Note Purchase Agreement, and
(b) CanArgo Energy Corporation may make distributions pursuant to and in accordance with
stock incentive plans or other Plans for management or employees of CanArgo Energy
Corporation and its Subsidiaries.

Section 11.7 Sale–and-leasebacks.

	 	 	CanArgo Energy Corporation will not, and will not permit any of its Subsidiaries to, enter
into any Sale-and-Leaseback Transaction.

 

 

Section 11.8 Sale of Assets, etc.

	 	(1)	 	Sale of Assets etc. CanArgo Energy Corporation will not, and will not permit
any other CanArgo Group Members to, make any Transfer, provided that the foregoing
restriction does not apply to a Transfer if:

	 	(a)	 	the property that is the subject of such Transfer constitutes
either: (i) inventory held for sale (including the sale of Hydrocarbons in the
ordinary course of business, including, without limitation, pursuant to advance
sale contracts, forward contracts and production payments), (ii) abandonments,
assignments, leases, subleases or farm-outs of oil and gas properties or
dispositions of properties pursuant to operating agreements or other forms of
exploration and development agreements or option agreements; or (iii) property,
equipment, fixtures, supplies or materials no longer required in the operation
of the business of CanArgo Energy Corporation or such Subsidiary or that is
redundant, condemned, obsolete, and, in the case of any Transfer described in
clauses (i) through (iii), such Transfer is in the ordinary course of business
(an “Ordinary Course Transfer”); or
	 
	 	(b)	 	either:

	 	(i)	 	such Transfer is from a CanArgo Group Member to
CanArgo Energy Corporation; or
	 
	 	(ii)	 	such Transfer is from CanArgo Energy
Corporation to a CanArgo Group Member or from a CanArgo Group Member to
another CanArgo Group Member and in either case is for Fair Market
Value,

so long as immediately before and immediately after the consummation of such
transaction, and after giving effect thereto, no Default or Event of Default exists
or would exist (each such Transfer, an “Intergroup Transfer”); or

	 	(c)	 	such Transfer involves oil and gas properties or interests
therein that are exchanged for other oil and gas properties or interests
therein in arms length transactions or such Transfer is pursuant to a Permitted
Farmout Arrangement.

	 	(2)	 	Disposal of Ownership of a CanArgo Group Member. CanArgo Energy Corporation
will not, and will not permit any CanArgo Group Members to, sell or otherwise dispose
of any shares of Subsidiary Stock, nor will CanArgo Energy Corporation permit any such
CanArgo Group Member to issue, sell or otherwise dispose of any shares of its own
Subsidiary Stock, provided that the foregoing restrictions do not apply to:

	 	(a)	 	the issue of directors’ qualifying shares by any such Material
Subsidiary;
	 
	 	(b)	 	any such Transfer of Material Subsidiary Stock constituting an
Intergroup Transfer;

 

 

	 	(c)	 	any such Transfer of Material Subsidiary Stock by a nominee
holder as required pursuant to the terms of a Pledge Agreement;
	 
	 	(d)	 	any issuance of shares of Subsidiary Stock by a Material
Subsidiary that qualifies as a Permitted Farmout Arrangement; and
	 
	 	(e)	 	the disposition or dissolution of any Subsidiary that is not a
Material Subsidiary; provided that the proceeds of such disposition or assets
of the Subsidiary are transferred to another CanArgo Group Member and
immediately before and immediately after the consummation of such transaction,
and after giving effect thereto, no Default or Event of Default exists or would
exist.

Section 11.9 Future Indebtedness.

Without the prior written consent of the Required Holders, which consent shall not be
unreasonably withheld, conditioned or delayed, CanArgo Energy Corporation will not incur any
Indebtedness after the date of the Note Purchase Agreement other than: (a) Indebtedness
outstanding under the Notes; (b) any additional unsecured Indebtedness, the aggregate amount
outstanding thereunder at any time shall not exceed US$1,250,000; (c) unsecured Indebtedness
of CanArgo Energy Corporation to another CanArgo Group Member or unsecured Indebtedness of a
CanArgo Group Member or direct or indirect Subsidiary of CanArgo Energy Corporation to
another CanArgo Group Member; and (d) Indebtedness of a CanArgo Group Member to a direct or
indirect Subsidiary of CanArgo Energy Corporation that is not a Material Subsidiary,
provided that the aggregate amount outstanding thereunder at any time shall not exceed
US$1,000,000. In considering whether to give its consent to any future Indebtedness, the
Required Holders shall be entitled to take into consideration, inter alia, the potential
effects of any such proposed Indebtedness upon the financial condition and wherewithal of
CanArgo Energy Corporation and/or upon their rights under the Loan Documents, and any
decision by the Required Holders to withhold their consent to any such proposed future
Indebtedness shall be final and binding absent a showing of manifest bad faith.

Section 11.10 Basic Documents.

CanArgo Energy Corporation shall not and shall not permit any other CanArgo Group Member,
without the prior written consent of the Required Holders to (i) cancel or terminate any
Basic Agreement to which CanArgo Energy Corporation or other CanArgo Group Members are a
party or consent to or accept any cancellation or termination thereof prior to the scheduled
expiration thereof; (ii) sell, assign (other than pursuant to the Security Documents or a
Permitted Farmout Arrangement) or otherwise dispose of (by operation of law or otherwise)
any part of its interest in any Basic Agreements; (iii) waive any default under or breach of
any provision of any Basic Agreement to which CanArgo Energy Corporation or any of its
Subsidiaries are a party, or waive, fail to enforce, forgive, compromise, settle, adjust or
release any Material right, interest or entitlement, howsoever arising, under, or in respect
thereof; or (iv) amend, supplement, modify or in any way vary in any respect or agree to any
variation of any provision of any Basic Agreement to which CanArgo Energy Corporation or any
other CanArgo Group Members are a party, or of the performance of any Material covenant or
obligation by any other Person under any Basic

 

 

Agreement except any amendment, supplement, modification or variation of the Basic
Agreements as a result of the transfer by (x) NOC (Cyprus)’s interest in the Ninotsminda PSC
(as defined in Schedule 6.19) to NOC (Jersey) and (y) CNL (Cyprus)’s interest in the Norio
PSC and Tbilisi PSC (both as defined in Schedule 6.19) to CNL (Jersey).

Section 11.11 Anti-takeover Defense.

	 	(a)	 	Except has hereinafter specifically provided, so long as any Indebtedness under
any of the Notes is outstanding, CanArgo Energy Corporation shall not enter into or
adopt any anti-takeover defense, “poison pill”, shareholder rights plan or any other
device designed to prevent a takeover, hostile or otherwise, that could encumber,
restrict or affect Ingalls & Snyder LLC, Robert L Gipson, Thomas O Boucher, and/or
Ingalls & Snyder Value Partners L.P. to acquire any Equity Interests of CanArgo Energy
Corporation;
	 
	 	(b)	 	Notwithstanding the provisions of Section 11.11(a) to the contrary provided,
CanArgo Energy Corporation may enter into or adopt an anti-takeover defense, “poison
pill”, shareholder rights plan or any other device designed to prevent Ingalls & Snyder
LLC, Robert L Gipson, Thomas O Boucher , and/or Ingalls & Snyder Value Partners LP or
other Note holders to acquire such Equity Interests by means of or in connection with
the direct or indirect forbearance, cancellation or exchange of all or any part of the
Indebtedness evidenced by the Notes;
	 
	 	(c)	 	Notwithstanding the provisions of Section 11.11(a) to the contrary provided,
Ingalls & Snyder Value Partners L.P. hereby agrees that so long as any Notes are
outstanding and no Event of Default exists and is continuing and until the expiration
of the second anniversary after the indefeasible satisfaction of all Indebtedness under
the Notes, whether by payment, conversion, exchange or otherwise (other than in
connection with any proceeding under the United States Bankruptcy Code), Ingalls &
Snyder Value Partners L.P. shall not, without the express written consent or approval
of the incumbent Board of Directors of CanArgo Energy Corporation, solicit or otherwise
seek to effect or participate in a Change of Control of CanArgo Energy Corporation or a
change in the composition of the incumbent Board of Directors by means of the purchase
or offer to purchase of any Equity Interests of CanArgo Energy Corporation, the
solicitation of proxies or written consents, or by voting any Equity Interests acquired
by Ingalls & Snyder Value Partners L.P. upon the conversion of Notes pursuant to
Section 10.7, in connection with any solicitation of proxies or written consents or at
any regular or special meeting of shareholders or otherwise.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00117-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00117-of-00352.parquet"}]]