Document:

Exhibit 10.1

 

Exhibit 10.1

AGENCY AGREEMENT

June 18, 2007

Tethys Petroleum Limited

P.O. Box 524

Suite 3, Borough House, Rue du Pre

St. Peter Port

Guernsey, GY1 6EL, Channel Islands

Attention: Dr. David Robson,

                  President and Chief Executive Officer

- and to -

CanArgo Energy Corporation

CanArgo Limited

P.O. Box 291

St. Peter Port

Guernsey, GY1 3RR, Channel Islands

Attention: Vincent McDonnell

                  President

Dear Mesdames/Sirs:

Re: Tethys Petroleum Limited – Initial Public Offering and Secondary Offering

Jennings Capital Inc. (the “Lead Agent”), Tristone Capital Inc. and Haywood Securities Inc.
(collectively, the “Agents” and each individually, an “Agent”) understand that Tethys Petroleum
Limited (the “Company”) proposes to issue and sell a minimum of 9,090,909 Ordinary Shares (as
defined below) and a maximum of 18,181,818 Ordinary Shares (the “Primary Shares”) and that CanArgo
Limited (the “Selling Shareholder”), a wholly-owned subsidiary of CanArgo Energy Corporation
(“CanArgo”), proposes to sell up to 8,000,000 Ordinary Shares (the “Secondary Shares”). The
Primary Shares and the Secondary Shares are referred to collectively herein as the “Offered
Shares”.

The Agents also understand that the Company has prepared and filed the Preliminary Prospectus (as
defined below) with respect to the Offered Shares with the Securities Commissions (as defined
below) in the Qualifying Jurisdictions (as defined below) and has received the Preliminary MRRS
Decision Document (as defined below). The Agents also understand that the Company has prepared the
Final Prospectus (as defined below) and will file the same with the Securities Commissions promptly
after execution of this Agreement (as defined below).

Upon and subject to the terms and conditions, and in reliance on the representations and warranties
contained herein, the Agents hereby severally agree, to act as the exclusive agents of

 

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the Company and the Selling Shareholder to offer the Offered Shares for sale from the Company and
the Selling Shareholder, respectively, and to use their best efforts to obtain subscriptions
therefor, and the Company and the Selling Shareholder hereby appoint the Agents as their exclusive
agents in respect of such offering, and in connection therewith the Company agrees to offer and
sell through the Agents the Primary Shares, and the Selling Shareholder agrees to offer and sell
through the Agents the Secondary Shares, at the purchase price of US$2.75 per Offered Share, being
an aggregate minimum purchase price of US$24,999,999.75 and an aggregate maximum purchase price of
US$49,999,999.50 in respect of the Primary Shares and an aggregate purchase price of up to
US$22,000,000 in respect of the Secondary Shares, provided that no Secondary Shares shall be sold
hereunder unless the maximum number of Primary Shares are sold are sold. The Agents propose to
distribute the Offered Shares in the Qualifying Jurisdictions pursuant to the Final Prospectus, in
the United States pursuant to the U.S. Placement Memorandum (as defined below) dated the date
hereof through one or more U.S. Dealers (as defined below) pursuant to exemptions from the
registration requirements of the U.S. Securities Laws (as defined below) and in certain other
jurisdictions as agreed between the Company, the Selling Shareholder and the Agents (the “Other
Jurisdictions”), all in the manner contemplated by this Agreement.

The Company hereby grants to the Agents an irrevocable right (the “Over-Allotment Option”) to offer
for sale up to the number of additional Ordinary Shares (the “Over-Allotment Shares”) issued by the
Company that is equal to 15% of the number of Primary Shares sold by the Company, on the same basis
(including payment of the Agency Fee per Over-Allotment Share) as the sale of the Offered Shares.
If the Lead Agent, on behalf of the Agents, elects to exercise the Over-Allotment Option, the Lead
Agent shall notify the Company in writing not later than noon (Calgary time) on the 30th day
following the Closing Date (as defined below), which notice shall specify the number of
Over-Allotment Shares to be sold by the Agents and the date and time at which such Over-Allotment
Shares are to be sold (the “Over-Allotment Closing Time”). Such date may be the same as the Closing
Date but not earlier than the later of: (i) the Closing Date, and (ii) two Business Days after the
delivery date of such notice, nor later than five Business Days after the date of delivery of such
notice. Over-Allotment Shares may be offered solely for the purpose of covering over-allotments
made in connection with the offering of the Offered Shares, if any, and for market stabilization
purposes. In this Agreement, references to “Closing Date” and “Time of Closing” include the
Over-Allotment Closing Time, unless the context otherwise requires, and the Offered Shares and the
Over-Allotment Shares are hereinafter referred to, collectively, as the “Shares”. Subject to the
terms and conditions set forth in this Agreement, the Lead Agent, on behalf of the Agents, shall be
entitled to exercise the Over-Allotment Option in whole or in part from time to time in their sole
discretion.

In consideration of the agreement of the Agents to distribute the Offered Shares in the manner set
forth herein, the Company and the Selling Shareholder severally agree to pay to the Agents the
Agency Fee (as defined below) and to issue the Agents’ Compensation Options (as defined below) as
specified in Section 16 of this Agreement at the Time of Closing (as defined below).

 

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Terms and Conditions

The following are additional terms and conditions of this Agreement among the Company, CanArgo, the
Selling Shareholder and the Agents.

1. Definitions

Where used in this Agreement, or in any amendment to this Agreement, the following terms will have
the following meanings, respectively:

	1.1	 	“affiliate” has the meaning ascribed thereto in section 1.2 of National Instrument 45-106 of
the Canadian Securities Administrators, as constituted at the date of this Agreement;

	1.2	 	“Agency Fee” has the meaning given to that term in Section 16.1 of this Agreement;

	1.3	 	“Agents’ Compensation Options” has the meaning given to that term in Section 16.2 of this
Agreement;

	1.4	 	“Agreement” means the agreement resulting from the acceptance by each of the Company and the
Selling Shareholder of the offer made by the Agents by this letter and the agreement of the
Agents, the Company, CanArgo and the Selling Shareholder to be bound hereby, and includes any
amendment to or restatement of this Agreement;

	1.5	 	“Akkulka Block” means the area in Kazakhstan that is subject to the Akkulka Exploration
License and Contract;

	1.6	 	“Akkulka Exploration License and Contract” means BNM’s exploration license and contract in
respect of the Akkulka Block;

	1.7	 	“AMI Agreement” means the area of mutual interest and non-compete agreement between the
Company and CanArgo dated January 24, 2007;

	1.8	 	“Aral Vostochniy Block” means the area that is subject to the Aral Vostochniy Exploration
Contract;

	1.9	 	“Aral Vostochniy Exploration Contract” means NBC’s exploration contract in respect of the
Aral Vostochniy Block;

	1.10	 	“Authorization” means, with respect to any Person, any order, permit, approval, consent,
waiver, license, qualification, registration or similar authorization of any Governmental Body
having jurisdiction over the Person;

	1.11	 	“Beneficiaries” has the meaning given to that term in Section 14.6 of this Agreement;

	1.12	 	“BNM” means BN Munai LLP, a limited liability partnership registered in Kazakhstan in which
the Company, through TKL, has a 100% interest;

 

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	1.13	 	“Business Day” means a day other than a Saturday, a Sunday or a day on which chartered banks
are not open for business in Calgary, Alberta or in Toronto, Ontario;

	1.14	 	“CEO Services Agreement” means the management services agreement between the Company and
Vazon providing for, among other things, the services of Dr. David Robson as President and
Chief Executive Officer of the Company;

	1.15	 	“Claim” has the meaning given to that term in Section 14.1 of this Agreement;
	 
	1.16	 	“Closing” means a closing of the purchase and sale of Offered Shares hereunder;

	1.17	 	“Closing Date” means June 27, 2007 and/or such other earlier or later date or dates as may be
agreed to in writing by the Company, CanArgo, the Selling Shareholder and the Lead Agent on
behalf of the Agents, each acting reasonably, provided that the Closing Date for the initial
Closing shall not be later than July 6, 2007 and no Closing shall occur after September 13,
2007;

	1.18	 	“Companies Law” means The Companies (Guernsey) Law, 1994, as amended;

	1.19	 	“Contracts” means, collectively, the Kyzyloi Field License and Production Contract, the
Akkulka Exploration License and Contract and the Kul-Bas Exploration and Production Contract;

	1.20	 	“distribution” means “distribution” or “distribution to the public”, as the case may be, as
those terms are defined in applicable Securities Laws;

	1.21	 	“Environmental Laws” means any applicable federal, provincial, local or municipal Laws and
regulations relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminates;

	1.22	 	“Final MRRS Decision Document” means a final MRRS decision document for the Final Prospectus
issued in accordance with the MRRS;

	1.23	 	“Final Prospectus” means the final long form prospectus of the Company dated June 18, 2007,
approved, signed and certified in accordance with the Securities Laws, relating to the
qualification for distribution of the Shares under applicable Securities Laws in the
Qualifying Jurisdictions;

	1.24	 	“Financial Information” means:

	 	(a)	 	the audited consolidated balance sheets of the Company as at December 31, 2006,
2005 and 2004 and the audited consolidated statements of operations, changes in
stockholders’ equity and cash flows for each of the years in the three-year period
ended December 31, 2006, together with the notes thereto and the report of PWC thereon;
and

 

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	 	(b)	 	the unaudited consolidated balance sheet of the Company as at March 31, 2007
and December 31, 2006 and the unaudited consolidated statements of operations, changes
in stockholders’ equity and cash flows for the three month periods ended March 31, 2007
and 2006, together with the notes thereto;

	1.25	 	“Gas Supply Contract” means the take-or-pay natural gas supply contract between BNM and Gaz
Impex S.A. LLP dated January 5, 2006 in respect of gas sales from the Kyzyloi Field;

	1.26	 	“Governmental Body” means any (a) multinational, federal, provincial, state, municipal, local
or other governmental or public department, central bank, court, commission, board, bureau,
agency or instrumentality, domestic or foreign, (b) any subdivision or authority of any of the
foregoing, or (c) any quasi-governmental, self-regulatory organization or private body
exercising any regulatory, expropriation or taxing authority under or for the account of its
members or any of the above, and includes the Regulatory Authorities;

	1.27	 	“Indemnified Party” has the meaning given to that term in Section 14.1 of this Agreement;

	1.28	 	“Indemnifying Party” has the meaning given to that term in Section 14.3 of this Agreement;
	 
	1.29	 	“KPL” means Kulob Petroleum Limited, a wholly-owned subsidiary of TTL;

	1.30	 	“Kul-Bas” means Kul-Bas LLP, a limited liability partnership registered in Kazakhstan in
which BNM has a 100% interest;

	1.31	 	“Kul-Bas Block” means the area that is subject to the Kul-Bas Exploration and Production
Contract;

	1.32	 	“Kul-Bas Exploration and Production Contract” means Kul-Bas’ exploration license and
production contract in respect of the Kul-Bas Block;

	1.33	 	“Kyzyloi Field” means the area that is subject to the Kyzyloi Field License and Production
Contract;

	1.34	 	“Kyzyloi Field License and Production Contract” means BNM’s field license and production
contract in respect of the Kyzyloi Field;

	1.35	 	“Law” means any and all applicable laws, including all statutes, codes, ordinances, decrees,
rules, regulations, municipal by-laws, judicial or arbitral or administrative or ministerial
or departmental or regulatory judgments, orders, decisions, rulings or awards, binding on or
affecting the Person referred to in the context in which the word is used;

	1.36	 	“Liens” means, with respect to any property or assets, any encumbrance or title defect of
whatever kind or nature, regardless of form, whether or not registered or registrable and
whether or not consensual or arising by law (statutory or otherwise), including any

 

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	 	 	mortgage, lien, charge, pledge or security interest, whether fixed or floating, or any
assignment, lease, option, right of pre-emption, privilege, encumbrance, easement,
servitude, right of way, community property right, restriction on transfer, restrictive
covenant, right of use or any other right or claim of any kind or nature whatever which
affects ownership or possession of, or title to, any interest in, or the right to use or
occupy such property or assets;

	1.37	 	“Material Adverse Effect” or “Material Adverse Change” means any effect on or change to the
business of the Company and its subsidiaries, taken as a whole, that is or is reasonably
likely to be materially adverse to the results of operations, financial condition, assets,
liabilities (contingent or otherwise), cash flow, income or business operations or prospects
of such business, taken as a whole, or to the completion of the transactions contemplated by
this Agreement or the Material Agreements;

	1.38	 	“Material Agreements” means, collectively, this Agreement, the AMI Agreement, the CEO
Services Agreement, the Contracts, the Gas Supply Contract, the NBC Acquisition Agreement and
the Umbrella Management Services Agreement;

	1.39	 	“material change”, “material fact” and “misrepresentation” have the meanings attributed
thereto under applicable Securities Laws;

	1.40	 	“Material Subsidiaries” means TKL, TMG, BNM and Kul-Bas;

	1.41	 	“McDaniel” means McDaniel & Associates Consultants Ltd., independent oil and gas reservoir
engineers of Calgary, Alberta;

	1.42	 	“McDaniel Reserve Report” means the independent engineering evaluation of the Company’s
natural gas reserves prepared by McDaniel, dated April 24, 2007 and effective March 31, 2007;

	1.43	 	“MRRS” means the mutual reliance review system procedures provided for under National Policy
43-201 “Mutual Reliance Review System for Prospectuses and Annual Information Forms” among the
Securities Commissions and the securities commissions and other securities regulatory
authorities in each of the territories of Canada;

	1.44	 	“NBC” means Nursat-Bauyr & Co. LLP, a limited liability partnership registered in Kazakhstan;

	1.45	 	“NBC Acquisition Agreement” means the acquisition agreement dated May 10, 2007 between TKL
and the former owner of NBC pursuant to which TKL has the right to acquire NBC under the terms
of such agreement;

	1.46	 	“Offering Documents” has the meaning given to that term in Section 4.1 of this Agreement;

	1.47	 	“Option Plan” means the stock incentive plan of the Company referred to as the “2007 Long
Term Stock Incentive Plan” adopted by the Company in May, 2007;

 

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	1.48	 	“Option Shares” means the Ordinary Shares issuable to the Agents upon the exercise of the
Agents’ Compensation Options;

	1.49	 	“Ordinary Shares” means the US$0.10 par value ordinary shares in the share capital of the
Company as constituted on the date hereof;

	1.50	 	“Person” includes any individual, general partnership, limited partnership, joint venture,
syndicate, sole proprietorship, company or corporation with or without share capital, joint
stock company, association, trust, trust company, bank, pension fund, trustee, executor,
administrator or other legal personal representative, regulatory body or agency, Governmental
Body or other organization or entity, whether or not a legal entity, however designated or
constituted;

	1.51	 	“Plans” has the meaning given to that term in Section 11.1.5.6 of this Agreement;

	1.52	 	“Preliminary MRRS Decision Document” means the receipt dated May 11, 2007 for the Preliminary
Prospectus issued by the Alberta Securities Commission on its own behalf and on behalf of the
other Securities Commissions in accordance with the MRRS;

	1.53	 	“Preliminary Prospectus” means the preliminary long form prospectus of the Company dated May
10, 2007 relating to the qualification for distribution of the Shares under applicable
Securities Laws in the Qualifying Jurisdictions;

	1.54	 	“PWC” PricewaterhouseCoopers LLP, independent auditors of the Company;

	1.55	 	“Qualifying Jurisdictions” means, collectively, each of the provinces of Canada other than
Quebec;

	1.56	 	“Regulation D” means Regulation D adopted by the SEC pursuant to the U.S. Securities Act;
	 
	1.57	 	“Regulation S” means Regulation S adopted by the SEC pursuant to the U.S. Securities Act;
	 
	1.58	 	“Regulatory Authorities” means the Securities Commissions, the SEC, U.S. State Securities
Commissions, the Guernsey Financial Services Commission, the TSX and Market Regulation
Services, Inc.;
	 
	1.59	 	“Resource Report” means the independent engineering evaluation of 49 oil and natural gas
prospects in the areas that are subject to the Contracts prepared by McDaniel, dated April 26,
2007 and effective March 31, 2007;
	 
	1.60	 	“SEC” means the United States Securities and Exchange Commission;
	 
	1.61	 	“Securities Commission” means the applicable securities commission or regulatory authority in
each of the Qualifying Jurisdictions;

 

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	1.62	 	“Securities Laws” means, collectively, the applicable securities laws of each of the
Qualifying Jurisdictions and the respective regulations and rules made under those securities
laws together with all applicable policy statements, blanket orders and rulings of the
Securities Commissions and all discretionary orders or rulings, if any, of the Securities
Commissions made in connection with the transactions contemplated by this Agreement, together
with applicable published policy statements of the Canadian Securities Administrators;
	 
	1.63	 	“Selling Firms” has the meaning given to that term in Section 3.1 of this Agreement;
	 
	1.64	 	“Short-Term Loan” has the meaning ascribed thereto in the Final Prospectus;
	 
	1.65	 	“Standard Listing Conditions” has the meaning given to that term in Section 4.3.3 of this
Agreement;
	 
	1.66	 	“Subsidiaries” means, collectively, TSL, TKL, BNM, TMG, TTL, KPL, Kul-Bas and TSK;
	 
	1.67	 	“subsidiary” has the meaning ascribed thereto in National Instrument 45-106 of the Canadian
Securities Administrators, as constituted at the date of this Agreement;
	 
	1.68	 	“Supplementary Material” means, collectively, any amendment to the Final Prospectus, or the
U.S. Placement Memorandum, any amended or supplemental prospectus or ancillary materials that
may be filed by or on behalf of the Company under the Securities Laws relating to the
qualification for distribution of the Shares under applicable Securities Laws;
	 
	1.69	 	“Tax Act” means the Income Tax Act (Canada), as amended;
	 
	1.70	 	“Time of Closing” means 6:30 a.m. (Calgary time) on the Closing Date, or any other time on
the Closing Date as may be agreed to by the Company, CanArgo, the Selling Shareholder and the
Lead Agent;
	 
	1.71	 	“TKL” means Tethys Kazakhstan Limited, a wholly-owned subsidiary of the Company;
	 
	1.72	 	“TMG” means TethysMunaiGaz LLP, a limited liability partnership registered in Kazakhstan in
which the Company, through TKL, has a 100% interest;
	 
	1.73	 	“Transfer Agent” means Equity Transfer & Trust Company;
	 
	1.74	 	“TSK” means Tethys Services Kazakhstan LLP, a limited liability partnership registered in
Kazakhstan in which the Company, through TKL, has a 100% interest;
	 
	1.75	 	“TSL” means Tethys Services Limited, a wholly-owned subsidiary of the Company;
	 
	1.76	 	“TSX” means the Toronto Stock Exchange;

 

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	1.77	 	“TTL” means Tethys Tajikistan Limited, a wholly-owned subsidiary of the Company;
	 
	1.78	 	“Umbrella Management Services Agreement” means the management services agreement to be
entered into between the Company and Vazon prior to the Closing Date providing for, among
other things, the services of Vazon and the services of certain executive officers of the
Company;
	 
	1.79	 	“United States” or “U.S.” means the United States of America, its territories and
possessions, any state of the United States and the District of Colombia;
	 
	1.80	 	“U.S. Dealer” means a broker-dealer registered as such with the SEC under section 15 of the
U.S. Exchange Act and who is a member of the National Association of Securities Dealers, Inc.;
	 
	1.81	 	“U.S. Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended;
	 
	1.82	 	“U.S. Placement Memorandum” means the Preliminary Prospectus or Final Prospectus, as the case
may be, supplemented with wrap pages describing, among other things, restrictions imposed
under the U.S. Securities Act;
	 
	1.83	 	“U.S. Qualifying Jurisdictions” means, collectively, each of the states of the United States
in which Shares are offered and/or sold;
	 
	1.84	 	“U.S. Securities Act” means the United States Securities Act of 1933, as amended;
	 
	1.85	 	“U.S. Securities Laws” means all of the applicable federal securities laws and regulations of
the United States, including, without limitation, the U.S. Securities Act, and the U.S.
Exchange Act, and the state securities or “blue sky” laws of the U.S. Qualifying
Jurisdictions;
	 
	1.86	 	“U.S. State Securities Commissions” means the Governmental Bodies charged with administering
the state securities or “blue sky” laws of the U.S. Qualifying Jurisdictions; and
	 
	1.87	 	“Vazon” means Vazon Energy Limited, a company incorporated in Guernsey.

Capitalized terms used but not defined in this Agreement have the meanings given to them in the
Final Prospectus.

Any reference in this Agreement to a section, paragraph, subsection, subparagraph, clause or
subclause will refer to a section, paragraph, subsection, subparagraph, clause or subclause of this
Agreement.

All words and personal pronouns relating to those words will be read and construed as the number
and gender of the party or parties referred to in each case required and the verb will be construed
as agreeing with the required word and/or pronoun.

 

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	2.	 	Filing of Prospectus and Qualification of Shares

	2.1	 	The Company will, as soon as possible following the execution of this Agreement, file the
Final Prospectus, in form and substance satisfactory to the Agents acting reasonably, and all
other documents required under the Securities Laws with the Securities Commission in each of
the Qualifying Jurisdictions, and will obtain the Final MRRS Decision Document from the
Alberta Securities Commission on its own behalf and on behalf of the other Securities
Commissions as soon as possible after such filing and, in any event, not later than 5:00 p.m.
(Calgary time) on June 20, 2007 (or such other time and/or later date as the Company and the
Lead Agent may agree) and will have taken all other steps and proceedings that may be
necessary on its part: (a) in order to qualify the Shares for distribution in each of the
Qualifying Jurisdictions by the Agents and other Persons who are registered in a category
permitting them to distribute the Shares under the Securities Laws and who comply with the
Securities Laws and (b) to enable the Shares to be lawfully offered and sold on a private
placement basis through one or more U.S. Dealers in the United States in accordance with the
provisions of Schedule A to this Agreement.
	 
	3.	 	Distribution of the Offered Shares and Certain Obligations of Agents

	3.1	 	The Agents shall distribute the Shares to the public in the Qualifying Jurisdictions and on a
private placement basis in the United States and the Other Jurisdictions directly and through
other investment dealers and brokers, only as permitted by Securities Laws, U.S. Securities
Laws and the securities legislation of the Other Jurisdictions and upon the terms and
conditions set forth in the Final Prospectus, the U.S. Placement Memorandum and in this
Agreement. The Agents and such other investment dealers and brokers are collectively referred
to herein as the “Selling Firms”. The Agents will not directly sell or distribute any Offered
Shares in the United States but may arrange for sale of the Shares in the United States as
contemplated by Schedule A hereto, the provisions of which are agreed to by the Company, the
Selling Shareholder and the Agents and are incorporated by reference herein. The Agents will
not solicit offers to purchase or sell the Shares so as to require registration thereof or the
filing of a prospectus or any similar document under the laws of any jurisdiction outside the
Qualifying Jurisdictions and shall comply with all applicable Securities Laws in each of the
Qualifying Jurisdictions into and from which they may offer or sell the Offered Shares. Any
agreements between the Agents and the other Selling Firms will contain similar restrictions to
the foregoing and the Agents will use their commercially reasonable efforts to cause the
Selling Firms to comply with all applicable Securities Laws, U.S. Securities Laws and the
securities legislation of the Other Jurisdictions. For the purposes of this section, the
Agents will be entitled to assume that the Shares are qualified for distribution in any
Qualifying Jurisdiction in respect of which the Final MRRS Decision Document evidences that a
receipt or similar acceptance of the Final Prospectus has been obtained from the applicable
Securities Commission following the filing of the Final Prospectus, unless the Agents, or the
Lead Agent on behalf of the Agents, receive notice to the contrary from the Company or the
applicable Securities Commission.

 

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	3.2	 	The Agents will complete, and will use their reasonable commercial efforts to cause the
Selling Firms (if any) to complete, the distribution of the Shares as promptly as possible
after the Time of Closing. The Agents will notify the Company and the Selling Shareholder
when, in the Agents’ opinion, the Agents and the Selling Firms (if any) have ceased
distribution of the Shares and, promptly after completion of the distribution of Shares, will
provide the Company, in writing, with a breakdown of the number of Shares distributed in each
of the Qualifying Jurisdictions and the U.S. Qualifying Jurisdictions where that breakdown is
required by the Securities Commission or U.S. State Securities Commission of that province or
state for the purpose of calculating fees payable to that Securities Commission or U.S. State
Securities Commission and for the purpose of making any required filing with any Regulatory
Authority.

	3.3	 	No Agent will be liable to the Company or the Selling Shareholder under this Section 3 with
respect to a default by any of the other Agents or Selling Firms, as the case may be unless
such Agent participated in or contributed to such default.

	3.4	 	The Agents, severally, but not jointly, make the representations, warranties and covenants in
Schedule A hereto, and severally, but not jointly, agree, on behalf of themselves and their
United States affiliates, for the benefit of the Company to comply with the selling
restrictions imposed by the U.S. Securities Laws and set forth in Schedule A hereto, which is
incorporated by reference herein and forms part of this Agreement.

	3.5	 	The Lead Agent shall act as custodian of funds received from subscribers for Shares pending
the Closing of the Offering. Such funds shall be released at the Closing in accordance with
Section 12 of this Agreement, provided that if the minimum offering amount of US$24,999,999.75
has not been subscribed for prior to the date that is 90 days following the issuance of the
Final MRRS Decision Document, then the Lead Agent shall promptly return such funds to the
subscribers without interest or deduction unless such subscribers have instructed the Lead
Agent otherwise.

	3.6	 	The Agents shall use their commercially reasonable efforts to cause the distribution of the
Shares in a manner that will satisfy the minimum distribution requirement for listing of the
Ordinary Shares on the TSX.

	4.	 	Delivery of Prospectus and Related Matters

	4.1	 	The Company will cause to be delivered to the Agents, at those delivery points as the Agents
may reasonably request, as soon as possible, and in any event no later than 5:00 p.m. (Calgary
time), on the Business Day immediately following the issuance of the Final MRRS Decision
Document, and thereafter from time to time during the distribution of the Shares in Canada, as
many commercial copies of the Final Prospectus as the Agents may reasonably request. The
Company will similarly cause to be delivered to the Agents, without charge, at those delivery
points and in such number as the Agents may reasonably request, commercial copies of the U.S.
Placement Memorandum and any Supplementary Material required to be delivered to purchasers or
prospective purchasers of the Shares. Each delivery of the Final Prospectus, the U.S.
Placement Memorandum

 

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	   	 	or any Supplementary Material (collectively, the “Offering Documents”) will constitute the
Company’s and the Selling Shareholder’s consent to the use of the Offering Documents by the
Agents and the Selling Firms for the distribution of the Shares in the Qualifying
Jurisdictions and the private placement of the Shares in the United States in compliance
with the provisions of this Agreement, the Securities Laws and U.S. Securities Laws.

	4.2	 	Each delivery of the Offering Documents to the Agents by the Company in accordance with
Sections 4.1 and 4.3 will constitute the representation and warranty of the Company, CanArgo
and the Selling Shareholder to the Agents that (except for the information and statements
relating solely to the Agents and furnished by them specifically for use in such document), at
the respective times of delivery and, in the case of the Final Prospectus and the U.S.
Placement Memorandum, together with Supplementary Material, if any, at the Time of Closing:

	 	4.2.1	 	the information and statements contained in each of the Offering Documents:

	 	4.2.1.1	 	are true and correct in all material respects;
	 
	 	4.2.1.2	 	do not contain a misrepresentation; and
	 
	 	4.2.1.3	 	constitute full, true and plain disclosure of all material facts relating to
the Shares and to the Company and its subsidiaries, considered as a whole in
accordance with the Securities Laws; and

	 	4.2.2	 	each of the Offering Documents complies in all material respects with
Securities Laws and U.S. Securities Laws applicable to such Offering Document.

	4.3	 	The Company will deliver to the Agents, without charge, in Calgary, Alberta,
contemporaneously with or prior to the filing of the Final Prospectus, as the case may be,
unless otherwise indicated:

	 	4.3.1	 	a copy of the Final Prospectus, originally signed on behalf of the Company
(and CanArgo in its capacity as promoter of the Company) as required by the Securities
Laws of each of the Qualifying Jurisdictions;
	 
	 	4.3.2	 	a copy of any other document required to be filed by the Company under the
Securities Laws in connection with the distribution of the Shares contemplated by this
Agreement;
	 
	 	4.3.3	 	evidence satisfactory to the Agents of the approval of the listing and posting
for trading on the TSX of the Shares and the Option Shares, subject only to
satisfaction by the Company of customary conditions imposed by the TSX in similar
circumstances (the “Standard Listing Conditions”); and
	 
	 	4.3.4	 	a “long-form” comfort letter or comfort letters dated the date of the Final
Prospectus, in form and substance satisfactory to the Agents, addressed to the

 

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	 	 	 	Agents, the board of directors of the Company from PWC, and based on a review
completed not more than two Business Days prior to the date of the Final Prospectus,
with respect to certain financial and accounting information relating to the Company
in the Final Prospectus, which letter shall be in addition to the auditors’ reports
contained in the Final Prospectus and any auditors’ comfort letters addressed to the
Securities Commissions.

	4.4	 	The Selling Shareholder will deliver to the Agents, without charge, in Calgary, Alberta,
contemporaneously with or prior to the filing of the Final Prospectus, a copy of any document
required to be filed by the Selling Shareholder under the Securities Laws in connection with
the offering of the Secondary Shares contemplated by this Agreement.

	4.5	 	Comfort letters and other documents substantially similar to those referred to in Sections
4.3.2 and 4.3.4 of this Agreement will be delivered to the Agents and their counsel with
respect to any Supplementary Material or other relevant document, concurrently with the filing
of the Supplementary Material or other relevant document.

	4.6	 	During the period commencing on the date hereof and until completion of the distribution of
the Shares, the Company and CanArgo will, so far as practicable, provide to the Agents drafts
of any press releases of the Company or of CanArgo that includes information regarding the
Company or the offering of the Shares, for review by the Agents and the Agents’ counsel prior
to issuance, provided that any such review will be completed in a timely manner.

	4.7	 	Prior to the filing of the Final Prospectus or any Supplementary Material and the Time of
Closing, each of the Company, CanArgo and the Selling Shareholder will allow the Agents to
participate fully in the preparation of such documents and will allow the Agents and their
advisors and representatives to conduct all additional due diligence investigations which they
may reasonably require in order to fulfill their obligations as agents in connection with the
distribution of the Shares and in order to enable them to execute the certificate required to
be executed by them in the Final Prospectus and any Supplementary Material, which may include
investigations conducted up to the Time of Closing, including without limitation the holding
of a “due diligence” meeting at or prior to the Time of Closing with officials of the Company,
CanArgo, the Selling Shareholder, their outside counsel and PWC as auditors of the Company.

	5.	 	Material Change

	5.1	 	The Company, CanArgo and the Selling Shareholder will promptly inform the Agents in writing
during the period prior to the completion of the distribution of the Shares of the full
particulars of:

	 	5.1.1	 	any change (whether actual, anticipated, contemplated or proposed by, or
threatened against, the Company and whether financial or otherwise) in the assets,
liabilities (contingent or otherwise), business, affairs, prospects, operations,

 

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	 	 	 	capital or control of the Company, considered as a whole, that would be material to
the Company, considered as a whole;
	 
	 	5.1.2	 	any material fact which has arisen or has been discovered and would have been
required to have been stated in the Offering Documents had that fact arisen or been
discovered on, or prior to, the date of any of the Offering Documents; or
	 
	 	5.1.3	 	any change in any material fact or any misstatement of any material fact
contained in any of the Offering Documents or any new material fact that has occurred
or been discovered after the date of this Agreement,

which, in any case, is of such a nature as to render any of the Offering Documents untrue or
misleading in any material respect or to result in any misrepresentation in any of the
Offering Documents or which would result in any of the Offering Documents not complying in
all material respects with Securities Laws.

	5.2	 	The Company will comply with Section 115 of the Securities Act (Alberta) and with the
comparable provisions of the Securities Laws of the other Qualifying Jurisdictions, and the
Company will prepare and will file promptly at the request of the Agents any Supplementary
Material which, in the opinion of the Agents, acting reasonably, may be necessary or
advisable, and will otherwise comply with all legal requirements necessary to continue to
qualify the Shares for distribution in each of the Qualifying Jurisdictions and each of
CanArgo and the Selling Shareholder shall cooperate with and assist the Company, acting
reasonably, for purposes of facilitating compliance by the Company with the provisions of this
Section 5.2.

	5.3	 	In addition to the provisions of Sections 5.1 and 5.2, the Company, CanArgo and the Selling
Shareholder will, in good faith, discuss with the Agents any change or fact contemplated in
Section 5.1 which is of such a nature that there may be reasonable doubt as to whether notice
should be given to the Agents under Section 5.1 and will consult with the Agents with respect
to the form and content of any Supplementary Material proposed to be filed by the Company, it
being understood and agreed that no such Supplementary Material will be filed with any
Securities Commission prior to the review and approval by the Agents and their counsel, acting
reasonably.

	5.4	 	The Company, CanArgo and the Selling Shareholder, as applicable, will promptly inform the
Agents in writing during the period prior to the completion of the distribution of the Shares
of the full particulars of:

	 	5.4.1	 	any request of any Regulatory Authority for any amendment to the Final
Prospectus or any Supplementary Material or for any additional information in respect
of the distribution of the Shares, the Company, CanArgo or the Selling Shareholder;

 

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	 	5.4.2	 	the receipt by the Company, CanArgo or the Selling Shareholder of any material
communication, whether written or oral, from any Regulatory Authority relating to the
Offering Documents or the distribution of the Shares;
	 
	 	5.4.3	 	any notice or other correspondence received by the Company, CanArgo or the
Selling Shareholder from any Governmental Body requesting any information, meeting or
hearing relating to the Company, its subsidiaries, the distribution of the Shares or
any other event or state of affairs that the Company or the Selling Shareholder
reasonably believes could have a Material Adverse Effect; or
	 
	 	5.4.4	 	the issuance by any Regulatory Authority of any order to cease or suspend
trading or distribution of the Ordinary Shares, or of the institution, or threat of
institution of any proceedings for that purpose or any notice of investigation that
could potentially result in an order to cease or suspend trading or distribution of the
Ordinary Shares.

	6.	 	Regulatory Approvals

	6.1	 	The Company will file or cause to be filed with the TSX prior to the filing of the Final
Prospectus with the Securities Commissions, all necessary documents and will take or cause to
be taken all necessary steps to ensure that the Shares and the Option Shares have been
approved for listing and posting for trading on the TSX, subject only to satisfaction by the
Company of the Standard Listing Conditions.

	6.2	 	The Company will make all necessary filings, take all necessary steps and pay all filing fees
required to be paid in connection with the transactions contemplated in this Agreement.

	6.3	 	Prior to filing of the Final Prospectus, the Company shall provide the Agents and their
counsel with written evidence of the receipt of each material regulatory approval (other than
the Final MRRS Decision Document) required to give effect to the transactions contemplated in
this Agreement.
	 
	7.	 	Representations and Warranties of the Company, CanArgo and the Selling Shareholder

Each of the Company, CanArgo and the Selling Shareholder jointly and severally represents and
warrants to, and agrees with, the Agents that:

	7.1	 	each of the Company and the Subsidiaries has been duly incorporated, continued or amalgamated
and organized and is validly existing under the laws of its jurisdiction of incorporation,
continuance, amalgamation or organization, as applicable, and has all requisite corporate
power, capacity and authority to own its properties and assets and to carry on its business
and affairs as currently conducted and as disclosed in the Final Prospectus, and the Company
has all requisite corporate power, capacity and authority to

 

- 16 -

		    	enter into and deliver this Agreement and the other Material Agreements to which it is a
party and to perform its obligations hereunder and thereunder;

	7.2	 	each of the Company and the Subsidiaries is duly registered, licensed or qualified to carry
on business in each jurisdiction and with such regulatory authorities, including without
limitation the applicable Governmental Body, if any, where the failure to be so registered,
licensed or qualified would have a Material Adverse Effect;

	7.3	 	the Company or a Subsidiary is the beneficial owner and registered holder (directly or
indirectly, as described in the Final Prospectus) of 100% of the outstanding securities or
equity of each of the Subsidiaries and none of the Company or any subsidiaries, directly or
indirectly, holds any shares, other securities, options or rights to subscribe for shares or
other securities of any other corporation, partnership or other entity material to the
Company, other than as described in the Final Prospectus;

	7.4	 	the Shares to be sold under this Agreement by the Company and Selling Shareholder will be
duly and validly created and issued by the Company and, when issued and sold by the Company
and sold by the Selling Shareholder, respectively, will be fully paid and non-assessable
Ordinary Shares, will have the attributes set out in the Final Prospectus, and will not have
been issued in violation of or subject to any pre-emptive rights or contractual rights to
purchase securities issued by the Company;

	7.5	 	except as disclosed in the Final Prospectus, there is no action, suit, investigation,
arbitration or proceeding before any Regulatory Authority or Governmental Body or, to the
knowledge of the Company, CanArgo or the Selling Shareholder by any other Person, pending, or,
to the knowledge of the Company, CanArgo or the Selling Shareholder, threatened against or
affecting the Company or any of the Subsidiaries or their businesses which, individually or in
the aggregate, if determined adversely to the interest of the Company or a Subsidiary, as the
case may be, would have a Material Adverse Effect;

	7.6	 	the execution, delivery and performance by the Company of this Agreement and each of the
other Material Agreements to which it is a party, and the execution, delivery and performance
by the Subsidiaries of the Material Agreements to which they are parties, as the case may be:

	 	7.6.1	 	has been duly authorized by all necessary action on the part of the Company
and the applicable Subsidiaries;
	 
	 	7.6.2	 	does not require the consent, approval, authorization, registration or
qualification of or with any court, Governmental Body or other third party, except: (a)
those which have been obtained (or will be obtained prior to the Time of Closing), (b)
those as may be required (and will be obtained prior to the Time of Closing) under
applicable Securities Laws, or (c) in respect of certain Material Agreements, those
that are described in the Final Prospectus;

 

- 17 -

	 	7.6.3	 	does not (or will not with the giving of notice, the lapse of time or the
happening of any other event or condition) result in a breach or a violation of, or
conflict with or result in a default under, or allow any other Person to exercise any
rights under:

	 	7.6.3.1	 	any of the terms or provisions of the constating documents or resolutions of
the board of directors (or any committee thereof) or resolutions of
securityholders of the Company or the Subsidiaries; or
	 
	 	7.6.3.2	 	any Law applicable to the Company or the Subsidiaries, or any judgment,
decree, order or award of any court, Governmental Body or arbitrator having
jurisdiction over either the Company or any of the Subsidiaries, of which the
Company is aware, or any agreement, license or permit necessary for the conduct
of their businesses, to which either of the Company or any of the Subsidiaries
is a party or by which their businesses may be affected;

provided in each case, such breach, violation, conflict, default or rights would
have a Material Adverse Effect or affect the ability of the Company or the
Subsidiaries to perform their respective obligations under this Agreement and each
of the other Material Agreements;

	 	7.6.4	 	will not, to the knowledge of the Company, give rise to any Lien on or with
respect to the properties or assets now owned or hereafter acquired by the Company or
the Subsidiaries or the acceleration of or the maturity of any debt under any material
indenture, mortgage, lease, agreement or instrument binding or affecting any of them or
any of their properties, other than with respect to the Short-Term Loan, which is to be
repaid concurrently with the Closing of the Offering as described in the Final
Prospectus;

	7.7	 	this Agreement has been and, at the Time of Closing, each of the other Material Agreements
will have been, duly executed and delivered by the Company and the Subsidiaries that are
parties thereto, as the case may be, and constitutes or will constitute, as applicable, a
legal, valid and binding obligation of the Company or the applicable Subsidiaries, as the case
may be, enforceable against it in accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors’ rights generally, and subject to the qualification that equitable remedies
(including specific performance and injunctive relief) may only be granted in the discretion
of a court of competent jurisdiction and that rights of indemnity, contribution and waiver and
the ability to sever unenforceable terms may be limited by applicable law;

	7.8	 	each of the Company and the Subsidiaries is not (a) in breach or violation of any of the
terms or provisions of, or in default under (whether after notice or lapse of time or both)
any indenture, mortgage, note, contract, deed of trust, loan agreement, lease or other
agreement (written or oral) or instrument to which it is a party or by which it is bound or

 

- 18 -

	 	    	to which any of its property or assets is subject, or (b) in violation of the provisions of
the articles or resolutions or any statute or any judgment, decree, order, rule or
regulation of any court or governmental agency or body having jurisdiction over it or any of
its properties, in each case which breach or violation or the consequences thereof would,
alone or in the aggregate, have a Material Adverse Effect;

	7.9	 	each of the Company and the Subsidiaries has conducted and is conducting its business in
compliance with all applicable Laws, rules and regulations of each jurisdiction in which it
carries on business (except where non-compliance with such laws, rules or regulations would
not have a Material Adverse Effect), and holds all licences, registrations and qualifications
(the “Licences”) which are material to the Company and its subsidiaries, taken as a whole, in
all jurisdictions in which it carries on business and the Licences are in good standing and
there is no event that constitutes, or with the giving of notice, the lapse of time or the
happening of any other event or condition, will constitute a default under the Licences and
the Licences are in full force and effect, and have not been rescinded, terminated or
otherwise nullified except where such default would not have a Material Adverse Effect;

	7.10	 	there is no agreement in force or effect to which the Company is a party or of which the
Company is aware and which in any manner affects or will affect the voting or control of any
of the securities of the Company and which will be in effect at the Time of Closing;

	7.11	 	the authorized share capital of the Company consists of 500,000,000 Ordinary Shares, all
having a par value of US$0.10 per share, and as at the Time of Closing (prior to the
completion of the sale of the Shares) there will be 26,934,878 Ordinary Shares validly issued
and outstanding as fully paid and non-assessable and, other than (a) pursuant to the terms of
this Agreement, (b) 15,013,484 Ordinary Shares reserved or to be reserved prior to the Time of
Closing for issuance pursuant to the options and warrants listed in the Final Prospectus under
the heading “Options and Warrants to Purchase Securities”, and (c) 1,500,000 Ordinary Shares
to be reserved for issuance under the terms of the NBC Acquisition Agreement, no other
Ordinary Shares will be reserved for issuance;

	7.12	 	except as disclosed in the Final Prospectus, no Person has any written or oral agreement,
option, understanding or commitment, or any right or privilege capable of becoming such (i)
under which the Company, is, or may become, obligated to issue any of its securities or (ii)
for the purchase of any security (including debt) of the Company or any of the Subsidiaries or
any part of their respective businesses;

	7.13	 	other than as may be required under the Securities Laws or by the TSX or as otherwise
disclosed in the Prospectus, no consent, approval, authorization, order, registration or
qualification of or with any court, Governmental Body or other third party is required for the
issue, sale, delivery and distribution of the Offered Shares, as contemplated by this
Agreement, or the consummation by the Company of the other transactions contemplated by this
Agreement except as have been obtained, or where a failure to satisfy such requirement would
not have a Material Adverse Effect or would not prevent the consummation of the transactions
contemplated by this Agreement;

 

- 19 -

	7.14	 	since March 31, 2007, other than as disclosed in the Final Prospectus:

	 	7.14.1	 	there has not been any material change (actual, anticipated, proposed or prospective,
whether financial or otherwise) in the investments, affairs, assets or liabilities
(contingent or otherwise) of the Company and its subsidiaries, taken as a whole;
	 
	 	7.14.2	 	there has not been any material change in the equity capitalization or long-term or
short-term debt of the Company and its subsidiaries, taken as a whole;
	 
	 	7.14.3	 	there has not been any material change in the business, business prospects, condition
(financial or otherwise) or results of the operations of the Company and its
subsidiaries, taken as a whole; and
	 
	 	7.14.4	 	the Company and the Subsidiaries have carried on their respective businesses in the
ordinary course and in the manner described in the Final Prospectus;

	7.15	 	the Transfer Agent at its principal office in Calgary and Toronto has been the duly appointed
registrar and transfer agent of the Company with respect to the Ordinary Shares;

	7.16	 	the TSX has conditionally approved the listing of the Shares and the Option Shares, subject
to satisfaction by the Company of the Standard Listing Conditions;

	7.17	 	the form and terms of the certificate for the Ordinary Shares have been approved and adopted
by the board of directors of the Company and do not conflict with any applicable Laws and
comply with the rules of each of the Regulatory Authorities;

	7.18	 	the Financial Information has been prepared in accordance with U.S. generally accepted
accounting principles and present fairly, in all material respects, the financial condition of
the Company as at the dates referred to in such information;

	7.19	 	although it does not warrant title, none of the Company, CanArgo or the Selling Shareholder
has reason to believe that, except as disclosed in the Final Prospectus, the Company or a
Subsidiary, as applicable, has title to or the irrevocable right to produce and sell its
petroleum and related hydrocarbons (for the purpose of this clause, the foregoing are referred
to as the “Interest”) on the terms described in the Final Prospectus and does represent and
warrant that the Interest is free and clear of adverse claims created by, through or under the
Company or the Subsidiaries, as applicable, except as disclosed in the Final Prospectus,
related to bank financing or those arising in the ordinary course of business, which are not
material in the aggregate and that to their knowledge after due inquiry, the Company or a
Subsidiary, as applicable, holds its Interest under valid and subsisting leases, licenses,
permits, concessions, concession agreements, contracts, subleases, reservations or other
agreements;

 

- 20 -

	7.20	 	the Company has made available to McDaniel prior to the issuance of the McDaniel Report, for
the purpose of preparing the McDaniel Reserve Report, all information requested by McDaniel
which information did not contain any misrepresentation at its date. The Company has no
knowledge of a material adverse change in any reserves information provided to McDaniel since
the date that such information was so provided. The Company has no reason to believe that the
McDaniel Reserve Report does not reasonably present the aggregate quantity and net present
values of the estimated future net revenues of oil reserves of the Company as at its effective
date in respect of the reserves information therein based upon information available in
respect of such reserves at the time the McDaniel Reserve Report was provided and the
assumptions contained therein as to commodity prices and costs and the Company does not
believe such report overstated the aggregate quantity and net present values of such reserves;

	7.21	 	the Company has made available to McDaniel prior to the issuance of the Resource Report, for
the purpose of preparing the Resource Report, all information requested by McDaniel which
information did not contain any misrepresentation at its date. The Company has no knowledge
of a material adverse change in any information provided to McDaniel since the date that such
information was so provided. The Company has no reason to believe that the Resource Report
does not reasonably present the aggregate estimated prospective resource volumes of the 49 oil
and natural gas prospects that are the subject of the Contracts as at its effective date in
respect of the resource information therein based upon information available in respect of
such resources at the time the Resource Report was prepared and the assumptions contained
therein and the Company does not believe such estimate overstated the aggregate quantity of
such resources;

	7.22	 	the Company is insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are customary in the businesses in which it is engaged; all
policies of insurance and fidelity or surety bonds insuring the Company or its business,
assets, employees, officers and directors are in full force and effect; the Company is in
compliance with the terms of such policies and instruments in all material respects; and there
are no material claims by the Company under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of rights clause; the
Company has no reason to believe that it will not be able to renew their existing insurance
coverage as and when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue their business at a cost that would not have a Material
Adverse Effect;

	7.23	 	except as disclosed in the Final Prospectus, (i) each of the Company and the Subsidiaries is
in compliance with Environmental Laws, (ii) each of the Company and the Subsidiaries has
received and is in compliance with all permits, licenses or other approvals required of it
under applicable Environmental Laws to conduct its business; and (iii) each of the Company and
the Subsidiaries has not received notice of any actual or potential liability for the
investigation or remediation of any disposal or release of hazardous or toxic substances or
wastes, pollutants or contaminants, except where such non-compliance with

 

- 21 -

	 	 	Environmental Laws, failure to receive required permits, licenses or other approvals, or
liability would not, individually or in the aggregate, have a Material Adverse Effect;
	 
	7.24	 	in the ordinary course of the business of each of the Company and the Material Subsidiaries,
such entities periodically review the effect of Environmental Laws on the business, operations
and properties of the Company and its subsidiaries, taken as a whole, in the course of which
they identify and evaluate associated costs and liabilities (including, without limitation,
any capital or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws, or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third parties); each of
the Company and the Subsidiaries also conducts pre-acquisition investigations of new assets to
identify potential violations of Environmental Laws, train management personnel in the
recognition of and proper response to incidents of non-compliance with Environmental Laws and
establish procedures for communicating such incidents to its senior management. On the basis
of such review, except as set forth in the Final Prospectus, neither the Company nor any
Material Subsidiary has concluded that such associated costs and liabilities would singly or
in the aggregate, have a Material Adverse Effect;
	 
	7.25	 	neither the Company nor any Subsidiary has any outstanding liability, contingent or
otherwise, and neither the Company nor any Subsidiary was a party to or bound by any agreement
of guarantee, support, indemnification, assumption or endorsement of, or any other similar
commitment with respect to, the obligations, liabilities (contingent or otherwise) or
indebtedness of any Person other than those reflected in the Final Prospectus, the
indemnification and contribution provisions in this Agreement or other liabilities in the
ordinary course of business, consistent with past practice;
	 
	7.26	 	neither the Company nor any Subsidiary will be, at the Time of Closing, prohibited, directly
or indirectly, from paying any dividends, from making any other distribution on its capital
stock, shares or other securities, or from paying any interest or repaying any loans, advances
or other indebtedness;
	 
	7.27	 	no securities commission, stock exchange or comparable authority has issued any order
preventing the use of any of the Offering Documents or preventing or suspending the
distribution of the Shares or the trading of securities of the Company generally and the
Company is not aware of any investigation, order, inquiry or proceeding that has been
commenced or which is pending, contemplated or threatened by any such authority;
	 
	7.28	 	the attributes of the Shares will be, at the Time of Closing, consistent in all material
respects with the descriptions thereof in the Final Prospectus;
	 
	7.29	 	to the knowledge of the Company, CanArgo and the Selling Shareholder, other than the Agents
and the Selling Firms, or as otherwise provided in this Agreement, there is no Person acting
or purporting to act at the request of the Company who is entitled to any brokerage, finder’s
or agency fee in connection with the distribution of the Shares;

 

- 22 -

	7.30	 	the books and records of the Company and the Subsidiaries made available to the Agents, or
their counsel or foreign counsel engaged to conduct due diligence on behalf of the Agents, in
connection with their due diligence investigations for the periods from their respective dates
of creation, incorporation or amalgamation, as the case may be, to the date of examination
thereof are the original books and records of the Company and the Subsidiaries and contain
copies of all proceedings (or certified copies thereof) of the shareholders, the board of
directors and all committees of the board of directors of such entities and there have been no
other meetings, resolutions or proceedings of the shareholders, board of directors or any
committee of the board of directors to the date of review of such books and records not
reflected in such books and records other than those which have been disclosed to the Agents;
	 
	7.31	 	each of the Company and the Subsidiaries have properly completed and filed on a timely basis
all tax returns required to be filed by them and all federal, state, provincial, local and
foreign income, profits, franchise, sales, use, occupancy, excise and other taxes and
assessments (including interest and penalties) that are or may become payable by or due from
the Company or the Subsidiaries have been fully paid when due or adequate provisions have been
made in respect thereof in the books and records of the Company;
	 
	7.32	 	PWC are independent public accountants as required under applicable laws and there has not
been any disagreement (within the meaning of National Instrument 51-102 of the Canadian
Securities Administrators) since December 31, 2006 with PWC in its capacity as the auditors of
the Company;
	 
	7.33	 	as at the Time of Closing the amount of all indebtedness of the Company owing to CanArgo,
together with accrued and unpaid interest, will not exceed the amount disclosed in the Final
Prospectus;
	 
	7.34	 	to the knowledge of the Company, CanArgo and the Selling Shareholder, none of the Company’s
directors or officers are now, or have ever been, subject to an order or ruling of any
securities regulatory authority or stock exchange prohibiting such individual from acting as a
director or officer of a public company or of a company listed on a particular stock exchange;
	 
	7.35	 	except as disclosed in the Final Prospectus, none of the directors, officers or employees of
the Company or any of its subsidiaries, no Person who owns, directly or indirectly, more than
10% of any class of securities of the Company or securities of any Person exchangeable for
more than 10% of any class of securities of the Company, nor any associate or affiliate of any
of the foregoing, had or has any material interest, direct or indirect, in any material
transaction or any proposed material transaction with the Company or its subsidiaries which,
as the case may be, materially affects, is material to or will materially affect the Company
and its subsidiaries, taken as a whole;
	 
	7.36	 	the Company, CanArgo and the Selling Shareholder each make the applicable representations,
warranties and covenants in Schedule A hereto, which is incorporated by reference herein and
forms part of this Agreement; and

 

- 23 -

	7.37	 	in connection with the offer and sale of the Agents’ Compensation Options, the Company and
its affiliates have complied with Rule 903 of Regulation S,

provided that the representations and warranties of CanArgo and the Selling Shareholder in this
Section 7 are only made to the extent of the actual knowledge of the Chairman of CanArgo.

8. Representations and Warranties of the Selling Shareholder

The Selling Shareholder represents and warrants to, and agrees with, the Agents that:

	8.1	 	the Selling Shareholder has been duly formed pursuant to the Companies Law and is validly
subsisting under the Companies Law and has all necessary corporate power, authority and
qualifications to:

	 	8.1.1	 	execute and deliver this Agreement, to perform its obligations hereunder and
to carry out the transactions contemplated hereby and thereby and by the Final
Prospectus; and
	 
	 	8.1.2	 	own and sell the Secondary Shares;

	8.2	 	the Selling Shareholder has all requisite corporate power, capacity and authority to enter
into and deliver this Agreement and to perform its obligations hereunder and this Agreement
has been duly executed and delivered by or on behalf of the Selling Shareholder. This
Agreement is a valid and binding obligation of the Selling Shareholder, enforceable against
the Selling Shareholder in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors’ rights generally and subject to the qualifications that equitable remedies
(including specific performance and injunctive relief) may only be granted in the discretion
of a court of competent jurisdiction and that rights of indemnity, contribution and waiver and
the ability to sever unenforceable terms may be limited by applicable law;
	 
	8.3	 	the execution, delivery and performance by the Selling Shareholder of this Agreement:

	 	8.3.1	 	does not require the consent, approval, authorization, registration or
qualification of or with any court, Governmental Body or other third party, except: (i)
those which have been obtained (or will be obtained prior to the Time of Closing), or
(ii) those as may be required (and will be obtained prior to the Time of Closing) under
applicable Securities Laws;
	 
	 	8.3.2	 	does not (or will not with the giving of notice, the lapse of time or the
happening of any other event or condition) result in a breach or a violation of, or
conflict with or result in a default under, or allow any other Person to exercise any
rights under:

 

- 24 -

	 	8.3.2.1	 	any of the terms or provisions of the constating documents or resolutions of
the board of directors (or any committee thereof) or resolutions of
securityholders of the Selling Shareholder; or
	 
	 	8.3.2.2	 	any Law applicable to the Selling Shareholder, or any judgment, decree,
order or award of any court, Governmental Body or arbitrator having
jurisdiction over any of the Selling Shareholder, of which the Selling
Shareholder is aware, or any agreement, license or permit necessary for the
conduct of its businesses, to which the Selling Shareholder is a party or by
which its business may be affected;

provided in each case, such breach, violation, conflict, default or rights would
have a Material Adverse Effect or affect the ability of the Selling Shareholder to
perform its obligations under this Agreement;

	 	8.3.3	 	will not, to the knowledge of the Selling Shareholder, give rise to any Lien
on or with respect to the properties or assets now owned or hereafter acquired by the
Selling Shareholder or the acceleration of or the maturity of any debt under any
material indenture, mortgage, lease, agreement or instrument binding or affecting it or
any of its properties, other than with respect to the Short-Term Loan, which is to be
repaid concurrently with the Closing of the Offering as described in the Final
Prospectus;

	8.4	 	at the time of delivery of the Secondary Shares to be sold by the Selling Shareholder, the
Selling Shareholder will be the lawful owner of and will have good and marketable title to the
Secondary Shares, free and clear of any Liens other than those arising pursuant to this
Agreement. Upon delivery of and payment for the Secondary Shares to be sold by the Selling
Shareholder hereunder, good and marketable title to such Secondary Shares will pass to the
purchasers thereof, free and clear of any Liens (other than as created or permitted by the
Agents). Except as described in the Final Prospectus or created hereby, there are no
outstanding options, warrants, rights, or other agreements or arrangements requiring the
Selling Shareholder at any time to transfer any Shares to be sold pursuant to this Agreement
by the Selling Shareholder;

	8.5	 	there is not pending or, to the knowledge of the Selling Shareholder, threatened against the
Selling Shareholder any action, suit or proceeding which (a) questions the validity of this
Agreement or of any action taken or to be taken by the Selling Shareholder pursuant to or in
connection with this Agreement or (b) is required to be disclosed in the Final Prospectus;

	8.6	 	there is no requirement on the part of the Selling Shareholder to make any filings with, give
any notice to, or obtain any consent, approval, authorization, registration, or qualification
of or with any court, Governmental Body or other third party in connection with the execution
and delivery of this Agreement and the completion by the Selling Shareholder of the
transactions contemplated by this Agreement, except (a) those which have been obtained or will
be obtained prior to the Time of Closing, or (b) those as may

 

- 25 -

	 	 	be required (and will be obtained prior to the Time of Closing) under applicable Securities
Laws; and
	 
	8.7	 	except as disclosed in the Final Prospectus, there is no action, suit, investigation,
arbitration or proceeding before any Regulatory Authority or Governmental Body or, to the
knowledge of the Selling Shareholder by any other Person, pending, or, to the knowledge of the
Selling Shareholder threatened, against or affecting the Selling Shareholder or its business
which, if determined adversely to the interest of such entity, would prevent the consummation
of the transactions contemplated by this Agreement and the Selling Shareholder is not aware of
any existing ground on which such action, suit, investigation, arbitration or proceeding might
be commenced with any reasonable likelihood of success.

9. Representations and Warranties of CanArgo

CanArgo represents and warrants to, and agrees with, the Agents that:

	9.1	 	CanArgo has been duly incorporated and is validly existing under the Delaware General
Corporation Law;

	9.2	 	CanArgo has full legal right, power and authority to enter into this Agreement and this
Agreement has been duly executed and delivered by or on behalf of CanArgo. This Agreement is
a valid and binding obligation of CanArgo enforceable against such entity in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditors’ rights generally and subject to the
qualifications that equitable remedies (including specific performance and injunctive relief)
may only be granted in the discretion of a court of competent jurisdiction and that rights of
indemnity, contribution and waiver and the ability to sever unenforceable terms may be limited
by applicable law;

	9.3	 	except as disclosed in the Final Prospectus, there is no action, suit, investigation,
arbitration or proceeding before any Regulatory Authority or Governmental Body or, to the
knowledge of CanArgo by any other Person, pending, or, to the knowledge of CanArgo threatened,
against or affecting CanArgo or its business which, if determined adversely to the interest of
any such entity, would prevent the consummation of the transactions contemplated by this
Agreement and CanArgo is not aware of any existing ground on which such action, suit,
investigation, arbitration or proceeding might be commenced with any likelihood of success;

9.4   the execution, delivery and performance by CanArgo of this Agreement:

	 	9.4.1	 	does not require the consent, approval, authorization, registration or
qualification of or with any court, Governmental Body or other third party, except: (a)
those which have been obtained (or will be obtained prior to the Time of Closing), or
(b) those as may be required (and will be obtained prior to the Time of Closing) under
applicable Securities Laws;

 

- 26 -

	 	9.4.2	 	does not (or will not with the giving of notice, the lapse of time or the
happening of any other event or condition) result in a breach or a violation of, or
conflict with or result in a default under, or allow any other Person to exercise any
rights under:

	 	9.4.2.1	 	any of the terms or provisions of the constating documents or resolutions of
the board of directors (or any committee thereof) or resolutions of
securityholders of CanArgo; or
	 
	 	9.4.2.2	 	any Law applicable to CanArgo, or any judgment, decree, order or award of
any court, Governmental Body or arbitrator having jurisdiction over CanArgo, of
which CanArgo is aware, or any agreement, license or permit necessary for the
conduct of its business, to which CanArgo is a party or by which its business
may be affected;

provided in each case, such breach, violation, conflict, default or rights would
have a Material Adverse Effect or affect the ability of CanArgo to perform its
obligations under this Agreement;

	 	9.4.3	 	will not, to the knowledge of CanArgo, give rise to any Lien on or with
respect to the properties or assets now owned or hereafter acquired by CanArgo or the
acceleration of or the maturity of any debt under any material indenture, mortgage,
lease, agreement or instrument binding or affecting it or any of its properties, other
than with respect to the Short-Term Loan, which is to be repaid concurrently with the
Closing of the Offering as described in the Final Prospectus;

	9.5	 	all corporate actions required to be taken by or on behalf of CanArgo, including the passing
of all requisite resolutions of its board of directors, necessary to carry out its obligations
pursuant to this Agreement has been completed;

	9.6	 	there is not pending or, to the knowledge of CanArgo, threatened against CanArgo any action,
suit or proceeding which (a) questions the validity of this Agreement or of any action taken
or to be taken by CanArgo pursuant to or in connection with this Agreement or (b) is required
to be disclosed in the Final Prospectus; and

	9.7	 	there is no requirement on the part of CanArgo to make any filings with, give any notice to,
or obtain any consent, approval, authorization, registration, or qualification of or with any
court, Governmental Body or other third party in connection with the execution and delivery of
this Agreement and the completion by CanArgo of the transactions contemplated by this
Agreement, except (a) those which have been obtained or will be obtained prior to the Time of
Closing, or (b) those as may be required (and will be obtained prior to the Time of Closing)
under applicable Securities Laws.

 

- 27 -

10. Covenants of the Company, CanArgo and the Selling Shareholder

	10.1	 	The Company covenants and agrees with the Agents and the Selling Shareholder that the Company
will advise the Agents and the Selling Shareholder, promptly after receiving notice thereof,
of the time when the Final Prospectus and any Supplementary Material has been filed and
receipts therefore have been obtained (including, in respect of the Final Prospectus, the
Final MRRS Decision Document) and will provide evidence satisfactory to the Agents and the
Selling Shareholder, acting reasonably, of each filing and the issuance of receipts.

	10.2	 	Until the distribution of the Shares has been completed, the Company, CanArgo and the
Selling Shareholder severally covenant and agree with the Agents, that the Company, CanArgo
and the Selling Shareholder will advise the Agents, promptly after receiving notice or
obtaining knowledge, of (a) the issuance by any Regulatory Authority of any order suspending
or preventing the use of any of the Offering Documents; (b) the suspension of the
qualification of the Shares for distribution in any of the Qualifying Jurisdictions; (c) the
institution, threatening or contemplation of any proceeding for any of those purposes; or (d)
any requests made by any Regulatory Authority for amendments or supplements to the Final
Prospectus or for additional information, and will use their commercially reasonable efforts
to prevent the issuance of any such order and, if any such order is issued, to obtain the
withdrawal of the order as quickly as possible.

	10.3	 	The Company, CanArgo and the Selling Shareholder jointly covenant and agree with each of the
Agents that each of the Company, CanArgo and the Selling Shareholder will not at any time,
directly or indirectly, take any action intended, or which might reasonably be expected, to
cause or result in, or which will constitute, stabilization or manipulation of the price of
the securities of the Company to facilitate the sale or resale of any of the Shares or
otherwise.

	10.4	 	The Company will apply the proceeds from the issue and sale of the Primary Shares and the
Over-Allotment Shares, if any, in accordance with the disclosure set out under the heading
“Use of Proceeds” in the Final Prospectus.

	10.5	 	Each of the Company, CanArgo and the Selling Shareholder will use its commercially reasonable
efforts to promptly do, make, execute, deliver or cause to be done, made, executed or
delivered, all such acts, documents and things as the Agents may reasonably require from time
to time for the purpose of giving effect to this Agreement and take all such steps as may be
reasonably within its power to implement to their full extent the provisions of this
Agreement.

11. Conditions of Closing

	11.1	 	The obligation of the Agents to act as agents with respect to the offer and sale of the
Primary Shares from the Company and the Secondary Shares from the Selling Shareholder will be
subject to the following conditions, which conditions may be waived in writing in whole or in
part by the Lead Agent on behalf of the Agents:

 

- 28 -

	 	11.1.1	 	the Agents will have received a legal opinion from Ogier, Guernsey counsel to the
Company and the Selling Shareholder, dated and delivered the Closing Date, in form and
substance satisfactory to the Agents and their counsel, acting reasonably (and such
counsel may rely upon opinions of local counsel where such counsel deems such reliance
proper as to the laws other than the laws of Guernsey and may rely as to matters of
fact, on certificates of auditors, public officials and officers of the Company and the
Selling Shareholder) with respect to the following matters:

	 	11.1.1.1	 	each of the Company and TKL: (a) is a corporation duly incorporated and
validly existing under the laws of Guernsey, (b) is duly qualified under
Guernsey law to carry on its business in each jurisdiction in which it
currently carries on business, and (c) has all requisite corporate power and
authority under Guernsey law to carry on its business and to own, lease and
operate its property and assets, as described in the Final Prospectus, except
to the extent that the failure to be so qualified does not have a material
adverse impact on the business and affairs of the Company and its subsidiaries,
taken as a whole;

	 	11.1.1.2	 	the Selling Shareholder is a corporation duly incorporated and validly
existing under the laws of Guernsey;
	 
	 	11.1.1.3	 	as to the authorized capital of the Company and TKL and as to the number of
Ordinary Shares which will, upon receipt of the consideration therefor be
issued and outstanding as fully paid and non-assessable Ordinary Shares as at
the date of such opinion;
	 
	 	11.1.1.4	 	as to the holder of all of the outstanding shares of TKL;
	 
	 	11.1.1.5	 	the execution and filing of each of the Preliminary Prospectus and the
Final Prospectus with the Securities Commissions, have been duly approved and
authorized by all necessary action on the part of the Company;
	 
	 	11.1.1.6	 	the Shares have been validly authorized and issued and are outstanding as
fully paid and non-assessable Ordinary Shares of the Company;
	 
	 	11.1.1.7	 	the attributes of the Ordinary Shares are consistent in all material
respects with the description thereof in the Final Prospectus;
	 
	 	11.1.1.8	 	all necessary action has been taken by the board of directors of each of
the Company, TKL and the Selling Shareholder to authorize the execution and
delivery by each such entity of this Agreement and each other Material
Agreement to which it is a party, as applicable, and the performance of their
respective obligations under this Agreement and each other Material Agreement
to which it is a party, as applicable, and

 

- 29 -

	 	 	 	this Agreement and each other Material Agreement to which it is a party,
as applicable, has been duly executed and delivered by each of the
Company, TKL and the Selling Shareholder;
	 
	 	11.1.1.9	 	each of the CEO Services Agreement and the Umbrella Management Services
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to
customary exceptions and limitations relating to bankruptcy, insolvency and
other similar laws affecting the enforcement of creditors’ rights and equitable
remedies generally;
	 
	 	11.1.1.10	 	the form and terms of the certificate for the Ordinary Shares (a) have
been approved and adopted by the board of directors of the Company, and (b) do
not conflict with the applicable Laws of Guernsey or the constating documents
of the Company;
	 
	 	11.1.1.11	 	the Company has taken all necessary corporate action to duly appoint the
Transfer Agent at its principal offices in Calgary and Toronto as the transfer
agent and registrar for the Ordinary Shares;
	 
	 	11.1.1.12	 	the execution and delivery of this Agreement and the fulfilment of the
terms of this Agreement by the Company:

	 	(a)	 	do not and will not result in a breach of
or default under, and do not and will not create a state of facts
which, after notice or lapse of time or both, will result in a
breach of or default under, and do not and will not conflict with:

	 	(i)	 	any of the terms,
conditions or provisions of the constating documents or
resolutions of the securityholders or board of directors, or
any committee of the board of directors, of the Company; or
	 
	 	(ii)	 	any Laws of Guernsey
applicable to the Company; and

	 	(b)	 	to counsel’s knowledge, do not require
the consent, approval, authorization, registration or qualification
of or with any court, Governmental Body or other third party under
Guernsey law or regulation (other than those that have been
obtained);

	 	11.1.1.13	 	the execution and delivery of this Agreement and the fulfilment of the
terms of this Agreement by the Selling Shareholder:

	 	(a)	 	do not and will not result in a breach of
or default under, and do not and will not create a state of facts
which, after notice or

 

- 30 -

	 	 	 	lapse of time or both, will result in a breach of or default
under, and do not and will not conflict with:

	 	(i)	 	any of the terms,
conditions or provisions of the constating documents or
resolutions of the securityholders or the board of directors,
or any committee of the board of directors, of the Selling
Shareholder; or
	 
	 	(ii)	 	any Laws of Guernsey
applicable to the Selling Shareholder; and

	 	(b)	 	to counsel’s knowledge, do not require
the consent, approval, authorization, registration or qualification
of or with any court, Governmental Body or other third party under
Guernsey law or regulation (other than those that have been
obtained); and

	 	11.1.1.14	 	the statements in the section in the Final Prospectus entitled “Guernsey
Taxation Considerations for Shareholders not Resident in Guernsey”, to the
extent that such statements are statements as to matters of the laws of
Guernsey, are correct in all material respects;

	 	11.1.2	 	the Agents will have received a legal opinion from Denton Wilde Sapte, Kazakhstan
counsel to the Company, dated and delivered the Closing Date, in form and substance
satisfactory to the Agents and their counsel, acting reasonably (and such counsel may
rely as to matters of fact, on certificates of auditors, public officials and officers
of the Company and its Subsidiaries) with respect to the following matters:

	 	11.1.2.1	 	each of BNM, TMG, Kul-Bas and TSK: (a) is a limited liability partnership
duly formed and validly existing under the laws of the Kazakhstan, (b) is duly
qualified to carry on its business in each jurisdiction in which it currently
carries on business, and (c) has all requisite power and authority to carry on
its business and to own, lease and operate its property and assets, as
described in the Final Prospectus, except to the extent that the failure to be
so qualified does not have a material adverse impact on the business and
affairs of the Company and its subsidiaries, taken as a whole;
	 
	 	11.1.2.2	 	all necessary action has been taken by each of BNM and Kul-Bas to authorize
the execution and delivery by each such entity of the Contracts to which it is
a party, as applicable, and the performance of their respective obligations
under the Contracts to which each is a party, as applicable;

 

- 31 -

	 	11.1.2.3	 	the statements in the section in the Final Prospectus entitled “Risk
Factors Related to the Republic of Kazakhstan – Taxation Risks and Issues”, to
the extent that such statements are statements as to matters of the laws of
Kazakhstan, are correct in all material respects;

	 	11.1.3	 	the Agents will have received a due diligence report from Denton Wilde Sapte dated
not more than 21 days prior to the Closing Date, substantially in the form provided in
the due diligence report of such firm dated May 2007, providing affirmative
confirmation regarding the status and validity of the Contracts as at the date of such
report;
	 
	 	11.1.4	 	the Agents will have received a legal opinion from Satterlee Stephens Burke & Burke
LLP, U.S. counsel to CanArgo, dated and delivered the Closing Date, in form and
substance satisfactory to the Agents and their counsel, acting reasonably (and such
counsel may rely as to matters of fact, on certificates of auditors, public officials
and officers of CanArgo) with respect to the following matters:

	 	11.1.4.1	 	CanArgo is a corporation validly existing under the laws of the State of
Delaware;
	 
	 	11.1.4.2	 	the execution by CanArgo and the filing with the Securities Commissions of
each of the Preliminary Prospectus and the Final Prospectus, have been duly
approved and authorized by all necessary action on the part of CanArgo;
	 
	 	11.1.4.3	 	all necessary action has been taken by the board of directors of CanArgo to
authorize the execution and delivery by it of this Agreement and the
performance of its obligations under this Agreement, and this Agreement has
been duly executed and delivered by CanArgo;

	 	11.1.5	 	the Agents will have received a legal opinion from Borden Ladner Gervais LLP,
Canadian counsel to the Company, CanArgo and the Selling Shareholder, dated and
delivered the Closing Date, in form and substance satisfactory to the Agents and their
counsel, acting reasonably (and such counsel may rely upon opinions of local counsel
where such counsel deems such reliance proper as to the laws other than Canada, British
Columbia, Alberta and Ontario and may rely, as to matters of fact, on certificates of
auditors, public officials and officers of the Company, CanArgo and the Selling
Shareholder) with respect to the following matters:

	 	11.1.5.1	 	all necessary documents have been filed, all requisite proceedings have
been taken and all necessary approvals, permits, consents and authorizations
have been obtained by the Company under the laws of each of the Qualifying
Jurisdictions in order to qualify the distribution of the Shares through
investment dealers or brokers who are registered under applicable legislation
of the Qualifying Jurisdictions and who

 

- 32 -

	 	 	 	have complied with the relevant provisions of such applicable
legislation, and to distribute the Agents’ Compensation Options to the
Agent;
	 
	 	11.1.5.2	 	no filing, proceeding, approval, consent or authorization is required to be
made, taken or obtained by the Company under Applicable Securities Laws to
permit the issuance by the Company of the Option Shares;
	 
	 	11.1.5.3	 	as to the first trade of the Option Shares by the holders thereof;
	 
	 	11.1.5.4	 	the TSX has conditionally approved the listing of the Shares and the Option
Shares, subject to the satisfaction of the Standard Listing Conditions;
	 
	 	11.1.5.5	 	the form and terms of the certificate for the Ordinary Shares comply with
the applicable requirements of the TSX;
	 
	 	11.1.5.6	 	the Shares will be qualified investments under the Tax Act for trusts
governed by registered retirement savings plans, registered retirement income
funds and deferred profit sharing plans (the “Plans”) and for trusts governed
by registered education savings plans;
	 
	 	11.1.5.7	 	the confirmation of the opinion in the Final Prospectus entitled “Canadian
Federal Income Tax Considerations”;
	 
	 	11.1.5.8	 	the Company is a reporting issuer or its equivalent in each of the
Qualifying Jurisdictions in which such concept exists, and is not in default of
the requirements of the Securities Laws of such Qualifying Jurisdictions; and
	 
	 	11.1.5.9	 	assuming the due authorization, execution and delivery of this Agreement by
each of the Company, the Selling Shareholder and CanArgo, this Agreement
constitutes a legal, valid and binding obligation of each of the Company, the
Selling Shareholder and CanArgo enforceable against each such entity in
accordance with its terms, subject to customary exceptions and limitations
relating to bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors’ rights and equitable remedies generally and subject
to customary limitations in respect of the rights of indemnity and contribution
contained in the Agreement.

	11.1.6	 	if any of the Offered Shares are to be sold in the United States, the Agents will
have received an opinion, in form and substance acceptable to the Agents and their
counsel, Dorsey & Whitney LLP, acting reasonably, to the effect that the

 

- 33 -

		 	offer, sale and delivery of the Offered Shares in the United States does not require
registration under the U.S. Securities Act;
	 
	11.1.7	 	the Agents will have received from their counsel, Blake, Cassels & Graydon LLP, a
legal opinion dated and delivered the Closing Date, in form and substance satisfactory
to the Agents, with respect to those matters as the Agents may reasonably require
relating to the distribution of the Shares. In connection with that opinion, counsel
to the Agents may rely on the opinions of counsel to the Company and the Selling
Shareholder, any underlying certificates and, with respect to matters governed by the
laws of jurisdictions other than the Province of Alberta, on the opinions of local
counsel to the Company;
	 
	11.1.8	 	the Agents will have received certificates dated the Closing Date signed by those
senior officers of the Company as may be acceptable to the Agents, acting reasonably,
in form and content satisfactory to the Agents, acting reasonably, with respect to:

	 	11.1.8.1	 	the constating documents of the Company;
	 
	 	11.1.8.2	 	the resolutions of the board of directors of the Company relevant to the
issue and sale of the Shares, listing of the Shares on the TSX, appointment of
the Transfer Agent, approval of the form of certificate representing the
Ordinary Shares, the execution of this Agreement and each of the Material
Agreements and matters ancillary thereto; and
	 
	 	11.1.8.3	 	the incumbency and signatures of signing officers of the Company;

	11.1.9	 	the Agents will have received certificates dated the Closing Date signed by those
senior officers of CanArgo and the Selling Shareholder, as may be acceptable to the
Agents, acting reasonably, in form and content satisfactory to the Agents, acting
reasonably, with respect to:

	 	11.1.9.1	 	the resolutions of the board of directors of CanArgo and the Selling
Shareholder relevant to the sale of the Secondary Shares and the execution of
this Agreement; and
	 
	 	11.1.9.2	 	the incumbency and signatures of signing officers of each of CanArgo and
the Selling Shareholder;

	11.1.10	 	the Agents will have received from PWC a comfort letter, dated the Closing Date, in
form and substance satisfactory to the Agents, acting reasonably, bringing forward to
the date which is two Business Days prior to the Closing Date the information contained
in the comfort letter referred to in Section 4.3.4;

	11.1.11	 	the Company will have delivered to the Agents, at the Time of Closing, a certificate
dated the Closing Date addressed to the Agents and signed by the

 

- 34 -

	 	 	President and Chief Executive Officer of the Company and the Chief Financial Officer
of the Company, certifying for and on behalf of the Company, after having made due
inquiries, with respect to the following matters:

	 	11.1.11.1	 	the Company has complied with all the covenants and satisfied all the
terms and conditions of this Agreement on its part to be complied with and
satisfied at or prior to the Time of Closing, except to the extent that the
same have been waived by the Agents pursuant hereto;
	 
	 	11.1.11.2	 	the representations and warranties of the Company contained in this
Agreement, and in any certificates of the Company delivered pursuant to or in
connection with this Agreement, are true and correct as at the Time of Closing,
with the same force and effect as if made on and as at the Time of Closing,
after giving effect to the transactions contemplated by this Agreement;
	 
	 	11.1.11.3	 	no order, ruling or determination having the effect of ceasing the trading
or suspending the sale of the Shares has been issued and no proceedings for
that purpose have been instituted or are pending or, to the knowledge of such
officers, contemplated or threatened by any regulatory authority; and
	 
	 	11.1.11.4	 	as to such other matters as the Agents may reasonably request;

	 	 	 	and all of those matters will in fact be true and correct as at the Time of Closing;
	 
	 	11.1.12	 	each of CanArgo and the Selling Shareholder, as applicable, will have delivered to
the Agents, at the Time of Closing, a certificate dated the Closing Date addressed to
the Agents and signed by two authorized officers of each of CanArgo and the Selling
Shareholder, respectively, certifying for and on behalf of CanArgo and the Selling
Shareholder, as applicable, after having made due inquiries, with respect to the
following matters:

	 	11.1.12.1	 	each of CanArgo and the Selling Shareholder, as applicable, has complied
with all the covenants and satisfied all the terms and conditions of this
Agreement on its part to be complied with and satisfied at or prior to the Time
of Closing, except to the extent that the same have been waived by the Agents
pursuant hereto;
	 
	 	11.1.12.2	 	the representations and warranties of each of CanArgo and the Selling
Shareholder, as applicable, contained in this Agreement, and in any
certificates of CanArgo and the Selling Shareholder, as applicable, delivered
pursuant to or in connection with this Agreement, are true and correct as at
the Time of Closing, with the same force and effect as if made on and as at the
Time of Closing, after giving effect to the transactions contemplated by this
Agreement;

 

- 35 -

	 	11.1.12.3	 	no order, ruling or determination having the effect of ceasing the trading
or suspending the sale of the Offered Shares has been issued and no proceedings
for that purpose have been instituted or are pending or, to the knowledge of
such officers, contemplated or threatened by any regulatory authority; and
	 
	 	11.1.12.4	 	as to such other matters as the Agents may reasonably request;

	 	 	 	and all of those matters will in fact be true and correct as at the Time of Closing;
	 
	 	11.1.13	 	all actions required to be taken by or on behalf of the Company, including the
passing of all requisite resolutions of the board of directors of the Company and all
requisite filings with Governmental Bodies and Regulatory Authorities will have
occurred at or prior to the Time of Closing so as to validly authorize the execution
and filing of the Preliminary Prospectus, the Final Prospectus and any Supplementary
Material;
	 
	 	11.1.14	 	all actions required to be taken by or on behalf of each of CanArgo and the Selling
Shareholder, including the passing of all requisite resolutions and all requisite
filings with any Governmental Body or other third party will have occurred at or prior
to the Time of Closing;
	 
	 	11.1.15	 	the Shares will have been listed on the TSX effective as of the Closing Date,
subject only to the Standard Listing Conditions, and the Option Shares will have been
approved for listing upon their exercise, subject only to the Standard Listing
Conditions; and
	 
	 	11.1.16	 	the Agents will have received such other certificates, opinions, agreements,
materials or documents in form and substance satisfactory to the Agents and the Agents’
counsel as the Agents and the Agents’ counsel may reasonably request.

	11.2	 	In the event that Over-Allotment Option is exercised in accordance with its terms:

	 	11.2.1	 	the Company will, at or prior to Over-Allotment Closing Time, deliver to the Lead
Agent, acting on behalf of the Agents, that number of Over-Allotment Shares in respect
of which the Agents are exercising the Over-Allotment Option and the Agents will become
obligated to offer for sale from the Company such number of Over-Allotment Shares; and
	 
	 	11.2.2	 	the Agents will have received such certificates, opinions, agreements, materials or
documents set out in Section 11.1 in form and substance satisfactory to the Agents and
their counsel, as the Agents or their counsel may reasonably request.

12. Closing

	12.1	 	The closing of the purchase and sale of the Offered Shares will be completed at the Time of
Closing at the offices of Borden Ladner Gervais LLP in Calgary, Alberta, or at any

 

- 36 -

		 	other place
determined in writing by the Company, CanArgo, the Selling Shareholder and the Agents. For
the avoidance of doubt, the Agents, the Company and the Selling Shareholder can arrange for
additional closings after the completion of the initial Closing, in which case the conditions
set forth in Section 11 and the deliveries contemplated in this Section 12 shall apply to each
of the initial Closing and such subsequent Closings.
	 
	12.2	 	The Company and the Selling Shareholder will deliver to the Lead Agent one or more definitive
certificates representing in aggregate the Offered Shares and one or more certificates
representing in aggregate the Agents’ Compensation Options, registered in such name or names
as the Lead Agent shall notify the Company and the Selling Shareholder in writing not less
than 48 hours prior to the Time of Closing.
	 
	12.3	 	Delivery of the Offered Shares and the Agents’ Compensation Options pursuant to Section 12.2
above will be made against payment by the Agents of the purchase price for the Offered Shares,
net of the Agency Fee and the Agents’ expenses payable by the Company and the Selling
Shareholder pursuant to Section 16, by wire transfers of immediately available (same day)
funds to: (a) in the case of the Company, such account of the Company as the Company shall
direct, and (b) in the case of the Selling Shareholder, such account of the Selling
Shareholder as the Selling Shareholder shall direct. The directions referred to in this
Section 12.3 shall be delivered to the Lead Agent on behalf of the Agents in writing not less
than 48 hours prior to the Time of Closing.
	 
	12.4	 	At or prior to the Time of Closing, the Agents shall have received all of the certificates,
opinions, agreements, materials or other documents specified in Section 11.1. Such
certificates, opinions, agreements, materials and other documents, and the securities and
purchase price specified in Section 12.3 may be delivered prior to the Time of Closing and
held in escrow, to be released upon the conditions agreed among the Agents, the Company,
CanArgo and the Selling Shareholder.

13. Restrictions on Further Issues or Sales

	13.1	 	During the period commencing on the date of this Agreement and ending on the day which is 90
days following the Closing Date, the Company will not, and will cause its subsidiaries not to,
directly or indirectly, without the prior written consent of the Lead Agent (which consent
will not be unreasonably withheld), directly or indirectly issue, sell, offer, grant an option
or right in respect of, or otherwise dispose of any Ordinary Shares or any securities
convertible into or exercisable or exchangeable for any Ordinary Shares, or announce any
intention to effect the foregoing, other than: (a) the sale of Primary Shares and
Over-Allotment Shares, if any, pursuant to this Agreement, (b) the grant or exercise of stock
options and other similar issuances pursuant to the Option Plan, (c) the issue of Ordinary
Shares upon exercise of the Agents’ Compensation Options and other convertible securities,
warrants or options outstanding prior to the Closing Date, (d)
the issue of Ordinary Shares pursuant to obligations disclosed in the Final Prospectus, and
(e) the issue of Ordinary Shares or other equity securities of the Company as consideration
for the acquisition of oil and natural gas properties or shares of companies

 

- 37 -

	 	 	in the energy
industry in compliance with applicable Securities Laws and the rules and policies of
applicable Regulatory Authorities.

14. Indemnification

	14.1	 	The Company will (subject to Section 14.4 and Section 15) protect, hold harmless and
indemnify each of the Agents and their respective affiliates and their respective directors,
officers, employees, shareholders and agents (collectively, the “Indemnified Parties” and
individually an “Indemnified Party”) from and against all losses (other than losses of profit
in connection with the distribution of the Offered Shares), claims, damages, liabilities,
costs and expenses, including, without limitation, all amounts paid to settle actions or
satisfy judgments or awards and all reasonable legal fees and expenses (collectively, a
“Claim”) caused by or arising directly or indirectly by reason of:

	 	14.1.1	 	any breach of or default under any representation, warranty, covenant or agreement of
the Company in this Agreement or any other document or certificate to be delivered by
the Company pursuant hereto or the failure of the Company to comply with any of its
obligations hereunder or thereunder;
	 
	 	14.1.2	 	any information or statement (except for any information or statement relating solely
to the Agents or any of them and furnished by the Agents specifically for use in such
documents) contained in any of the Offering Documents being or being alleged to be a
misrepresentation or untrue or any omission or alleged omission to state in those
documents any material fact (except for any information and statements relating solely
to the Agents or any of them, and furnished by them specifically for use in such
document) required to be stated in those documents or necessary to make any of the
statements therein not misleading in light of the circumstances in which they were
made;
	 
	 	14.1.3	 	any statement (except for matters relating solely to the Agents or any of them, and
furnished by them specifically for use in such statements) contained in any information
or documents filed by or on behalf of the Company with the Securities Commissions in
compliance, or intended compliance, with the Securities Laws until the date on which
the distribution of Offered Shares is completed, which at the time and in the light of
the circumstances in which it was made contained or is alleged to have contained a
misrepresentation or was untrue, false or misleading;
	 
	 	14.1.4	 	any order made or any inquiry, investigation or proceeding instituted, threatened or
announced by any court, securities regulatory authority, stock exchange or by any other
competent authority, based upon any untrue statement, omission or misrepresentation or
alleged untrue statement, omission or misrepresentation (except a statement, omission
or misrepresentation relating solely to the Agents or
any of them and furnished by them specifically for use in such document) contained
in any of the Offering Documents, preventing or restricting the trading in or the
sale or distribution of the Shares; or

 

 - 38 -

	 	14.1.5	 	the Company not complying with any requirement of any Securities Laws or
applicable provision of U.S. Securities Laws (except where such non-compliance results
solely from the actions of the Agents or their affiliates or representatives);

	 	 	and will reimburse the Indemnified Parties for all reasonable costs, charges and expenses,
as incurred, which any of them may pay or incur in connection with investigating or
disputing any Claim or action related thereto. This indemnity will be in addition to any
liability which the Company may otherwise have.
	 
	14.2	 	Each of CanArgo and the Selling Shareholder will jointly and severally protect, hold harmless
and indemnify each of the Indemnified Parties from and against all Claims caused by or arising
directly or indirectly by reason of:

	 	14.2.1	 	any breach of or default under any representation, warranty, covenant or agreement of
CanArgo or the Selling Shareholder in this Agreement or any other document or
certificate to be delivered by CanArgo or the Selling Shareholder pursuant hereto or
the failure of CanArgo or the Selling Shareholder to comply with any of its obligations
hereunder or thereunder;
	 
	 	14.2.2	 	any information or statement contained in any of the Offering Documents (except any
information or statement relating solely to the Agents or any of them and furnished by
the Agents specifically for use in such documents) being or being alleged to be a
misrepresentation or untrue or any omission or alleged omission to state in those
documents any material fact required to be stated in those documents or necessary to
make any of the statements therein not misleading in light of the circumstances in
which they were made;
	 
	 	14.2.3	 	any statement (except any information or statement relating solely to the Agents or
any of them and furnished by the Agents specifically for use in such documents)
contained in any information or documents filed by or on behalf of the Company with the
Securities Commissions in compliance, or intended compliance, with the Securities Laws
which at the time and in the light of the circumstances in which it was made contained
or is alleged to have contained a misrepresentation or was untrue, false or misleading;
	 
	 	14.2.4	 	any order made or any inquiry, investigation or proceeding instituted, threatened or
announced by any court, securities regulatory authority, stock exchange or by any other
competent authority, based upon any untrue statement, omission or misrepresentation or
alleged untrue statement, omission or misrepresentation contained in any of the
Offering Documents, preventing or restricting the distribution of or trading in the
Shares; or
	 
	 	14.2.5	 	CanArgo or the Selling Shareholder not complying with any requirement of any
Securities Laws or applicable provision of U.S. Securities Laws (except where such
non-compliance results solely from the actions of the Agents or their affiliates or
representatives);

 

- 39 -

	 	 	and will reimburse the Indemnified Parties for all reasonable costs, charges and expenses,
as incurred, which any of them may pay or incur in connection with investigating or
disputing any Claim or action related thereto, provided that the liability of CanArgo and
the Selling Shareholder shall be limited to an amount equal to the aggregate gross proceeds,
after payment of the Agency Fee relating thereto, from the sale of the Offered Shares under
the terms of this Agreement. This indemnity will be in addition to any liability which
CanArgo or the Selling Shareholder may otherwise have.
	 
	14.3	 	If any Claim contemplated by Sections 14.1 or 14.2 is asserted against any of the Indemnified
Parties, or if any potential Claim contemplated by this section comes to the knowledge of any
of the Indemnified Parties, the Indemnified Party concerned will notify in writing the
applicable indemnifying parties hereunder (collectively, the “Indemnifying Parties” and
individually an “Indemnifying Party”), as soon as reasonably practicable, of the nature of the
Claim (provided that any failure to so notify in respect of any potential Claim will not,
subject to the following, affect the liability of the Indemnifying Parties under this section
and provided further that any failure to so notify in respect of any actual Claim will affect
the liability of the Indemnifying Parties under this section only to the extent that an
Indemnifying Party is prejudiced by such failure). The Indemnifying Parties will, subject to
the following, be entitled (but not required) to assume the defence on behalf of the
Indemnified Party of any suit brought to enforce the Claim; provided that the defence will be
through legal counsel selected by the Indemnifying Parties and acceptable to the Indemnified
Party, acting reasonably, and no admission of liability will be made by the Indemnifying
Parties or the Indemnified Party without, in each case, the prior written consent of all the
Indemnified Parties affected and the Indemnifying Parties, in each case, which consent will
not be unreasonably withheld. An Indemnified Party will have the right to employ separate
counsel in any such suit and participate in its defence but the fees and expenses of that
counsel will be at the expense of the Indemnified Party unless:

	 	14.3.1	 	the Indemnifying Parties fail to assume the defence of the suit on behalf of the
Indemnified Party within ten days of receiving notice of the suit;
	 
	 	14.3.2	 	the employment of that counsel has been authorized by the Indemnifying Parties; or
	 
	 	14.3.3	 	the named parties to the suit (including any added or third parties) include the
Indemnified Party and any of the Indemnifying Parties and the Indemnified Party has
been advised in writing by counsel that there are legal defences available to the
Indemnified Parties that are different or in addition to those available to the
Indemnifying Parties or that representation of the Indemnified Party by counsel for the
Indemnifying Parties is inappropriate as a result of the potential or actual
conflicting interests of those represented;

	 	 	(in each of clauses 14.3.1, 14.3.2 or 14.3.3, the Indemnifying Parties will not have the
right to assume the defence of the suit on behalf of the Indemnified Party, but the
Indemnifying Parties will be liable to pay the reasonable fees and expenses of separate

 

- 40 -

	 	 	counsel for all Indemnified Parties and, in addition, of local counsel in each applicable
jurisdiction). Notwithstanding the foregoing, no settlement may be made by an Indemnified
Party without the prior written consent of the Indemnifying Parties, which consent will not
be unreasonably withheld.
	14.4	 	The rights of indemnity contained in subsections 14.1 and 14.2 will not enure to the benefit
of the Agents if the provisions of Sections 4 and 5 have been complied with and the Person
asserting any claim contemplated by subsections 14.1 and 14.2 was not provided with a copy of
the Final Prospectus, the U.S. Placement Memorandum or Supplementary Material, as the case may
be, which corrects any untrue statement or information, misrepresentation (for the purposes of
Securities Laws or any of them) or omission which is the basis of the Claim and which is
required under Securities Laws or U.S. Securities Laws to be delivered to that Person by the
Agents or the Selling Firms (if any).
	 
	14.5	 	The Indemnifying Parties waive any right they may have of first requiring an Indemnified
Party to proceed against or enforce any other right, power, remedy or security or to claim
payment from any other Person before claiming under the indemnity provided for in this Section
14. It is not necessary for an Indemnified Party to incur expense or make payment before
enforcing such indemnity.
	 
	14.6	 	The Indemnifying Parties hereby acknowledge and agree that, with respect to Sections 14 and
15 of this Agreement, the Agents are contracting on their own behalf and as agents for their
affiliates, directors, officers, employees, shareholders and agents and their respective
affiliates, directors, officers, employees, shareholders and agents (collectively, the
“Beneficiaries”). In this regard, each of the Agents will act as trustee for the
Beneficiaries of the covenants of the Indemnifying Parties under Sections 14 and 15 of this
Agreement with respect to the Beneficiaries and accepts these trusts and will hold and enforce
those covenants on behalf of the Beneficiaries.
	 
	14.7	 	If any Claim is brought in connection with the transactions contemplated by this Agreement
and any of the Agents is required to testify in connection therewith or is required to respond
to procedures designed to discover information relating thereto, the reasonable fees of the
Agents at the normal per diem rate for its directors, officers, employees and agents involved
in preparation for, and attendance at, such proceedings or in so responding and any other
reasonable costs and out-of-pocket expenses incurred by it in connection therewith will be
paid by the Indemnifying Parties as they are incurred.
	 
	14.8	 	The obligations under Sections 14 and 15 shall apply whether or not the transactions
contemplated by this Agreement are completed and shall survive the completion of the
transactions contemplated under this Agreement and the termination of this Agreement.
	 
	14.9	 	No Indemnified Party shall have the right to recover any amount from an Indemnifying Party if
such Indemnified Party’s claim has been satisfied by another Indemnified Party.

 

- 41 -

	15.	 	Right of Contribution
	 
	15.1	 	In order to provide for just and equitable contribution in circumstances in which an
indemnity provided in Section 14 of this Agreement would otherwise be available in accordance
with its terms but is, for any reason not solely attributable to any one or more of the
Indemnified Parties, held to be unavailable to or unenforceable by the Indemnified Parties or
enforceable otherwise than in accordance with its terms, the Indemnified Parties and the
Indemnifying Parties, as the case may be, will contribute to the aggregate of all claims,
damages, liabilities, costs and expenses and all losses (other than losses of profits in
connection with the distribution of the Shares) of the nature contemplated in Section 14 of
this Agreement:

	 	15.1.1	 	in such proportion as is appropriate to reflect the relative benefits received by the
Indemnifying Parties on the one hand and any Indemnified Party on the other hand, from,
in the case of the Indemnifying Parties, the distribution of the Shares and, in the
case of the Indemnified Parties, the distribution of the Shares; or
	 
	 	15.1.2	 	if the allocation provided by clause 15.1.1 above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits referred
to in clause 15.1.1 above but also the relative fault of the Indemnifying Parties on
the one hand and the Agents on the other hand, in connection with the matters or things
referred to in Sections 14.1 and 14.2 which resulted in such Claims, as well as any
other relevant equitable considerations;

	 	 	provided that the Indemnified Parties shall not in any event be liable to contribute, in the
aggregate, any amount in excess of the total fee or any portion thereof actually received by
them pursuant to this Agreement. The relative benefits received by the Indemnifying Parties
on the one hand and the Indemnified Parties on the other shall be deemed to be in the same
ratio as the total proceeds from the distribution of the Shares received by the Indemnifying
Parties is to the Agents’ total fee received by the Agents pursuant to this Agreement. For
greater certainty, solely as between the Company and the Selling Shareholder, the relative
benefits received by each shall reflect gross proceeds received, in the case of the Company
from the sale of the Primary Shares and the Over-Allotment Shares, if any, and in the case
of the Selling Shareholder, from the sale of the Secondary Shares. The relative fault of
the Indemnifying Parties on the one hand and of the Agents on the other hand shall be
determined by reference to, among other things, whether the matters or things referred to in
Sections 14.1 and 14.2 which resulted in such Claims relate to information supplied by or
steps or actions taken or done or not taken or done by or on behalf of the Indemnifying
Parties, or to information supplied by or steps or actions taken or done or not taken or
done by or on behalf of the Agents and the relative intent, knowledge, access to information
and opportunity to correct or prevent such statement, omission or misrepresentation, or
other matter or thing referred to in Sections 14.1 and 14.2. The parties agree that it
would not be just and equitable if contribution pursuant to this Section 15.1 were
determined by any method of allocation that does not take into account the equitable
considerations referred to above in this Section 15.1.

 

- 42 -

	15.2	 	For greater certainty, the Indemnifying Parties will not have any obligation to contribute
pursuant to this Section 15 in respect of any Claim except to the extent the indemnity given
by them in Section 14 of this Agreement would have been applicable to that Claim in accordance
with its terms, had that indemnity been found to be enforceable and available to the
Indemnified Parties.
	 
	15.3	 	The rights to contribution provided in this section will be in addition to and not in
derogation of any other right to contribution which the Indemnified Parties may have by
statute or otherwise at law, provided that Sections 15.1 and 15.2 will apply, mutatis
mutandis, in respect of that other right.
	 
	15.4	 	No party who has engaged in any fraud, wilful default, fraudulent misrepresentation,
negligence, wilful misconduct or reckless disregard will be entitled to claim indemnity under
Section 14.1 or 14.2 or contribution under Section 15.1 from any Person who has not engaged in
that fraud, wilful default, fraudulent misrepresentation, negligence, wilful misconduct or
reckless disregard.
	 
	16.	 	Fees
	 
	16.1	 	In consideration of the services to be rendered by the Agents in connection with the purchase
and sale of the Shares, the Agents shall be paid at the Time of Closing, a cash fee equal to
6.00% (exclusive of federal goods and services tax, if applicable) of the purchase price for
each of the Share placed by the Agents, or US$0.165 per Share (the “Agency Fee”) to be paid
from the gross proceeds of the sale of the Shares placed by the Agents. The obligations of
the Company and the Selling Shareholder to pay the Agency Fee shall arise at the Time of
Closing and the Agency Fee shall be fully earned by the Agents at that time.
	 
	16.2	 	As further consideration for the services rendered by the Agents, the Company shall issue to
the Lead Agent and Haywood Securities Inc. Ordinary Share purchase options, each such option
entitling the holder to purchase one Ordinary Share at an exercise price of US$2.75 per share
for a period of 18 months from the date of issuance of the Primary Shares under this Agreement
(the “Agents’ Compensation Options”), such Agents’ Compensation Options to be substantially in
the form set forth in Schedule B hereto. The number of Agents’ Compensation Options to be
issued to the Lead Agent and Haywood Securities Inc. shall be 3.0% and 0.625%, respectively,
of the aggregate number of Primary Shares and Over-Allotment Shares sold hereunder.
	 
	16.3	 	The Agents among themselves agree that the allocation of the Agency Fee paid to the Agents
shall be:

	 	 	 	 	 
	Jennings Capital Inc.
	 	 	60.0	%
	 
	 	 	 	 
	Tristone Capital Inc.
	 	 	27.5	%
	 
	 	 	 	 
	Haywood Securities Inc.
	 	 	12.5	%

 

- 43 -

	17.	 	Expenses
	 
	17.1	 	Whether or not the purchase and sale of the Shares pursuant to this Agreement is completed,
the Company and the Selling Shareholder shall be severally liable (in proportion to the number
of Primary Shares and the Over-Allotment Shares, if any, and Secondary Shares sold by each
under this Agreement) for all expenses of or incidental to the purchase, sale, delivery and
distribution of the Shares and of or incidental to all matters in connection with the
transactions set out in this Agreement including, without limitation:

	 	17.1.1	 	reasonable fees, expenses and disbursements of the Agents’ counsel and the
out-of-pocket expenses reasonably incurred by or on behalf of the Agents including,
without limitation, any advertising, printing, courier, telecommunications, data
search, roadshow presentations, travel or other expenses, provided that the Lead Agent
shall provide the Company with an estimate of such expenses and seek the approval of
the Company if such costs appear likely to exceed $150,000, and the Company and Selling
Shareholder shall be liable for such expenses over $150,000 if they are reasonable and
associated with the Agents’ services and obligations under this Agreement;
	 
	 	17.1.2	 	fees and expenses payable in connection with the qualification for distribution of
the Shares under applicable Securities Laws and the listing of the Shares on the TSX;
	 
	 	17.1.3	 	the fees and expenses of the auditors of the Company, and Canadian and foreign
counsel to the Company, CanArgo and the Selling Shareholder;
	 
	 	17.1.4	 	all costs incurred in connection with the preparation, filing and printing of the
Offering Documents and any Offered Share certification costs; and
	 
	 	17.1.5	 	all fees and expenses of the Transfer Agent and CDS;

	 	 	including Canadian federal goods and services tax and provincial sales tax eligible in
respect of any of the foregoing.
	 
	18.	 	All Terms to be Conditions
	 
	18.1	 	The Company, CanArgo and the Selling Shareholder agree that the conditions contained in
Section 11 of this Agreement will be complied with insofar as they relate to acts to be
performed or caused to be performed by the Company, CanArgo and the Selling Shareholder, as
applicable, and that each will use its best efforts to cause all of those conditions to be
complied with insofar as they relate to acts to be performed or caused to be performed by the
Company, CanArgo and the Selling Shareholder. Each certificate required to be provided in
accordance with the terms of this Agreement, signed by any

 

- 44 -

		 	officer or officers of the Company, CanArgo or the Selling Shareholder and delivered to the
Agents or the Agents’ counsel, will constitute a representation and warranty by the Company,
CanArgo or the Selling Shareholder, as the case may be, to each of the Agents as to the
matters covered thereby. All representations, warranties, covenants and other terms of this
Agreement will be and will be deemed to be conditions, and any breach or failure to comply
with any of them or any of the conditions set out in Section 11 will entitle each of the
Agents to terminate its obligation to offer the Shares, by written notice to that effect
given to the Company, CanArgo and the Selling Shareholder at or prior to the Time of
Closing. It is understood that the Agents may waive, in whole or in part, or extend the
time for compliance with, any of those terms and conditions without prejudice to the rights
of the Agents in respect of any of those terms and conditions or any other or subsequent
breach or non-compliance, provided that to be binding on the Agents any such waiver or
extension must be in writing.
	 
	19.	 	Termination by Agents in Certain Events
	 
	19.1	 	Each Agent will also be entitled to terminate its obligation to purchase the Offered Shares
by written notice to that effect given to the Company and the Selling Shareholder at or prior
to the Time of Closing if:

	 	19.1.1	 	any inquiry, action, suit, investigation or other proceeding (whether formal or
informal) in relation to the Company, or the Selling Shareholder, is instituted or
threatened or announced or any order is made by any Governmental Body having
jurisdiction over the Company (other than an inquiry, action, suit, investigation or
proceeding or order based solely upon the activities or alleged activities of the
Agents or the Selling Firms), which has not been rescinded, revoked or withdrawn and
which, in the opinion of that Agent, acting reasonably, operates to prevent or
materially restrict the distribution of the Shares in any of the Qualifying
Jurisdictions or Other Jurisdictions or would prevent or materially restrict the
distribution of the Shares under this Agreement or would prevent or materially restrict
trading in the Shares or would reasonably be expected to have a Material Adverse Effect
or to materially adversely effect the market price or value of the Shares or any of
them;
	 
	 	19.1.2	 	there should occur any material change or any change in any material fact or other
change, event, development or fact such as is contemplated in Section 5 hereof, which,
in the opinion of that Agent, acting reasonably, results or would reasonably be
expected to result in the purchasers of a material number of Offered Shares exercising
their right under applicable legislation to withdraw or rescind from their purchase
thereof or sue for damages in respect thereof or would reasonably be expected to have a
Material Adverse Effect or to materially adversely effect the market price or value of
the Shares or any of them;
	 
	 	19.1.3	 	the state of the financial markets in Canada or the United States becomes such that,
in the opinion of that Agent, acting reasonably, the Shares cannot be marketed
profitably;

 

- 45 -

	 	19.1.4	 	there should develop, occur or come into effect or existence any event, action,
state, condition or major financial occurrence of national or international consequence
or any Law or regulation which, in the opinion of that Agent, acting reasonably,
seriously adversely affects or may seriously adversely affect the financial markets in
Canada, the United States or the Other Jurisdictions or the business, operations or
affairs of the Company and its subsidiaries, taken as a whole, or the market price,
value or marketability of the Offered Shares or any of them;
	 
	 	19.1.5	 	the Agent shall become aware, whether as a result of its due diligence review of the
Company, and the Subsidiaries, or otherwise, of any adverse material change or adverse
material fact, as determined by the Agent in its sole discretion, with respect to the
Company, the distribution of the Shares or the matters contemplated by this Agreement
which had not been publicly disclosed or disclosed in writing to the Agent prior to the
date of this Agreement; or
	 
	 	19.1.6	 	the Company, CanArgo or the Selling Shareholder shall be in breach or default under
or non-compliance with any material representation, warranty, term or condition of this
Agreement.

	19.2	 	If this Agreement is terminated by any of the Agents pursuant to Section 19.1 of this
Agreement or is terminated pursuant to Section 19.4 of this Agreement, there will be no
further liability on the part of that Agent or of the Company, CanArgo or the Selling
Shareholder to that Agent, except in respect of any liability which may have arisen or may
later arise under Sections 14, 15, 17 and 18 of this Agreement.
	 
	19.3	 	The right of the Agents or any of them to terminate their respective obligations under this
Agreement is in addition to all other remedies they may have in respect of any default, act or
failure to act of the Company, CanArgo or the Selling Shareholder in respect of any of the
matters contemplated by this Agreement. A notice of termination given by one Agent under this
Section 19 will not be binding upon the other Agents who have not also executed such notice.
	 
	19.4	 	The offerings provided hereunder shall be discontinued, and the parties’ obligations under
this Agreement shall be terminated (subject to Section 19.2 of this Agreement) if the minimum
subscription amount of US$24,999,999.75 has not been subscribed for prior to the date that is
90 days following the date on which the Final MRRS Decision Document is issued.
	 
	20.	 	Over-Allotment
	 
	20.1	 	In connection with the distribution of the Offered Shares, the Agents and the Selling Firms
(if any) may over-allot or effect transactions which stabilize or maintain the market price of
the Offered Shares at levels above those which might otherwise prevail in the open market, in
compliance with Securities Laws. Those stabilizing transactions, if any, may be discontinued
at any time.

 

- 46 -

	21.	 	Further Transactions
	 
	21.1	 	The Company grants to the Lead Agent the right of first refusal to act as its sole and
exclusive agent (in respect of a best efforts offering), or its sole and exclusive underwriter
(in respect of an underwritten or bought deal offering), as the case may be, subject to
Section 21.1.6, with respect to any private placement or distribution to the public, if any,
of any equity securities of the Company (including without limitation, special warrants) for a
period of 12 months following the Closing Date. The right of first refusal shall be subject
to the following terms:

	 	21.1.1	 	in the event the Company proposes to conduct a private placement or a distribution to
the public of any of the Company’s equity securities or in the event the Company
receives a binding proposal (or a proposal which would be binding and enforceable if it
were executed and delivered by the parties thereto) from a registered Canadian or
American investment dealer or dealers, other than the Lead Agent (collectively, a
“Dealer”), pursuant to which a Dealer agrees or offers to act as the Company’s agent or
underwriter to conduct a private placement or a distribution to the public of any of
the Company’s securities, whether on an agency, underwritten or bought-deal basis, the
Company shall forthwith provide written notice (the “Notice”) thereof to the Lead
Agent;
	 
	 	21.1.2	 	the Notice shall contain the terms and conditions pursuant to which the Company
proposes to make the offering or the Dealer has proposed to act as the Company’s agent
or underwriter, including the consideration proposed to be paid to a Dealer for its
services and the consideration to be received by the Company for its securities, if
known;
	 
	 	21.1.3	 	the Lead Agent shall have a period of two business days after receipt of the Notice
(the “Notice Period”) from the Company to elect in writing to act as agent or
underwriter, as the case may be, on behalf of the Company on the terms and conditions
contained in the Notice (provided that, notwithstanding the terms and conditions
contained in the Notice, in the event that the Lead Agent elects in writing to act as
agent or underwriter, as the case may be, the Lead Agent shall be entitled to not less
than 50% of the aggregate syndicate position of said private placement or distribution
to the public) and, if the Lead Agent so elects, the Company hereby agrees to engage
the Lead Agent to conduct the said private placement or distribution to the public as
its agent or underwriter, as the case may be;
	 
	 	21.1.4	 	if the Lead Agent declines or fails to elect within the Notice Period to conduct the
private placement or distribution to the public as agent or underwriter on behalf of
the Company on the terms and conditions set out in the Notice, the Company shall be
entitled for a period of 60 days beginning upon the expiry of the Notice Period, to
engage a Dealer on substantially the same terms and conditions as set forth in the
Notice. Upon expiry of such 60 day period, or in the event that such terms and
conditions of the proposed offering, or proposal from the Dealer, as the case

 

- 47 -

	 	 	 	may be, change materially, the Company shall not be entitled to enter an engagement
or agreement with another dealer, or the Dealer, as the case may be, without again
complying with Section 21.1.1 to 21.1.4 inclusive, mutatis mutandis;
	 
	 	21.1.5	 	in the event that the Company does not engage the Lead Agent or the Dealer in
connection with the proposed private placement or distribution to the public in
accordance with the foregoing, the provisions of this Section 21 shall apply to the
next proposal by a dealer, mutatis mutandis; and
	 
	 	21.1.6	 	in the event the Lead Agent elects in writing to act as agent or underwriter to the
Company pursuant to Section 21.1.3, the Lead Agent may enter into arrangements with
other investment dealers registered to sell securities in the jurisdictions in which
said private placement or distribution to the public is to be conducted, at no
additional cost to the Company, whereby such other investment dealers will be permitted
to solicit subscriptions with respect to the said private placement or distribution.
The arrangement between the Lead Agent and such investment dealers shall be on such
terms and subject to such conditions as the Lead Agent may deem appropriate.

	22.	 	Notice
	 
	22.1	 	Any notice or other communication required or permitted to be given under this Agreement will
be in writing and will be delivered to:

	 	 	 	 	 
	(a)

	 	in the case of the Company:
	 	P.O. Box 524
	 

	 	 	 	St. Peter Port
	 

	 	 	 	Suite 3, Borough House, Rue du Pre
	 

	 	 	 	Guernsey, GY1 6EL, Channel Islands
	 

	 	 	 	Attention: Chief Executive Officer
	 

	 	 	 	Facsimile No.: +44 1481 729982
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Borden Ladner Gervais LLP
	 

	 	 	 	Scotia Plaza, 40 King Street West
	 

	 	 	 	Toronto, ON M5H 3Y4
	 

	 	 	 	Attention: Philippe Tardif
	 

	 	 	 	Facsimile No.: (416) 361-2559
	 
	 	 	 	 
	(b)

	 	in the case of CanArgo or the
Selling Shareholder:
	 	P.O. Box 291

St. Peter Port 

Guernsey, GY1 3RR, Channel Islands 

Attention: Vincent McDonnell 

Facsimile No.: +44 1481 729982
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Borden Ladner Gervais LLP
	 

	 	 	 	Scotia Plaza, 40 King Street West

 

- 48 -

	 	 	 	 	 
	 

	 	 	 	Toronto, ON M5H 3Y4
	 

	 	 	 	Attention: Philippe Tardif
	 

	 	 	 	Facsimile No.: (416) 361-2559
	 
	 	 	 	 
	 

	 	and to:
	 	Satterlee Stephens Burke & Burke LLP
	 

	 	 	 	230 Park Avenue, Suite 1130
	 

	 	 	 	New York, NY 10164
	 

	 	 	 	Attention: Peter A Basilevsky
	 

	 	 	 	Facsimile No.: (212) 818-9606
	 
	 	 	 	 
	(c)

	 	in the case of the Agents:
	 	Jennings Capital Inc.
	 

	 	 	 	2600, 520-5th Avenue S.W.
	 

	 	 	 	Calgary, AB T2P 3R7
	 

	 	 	 	Attention: David McGorman
	 

	 	 	 	Facsimile No.: (403) 292-0979
	 
	 	 	 	 
	 

	 	 	 	Tristone Capital Inc.
	 

	 	 	 	2020, 335-8th Avenue S.W.
	 

	 	 	 	Calgary, AB T2P 1C9
	 

	 	 	 	Attention: Brad Hurtubise
	 

	 	 	 	Facsimile No.: (403) 539-4365
	 
	 	 	 	 
	 

	 	 	 	Haywood Securities Inc.
	 

	 	 	 	301, 808-1st Street S.W.
	 

	 	 	 	Calgary, AB T2P 1M9
	 

	 	 	 	Attention: Bill Kanters
	 

	 	 	 	Facsimile No.: (403) 509-1991
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Blake, Cassels & Graydon LLP
	 

	 	 	 	3500 Bankers Hall East
	 

	 	 	 	855 – 2nd Street SW
	 

	 	 	 	Calgary, Alberta T2P 4J8
	 

	 	 	 	Attention: Daniel McLeod
	 

	 	 	 	Facsimile No.: (403) 260-9700

	 	 	The parties may change their respective addresses for notices by notice given in the manner
set out above. Any notice or other communication will be in writing, and unless delivered
personally to the addressee or to a responsible officer of the addressee, as applicable,
will be given by facsimile and will be deemed to have been given when (i) in the case of a
notice delivered personally to a responsible officer of the addressee, when so delivered;
and (ii) in the case of a notice delivered or given by facsimile, on the first Business Day
following the day on which it is sent.

 

- 49 -

	23.	 	Miscellaneous
	 
	23.1	 	Except with respect to Sections 14, 15, 18, 19 and 21 of this Agreement, all transactions and
notices on behalf of the Agents under this Agreement or contemplated by this Agreement may be
carried out or given on behalf of the Agents by the Lead Agent and the Lead Agent will in good
faith discuss with the other Agents the nature of any of the transactions and notices prior to
giving effect to them or the delivery of them, as the case may be.
	 
	23.2	 	This Agreement will be governed by and interpreted in accordance with the laws of the
Province of Alberta and the federal laws of Canada applicable therein.
	 
	23.3	 	The parties hereby irrevocably and unconditionally consent to and submit to the courts of
Alberta for any actions, suits or proceedings arising out of or relating to this Agreement or
the matters contemplated hereby (and agree not to commence any action, suit or proceeding
relating thereto except in such courts) and further agree that service of any process,
summons, notice or document by single registered mail to the address of the parties set forth
in this Agreement shall be effective service of process for any action, suit or proceeding
brought against any party in such court. The parties hereby irrevocably and unconditionally
waive any objection to the laying of venue of any action, suit or proceeding arising out of
this Agreement or the matters contemplated hereby in the courts of Alberta and hereby further
irrevocably and unconditionally waive and agree not to plead or claim in any such court that
any such action, suit or proceeding so brought has been brought in an inconvenient forum.
	 
	23.4	 	Time will be of the essence of this Agreement and, following any waiver or indulgence by any
party, time will again be of the essence of this Agreement.
	 
	23.5	 	The words “hereof”, “hereunder” and similar phrases mean and refer to this Agreement.
	 
	23.6	 	All representations, warranties, covenants and agreements of the Company, CanArgo and the
Selling Shareholder contained in this Agreement or contained in documents submitted pursuant
to this Agreement and in connection with the transaction of purchase and sale contemplated by
this Agreement will survive the purchase and sale of the Shares and the termination of this
Agreement and will continue in full force and effect for the benefit of the Agents for a
period of three years after the Closing Date, regardless of any subsequent disposition of the
Shares or any investigation by or on behalf of the Agents with respect thereto, except for the
representations of the Selling Shareholder as to title to the Secondary Shares which will
survive indefinitely. The Agents will be entitled to rely on the representations and
warranties of the Company, CanArgo and the Selling Shareholder contained in this Agreement or
delivered pursuant to this Agreement notwithstanding any investigation which the Agents may
undertake or which may be undertaken on the Agents’ behalf.
	 
	23.7	 	Each of the parties to this Agreement will be entitled to rely on delivery of a facsimile
copy of this Agreement and acceptance by each party of any such facsimile copy will be

 

- 50 -

	 	 	legally effective to create a valid and binding agreement between the parties to this
Agreement in accordance with the terms of this Agreement.
	 
	23.8	 	This Agreement may be executed in any number of counterparts, each of which when so executed
will be deemed to be an original and all of which, when taken together, will constitute one
and the same agreement.
	 
	23.9	 	To the extent permitted by applicable law, the invalidity or unenforceability of any
particular provision of this Agreement will not affect or limit the validity or enforceability
of the remaining provisions of this Agreement.
	 
	23.10	 	Except as provided for herein, this Agreement and the other documents referred to in this
Agreement constitute the entire agreement between the Agents, the Company, CanArgo and the
Selling Shareholder relating to the subject matter of this Agreement and supersede all prior
agreements between those parties with respect to their respective rights and obligations in
respect of the transactions contemplated under this Agreement.
	 
	23.11	 	The terms and provisions of this Agreement will be binding upon and enure to the benefit of
the Company, CanArgo and the Selling Shareholder and the Agents and their respective
successors and assigns; provided that, except as otherwise provided in this agreement, this
Agreement will not be assignable by any party without the written consent of the others and
any purported assignment without that consent will be invalid and of no force and effect.

 

- 51 -

If this letter accurately reflects the terms of the transactions which we are to enter into and are
agreed to by you, please communicate your acceptance by executing the enclosed copies of this
letter where indicated and returning them to us.

Yours very truly,

	 	 	 	 	 	 	 
	 	 	JENNINGS CAPITAL INC.
	 
	 	 	 	 	 	 
	 

	 	Per:
	 	“David McGorman”	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	TRISTONE CAPITAL INC.
	 
	 	 	 	 	 	 
	 

	 	Per:
	 	“R. Bradley
Hurtubise”	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	HAYWOOD SECURITIES INC.
	 
	 	 	 	 	 	 
	 

	 	Per:
	 	“William A.
Kanters”	 	 
	 

	 	 	 	 	 	 

 

- 52 -

Accepted and agreed to by the undersigned as of the date of this letter first written above.

	 	 	 	 	 
	TETHYS PETROLEUM LIMITED
	 
	 	 	 	 
	Per:

	 	“Dr. David
Robson”	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	CANARGO ENERGY CORPORATION
	 
	 	 	 	 
	Per:

	 	“Vincent
McDonnell”	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	CANARGO LIMITED
	 
	 	 	 	 
	Per:

	 	“Vincent
McDonnell”	 	 
	 

	 	 	 	 

 

SCHEDULE A

UNITED STATES OFFERS AND SALES

SCHEDULE A

U.S. SELLING RESTRICTIONS

	1.	 	Definitions
	 
	 	 	In this Schedule, the following words and phrases shall have the following meanings.
Capitalized terms that are not defined in this Schedule shall have the meanings given to
them in the Agency Agreement to which this Schedule A is attached:

	 	(a)	 	“Directed Selling Efforts” means “direct selling efforts” as that term is
defined in Rule 902 of Regulation S. Without limiting the foregoing, but for greater
clarity, such term means, subject to the exclusions from the definition of “directed
selling efforts” contained in Regulation S, any activity undertaken for the purpose of,
or that could reasonably be expected to have the effect of, conditioning the market in
the United States for any of the Shares, and includes, without limitation, the
placement of any advertisement in a publication with a general circulation in the
United States that refers to the offering of any of the Shares;
	 
	 	(b)	 	“Foreign Issuer” means foreign issuer as that term is defined in Rule 902 of
Regulation S. Without limiting the foregoing, but for greater clarity, it means any
issuer that is (1) the government of any country, or of any political subdivision of a
country, other than the United States; or (2) a Company or other organization
incorporated under the laws of any country other than the United States, except an
issuer meeting the following conditions: (a) more than 50 percent of the outstanding
voting securities of such issuer are directly or indirectly owned of record by
residents of the United States; and (b) any of the following: (i) the majority of the
executive officers or directors are United States citizens or residents, (ii) more than
50 percent of the assets of the issuer are located in the United States, or (iii) the
business of the issuer is administered principally in the United States;
	 
	 	(c)	 	“Institutional Accredited Investors” means institutions that are “accredited
investors” within the meaning of Rule 501(a)(1), (a)(2), (a)(3) or (a)(7) under
Regulation D under the U.S. Securities Act;
	 
	 	(d)	 	“Regulation D” means Regulation D adopted by the SEC under the U.S. Securities
Act;
	 
	 	(e)	 	“Regulation S” means Regulation S adopted by the SEC under the U.S. Securities
Act;
	 
	 	(f)	 	“Rule 144A” means Rule 144A adopted by the SEC under the U.S. Securities Act;

 

- 2 -

	 	(g)	 	“SEC” means the United States Securities and Exchange Commission;
	 
	 	(h)	 	“Section 4(2)” means Section 4(2) of the U.S. Securities Act;
	 
	 	(i)	 	“Substantial U.S. Market Interest” means substantial U.S. market interest as
that term is defined in Rule 902(j) of Regulation S;
	 
	 	(j)	 	“Agent Affiliate” means Jennings Capital (USA) Inc.;
	 
	 	(k)	 	“United States” means the United States of America, its territories and
possessions, any State of the United States, and the District of Columbia;
	 
	 	(l)	 	“U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as
amended; and
	 
	 	(m)	 	“U.S. Securities Act” means the United States Securities Act of 1933, as
amended.

	2.	 	U.S. Securities Matters
	 
	 	 	The Agents and the Company agree as follows:

	 	(a)	 	The Agents acknowledge that none of the Shares have been or will be registered
under the U.S. Securities Act and that the Shares are being offered and sold pursuant
to U.S. Securities Laws and in reliance upon and in compliance with Regulation S and
may not be offered or sold within the United States except pursuant to an exemption
from the registration requirements of the U.S. Securities Act provided in connection
with sales to Institutional Accredited Investors, and represent and agree that neither
the Agents nor the Agent Affiliate, nor any person acting on their behalf (a) has made
or will make any Directed Selling Efforts, (b) has made or will make (except to the
extent permitted by this Section 2) (1) any offer to sell or solicitation of any offer
to buy any of the Shares to any person in the United States or (2) any sale of the
Shares to any person unless, at the time the order to purchase such Shares was placed,
such person was outside the United States or the seller of such Shares and any person
acting on its behalf reasonably believe that, at the time the order to purchase such
Shares was placed, such person was outside the United States within the meaning of
Regulation S, or (c) has taken or will take any action that would constitute a
violation of Regulation M under the U.S. Exchange Act. The Agents agree that all
offers and sales in the United States shall be made by the Agent Affiliate in
compliance with all applicable federal and state laws and regulations governing
registration and conduct of broker-dealers.
	 
	 	(b)	 	The Company and the Agents agree that the Shares may be offered and sold in the
United States pursuant only to an exemption from the registration requirements of the
U.S. Securities Act and only to institutions the offeror had reasonable basis to
believe and did believe to be Institutional Accredited Investors and, on the date

 

- 3 -

	 	 	 	hereof, continues to believe that each purchaser is an Institutional Accredited
Investor.
	 
	 	(c)	 	In connection with the offers and sales in the United States, the Agents agree
for themselves and for their affiliates not to offer or sell, or to solicit any offer
to buy, by any form of general solicitation or general advertising (as those terms are
used in Regulation D) or in any manner involving a public offering within the meaning
of Section 4(2).
	 
	 	(d)	 	The Agents agree that offers to sell, solicitations of offers to buy and sales
of Shares in the United States shall be made only in transactions that are exempt from
the registration or qualification requirements of applicable U.S. state securities
(“Blue Sky”) laws, in accordance with the applicable U.S. federal and state
requirements relating to the registration of brokers and dealers only by the Agent
Affiliate, and only to persons who, prior to the sale and delivery of the Shares to
them, execute and deliver an investor representation letter in the form agreed upon by
the parties hereto.
	 
	 	(e)	 	The Company represents that it is and as of the date of issuance of the Shares
will be a Foreign Issuer and that as of the date hereof there is and as of the date of
issuance of the Shares there will be no Substantial U.S. Market Interest in the Shares.
	 
	 	(f)	 	The Company agrees that, for so long as any of the Shares are outstanding and
are “restricted securities” within the meaning of Rule 144(a)(3) under the U.S.
Securities Act and it is not subject to and in compliance with Section 13 or Section
15(d) of the U.S. Exchange Act nor exempt from reporting pursuant to Rule 12g3-2(b)
under the U.S. Exchange Act, it will, unless the Shares may be resold pursuant to Rule
144(k) under the U.S. Securities Act, timely furnish to any holder of the Shares, or
any prospective purchaser thereof designated by a holder, upon the request of such
holder or prospective purchaser, the information specified by Rule 144A(d)(4).
	 
	 	(g)	 	Each of the Company, CanArgo and the Selling Shareholder represent and agree
that neither it, nor any of its affiliates, nor any person (other than the Agents and
the Agent Affiliate as to which the Company, CanArgo and the Selling Shareholder makes
no representation) acting on behalf of it or its affiliates:

	 	(i)	 	has made or will make any Directed Selling Efforts, or has
taken or will take any action, including any Directed Selling Efforts, that
would (A) cause the exemptions from registration relied upon by the Agents in
connection with offers and sales to Institutional Accredited Investors or the
exclusion from registration afforded by Regulation S to be unavailable for
offers and sales of the Shares pursuant to this Agreement; or (B) constitute a
violation of Regulation M under the U.S. Exchange Act;

 

- 4 -

	 	(ii)	 	in connection with the offer or sale of the Shares, the Agents’
Compensation Options or Option Shares, has engaged or will engage in any
general solicitation or general advertising (as those terms are used in
Regulation D);
	 
	 	(iii)	 	has made or will make (1) any offer to sell or solicitation of
any offer to buy any of the Shares to any person in the United States or (2)
any sale of the Shares to any person unless, at the time the order to purchase
such Shares was placed, such person was outside the United States or the seller
of such Shares and any person acting on its behalf reasonably believe that, at
the time the order to purchase such Shares was placed, such person was outside
the United States within the meaning of Regulation S;
	 
	 	(iv)	 	has taken or will take any action that would constitute a
violation of Regulation M under the U.S. Exchange Act; and
	 
	 	(v)	 	within the six month period prior to the date hereof has
offered or sold in the United States any Shares or other securities of the
Company that would be “integrated” with the sale of the Shares pursuant to
Regulation D under the U.S. Securities Act.

	 	(h)	 	The Agents have not entered, and will not enter, into any contractual
arrangements with respect to the distribution of the Shares in the United States other
than as provided herein (except with an affiliate of any of the Agents), except that
nothing in this Section shall in any way restrict offers and sales in accordance with
the provisions of this Agreement.
	 
	 	(i)	 	The Agents shall cause the Agent Affiliate to agree, for the benefit of the
Company, to the same provisions as are contained in this Section 2.
	 
	 	(j)	 	Each of the Agents will deliver to Subscribers of the Shares in the United
States, through the Agent Affiliate, a copy of the same information relating to the
Company as provided to Subscribers in Canada and the Agents agree that they have not
and will not use any written material other than such documents in connection
therewith; each offeree was provided with a copy of the U.S. Placement Memorandum and
no other written material has been or will be used in connection with offers and sales
of the Shares.
	 
	 	(k)	 	The Agents severally and not jointly covenant and agree with the Company that
they will:

	 	(i)	 	offer and sell the Shares in the United States only through the
Agent Affiliate duly registered as a U.S. broker-dealer in the applicable
jurisdictions to permit it to offer and sell the Shares and which affiliate
will be bound by the provisions of this Agreement and will otherwise comply
with applicable U.S. broker dealer laws;

 

- 5 -

	 	(ii)	 	not make any other contractual arrangements for the
distribution of the Shares in the United States without the prior consent of
the Company; and
	 
	 	(iii)	 	obtain and/or deliver, as applicable, such information and
documents with respect to the issue of the Shares as may be required by U.S.
Securities Laws. In particular, prior to any sale of Shares in the United
States or to a person who was offered Shares in the United States, it caused
each purchaser thereof to sign a U.S. investor’s representation letter
containing representations, warranties and agreements to the Company in the
form agreed between the parties hereto.

	(l)	 	At least one business day prior to the Closing Date, the Lead Agent shall cause
the Agent Affiliate to provide the Company with a list of all purchasers of Offered
Shares in the United States.
	 
	(m)	 	At closing, the Lead Agent, together with the Agent Affiliate, who has offered
or sold Offered Shares in the United States, will provide a certificate, substantially
in the form of Schedule A-1 hereto.
	 
	(n)	 	Each of the Agents agrees that the certificates for Shares will bear the legend
provided for in the U.S. Placement Memorandum.
	 
	(o)	 	The Company is not registered or, assuming the Company were not a Foreign
Issuer, required to be registered as an “investment company” pursuant to the provisions
of the U.S. Investment Company Act of 1940.
	 
	(p)	 	The Company will:

	 	(i)	 	use, and will cause any direct and indirect subsidiary to use,
commercially reasonable efforts to avoid classification as a passive foreign
investment company (“PFIC”) within the meaning of Section 1297 of the United
States Internal Revenue Code of 1986, as amended (the “Code”), for the current
year or any subsequent year. The Company agrees, at the Company’s expense, to
make available to any U.S. Investor (as defined below) upon request, the books
and records of the Company and any of its direct and indirect subsidiaries, and
to provide information to such U.S. Investor pertinent to the Company’s or any
subsidiary’s status or potential status as a PFIC. Upon a determination by the
Company, any U.S. Investor or any taxing authority that the Company or any
direct or indirect subsidiary has been or is likely to become a PFIC, the
Company will provide such U.S. Investor, at the Company’s expense, with all
information reasonably available to the Company or any of its subsidiaries to
permit such U.S. Investor to (i) accurately prepare all tax returns and comply
with any reporting requirements as a result of such determination and (ii) make
any election (including, without limitation, a “qualified electing fund”
election under Section 1295 of the Code), with respect to the Company or any of
its direct or indirect subsidiaries, and comply with

 

- 6 -

	 	 	 	any reporting or other requirements incident to such election. If a
determination is made by the Company, any U.S. Investor or any taxing
authority that the Company is a PFIC for a particular year, then for such
year and for each year thereafter, the Company, at the Company’s expense,
will also provide each known U.S. Investor with a completed “PFIC Annual
Information Statement” as required by Treasury Regulation Section
1.1295-1(g) and otherwise comply with applicable Treasury Regulation
requirements. The Company will promptly notify the U.S. Investors of any
assertion by the U.S. Internal Revenue Service that the Company or any of
its subsidiaries is or is likely to become a PFIC, and
	 
	 	(ii)	 	(A) furnish to each U.S. Investor upon its reasonable request,
on a timely basis, and at the Company’s expense, all information necessary to
satisfy the U.S. income tax return filing requirements of such U.S. Investor
(and, as applicable, each “United States shareholder” of the Company as defined
by Section 951(b) of the Code that owns a direct or indirect interest in such
U.S. Investor (a “U.S. Shareholder”)) arising from its investment in the
Company and, as applicable, relating to the Company’s or any subsidiary’s
classification as a “controlled foreign Company” (“CFC”) within the meaning of
Section 957 of the Code; and (B) use commercially reasonable efforts to avoid
generating for any taxable year in which the Company or any subsidiary is a
CFC, amounts includible in the income of a U.S. Investor or U.S. Shareholder
pursuant to Section 951 of the Code (a “Section 951 Inclusion”). As
applicable, if the Company or any subsidiary ceases to be a CFC at any time,
the Company will provide prompt written notice to known U.S. Investors if at
any time thereafter the Company becomes aware that it or any subsidiary has
become a CFC. Upon written request of a U.S. Investor from time to time,
subject to obtaining the consent of its shareholders to release such
information, the Company will promptly provide in writing such information in
its possession concerning its shareholders and, to the Company’s actual
knowledge, the direct and indirect interest holders in each shareholder
sufficient for such U.S. Investor to determine whether the Company is a CFC.

For purposes of paragraphs (i) and (ii) of this Section 2(p): (a) “U.S. Investor”
means (A) any holder of Common Shares that is a United States person and (B) any
holder of Ordinary Shares that is an entity treated as a foreign partnership for
U.S. federal income tax purposes, one or more of the owners of which are United
States persons; (b) “United States person” means any person described in Section
7701(a)(30) of the Code.

 

SCHEDULE B-1

AGENTS’ CERTIFICATE

In connection with the offer and sale of Ordinary Shares (the “Securities”) of Tethys Petroleum
Limited (the “Company”) to one or more U.S. institutional accredited investors (the “U.S.
Purchasers”), the undersigned, ___, on behalf of the several Agents (the “Agents”)
referred to in the Agency agreement dated as of ___, 2007 among the Company and the
Agents (the “Agency Agreement”) and ___, as its U.S. Affiliate, who has signed
below in its capacity as placement agent in the United States for the Agents (the “U.S. Placement
Agent”), do hereby certify that:

	 	(a)	 	the U.S. Placement Agent is a duly registered broker or dealer with the United
States Securities and Exchange Commission, is a member of, and in good standing with,
the National Association of Securities Dealers, Inc. and all offers and sales of
Securities in the United States will be effected by the U.S. Placement Agent in
accordance with all U.S. broker-dealer requirements;
	 
	 	(b)	 	all offers and sales of Securities in the United States were made to
institutional “accredited investors” within the meaning of Rule 501(a)(1),(2),(3) or
(7) of the United States Securities Act of 1933, as amended (“Institutional Accredited
Investors”);
	 
	 	(c)	 	we have not solicited offers for, or offers to sell, the Securities by means of
any form of general solicitation or general advertising (as those terms are used in
Regulation D under the United States Securities Act of 1933, as amended (the “U.S.
Securities Act”) including advertisements, articles, notices or other communications
published in any newspaper, magazine or similar media or broadcast over radio or
television, or any seminar or meeting whose attendees had been invited by general
solicitation or general advertising, in connection with the offer or sale of the
Securities or the securities to be issued thereunder in the United States;
	 
	 	(d)	 	each offeree of the Securities in the United States has been sent a copy of the
same information in respect of the Company as provided to Canadian subscribers (the
“Offering Documents”), including the U.S. Placement Memorandum, and we have not used
and will not use any written material other than the Offering Documents;
	 
	 	(e)	 	immediately prior to transmitting the Offering Documents to offerees, we had
reasonable grounds to believe and did believe that each offeree was an Institutional
Accredited Investor and, on the date hereof, we continue to believe that each purchaser
of the Securities in the United States or who was offered Securities in the United
States is an Institutional Accredited Investor;
	 
	 	(f)	 	prior to any sale of Securities in the United States, we caused each purchaser
in the United States or who was offered Securities in the United States to sign a U.S.

 

 

	 	 	 	investor’s representation letter substantially in the form agreed between the
parties to the Agency Agreement;
	 
	 	(g)	 	neither we, nor any of our affiliates, have taken or will take any action which
would constitute a violation of Regulation M under the United States Securities
Exchange Act of 1934, as amended; and
	 
	 	(h)	 	the offering of the Securities in the United States has been conducted by us in
accordance with the terms of the Agency Agreement.
	 
	 	 	 	Dated:                     , 2007

	 	 	 
	                                        , on its behalf and on

behalf of the Agents

	 	                                        , as U.S.

Placement Agent

 

 

SCHEDULE B

FORM OF AGENTS’ COMPENSATION OPTIONSExhibit 10.1

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT (this "Agreement"),  is made and entered into
as  of  the  1st  day  of  July,  2007,  between  Emclaire  Financial  Corp.,  a
Pennsylvania-chartered  bank holding  company (the  "Corporation"),  the Farmers
National Bank of Emlenton, a national banking association (the "Bank") and David
L. Cox (the "Executive").

                                   WITNESSETH

         WHEREAS,  the Executive is currently employed as Chairman of the Board,
President and Chief  Executive  Officer of the  Corporation  and Chairman of the
Board of the Bank (the  Corporation and the Bank are referred to together herein
as the "Employers");

         WHEREAS,  the  Employers  desire  to  be  ensured  of  the  Executive's
continued active participation in the business of the Employers; and

         WHEREAS,  the  Executive is willing to serve the Employers on the terms
and conditions hereinafter set forth;

         NOW  THEREFORE,  in  consideration  of  the  mutual  agreements  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
Employers and the Executive hereby agree as follows:

         1.  Definitions.  The following words and terms shall have the meanings
set forth below for the purposes of this Agreement:

         (a)  Average  Annual  Compensation.  The  Executive's  "Average  Annual
Compensation" for purposes of this Agreement shall be deemed to mean the average
level of  compensation  paid to the Executive by the Employers or any subsidiary
thereof  during  the  most  recent  five  taxable  years  preceding  the Date of
Termination  (or such shorter period as the Executive was employed) and included
in the  Executive's  gross  income for tax  purposes  and any income  earned and
deferred by the Executive pursuant to any plan or arrangement of the Employers.

         (b) Base  Salary.  "Base  Salary"  shall have the  meaning set forth in
Section 3(a) hereof.

         (c) Cause.  Termination of the Executive's employment for "Cause" shall
mean  termination  because  of  personal   dishonesty,   incompetence,   willful
misconduct,  breach of fiduciary duty  involving  personal  profit,  intentional
failure  to  perform  stated  duties,  willful  violation  of any  law,  rule or
regulation  (other  than  traffic  violations  or  similar  offenses)  or  final
cease-and-desist order or material breach of any provision of this Agreement.

         (d) Change in Control.  "Change in Control"  shall mean a change in the
ownership of the  Corporation or the Bank, a change in the effective  control of

<PAGE>

the  Corporation  or the  Bank or a change  in the  ownership  of a  substantial
portion of the assets of the  Corporation  or the Bank, in each case as provided
under Section 409A of the Code and the regulations thereunder.

         (e) Code.  "Code"  shall mean the  Internal  Revenue  Code of 1986,  as
amended.

         (f) Date of Termination.  "Date of  Termination"  shall mean (i) if the
Executive's  employment is terminated for Cause, the date on which the Notice of
Termination is given,  and (ii) if the Executive's  employment is terminated for
any other reason, the date specified in such Notice of Termination.

         (g) Disability.  "Disability" shall mean the Executive (i) is unable to
engage  in  any  substantial   gainful  activity  by  reason  of  any  medically
determinable  physical or mental  impairment  which can be expected to result in
death or can be  expected  to last for a  continuous  period of not less than 12
months, or (ii) is, by reason of any medically  determinable  physical or mental
impairment  which can be  expected to result in death or can be expected to last
for a continuous period of not less than 12 months, receiving income replacement
benefits for a period of not less than three months under an accident and health
plan covering employees of the Employers.

         (h)  Good  Reason.  Termination  by the  Executive  of the  Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control based on:

                           (i) any  material  breach  of this  Agreement  by the
Employers, including without limitation any of the following:  (A) a material
diminution in the  Executive's base  compensation,  (B) a material  diminution
in the  Executive's  authority, duties or responsibilities,  or (C) any
requirement that the Executive report to a corporate officer or employee of the
Corporation instead of reporting directly to the Board of Directors of the
Corporation, or

                           (ii) any material  change in the geographic  location
at which the Executive must perform his services under this  Agreement,
including a material  change in the Executive's  principal  place of employment
or the imposition of any requirement that the  Executive  spend more than
ninety  (90)  business  days per year at a location other than such principal
place of employment;

provided,  however, that prior to any termination of employment for Good Reason,
the Executive must first provide written notice to the Corporation within ninety
(90) days of the initial existence of the condition, describing the existence of
such condition,  and the Corporation  shall  thereafter have the right to remedy
the condition  within thirty (30) days of the date the Corporation  received the
written notice from the  Executive.  If the  Corporation  remedies the condition
within  such  thirty (30) cure  period,  then no Good Reason  shall be deemed to
exist with respect to such condition.

         (i) IRS. IRS shall mean the Internal Revenue Service.

         (j) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason,  including  without  limitation  for
Cause, Disability or Retirement,  or by the Executive for any reason,  including

                                       2
<PAGE>

without limitation for Good Reason,  shall be communicated by written "Notice of
Termination"  to the other  party  hereto.  For  purposes of this  Agreement,  a
"Notice  of  Termination"  shall mean a dated  notice  which (i)  indicates  the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable  detail  the facts and  circumstances  claimed to provide a basis for
termination  of the  Executive's  employment  under the  provision so indicated,
(iii) specifies a Date of Termination,  which shall be not less than thirty (30)
nor more than ninety (90) days after such Notice of Termination is given, except
in the case of the Bank's termination of Executive's employment for Cause, which
shall be  effective  immediately,  and (iv) is given in the manner  specified in
Section 11 hereof.

         (k) Retirement.  "Retirement"  shall mean voluntary  termination by the
Executive upon reaching age 65.

         2. Term of Employment.

         (a) The Employers hereby employ the Executive as Chairman of the Board,
President and Chief  Executive  Officer of the  Corporation  and Chairman of the
Board of the Bank and the Executive hereby accepts said employment and agrees to
render such services to the Employers on the terms and  conditions  set forth in
this Agreement.  The term of employment  under this Agreement shall be for three
years from July 1, 2007 and,  upon approval of the Board of Directors of each of
the Corporation and the Bank, shall extend for an additional year on July 1st of
each  subsequent  calendar  year  such that at any time  after  July 1, 2007 the
remaining term of this Agreement shall be from two to three years, absent notice
of  non-renewal  as set  forth  below.  Prior to June 1,  2008 and each June 1st
thereafter, the Board of Directors of each of the Corporation and the Bank shall
consider and review (with appropriate corporate documentation thereof, and after
taking into account all relevant factors,  including the Executive's performance
hereunder)  an  extension  of the term of this  Agreement,  and the  term  shall
continue to extend each year if the Board of Directors  approves such  extension
unless the Executive  gives written  notice to the Employers of the  Executive's
election not to extend the term,  with such written  notice to be given not less
than  thirty  (30) days  prior to any such July 1st . If the Board of  Directors
elects not to extend the term, it shall give written  notice of such decision to
the  Executive not less than thirty (30) days prior to any such July 1st. If any
party gives  timely  notice that the term will not be extended as of June 1st of
any year, then this Agreement shall terminate at the conclusion of its remaining
term.  References  herein to the term of this Agreement  shall refer both to the
initial term and successive terms.

         (b) During the term of this Agreement, the Executive shall perform such
executive  services for the  Corporation  and the Bank as may be consistent with
his titles and from time to time  assigned to him by the  Corporation's  and the
Bank's Board of Directors.

         (c) During the term of this Agreement, the Executive shall be nominated
to be a member of the Board of Directors of the Corporation and Bank, as long as
the  Executive  has  not  violated  any of the  terms  and  provisions  of  this
Agreement.

         3. Compensation and Benefits.

         (a) The  Employers  shall  compensate  and pay  the  Executive  for his
services  during the term of this Agreement at a minimum base salary of $168,000

                                       3
<PAGE>

per year  ("Base  Salary"),  which  may be  increased  from time to time in such
amounts as may be determined by the Boards of Directors of the Employers and may
not be decreased without the Executive's express written consent. In addition to
his Base Salary,  the Executive  shall be entitled to receive during the term of
this  Agreement  such  bonus  payments  as may be  determined  by the  Boards of
Directors of the Employers.

         (b) During the term of this Agreement,  the Executive shall be entitled
to  participate  in and receive the benefits of any pension or other  retirement
benefit plan, profit sharing, stock option,  employee stock ownership,  or other
plans,  benefits  and  privileges  given  to  employees  and  executives  of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Boards of Directors of the  Employers.  The Employers  shall not
make any changes in such plans,  benefits or  privileges  which would  adversely
affect the Executive's rights or benefits thereunder,  unless such change occurs
pursuant to a program  applicable to all executive officers of the Employers and
does not result in a proportionately  greater adverse change in the rights of or
benefits to the  Executive as compared with any other  executive  officer of the
Employers. Nothing paid to the Executive under any plan or arrangement presently
in effect or made  available  in the future shall be deemed to be in lieu of the
salary payable to the Executive pursuant to Section 3(a) hereof.

         (c) During the term of this Agreement,  the Executive shall be entitled
to paid annual vacation in accordance with the policies as established from time
to time by the Boards of Directors of the Employers,  which shall in no event be
less than five weeks per annum.  The Executive  shall not be entitled to receive
any additional  compensation  from the Employers for failure to take a vacation,
nor shall the Executive be able to accumulate unused vacation time from one year
to the next,  except to the extent  authorized by the Boards of Directors of the
Employers.

         (d) In the  event  the  Executive's  employment  is  terminated  due to
Disability or Retirement,  the Employers shall provide  continued life,  medical
and dental coverage  substantially  identical to the coverage  maintained by the
Employers for the Executive immediately prior to his termination.  Such coverage
shall  be  provided  for the  period  otherwise  remaining  in the  term of this
Agreement but for such  Disability or Retirement and  thereafter  shall continue
if, and to the extent,  provided by the Employers  policies in existence at such
time.  Notwithstanding  the  foregoing,  if the provision of any of the benefits
covered by this  Section 3(d) would  trigger the 20% tax and interest  penalties
under  Section  409A of the Code either due to the nature of such benefit or the
length of time it is being provided, then the benefit(s) that would trigger such
tax and  interest  penalties  due to the  nature  of such  benefit  shall not be
provided  at all and the  benefit(s)  that would  trigger  the tax and  interest
penalties if provided beyond the "limited period of time" set forth in the final
regulations  under Section 409A shall not be provided beyond such limited period
of time (the "Excluded  Benefits"),  and, in lieu of the Excluded Benefits,  the
Employers  shall pay to the  Executive,  in a lump sum within 30 days  following
termination of employment or within 30 days after such  determination  should it
occur after  termination of  employment,  a cash amount equal to the cost to the
Employers of providing the Excluded Benefits.

         (e) In the  event  of the  Executive's  death  during  the term of this
Agreement,  the  Employers  shall  provide  to the  Executive's  spouse  for the
remaining  term  of  this  Agreement   continued  medical  and  dental  coverage
substantially  identical to the coverage  maintained  by the  Employers  for the

                                       4
<PAGE>

Executive immediately prior to his death.  Notwithstanding the foregoing, if the
provision of any of the benefits  covered by this Section 3(e) would trigger the
20% tax and interest  penalties under Section 409A of the Code either due to the
nature of such  benefit  or the  length of time it is being  provided,  then the
benefit(s) that would trigger such tax and interest  penalties due to the nature
of such  benefit  shall not be  provided  at all and the  benefit(s)  that would
trigger the tax and interest penalties if provided beyond the "limited period of
time"  set  forth in the  final  regulations  under  Section  409A  shall not be
provided beyond such limited period of time (the "Excluded  Benefits"),  and, in
lieu of the Excluded  Benefits,  the Employers shall pay to the Executive,  in a
lump sum within 30 days  following  termination  of employment or within 30 days
after such determination should it occur after termination of employment, a cash
amount equal to the cost to the Employers of providing the Excluded Benefits.

         4. Expenses.  The Employers  shall reimburse the Executive or otherwise
provide for or pay for all  reasonable  expenses  incurred by the  Executive  in
furtherance of or in connection  with the business of the Employers,  including,
but  not  by  way  of  limitation,   traveling  expenses,   and  all  reasonable
entertainment  expenses  (whether incurred at the Executive's  residence,  while
traveling or  otherwise),  subject to such  reasonable  documentation  and other
limitations  as may be  established by the Boards of Directors of the Employers.
If such expenses are paid in the first instance by the Executive,  the Employers
shall reimburse the Executive therefor.

         5. Termination.

         (a) The Employers  shall have the right,  at any time upon prior Notice
of  Termination,  to terminate  the  Executive's  employment  hereunder  for any
reason,  including,  without  limitation,  termination for Cause,  Disability or
Retirement,  and the  Executive  shall  have the  right,  upon  prior  Notice of
Termination, to terminate his employment hereunder for any reason.

         (b) In the event that (i) the  Executive's  employment is terminated by
the  Employers  for  Cause  or (ii)  the  Executive  terminates  his  employment
hereunder  other than for  Disability,  Retirement,  death or Good  Reason,  the
Executive  shall have no right  pursuant to this  Agreement to  compensation  or
other benefits for any period after the applicable Date of Termination.

         (c) In the event that the  Executive's  employment  is  terminated as a
result of  Disability,  Retirement or the  Executive's  death during the term of
this Agreement,  the Executive shall have no right pursuant to this Agreement to
compensation  or other  benefits  for any period  after the  applicable  Date of
Termination, except as provided for in Sections 3(d) and 3(e) hereof.

         (d) In the event that (i) the  Executive's  employment is terminated by
the Employers for other than Cause,  Disability,  Retirement or the  Executive's
death or (ii) such  employment  is  terminated by the Executive for Good Reason,
then the Employers  shall,  subject to the  provisions  of Section 6 hereof,  if
applicable,

                  (A)  pay to the  Executive,  in a lump  sum as of the  Date of
         Termination,  a cash  severance  amount  equal to three  (3)  times the
         Executive's Average Annual Compensation,

                  (B) maintain and provide for a period ending at the earlier of
         (i)  thirty-six  (36) months after the Date of  Termination or (ii) the
         date  of the  Executive's  full-time  employment  by  another  employer

                                       5
<PAGE>

         (provided  that the  Executive  is  entitled  under  the  terms of such
         employment to benefits substantially similar to those described in this
         subparagraph  (B)),  at no  cost  to  the  Executive,  the  Executive's
         continued participation in all group insurance, life insurance,  health
         and accident, disability and other employee benefit plans, programs and
         arrangements  offered  by the  Employers  in which  the  Executive  was
         entitled to  participate  immediately  prior to the Date of Termination
         (other  than  retirement  plans  or  stock  compensation  plans  of the
         Employers), subject to subparagraphs (C) and (D) below.

                  (C) in the event  that the  Executive's  participation  in any
         plan,  program or arrangement as provided in  subparagraph  (B) of this
         Section 5(d) is barred, or during such period any such plan, program or
         arrangement is discontinued  or the benefits  thereunder are materially
         reduced,  the Employers  shall  arrange to provide the  Executive  with
         benefits  substantially  similar  to  those  which  the  Executive  was
         entitled  to  receive  under  such  plans,  programs  and  arrangements
         immediately prior to the Date of Termination, and

                  (D) if the provision of any of the benefits covered by Section
         5(d)(B) or (C) would trigger the 20% tax and interest  penalties  under
         Section  409A of the Code  either due to the nature of such  benefit or
         the length of time it is being provided, then the benefit(s) that would
         trigger  such tax and  interest  penalties  due to the  nature  of such
         benefit  shall not be  provided  at all and the  benefit(s)  that would
         trigger the tax and interest  penalties if provided beyond the "limited
         period of time" set forth in the  regulations  under Section 409A shall
         not be  provided  beyond  such  limited  period of time (the  "Excluded
         Benefits"),  and in lieu of the Excluded  Benefits the Employers  shall
         pay  to  the  Executive,  in  a  lump  sum  within  30  days  following
         termination  of employment  or within 30 days after such  determination
         should it occur after termination of employment, a cash amount equal to
         the cost to the Employers of providing the Excluded Benefits.

         6. Limitation of Benefits under Certain Circumstances.  If the payments
and benefits  pursuant to Section 5 hereof,  either alone or together with other
payments  and  benefits  which the  Executive  has the right to receive from the
Employers,  would  constitute a "parachute  payment"  under  Section 280G of the
Code,  then the  payments  and  benefits  payable by the  Employers  pursuant to
Section 5 hereof shall be reduced by the minimum  amount  necessary to result in
no portion of the payments and benefits payable by the Employers under Section 5
being  non-deductible to the Employers  pursuant to Section 280G of the Code and
subject  to the  excise  tax  imposed  under  Section  4999 of the Code.  If the
payments  and  benefits  under  Section 5 are  required to be reduced,  the cash
severance  shall  be  reduced  first,  followed  by a  reduction  in the  fringe
benefits.  The determination of any reduction in the payments and benefits to be
made  pursuant to Section 5 shall be based upon the opinion of  independent  tax
counsel  selected by the Employers and paid for by the  Employers.  Such counsel
shall promptly prepare the foregoing opinion,  but in no event later than thirty
(30)  days  from the Date of  Termination,  and may use such  actuaries  as such
counsel deems necessary or advisable for the purpose.  Nothing  contained herein
shall result in a reduction  of any payments or benefits to which the  Executive
may be entitled upon  termination of employment  under any  circumstances  other
than as specified in this Section 6, or a reduction in the payments and benefits
specified in Section 5 below zero.

                                       6
<PAGE>

         7. Restrictive Covenants

         (a) Trade  Secrets.  Executive  acknowledges  that he has had, and will
have, access to confidential  information of the Employers  (including,  but not
limited to,  current and  prospective  confidential  know-how,  customer  lists,
marketing  plans,  business  plans,  financial  and  pricing  information,   and
information  regarding  acquisitions,  mergers and/or joint ventures) concerning
the business,  customers,  contacts, prospects, and assets of the Employers that
is unique, valuable and not generally known outside the Employers,  and that was
obtained from the Employers or which was learned as a result of the  performance
of services by Executive on behalf of the  Employers  ("Trade  Secrets").  Trade
Secrets  shall not  include  any  information  that:  (i) is now,  or  hereafter
becomes,  through  no act or  failure  to act on  the  part  of  Executive  that
constitutes  a breach of this  Section 7,  generally  known or  available to the
public;  (ii) is known to  Executive at the time such  information  was obtained
from  the  Employers;  (iii)  is  hereafter  furnished  without  restriction  on
disclosure to Executive by a third party, other than an employee or agent of the
Employers,  who is not under any obligation of  confidentiality to the Employers
or an Affiliate;  (iv) is disclosed with the written  approval of the Employers;
or (v) is required to be disclosed or provided by law, court order, order of any
regulatory agency having jurisdiction or similar compulsion,  including pursuant
to or in connection  with any legal  proceeding  involving  the parties  hereto;
provided  however,  that  such  disclosure  shall be  limited  to the  extent so
required or  compelled;  and  provided  further,  however,  that if Executive is
required to disclose such confidential information,  he shall give the Employers
notice of such disclosure and cooperate in seeking suitable  protections.  Other
than in the course of performing services for the Employers, Executive will not,
at any time, directly or indirectly use, divulge,  furnish or make accessible to
any person any Trade Secrets,  but instead will keep all Trade Secrets  strictly
and absolutely  confidential.  Executive will deliver promptly to the Employers,
at the  termination of his employment or at any other time at the request of the
Employers,  without  retaining any copies,  all documents and other materials in
his possession relating, directly or indirectly, to any Trade Secrets.

         (b) Non-Competition. Unless the Executive's employment is terminated in
connection  with or following a Change in Control of the Employers or unless the
Executive's  employment  is  terminated by the Employers for a reason other than
Cause, then for a period of eighteen (18) months after termination of employment
(the "Restricted Period"),  the Executive will not, directly or indirectly,  (i)
become  a  director,   officer,  employee,   principal,   agent,  consultant  or
independent contractor of any insured depository  institution,  trust company or
parent holding company of any such institution or company which has an office in
any county in the  Commonwealth of Pennsylvania in which the Bank also maintains
an  office.  Notwithstanding  the  foregoing,  nothing in this  Agreement  shall
prevent the Executive from owning for passive  investment  purposes not intended
to circumvent this Agreement, less than five percent (5%) of the publicly traded
voting  securities of any company  engaged in the banking,  financial  services,
insurance,  brokerage  or other  business  similar  to or  competitive  with the
Employers  (so long as the Executive  has no power to manage,  operate,  advise,
consult  with or control  the  competing  enterprise  and no power,  alone or in
conjunction  with  other  affiliated  parties,  to select a  director,  manager,
general partner, or similar governing official of the competing enterprise other
than in  connection  with the normal and customary  voting  powers  afforded the
Executive in connection with any permissible equity ownership).

                                       7
<PAGE>

         (c)  Non-Solicitation  of  Employees.  During  the  Restricted  Period,
Executive shall not, directly or indirectly solicit,  induce or hire, or attempt
to solicit,  induce or hire,  any  current  employee  of the  Employers,  or any
individual who becomes an employee during the Restricted Period, to leave his or
her employment  with the Employers or join or become  affiliated  with any other
business or entity,  or in any way interfere  with the  employment  relationship
between any employee and the Employers.

         (d)  Non-Solicitation  of  Customers.  During  the  Restricted  Period,
Executive shall not,  directly or indirectly,  solicit or induce,  or attempt to
solicit or induce, any customer, lender, supplier,  licensee,  licensor or other
business  relation of the  Employers to terminate its  relationship  or contract
with the Employers,  to cease doing  business with the Employers,  or in any way
interfere with the  relationship  between any such customer,  lender,  supplier,
licensee or business  relation and the Employers  (including making any negative
or derogatory  statements or  communications  concerning  the Employers or their
directors, officers or employees).

         (e)  Irreparable  Harm.  Executive  acknowledges  that: (i) Executive's
compliance  with this  Agreement  is  necessary  to  preserve  and  protect  the
proprietary  rights,  Trade Secrets,  and the goodwill of the Employers as going
concerns,  and (ii) any failure by  Executive to comply with the  provisions  of
this Agreement will result in irreparable and continuing  injury for which there
will be no adequate  remedy at law. In the event that Executive  fails to comply
with  the  terms  and  conditions  of this  Agreement,  the  obligations  of the
Employers  to pay the  severance  benefits  set forth in  Sections 3 and 5 shall
cease, and the Employers will be entitled,  in addition to other relief that may
be proper, to all types of equitable relief (including,  but not limited to, the
issuance  of an  injunction  and/or  temporary  restraining  order)  that may be
necessary to cause  Executive to comply with this  Agreement,  to restore to the
Employers their property, and to make the Employers whole.

         (f) Survival.  The provisions set forth in this Section 7 shall survive
termination of this Agreement.

         (g)  Scope  Limitations.  If the  scope,  period  of  time  or  area of
restriction  specified  in  this  Section  7  are  or  would  be  judged  to  be
unreasonable in any court proceeding,  then the period of time, scope or area of
restriction will be reduced or limited in the manner and to the extent necessary
to make the restriction  reasonable,  so that the restriction may be enforced in
those  areas,  during  the  period of time and in the scope that are or would be
judged to be reasonable.

         8. Mitigation; Exclusivity of Benefits.

         (a) The  Executive  shall not be required to mitigate the amount of any
benefits  hereunder by seeking  other  employment  or  otherwise,  nor shall the
amount  of any such  benefits  be  reduced  by any  compensation  earned  by the
Executive  as a result  of  employment  by  another  employer  after the Date of
Termination or otherwise, except as set forth in Section 5(d)(B) above.

         (b) The  specific  arrangements  referred to herein are not intended to
exclude  any other  benefits  which may be  available  to the  Executive  upon a
termination of employment with the Employers  pursuant to employee benefit plans
of the Employers or otherwise.

                                       8
<PAGE>

         9.  Withholding.  All  payments  required  to be made by the  Employers
hereunder to the Executive  shall be subject to the withholding of such amounts,
if any,  relating  to tax and other  payroll  deductions  as the  Employers  may
reasonably  determine  should be  withheld  pursuant  to any  applicable  law or
regulation.

         10.  Assignability.  The  Corporation  and the  Bank  may  assign  this
Agreement and their rights and obligations  hereunder in whole, but not in part,
to any  corporation,  bank or other entity with or into which the Corporation or
the Bank may hereafter  merge or consolidate or to which the  Corporation or the
Bank may transfer all or  substantially  all of its assets,  if in any such case
said corporation, bank or other entity shall by operation of law or expressly in
writing assume all obligations of the Employers  hereunder as fully as if it had
been originally made a party hereto, but may not otherwise assign this Agreement
or its  rights  and  obligations  hereunder.  The  Executive  may not  assign or
transfer this Agreement or any rights or obligations hereunder.

         11. Notice.  For the purposes of this Agreement,  notices and all other
communications  provided for in this Agreement  shall be in writing and shall be
deemed  to have been duly  given  when  delivered  or  mailed  by  certified  or
registered mail,  return receipt  requested,  postage prepaid,  addressed to the
respective addresses set forth below:

         To the Bank:               Secretary
                                    Farmers National Bank of Emlenton
                                    612 Main Street
                                    Emlenton, Pennsylvania 16373

         To the Corporation:        Secretary
                                    Emclaire Financial Corp.
                                    612 Main Street
                                    Emlenton, Pennsylvania 16373

         To the Executive:          David L. Cox

                                    At the address last appearing on
                                    the personnel records of the Employers

          12.  Amendment;  Waiver.  No  provisions  of  this  Agreement  may  be
modified, waived or discharged unless such waiver,  modification or discharge is
agreed to in writing signed by the Executive and such officer or officers as may
be specifically designated by the Board of Directors of the Employers to sign on
their  behalf.  No waiver by any party  hereto at any time of any  breach by any
other party hereto of, or  compliance  with,  any condition or provision of this
Agreement  to be  performed  by such  other  party  shall be  deemed a waiver of
similar or  dissimilar  provisions  or conditions at the same or at any prior or
subsequent time. In addition,  notwithstanding anything in this Agreement to the
contrary,  the  Employers  may amend in good faith any terms of this  Agreement,
including retroactively, in order to comply with Section 409A of the Code.

                                       9
<PAGE>

         13.  Governing  Law. The  validity,  interpretation,  construction  and
performance of this Agreement shall be governed by the laws of the United States
where  applicable and otherwise by the substantive  laws of the  Commonwealth of
Pennsylvania.

         14. Nature of  Obligations.  Nothing  contained  herein shall create or
require the  Employers to create a trust of any kind to fund any benefits  which
may be payable hereunder,  and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.

         15. Headings.  The section headings contained in this Agreement are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Agreement.

         16. Validity.  The invalidity or  unenforceability  of any provision of
this  Agreement  shall not affect the  validity or  enforceability  of any other
provisions of this Agreement, which shall remain in full force and effect.

         17.  Counterparts.  This  Agreement  may be  executed  in  one or  more
counterparts,  each of which shall be deemed to be an original  but all of which
together will constitute one and the same instrument.

         18. Regulatory Actions. The following provisions shall be applicable to
the parties or any successor thereto, and shall be controlling in the event of a
conflict  with  any  other  provision  of  this  Agreement,   including  without
limitation Section 5 hereof.

         (a) If the  Executive  is  suspended  from  office  and/or  temporarily
prohibited from  participating  in the conduct of the Bank's affairs pursuant to
notice served under Section  8(e)(3) or Section  8(g)(1) of the Federal  Deposit
Insurance Act ("FDIA")(12 U.S.C. Sections 1818(e)(3) and 1818(g)(1)), the Bank's
obligations  under this Agreement  shall be suspended as of the date of service,
unless  stayed by  appropriate  proceedings.  If the  charges  in the notice are
dismissed, the Bank may, in its discretion: (i) pay the Executive all or part of
the  compensation  withheld  while its  obligations  under this  Agreement  were
suspended, and (ii) reinstate (in whole or in part) any of its obligations which
were suspended.

         (b)  If  the  Executive  is  removed  from  office  and/or  permanently
prohibited from  participating  in the conduct of the Bank's affairs by an order
issued  under  Section  8(e)(4)  or  Section  8(g)(1)  of the  FDIA  (12  U.S.C.
Sections 1818(e)(4) and (g)(1)), all obligations of the Bank under this
Agreement shall terminate as of the effective date of the order,  but vested
rights of the Executive and the Bank as of the date of termination shall not be
affected.

         (c) If the Bank is in  default,  as defined  in Section  3(x)(1) of the
FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under this Agreement  shall
terminate as of the date of default,  but vested rights of the Executive and the
Bank as of the date of termination shall not be affected.

         19. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary,  any payments made to the Executive  pursuant to this
Agreement,  or otherwise,  are subject to and conditioned  upon their compliance
with Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)) and 12 C.F.R. Part
359.

                                       10
<PAGE>

         20. Payment of Costs and Legal Fees and  Reinstatement of Benefits.  In
the event any dispute or  controversy  arising under or in  connection  with the
Executive's  termination  is  resolved  in favor of the  Executive,  whether  by
judgment,  arbitration  or  settlement,  the Executive  shall be entitled to the
payment  of (a) all legal fees  incurred  by the  Executive  in  resolving  such
dispute or controversy, and (b) any back-pay, including Base Salary, bonuses and
any other cash  compensation,  fringe benefits and any compensation and benefits
due to the Executive under this Agreement.

         21. Arbitration. Any controversy or claim arising out of or relating to
this  Agreement,  or the breach  thereof,  shall be settled  by  arbitration  in
accordance  with the rules then in effect of the district office of the American
Arbitration  Association  ("AAA")  nearest to the home  office of the Bank,  and
judgment upon the award rendered may be entered in any court having jurisdiction
thereof,  except to the extent  that the parties  may  otherwise  reach a mutual
settlement  of such issue.  The  Employers  shall incur the cost of all fees and
expenses  associated with filing a request for arbitration with the AAA, whether
such filing is made on behalf of the Employers or the  Executive,  and the costs
and  administrative  fees  associated  with employing the arbitrator and related
administrative expenses assessed by the AAA.

         22. Entire  Agreement.  This  Agreement  embodies the entire  agreement
between the Employers and the  Executive  with respect to the matters  agreed to
herein.  All prior  agreements  between the  Employers  and the  Executive  with
respect to the matters agreed to herein are hereby  superseded and shall have no
force or effect.

                                       11
<PAGE>

         IN WITNESS  WHEREOF,  this  Agreement  has been executed as of the date
first above written.

Attest:                                   EMCLAIRE FINANCIAL CORP.

                                          By:     /s/ William C. Marsh
---------------------------------                 ------------------------------
                                                  William C. Marsh
                                                  Chief Financial Officer

                                          FARMERS NATIONAL BANK
                                            OF EMLENTON

                                          By:     /s/ William C. Marsh
                                                  ------------------------------
                                                  William C. Marsh
                                                  President and Chief Executive
                                                    Officer

                                          EXECUTIVE

                                          By:     /s/ David L. Cox
                                                  ------------------------------
                                                  David L. Cox

                                       12

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