-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PZ0biVOuOv/MrLkKt4wv/j9TEDSeH4BTgN2YFm/9B8a/2Xq0636kS16mXvR3fwZA MbM1pxIdONqeJibkMRU+1A== 0000950123-09-056995.txt : 20091103 0000950123-09-056995.hdr.sgml : 20091103 20091103172934 ACCESSION NUMBER: 0000950123-09-056995 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20091029 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Bankruptcy or Receivership ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20091103 DATE AS OF CHANGE: 20091103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CANARGO ENERGY CORP CENTRAL INDEX KEY: 0000310316 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 910881481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-32145 FILM NUMBER: 091155502 BUSINESS ADDRESS: STREET 1: P.O. BOX 291 STREET 2: ST. PETER PORT CITY: GUERNSEY, C.I. STATE: X0 ZIP: GY1 3RR BUSINESS PHONE: 44 1481 729980 MAIL ADDRESS: STREET 1: P.O. BOX 291 STREET 2: ST. PETER PORT CITY: GUERNSEY, C.I. STATE: X0 ZIP: GY1 3RR FORMER COMPANY: FORMER CONFORMED NAME: FOUNTAIN OIL INC DATE OF NAME CHANGE: 19950119 FORMER COMPANY: FORMER CONFORMED NAME: ELECTROMAGNETIC OIL RECOVERY INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ORS CORP /OK/ DATE OF NAME CHANGE: 19910515 8-K 1 u07840e8vk.htm FORM 8-K e8vk
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 29, 2009
CANARGO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
         
Delaware   001-32145   91-0881481
 
(State or other jurisdiction
Of incorporation)
  (Commission File Number)   (I.R.S. Employer
Identification No.)
     
CanArgo Energy Corporation    
P.O. Box 291, St. Peter Port
Guernsey, British Isles
  GY1 3RR
 
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code +(44) 1481 729 980
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


 


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This Current Report on Form 8-K may contain forward-looking statements within the meaning of the federal securities laws, including statements regarding the intent, belief or current expectations of the Company and its management which are made with words such as “will,” “expect,” “believe,” and similar words. These forward-looking statements involve a number of risks, uncertainties and other factors, which may cause the actual results to be materially different from those expressed or implied in the forward-looking statements Such risks, uncertainties and other factors include, among other matters, the uncertainties inherent in oil and gas activities; the effects of the Company’s impaired financial condition; the effects of actions by third parties including creditors and government officials; fluctuations in world oil prices and other risks detailed in the Company’s reports on Forms 10-K and 10-Q previously filed with the Securities and Exchange Commission; the effects of the Chapter 11 filing on the Company and the interests of various creditors, equity holders and other constituents; Bankruptcy Court rulings in the Chapter 11 case and the outcome of any such proceedings in general; the length of time the Company will operate under the Chapter 11 proceeding; the risks associated with third party motions in the Chapter 11 proceeding, which may interfere with the Company’s ability to consummate the plan of reorganization; the potential adverse effects of the Chapter 11 proceeding on the Company’s liquidity or results of operations; continued compliance with conditions for funding under the secured credit facility obtained to fund the Company while in the Chapter 11 proceeding; the ability to execute the Company’s business and restructuring plan; management of cash resources; restrictions imposed by, and as a result of, the Company’s substantial leverage; increased legal costs related to a bankruptcy case and other litigation and the Company’s ability to maintain contracts that are critical to its operation, to obtain and maintain normal terms with customers, suppliers and service providers and to retain key executives, managers and employees.
The Company does not intend to review, revise, or update any particular forward-looking statements in light of future events.
Section 1 — Registrant’s Business and Operations
Item 1.01 Entry into a Material Definitive Agreement
The information set forth under Item 1.03 “Bankruptcy or Receivership” is incorporated herein by reference.
Item 1.03 Bankruptcy or Receivership.
As previously disclosed in the Current Report on Form 8-K filed on October 28, 2009 by CanArgo Energy Corporation (the “Company”), on October 28, 2009, the Company filed a voluntary petition seeking relief under Chapter 11 (the “Chapter 11 Case”) of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). The Chapter 11 Case is being administered under the caption In re CanArgo Energy Corporation, No. 09-16453.
On October 29, 2009, the Company as Debtor in Possession and Persistency (the “Lender”) entered into a Debtor-in-Possession Financing Agreement (the “DIP Credit Agreement”) and other financing documents by and between the Debtor and the Lender and by and between certain of Debtor’s direct and indirect subsidiaries and Lender, including forms of Secured Promissory Note, Security Agreement, Pledge Agreement under New York Law, Security Agreement under Guernsey Law and Subsidiary Guarantee Agreement (together with the DIP Credit Agreement, collectively, the “Financing Documents”). The Bankruptcy Court subsequently approved the DIP Credit Agreement and authorized a draw down pursuant to an Interim Financing Order.

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The DIP Credit Agreement was previously summarized in the Term Sheet comprising Exhibit A to the Plan Support and Lock-Up Agreement filed as an Exhibit to the Company’s Current Report on Form 8-K filed on October 28, 2009, and the Company also disclosed that the DIP Credit Agreement provides for a commitment by the Lender to lend the Debtor up to $1.2 million in one or more advances, which advances may not be repaid and re-borrowed. The proceeds from the initial advance under the DIP Credit Agreement were used to repay the outstanding amount of $73,122 due under a bridge loan of up to $550,000 (under which $408,470 was drawn and partly repaid) previously provided by Persistency to CanArgo Limited, the Company’s wholly owned Guernsey subsidiary and the reimbursement of professional fees previously incurred by Persistency in the amount of $253,087 and, among other things, to provide the Company with working capital for general corporate purposes. The DIP Credit Agreement contains events of default and includes certain financial covenants. The above summary of the DIP Credit Agreement is qualified in its entirety by reference to the DIP Credit Agreement and related Financing Documents, copies of which, in the form approved by the Bankruptcy Court, are attached hereto as Exhibits 10.1 through 10.6.
Section 2 — Financial Information
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth under Item 1.03 “Bankruptcy or Receivership” is incorporated herein by reference.
Item 8.01 Other Events.
Periodic Reports
Under the Bankruptcy Code and related rules, the Company is required to file certain information and periodic reports with the Bankruptcy Court. The reports are limited in scope, cover a limited time period and will be prepared solely for the purpose of the Debtor’s compliance with the reporting requirements of the Bankruptcy Court. The financial information in the reports will not be audited or reviewed by independent registered accountants and will not be presented in accordance with generally accepted accounting principles, will be in a format prescribed by applicable bankruptcy laws and will be subject to future adjustment and reconciliation. There can be no assurance that the reports will be complete. The reports also will contain information for periods which may be shorter or otherwise different from those contained in reports required pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The reports will not include footnotes that would ordinarily be contained in the financial statements in the Company’s quarterly and annual reports pursuant to the Exchange Act. In addition, the income tax provision in the reports will be difficult to ascertain as a result of many factors, including, among other things, the Company’s inability to predict taxable income that may be generated as a result of any cancellation of indebtedness that might occur as a result of the bankruptcy proceeding involving the Company. Results set forth in the reports should not be viewed as indicative of future results.
Bankruptcy Materials
On October 28, 2009, the Company filed certain materials with the Bankruptcy Court (together with future filings with the Bankruptcy Court, the “Bankruptcy Materials”). The Bankruptcy Materials contain unaudited summary financial information relating to the Company’s assets and liabilities and operating results in the form required under the Bankruptcy Code and the rules and regulations thereunder. The Bankruptcy Materials are available to the public via the Bankruptcy Court’s Case Management/Electronic Case Filing system at http://ecf.mdb.uscourts.gov and in paper format at the following address: Bankruptcy

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Clerk’s Office, U.S. Bankruptcy Court, Alexander Hamilton Custom House, One Bowling Green, New York, NY 10004-1408 (telephone number: (212) 668-2870).
The Bankruptcy Materials contain financial information that has not been and will not be audited or reviewed by independent registered accountants and is and will not be not presented in accordance with generally accepted accounting principles. The information contained in the Bankruptcy Materials has been and will be prepared in accordance with the Bankruptcy Code and the rules and regulations thereunder and was not and will not be prepared for the purpose of providing a basis for an investment decision relating to any securities of the Company. The Bankruptcy Materials also contain information for periods that are shorter or otherwise different from those required by the periodic reporting requirements of the Exchange Act, and the rules and regulations thereunder, and such information may not be indicative of the Company’s financial condition or operating results for the period that would be reflected in its financial statements or in its reports pursuant to the Exchange Act or the rules and regulations thereunder. Results set forth in the Bankruptcy Materials should not be viewed as indicative of future results. There can be no assurance that the Bankruptcy Materials are complete. The Company may amend, supplement or otherwise change the information contained in the Bankruptcy Materials at a future date.
Item 9.01 Financial Statements and Exhibits.
(d)   Exhibits.
     
Exhibit No.   Description
10.1
  Debtor in Possession Financing Agreement
10.2
  Form of Secured Promissory Note
10.3
  Form of Security Agreement
10.4
  Form of U.S. Pledge Agreement
10.5
  Form of Guernsey Pledge Agreement
10.6
  Form of Subsidiary Guarantee

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  CANARGO ENERGY CORPORATION
 
 
Date: November 3, 2009  By:   /s/ Vincent McDonnell    
    Vincent McDonnell, President   

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EX-10.1 2 u07840exv10w1.htm EXHIBIT 10.1 exv10w1
Exhibit 10.1
 
DEBTOR IN POSSESSION FINANCING
AGREEMENT
Dated as of ___, 2009
by and between
CANARGO ENERGY CORPORATION
as debtor and debtor-in-possession and
as Borrower, and
PERSISTENCY, as Lender
 

 


 

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DEBTOR IN POSSESSION FINANCING AGREEMENT
     DEBTOR IN POSSESSION FINANCING AGREEMENT by and between CANARGO ENERGY CORPORATION, a Delaware corporation, debtor in possession (“Borrower” or “CanArgo”) and PERSISTENCY, a Cayman Islands limited company (“Lender” or “Persistency”) dated as of October ___, 2009.
WITNESSETH:
WHEREAS, CanArgo is currently in default of its obligations to Persistency in an amount through the date hereof of $12,726,116, and is also in default of its obligations to certain other creditors of Canargo; and
WHEREAS, CanArgo, Persistency and certain other creditors of CanArgo have entered into a Plan Support and Lock —Up Agreement dated as of August 6, 2009 (the “Plan Support Agreement”) pursuant to which the parties thereto have agreed to support a proposed chapter 11 plan for CanArgo (the “Plan”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”); and
WHEREAS, pursuant to a binding Commitment Letter dated October 22, 2009 (the “Commitment Letter”) and to provide financing to Borrower so that it may pursue confirmation of the Plan, Lender has agreed to provide to Borrower a debtor-in-possession credit facility in an amount of up to $1,200,000 (the “Commitment”) consisting of a multiple draw term loan in an aggregate principal amount at any time outstanding not to exceed the Commitment, and the Lender has agreed to provide such facility upon the terms and conditions set forth in this Agreement and the other loan documents referenced herein; and
WHEREAS, on October 28, 2009, the Borrower commenced a case, Case No. 09-16453 (AJG) (the “Chapter 11 Case”) under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), and the Borrower has retained possession of its assets and is authorized under the Bankruptcy Code to continue the operation of its business as debtor-in-possession.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS; CERTAIN TERMS
     Section 1.01 Definitions. As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:
     “Action” has the meaning specified therefor in Section 8.11.
     “Advance” has the meaning ascribed thereto in Section 2.01(a).

 


 

     “Affiliate” means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, either to (i) vote 50% or more of the Capital Stock having ordinary voting power for the election of directors of such Person or (ii) direct or cause the direction of the management and policies of such Person whether by contract or otherwise.
     “Agreement” means this Debtor In Possession Financing Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative.
     “Assignment and Acceptance” has the meaning ascribed thereto in Section 8.05(b).
     “Authorized Officer” means, with respect to any Person, the chief executive officer, chief financial officer, president, executive vice president or treasurer of such Person.
     “Availability” means, at any time, an amount equal to the difference between the Commitment and the aggregate outstanding principal amount of the Loan at such time, less the Professionals Fee and Expense Deposit.
     “Bankruptcy Code” has the meaning specified therefor in the recitals hereto.
     “Bankruptcy Court” has the meaning specified therefor in the recitals hereto.
     “Borrower” has the meaning specified therefor in the preamble hereto.
     “Borrower Counsel” has the meaning specified therefor in Section 6.01(f).
     “Bridge Loan” means that certain loan made by Persistency to CGuern at the request of Borrower and CGuern under a loan agreement dated October 14, 2009.
     “Budget” has the meaning specified therefor in Section 6.01(a).
     “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required to close.
     “CanArgo” has the meaning specified therefor in the preamble hereto.
     “CanArgo Group” means CanArgo, together with all of its direct and indirect subsidiaries (as fully described in Exhibit I).
     “Capital Expenditures” means, with respect to any Person for any period, the sum of (i) the aggregate of all expenditures by such Person and its Subsidiaries during such period that in accordance with GAAP are or should be included in “property, plant and equipment” or in a similar fixed asset account on its balance sheet, whether such expenditures are paid in cash or financed and including all Capitalized Lease Obligations paid or payable during such period, and (ii) to the extent not covered by clause (i) above, the aggregate of all expenditures by such

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Person and its Subsidiaries during such period to acquire by purchase or otherwise the business or fixed assets of, or the Capital Stock of, any other Person.
     “Capital Stock” means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, and (ii) with respect to any Person that is not a corporation, any and all partnership, membership or other equity interests of such Person.
     “Capitalized Lease” means, with respect to any Person, any lease of real or personal property by such Person as lessee which is (i) required under GAAP to be capitalized on the balance sheet of such Person or (ii) a transaction of a type commonly known as a “synthetic lease” (i.e., a lease transaction that is treated as an operating lease for accounting purposes but with respect to which payments of rent are intended to be treated as payments of principal and interest on a loan for Federal income tax purposes).
     “Capitalized Lease Obligations” means, with respect to any Person, obligations of such Person and its Subsidiaries under Capitalized Leases, and, for purposes hereof, the amount of any such obligation shall be the capitalized amount thereof determined in accordance with GAAP.
     “Carve-Out Expenses” means (i) all unpaid fees required to be paid to the Clerk of the Bankruptcy Court and to the Office of the United States Trustee under Section 1930(a) of the Bankruptcy Code (“Court Costs”), (ii) an amount to satisfy unpaid fees and expenses of the attorneys, accountants and other professionals retained by the Debtors that are appointed by the Bankruptcy Court in the Chapter 11 Case pursuant to Sections 327, 328, 330, or 331 of the Bankruptcy Code (“Professionals”) and solely to the extent provided for in the Chapter 11 Professionals Fees Line Item (defined below), and subject to any additional limitations set forth in the Orders (collectively, the “Pre-Default Professional Expenses”), which are incurred prior to the day following delivery by the Lender of a Carve-Out Trigger Notice whether or not allowed prior to or after such date, and (iii) Court Costs and allowed and unpaid fees and expenses of Professionals (“Post-Default Professional Expenses”) incurred on and after the first day after the delivery of a Carve-Out Trigger Notice in an aggregate amount not to exceed $50,000; provided, however, that nothing herein shall be deemed to limit the ability of any party to object to any Professional’s fees and expenses and reimbursement thereof in accordance with the Bankruptcy Code and Federal Rules of Bankruptcy Procedure and applicable local rules and any applicable order of the Bankruptcy Court; and provided further, that the total amount of Carve-Out Expenses (including any permitted variances hereunder) shall not exceed two hundred seventy five thousand dollars ($275,000.00) plus Court Costs (the “Overall Carve-Out Cap”), exclusive of the Post-Default Professional Expenses.
     “Carve-Out Trigger Notice” mean a written notice delivered by the Lender to the Borrower and its counsel which notice may be delivered at any time following the occurrence and during the continuation of an Event of Default.
     “CGuern” means CanArgo Ltd. (Guernsey).

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     “CGuern Group” means CGuern and the direct and indirect subsidiaries of CGuern which include all of the Company’s operating subsidiaries, all of which are more fully described in Exhibit II.
     “Chapter 11 Case” has the meaning specified therefor in the recitals hereto.
     “Chapter 11 Professionals Fees Line Item” means the amounts set forth in the Chapter 11 Professional Fees line item contained in the Budget in respect of fees and expenses incurred by Professionals, as may be amended with Lender’s written consent in its discretion pursuant to Section 2.06.
     “Closing Fees” has the meaning ascribed thereto in Section 2.03(a).
     “Collateral” has the meaning ascribed thereto in the Security Agreement and Pledge Agreement, as applicable.
     “Commitment” has the meaning specified therefor in the recitals hereto.
     “Conversion” has the meaning ascribed thereto in Section 2.04.
     “Conversion Date” means the effective date of the Conversion.
     “Court Costs” has the meaning ascribed to such term in the definition of the term “Carve-Out Expenses.”
     “Cure Period” has the meaning ascribed thereto in Section 7.01(a).
     “Debtors” means collectively the Borrower, the Pledgors and the Guarantors.
     “Default” means an event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.
     “Disclosure Statement” means the Disclosure Statement as filed initially in the Chapter 11 Case and as subsequently approved by the Bankruptcy Court.
     “Default Interest” means the interest charged upon the amount of the outstanding Obligations due and payable upon the occurrence of an Event of Default and during its continuance at the Post-Default Rate.
     “Dollar,” “Dollars” and the symbol “$” each means lawful money of the United States of America.
     “Effective Date” means the date on which the Plan becomes effective, as provided therein.
     “Event of Default” has the meaning ascribed thereto in Section 7.01.
     “Excess Budget Variance” has the meaning ascribed thereto in Section 6.01(a).

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     “Exchange Act” means the Securities Exchange Act of 1934, as amended.
     “Exit Draw” means an Advance in an amount, if any, that in all cases shall be less than or equal to the Availability at the Effective Date and immediately prior to making such Advance, which is required for the Bankruptcy Court to confirm the Plan, which Advance shall be made upon satisfaction of the following conditions: (i) the Exit Draw Advance not exceeding the Availability on such date; (ii) Borrower having complied in all respects with this Agreement, including without limitation the Budget, and all other Loan Documents, through the date of the Exit Draw and with respect to the Exit Draw; and (iii) the prior entry of a Final Order confirming the Plan. For the avoidance of doubt, the Exit Draw shall only be made and used for payment of amounts set forth in the Budget or otherwise disclosed to and expressly agreed to by Lender.
     “Filing Date” means the date on which the Chapter 11 Case was commenced.
     “Final Financing Order” means the order of the Bankruptcy Court approving this Agreement and the Loan Documents, including the Loan, substantially in the form of the Interim Financing Order and otherwise in form and substance reasonably satisfactory to the Lender, which order shall be in full force and effect and has not been vacated, modified, or amended in any material respect (without the express written joinder or consent of the Lender), reversed, overturned or stayed.
     “Final Maturity Date” means the date which is the earliest of (i) the day which is ninety (90) days after the Filing Date (unless for purposes of this clause (i), there is a Final Maturity Date Extension in which case, the day which is one hundred twenty (120) days after the Filing Date), (ii)the Conversion Date, or (iii) the date the Loan becomes due and payable upon the occurrence of an Event of Default and the expiration of any applicable grace period.
     “Final Maturity Date Extension” means a one-time thirty (30) day extension of the ninety (90) day period provided in clause (i) of the definition of the term Final Maturity Date to one hundred twenty (120) days, as provided in Section 2.05 hereof.
     “Final Order Entry Date” means the date on which the Final Financing Order shall have been duly signed and entered by the Bankruptcy Court.
     “Final Order” means an order of the Bankruptcy Court which is no longer subject to appeal and as to which no appeal is pending.
     “Financial Statements” means the unaudited preliminary consolidated balance sheet of the Borrower and its Subsidiaries for the Fiscal Year ended December 31, 2008 and the related unaudited preliminary consolidated statement of operations, shareholders’ equity and cash flows for the Fiscal Year then ended as filed with the SEC on March 3, 2009 by CanArgo as an Exhibit to a Current Report on Form 8-K.
     “First Day Orders” means all orders entered by the Bankruptcy Court on or shortly after the Filing Date or based on motions or applications filed on the Filing Date.
     “Fiscal Year” means the fiscal year of the Borrower ending on December 31 of each year.

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     “GAAP” means generally accepted accounting principles in effect from time to time in the United States, applied on a consistent basis.
     “Governmental Authority” means any nation or government, any federal, state, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
     “Guarantees” means the collective reference to the Subsidiary Guarantees.
     “Guarantors” means, collectively, (i) Ninotsminda Oil Company Limited, a company incorporated and existing in the Republic of Cyprus, (ii) CanArgo (Nazvrevi) Limited, a company incorporated and existing in the Bailiwick of Guernsey, British Isles, (iii) CanArgo Norio Limited, a company incorporated and existing in the Republic of Cyprus, (iv) CanArgo Limited, a company incorporated and existing in the Bailiwick of Guernsey, British Isles, (v) CanArgo Samgori Limited, a company incorporated and existing in the Bailiwick of Guernsey, British Isles, (vi) CanArgo Georgia Limited, a company incorporated and existing in the Republic of Georgia, (vii) CanArgo Services (UK) Limited, a company incorporated and existing in England, (viii) any other entity who, as of the Interim Facility Effective Date, will become a party to a Subsidiary Guarantee Agreement with the Lender guaranteeing the Obligations of the Borrower under the Agreement, and (ix) NewCo, as and when it is formed.
     “Highest Lawful Rate” means, with respect to the Lender, the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Obligations under laws applicable to the Borrower or the Lender which are currently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow.
     “Indebtedness” means, with respect to any Person, without duplication, (i) all indebtedness of such Person for borrowed money; (ii) all obligations of such Person for the deferred purchase price of property or services (other than trade payables or other accounts payable incurred in the ordinary course of such Person’s business); (iii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or upon which interest payments are customarily made; (iv) all reimbursement, payment or other obligations and liabilities of such Person created or arising under any conditional sales or other title retention agreement with respect to property used and/or acquired by such Person, even though the rights and remedies of the lessor, seller and/or lender thereunder may be limited to repossession or sale of such property; (v) all Capitalized Lease Obligations of such Person; (vi) all obligations and liabilities, contingent or otherwise, of such Person, in respect of letters of credit, acceptances and similar facilities; (vii) all contingent obligations; and (viii) all obligations referred to in clauses (i) through (vii) of this definition of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. The Indebtedness of any Person shall include the

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Indebtedness of any partnership of or joint venture in which such Person is a general partner or a joint venturer.
     “Indemnitees” has the meaning ascribed thereto in Section 8.13.
     “Indemnified Matters” has the meaning ascribed thereto in Section 8.13.
     “Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
     “Interim Facility Amount” means the maximum principal amount of the Loan approved by the Bankruptcy Court in the Interim Financing Order to be made available to the Borrower prior to the date of entry of the Final Financing Order.
     “Interim Facility Effective Date” has the meaning specified therefore in Section 4.01.
     “Interim Financing Order” means the interim order of the Bankruptcy Court, substantially in the form of Exhibit A hereto, approving this Agreement and the other Loan Documents, and otherwise in form and substance reasonably satisfactory to the Lender , which order shall be in full force and effect and has not been vacated, modified, amended (without the express written consent of the Lender), reversed, overturned or stayed in any material respect.
     “Interim Order Entry Date” means the date on which the Interim Bankruptcy Court Order shall have been duly signed and entered by the Bankruptcy Court.
     “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended (or any successor statute thereto) and the regulations thereunder.
     “Knowledge” means, when referring to the knowledge of Borrower or the Subsidiaries, the actual and not constructive knowledge of Vincent McDonnell or Jeffrey Wilkins.
     “Lease” means any lease of real property to which the Borrower is a party as lessor or lessee.
     “Lender” has the meaning specified therefor in the preamble hereto.
     “Lien” or “Liens” means singularly or collectively, any mortgage, deed of trust, pledge, lien (statutory or otherwise), security interest, charge or other encumbrance or security or preferential arrangement of any nature, including, without limitation, any conditional sale or title retention arrangement, any Capitalized Lease and any assignment, deposit arrangement or financing lease intended as, or having the effect of, security.
     “Loan” means a loan made by the Lender to the Borrower pursuant to Section 2.01.

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     “Loan Documents” means this Agreement, the Promissory Note, the Interim Financing Order, the Final Financing Order, the Security Agreement, the Pledge Agreement, the Subsidiary Guarantee Agreement and all other agreements, instruments, and other documents executed and delivered pursuant hereto or thereto or otherwise evidencing or securing the Loan or any other Obligations.
     “Loan Request” has the meaning ascribed thereto in Section 2.02.
     “Material Adverse Change” means a material adverse effect on (i) the ability of the Debtors to perform their respective obligations under this Agreement or any other Loan Documents, or (ii) the businesses as conducted by the Debtors as of the Filing Date taken as a whole, but excluding any effect resulting from or relating to (a) the effects of the Chapter 11 Case on the Debtors, or (b) any public announcement of this Agreement or the Chapter 11 Case, but including any Insolvency Proceeding of a Subsidiary.
     “Material Contract” means any contract or other agreement (other than the Loan Documents), written or oral, of Borrower or a Subsidiary as to which the breach, nonperformance, cancellation or failure to renew by any party thereto would cause a Material Adverse Change.
     “NewCo” means the company to be incorporated and exist in the Bailiwick of Guernsey, British Isles, to enable the consummation of the transactions set forth in the Plan, which shall become the sole shareholder of CanArgo (Guernsey) and which shall have no liabilities at the time of the transfers made to it pursuant to the Plan other than debt issued pursuant to the Plan.
     “NewCo Preferred Stock” has the meaning ascribed thereto in Section 2.04.
     “Non-Material Professional Expenses Budget Variance” means, for any monthly period under the Budget, a variance of not more than thirty-five percent (35%) above the Chapter 11 Professionals Fees Line Item during such period; provided that under no circumstances shall cumulative fees and expenses by Professionals exceed the Overall Carve-Out Cap.
     “Non-Material Non- Professional Expenses Budget Variance” means, for any monthly period under the Budget, a variance in aggregate expenses for the period (excluding Professionals fees and expenses and any Reasonable Unforeseen Operational Expenditure) of not more than ten percent (10%) above the Operating Budget.
     “Non-Material Production Budget Variance” means for a given month cumulative oil and gas production for such period that is not less than eighty-five percent (85%) in the aggregate of anticipated cumulative gas and oil production during such period, as such items are set forth in the Budget during such period.
     “Obligations” means all present and future indebtedness, obligations, indemnities and liabilities of the Debtors to the Lender under the Loan Documents, whether or not the right of payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured, unsecured, and whether or not such claim is discharged, stayed or otherwise affected by the Chapter 11 Case. Without limiting the generality of the foregoing, the Obligations of the Borrower under the Loan

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Documents include (a) the obligation to pay principal, Default Interest, charges, expenses, fees, attorneys’ fees and disbursements, indemnities and other amounts payable by such Person under the Loan Documents, and (b) the obligation of such Person to reimburse any amount in respect of any of the foregoing that the Lender (in its sole discretion) may elect to pay or advance on behalf of such Person.
     “Operating Budget” for a given period shall mean all of the expenses set forth in the Budget for such period other than the Chapter 11 Professional Fees Line Item for such period.
     “Operating Lease Obligations” means all obligations for the payment of rent for any real or personal property under leases or agreements to lease, other than Capitalized Lease Obligations.
     “Orders” means the Interim Financing Order and the Final Financing Order.
     “Overall Carve-Out Cap” has the meaning ascribed to such term in the definition of the term “Carve-Out Expenses.”
     “Permitted Indebtedness” means the Indebtedness set forth on a Schedule to this Agreement.
     “Permitted Investments” means, in each case, as permitted by Section 345 of the Bankruptcy Code or pursuant to orders entered by the Bankruptcy Court, (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within six months from the date of acquisition thereof; (ii) commercial paper, maturing not more than 270 days after the date of issue rated P-1 by Moody’s or A1 by Standard & Poor’s; (iii) certificates of deposit maturing not more than 270 days after the date of issue, issued by commercial banking institutions and money market or demand deposit accounts maintained at commercial banking institutions, each of which is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000; (iv) repurchase agreements having maturities of not more than 90 days from the date of acquisition which are entered into with major money center banks included in the commercial banking institutions described in clause (iii) above and which are secured by readily marketable direct obligations described in clause (i) above; (v) money market accounts maintained with mutual funds having assets in excess of $2,500,000,000; and (vi) tax exempt securities rated A or better by Moody’s or A+ or better by Standard & Poor’s.
     “Permitted Liens” means:
     (a) Liens securing the Obligations;
     (b) (i) royalties, overriding royalties, reversionary interests, production payments and similar burdens which are in existence on the date hereof and disclosed on a Schedule hereto; (ii) sales contracts or other arrangements for the sale of production hydrocarbons which would not (when considered cumulatively with the matters discussed in clause (i) above) deprive any Debtor of any material right in respect of its assets or properties (except for rights customarily granted with respect to such contracts and arrangements); (iii) statutory Liens for taxes or other

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assessments that are not yet delinquent (or that, if delinquent, have been disclosed on a Schedule and are being contested in good faith by appropriate proceedings, levy and execution thereon having been stayed and continue to be stayed and for which Borrower has set aside on its books adequate reserves in accordance with GAAP); (iv) easements, rights of way, servitudes, permits, surface leases and other rights in respect to surface operations, pipelines, grazing, logging, canals, ditches, reservoirs or the like, conditions, covenants and other restrictions, and easements of streets, alleys, highways, pipelines, telephone lines, power lines, railways and other easements and rights of way on, over or in respect of any Debtor’s assets or properties and that do not individually or in the aggregate, cause a Material Adverse Change (or if they exist as of the date hereof, are disclosed or summarized on a Schedule); (v) rights reserved to or vested in any Governmental Authority to control or regulate a Debtor’s assets and properties in any manner, and all applicable laws, rules and orders from any Governmental Authority; and (vi) those Liens as to which payment and enforcement is stayed under the Bankruptcy Code or pursuant to orders of the Bankruptcy Court;
     (c) Liens existing on the Filing Date that are disclosed in the Schedules; and
     (d) deposits and pledges of cash securing (i) obligations incurred in respect of workers’ compensation, unemployment insurance or other forms of governmental insurance or benefits, (ii) the performance of bids, tenders, leases, contracts (other than for the payment of money) and statutory obligations or (iii) obligations on surety or appeal bonds, but only to the extent such deposits or pledges are incurred or otherwise arise in the ordinary course of business and secure obligations not past due or as to which payment and enforcement is stayed under the Bankruptcy Code or pursuant to orders of the Bankruptcy Court, and which are disclosed on a Schedule.
     “Permitted Priority Lien” shall mean any valid, perfected non-avoidable Permitted Liens existing on the Filing Date.
     “Permitted Professional Expenses” means the fees and expenses of Professionals for a given period of time, subject to allowance by the Bankruptcy Court, which do not exceed the Chapter 11 Professionals Fees Line Item in the Budget plus the Non-Material Professional Expenses Budget Variance associated with that period of time, that are payable as Carve-Out Expenses hereunder.
     “Person” means an individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or other enterprise or entity or Governmental Authority.
     “Plan” means a plan of reorganization as filed initially in the Chapter 11 Case and as subsequently approved by the Bankruptcy Court.
     “Pledge Agreement” means the two pledge agreements in substantially the forms of Exhibit B by and between the Pledgor and Lender, as the same may be amended or supplemented in accordance therewith, by which the Pledgor pledges the shares of CGuern to Lender, under both New York law and Guernsey law.
     “Pledgor” means Borrower.

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     “Post-Closing Fees” has the meaning ascribed to such term in Section 2.03(b) hereof.
     “Post-Default Rate” means a rate of interest per annum equal to the lower of fifteen percent (15%) or the Highest Lawful Rate.
     “Post-Default Professional Expenses” and “Pre-Default Professional Expenses” have the meanings ascribed to such terms in the definition of the term “Carve-Out Expenses.”
     “Professionals” has the meaning ascribed to such term in the definition of the term “Carve-Out Expenses.”
     “Professionals Fee and Expense Deposit” means a deposit of cash by Lender into a separate account established by Lender in the amount of the aggregate post-petition amount of the Chapter 11 Professionals Fees Line Item, which shall occur upon entry of the Final Financing Order and be subject to Section 2.02(c) hereof.
     “Promissory Note” means a term promissory note of the Borrower, made payable to the order of the Lender, evidencing the Indebtedness resulting from the making by the Lender to the Borrower of the Loan, in the form of Exhibit C as such promissory note may be amended, supplemented, restated, modified or extended from time to time, and any promissory note or notes issued in exchange or replacement therefor.
     “Property” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.
     “Reasonable Unforeseen Operational Expenditure” shall have the meaning set forth in Section 6.01(c).
     “Requisite Priority” means, subject to the Carve-Out Expenses:
     (i) pursuant to Bankruptcy Code § 364(c)(2), a first priority, perfected Lien upon the Borrower’s right, title and interest in, to and under the Collateral that is not otherwise encumbered by a valid, perfected, non-avoidable Permitted Priority Lien on the Filing Date; and
     (ii) pursuant to Bankruptcy Code § 364(c)(3), a second priority, perfected Lien upon the Borrower’s right, title and interest in, to and under all Collateral that is subject to a Permitted Priority Lien on the Filing Date.
     “SEC” means the Securities and Exchange Commission or any other similar or successor agency of the Federal government administering the Securities Act.
     “Securities Act” means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect from time to time hereof.
     “Security Agreement” means the security agreement by and between the Borrower and the Lender in substantially the form of Exhibit D as the same may be amended or supplemented in accordance therewith.

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     “Subsidiary” means, with respect to any Person at any date, any corporation, limited or general partnership, limited liability company, trust, estate, association, joint venture or other business entity (i) the accounts of which would be consolidated with those of such Person in such Person’s consolidated financial statements if such financial statements were prepared in accordance with GAAP or (ii) of which more than 50% of (A) the outstanding Capital Stock having (in the absence of contingencies) ordinary voting power to elect a majority of the board of directors or other managing body of such Person, (B) in the case of a partnership or limited liability company, the interest in the capital or profits of such partnership or limited liability company or (C) in the case of a trust, estate, association, joint venture or other entity, the beneficial interest in such trust, estate, association or other entity business is, at the time of determination, owned or controlled directly or indirectly through one or more intermediaries, by such Person.
     “Subsidiary Guarantee Agreement” means the Subsidiary Guarantee Agreement in the form of Exhibit E to be executed and delivered by each of the Guarantors, as the same may be amended or supplemented in accordance therewith.
     “Uniform Commercial Code” or “UCC” has the meaning specified therefor in Section 1.03.
     Section 1.02 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the context requires otherwise, (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, and Exhibits shall be construed to refer to Articles and Sections of, and Exhibits to, this Agreement, (e) all references herein to Schedules shall be construed to refer to Schedules hereto and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. References in this Agreement to “determination” by the Lender include good faith estimates by the Lender (in the case of quantitative determinations) and good faith beliefs by the Lender (in the case of qualitative determinations).
     Section 1.03 Accounting and Other Terms. Unless otherwise expressly provided herein, each accounting term used herein shall have the meaning given it under GAAP applied on a basis consistent with those used in preparing the Financial Statements. All terms used in this Agreement which are defined in Article 8 or Article 9 of the Uniform Commercial Code as in effect from time to time in the State of New York (the “Uniform Commercial Code”) and which are not otherwise defined herein shall have the same meanings herein as set forth therein,

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provided that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of New York on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute except as the Lender may otherwise determine.
     Section 1.04 Time References. Unless otherwise indicated herein, all references to time of day refer to Eastern Standard Time or Eastern Daylight Saving Time, as in effect in New York City on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”; provided, however, that with respect to a computation of fees or interest payable to the Lender, such period shall in any event consist of at least one full day.
ARTICLE II.
THE LOAN
     Section 2.01 Commitment.
     (a) Subject to the terms and conditions and relying upon the representations, warranties and covenants herein set forth, and subject to the Interim Financing Order and the Final Financing Order, the Lender agrees, on the terms and conditions hereinafter set forth, to make a multiple draw term loan (the “Loan”) to the Borrower in an aggregate principal amount at any time outstanding not to exceed the Commitment. Within the limit of the amount of the Commitment and subject to the other terms set forth herein, the Borrower shall receive advances under the Loan (each an “Advance”), on or after the Interim Facility Effective Date, pursuant to this Article II, and as provided herein. Any amount advanced under the Loan once repaid or prepaid may not be reborrowed.
     (b) Notwithstanding the foregoing, (i) no Advance shall be requested if such Advance would exceed the Availability before giving effect to such Advance, (ii) prior to the date of entry of the Final Financing Order, the aggregate outstanding principal amount of the Loan shall not exceed the Interim Facility Amount and (iii) no Loan shall be made or requested in excess of either such amount.
     Section 2.02 Advances; Carve-Out Expenses/Professionals Fee And Expense Deposit; Repayment; Other Mechanics.
     (a) Making of Advances. As a condition precedent to the making of each Advance, the Lender shall have received a written loan request (in the form of Exhibit G, together with a schedule of the payments to be made by the Borrower with the proceeds thereof, a “Loan Request”) together with telephonic notice thereof, from the Borrower on or before 12:00 noon (New York City time) on the date which is three (3) Business Days prior to the date of the Advance requested under the Loan. Each Advance must be in a minimum amount of $30,000, and if greater shall be in integral multiples of $10,000, and shall be made by Lender in immediately available funds wire transferred for deposit in an account designated in the Loan Request. The Lender may act without liability upon the basis of written, telecopied or telephonic notice believed by the Lender in good faith to be from the Borrower (or from any Authorized

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Officer thereof designated in writing purportedly from the Borrower to the Lender). The Lender shall be entitled to rely conclusively on any Authorized Officer’s authority to request an Advance under the Loan on behalf of the Borrower until the Lender receives written notice to the contrary. The Lender shall have no duty to verify the authenticity of the signature appearing on any Loan Request. Advances shall be requested only to the extent permitted under this Agreement. For the avoidance of doubt, the Exit Advance and the Professionals Fee and Expense Deposit are contemplated Advances under the Loan.
     (b) Carve-Out Expenses. The Lender shall, subject to the terms and conditions set forth in this Agreement, permit Borrower to pay Carve-Out Expenses, including by seeking Advances of the Loan to pay same, including any necessary Advance of the Loan to pay Post-Default Professional Expenses, in each case only to the extent permitted under Section 6.01(b) and only if all terms and conditions associated with requesting Advances (including without limitation utilization of all available cash prior to seeking an Advance) have all been satisfied. Nothing herein shall increase the Commitment and nothing in herein shall allow Borrower to pay Carve-Out Expenses in excess of the Overall Carve-Out Cap. In consideration of Lender’s agreement with respect to the Carve-Out Expenses, Borrower and its estate shall, and hereby are deemed to, waive any claims against the Collateral under Section 506(c) of the Bankruptcy Code.
     (c) Professional Fee Reserve and Professionals Fee and Expense Deposit. No later than the date of the hearing on confirmation of the Plan, and upon receipt of notice of the amount by which the Professional Fee Reserve (as defined in the Plan) is to be funded, to the extent that Borrower does not have cash from operations to fund the Professional Fee Reserve (in the manner and as provided in Section 6.01(b)), funds shall be transferred from the Professionals Fee and Expense Deposit to the Professional Fee Reserve with respect to amounts incurred and allowed to be paid under this Agreement. If a Carve-Out Trigger Notice is delivered by the Lender, then upon the Bankruptcy Court’s final allowance of Professionals’ fees and expenses, to the extent that Borrower does not have cash from operations to pay such amounts (in the manner and as provided in Section 6.01(b)), Professionals shall be entitled to be paid from the Professionals Fee and Expense Deposit with respect to amounts incurred and allowed to be paid under this Agreement. Amounts from the Professionals Fee and Expense Deposit transferred to the Professional Fee Reserve or paid to Professionals shall be Advances. To the extent that the Professional Fee Reserve is fully or partially funded or Professionals are fully or partially paid, as applicable, by Borrower’s use of cash from operations (in the manner and as provided in Section 6.01(b)), the amount of the Professionals Fee and Expense Deposit shall be reduced by the amount of such funding and the amount of such reduction shall be refunded to Lender and Availability shall increase by the amount so refunded. The Final Financing Order shall expressly refer to this provision.
     (d) Repayment of Loan. The aggregate outstanding principal of the Loan, as well as all other amounts due hereunder or under the other Loan Documents shall be due and payable in cash on the Final Maturity Date unless converted in accordance with the Conversion. All payments under this Agreement to the Lender shall be made by wire transfer of immediately available funds for deposit in an account designated in writing by the Lender to the Borrower at least three (3) Business Days prior to the date of payment thereof. If any payment shall become due on a day that is not a Business Day, such payment shall be made on the next succeeding day

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that is a Business Day. All payments under this Agreement to the Lender shall be applied first to any fees and expenses or indemnity amounts due hereunder, then to accrued interest, if any, and thereafter to the outstanding principal balance hereof.
     (e) Evidence of Debt. The Loan made by the Lender to the Borrower shall be evidenced by a Promissory Note, duly executed by the Borrower, dated the Interim Facility Effective Date, and delivered to and made payable to the order of the Lender in a principal amount equal to the Commitment. The Lender shall enter on the grid attached to the Promissory Note, the sum of all Advances made by the Lender, including the amounts of principal and Default Interest and any other amounts due, if any, payable and paid to the Lender from time to time hereunder. All entries on the grid shall be presumed to be correct, final and conclusive absent manifest error, and be prima facie evidence of the existence and amounts of the obligations recorded therein; provided, that, the failure of the Lender to enter such amounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loan in accordance with the terms of this Agreement. Upon five (5) days’ written request to Lender, Borrower shall be entitled to a copy of the grid attached to the Promissory Note, reflecting the sum of all Advances made by the Lender, including the amounts of principal and Default Interest and any other amounts due, if any, payable and paid to the Lender from time to time hereunder as of the time of Borrower’s request.
     (f) Interest. Prior to an Event of Default, the Loan shall not bear interest on the principal amount thereof from time to time outstanding.
     (g) Default Interest. From and after an Event of Default (unless specifically waived in writing or cured before the expiration of any applicable grace period), the principal of the Loan, and any other Obligations of the Borrower under this Agreement and the other Loan Documents shall bear interest, from the date such Event of Default occurred until the date, if any, such Event of Default is cured or waived in writing in accordance herewith, at a rate per annum equal at all times to the Post-Default Rate and shall be payable together with any payments of principal.
     (h) Computation of Interest at the Post Default Rate. All Default Interest shall be computed on the basis of a year of 360 days for the actual number of days, including the first day but excluding the last day, elapsed.
     (i) Reduction of Commitment; Prepayment of Loan.
     (i) Commitment. The Commitment shall terminate on the earliest to occur of (i) an Event of Default, (ii) the Final Maturity Date, (iii) the date on which the full amount of the Commitment has been advanced to the Borrower, and (iv) the Conversion Date.
     (ii) Optional Prepayment. The Borrower may prepay without penalty or premium the principal of the Loan, in whole or in part, with prior written consent of the Lender.

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     Section 2.03 Fees.
     (a) On or prior to the Interim Facility Effective Date, the Borrower shall reimburse the Lender for all of the Lender’s reasonable fees and expenses (including professional fees and expenses) incurred on or after February 5, 2009 and through the day before the Interim Facility Effective Date in connection with the negotiation and preparation of the Plan and related documents in the aggregate amount of $388,854 (“Closing Fees”). Lender shall have the right to directly draw down on the Loan for payment of the Closing Fees and such amounts shall constitute an Advance under the Loan.
     (b) Lender’s reasonable fees and expenses (including professional fees and expenses) incurred on or after the Interim Facility Effective Date and not to exceed the aggregate amount of $141,146 (“Post-Closing Fees”) shall be added to the outstanding balance of the Loan and Lender shall have the right to directly draw down on the Loan for payment of the Post-Closing Fees and such amounts shall constitute an Advance under the Loan; provided that to the extent Lender’s reasonable fees and expenses (including professional fees and expenses) exceed such amount, the Commitment shall be deemed to have been increased by such amount and such amount only.
     Section 2.04 Conversion. Subject to the occurrence of the Effective Date, the entire outstanding and accrued but unpaid amount of all the Obligations including, for the avoidance of doubt, all principal, interest, fees, charges, costs and expenses of the Debtors due and payable or that may become due and payable under the Loan Documents at such time shall be automatically converted on the Effective Date (the “Conversion”), with no further action required of the Debtors or Lender, into shares of convertible preferred stock of NewCo (“NewCo Preferred Stock”) at a conversion rate of one whole share of NewCo Preferred Stock for each $1.00 in the outstanding and accrued but unpaid amount of the Obligations and the Debtors will each be released from any and all liability under the Loan and the Loan Documents. For the avoidance of doubt, no fractional shares of NewCo Preferred Stock will be issued and instead the conversion ratio shall be appropriately adjusted to avoid the issuance of any such fractional shares.
     (a) Final Maturity Date Extension. There shall be a Final Maturity Date Extension if on or before ten (10) days before the Final Maturity Date (excluding a Final Maturity Date Extension) the following conditions are met:
     (b) Borrower delivers to Lender a written certification certifying that as of the date of the certification, there is no Default or Event of Default, nor with the lapse of time would there be any Default or Event of Default, under the Loan Documents, except that the hearing on confirmation of the Plan shall not yet have occurred;
     (c) Borrower delivers to Lender a written certification certifying that at the Final Maturity Date (excluding a Final Maturity Date Extension) Borrower anticipates that there will be no Default or Event of Default, nor with the lapse of time would there be any Default or Event of Default, under the Loan Documents, except that the hearing on confirmation of the Plan shall not yet have occurred, and the Effective Date will not have occurred at or before such time; and

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     (d) The hearing on confirmation of the Plan has been scheduled to occur before the expiration of the Final Maturity Date as extended by the Final Maturity Date Extension.
     Section 2.05 Legal Budget. The Chapter 11 Professional Fees Line Item in the Budget is based on an orderly pre-arranged bankruptcy proceeding designed to culminate in confirmation and implementation of the Plan.
     (a) If events or contingencies occur after the commencement of the Chapter 11 Case that would, in Borrower Counsel’s reasonable opinion, result in legal work not contemplated in the Chapter 11 Professional Fees Line Item in the Budget, Borrower shall cause Borrower Counsel to immediately notify Borrower and Lender in writing of such development and to provide Borrower Counsel’s best reasonable estimate of the expected time at which the material portion of such work will be commenced and the amount of incremental legal expense Borrower Counsel expects would result from performing such unforeseen work. Borrower and Borrower Counsel shall promptly meet with Lender to discuss the developments and, thereafter, Lender shall in its sole discretion either (1) agree in writing to an amendment to the Chapter 11 Professional Fees Line Item in the Budget, or (2) if an Event of Default then exists under the Agreement or would result were Borrower Counsel to undertake such unforeseen work (by exceeding the amounts set forth in the Chapter 11 Professionals Fees Line Item for the applicable period), declare an Event of Default under this Agreement and deliver a Carve-Out Trigger Notice. Notwithstanding the foregoing, in view of the uncertainty surrounding the timing of and decisions with respect to such unforeseen work, (i) up to $5,000 in Professionals’ fees and expenses can be incurred by Borrower with respect to such work prior to Lender’s receipt of Borrower Counsel’s written notice, and (ii) in the event Lender has not made a decision by the time specified in Borrower Counsel’s written notice for commencement of the material portion of such work, reasonable incremental fees and expenses consistent with the estimate in such written notice that are incurred after such specified time through the time of Lender’s decision, provided that such amounts do not exceed $25,000 in the aggregate, shall be considered to be a Permitted Professional Expense, provided that Borrower otherwise complies with this Section.
     (b) If after the commencement of the Chapter 11 Case, Professionals’ fees for a given month are accruing in a manner such that, in Borrower Counsel’s reasonable opinion, such fees will exceed the amount in the Chapter 11 Professional Fees Line Item in the Budget for such month by an amount that is greater than the Non-Material Professional Expenses Budget Variance amount for such month, Borrower shall cause Borrower Counsel to immediately notify Borrower and Lender in writing of such development and to provide Borrower Counsel’s best reasonable estimate of the total variance above the Chapter 11 Professional Fees Line Item in Budget for such month. Borrower and Borrower Counsel shall promptly meet with Lender to discuss the developments and, thereafter:
     (c) If in Lender’s reasonable judgment Borrower Counsel demonstrates to Lender that the excess variance for such month represents work contemplated in the Chapter 11 Professional Fees Line Item in the Budget to be done in a subsequent period (and within the amount contemplated by the Budget in that future period), then no Event of Default shall be declared; or

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     (d) If in Lender’s reasonable judgment, Borrower Counsel has not demonstrated to Lender that the excess variance for such month represents work contemplated in the Chapter 11 Professional Fees Line Item in the Budget to be done in a subsequent period, Lender shall in its sole discretion either (1) agree in writing to an amendment to the Chapter 11 Professional Fees Line Item in the Budget, or (2) if an Event of Default then exists under the Agreement or would result were Borrower Counsel to undertake such work (by exceeding the amounts set forth in the Chapter 11 Professionals Fees Line Item for the applicable period), declare an Event of Default under this Agreement and deliver a Carve-Out Trigger Notice.
ARTICLE III.
SECURITY AND ADMINISTRATIVE PRIORITY
     Section 3.01 Collateral; Grant of Lien and Security Interest.
     As security for the full and timely payment and performance of all of the Obligations and in accordance with the Security Agreement, the Borrower hereby and thereby, as of the Interim Order Entry Date, assigns, pledges, transfers and grants to the Lender, a first priority security interest in and to and Lien on all of the Collateral (subject to the Carve-Out Expenses as provided herein and in the Orders), all as further provided in the Loan Documents.
     Section 3.02 Administrative Priority. The Borrower agrees that the Obligations of the Borrower shall constitute allowed administrative expenses in the Chapter 11 Case, having priority over all administrative expenses of and unsecured claims against the Borrower now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, all administrative expenses of the kind specified in, or arising or ordered under, Sections 105, 326, 328, 503(b), 506(c), 507(a), 507(b), 546(c), 726 and 1114 of the Bankruptcy Code (whether or not such expenses or claims may become secured by a judgment lien or other non-consensual lien, levy or attachment), subject only to Carve-Out Expenses as provided and permitted in this Agreement.
     Section 3.03 Grants, Rights and Remedies. The Liens and security interests granted pursuant to Section 3.01 hereof and pursuant to the Security Agreement and the administrative priority granted pursuant to Section 3.02 hereof may be independently granted by the Loan Documents and by other Loan Documents hereafter entered into. This Agreement, the Orders and such other Loan Documents supplement each other, and the grants, priorities, rights and remedies of the Lender hereunder and thereunder are cumulative, but the provisions of the Interim Financing Order, the Final Financing Order and this Agreement shall control in the event of any express conflict.
     Section 3.04 No Filings Required. The Liens and security interests referred to herein and in the Security Agreement shall be deemed valid and perfected by entry of the Interim Financing Order or the Final Financing Order, as the case may be, and entry of the Interim Financing Order or the Final Financing Order, as the case may be shall have occurred on or before the date of the initial Loan hereunder. The Lender shall not be required to file any financing statements, mortgages, notices of Lien or similar instruments in any jurisdiction or filing office or to take any other action in order to validate or perfect the Lien and security

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interest granted by or pursuant to this Agreement, the Interim Financing Order or any other Loan Document.
     Section 3.05 Survival. The Liens, lien priority, administrative priorities and other rights and remedies granted to the Lender pursuant to this Agreement, the Security Agreement, the Orders and the other Loan Documents (specifically including, but not limited to, the existence, perfection and priority of the Liens and security interests provided herein and therein, and the administrative priority provided herein and therein) shall not be modified, altered or impaired in any manner by any other financing or extension of credit or incurrence of debt by the Borrower (pursuant to Section 364 of the Bankruptcy Code or otherwise), or by any dismissal or conversion of any of the Chapter 11 Case, or by any other act or omission whatsoever, other than the Conversion.
ARTICLE IV.
CONDITIONS TO LOANS
     Section 4.01 Condition Precedent to Effectiveness and the Initial Loan. This Agreement shall become effective as of the Business Date (the “Interim Facility Effective Date”) when each of the following conditions precedent shall have been satisfied in a manner reasonably satisfactory to the Lender or waived:
     (a) Interim Financing Order. The Interim Financing Order shall have been entered by the Bankruptcy Court and the Lender shall have received a copy of such order signed by the judge in the Chapter 11 Case, and such order shall be in full force and effect and shall not have been reversed, stayed, modified or amended absent prior written consent of the Lender.
     (b) Payment of Fees, Etc. The Borrower shall have paid on or before the Interim Facility Effective Date or simultaneously with the first Advance all Closing Fees.
     (c) Representations and Warranties; No Event of Default. The following statements shall be true and correct: (i) All representations and warranties contained in Article V or in the Subsidiary Guaranty Agreement, Security Agreement and Pledge Agreement are true and correct in all material respects on and as of the Interim Facility Effective Date as though made on and as of such date (except for such representations and warranties as are made as of specific date which shall be true and correct as of such date in all material respects) and (ii) no Default or Event of Default shall have occurred and be continuing on the Interim Facility Effective Date or would result from this Agreement or the other Loan Documents becoming effective in accordance with its or their respective terms, both immediately before and immediately after giving effect to the initial Loan.
     (d) Delivery of Documents. Borrower shall have (1) executed and delivered to Lender the Security Agreement, Pledge Agreement and such other documents necessary to grant to Lender a perfected first priority security interest in and Lien on the Collateral, except as permitted under this Agreement and the Security Agreement, and (2) caused the Pledgors and Guarantors to execute and deliver to Lender the Pledge Agreements and the Subsidiary Guaranty

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Agreements to which they are respectively parties and such documents shall have been executed and delivered to Lender.
     (e) Intercompany Balances. Borrower shall have satisfactorily confirmed to Lender that no member of the CGuern Group owes any amount to any CanArgo Group Member that is not a CGuern Group member.
     Section 4.02 Conditions Precedent to Subsequent Advances. The obligation of the Lender to make the subsequent Advance or other funding or other financial accommodations under the Loan hereunder after the Interim Facility Effective Date is subject to the fulfillment, in a manner reasonably satisfactory to the Lender, of each of the following conditions precedent:
     (a) Final Financing Order. The Final Financing Order shall have been entered by the Bankruptcy Court (i) approving the terms of this Agreement, authorizing the transactions contemplated hereby and by the Security Agreement and Pledge Agreement, and granting Lender perfected, valid, and enforceable first priority Liens and security interests upon all Collateral, except as permitted under this Agreement and the Security Agreement; (ii) prohibiting any Liens that would be senior to or pari passu with the Liens securing the Obligations (except as permitted under this Agreement and the Security Agreement); (iii) authorizing and directing Borrower to pay Lender’s fees and expenses in connection with or payable under this Agreement and the Security Agreement; (iv) containing such other terms and conditions as Lender may reasonably determine consistent with the provisions of this Agreement; and (v) such Final Financing Order shall be in full force and effect and shall not have been reversed, stayed, modified or amended, absent prior written consent of the Lender and the Borrower.
     (b) Payment of Fees, Etc., and Bridge Loan. The Borrower shall have paid all fees, costs, expenses and taxes then payable by the Borrower pursuant to this Agreement and the other Loan Documents and shall have repaid in full all amounts outstanding under the Bridge Loan, including, if necessary, by resort to an Advance to pay same.
     (c) Representations and Warranties; No Event of Default. The following statements shall be true and correct, and the submission by the Borrower to the Lender of a Loan Request with respect to the Advance, and the Borrower’s acceptance of the proceeds of the Advance, shall be deemed to be a representation and warranty by the Borrower on the date of such advance that: (i) the representations and warranties contained in Article V and in each other Loan Document, certificate or other writing delivered to the Lender pursuant hereto or thereto on or prior to the date of the Advance are true and correct in all material respects on and as of such date as though made on and as of such date (except for such representations and warranties as are made as of specific date which shall be true and correct as of such date in all material respects), (ii) at the time of and after giving effect to the making of the Advance and the application of the proceeds thereof, no Default or Event of Default has occurred and is continuing or would result from the making of the advance to be made on such date and (iii) the conditions set forth in this Section 4.02 have been satisfied as of the date of such request.
     (d) Notices. The Lender shall have received a Loan Request.

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ARTICLE V.
REPRESENTATIONS AND WARRANTIES
     Section 5.01 Representations and Warranties. The Borrower hereby represents and warrants to the Lender, as follows:
     (a) Organization and Good Standing. Borrower is a corporation duly organized, validly existing and upon payment of outstanding corporate franchise taxes and fees shall be in good standing under the laws of Delaware and has all requisite corporate power and authority to carry on its business as now conducted.
     (b) Authorization. The execution, delivery and performance by Borrower of this Agreement, the Security Agreement and Pledge Agreement to which it is a party, are within Borrower’s corporate power; have been duly authorized by all necessary or proper corporate action and on the Interim Facility Effective Date and on each subsequent funding date, will be authorized by an Order which remains in full force and effect and has not been amended, stayed or vacated; will not violate any applicable law in any material respect (other than violations the enforcement of which will be stayed by virtue of the filing of the Chapter 11 Case); to Borrower’s Knowledge does not require the consent or approval of any Governmental Authority or any other Person (other than entry of the applicable Order) and except such consents as have been obtained or which, if failed to be obtained, would not result in a Material Adverse Change or the necessity for which has either been stayed or eliminated by virtue of the filing of the Chapter 11 Case.
     (c) Valid Obligation. Subject to the entry of and the terms of the Interim Financing Order and the Final Financing Order, this Agreement, the Security Agreement and Pledge Agreement to which the Borrower is a party, constitute valid and legally binding obligations of Borrower, enforceable against Borrower in accordance with their terms.
     (d) Non-contravention of Other Instruments. Borrower is not in violation or default (i) of any provision of its Certificate of Incorporation or Bylaws, or (ii) in any material respect of any post-petition instrument, judgment, order, writ, decree or to Borrower’s Knowledge any Material Contract to which it is a party or by which it is bound which violation or default would have a Material Adverse Change in Borrower or its Subsidiaries, taken as a whole (other than conflicts, breaches and defaults the enforcement of which will be stayed by virtue of the filing of the Chapter 11 Case). Other than for conflicts, breaches and defaults resulting, or the enforcement of which will be stayed, by virtue of the filing of the Chapter 11 Case or any order of the Bankruptcy Court, the execution, delivery and performance of this Agreement and the Security Agreement, and the consummation of the transactions contemplated hereby and thereby, will, to Borrower’s Knowledge, not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a material default under any such post-petition provision, instrument, judgment, order, writ, decree or Material Contract (including but not limited to any credit agreements, guaranties or debt related agreements to which Borrower or any Affiliate of Borrower may be a party) or, to Borrower’s Knowledge an event that results in the creation of any Lien, charge or encumbrance upon any material assets of Borrower or its Subsidiaries or to Borrower’s Knowledge the suspension,

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revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to Borrower, its business or operations or any of its assets or properties, which could reasonably be expected to result in a Material Adverse Change.
     (e) Budget and Financial Information. The Budget and financial information provided to the Lender concerning the Borrower and the Subsidiaries have been prepared in good faith and in all material respects fairly represent, as applicable, the past, present and anticipated financial status and performance of the Borrower and its direct and indirect Subsidiaries for the periods described therein; provided, however, Lender acknowledges there is no certainty with respect to the future status and performance or financial results of the Borrower or any of its direct or indirect Subsidiaries, none of which may be realized in whole or in part.
ARTICLE VI.
COVENANTS OF THE BORROWER
     Section 6.01 Affirmative Covenants. So long as the principal amount of the Loan or any other Obligation (whether or not due) shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower covenants as provided below (unless any such covenant is waived in a specific prior writing by Lender):
     (a) Budget; Weekly Variance Reports. Borrower shall operate in accordance with the four-month budget agreed upon by the Borrower and the Lender attached hereto as Exhibit F (the “Budget”), which budget reflects on a line-item basis the Borrower’s anticipated cumulative production and disbursements on a weekly basis and all necessary and required cumulative expenses (subject, on a monthly basis, to a (i) Non-Material Non-Professional Expenses Budget Variance, (ii) a Non-Material Production Budget Variance and (iii) Non-Material Professional Expenses Budget Variance, each such deviation to be exclusive of any variance attributable to fluctuating exchange rates (if in a month, actual relevant expenses exceed the stated variance for (i) or (iii), or actual production is less than the stated variance in (ii), such an event is referred to herein as an “Excess Budget Variance”)) which the Borrower expects to incur during each month of the Budget. The Borrower shall provide the Lender with a weekly variance report reflecting the actual cash receipts for any oil and gas sales during the preceding week, actual production of oil and gas for the preceding week, and disbursements for each weekly period during the term of the Loan within three (3) Business Days after the end of such weekly period, and showing the percentage variance of actual production and disbursements from those reflected in the Budget for such period. Borrower shall also provide Lender a mid-month production estimate based on the samples the Company historically has taken within three (3) Business Days after the 15th of each month and shall provide Lender with a monthly definitive production report within three (3) Business Days after the conclusion of a month, in each case showing percentage variance of estimated or actual production from the numbers reflected in the Budget for such period.
     (b) Use of Cash, Seeking Advances and Use of Loan Proceeds. Prior to making a Loan Request, Borrower shall utilize all available cash on hand and cash from operations to meet expenses contemplated by the Budget and Borrower shall only make a Loan Request hereunder

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to the extent the Borrower reasonably believes that it will have insufficient cash on hand and cash from operations to fund its budgeted expenditures. Borrower shall only upstream cash from operations from its Subsidiaries in order to pay due and payable expenses of Borrower contemplated by the Budget. Further, except with respect to a Reasonable Unforeseen Operational Expenditure, Borrower shall cause its Subsidiaries to only expend cash from operations to pay due and payable expenses of such Subsidiaries as contemplated by the Budget. The proceeds of any Advance under the Loan shall be used solely to fund post-petition operating expenses in strict accordance with the Budget (allowing for any Non-Material Professional Expenses Budget Variance and any Non-Material Non-Professional Expenses Budget Variance) and Closing Fees and, as applicable, Post-Closing Fees.
     (c) Unforeseen Operational Events. In the event that an unforeseen operational event (e.g., an accident or equipment damage) causes Borrower to reasonably conclude that an operational expenditure should be made in order to best preserve the value of the assets of Borrower and its Subsidiaries, Borrower shall promptly notify Lender of the unforeseen operational event, the amount and nature of the proposed unforeseen expenditure Borrower believes should be made and reasons supporting such expenditure. If such expenditure, aggregated with any Reasonable Unforeseen Operational Expenditures previously made, does not exceed $50,000, such expenditure shall automatically be deemed a “Reasonable Unforeseen Operational Expenditure”, and upon written notice to Lender, shall be excluded from the calculation of an Excess Budget Variance.
     (d) Reporting Requirements. Borrower shall furnish or cause to be furnished to Lender:
     (i) promptly after the filing thereof, electronic copies of all pleadings, motions, applications, financial information and other papers and documents filed by the Borrower in the Chapter 11 Case, which papers and documents shall also be given or served on the Lender’s counsel;
     (ii) promptly after the sending thereof, copies of all written reports given by the Borrower to any official or unofficial creditors’ committee in the Chapter 11 Case, other than any such reports subject to privilege;
     (iii) promptly after submission to any Governmental Authority, all documents and information furnished to such Governmental Authority in connection with any investigation of the Borrower other than routine inquiries by such Governmental Authority;
     (iv) as soon as possible, and in any event within three (3) days after the occurrence of an Event of Default or the occurrence of any event or development that could reasonably be expected to result in a Material Adverse Change, the written statement of an Authorized Officer of the Borrower setting forth the details of such Event of Default, other event, development that could reasonably be expected to result in a Material Adverse Change and the action which the Borrower and its Subsidiaries propose to take with respect thereto;

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     (v) promptly after the commencement thereof but in any event not later than five (5) days after service of process with respect thereto on, or the obtaining of Knowledge thereof by, the Borrower, notice of each action, suit or proceeding before any court or other Governmental Authority or other regulatory body or any arbitrator which, if adversely determined, could reasonably be expected to result in a Material Adverse Change;
     (vi) as soon as possible and in any event within five (5) days after execution, receipt or delivery thereof copies of any material notices that the Borrower executes or receives in connection with any Material Contract;
     (vii) as soon as possible after filing with the SEC, copies of all periodic or episodic Reports required to be filed pursuant to the Exchange Act and all registration statements, prospectuses, notices or other documents required to be filed pursuant to the Securities Act and which are matters of public record;
     (viii) promptly upon receipt thereof, copies of all financial reports (including, without limitation, management letters), if any, submitted to the Borrower by its auditors in connection with any annual or interim audit of the books thereof; and
     (ix) promptly upon request, such other information concerning the condition or operations, financial or otherwise, of the Borrower as the Lender may from time to time may reasonably request.
     (e) Inspection Rights. Permit, and cause each of its Subsidiaries to permit, the Lender or any agents or representatives thereof at any time and from time to time upon reasonable notice to Borrower and during normal business hours, to examine and make copies of and abstracts from its records and books of account, to visit and inspect its properties, to verify materials, leases, notes, accounts receivable, deposit accounts and other assets, to conduct audits, physical counts, valuations, appraisals or examinations and to discuss its affairs, finances and accounts with any of its directors, officers, managerial employees, independent accountants or other representatives. In furtherance of the foregoing, the Borrower hereby authorizes its independent accountants, and the independent accountants of each of its Subsidiaries, to discuss the affairs, finances and accounts of the Borrower and/or such Subsidiaries (independently or together with representatives of such Person) with the agents and representatives of the Lender in accordance with this Section 6.01(d).
     (f) Delivery of Fee Statements. Borrower shall cause Borrower’s legal counsel (“Borrower Counsel”) to deliver to Lender within five (5) Business Days after the 15th day of each calendar month under the Budget a reasonably accurate short written statement of fees and disbursements accrued by Borrower Counsel for that month through the 15th day (“Mid-Month Fee Statement”). Borrower shall also cause Borrower Counsel to deliver to Lender within nine (9) Business Days after the end of each month a detailed fee and disbursement statement of fees and disbursements accrued by Borrower Counsel the prior month (“Monthly Fee Statement”). Any Mid-Month Fee Statement or Monthly Fee Statement, whether or not paid, shall not exceed the amount of the Permitted Professionals Expenses budgeted for such month.

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     Section 6.03 Negative Covenants. So long as the principal amount of the Loan or any other Obligation (whether or not due) shall remain unpaid or the Lender shall have any Commitment hereunder, the Borrower shall not and shall cause each of its Subsidiaries to not (unless any such covenant is waived in a specific prior writing by Lender):
     (a) Interim Financing Order; Final Financing Order; Administrative Priority; Lien Priority; Payment of Claims.
     (i) seek, consent to or suffer to exist any modification, stay, vacation or amendment of the Interim Financing Order or the Final Financing Order except for modifications and amendments agreed to in writing by the Lender;
     (ii) suffer to exist a priority for any administrative, expense or unsecured claim against the Borrower (now existing or hereafter arising of any kind or nature whatsoever, including without limitation any administrative expenses of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy Code) equal or superior to the priority of the Lender in respect of the Obligations (except for Carve-Out Expenses and Permitted Liens);
     (iii) suffer to exist any Lien on the Collateral having a priority equal or superior to the Lien in favor of the Lender in respect of the Collateral except for Permitted Liens and Permitted Priority Liens, to the extent set forth in the definition of “Requisite Priority”; and
     (iv) pay any administrative expense claims except (i) those within the definition of the term “Carve-Out Expenses” subject to the other terms hereof and the Orders, (ii) any Obligations due and payable hereunder, and (iii) other administrative expense claims incurred in the ordinary course of the business of the Borrower or its Chapter 11 Case, in each case to the extent provided for in the Budget and section 6.01(a) hereof.
     (b) Fundamental Changes; Dispositions. Wind-up, liquidate or dissolve itself (or permit or suffer any thereof), except for any merger or consolidation of the Borrower in connection with the consummation of a plan of reorganization in the Chapter 11 Case or merge, consolidate or amalgamate with any Person, or convey, sell, lease or sublease, transfer or otherwise dispose of, whether in one transaction or a series of related transactions, all or any part of its business, property or assets, whether now owned or hereafter acquired (or agree to do any of the foregoing), or purchase or otherwise acquire, whether in one transaction or a series of related transactions, all or substantially all of the assets of any Person (or any division thereof) (or agree to do any of the foregoing), or permit any of its Subsidiaries to do any of the foregoing, provided that the Borrower and its Subsidiaries may (A) sell production in the ordinary course of business, (B) dispose of obsolete or worn-out equipment in the ordinary course of business, and (C) sell or otherwise dispose of other non-material property or assets for cash in an aggregate amount not less than the fair market value of such property or assets.
     (c) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any change in the nature of its business as carried on at the date hereof.

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     (d) Loan Advances, Investments, Etc. Make or commit or agree to make any loan, advance, guarantee of obligations, other extension of credit or capital contributions to, or hold or invest in or commit or agree to hold or invest in, or purchase or otherwise acquire or commit or agree to purchase or otherwise acquire any shares of the Capital Stock, bonds, notes, debentures or other securities of, or make or commit or agree to make any other investment in, any other Person (other than shares, bonds, notes, debentures or other securities issued by any of its Subsidiaries), or purchase or own any futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or permit any of its Subsidiaries to do any of the foregoing, except for: (i) investments existing on the date hereof, but not any increase or modification thereof, as set forth in a Schedule hereto, and (ii) Permitted Investments, all as contemplated by the Budget.
     (e) Lease Obligations. Create, incur or suffer to exist, or permit any of its Subsidiaries to create, incur or suffer to exist, any obligations as lessee (i) for the payment of rent for any real or personal property in connection with any sale and leaseback transaction, or (ii) for the payment of rent for any real or personal property under leases or agreements to lease other than Capitalized Lease Obligations and Operating Lease Obligations existing on the date hereof, which have been disclosed to Lender.
     (f) Capital Expenditures. Make or commit or agree to make, or permit its Subsidiaries to make or commit or agree to make, any Capital Expenditure except as otherwise provided in the Budget.
     (g) Subsidiaries’ Cash and Assets. Upstream cash or assets from Subsidiaries or transfer cash or assets out of Subsidiaries except to meet expense items set forth in the Budget, or as agreed to in a prior writing by Lender.
ARTICLE VII.
EVENTS OF DEFAULT
     Section 7.01 Events of Default. The occurrence and continuance of any of the following events shall be a default under this Agreement (an “Event of Default”):
     (a) Except as otherwise provided herein, a breach by Borrower or any Subsidiary of any covenant, agreement, representation or warranty under the Loan Documents or any Order to which it is a party or by which it is bound, as the case may be, and such breach shall remain unremedied for ten (10) days after the date written notice of such default shall have been given by the Lender to the Borrower (a “Cure Period”); provided that there shall be no Cure Period for breaches of the following covenants, agreements, representations or warranties: Section 2.02(b) — exceeding payments permitted under Carve-Out Expenses; Section 2.02(c) — failing to make repayment of the Loan on the Final Maturity Date if there is no Conversion; Section 2.03(a) — failing to pay Closing Fees; Section 5.01(c) —breach of the representation and warranty that this Agreement creates a legal, valid, binding and enforceable obligation; Section 5.01(d)(ii) — breach of the representation and warranty that this Agreement does not contravene another agreement or instrument that would cause a Material Adverse Change; Section 5.01(e) — breach of the representation and warranty that Budget presented in good faith; Section 6.01(b) — failing

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to properly use/upstream cash, to use proceeds of Advances, to abide Budget; Section 6.01(c) — exceeding amounts permitted to be incurred/spent on an unforeseen operational event; Section 6.01(d)(iv) — failing to provide notice within 3 days of a Material Adverse Change; Section 6.01(d)(v) — failing to provide notice within 5 days of action that could result in a Material Adverse Change; Section 6.02(a)(i) — modification of an Order without Lender’s consent; Section 6.02(a)(iv) — improper payments; Section 6.02(b) — occurrence of a fundamental change; and Section 6.02 (c) — (g) (certain negative covenants); and provided further that there shall be a seven (7) day Cure Period for breaches of the following covenants, agreements, representations or warranties: Section 2.06 (Legal Budget); Section 6.01(a) (failing to provide weekly variance reports, inspection rights); Section 6.02(a)(ii) (equal or senior claim); Section 6.02(a)(iii) (equal or senior lien);
     (b) Any deviation from the Budget constituting an Excess Budget Variance, or any breach of the Overall Carve-Out Cap; provided, that, with respect to an Excess Budget Variance based substantially on a production variance in excess of a Non-Material Production Budget Variance which production variance is due to a mechanical problem at a well site, Lender agrees to meet with and reasonably and in good faith discuss such problem with Borrower before declaring a default based on such variance;
     (c) Any challenge in a legal proceeding, after the Final Order Entry Date, to the validity or enforceability of this Agreement, the Security Agreement, the Pledge Agreement, the Subsidiary Guaranty Agreement or any Order or any term hereunder or thereunder which has not been stayed or dismissed within ten (10) days of the commencement of such proceeding; provided that if such challenge is initiated or supported by Borrower there shall be no Cure Period;
     (d) An order scheduling a hearing on confirmation of the Plan is not entered by the Court within twenty five (25) days of the Filing Date and such hearing is not scheduled for a date that is within seventy five (75) days of the Filing Date; provided that Borrower shall request a date that is within forty-five (45) days of the Filing Date;
     (e) Confirmation of the Plan is denied or the Plan is not confirmed within ninety (90) days after the Filing Date (unless there is a Final Maturity Date Extension, in which case, the Plan is not confirmed within one hundred and twenty (120) days after the Filing Date);
     (f) Borrower in the reasonable determination of Lender does not in good faith seek the timely confirmation of the Plan;
     (g) An “Event of Default” has occurred and is continuing under and as defined in the Security Agreement or Pledge Agreement or the Plan Support Agreement and such Event of Default, if capable of being remedied, shall remain unremedied for ten (10) days after the date written notice of such default shall have been given by the Lender to the Borrower, except as set forth in the proviso to clause (a) above;
     (h) The filing of any motion to approve a sale of all or a substantial portion of the Borrower’s assets unless the Lender consents;

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     (i) Action by any party in the Chapter 11 Case to cause or support, whether directly or indirectly, any claims against Lender or the claims held by Lender and if such action is filed it is not dismissed within twenty (20) days of the filing thereof (provided that there shall be no cure period if the direct or indirect action is made by or supported by the Borrower);
     (j) An order with respect to any of the Chapter 11 Case shall be entered by the Bankruptcy Court appointing, or the Borrower shall file an application for an order with respect to the Chapter 11 Case seeking the appointment of, (i) a trustee under Section 1104, or (ii) an examiner with expanded powers;
     (k) an order with respect to any of the Chapter 11 Case shall be entered by the Bankruptcy Court converting such Chapter 11 Case to a Chapter 7 case or dismissing the Chapter 11 Case;
     (l) The occurrence of a Material Adverse Change in the condition or business prospects (financial or otherwise) of the Borrower or the Subsidiaries, taken as a whole (other than any action taken or proposed to be taken in accordance with the Plan or the Loan Documents); and
     (m) The filing of a motion to approve post-petition financing that will be secured by Liens on the Collateral that are pari passu or senior to the Liens granted to Lender in connection herewith, except as contemplated or permitted under the Loan Documents.
     Section 7.02 Remedies on Default, etc.
     (a) Acceleration.
     (i) Subject to Section 7.02(d), if an Event of Default has occurred and is continuing, the Lender may at any time at its option, by notice or notices to the Borrower, declare the Loan then outstanding to be immediately due and payable and terminate the Commitment.
     (ii) Subject to the provisions of Section 7.02(d), upon the Loan becoming due and payable under this Section 7.02, the entire unpaid principal amount of the Loan, plus all accrued and unpaid Default Interest thereon (to the full extent permitted by applicable law), shall be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived.
     (b) Other Remedies. Subject to the provisions of Section 7.02(d), if any Default or Event of Default has occurred and is continuing, and irrespective of whether the Loan has become or has been declared immediately due and payable under Section 7.02(a), the Lender may proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Loan Document, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise or otherwise exercise all rights and remedies provided for under the Loan Documents, including foreclosing upon any or all of the Collateral and the automatic stay applicable in Borrower’s Chapter 11 Case shall be inapplicable to any such action.

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     (c) Costs and Expenses. Borrower shall pay all costs and expenses of amending, administering, implementing, collecting, defending, declaring and enforcing Lender’s rights under this Agreement, any other Loan Document or other instrument or agreement delivered in connection with any of the Loan Documents, including searches and filings at all times, and Lender’s reasonable attorneys’ fees which are actually incurred.
     (d) Rescission. At any time after the Loan has been declared due and payable pursuant to Section 7.02(a), the Lender, by written notice to the Borrower, may, at its sole discretion, rescind and annul any such declaration and its consequences if (a) the Borrower has paid all principal that is due and payable and is unpaid other than by reason of such declaration, and all Default Interest on such overdue principal, if any, to the extent permitted by applicable law at the Post-Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived, and (c) no order has been entered for the payment of any monies due pursuant hereto by the Bankruptcy Court. No rescission and annulment under this Section 7.02(d) will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon.
     (e) No Waivers or Election of Remedies. No course of dealing and no delay on the part of Lender in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice its rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any other Loan Document upon Lender shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise.
ARTICLE VIII.
MISCELLANEOUS
     Section 8.01 Notices, Etc. All notices and other communications provided for hereunder shall be in writing and shall be both emailed and mailed, telecopied or delivered,
     (a) if to the Borrower, at the following address:
     Attention: Vincent McDonnell, Chief Executive Officer
     
CanArgo Energy Corporation
150 Buckingham Palace Road
  Fax: 0044 207 730 1136
Phone: 0044 207 730 1134
London SW1W 9TR UK
   
 
   
with a copy to:
   
 
   
Peter A. Basilevsky, Esq.
  Telephone: (212) 818-9200
Satterlee Stephens Burke & Burke LLP
  Telecopier: (212) 818-9606
230 Park Avenue, Suite 1130
   
New York, NY 10169
   

29


 

     (b) if to the Lender, by email to the email address legal@persistencycapital.com and at the following address:
     Andrew J. Morris
     Persistency
     c/o Persistency Capital LLC
     1270 Avenue of theAmericas
     Suite 2100
     New York NY 10020
     Telephone: 212-554-1813
     Telecopier: 646-619-4642
     with a copy to:
     John R. Ashmead, Esq.
     Seward & Kissel LLP
     One Battery Park Plaza
     New York, New York 10004
     Telephone: 212-574-1200
     Telecopier: 212-480-8421
or, as to each party, at such other address as shall be designated by such party in a written notice to the other parties complying as to delivery with the terms of this Section 8.01. All such notices and other communications shall be effective, (i) if mailed, when received or three days after deposited in the U.S. mails or ten days if deposited in foreign mails, whichever occurs first, (ii) if telecopied, when transmitted and confirmation received, or (iii) if delivered, upon delivery, except that notices to the Lender pursuant to Article II shall not be effective until received by the Lender.
     Section 8.02 Amendments, Etc. No amendment or waiver of any provision of this Agreement, and no consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
     Section 8.03 No Waiver; Remedies, Etc. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right under the Loan Document preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Lender provided herein and in the other Loan Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Lender under the Loan Documents against any party thereto are not conditional or contingent on any attempt by the Lender to exercise any of its rights under any other Loan Documents against such party or against any other Person.

30


 

     Section 8.04 Severability. Any provision of this Agreement, which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
     Section 8.05 Assignments.
     (a) This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns (including, except for the right to request a Loan, any trustee succeeding to the rights of the Borrower pursuant to Chapter 11 of the Bankruptcy Code or pursuant to any conversion to a case under Chapter 7 of the Bankruptcy Code); provided, however, that the Borrower may not assign or transfer any of its rights hereunder, or under the other Loan Documents, without the prior written consent of the Lender and any such assignment without the Lender’s prior written consent shall be null and void.
     (b) The Lender may assign all or a portion of its rights and obligations under this Agreement to an Affiliate or, with the consent of the Borrower (not to be unreasonably withheld or delayed), to another Person. Upon execution, delivery and acceptance, of an Assignment and Acceptance (the “Assignment and Acceptance”), the Lender shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of the Lender’s rights and obligations under this Agreement, the Lender shall cease to be a party hereto). Notwithstanding the foregoing, should there exist an Event of Default which is not capable of being remedied or for which the applicable cure period has expired, Lender may assign its rights and obligations under the Loan Documents to any person without the consent of Borrower.
     Section 8.06 Further Assurances. Borrower shall from time to time, and at all times after the security constituted by this Agreement shall have become enforceable, execute all such further instruments and documents and do all such things as Lender may reasonably deem desirable for the purpose of obtaining the full benefit of this Agreement and of the rights, title, interest, powers, authorities and discretions conferred on Lender by this Agreement and the other Loan Documents, including by (without limitation), as the case may be, executing any additional instruments and documents as aforesaid. Borrower hereby irrevocably appoints Lender its attorney-in-fact for it and in its name and on its behalf and as its act and deed to execute, seal and deliver and otherwise perfect any deed, assurance, agreement, instrument or act which it may deem desirable for any of the purposes of this Agreement; provided that Lender shall not exercise such power until this Agreement shall have become enforceable.
     Section 8.07 Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Agreement by telecopier shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telecopier also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart

31


 

shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis.
     Section 8.08 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK EXCEPT AS GOVERNED BY THE BANKRUPTCY CODE AND EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT.
     Section 8.09 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE BANKRUPTCY COURT OR IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER AND THE LENDER EACH HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER AND THE LENDER EACH HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER OR THE LENDER, AS APPLICABLE, AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 8.01 AND TO THE SECRETARY OF STATE OF THE STATE OF NEW YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PARTIES HERETO TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH OTHER IN ANY OTHER JURISDICTION. THE PARTIES HERETO EACH HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
     Section 8.10 WAIVER OF JURY TRIAL, ETC. THE BORROWER AND THE LENDER HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN

32


 

CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE BORROWER CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE BORROWER HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER FOR ENTERING INTO THIS AGREEMENT.
     Section 8.11 Consent by the Lender. Except as otherwise expressly set forth herein to the contrary, if the consent, approval, satisfaction, determination, judgment, acceptance or similar action (an “Action") of the Lender shall be permitted or required pursuant to any provision hereof or any provision of any other agreement to which the Borrower is a party and to which the Lender has succeeded thereto, such Action shall be required to be in writing.
     Section 8.12 No Party Deemed Drafter. Each of the parties hereto agrees that no party hereto shall be deemed to be the drafter of this Agreement.
     Section 8.13 Indemnification. In addition to the Borrower’s other Obligations under this Agreement, the Borrower agrees to defend, protect, indemnify and hold harmless the Lender and all of their respective officers, directors, employees, attorneys, consultants and agents (collectively, the “Indemnitees”) from and against any and all losses, damages, liabilities, obligations, penalties, fees, reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees, costs and expenses) incurred by such Indemnitees, whether prior to or from and after the Interim Facility Effective Date, whether direct, indirect or consequential, as a result of or arising from or relating to or in connection with any of the following: (i) the negotiation, preparation, execution or performance or enforcement of this Agreement, any other Loan Document or of any other document executed in connection with the transactions contemplated by this Agreement or the other Loan Documents, (ii) the Lender’s furnishing of funds to or for the account of the Borrower under this Agreement, including, without limitation, the management of the such Loan, (iii) any matter relating to the financing transactions contemplated by this Agreement or the other Loan Documents or by any document executed in connection with the transactions contemplated by this Agreement or the other Loan Documents, or (iv) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto (collectively, the “Indemnified Matters”); provided, however, that the Borrower shall not have any obligation to any Indemnitee under this Section 8.13 for any Indemnified Matter caused by the gross negligence or willful misconduct of such Indemnitee, as determined by a final judgment of a court of competent jurisdiction.
     Section 8.14 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Lender and when the conditions precedent set forth in Section 4.01 hereof have been satisfied or waived in writing by the Lender, and thereafter shall be binding upon and inure to the benefit of the Borrower and the Lender, and their respective successors and assigns (including, except for the right to request a Loan, any trustee succeeding to the rights of the Borrower pursuant to Chapter 11 of the Bankruptcy Code or pursuant to any conversion to a case under Chapter 7 of the Bankruptcy Code), except that the Borrower shall

33


 

have no right to assign its rights hereunder or any interest herein without the prior written consent of the Lender, and any assignment by the Lender shall be governed by Section 8.05 hereof.
     Section 8.15 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.
     Section 8.16 Confidentiality. The parties hereto have entered into that certain Common Interest Agreement dated as of February 9, 2009 and hereby agree that they shall be and shall cause their respective Affiliates, successors and assigns to be bound by the provisions of that Agreement until the first anniversary of the Final Maturity Date.
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
         
BORROWER:

CANARGO ENERGY CORPORATION

 
 
By:      
  Name:      
  Title:      
 
LENDER:

PERSISTENCY

 
 
By:      
  Name:      
  Title:      

34


 

         
Exhibit I
CanArgo Energy Corporation and Its Direct and Indirect Subsidiaries
 
     
Legal Name   Incorporation
 
1    CanArgo Energy Corporation
  Delaware
2    CanArgo Oil & Gas Inc
  Ontario, Canada
3    CanArgo Limited
  Ontario, Canada
4    Fountain Oil Ukraine Limited
  New Brunswick, Canada
5    UK-RAN Oil Corporation
  New Brunswick, Canada
6    Fountain Oil Canada Limited
  New Brunswick, Canada
7    Focan Limited
  New Brunswick, Canada
8    EOR Canada Limited
  New Brunswick, Canada
9    CanArgo Acquisition Corporation
  New Brunswick, Canada
10    Ninotsminda Oil Company Limited
  Cyprus
11    CanArgo Oil Boryslaw Limited
  Cyprus
12    CanArgo Norio Limited
  Cyprus
13    Groundline Limited
  Cyprus
14    Lateral Vector Resources Limited (formerly Longtex Limited)
  Cyprus
15    Courtway Limited
  Cyprus
16    CanArgo Limited
  Guernsey
17    CanArgo (Nazvrevi) Limited
  Guernsey
18    CanArgo Power Corporation Limited
  Guernsey
19    CanArgo (Kaspi) Limited
  Guernsey
20   Argonaut Well Services Limited
  Guernsey
21   CanArgo Samgori Limited
  Guernsey
22    CanArgo Services (UK) Limited
  England
23    Sagarejo Power Company LLC
  Georgia
24    Georgian British Oil Co Ninotsminda
  Georgia
25    Georgian British Oil Company Nazvrevi
  Georgia
26    Georgian British Oil Company Norio
  Georgia
27    Ninotsminda Services Limited
  Georgia
28    CanArgo Georgia Limited
  Georgia
29    Ninotsminda Oil Company Limited
  Jersey
30    CanArgo Norio Limited
  Jersey

 


 

Exhibit II
CGUERN and its Direct and Indirect Subsidiaries
     
Legal Name   Incorporation
 
1   Ninotsminda Oil Company Limited
  Cyprus
2   CanArgo Oil Boryslaw Limited
  Cyprus
3   CanArgo Norio Limited
  Cyprus
4   Groundline Limited
  Cyprus
5   Lateral Vector Resources Limited (formerly Longtex Limited)
  Cyprus
6   Courtway Limited
  Cyprus
7   CanArgo Limited
  Guernsey
8   CanArgo (Nazvrevi) Limited
  Guernsey
9   CanArgo Power Corporation Limited
  Guernsey
10   CanArgo (Kaspi) Limited
  Guernsey
11   Argonaut Well Services Limited
  Guernsey
12   CanArgo Samgori Limited
  Guernsey
13   CanArgo Services (UK) Limited
  England
14   Sagarejo Power Company LLC
  Georgia
15   Georgian British Oil Co Ninotsminda
  Georgia
16   Georgian British Oil Company Nazvrevi
  Georgia
17   Georgian British Oil Company Norio
  Georgia
18   Ninotsminda Services Limited
  Georgia
19   CanArgo Georgia Limited
  Georgia
20   Ninotsminda Oil Company Limited
  Jersey
21   CanArgo Norio Limited
  Jersey

 

EX-10.2 3 u07840exv10w2.htm EXHIBIT 10.2 exv10w2
Exhibit 10.2
SECURED PROMISSORY NOTE
     
Up to U.S. $1,200,000.00   October ___, 2009
New York, New York
     FOR VALUE RECEIVED, CANARGO ENERGY CORPORATION, a corporation organized and existing under the laws of Delaware and a debtor and debtor-in-possession in a bankruptcy case commenced under chapter 11 of title 11 of the United States Code before the United States Bankruptcy Court for the Southern District of New York, Case No. 09-16453 (AJG) (the “Borrower”), hereby promises to pay to the order of PERSISTENCY, a company organized and existing under the laws of the Cayman Islands (the “Lender”), or as the Lender may otherwise direct, the aggregate principal amount of all Advances (as defined below) advanced by Lender to Borrower and not repaid, on or before the Maturity Date (as defined below), in the aggregate principal sum at any time outstanding of up to ONE MILLION TWO HUNDRED THOUSAND United States Dollars (U.S. $1,200,000.00) (the “Loan”), together with interest as herein provided, at the offices of the Lender in New York, New York or such other place as Lender may designate in writing, or by wire transfer to Lender’s designated bank account.
     1. This secured promissory note (the “Note”) has been issued under, is secured by, and the Lender is entitled to the benefits of that certain Debtor in Possession Financing Agreement (the “Financing Agreement “), Security Agreement (“Security Agreement”) and Pledge Agreements (“Pledge Agreement”), each dated the date hereof between the Borrower and the Lender, and the Guaranties executed in favor of the Lender by certain direct and indirect wholly owned subsidiaries of Borrower each dated the date hereof (collectively, the “Guaranties” and together with the Financing Agreement, the Security Agreement, the Pledge Agreement and the Guaranties, collectively, the “Loan Documents”) . Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in or pursuant to the Financing Agreement.
     2. This Note evidences loans to be made from time to time by Lender to or for the benefit of the Borrower, in accordance with and subject to the provisions of the Financing Agreement (each, an “Advance” and collectively, the “Advances”). The principal amount and date of disbursement of each Advance and any prepayment or payment of principal hereunder shall be endorsed by the Lender on Schedule A annexed to this Note and made a part hereof, which endorsement shall constitute prima facie evidence of the accuracy of the information so endorsed absent manifest error; provided, however, that any failure to endorse such information on such Schedule shall not in any manner affect the obligation of the Borrower to make payment of principal and interest in accordance with the terms of this Note. If this Note or any payment required to be made hereunder becomes due and payable on a day which is not a day on which banks are open for the transaction of business in New York, New York (a “Business Day”), the due date thereof shall be extended until the next following Business Day and interest shall be payable during such extension at the rate applicable immediately prior thereto, unless such next following Business Day falls in the following calendar month, in which case the due date thereof

 


 

shall be adjusted to the immediately preceding Business Day. The Loan may be prepaid only in accordance with the terms and conditions of the Financing Agreement.
     3. The Borrower shall pay interest on the Loan as provided in the Financing Agreement. All interest shall accrue and be calculated on the actual number of days elapsed and on the basis of a 360-day year.
     4. The entire outstanding principal balance of the Loan, together with all interest, if any, accrued and unpaid through the Maturity Date, and all other amounts owed pursuant to the Loan Agreements shall be paid on or before the earlier of (i) January 26, 2010, unless such date is extended as provided in the Financing Agreement but not beyond February 25, 2010 or (ii) the Conversion of the Loan as provided in the Financing Agreement (the “Maturity Date”).
     5. Borrower agrees that if it fails to timely make any payment due under this Note or upon the happening of any Event of Default under the Financing Agreement, the outstanding amount of all Obligations due and payable upon the occurrence of an Event of Default and during its continuance, including, without limitation, reasonable attorneys’ fees, shall immediately become due and payable at the option of the Lender, notwithstanding the Maturity Date. For purposes hereof, attorneys’ fees shall include, without limitation, reasonable fees and disbursements for legal services incurred by the holder hereof in collecting or enforcing payment hereof whether or not suit is brought, and if suit is brought, then through all appellate actions. Interest shall accrue and be payable on the amount of the outstanding Obligations due and payable upon the occurrence of an Event of Default and during its continuance at the Post-Default Rate.
     6. The Borrower hereby waives presentment, protest, demand for payment, diligence, notice of dishonor and of nonpayment, and any and all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of this Note, hereby waives and renounces all rights to the benefits of any statute of limitations and any moratorium, appraisement, exemption and homestead now provided or which may hereafter be provided by any federal or state statute, including, without limitation, exemptions provided by any federal or state statute, including, without limitation, exemptions provided by or allowed under any federal or state bankruptcy or insolvency laws, both as to itself and as to all of its property, whether real or personal, against the enforcement and collection of the obligations evidenced by this Note and any and all extensions, renewals and modifications hereof and hereby consents to any extensions of time, renewals, releases of any party this Note, waiver or modification that may be granted or consented to by the holder of this Note.
     7. The Borrower agrees that its liabilities hereunder are absolute and unconditional without regard to the liability of any other party and that no delay on the part of the holder hereof in exercising any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right hereunder preclude other or further exercise thereof or the exercise of any other power or right.

2


 

     8. If at any time this transaction would be usurious under applicable law, then regardless of any provision contained in this Note or any other agreement made in connection with this transaction, it is agreed that (a) the total of all consideration which constitutes interest under applicable law that is contracted for, charged or received upon this Note or any other agreement shall under no circumstances exceed the maximum rate of interest authorized by applicable law, if any, and any excess shall be credited to the Borrower and (b) if the Lender elects to accelerate the maturity of, or if the Borrower prepays the indebtedness described in this Note, any amounts which because of such action would constitute interest may never include more than the maximum rate of interest authorized by applicable law and any excess interest, if any, provided for in this Note or otherwise, shall be credited to the Borrower automatically as of the date of acceleration or prepayment.
     9. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK EXCEPT AS GOVERNED BY THE BANKRUPTCY CODE AND EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN AGREEMENT IN RESPECT OF SUCH OTHER LOAN AGREEMENT.
     10. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE MAY BE BROUGHT IN THE BANKRUPTCY COURT OR IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS NOTE, THE BORROWER AND THE LENDER EACH HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER AND THE LENDER EACH HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER OR THE LENDER, AS APPLICABLE, AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 8.01 OF THE FINANCING AGREEMENT AND TO THE SECRETARY OF STATE OF THE STATE OF NEW YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PARTIES HERETO TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH OTHER IN ANY OTHER JURISDICTION. THE PARTIES HERETO EACH HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

3


 

     11. THE BORROWER AND THE LENDER HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS NOTE, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE BORROWER CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE BORROWER HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER FOR MAKING THE LOAN.
     IN WITNESS WHEREOF, each of the Borrower has executed and delivered this Note on the date and year first above written.
         
  CANARGO ENERGY CORPORATION
 
 
  By      
    Name:      
    Title:      

4


 

         
SCHEDULE A
ADVANCES AND REPAYMENTS
                                 
                            Unpaid  
Date of   Amount of     Amount of     Amount of     Principal  
Advance   Advance     Principal Paid     Interest Paid     Balance  
 
 
  U.S.$                          
 
                             

i

EX-10.3 4 u07840exv10w3.htm EXHIBIT 10.3 exv10w3
Exhibit 10.3
SECURITY AGREEMENT
     This SECURITY AGREEMENT (the “Agreement”), dated as of October ___, 2009, is by and between CanArgo Energy Corporation, a Delaware corporation and debtor and debtor-in-possession (“Borrower”) and Persistency, a Cayman Islands limited company (“Lender”).
RECITALS:
     WHEREAS, Borrower is currently a debtor and debtor-in-possession in a bankruptcy case (the “Chapter 11 Case”) commenced under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) before the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), Case No. 09-16453 (AJG);
     WHEREAS, Borrower has requested and Lender has this day agreed to make one or more Loans (as hereinafter defined) pursuant to the terms of the Financing Agreement (as hereinafter defined) and subject to and upon the terms and conditions set forth herein and therein;
     NOW, THEREFORE, in consideration of the premises and in order to induce Lender to make the Loans to Borrower, the parties agree as follows:
     1. Definitions; Certain Terms.
     (a) Definitions. Capitalized words and terms used herein and not otherwise defined herein shall have the meaning ascribed thereto in the Financing Agreement:
     “Agreement” means this Agreement and any Exhibits, supplements and amendments thereto.
     “Bankruptcy Code” shall have the meaning ascribed thereto in the Recitals.
     “Bankruptcy Court” shall have the meaning ascribed thereto in the Recitals.
     “Borrower” shall have the meaning ascribed thereto in the preamble.
     “Budget” shall have the meaning assigned to such term in the Financing Agreement.
     “Capital Expenditures” shall have the meaning assigned to such term in the Financing Agreement.
     “Carve-Out Expenses” shall have the meaning assigned to such term in the Financing Agreement.
     “Chapter 11 Case” shall have the meaning ascribed thereto in the Recitals.
     “Collateral” shall have the meaning assigned to such term in Section 3 of this Agreement.
     “Conversion” shall have the meaning assigned to such term in the Financing Agreement.

 


 

     “Default” shall have the meaning assigned to such term in the Financing Agreement.
     “Disclosure Statement” shall have the meaning assigned to such term in the Financing Agreement.
     “Event of Default” shall have the meaning assigned to such term in the Financing Agreement .
     “Excess Budget Variance” shall have the meaning assigned to such term in the Financing Agreement .
     “Final Financing Order” shall have the meaning assigned to such term in the Financing Agreement.
     “Financial Statements” shall have the meaning assigned to such term in the Financing Agreement.
     “Financing Agreement” means that certain Debtor in Possession Financing Agreement of even date herewith by and between Borrower and Lender pursuant to which, inter alia, Lender has agreed to make the Loan to Borrower.
     “Financing Orders” shall mean the Interim Financing Order and the Final Financing Order and any other Order of the Bankruptcy Court authorizing Borrower to obtain the Loans and to incur and repay the Obligations under the Financing Agreement and to grant security therefor, in each case, in form and substance reasonably acceptable to Lender.
     “GAAP” shall have the meaning assigned to such term in the Financing Agreement.
     “Interim Financing Order” shall have the meaning assigned to such term in the Financing Agreement.
     “Knowledge” shall have the meaning assigned to such term in the Financing Agreement.
     “Interim Order Entry Date” shall have the meaning assigned to such term in the Financing Agreement.
     “Lender” shall have the meaning ascribed thereto in the preamble.
     “Lien” shall have the meaning assigned to such term in the Financing Agreement.
     “Loan” shall have the meaning assigned to such term in the Financing Agreement.
     “Loan Documents” shall have the meaning assigned to such term in the Financing Agreement.
     “NewCo” shall have the meaning assigned to such term in the Financing Agreement.
     “Obligations” shall have the meaning assigned to such term in the Financing Agreement.

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

3


 

by the Lender (in the case of quantitative determinations) and good faith beliefs by the Lender (in the case of qualitative determinations).
     (c) Accounting and Other Terms. Unless otherwise expressly provided herein, each accounting term used herein shall have the meaning given it under GAAP applied on a basis consistent with those used in preparing the Financial Statements. All terms used in this Agreement which are defined in Article 8 or Article 9 of the UCC and which are not otherwise defined herein shall have the same meanings herein as set forth therein, provided that terms used herein which are defined in the UCC as in effect in the State of New York on the date hereof shall continue to have the same meaning notwithstanding any replacement or amendment of such statute except as the Lender may otherwise determine.
     (d) Time References. Unless otherwise indicated herein, all references to time of day refer to Eastern Standard Time or Eastern Daylight Saving Time, as in effect in New York City on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”; provided, however, that with respect to a computation of fees or interest payable to the Lender, such period shall in any event consist of at least one full day.
     2. Grant of Security Interest.
     (a) As security for the full and timely payment and performance of all of the Obligations and in accordance with this Agreement, the Borrower hereby and thereby, as of the Interim Order Entry Date, assigns, pledges, transfers and grants to the Lender, a first priority security interest in and to and Lien on all of Borrower’s right, title and interest in, to and under all property of Borrower, whether now owned or existing or hereafter acquired and wherever located, with all proceeds, products, replacements, and renewals thereof, as more particularly described on Exhibit 1 hereto (all of which being herein collectively called the “Collateral”), subject only to Permitted Priority Liens and Carve-Out Expenses, as provided in the Financing Agreement, the Financing Orders and herein.
     (b) Upon entry of the Interim Financing Order or Final Financing Order, as the case may be, the Liens and security interests in favor of the Lender referred to in Section 2(a) hereof shall be valid and perfected Liens and security interests in the Collateral, prior to all other Liens and security interests in the Collateral, subject only to Permitted Priority Liens (and Carve-Out Expenses, as provided in the Financing Agreement), with the Requisite Priority in accordance with Section 364(c)(2) and (3) and (d)(1) of the Bankruptcy Code and the provisions of the Financing Orders. Such Liens and security interests and their priority shall remain in effect until all Obligations shall have been repaid in cash in full or the outstanding amount of all Obligations has been converted in accordance with the Conversion.
     (c) The Borrower agrees that the Obligations of the Borrower shall constitute allowed administrative expenses in the Chapter 11 Case, having priority over all administrative expenses of and unsecured claims against the Borrower now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, all administrative expenses of the kind specified in, or arising or ordered under, Sections 105, 326, 328, 503(b), 506(c), 507(a), 507(b), 546(c), 726 and 1114 of the Bankruptcy Code (whether or not such expenses or claims may

4


 

become secured by a judgment lien or other non-consensual lien, levy or attachment) (subject to Carve-Out Expenses as provided in the Financing Agreement and the Financing Orders).
     (d) The Liens, lien priority, administrative priorities and other rights and remedies granted to the Lender pursuant to this Agreement, the Financing Agreement, the Financing Orders and the other Loan Documents (specifically including, but not limited to, the existence, perfection and priority of the Liens and security interests provided herein and therein, and the administrative priority provided herein and therein) shall not be modified, altered or impaired in any manner by any other financing or extension of credit or incurrence of debt by the Borrower (pursuant to Section 364 of the Bankruptcy Code or otherwise), or by any dismissal or conversion of any of the Chapter 11 Case, or by any other act or omission whatsoever, other than the Conversion or otherwise pursuant to the provisions of Section 2.04 of the Financing Agreement.
     3. Grantee Not Liable. Lender shall not have any obligation or liability under any agreement included in the Collateral by reason of or arising out of this Agreement or the granting to Lender of a security interest therein, or, subject to the obligation of the Lender in respect of Carve-Out Expenses, Permitted Priority Liens in accordance with the Requisite Priority, the Financing Orders, or the receipt by Lender of any payment relating to any agreement included in the Collateral pursuant hereto, other than for its gross negligence or willful misconduct, nor shall Lender be required or obligated in any manner to perform or fulfill any of the obligations of Borrower under or pursuant to any agreement included in the Collateral (other than its good faith obligation to preserve any Collateral in its possession or control to the same extent that it would preserve any of its own property), or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it or the sufficiency of any performance by any party under any agreement included in the Collateral, or to present or file any claim, or to take any action to collect or enforce any performance or the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. Borrower, including on behalf of its estate, waives any rights under Section 506(c) of the Bankruptcy Code respecting the Collateral.
     4. Representations and Warranties. Except as provided in the Schedules, the Borrower hereby represents and warrants to the Lender, as follows:
     (a) Subject to the entry of the Financing Orders, it has title to the Collateral free from any Lien other than Permitted Priority Liens, the prior payment of the Carve-Out Expenses having priority of payment over the Obligations to the extent set forth in the Financing Agreement, the Liens contemplated by the Financing Orders, this Agreement, the Financing Agreement and any other Loan Documents.
     (b) It has, subject to entry of the Financing Orders, the full power, authority and legal right to execute, deliver and perform this Agreement and to create the collateral security interest for which this Agreement provides.
     (c) Subject to entry of the Financing Orders, this Agreement constitutes a valid obligation of Borrower, legally binding upon Borrower and enforceable in accordance with its terms.

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     (d) Except for Permitted Priority Liens, the prior payment of the Carve-Out Expenses having priority of payment over the Obligations to the extent set forth in the Financing Agreement or as otherwise provided in this Agreement or the Financing Agreement and subject to entry of the Financing Orders, the pledge, hypothecation, assignment and, if applicable, delivery of the Collateral pursuant to this Agreement creates a valid first priority perfected security interest in the Collateral and the proceeds thereof.
     (e) Subject to entry of the Financing Orders, the execution, delivery and performance of this Agreement will not violate or contravene in any material respect any provision of any existing law or regulation or decree of any court, governmental authority, bureau or agency having jurisdiction in the premises of which the Borrower has Knowledge or of any material mortgage, indenture, security agreement, contract, undertaking or other agreement to which Borrower is a party or which purports to be binding upon it or any of its material properties or assets and will not result in the creation or imposition of any Lien on any of its material properties or assets pursuant to the provisions of any such mortgage, indenture, security agreement, contract, undertaking or other agreement except as contemplated herein, and in no event shall the performance of this Agreement result in a Material Adverse Change.
     5. Covenants. Borrower hereby covenants that during the continuance of this Agreement:
     (a) Borrower, at its expense, will defend any action that may adversely affect Lender’s interest in, or Borrower’s title to, the Collateral.
     (b) Except pursuant to Permitted Priority Liens and Carve-Out Expenses, as provided in the Financing Agreement, or as contemplated by the Plan, the Financing Orders or the Financing Agreement or as herein provided, without the prior written consent of Lender, Borrower shall not sell, assign, transfer, charge, pledge or encumber in any manner any part of the Collateral or suffer to exist any encumbrance on the Collateral, other than Permitted Liens.
     (c) Borrower shall give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the reasonable judgment of Lender) to create, preserve, perfect or validate any security interest granted pursuant hereto or to enable Lender to exercise and enforce its rights hereunder with respect to such security interest. Borrower shall cause its direct and indirect Subsidiaries to execute the Loan Documents to which they are parties.
     (d) Borrower will keep the Collateral in good order and repair and will not waste or destroy the same or any portion thereof except in accordance with its usual and ordinary business practices; provided, however, Borrower shall not be required to make any Capital Expenditures not otherwise provided for in the Budget.
     (e) All information with respect to the Collateral, certificate or other writing at any time heretofore or hereafter furnished by Borrower to Lender, and all other written information heretofore or hereafter furnished by Borrower to Lender, is or will be true and correct as of the date furnished in all material respects, except for such information, certificate or other writing

6


 

which relates to a date certain in which case such information, certificate or other writing shall be true and correct in all material respects as of such date.
     (f) Borrower shall promptly furnish Lender such information concerning Borrower or the Collateral as Lender may at any time reasonably request.
     (g) Borrower will permit Lender and its representatives at any reasonable time during normal business hours to inspect any and all Collateral upon reasonable prior written notice, and to inspect, audit and make copies of and extracts from all records and all other papers in possession of Borrower pertaining to the Collateral, and will, on request of Lender, deliver to Lender copies of all such records and papers.
     (h) If and when so requested by Lender, Borrower will stamp on the records of Borrower concerning Collateral a notation, in a form reasonably satisfactory to Lender, of the security interest of Lender under this Security Agreement.
     (i) Except for Permitted Priority Liens and Carve-Out Expenses, as provided in the Financing Agreement, or as expressly provided in the Financing Agreement and the Financing Orders, Borrower shall not incur, create, assume, suffer to exist or permit any claim to have administrative priority which is pari passu with or senior to the administrative priority granted to Lender under the Financing Agreement and the Financing Orders.
     6. Remedies; Rights Upon Default; Releases.
     (a) Remedies. Subject to the terms of the Financing Agreement and the Financing Orders, if an Event of Default shall occur and be continuing, Lender may exercise all rights and remedies granted to it under this Agreement, the Financing Agreement and all other rights provided at law or in equity, including all rights and remedies of a Lender under the UCC and including the right to immediately terminate its commitment to make any Loans available under the Financing Agreement. Without limiting the generality of the foregoing, but subject to the terms of the Financing Agreement and the Financing Orders, Borrower expressly agrees that in any such event Lender, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon Borrower or any other Person (all and each of which demands, advertisements and/or notices are hereby expressly waived to the maximum extent permitted by the UCC and other applicable law), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give an option or options to purchase, or sell or otherwise dispose of and deliver said Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at any of Lender’s offices in the United States or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption, which equity of redemption Borrower hereby releases. Borrower further agrees, at Lender’s request, to assemble the Collateral and make it available to Lender at places which Lender shall reasonably select, whether at Borrower’s premises or elsewhere. Lender shall apply the net proceeds of any such collection, recovery,

7


 

receipt, appropriation, realization or sale, towards payment of the Obligations, Borrower remaining liable for any deficiency remaining unpaid after such application, and only after so paying over such net proceeds and after the payment by Lender of any other amount required by any provision of law need Lender account for the surplus, if any, to the person entitled by law to receive such surplus or to Borrower. To the maximum extent permitted by applicable law, Borrower waives all claims, damages, and demands against Lender arising out of the repossession, retention or sale of the Collateral except such as arise out of the gross negligence or willful misconduct of Lender. Borrower agrees that Lender need not give more than seven (7) days’ notice (which notification shall be deemed given when mailed or delivered on an overnight basis, postage prepaid, addressed to Borrower at its address referred to in Section 7(b) hereof) of the time and place of any public sale or of the time after which a private sale may take place and that such notice is reasonable notification of such matters.
     (b) Expenses of Lender. Borrower also agrees to pay all costs and expenses of Lender, including, without limitation, reasonable attorneys’ fees, incurred after an Event of Default and the expiration of any applicable grace period in connection with the enforcement of any of its rights and remedies hereunder.
     (c) Waiver. Borrower hereby waives presentment, demand, protest or any notice not specifically required herein (to the maximum extent permitted by applicable law) of any kind in connection with this Agreement or any Collateral.
     (d) No Waiver of Rights by Lender. No course of dealing or failure or delay on the part of Lender in exercising any right, power or privilege hereunder or with respect to the Financing Agreement shall operate as a waiver hereof or thereof, nor shall a single or partial exercise thereof preclude any other or further exercise or the exercise of any other right, power or privilege. The rights of Lender with respect to the Financing Agreement and the rights of Lender under this Agreement are cumulative and not exclusive of any rights or remedies which Lender would otherwise have.
     (e) Release of Liens. If requested by Borrower, Lender hereby agrees to execute and deliver to Borrower all releases, termination statements and other documents and instruments reasonably requested by Borrower to evidence the release and termination of all Liens created by the Loan Documents at such time as all of the Obligations have been converted pursuant to the Conversion, terminated or otherwise satisfied in accordance with the provisions of the Financing Agreement and the Financing Orders.
     7. Miscellaneous.
     (a) Merger; Modification of Agreement; Conflict. This Agreement and the Financing Agreement embody the entire understanding of the parties hereto with respect to the subject matter hereof and thereof and no modification or waiver of any provision of this Agreement, and no consent to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by Lender. Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in the same, similar or other

8


 

circumstances. In the event of any conflict between the provisions of this Agreement and the Financing Agreement, the provisions of the Financing Agreement shall control.
     (b) Notices. All notices, requests and other communications hereunder shall be in electronic, telephonic or written (including bank wire, telegram, telecopier, telex or similar writing) form and shall be given to the party to whom addressed, at its address or telephone, telecopier or telex number set forth below, or such other address or telephone, telecopier or telex number as such party may hereafter specify for the purpose by notice to the other parties listed below. Each such notice, request or communication shall be effective (i) if given by telephone, telex, telecopy or electronic means, when such communication is transmitted to the address specified below and the appropriate answer is received, (ii) if given by mail, three (3) days after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified below.
If to Borrower:
Vincent McDonnell, President
CanArgo Energy Corporation
150 Buckingham Palace Road
London SW1W 9TR UK
Fax: 0044 207 730 1136
Phone: 0044 207 730 1134
With a copy to:
Peter Basilevsky, Esq.
Satterlee Stephens Burke & Burke LLP
230 Park Avenue, Suite 1130
New York, NY 10169
Fax:     (212) 818-9606
Phone: (212) 818-9200
If to Lender:
Andrew J. Morris
Persistency
c/o Persistency Capital LLC
1270 Avenue of the Americas
Suite 2100
New York NY 10020
Fax:      (646) 619-4642
Phone: (212) 554-1813
With a copy to:
John R. Ashmead, Esq.
Seward & Kissel LLP

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One Battery Park Plaza
New York, New York 10004
Fax:    (212) 480-8421
Phone: (212) 574-1366
     (c) GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK EXCEPT AS GOVERNED BY THE BANKRUPTCY CODE AND EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT.
     (d) CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE BANKRUPTCY COURT OR IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER AND THE LENDER EACH HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE BORROWER AND THE LENDER EACH HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING AND FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER OR THE LENDER, AS APPLICABLE, AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 7(b) AND TO THE SECRETARY OF STATE OF THE STATE OF NEW YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PARTIES HERETO TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH OTHER IN ANY OTHER JURISDICTION. THE PARTIES HERETO EACH HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
     (e) WAIVER OF JURY TRIAL, ETC. THE BORROWER AND THE LENDER HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR

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WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE BORROWER CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE BORROWER HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER FOR ENTERING INTO THIS AGREEMENT.
     (f) Survival of Agreement. All covenants, agreements, representations and warranties made in this Agreement shall survive the execution and delivery by Borrower of the Financing Agreement and the Promissory Note and shall continue in full force and effect and expire upon the earlier to occur of: (i) the Financing Agreement and the Promissory Note are no longer in effect; (ii) all sums due hereunder or under the Financing Agreement and the Promissory Note and all amounts required to be reimbursed or paid by Borrower hereunder or thereunder are paid in full; or (iii) the Obligations are converted pursuant to the Conversion or are otherwise satisfied in accordance with Section 2.04 of the Financing Agreement.
     (g) Assignment. Whenever in this Agreement Lender is referred to, such reference shall be deemed to include the successors and assigns of Lender as permitted under the Financing Agreement, and all covenants, promises and agreements by or on behalf of Borrower which are contained in this Agreement or the Financing Agreement shall inure to the benefit of the successors and permitted assigns of Lender. The rights and duties of Borrower, however, may not be assigned or transferred, except as permitted under the Financing Agreement or the Financing Orders.
     (h) Severability. The provisions of this Agreement shall be deemed severable. If any part of this Agreement shall be held unenforceable, by any court of competent jurisdiction, the remainder shall remain in full force and effect, and such unenforceable provision shall be reformed by such court so as to give maximum legal effect to the intention of the parties as expressed therein.
     (i) Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.
     (j) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in counterparts by their respective officers thereunto duly authorized as of the date first above written.
         
  CANARGO ENERGY CORPORATION
 
 
  By:      
    Name:   Vincent McDonnell   
    Title:   President   
 
  PERSISTENCY
 
 
  By:      
    Name:   Andrew J. Morris   
    Title:      

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Exhibit 1
COLLATERAL

CANARGO ENERGY CORPORATION
     
DEBTOR:
  CanArgo Energy Corporation
 
  P.O. Box 291
 
  St. Peter Port
 
  G11 3RR Guernsey
     All property and assets of the Debtor of what-ever kind and nature, including but not limited to, the following property of Debtor, whether now or hereafter owned, existing, acquired or arising and wherever now or hereafter located, together with all proceeds, products, replacements and renewals thereof:
  (a)   all Accounts (as defined in the UCC) and all Goods (as defined in the UCC) whose sale, lease or other disposition by Debtor has given rise to Accounts and have been returned to, or repossessed or stopped in transit by, Debtor;
 
  (b)   all Chattel Paper, Instruments, Documents and General Intangibles, each as defined in the UCC (including, without limitation, all patents, patent applications, trademarks, trademark applications, trade names, trade secrets, goodwill, copyrights, copyright applications, registrations, licenses, software, franchises, customer lists, tax refund claims, claims against carriers and shippers, guarantee claims, contract rights, contract claims, payment intangibles, security interests, security deposits and rights to indemnification);
 
  (c)   all Inventory as defined in the UCC;
 
  (d)   all Goods as defined in the UCC (other than Inventory), including, without limitation, Equipment (as defined in the UCC), vehicles and Fixtures (as defined in the UCC);
 
  (e)   all Investment Property (as defined in the UCC);
 
  (f)   all Deposit Accounts (as defined in the UCC), bank accounts, deposits and cash;
 
  (g)   all Letter-of-Credit Rights (as defined in the UCC);
 
  (h)   all Commercial Tort Claims (as defined in the UCC);
 
  (i)   all equity interests in Debtor’s direct and indirect subsidiaries;
 
  (j)   any other property of Debtor now or hereafter in the possession, custody or control of the Lender or any agent or any parent, affiliate or subsidiary of the Lender or any participant with the Lender in the Loan (as defined in the Financing Agreement), for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise); and
 
  (k)   all additions and accessions to, substitutions for, and replacements, products and Proceeds (as defined in the UCC) of the foregoing property, including, without limitation, proceeds of all insurance policies insuring the foregoing property, and all of Debtor’s books and records relating to any of the foregoing and to Debtor’s business.

 

EX-10.4 5 u07840exv10w4.htm EXHIBIT 10.4 exv10w4
Exhibit 10.4
PLEDGE AGREEMENT
          This Pledge Agreement (the “Agreement”), dated as of October ___, 2009, is by and between, CanArgo Energy Corporation, a Delaware corporation (the “Pledgor”) and PERSISTENCY, a Cayman Islands limited company (the “Pledgee”).
Background
     1. CanArgo Energy Corporation, a Delaware corporation and debtor and debtor-in-possession (the “Borrower” or “Pledgor”) in a bankruptcy case commenced under chapter 11 of title 11 of the United States Code before the United States Bankruptcy Court for the Southern District of New York, Case No. 09-16453 (AJG) has requested loans (the “Loans”) from the Pledgee, and the Borrower intends to use the proceeds of the Loans in order to finance its and its subsidiaries’ operating expenses;
     2. As of the date hereof, the Pledgor is the registered and beneficial owner of the issued and outstanding equity interests listed on Schedule 1 hereto (the “Pledged Shares”), which Pledged Shares are represented by certificates identified on Schedule 1 hereto (the “Certificates”);
     3. It is a condition precedent to the Pledgee providing the Loans that the Pledgor shall execute and deliver to the Pledgee, among other things, this Agreement, as security for the obligations of Pledgor under the Loans.
N O W, T H E R E F O R E,
          In consideration of the premises and the mutual covenants and agreements herein set forth, and in order to induce the Pledgee to extend the financing described above, the Pledgee hereby agrees with the Pledgor as follows:
          1. Definitions. Unless otherwise defined herein, capitalized terms used herein have the meanings ascribed to them in the Financing and Security Agreement, dated as of even date herewith, between Borrower and Pledgee (the “Financing Agreement”). In the event of a conflict between this Agreement and the Financing Agreement, the terms of the Financing Agreement shall control.
          2. Grant of Security. As security for the Obligations (as defined below), with effect from the Interim Order Entry Date, the Pledgor hereby pledges, assigns, transfers and delivers to the Pledgee all of its right, title and interest in and to the Collateral (as defined below) and hereby creates a first priority lien thereon and first priority security interest therein, subject to (a) the Permitted Priority Liens in accordance with the Requisite Priority, (b) the prior payment of the Carve-Out Expenses having priority of payment over the Obligations to the extent set forth in clause “first” of the definition of Agreed Administrative Expense Priorities as it appears in the Financing Agreement and (c) the provisions of the Financing Orders. As used herein, "Collateral” shall mean (i) the Pledged Shares, and (ii) all dividends, cash, securities, investment property, financial assets and other property issued, paid, declared and/or distributed in connection with the Pledged Shares, or any portion thereof, and (iii) all cash, securities,

 


 

investment property, financial assets and other property paid, issued and/or distributed to or for the benefit of Pledgor in exchange, redemption or substitution for the Pledged Shares, or any portion thereof, and (iv) all other cash, securities, investment property, financial assets and other property paid, issued and/or distributed to or for the benefit of Pledgor as a consequence of Pledgor’s ownership of the Pledged Shares, or any portion thereof, and (v) all proceeds of the foregoing. Pledgor and Pledge are simultaneously entering into a security agreement under Guernsey law with respect to the Pledged Shares. The two agreements are not intended to, and shall not be construed to, be in conflict as it is the intention of the parties to ensure that the Secured Party obtains a perfected security interest in the Pledged Shares.
          3. Pledge Documents. On or before the Interim Order Entry Date, the Pledgor shall execute and deliver to the Pledgee an irrevocable proxy in favor of the Pledgee in respect of the Pledged Shares in the form set out in Exhibit A hereto (an “Irrevocable Proxy”) and shall deliver to the Pledgee the Certificates, if same exist, together with signed, undated instruments of transfer pertaining thereto duly executed in blank.
          4. Representations and Warranties. Except as provided in the Schedules, the Pledgor represents and warrants to the Pledgee, that:
  (i)   Subject to the entry of the Financing Orders, it is the legal and beneficial owner of, and has good and marketable title to, the Collateral that it will deliver to the Pledgee on the Interim Order Entry Date and, if applicable, thereafter, subject to no pledge, lien, mortgage, hypothecation, security interest, charge, option or other encumbrance whatsoever, except (a) the lien and security interest created by this Agreement and the delivery of its Pledged Shares to the Pledgee, (b) the Permitted Priority Liens in accordance with the Requisite Priority, (c) the prior payment of the Carve-Out Expenses having priority of payment over the Obligations to the extent set forth in the Financing Agreement and (d) as may be provided pursuant to the provisions of the Financing Orders;
 
  (ii)   it has, subject to entry of the Financing Orders, the full power, authority and legal right to execute, deliver and perform this Agreement and to create the collateral security interest for which this Agreement provides;
 
  (iii)   its Pledged Shares have been duly and validly issued and are fully paid and nonassessable;
 
  (iv)   subject to entry of the Financing Orders, this Agreement constitutes a valid obligation of the Pledgor, legally binding upon the Pledgor and enforceable in accordance with its terms, except as may be limited by the Financing Orders and the Financing Agreement;
 
  (v)   upon the filing of a UCC-1 financing statement with respect to the Collateral, and delivery of the Certificates, if same exist, to Pledgee, the pledge, hypothecation, assignment and, if applicable, delivery of the Collateral pursuant to this Agreement creates a valid first-priority perfected security interest in favor of Pledgee in each of the Pledged Shares and the other Collateral, subject to (a) the Permitted Priority Liens

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      in accordance with the Requisite Priority, (b) the prior payment of the Carve-Out Expenses having priority of payment over the Obligations to the extent set forth in the Financing Agreement, (c) the provisions of the Financing Orders and (d) the provisions hereof;
 
  (vi)   no consent of any other party is required in connection with the execution, delivery, performance, validity, enforceability or enforcement of this Agreement other than as expressly disclosed in writing to the Lender, and, other than entry of the Interim Financing Order, the Final Financing Order and any other orders of the Bankruptcy Court, no consent, license, approval or authorization of, or registration or declaration with, any governmental authority, bureau or agency is required in connection with the execution, delivery, performance, validity, enforceability or enforcement of this Agreement; and
 
  (vii)   upon entry of the Financing Orders, the execution, delivery and performance of this Agreement by the Pledgor will not violate or contravene any provision of any existing law or regulation or decree of any court, governmental authority, bureau or agency having jurisdiction in the premises of which the Pledgor has Knowledge, or of any material mortgage, indenture, security agreement, contract, undertaking or other agreement to which Pledgor is a party or which purports to be binding upon it or any of its material properties or assets and will not result in the creation or imposition of any lien, charge or encumbrance on, or security interest in, any of its properties or assets pursuant to the provisions of any such mortgage, indenture, security agreement, contract, undertaking or other agreement, except as contemplated herein or in the Loan Documents.
          5. Covenants. The Pledgor hereby covenants that from the date hereof through the Termination Date (as defined below):
     (a) it shall warrant and defend the right and title of the Pledgee conferred by this Agreement in and to the Collateral at its own cost against the claims and demands of all persons whomsoever; provided, that the costs and expenses of any such defense shall not cause an Excess Budget Variance, unless Lender agrees to an appropriate adjustment to the Budget to account for such costs and expenses;
     (b) except as contemplated by the Financing Orders, the Plan or as herein provided or in the ordinary course of business, without the prior written consent of the Pledgee, it shall not sell, assign, transfer, charge, pledge or encumber in any manner any part of the Collateral or suffer to exist any encumbrance on its portion of the Collateral, other than (a) the Permitted Priority Liens in accordance with the Requisite Priority, (b) the prior payment of the Carve-Out Expenses having priority of payment over the Obligations to the extent set forth in the Financing Agreement and (c) the provisions of the Financing Orders;

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     (c) it shall give, execute, deliver, file and/or record any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the reasonable judgment of the Pledgee) to create, preserve, perfect or validate any security interest granted pursuant hereto or to enable the Pledgee to exercise and enforce its rights hereunder with respect to such security interest; and
     (d) it shall keep in all material respects full and accurate records relating to the Collateral, and stamp or otherwise mark such records in such manner as the Pledgee may reasonably require in order to reflect the security interests granted by this Agreement.
          6. Delivery of Additional Interests. If the Pledgor shall become entitled to receive or shall receive any common stock, equity interests and/or certificates (including, without limitation, any certificate representing a dividend or a distribution in connection with any reclassification, increase or reduction of capital, or issued in connection with any reorganization), option or rights, whether as an addition to, in substitution of, or in exchange for any of the Collateral, the Pledgor agrees to accept the same as the agent of the Pledgee and to hold the same in trust for the benefit of the Pledgee and to deliver the same forthwith to the Pledgee in the exact form received, with the endorsement of the Pledgor when necessary and/or appropriate undated instruments of transfer duly executed in blank, and irrevocable proxies for any certificates or membership certificates so received, in substantially the form of Exhibit A, to be held by the Pledgee, subject to the terms hereof, as additional collateral security for the Obligations.
          7. Obligations Secured; Certain Remedies. This Agreement secures the obligations of the Pledgor to the Pledgee under the Financing Agreement, and under any other agreements, documents and instruments executed by the Pledgor in connection with this Agreement or the Financing Agreement (collectively, the “Obligations”). If a Pledgor Event of Default (as defined herein) occurs and is continuing, the Pledgee, in addition to the other remedies provided herein, shall have the remedies of a Pledgee under the Uniform Commercial Code in effect in the State of New York. The Pledgee will give the Pledgor reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is mailed to the Pledgee via registered or certified mail, postage prepaid, at least fifteen (15) days before the time of sale or disposition. The Pledgee shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in doing so, except as required by applicable law.
          8. Proceeds from Collateral. All proceeds received by the Pledgee in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral (less any expenses of holding, preparing for sale, selling or the like, which shall include the Pledgee’s reasonable attorneys’ fees and legal expenses) shall be applied to the Obligations, and to the extent of any excess of such proceeds, to the payment to the Pledgor or upon the order of the Pledgor, unless otherwise required by applicable law. Notwithstanding the foregoing and anything herein to the contrary, all proceeds received by the Pledgee in respect of the Collateral shall be subject to the prior payment of the Carve-Out Expenses having priority of payment over

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the Obligations to the extent set forth in the Financing Agreement, the Permitted Priority Liens in accordance with the Requisite Priority and as otherwise may be provided in the Financing Orders.
          9. Voting Rights. After any Pledgor Event of Default shall have occurred and be continuing, the Pledgee shall have the right (after notifying the Pledgor in writing of its intention to exercise its voting rights with respect to the Pledged Shares) to receive notice of and to vote the Pledged Shares at its own discretion at any annual or special meeting at which the holders of the Pledged Shares are entitled to vote. The Pledgee agrees that until a Pledgor Event of Default occurs and is continuing and the Pledgee shall have given to Pledgor the written notice referred to in the foregoing sentence, the Pledgor shall have the exclusive voting power with respect to the Pledged Shares and any other shares, securities or other equity interests constituting Collateral.
          10. Limitation on Liability. The Pledgor shall be responsible for and the Pledgee is hereby released from any claim or liability in connection with: (a) safekeeping any Collateral; (b) any loss or damage to any Collateral; (c) any diminution in value of the Collateral; or (d) any act or default of another person or entity; provided, that notwithstanding the foregoing, Pledgee shall have a good faith obligation to preserve any Collateral in its possession or control to the same extent that it would preserve any of its own property, and provided, further that Pledgee shall be liable for any act or omission on its part constituting willful misconduct or gross negligence, but not for consequential or incidental damages in connection therewith.
          11. Default. The Pledgee shall be entitled to enforce the security granted by this Agreement upon the occurrence and during the continuance of an Event of Default (as defined in the Financing Agreement), after the Pledgee shall have declared due and payable the entire unpaid balance of the then outstanding Obligations, accrued interest and any other sums payable by the Pledgor under the Loan Documents (a “Pledgor Event of Default”).
          12. Termination. This Agreement shall terminate upon the first of the following to occur: (i) when all of the Obligations shall have been fully and indefeasibly satisfied, including, without limitation, if the Obligations are converted pursuant to the Conversion or are otherwise satisfied in accordance with Section 2.04 of the Financing Agreement or (ii) the Financing Agreement and the Promissory Note are no longer in effect (the “Termination Date”), and at such time, the pledge, assignment and any and all liens and security interests granted hereby (including any Irrevocable Proxies) shall terminate and be extinguished and all rights to the Collateral shall revert to the Pledgor, and the Pledgee agrees that it shall forthwith release the Pledgor from the Obligations and any other obligations hereunder and the Pledgee, and at the request of the Pledgor, will promptly execute and deliver to the Pledgor proper instrument or instruments acknowledging the satisfaction and termination of this Agreement and the release and termination of all liens and security interests created hereby, and the Pledgee shall return to the Pledgor all originals of the Certificates, any Irrevocable Proxies and the undated instruments of transfer and the other items furnished to the Pledgee pursuant to Section 3 hereof or otherwise by Pledgor.
          13. Further Assurances; Appointment as Attorney-in-Fact. The Pledgor shall from time to time, and at all times after the security constituted by this Agreement shall have

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become enforceable, execute all such further instruments and documents and do all such things as the Pledgee may reasonably deem desirable for the purpose of obtaining the full benefit of this Agreement and of the rights, title, interest, powers, authorities and discretions conferred on the Pledgee by this Agreement. Pledgor hereby irrevocably appoints the Pledgee its attorney-in-fact, with full power and authority in its name and on its behalf and as its act and deed, for the purpose of carrying out the terms of this Agreement, to execute, seal and deliver and otherwise perfect any deed, assurance, agreement, instrument or act which Pledgee may deem desirable for any of the purposes of this Agreement; provided, that the Pledgee shall have no right to, and shall not, exercise the foregoing power of attorney unless and until a Pledgor Event of Default has occurred and is continuing. The Pledgee shall have full power to delegate this power of attorney but no such delegation shall preclude the subsequent exercise of such power by the Pledgee itself or preclude the Pledgee from subsequent delegation to some other person and any delegation may be revoked by the Pledgee at any time.
          14. No Waiver. No waiver by the Pledgee of any default shall operate as a waiver of any other default or of the same default on any subsequent occasion.
          15. Remedies Cumulative and Exclusive. The rights and remedies herein are cumulative, and not exclusive of other rights and remedies which may be granted or provided by law.
          16. Successors and Assigns. All rights of the Pledgee shall inure to the benefit of the successors and assigns of the Pledgee. All obligations of the Pledgor shall be binding upon the Pledgor’s successors and assigns. Whenever in this Agreement Pledgee is referred to, such reference shall be deemed to include the successors and assigns of Pledgee as permitted under the Financing Agreement, and all covenants, promises and agreements by or on behalf of Pledgee which are contained in this Agreement or the Financing Agreement shall inure to the benefit of the successors and permitted assigns of Pledgee. The rights and duties of Pledgor, however, may not be assigned or transferred, except as permitted under the Financing Agreement or the Interim Financing Order, Final Financing Order or any other orders of the Bankruptcy Court, or as otherwise agreed in writing by the Pledgee.
          17. Notices. Any demand upon or notice to the Pledgor hereunder shall be effective when delivered by hand or when properly deposited in the mails postage prepaid, or sent by facsimile transmission, receipt acknowledged, or delivered to an overnight courier, addressed to the Pledgor at the address shown below or at such other address as the Pledgor may advise the Pledgee in writing. Any notice by the Pledgor to the Pledgee shall be given as aforesaid, addressed to the Pledgee at the address shown below or such other address as the Pledgee may advise the Pledgor in writing:

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If to Pledgee:
  Andrew J. Morris
Persistency
c/o Persistency Capital LLC
1270 Avenue of the Americas
Suite 2100
New York NY 10020
Fax: (646) 619-4642
Phone: (212) 554-1813
 
   
with a copy to:
  John R. Ashmead, Esq.
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
Fax: (212) 480-8421
Phone: (212) 574-1200
 
   
If to Pledgor:
  CanArgo Energy Corporation
c/o Vincent McDonnell
Fax: (206) 834-7688
Phone: (206) 682-8322
 
   
with a copy to:
  Peter Basilevsky, Esq.
Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, NY 10169
Fax: (212) 818-9606
Phone: (212) 818-9200
          18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK EXCEPT AS GOVERNED BY THE BANKRUPTCY CODE AND EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT.
          19. CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE BANKRUPTCY COURT OR IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE PLEDGOR AND THE PLEDGEE EACH HEREBY IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE PLEDGOR AND THE PLEDGEE EACH HEREBY IRREVOCABLY APPOINTS THE SECRETARY OF STATE OF THE STATE OF NEW YORK AS ITS AGENT FOR SERVICE OF PROCESS IN RESPECT OF ANY SUCH ACTION OR

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PROCEEDING AND FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PLEDGOR AND THE PLEDGEE, AS APPLICABLE, AT ITS ADDRESS FOR NOTICES AS SET FORTH IN SECTION 17 AND TO THE SECRETARY OF STATE OF THE STATE OF NEW YORK, SUCH SERVICE TO BECOME EFFECTIVE TEN (10) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE PARTIES HERETO TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH OTHER IN ANY OTHER JURISDICTION. THE PARTIES HERETO EACH HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
          20. WAIVER OF JURY TRIAL, ETC. THE PLEDGOR AND THE PLEDGEE HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION HEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THE PLEDGOR CERTIFIES THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE PLEDGEE HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE PLEDGEE WOULD NOT, IN THE EVENT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE PLEDGOR HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PLEDGEE FOR ENTERING INTO THIS AGREEMENT.
          21. Counterparts. This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together shall constitute one and the same instrument. The delivery by a party of a telecopy or facsimile signature to this Agreement shall have the same effect as the delivery of an original signature; provided, however, that the parties shall thereafter promptly deliver original signature pages (although the failure or delay in the delivery of an original signature shall not vitiate or impair the legally binding effect of a telecopy or facsimile signature).
          22. Entire Agreement. This Agreement and the documents and instruments referred to herein (including the Financing Agreement) embody the entire agreement entered into between the parties relating to the subject matter hereof, and may not be amended, waived, or discharged except by an instrument in writing executed by the party against whom enforcement of said amendment, waiver, or discharge is sought.

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          23. Headings. In this Agreement, Section headings are inserted for convenience of reference only and shall be ignored in the interpretation of this Agreement.
[Signature Page Follows]

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     IN WITNESS WHEREOF, the parties hereto, by their duly authorized agents, have executed this Agreement as a sealed instrument as of the ___day of October, 2009.
       
IN PRESENCE OF:
  PERSISTENCY
 
   
 
Witness
   By:
 
   
 
  Name:
 
  Title:
 
   
 
  CANARGO ENERGY CORPORATION
 
   
 
Witness
   By:
 
   
 
  Name:
 
  Title:

 


 

SCHEDULE 1
PLEDGED SHARES
         
Entity   Certificate #   # Percentage Owned
         
        100%

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EXHIBIT A
IRREVOCABLE PROXY
          The undersigned, the registered and beneficial owner of [shares] (the “Shares”) of [NAME], a                                                       (“name”) [represented by certificates No. [                     ] and No. [                                   ]], hereby makes, constitutes and appoints PERSISTENCY, a Cayman Islands limited company (the “Pledgee”) with full power to appoint a nominee or nominees to act hereunder from time to time, the true and lawful attorney and proxy of the undersigned to vote 100% of the Shares at all annual and special meetings of equityholders of [name] or take any action by written consent with the same force and effect as the undersigned might or could do, subject to the last sentence of the following paragraph.
          The Shares have been pledged to the Pledgee pursuant to a Pledge Agreement dated [October                     , 2009] between the undersigned and the Pledgee (the “Pledge Agreement”). Terms defined in or by reference in the Pledge Agreement shall have the same meanings when used herein. This power and proxy may be exercised only upon the occurrence and during the continuance of a Pledgor Event of Default (as such term is defined in the Pledge Agreement).
          This power and proxy is coupled with an interest and is irrevocable and shall remain irrevocable through the Termination Date (as such term is defined in the Pledge Agreement).
          IN WITNESS whereof the undersigned has caused this instrument to be duly executed this                      day of [October, 2009].
     
 
 
   
 
  Name:

 

EX-10.5 6 u07840exv10w5.htm EXHIBIT 10.5 exv10w5
Exhibit 10.5
THIS SECURITY INTEREST AGREEMENT is made on October 29, 2009
BETWEEN:
(1)   CANARGO ENERGY CORPORATION, a Delaware corporation and debtor-in-possession (the “Debtor”); and
 
(2)   PERSISTENCY, a Cayman Islands limited company (the “Secured Party”).
RECITALS
(A)   The Secured Party has agreed to advance loans to the Debtor pursuant to the terms of a financing agreement dated on or about the date of this security agreement made between the Debtor and the Secured Party, as amended, varied, supplemented, extended, renewed, restated, novated or replaced from time to time (the “Financing Agreement”).
 
(B)   The Debtor is the sole legal and beneficial owner of the Charged Property (as defined below).
 
(C)   It is a requirement of the Financing Agreement that the Debtor enters into this security agreement.
 
(D)   It is expressly understood by the parties that Secured Party shall not seek to enforce its rights hereunder unless it is permitted to do so under the Loan Documents and Financing Orders (as such terms are defined below).
IT IS AGREED as follows:
1.   INTERPRETATION
 
1.1   In this security agreement, including the recitals, the following words and expressions shall have the meaning set out against them (unless the context requires otherwise):
 
    at any time” includes from time to time and for the time being;
 
    Business Day” means a day (other than a Saturday and Sunday) on which banks are open for normal business in New York and Guernsey;
 
    certificate” means a certificate of title to securities;
 
    Charged Property” means the assets listed in schedule 1 to this security agreement;
 
    Collateral” means the Charged Property and any Derivative Asset at any time subject to the security interest created under this security agreement;
 
    Company” means CanArgo Limited, a company incorporated in Guernsey with number 32825, whose registered office is Martello Court, Admiral Park, St Peter Port,

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

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1.3   In this security agreement, unless the context otherwise requires:
  (a)   references to a person shall include any body corporate or unincorporate;
 
  (b)   words denoting the singular shall include the plural and vice versa;
 
  (c)   words denoting a gender shall include the other gender and the neuter and neuter references shall include all genders;
 
  (d)   references to recitals, clauses, sub-clauses, paragraphs, sub-paragraphs and schedules are references to recitals, clauses, sub-clauses, paragraphs and sub-paragraphs of, and to schedules to, this security agreement;
 
  (e)   any reference to any statute or statutory provision shall include a reference to any order, ordinance or regulation made under it and any such reference shall be construed as a reference to such statute, statutory provision, order, ordinance or regulation as amended, modified, consolidated, extended, re-enacted or replaced from time to time;
 
  (f)   a reference to “assets” includes properties, revenues and rights of every description;
 
  (g)   a reference to “authorisation” includes an authorisation, consent, approval, resolution, licence, exemption, filing, recording, registration and notarisation;
 
  (h)   words and expressions contained in this security agreement shall, unless otherwise defined, bear the same meaning as in the Financing Agreement; and
 
  (i)   a time of day is a reference to Guernsey time.
1.5   Unless otherwise defined in this security agreement or the Financing Agreement or unless the context otherwise requires, words and expressions contained in this security agreement shall bear the same meaning as in the Law.
 
1.6   The recitals of, and schedules to, this security agreement form part of this security agreement and any references to this security agreement shall include those recitals and schedules.
 
1.7   Any reference to this security agreement and to any agreement or document referred to in it shall be a reference to this security agreement or such agreement or document as amended, varied, supplemented, extended, restated, renewed, novated or replaced from time to time.
 
1.8   Clause headings are for ease of reference only and shall not affect the construction of this security agreement.
 
2.   SECURITY INTEREST

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2.1   In consideration of the Secured Party making available or continuing to make available to the Debtor loan facilities under the Financing Agreement, the Debtor covenants to the Secured Party to pay and discharge the Indebtedness and to perform and observe all its other obligations to the Secured Party on their respective due dates and as a continuing security to the Secured Party for such payment, discharge, performance and observance, all as may be required under the Financing Agreement and other Loan Documents, the Debtor, as legal and beneficial owner of the Collateral (save as set out in this security agreement), with the intention of creating a security interest in the Collateral in favour of the Secured Party, pursuant to the provisions of the Law, hereby:
  (a)   undertakes to deliver to the Secured Party (or its nominee), upon execution and delivery of this security agreement, the certificates relating to the Charged Property so that the Secured Party (or its nominee) shall have possession of those certificates, subject to the terms of this security agreement; and
 
  (b)   assigns, transfers and otherwise makes over to the Secured Party (or its nominee) title to the Charged Property and assigns all right, title and interest in and to the Derivative Assets.
2.2   The Debtor undertakes, upon execution and delivery of this security agreement and otherwise at any time as the Secured Party shall require,:
  (a)   to deliver immediately to the Secured Party, subject to the provisions of this security agreement, executed but undated instruments of transfer for that part of the Collateral capable of being so transferred (but with the name of the transferee and the consideration left blank) and such other documentation as the Secured Party may require, at any time, in order to enable the Secured Party, at any time, to vest title to that part of the Collateral in itself or its nominee or any purchaser;
 
  (b)   to execute a notice of assignment to the Collateral in the form set out in schedule 2, to give effect to the relevant provisions of the Law;
 
  (c)   to deposit with the Secured Party immediately, all certificates relating to the Collateral including any certificate which the Debtor receives in relation to the Collateral at any time after completion of this security agreement;
 
  (d)   to assign, transfer or otherwise make over to the Secured Party, immediately on receipt of a request from the Secured Party, at any time, subject to the provisions of this security agreement and the Law, title to any of the Collateral not held by the Secured Party at that time and execute a notice of assignment (in a form provided by the Secured Party) pursuant to the provisions of the Law;
 
  (e)   upon demand by the Secured Party and at the Debtor’s expense, to do promptly all acts and things and to sign, seal, execute and deliver promptly all documents and deeds as the Secured Party may require, pursuant to the provisions of this security agreement or the Law, to:

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  (i)   perfect, preserve or protect the security interest created or intended to be created by this security agreement over the Collateral, including (without limitation) the control of, or title to, any part of the Collateral;
 
  (ii)   enable the Secured Party (or its appointee) to exercise any rights, powers, discretion or remedies in respect of any part of the Collateral; and
 
  (iii)   give effect to any application, sale or disposal pursuant to the provisions of this security agreement or the Law (as the case may be).
2.3   The Debtor agrees that:
  (a)   the security interests created in accordance with the terms of clause 2.1 shall exist concurrently;
 
  (b)   all certificates relating to the Collateral in the possession of the Secured Party (or its nominee) at any time shall be held by the Secured Party (or its nominee), subject to the provisions of this security agreement;
 
  (c)   title to all of the Collateral held by the Secured Party (or its nominee) at any time shall be held by the Secured Party (or its nominee) subject to the provisions of this security agreement.
2.4   If and in so far as the provisions of clause 2.1 shall not be effective to create or perfect a security interest in any part of the Collateral, the Debtor shall hold that part of the Collateral on trust for the Secured Party.
2.5   If, at any time, any other certificate relating to any such Collateral is deposited with, or title to any intangible moveable property forming part of the Collateral is transferred to, the Secured Party (or its nominee), any such other certificate or property shall, without further notice or agreement, become subject to the provisions of this security agreement, except that the provisions of clause 4.1 shall take effect on the date on which any such certificate is so deposited or title is transferred.
3.   CONTINUING SECURITY AND ITS PRESERVATION
3.1   The security interest created by this security agreement shall be a continuing security for the Indebtedness for the benefit of the Secured Party, notwithstanding the fluctuation in the level of liability under the Indebtedness or the partial payment, discharge, performance or observance of the Indebtedness and shall:
  (a)   not be discharged or affected by any act, omission, matter or thing (whether or not it is known to the Debtor or the Secured Party) which, but for this provision, would reduce, release or otherwise prejudice any of the Debtor’s liability and obligations under this security agreement, in whole or in part;

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  (b)   remain binding on the Debtor notwithstanding any amalgamation, reconstruction, reorganisation, merger, sale or transfer by or involving the Secured Party or the Debtor; and
 
  (c)   be additional to, and shall not merge with or be in any way prejudiced or affected by, any other guarantee, indemnity, Security Interest, right or remedy, now or at any time after the date of this security agreement, held by or in favour of the Secured Party for any of the Indebtedness including (without limitation) any rights of set-off or counterclaim.
3.2   The Secured Party may concede or compromise any claim that any payment, security or other disposition is liable to avoidance or restoration.
 
3.3   The Debtor hereby irrevocably and unconditionally waives any right it may have whatsoever under the laws of Guernsey or elsewhere at any time (whether or not now existing) of first requiring the Secured Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security against, or claim payment from, any person before enforcing this security agreement and this security agreement shall take effect without the benefit to the Debtor of the droit de discussion.
 
4.   REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
 
    Representations and Warranties
 
4.1   The Debtor represents and warrants to the Secured Party that, save as provided in this security agreement, and subject to entry of the Financing Orders:
  (a)   subject to the security interest created by this security agreement, the Debtor is the sole legal and beneficial owner of the Collateral and all rights in relation to it;
 
  (b)   save for the security interest created by this security agreement (or Permitted Priority Liens and the Carve-Out Expenses), no part of the Collateral or any right in relation to it is subject to any Security Interest, right of set-off, pre-emption right, option to purchase or similar rights whatsoever, no claim or counterclaim has been made or threatened by any person in relation to any such rights in connection with the Collateral nor are there any circumstances which may give rise to any such claim or threat and there are no agreements, rights or other matters which affect or might affect:
  (i)   all or any part of the Collateral or any rights in relation to it;
 
  (ii)   the validity or enforceability of this security agreement;
 
  (iii)   the ability of the Debtor to perform its obligations under this security agreement;

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  (c)   the Debtor is duly incorporated under the laws of Delaware and has full capacity, power and authority to enter into this security agreement and be bound by its terms;
 
  (d)   this security agreement constitutes legal, valid and binding obligations of the Debtor and creates a valid and effective security interest under the Law, in each case, enforceable against the Debtor in accordance with its terms;
 
  (e)   the creation of the security interest pursuant to the terms of this security agreement and the performance of any of the transactions contemplated in this security agreement does not and shall not contravene any restriction to which all or any part of the Collateral may be subject of which the Debtor has Knowledge;
 
  (f)   by entering into this security agreement and by taking any action or entering into any documents in connection with this security agreement, to the Knowledge of Debtor, none of the Debtor or any of its directors or other officers shall be violating or be in breach of:
  (i)   any provision of any agreement, arrangement or undertaking to which it is a party or which otherwise affects it or its respective securities or material assets which violation or breach shall have a material adverse effect;
 
  (ii)   its Certificate of Incorporation or Bylaws ; or
 
  (iii)   any law or regulation or any judgement, order, injunction, ruling or award, in any material respect, of any court, judicial, administrative or governmental authority or arbitrator of which Debtor has Knowledge and by or to which the Debtor or any of its assets, businesses or securities is bound or subject or otherwise affected which violation shall have a material adverse effect;
  (g)   to the Knowledge of Debtor, no event has occurred or circumstance exists which constitutes or, with the giving of notice, lapse of time and/or a relevant determination, would constitute an Event of Default;
 
  (h)   the Company is duly incorporated under the laws of Guernsey and the Charged Property constitutes all the issued share capital of the Company and such share capital is fully paid up or credited as fully paid up.
    Undertakings
 
4.2   The Debtor undertakes to the Secured Party that (subject to the Financing Orders, Loan Documents, Permitted Priority Liens and Carve-Out Expenses):
  (a)   during the subsistence of the security created or intended to be created under or pursuant to the provisions of this security agreement:

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  (i)   the Debtor shall (subject to the security interest created by this security agreement) continue to be the sole beneficial owner of the Collateral and to all rights in relation to it and shall not permit any person, other than the Secured Party (or its nominee), to be registered as holder of the Collateral or any part of it;
 
  (ii)   the Debtor shall not and shall not agree or attempt to, and shall procure that no person shall or shall agree or attempt to, at any time, other than with the Secured Party’s prior written consent, create, grant, extend or permit to subsist any Security Interest, right of set-off, option to purchase or other similar rights whatsoever on, over or affecting all or any part of the Collateral or any rights in relation to it. The prohibition in this sub-paragraph shall apply to any Security Interest, right of set-off, option to purchase or other similar right which ranks or purports to rank in point of security in priority to, pari passu with, or subsequent to, the security constituted (or intended to be created) under the terms of this security agreement;
 
  (iii)   the Debtor shall not, and shall procure that no person shall, take or omit to take or agree or attempt to take or omit to take, any action which might or shall:
  (aa)   materially depreciate, jeopardise or otherwise prejudice the value to the Secured Party of all or any part of the Collateral;
 
  (bb)   alter or dilute the rights attaching to any of the Collateral;
 
  (cc)   affect the validity or enforceability of this security agreement;
 
  (dd)   affect the ability of the Debtor to perform its obligations under this security agreement;
  (iv)   the Debtor shall not (and shall procure that no person shall) assign, surrender, sell, transfer or otherwise dispose of all or any part of the Collateral or any rights in relation to it or agree to do so;
  (b)   until payment, discharge or performance in full of the Indebtedness, the Charged Property shall continue to constitute all the issued share capital of the Company; and
 
  (c)   immediately procure the amendment of the Company’s articles of incorporation in the form set out in the draft special resolution contained in schedule 3.
4.3   The representations, warranties and undertakings in clauses 4.1 and 4.2 are made on the date of this security agreement and are deemed to be repeated on each date on which any of the representations and warranties and undertakings in the Financing Agreement are repeated with reference to the facts and circumstances then existing.

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5.   VOTING AND OTHER RIGHTS
5.1   For so long as the Collateral or any part of it is registered in the name of the Debtor or its nominee and remains subject to the Security Interest granted hereunder, the Debtor undertakes that (subject to the Financing Orders and the Loan Documents):
  (a)   it shall, and shall procure that its nominee shall, comply with all obligations and conditions assumed by, and imposed on, the Debtor in respect of the Collateral or any relevant part;
 
  (b)   in relation to the exercise or performance or observance by it or its nominee of the rights, privileges, powers and obligations in relation to the Collateral, it shall, and shall procure that its nominee shall:
  (i)   not exercise or perform or observe any such rights, privileges, powers and obligations without the prior written consent of the Secured Party;
 
  (ii)   comply, without delay, with any instructions given to it or its nominee by the Secured Party for the exercise and performance or observance of any such rights, privileges, powers and obligations;
(c)   it shall, and shall procure that its nominee shall, provide to the Secured Party or its nominee any executed form of proxy or other document reasonably required in order for the Secured Party to exercise all voting rights in relation to such Collateral; provided, that, until an Event of Default shall occur and be continuing the Secured Party hereby agrees and confirms that the Debtor shall have all and the exclusive voting power with respect to such securities and any other shares, securities or other equity interests constituting Collateral; provided, further, that the Debtor shall not exercise such rights in any way that would have a material adverse effect on the value of the Collateral; and
 
(d)   it shall, and shall procure that its nominee shall, promptly forward to the Secured Party a copy of all notices, correspondence and/or other communications it receives in relation to the Collateral.
5.2   [Reserved.]
 
5.3   For so long as the Collateral or any part of it is registered in the name of the Debtor or its nominee at any time after the occurrence of an Event of Default which is continuing (subject to the Financing Orders and the Loan Documents), the Debtor shall immediately exercise, perform or observe, or cause to be exercised, performed or observed, in such manner as the Secured Party may, in its absolute discretion, direct, such voting and other rights, powers, privileges and obligations relating to the Collateral which may be exercised, performed or observed by the registered holder of the Collateral or other holder of such rights, powers, privileges and obligations.
 
6.   EVENTS OF DEFAULT

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6.1   Each of the following events shall constitute an “Event of Default” under this security agreement.:
  (a)   the occurrence of an “Event of Default” as defined in the Financing Agreement; or
 
  (b)   any breach or failure by the Debtor to discharge, observe or perform any of its obligations falling due under or pursuant to any provision of this agreement, which, if any such breach or failure is capable of being cured, is not cured within 5 business days after written notice of such breach or failure has been provided to Debtor.
6.2   The Debtor shall promptly notify the Secured Party of the occurrence of an Event of Default or of any circumstances likely, in the reasonable opinion of the Debtor, to give rise to an Event of Default at such time as it first obtains Knowledge of any such Event of Default or any such circumstance.
7.   REMEDIES ON DEFAULT
7.1   Upon the occurrence of an Event of Default, subject to the Financing Orders, the Loan Documents and clause 7.2 below, the Secured Party may:
  (a)   (if it has not already done so), complete the instruments of transfer of the securities forming all or part of the Collateral on behalf of the Debtor and any nominee of the Debtor;
 
  (b)   serve notice on the Debtor specifying the particular Event of Default and after any such service of notice the Secured Party may, in accordance with the provisions of the Law, sell or apply all or any part of the Collateral in such manner and for such consideration (whether payable or deliverable immediately or by instalments), as the Secured Party may, in its absolute discretion, determine; and
 
  (c)   give a good discharge for any money received in exercise of its power of sale and for any right, money or property receivable in respect of all or any of the Collateral.
7.2   All proceeds received by the Secured Party in respect of any sale of, collection from, or other realisation upon, all or any part of the Collateral (less any expenses of holding, preparing for sale, selling or the like, which shall include the Secured Party’s reasonable attorneys’ fees and legal expenses and subject to the Financing Orders and the Loan Documents) shall be applied to the Indebtedness, and to the extent of any excess of such proceeds, to the payment to the Debtor or upon the order of the Debtor, unless otherwise required by applicable law. Notwithstanding the foregoing and anything herein to the contrary, all proceeds received by the Secured Party in respect of the Collateral shall be subject to the prior payment of the Carve-Out Expenses having priority of payment over the Obligations to the extent set forth in clause “first” of the definition of Agreed Administrative Expense Priorities as it appears in the

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    Financing Agreement and the Permitted Priority Liens in accordance with the Requisite Priority.
 
7.3   The Secured Party shall not be liable (in the absence of bad faith or willful misconduct):
  (a)   for any failure to apply or distribute the proceeds of sale of all or any part of the Collateral in accordance with the provisions of the Law, if the Secured Party applies or distributes such proceeds in good faith in accordance with this Agreement, without further enquiry and in accordance with the information expressly known to it at the time of such application or distribution;
 
  (b)   to account for any other loss on realisation or for any default or omission for which it might be liable, in each case, as a consequence of entering into possession of any part of the Collateral, in the absence of bad faith or willful misconduct.
7.4   Where a power of sale or application is exercised by the Secured Party in respect of part only of the Collateral, the security interest created under this security agreement shall remain in effect over that part of the Collateral in respect of which the Secured Party has not exercised its power of sale or application, as the case may be.
 
7.5   Any Derivative Asset received by the Debtor after the occurrence of an Event of Default shall be held by the Debtor on trust for the Secured Party and shall be transferred promptly to the Secured Party or as it directs, on demand, or, failing such demand, on receipt by the Debtor.
 
8.   DELEGATION AND POWER OF ATTORNEY
 
8.1   After the occurrence of an Event of Default which is continuing, the Secured Party may delegate, by power of attorney or in any other manner, to any person any right, power or discretion exercisable by the Secured Party under this security agreement. Any such delegation may be made upon the terms (including a power to sub-delegate) and subject to any regulations that the Secured Party may think fit.
 
8.2   By way of security, the Debtor irrevocably and severally appoints each of the Secured Party and any of the Secured Party’s attorneys, delegates, sub-delegates or other appointees, as the Debtor’s attorney, to do all such acts and things and to sign, seal, execute and deliver all such documents and deeds, in the name and on behalf of the Debtor, which the Debtor is obliged to do or execute or may do or execute under or in relation to this security agreement and the Collateral (or any part of it) and to do all such other acts and things and sign, seal, execute and deliver all such other documents and deeds, deemed necessary or desirable, in the absolute discretion of the Secured Party, in connection with this security agreement or all or any part of the Collateral or for the purpose of perfecting, protecting, preserving and enforcing the security interest created or intended to be created by this security agreement. The Debtor further covenants with the Secured Party to ratify and confirm any exercise of this power of attorney by any attorney pursuant to its appointment under this clause.

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9.   EXPENSES
 
    Consistent with the provisions of the Loan Documents and the Financing Orders (including specifically payment of any unpaid Carve-Out Expenses), the Debtor shall pay to the Secured Party, in the currency (if the Secured Party so requires) incurred by the Secured Party, all Expenses suffered or incurred by the Secured Party or its attorney, delegate, sub-delegate or other appointee and, pending reimbursement, such outstanding Expenses shall form part of the Indebtedness and shall bear interest (both before and after judgement) at the Default Rate from the date the Secured Party or its appointee incurred the relevant Expenses until such expenses and the interest on them is irrevocably paid in full. To the extent that Debtor pays any Expenses pursuant to the Loan Documents such payments shall be paid in lieu of and shall not be in addition to any Expenses payable hereunder and vice versa, it being acknowledged and agreed by the Secured Party that the execution and delivery of this security agreement by Debtor is merely to further secure the Secured Party and not to duplicate Debtor’s expenses in respect of the security interests granted hereunder and under the Loan Documents.
 
10.   NOTICES
 
10.1   Any notice, demand or other document to be given or made pursuant to this security agreement or the Law to the Debtor or the Secured Party (as the case may be) shall be given or made when:
  (a)   personally delivered to it; or
 
  (b)   posted by prepaid first class post to it at its registered office; or
 
  (c)   sent by fax to any fax number recorded for it in clause 10.4 below.
10.2   Any notice, demand or other document to be given or made to the Debtor pursuant to the provisions of clause 10.1 shall be deemed to have been received:
  (a)   immediately upon delivery; or
 
  (b)   48 hours after posting; or
 
  (c)   immediately after receipt of a successful receipt answerback provided that the fax is sent during normal business hours on a Business Day in the place of receipt / it is sent before 3p.m. on a Business Day at the place of receipt, failing which it shall be deemed to be received at 9a.m. on the next Business Day in that place.
    In proving service it shall be sufficient to prove:
  (i)   in the case of personal service, that it was handed to the party or delivered to or left in an appropriate place for receipt of letters at its address;

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  (ii)   in the case of a letter sent by post, that the letter was properly addressed, stamped and posted or sent by recorded delivery;
 
  (iii)   in the case of faxes, that it was properly addressed and despatched to the number of the relevant party and there was a successful receipt answerback,
    provided that any notice, demand or other document given under the terms of clause 10.1 but not received on a Business Day in the place of receipt shall be deemed to have been given on the next Business Day in that place.
 
10.3   Any notice, demand or other document to be given to the Secured Party shall only be effective on actual receipt by the Secured Party, by or on behalf of the person whose details are set out in clause 10.4 in relation to the Secured Party (or as otherwise notified, at any time, to the Debtor by the Secured Party).
 
10.4   The address and fax number for service of any notice, demand or other document to be sent pursuant to the provisions of clause 10.1 are (subject to any amendment by written notice to the relevant party in accordance with the terms of this clause) as follows:
     
The Secured Party:
  Andrew J. Morris
 
  Persistency
 
  c/o Persistency Capital LLC
 
  1270 Avenue of the Americas
 
  Suite 2100
 
  New York NY 10020
 
  Fax: (646) 619-4642
 
  Phone: (212) 554-1813
 
   
with a copy to:
  John R. Ashmead, Esq.
 
  Seward & Kissel LLP
 
  One Battery Park Plaza
 
  New York, NY 10004
 
  Fax: (212) 480-8421
 
  Phone: (212) 574-1200
 
   
The Debtor:
  CanArgo Energy Corporation
 
  [Address]
 
  Fax: (206) 834-7688
 
  Phone: (206) 682-8322

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with a copy to:
  Peter Basilevsky, Esq.
 
  Satterlee Stephens Burke & Burke LLP
 
  230 Park Avenue
 
  New York, NY 10169
 
  Fax: (212) 818-9606
 
  Phone: (212) 818-9200
11.   REDEMPTION OF SECURITY
 
11.1   Subject to the Debtor having no liability (whether actual or contingent) or other obligation outstanding in respect of the Indebtedness to the Secured Party and subject to the terms of the Indebtedness having been satisfied in full, the Secured Party shall, as soon as reasonably practicable, at the request and cost of the Debtor, re-assign, release or otherwise discharge the security constituted by or pursuant to this security agreement and pay to the Debtor all dividends, other distributions, interest or other income paid on and received by the Secured Party in respect of any part of the Collateral and not applied in discharge of the Indebtedness.
 
11.2   Where any discharge is made in whole or in part or any arrangement is made on the faith of any payment, security or other disposition (including, without limitation, any discharge or arrangement made in relation to this security agreement) which is avoided or must be restored on insolvency, liquidation or otherwise, without limitation, the security interest created or intended to be created in, and the liability of the Debtor under, this security agreement shall continue as if the discharge or arrangement had not occurred.
 
12.   ASSIGNMENT AND SUCCESSORS
 
12.1   Subject to the Loan Documents and Financing Orders, the Secured Party shall have a full and unfettered right to assign and transfer all or any part of its rights and obligations under this security agreement to any person, at any time.
 
12.2   The Debtor shall not assign or otherwise transfer all or any part of its rights, benefits or obligations arising under this security agreement.
 
12.3   This security agreement is binding on and enforceable against the Debtor’s successors in title.
 
13.   MISCELLANEOUS
 
13.1   Every provision contained in this security agreement shall be severable and distinct from every other such provision and if, at any time, under the laws of any jurisdiction, any such provision is or becomes invalid, illegal or unenforceable, such consequences shall not affect the validity, legality and enforceability of:
  (a)   the other provisions of this security agreement in that jurisdiction; and

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

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  (b)   irrevocably waives, and agrees not to raise, any objection it may have now or at any time after the date of this security agreement to:
  (i)   the venue for any action or proceedings arising out of, or in connection with, this security agreement;
 
  (ii)   any claim that any action or proceedings arising out of, or in connection with, this security agreement have been brought in an inconvenient forum or otherwise; and
  (c)   irrevocably agrees that any judgement or order of a Guernsey court resulting from any action or proceedings brought in accordance with the provisions of this clause, shall be conclusive and binding on it and may be enforced against it in any court of any other jurisdiction.
14.3   Subject to the Loan Documents and Financing Orders, after an Event of Default which is continuing, nothing contained in this clause shall limit the right of the Secured Party to take any action or proceedings arising out of, or in connection with, this security agreement in any other court of competent jurisdiction, nor shall taking any such action or proceedings in one or more jurisdictions preclude any such action or proceedings being taken in any other jurisdiction (whether or not concurrently).
IN WITNESS WHEREOF the parties have executed this security agreement on the date first appearing on page 1 above.
CANARGO ENERGY CORPORATION
         
By:
 
 
   
    Name: Vincent McDonnell    
    Title: President    
 
       
PERSISTENCY    
         
By:
 
 
   
    Name: Andrew Morris    
    Title: Authorized Signatory    

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

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SCHEDULE 2
Part I
NOTICE OF ASSIGNMENT
     
From:
   
PERSISTENCY
  CANARGO ENERGY
 
  CORPORATION
 
   
(the “Assignee”)  
(the “Assignor”)
2009
     
To:
  CanArgo Limited (the “Company”)
 
  [registered address]
Dear Sirs
Security interest agreement between the Assignor and the Assignee dated
2009 (the “Security Agreement”)
Notice of assignment and security interest
We, the Assignor and the Assignee, hereby give you, the Company, notice that, pursuant to the terms of the Security Agreement, the Assignor has given a security interest to the Assignee (inter alia) by way of assignment of all its right, title and interest to [ ] shares of £[ ] each in the capital of the Company (the “Shares”) and to any dividend, distribution, interest or other income, at any time after the date of the Security Agreement, derived from or accruing, offered or created in relation to, or issued in substitution for, all or any part of the Shares (the “Derivative Assets”).
Instructions to the Company
As registered holder of the Shares, the Assignor, hereby irrevocably authorises and instructs the Company:
(a)   to forward to the Assignee all notices, correspondence and/or other communications it receives in relation to the Shares and/or any Derivative Assets or any instructions given to you from time to time in relation to the Shares and/or any Derivative Assets;
 
(b)   to follow instructions received by you from the Assignee in priority to instructions received from the Assignor with respect to the Shares and/or any Derivative Assets until such time as the Assignee advises you in writing otherwise;
 
(c)   to give to the Assignee all information which the Assignee may request, from time to time, in writing, in respect of all or any part of the Shares and/or any Derivative Assets;

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

19


 

Part II
ACKNOWLEDGEMENT
CANARGO LIMITED
2009
     
To:
  PERSISTENCY (the “Assignee”)
       CANARGO ENERGY CORPORATION (the “Assignor”)
Dear Sirs
Security interest agreement between the Assignor and the Assignee dated ___, October,2009 (the “Security Agreement”)
We, CanArgo Limited (the “Company”), hereby acknowledge receipt of a notice of assignment (the “Notice”) dated ___ October, 2009 to us from the Assignee and the Assignor in relation to (inter alia) security interests given by the Assignor to the Assignee, pursuant to the terms of the Security Agreement in respect of the Shares and the Derivative Assets (as defined in the Notice).
The Company’s confirmations
In consideration of the Assignee providing to the Debtor (as defined in the Security Agreement) certain loan facilities from time to time, by executing this letter, the Company hereby:
  (i)   acknowledges the security created under the Security Agreement in relation to the Shares and the Derivative Assets;
 
  (ii)   accepts the authorisations and instructions to it as set out above and undertakes to comply with them;
 
  (iii)   confirms that it has not received notice of any prior assignment nor of any other security interest of any kind whatsoever given over or in respect of the Shares, the Derivative Assets or any other rights in relation to the Shares;
 
  (iv)   confirms that it is not aware of any dispute between the Assignor and any person claiming under it nor of any other opposing or conflicting claims in relation to any of the Shares or the Derivative Assets or any action whatsoever in respect of any of them;
 
  (v)   undertakes to notify the Assignee prior to a request from a third party to approve the transfer of any of the Shares or shares comprised in the Derivative Assets to any person (other than the Assignee or its nominee) during the subsistence of the Security Agreement;

20


 

  (vi)   undertakes not to exercise any rights of set-off, counterclaim, retention or deduction or any lien or other rights of security that it may have from time to time over all or any of the Shares or any Derivative Assets; and
 
  (vii)   undertakes to inform the Assignee, immediately in writing, if the Company becomes aware of any dispute, security interest of any kind whatsoever, claim or purported exercise of any rights over or in relation to any of the Shares, the Derivative Assets or any other rights in relation to the Shares.
This acknowledgement is governed by and shall be construed in accordance with Guernsey law.
Yours faithfully
Duly authorised signatory
for and on behalf of
CANARGO LIMITED

21


 

SCHEDULE 3
SPECIAL RESOLUTION

22


 

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

23


 

     
DATED   2009
BETWEEN
CANARGO ENERGY CORPORATION
and
PERSISTENCY
 

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

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

 


 

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

 

EX-10.6 7 u07840exv10w6.htm EXHIBIT 10.6 exv10w6
Exhibit 10.6
SUBSIDIARY GUARANTEE AGREEMENT
     This Guarantee, as amended, restated, supplemented or otherwise modified from time to time, the “Guarantee”) is made by [name of subsidiary], a ___(the “Guarantor”), in favor of PERSISTENCY, a Cayman Islands limited company (the “Lender”).
Background
          1. Canargo Energy Corporation, a Delaware corporation and debtor and debtor-in-possession (the “Borrower”) in a bankruptcy case commenced under chapter 11 of title 11 of the United States Code before the United States Bankruptcy Court for the Southern District of New York (the “Court”), Case No. 09-16453 (AJG) is the direct or indirect parent of Guarantor;
          2. The Borrower has requested and Lender has agreed to make one or more loans to the Borrower (the “Loans”) pursuant to the terms of a Debtor In Possession Financing Agreement, dated as of even date herewith (the “Financing Agreement”) and related documents, all as approved by the Court pursuant to certain approval orders to be entered in connection therewith (the “Approval Orders”);
          3. The proceeds of the Loans will be used for, among other things, operations, benefiting Guarantor and the Borrower’s other direct and indirect subsidiaries;
          4. Among the conditions to the Loans is the requirement that the Borrower’s direct and indirect subsidiaries execute and deliver a guarantee of the Loans with negative pledges as to the equity interests in their direct subsidiaries for the repayment of the Loans;
          5. The Guarantor intends this Guarantee to be an inducement for the Lender to enter into the transactions contemplated by the Loan Documents;
          6. The Lender is unwilling to enter into the transactions contemplated by the Loan Documents unless the Guarantor delivers to the Lender this Guarantee.
N OW, T H E R E F O R E,
     In consideration of the premises and the mutual covenants and agreements herein set forth, and in order to induce the Lender to extend credit to the Borrower, the Guarantor hereby agrees with the Lender as follows (defined terms used herein without definition have the meanings ascribed to them in the Financing Agreement):
     Section 1. Guarantee. The Guarantor, as primary obligor and not merely as surety, absolutely, unconditionally, irrevocably, guarantees to the Lender the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all the Obligations. This Guarantee constitutes a guarantee of payment when due and performance and not of collection only, and the Guarantor specifically agrees that it shall not be necessary or required that the Lender or any holder of the Loans exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower or any other obligor before or as a condition to the obligations of the Guarantor hereunder.

1


 

     Section 2. Termination; Guarantee Absolute. This Guarantee shall in all respects be a continuing, absolute, unconditional and irrevocable guarantee of payment and performance, and shall remain in full force and effect until all of the Obligations shall have been fully satisfied, including, without limitation, if the Obligations are converted pursuant to the Conversion or are otherwise satisfied in accordance with Section 2.04 of the Financing Agreement (the “Termination Date”), at which time this Guarantee shall terminate and be of no further force and effect. The Guarantor guarantees that the Obligations will be paid and satisfied strictly in accordance with the terms of the Loan Documents, as applicable, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Lender with respect thereto. Subject to the provisions of any Approval Orders that may be applicable to the Guarantor, the liability of the Guarantor under this Guarantee shall be absolute, unconditional and irrevocable irrespective of:
  (a)   Any lack of validity, legality or enforceability of any of the Loan Documents or any agreement or instrument delivered pursuant thereto;
 
  (b)   The failure of the Lender to assert any claim or demand or to enforce any right or remedy against the Borrower or any other person under the provisions of the Loan Documents, agreement or instrument delivered pursuant thereto or otherwise;
 
  (c)   Any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other extension, compromise or renewal of any Obligation;
 
  (d)   Any reduction, limitation, impairment or termination of any Obligations for any reason, including any claim or waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Guarantor hereby waives any right to or claim of) any defense or set off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, any Obligations;
 
  (e)   Any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Loan Documents;
 
  (f)   Any addition, exchange, release, surrender or nonperfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guarantee, held by the Lender securing any of the Obligations;
 
  (g)   Any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of the Borrower, any surety or any guarantor;
 
  (h)   Any change in circumstances, whether or not foreseen or foreseeable, whether or not imputable to the Guarantor or the Borrower and whether or not such change in circumstances shall or might in any manner and to any extent vary the risk of the Guarantor hereunder;

2


 

  (i)   The voluntary or involuntary liquidation, dissolution, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of the Borrower, or any other similar proceeding affecting the status, existence, assets or obligations of the Borrower, or the limitation of damages for the breach of, or the disaffirmation of, the Notes, the Loan Agreement or any of the Loan Documents in any such proceeding; and
 
  (j)   Any other cause, whether similar or dissimilar to the foregoing; it being the intention of the Guarantor that this Guarantee be irrevocable, absolute and unconditional in any and all circumstances and that this Guarantee shall be discharged only by the indefeasible payment in full of all sums and the performance of all obligations with respect to which this Guarantee relates.
     Section 3. Waiver. The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations and this Guarantee and any requirement that the Lender protect, secure, perfect or insure any security interest or lien, or any property subject thereto, or exhaust any right or take any action against the Borrower or any other person (including any other guarantor) or entity or any collateral securing any Obligations.
     Section 4. Subrogation; Subordination. Until the Termination Date, the Guarantor will not exercise any rights which it may acquire by reason of any payment made hereunder, whether by way of subrogation, reimbursement or otherwise, and shall refrain from taking any action or commencing any proceeding against the Borrower (or its successors or assigns) to recover any amounts in respect of payments made under this Guarantee to the Lender. Furthermore, while this Guarantee is in effect, Guarantor shall not incur any obligations for indebtedness that are senior to its obligations hereunder without the prior written consent of Lender (other than Permitted Indebtedness or indebtedness secured by Permitted Liens).
     Section 5. Governing Law. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without resort to such jurisdiction’s conflicts of laws principles.
     Section 6. Representations and Warranties; Shares Covenant. Except as provided for in a Schedule hereto, the Guarantor represents and warrants to the Lender that:
  (a)   Upon the entry of the Approval Orders, the Guarantor has the power, authority and legal right to enter into, execute and deliver this Guarantee and all actions, approvals and consents of any party necessary for the Guarantor to validly execute and deliver this Guarantee have been obtained;
 
  (b)   Upon the entry of the Approval Orders, the execution, delivery and performance of this Guarantee by the Guarantor will not violate or contravene any provision of any existing law or regulation or decree of any court, governmental authority, bureau or agency having jurisdiction over the Guarantor or its property of which the Guarantor has Knowledge, or of any material mortgage, indenture, security agreement, contract, undertaking or

3


 

      other agreement to which Guarantor is a party or which purports to be binding upon it or any of its material properties or assets;
 
  (c)   Upon the entry of the Approval Orders, this Guarantee creates legal, valid and binding obligations of the Guarantor, fully enforceable against the Guarantor in accordance with their terms, except as the same may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws or equitable principles relating to or affecting the rights of creditors generally;
 
  (d)   Other than the Approval Orders, no material consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Guarantor is required in connection with the execution, delivery or performance by the Guarantor of this Guarantee or the consummation of the transactions contemplated thereby;
 
  (e)   The assumption by the Guarantor of its obligations hereunder and under any instruments securing or relating to this Guarantee will result in a direct and material financial benefit to the Guarantor, and there is due and valid consideration to the Guarantor for undertaking the obligations hereunder and under any instruments securing or relating to this Guarantee; and
 
  (f)   There is no action or proceeding pending or, to the Knowledge of the Guarantor, threatened against the Guarantor before any court or administrative agency that might materially adversely affect the ability of the Guarantor to perform its obligations under this Guarantee.
 
  (g)   It is the legal and beneficial owner of, and has good and marketable title to, the issued and outstanding equity interests listed on Schedule 1 hereto (the “Shares”), and except for Permitted Priority Liens and subject to the provisions of any Approval Orders applicable to the Guarantor, to the Knowledge of the Guarantor the Shares are not subject to any pledge, lien, mortgage, hypothecation, security interest, charge, option or other encumbrance whatsoever.
The Guarantor hereby covenants that from the date hereof through the Termination Date, except for the Permitted Priority Liens, or as contemplated by the Plan or provided in any Approval Orders, or as herein provided, without the prior written consent of the Lender, it shall not sell, assign, transfer, charge, pledge or encumber in any manner any part of the Shares or suffer to exist any encumbrance on its portion of the Shares.
     Section 7. Counterparts. This Guarantee may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
     Section 8. Insolvency. This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the obligations to be paid

4


 

by Guarantor hereunder, is rescinded or must otherwise be restored or returned by any Person, or upon the insolvency, bankruptcy or reorganization of the Guarantor, all as though such payment had not been made. Notwithstanding anything to the contrary contained herein, the provisions of this paragraph shall survive the Termination Date.
     Section 9. Notices. Any notice or other communication to be given hereunder shall be in writing and mailed or sent by facsimile transmission at the address or number set forth below:
             
  If to Lender:   Persistency
c/o Persistency Capital LLC
1270 Avenue of the Americas
New York, NY 10020
Attention: Andrew J. Morris
Fax No.: (646) 619-4642
   
 
           
 
  with a copy to:   John R. Ashmead, Esq.
Seward & Kissel LLP
One Battery Park Plaza
New York, NY 10004
Fax No.: (212) 480-8421
   
 
           
 
  If to the Guarantor:   [name]
[address]
[address]
Attention: [name]
Telephone No.:___
Fax No.:___
   
 
           
 
  With a copy to:   Peter Basilevsky, Esq.
Satterlee Stephens Burke & Burke LLP
230 Park Avenue
New York, NY 10169
Fax No.: (212) 818-9606
   
or to such other person, address or number as the party entitled to such notice or communication shall have specified by notice to the other party given in accordance with the provisions of this Section. Any such notice or other communication shall be deemed given: (i) if mailed, when deposited in the mail, properly addressed and with postage prepaid; or (ii) if sent by facsimile, when receipt thereof is acknowledged to sender.
     Section 10. Remedies Cumulative. The rights and remedies herein are cumulative and not exclusive of other rights and remedies which may be granted or provided by law.

5


 

     Section 11. Severability. Wherever possible each provision of this Guarantee shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guarantee shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guarantee.
     Section 12. Successors and Assigns. The terms and provisions of this Guarantee shall inure to the benefit of the Lender and its successors and any assignee or transferee of all of the Lender’s rights and obligations under the Loan Documents, and in the event of such transfer or assignment, the rights and privileges herein conferred upon the Lender shall automatically extend to and be vested in the transferee, assignee, or successor of the Lender, subject to the terms and conditions hereof. The Guarantor may not delegate its obligations hereunder, whether by operation of law or otherwise, without the prior written consent of the Lender.
     Section 13. Merger; Amendment. This Guarantee and the Financing Agreement embody the entire understanding of the parties hereto with respect to the subject matter hereof and thereof and this Guarantee may not be amended, waived or discharged except by an instrument in writing executed by the party against whom such amendment, waiver or discharge is to be enforced. In the event of any conflict between this Guarantee and the Financing Agreement the provisions of the Financing Agreement will control.
     Section 14. Reliance. The Obligations shall conclusively be deemed to have been created, contracted, incurred, renewed, extended, amended or waived in reliance upon this Guarantee, and all dealings between either Guarantor and the Lender (or its assigns) shall likewise be conclusively presumed to have been completed or consummated in reliance upon this Guarantee.
     Section 15. Consent to Loan Documents. The Guarantor agrees with, and consents to, all the terms, conditions, duties, obligations and other agreements of the Borrower as set forth in the Loan Documents.
     Section 16. Headings. In this Guarantee, section headings are inserted for convenience of reference only and shall be ignored in the interpretation thereof.
TO THE EXTENT PERMITTED BY LAW, THE UNDERSIGNED EXPRESSLY WAIVES ALL RIGHTS TO A TRIAL BY JURY ON ACCOUNT OF ANY ISSUE, CLAIM OR DEFENSE CONCERNING THIS GUARANTEE OR ANY INSTRUMENTS GIVEN BY THE UNDERSIGNED TO SECURE THIS GUARANTEE.
[Signature Page Follows]

6


 

THE UNDERSIGNED IRREVOCABLY AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL PROCEEDING ARISING OUT OF THIS GUARANTEE MAY BE BROUGHT IN THE COURTS OF RECORD OF THE STATE OF NEW YORK OR THE COURTS OF THE UNITED STATES LOCATED IN THE STATE OF NEW YORK; CONSENTS TO THE JURISDICTION OF EACH SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING; AND WAIVES ANY OBJECTION WHICH THE UNDERSIGNED MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY OF SUCH COURTS.
     IN WITNESS WHEREOF, the Guarantor has executed and delivered this Guarantee effective as of the                      day of October, 2009.
     
 
  [subsidiary name].
 
   
 
  By:
 
   
Witness
   

 

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