EXHIBIT 10.7
CANARGO ENERGY CORPORATION
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLC
AND
THE SECURED PARTIES
SECURITY INTEREST AGREEMENT
(BANK ACCOUNT)
ABX
CONTENTS
1 DEFINITIONS AND INTERPRETATION....................................1
2 GRANT OF SECURITY INTEREST........................................5
3 THE SECURED OBLIGATIONS...........................................5
4 DEBTOR'S REPRESENTATIONS AND WARRANTIES...........................6
5 DEBTOR'S COVENANTS................................................8
6 AUTHORITY.........................................................8
7 EVENTS OF DEFAULT.................................................9
8 ENFORCEMENT BY THE SECURED PARTIES...............................12
9 FURTHER ASSURANCE AND POWER OF ATTORNEY..........................14
10 SET-OFF..........................................................14
11 REDESIGNATION OF ACCOUNT.........................................15
12 SUSPENSE ACCOUNT.................................................15
13 SECURITY CONTINUING AND INDEPENDENT..............................15
14 REMEDIES AND WAIVER..............................................16
15 FEES, COSTS AND EXPENSES.........................................16
16 INDEMNITY AND LIABILITY..........................................16
17 RULING OFF.......................................................17
18 ILLEGALITY.......................................................18
19 CERTIFICATE OF SECURED PARTIES...................................18
20 AMALGAMATION AND CONSOLIDATION...................................18
21 CONVERSION OF CURRENCY...........................................18
22 AMENDMENT........................................................18
23 ASSIGNMENT.......................................................19
24 NOTICES..........................................................19
25 COUNTERPARTS.....................................................20
26 GOVERNING LAW AND JURISDICTION...................................20
SCHEDULE 1 ............................................................23
SCHEDULE 2 ............................................................25
SECURITY INTEREST AGREEMENT
THIS AGREEMENT is made on 2005
BETWEEN
(1)
CANARGO ENERGY CORPORATION a company incorporated under the laws of
Delaware, having its registered office at ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇ (the "DEBTOR");
(2) ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLC a company formed under the laws of New York having
its office at ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ as agent for the
Secured Parties (the "SECURITY AGENT"); and
(3) ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ VALUE PARTNERS L.P., ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇, FLEDGLING ASSOCIATES LLC, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ all care of ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇ ▇▇▇▇▇, ▇▇▇ as the purchasers (together the "SECURED PARTIES").
WHEREAS:
This Agreement is made between the parties hereto for the purposes of creating
security over certain bank accounts of the Debtor at the Account Bank (as
defined herein)
NOW IT IS HEREBY AGREED AS FOLLOWS:
1 DEFINITIONS AND INTERPRETATION
1.1 In this Agreement, the following words and expressions shall, except
where the context otherwise requires, have the following meanings:
"ACCOUNTS" means the Debtor's bank accounts numbered ▇▇▇-▇▇▇▇▇▇-▇▇▇ and
▇▇▇-▇▇▇▇▇▇-▇▇▇ at the Account Bank and any sub-account or any
substituted account;
"ACCOUNT BALANCES" means all sums at any time and from time to time
standing to the credit of the Accounts and includes all interest
accrued or accruing in the future thereon and any monies of the Debtor
at the Account Bank (however described,
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designated or numbered) which derives in whole or in part from the
Accounts or from any sum at any time standing to the credit of the
Accounts;
"ACCOUNT BANK" means HSBC Bank Plc of ▇▇ ▇▇▇ ▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇ Port, Guernsey;
"AFFILIATE" has the meaning ascribed to it in the Note Purchase
Agreement;
"BUSINESS DAY" means any day on which commercial banks are open for
full banking business in Guernsey;
"CANARGO GROUP MEMBER" has the meaning ascribed to it in the Note
Purchase Agreement;
"CODE" has the meaning ascribed to it in the Note Purchase Agreement;
"COLLATERAL" means the whole right, title, benefit and interest,
present and future, of the Debtor in and under the Accounts and the
Account Balances and all other income, interest and rights deriving
from or incidental to the foregoing;
"DEFAULT" has the meaning ascribed to it in the Note Purchase
Agreement;
"ENCUMBRANCE" means any mortgage, charge, pledge, lien, assignment,
hypothecation, title retention, security interest, trust arrangement or
any other agreement or arrangement which has the effect of creating
security;
"ERISA" has the meaning ascribed to it in the Note Purchase Agreement;
"ERISA AFFILIATE" has the meaning ascribed to it in the Note Purchase
Agreement;
"EVENTS OF DEFAULT" means any of the events or circumstances specified
in Clause 7;
"FOREIGN PENSION PLAN" has the meaning ascribed to it in the Note
Purchase Agreement;
"KNOWLEDGE" has the meaning ascribed to it in the Note Purchase
Agreement;
"LAW" means the Security Interests (Guernsey) Law, 1993;
"LIEN" has the meaning ascribed to it in the Note Purchase Agreement;
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"LOAN DOCUMENTS" has the meaning ascribed to it in the Note Purchase
Agreement;
"MATERIAL" shall have the meaning ascribed to it in the Note Purchase
Agreement;
"MATERIAL ADVERSE EFFECT" has the meaning ascribed to it in the Note
Purchase Agreement;
"MULTIEMPLOYER PLAN" has the meaning ascribed to it in the Note
Purchase Agreement;
"NOTE PURCHASE AGREEMENT" means the note purchase agreement dated as of
the date hereof between the Debtor and the Secured Parties;
"NOTES" mean the senior secured notes issued to the Secured Parties
pursuant to the Note Purchase Agreement;
"OBLIGATIONS" has the meaning ascribed to it in the Note Purchase
Agreement;
"PERSON" has the meaning ascribed to it in the Note Purchase Agreement;
"PLAN" has the meaning ascribed to it in the Note Purchase Agreement;
"PROPERTIES" has the meaning ascribed to it in the Note Purchase
Agreement;
"REDEMPTION PRICE" has the meaning ascribed to it in the Note Purchase
Agreement;
"REQUIRED HOLDERS" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Debtor, any of its Subsidiaries or any of its
Affiliates);
"RESPONSIBLE OFFICER" has the meaning ascribed to it in the Note
Purchase Agreement;
"SECURED OBLIGATIONS" shall have the meaning given to it in Clause 3;
"SECURITY DOCUMENTS" has the meaning ascribed to it in the Note
Purchase Agreement;
"SECURITY PERIOD" means the period commencing on the date hereof and
terminating on the date upon which the Required Holders shall have
determined that all of the
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Secured Obligations have been irrevocably and indefeasibly paid,
performed and discharged in full; and
"SUBSIDIARY" has the meaning ascribed to it in the Note Purchase
Agreement.
1.2 The Secured Parties shall be the "SECURED PARTIES", the Debtor shall be
the "DEBTOR" and the Events of Default shall be the "EVENTS OF DEFAULT"
for the purposes of the Law.
1.3 References to the Secured Parties include their successors and assigns.
References to the Debtor include its successors and permitted assigns,
if any.
1.4 Words and expressions not otherwise defined in this Agreement shall be
construed in accordance with the Law.
1.5 Except where the context otherwise requires, words denoting the
singular include the plural and vice versa, words denoting a gender
include every gender and references to persons include bodies corporate
and unincorporate.
1.6 References to Recitals, Clauses and Schedules are, unless the context
otherwise requires, references to recitals and clauses hereof and
schedules hereto and references to sub-clauses are, unless otherwise
stated, references to the sub-clause of the clause in which the
reference appears.
1.7 The Recitals and Schedule form part of this Agreement and shall have
the same force and effect as if they were expressly set out in the body
of this Agreement and any reference to this Agreement shall include the
Recitals and Schedule.
1.8 Any reference to this Agreement or to any agreement or document
referred to in this Agreement shall be construed as a reference to such
agreement or document as amended, varied, modified, supplemented,
restated, novated or replaced from time to time.
1.9 Any reference to any statute or statutory provision shall, unless the
context otherwise requires, be construed as a reference to such statute
or statutory provision as the same may have been or may be amended,
modified, extended, consolidated, re-enacted or replaced from time to
time.
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1.10 Clause headings and the index are inserted for convenience only and
shall not affect the construction of this Agreement.
2 GRANT OF SECURITY INTEREST
2.1 Without affecting, and in addition to, each Secured Party's other
rights under or pursuant to this Agreement, for the purpose of granting
each Secured Party a first priority security interest in the Collateral
pursuant to the Law, the Debtor hereby assigns the Collateral to the
Security Agent for the ratable benefit of the Secured Parties.
2.2 Upon the expiry of the Security Period, the Security Agent shall, at
the request and expense of the Debtor, assign, transfer or otherwise
make over title to the Collateral to the Debtor, without recourse or
warranty, executing such documents as may be required to release the
security created by this Agreement and shall thereby discharge the
security created hereunder.
3 THE SECURED OBLIGATIONS
The grant of security interest set out in Clause 2.1 shall secure the
Debtor's obligation under the Note Purchase Agreement as a continuing
security for the payment and/or discharge of, the Notes and of all
other present or future obligations, monies and liabilities of the
Debtor to the Secured Parties which shall for the time being (and
whether on or at any time after such demand) be or become due, owing or
incurred to any Secured Party by the Debtor whether actually or
contingently, solely or jointly with any other person or as principal
or surety and including interest (whether simple or compound and as
well after as before judgment) together with discount, commission and
all other lawful charges and expenses (including, without limitation,
legal fees and other professional fees plus disbursements) of the
Secured Parties under the Note Purchase Agreement (together the
"SECURED OBLIGATIONS").
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4 DEBTOR'S REPRESENTATIONS AND WARRANTIES
The Debtor hereby represents and warrants to each Secured Party on the
date hereof that:
(a) the Debtor is a body corporate duly incorporated and validly
existing under the laws of Delaware and all corporate and
other action required to authorise the execution and delivery
of this Agreement and the perfection of the security intended
to be created hereunder has been duly taken;
(b) this Agreement constitutes the legal, valid and binding
obligations of the Debtor, and constitutes a valid first
priority security interest in the Collateral under the Law,
enforceable against the Debtor in accordance with its terms;
(c) no event has occurred or circumstance exists which constitutes
or with the giving of notice or lapse of time or both would
constitute an Event of Default;
(d) the Debtor is the sole legal and beneficial owner of and has
good title to the Collateral subject only to the rights
granted in favour of the Secured Parties by this Agreement and
save as permitted under the Note Purchase Agreement including
without limitation the
security interest agreement between the
Debtor and HSBC International Limited dated February 2, 2005;
(e) save as permitted under the Note Purchase Agreement including
without limitation the
security interest agreement between the
Debtor and HSBC International Limited dated February 2, 2005,
the Collateral is free from all Encumbrances and rights of
set-off other than those created by this Agreement in favour
of the Secured Parties;
(f) the Debtor has the necessary power to execute, deliver and
perform its obligations under this Agreement; and the
execution, delivery and performance by the Debtor of this
Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action;
(g) all necessary authorisations or approvals or other actions by
and notices or filings with any governmental authority,
regulatory body or any other third
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party to enable the Debtor to execute, deliver and perform
this Agreement and the perfection of the security interest
created hereunder have been obtained and are in full force and
effect;
(h) the execution, delivery and performance by the Debtor of this
Agreement and the consummation by the Debtor of the
transactions contemplated hereby do not:
(i) require any consent or approval of any Person that
has not been obtained and each such consent or
approval that has been obtained is in full force and
effect;
(ii) violate any provision of the Certificate of
Incorporation or By-laws of the Debtor;
(iii) violate any provision of any statute, regulation,
order, injunction or judgement applicable to the
Debtor which violation could reasonably be expected
to have a Material Adverse Effect; or
(iv) violate, result in a breach of or constitute a
default under any mortgage, indenture or any other
material agreement to which the Debtor is a party or
by which it or its property may be bound which
violation or breach could reasonably be expected to
have a Material Adverse Effect.
(i) there are no actions, suits, litigation, administrative
proceedings or other proceedings at law or in equity or by or
before any governmental authority or arbitral tribunal now
pending, or to the Knowledge of the Debtor, threatened against
or affecting the Collateral which could reasonably be expected
to have a Material Adverse Effect.
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5 DEBTOR'S COVENANTS
The Debtor covenants and undertakes to the Secured Parties that:
(a) contemporaneously with the execution and delivery of this
Agreement it shall deliver to the Account Bank a notice
materially in the form set out in Part I of the Schedule.
It shall not, save with the prior written consent of the Required
Holders:
(i) in any way, except as set out in this Agreement or in
the Note Purchase Agreement, create an Encumbrance
over the Collateral or any part thereof; or
(ii) after the occurrence of an Event of Default which is
continuing negotiate, settle or waive any claim for
loss, damage or other compensation affecting the
Collateral or any part thereof;
(b) it shall do everything in its power to prevent any person from
becoming entitled to claim any right over the Collateral or
any part thereof; and
(c) it shall do everything necessary to permit the Security Agent:
(i) to confirm or protect the interests of the Secured
Parties in the Collateral; and
(ii) to exercise any of its or the Secured Parties' rights
under this Agreement.
6 AUTHORITY
6.1 Notwithstanding any other provisions hereof, until the occurrence of an
Event of Default which is thereafter continuing unremedied and
unwaived, the Debtor shall be free, at any time and from time to time,
to withdraw all or any part of the Account Balances and the Security
Agent shall act and exercise all rights in respect of the Collateral,
including withdrawing any part or all of the Account Balances, only
upon the written instructions of the Debtor.
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At any time following the occurrence of an Event of Default which is
continuing, except with the written authorisation of the Required
Holders:
(a) the Debtor shall not be authorised to, and shall not, give
instructions or exercise its rights in respect of the
Collateral; and
(b) the Security Agent shall act and exercise its rights in
respect of the Collateral, including withdrawing any part or
all of the Account Balances, only upon the written
instructions of the Required Holders.
7 EVENTS OF DEFAULT
There shall be an Event of Default if there occurs or exists any event
described as or constituting an Event of Default under the Note
Purchase Agreement namely:
(a) the Debtor defaults in the payment of any principal at the
applicable Redemption Price (if any) on any Note when the same
becomes due and payable, whether at maturity or at a date
fixed for prepayment or by declaration or otherwise; or
(b) the Debtor defaults in the payment of any interest on any Note
or in the payment of any expenses due hereunder or under any
Security Document for more than five Business Days after the
same becomes due and payable; or
(c) the Debtor defaults in the performance of or compliance with
any term contained in sections 9.6, 10.11, 11.2, 11.3, 11.4,
11.6, 11.7, 11.8, 11.9, 11.10 or 11.11 of the Note Purchase
Agreement (an extract of such sections from the Note Purchase
Agreement are set out in Schedule 2 hereof); or
(d) the Debtor defaults in the performance of or compliance with
any term contained in the Note Purchase Agreement (other than
those referred to in paragraphs (a), (b) and (c) above) and
such default is not remedied within 30 days after the earlier
of (i) a Responsible Officer obtaining actual and not
constructive knowledge of such default and (ii) the Debtor
receiving written notice of such default from any holder of a
Note (any such written notice to be identified as a "notice of
default" and to refer specifically to paragraph (d) of Section
12 of the Note Purchase Agreement); or
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(e) any representation or warranty made in writing by or on behalf
of the Debtor or any other CanArgo Group Member or by any
officer of the Debtor or any other CanArgo Group Member in the
Note Purchase Agreement, in any Security Document or in
writing furnished in connection with the transactions
contemplated hereby proves to have been false or incorrect in
any Material respect on the date as of which made; or
(f) the Debtor or any other CanArgo Group Member (i) is generally
not paying, or admits in writing its inability to pay, its
debts as they become due, (ii) files, or consents by answer or
otherwise to the filing against it of, a petition for relief
or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (iii) makes an assignment for
the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any
substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action
for the purpose of any of the foregoing; or
(g) a court or governmental authority of competent jurisdiction
enters an order appointing a custodian, receiver, trustee or
other officer with similar powers with respect to it or with
respect to any substantial part of its property, or
constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy
or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of the Debtor or any
other CanArgo Group Member, or any such petition shall be
filed against the Debtor or any other CanArgo Group Member and
such petition shall not be dismissed or stayed pending appeal
within 90 days, or are not discharged within 60 days after the
expiration of such stay; or
(h) a final judgment or judgments for the payment of money
aggregating in excess of US$2,500,000 (to the extent not
covered by insurance) are rendered against the Debtor or any
other CanArgo Group Member and which judgments are not, within
90 days after entry thereof, bonded, discharged, finally
settled or
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stayed pending appeal, or are not discharged within 60 days
after the expiration of such stay; or
(i) if (i) any Plan subject to ERISA shall fail to satisfy the
minimum funding standards of ERISA or the Code for any plan
year or part thereof or a waiver of such standards or
extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to
terminate any Plan subject to ERISA shall have been or is
reasonably expected to be filed with the Pension Benefit
Guaranty Corporation referred to and defined in ERISA or any
successor thereto ("PBGC") or the PBGC shall have instituted
proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any such Plan or the PBGC shall have
notified the Debtor or any ERISA Affiliate or other Affiliate
that a Plan subject to ERISA may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of
ERISA) under all Plans subject to ERISA, determined in
accordance with Title IV of ERISA shall exceed US$500,000,
(iv) the Debtor or any ERISA Affiliate or other Affiliate
shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit
plans subject to ERISA in excess of $500,000, (v) the present
value of the accrued benefit liabilities (whether or not
vested) under each Foreign Pension Plan maintained by the
Debtor or an ERISA Affiliate, determined as of the end of its
most recently ended fiscal year on the basis of actuarial
assumptions, each of which is reasonable, exceeds the current
value of the assets of such Foreign Pension Plan allocable to
such benefit liabilities by US$500,000 or more, (vi) either
the Debtor or any other CanArgo Group Member incurs a Material
liability pursuant to any Foreign Pension Plan which could
reasonably be expected to have a Material Adverse Effect,
(vii) the Debtor or any ERISA Affiliate or other Affiliate
withdraws from any Multiemployer Plan, or (viii) the Debtor or
any other CanArgo Group Member establishes or amends any
employee welfare benefit plan that provides post-employment
welfare benefits in a manner that would increase the liability
of the Debtor or any other CanArgo Group Member thereunder in
any Material respect and any such event or
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events described in clauses (i) through (viii) above, either
individually or together with any other such event or events,
has a Material Adverse Effect;
(j) (i) the Note Purchase Agreement, the Notes, any Security
Document, or any other Loan Document ceases to be in full
force and effect (except in accordance with its terms) or is
declared null and void or the validity or enforceability is
contested or challenged by the Debtor, any Affiliate of the
Debtor or any of their respective partners or shareholders;
(ii) the Debtor denies that it has any further liability or
obligation under any of the Loan Documents prior to the
indefeasible satisfaction in full of all Obligations under the
Loan Documents; or (iii) any of the Liens and security
interest granted to the Secured Parties under the Security
Documents cease to be valid or perfected or cease to have the
priority required hereby or under the Security Documents prior
to the indefeasible satisfaction in full of all Obligations
under the Loan Documents, other than as a result of the action
or omission by any of the Secured Parties or holder; or
(k) the Debtor or any other CanArgo Group Member modifies or
amends any of its constitutional documents in any Material
manner without the Required Holders' prior written consent,
unless any such amendment will not result in a Default or
Event of Default (without regard to this paragraph) and will
not adversely affect the rights of the holders under the Loan
Documents; or
(l) a change occurs in the consolidated financial condition of the
Debtor or in the physical, operational or financial status of
the Properties, which change is not otherwise described in
this section and has a Material Adverse Effect and which has
not been remedied pursuant to paragraph (d) above.
8 ENFORCEMENT BY THE SECURED PARTIES
8.1 At any time following the occurrence of an Event of Default which is
thereafter continuing unremedied and unwaived and provided that the
Security Agent has served on the Debtor a notice specifying the
particular Event of Default complained of:
(a) the power of sale or application under the Law shall become
exercisable over the Collateral without any order of the Royal
Court of Guernsey;
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(b) the power of sale or application may be exercised in such
manner and for such consideration (whether payable
immediately, by instalments or otherwise deferred) as the
Required Holders shall in their absolute discretion determine
and, in particular, the Required Holders shall be entitled to
appropriate the Account Balances and apply the same in
accordance with the Law;
(c) for the purposes of this Agreement, references to the exercise
of the "POWER OF SALE OR APPLICATION" shall include any method
or process by which value is given, allowed or credited by the
Required Holders for the Collateral against the Secured
Obligations;
(d) the Security Agent, acting upon the written instructions of
the Required Holders, may exercise and be entitled to any and
all rights of an owner of the Collateral subject hereto; and
(e) the Security Agent may, acting upon the written instructions
of the Required Holders, collect, receive or compromise and
give a good discharge for any and all monies and claims for
monies due and to become due for the time being comprised in
the Collateral subject hereto.
8.2 Neither the Security Agent nor the Required Holders shall be under any
liability to the Debtor for any failure to apply and distribute the
monies representing the proceeds of sale or application of the
Collateral in accordance with the Law if the Required Holders direct
the Security Agent to apply and distribute such proceeds in good faith
without further enquiry and in accordance with the information
expressly known to them at the time of the application and
distribution.
8.3 The exercise by the Secured Parties of any right or power of sale or
application under this Clause 8 shall not constitute a waiver or
release of nor the exercise of any other right or power of sale or
application held by any Secured Party unless expressly stated in
writing.
8.4 For the purposes of this Clause 8, time shall be of the essence with
regard to the performance by the Debtor of the Secured Obligations.
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9 FURTHER ASSURANCE AND POWER OF ATTORNEY
9.1 The Debtor agrees that it shall from time to time upon the written
request of the Required Holders promptly do all such things and execute
and deliver all such instruments and documents (including, without
limitation, any replacement or supplemental security) as the Required
Holders may consider necessary or desirable for creating the security
contemplated hereby, giving full effect to this Agreement or for
securing or protecting the rights of the Secured Parties hereunder.
9.2 In accordance with the Powers of Attorney and Affidavits (Bailiwick of
Guernsey) Law, 1995 (the "POWERS OF ATTORNEY LAW"), for the purpose of
facilitating the exercise of the powers of the Secured Parties under
the Law and the powers given pursuant to this Agreement, the Debtor
hereby irrevocably appoints the Security Agent, acting upon the written
instructions of the Required Holders, as the Debtor's true and lawful
attorney (with full power of substitution and delegation) with
authority in the name of and on behalf of the Debtor upon the
occurrence of an Event of Default which is continuing to sign, execute,
seal, deliver, complete, acknowledge, file, register and perfect any
and all assurances, documents, transfers, instruments, agreements,
certificates and consents whatsoever and to do any and all such acts
and things in relation to any matters dealt with in this Agreement and
which the Required Holders may deem necessary or advisable in order to
give full effect to this Agreement (including, without limitation,
anything referred to in Clause 8 (Enforcement by the Secured Parties))
and anything to perfect the Secured Parties' security over the
Collateral. The Debtor further covenants with the Secured Parties to
ratify and confirm any lawful exercise or purported exercise of this
power of attorney.
10 SET-OFF
Without affecting and in addition to the grant of security interest and
the other rights of the Secured Parties under or pursuant to this
Agreement, the Security Agent may, upon the written instructions of the
Required Holders, at any time after the occurrence of an Event of
Default which is continuing set off the Account Balances in or towards
the discharge of the Secured Obligations and such right of set off may
be exercised by the Security Agent, upon the written instructions of
the Required Holders, at any time after the occurrence of an Event of
Default which is continuing without any prior
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notice to the Debtor, provided that the Security Agent shall notify the
Debtor of any exercise of such right of set off.
11 REDESIGNATION OF ACCOUNT
The Debtor agrees that, if for any reason any of the Accounts is
redesignated or renumbered, all of the terms of this Agreement shall
apply to the redesignated or renumbered account as if all sums at any
time standing to the credit of the redesignated or renumbered account
form part of the Account Balances.
12 SUSPENSE ACCOUNT
All monies received, recovered or realised by the Security Agent under
this Agreement may, at the discretion of the Required Holders, be
credited to a separate or suspense account for so long as the Required
Holders may think fit without any intermediate obligation on the part
of the Secured Parties or the Security Agent to apply the same in or
towards payment and discharge of the Secured Obligations.
13 SECURITY CONTINUING AND INDEPENDENT
The security constituted by this Agreement:
(a) shall not be discharged by any partial or intermediate payment
or performance of the Secured Obligations;
(b) shall take effect as a security for the whole and every part
of the payment or performance of the Secured Obligations and
shall be independent of and in addition to, and it shall not
be prejudiced or be affected by and shall not affect or
prejudice, any other security now or hereafter held by any
Secured Party in respect of the payment or performance of all
or any part of the Secured Obligations; and
(c) shall not be in any way discharged, impaired or otherwise
affected by reason of any of the Secured Obligations becoming
illegal, void, voidable, invalid or unenforceable or by reason
of any other act, circumstance or omission which might but for
provisions of this Clause constitute a discharge of such
security.
15
14 REMEDIES AND WAIVER
Time shall be of the essence of this Agreement but no failure by the
Security Agent or any Secured Party to exercise, nor any delay by the
Security Agent or any Secured Party in exercising, any right or remedy
hereunder shall operate as a waiver hereof nor shall any single or
partial exercise prevent any further or other exercise thereof or the
exercise of any other right or remedy. The rights and remedies provided
herein are cumulative and not exclusive of any rights or remedies
provided by law, which may be exercised at the Required Holders'
discretion.
15 FEES, COSTS AND EXPENSES
15.1 Subject to the provisions of Section 10.9 of the Note Purchase
Agreement, the Debtor agrees to reimburse the Security Agent on demand
for all fees (including legal fees), costs and expenses incurred by the
Security Agent in connection with or relating to the negotiation,
preparation and/or execution of this Agreement, the creation,
preservation and/or enforcement of any of the Secured Party's rights
under this Agreement or the exercise or purported exercise of any of
the powers arising pursuant to this Agreement.
15.2 All such fees, costs and expenses shall be reimbursed by the Debtor on
a full indemnity basis.
16 INDEMNITY AND LIABILITY
16.1 The Debtor will indemnify and keep indemnified the Secured Parties and
the Security Agent and/or its nominees (if any) on demand against each
and every loss, action, claim, expense, cost and liability which the
Secured Parties and the Security Agent and/or its nominees may incur
(as holder of the Collateral) or which may be properly incurred in or
in connection with the preservation and/or enforcement of any of the
Secured Parties rights under this Agreement or flowing from the
exercise or purported exercise of any of the powers arising under any
of the provisions of this Agreement save where such loss, action,
claim, expense, cost or liability arises as the result of the gross
negligence or wilful misconduct of the Security Agent or any of the
Secured Parties.
16
16.2 Without prejudice to any other provision hereof:
(a) the obligations of the Security Agent to the Secured Parties
and to the Debtor shall not be and/or shall be deemed not to
be fiduciary in nature;
(b) the provisions of the Trusts (Guernsey) Law, 1989 shall not
apply to the Security Agent in respect of its duties under
this Agreement; and
(c) the obligations of the Security Agent to the Secured Parties
and to the Debtor shall be limited to (a) its obligations as
expressed in this Agreement and (b) acting in accordance with
the written authorisation of the Required Holders, where such
authorisation is required.
16.3 Notwithstanding any other provision hereof neither the Security Agent
nor its nominees nor any of the Secured Parties shall be liable by
reason of (a) taking any action permitted by this Agreement, (b) any
neglect or default in connection with the Collateral or (c) the taking
possession or realisation of all or any part of the Collateral, except
in the case of gross negligence or wilful default upon their part.
17 RULING OFF
In the event of the affairs of the Debtor being declared en etat de
desastre or the commencement of any form of bankruptcy or insolvency
proceeding affecting the Debtor or of all or any part of this Agreement
ceasing for any reason to be binding on the Debtor or if the Security
Agent receives notice (actual or otherwise) of any other or subsequent
Encumbrance affecting the Collateral, the Required Holders may at any
time rule off the Debtor's obligations and then subsisting account or
accounts of the Debtor with the Secured Parties and open a new account
or accounts in the name of the Debtor. No monies paid in respect of
such new account or accounts shall thereby discharge or reduce the
amount recoverable pursuant to this Agreement. If the Required Holders
in any of the above cases do not rule off the obligations of the Debtor
or open any new account or accounts, it shall nevertheless be treated
as if they had done so at the time when they first had notice (actual
or otherwise) of the event in question and all payments made by or on
behalf of the Debtor to the Security Agent for the rateable benefit of
the Secured Parties shall be treated as having been credited
17
to the new account or accounts and shall not operate to reduce the
amount recoverable pursuant to this Agreement.
18 ILLEGALITY
If at any time one or more of the provisions of this Agreement becomes
invalid, illegal or unenforceable in any respect, that provision shall
be severed from the remainder and the validity, legality and
enforceability of the remaining provisions of this Agreement shall not
be affected or impaired in any way.
19 CERTIFICATE OF SECURED PARTIES
Any certificate submitted by the Security Agent to the Debtor as to the
amount of the Debtor's obligations or any part of them shall (in the
absence of manifest error) be conclusive and binding on the Debtor at
the relevant time.
20 AMALGAMATION AND CONSOLIDATION
The rights and benefits of each Secured Party under this Agreement
shall remain valid and binding for all purposes notwithstanding any
change, amalgamation, consolidation, migration or otherwise which may
be made in the constitution of such Secured Party and shall be
available to such entity as shall carry on the business of that Secured
Party for the time being.
21 CONVERSION OF CURRENCY
All monies received or held by the Security Agent subject to this
Agreement may at any time, after the occurrence of an Event of Default,
be converted into such other currency as the Required Holders consider
necessary or desirable to satisfy the Secured Obligations in that other
currency at the then prevailing spot rate of exchange of the Account
Bank (as conclusively determined by the Required Holders) for
purchasing that other currency with the original currency.
22 AMENDMENT
No variation or amendment of this Agreement shall be valid unless in
writing and signed by or on behalf of Debtor and the Security Agent
acting upon written instructions of the Required Holders.
18
23 ASSIGNMENT
23.1 Any Secured Party at any time may grant a participation in or make an
assignment or transfer or otherwise dispose of, the whole or any part
of its rights and benefits under this Agreement. Subject to the
provisions of Section 21 of the Note Purchase Agreement for the purpose
of any such participation, assignment, transfer or disposal, the
Security Agent may disclose information about the Debtor and the
financial condition of the Debtor as may have been made available to
the Security Agent by the Debtor or which is otherwise publicly
available.
23.2 Except with the written consent of the Required Holders, the Debtor
shall not assign or transfer all or any part of its rights, benefits
and/or obligations under this Agreement.
24 NOTICES
All notices with respect to this Agreement shall be delivered by hand
or sent by first class post to the address of the addressee as set out
in this Agreement with respect to the Security Agent or Section 19 in
the Note Purchase Agreement or to such other address as the addressee
may from time to time have notified for the purpose of this Clause 24
or to any other "PROPER ADDRESS" as defined in the Law, or sent by
facsimile transmission ("FAX") and shall be deemed to have been
received:
(a) if sent by first class prepaid post, five Business Days after
posting;
(b) if delivered by hand, on the day of delivery; and
(c) if sent by fax, at the time of transmission provided that the
sender shall receive a successful transmission report.
If the Debtor is a body corporate registered outside the Island of
Guernsey, it shall appoint a process agent in the Island of Guernsey to
accept service of notices pursuant to this Agreement on its behalf,
such appointment to take effect from the date of this Agreement, and it
shall promptly notify the Security Agent in writing of the identity and
address of such process agent from time to time.
19
25 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of
which shall be an original but which shall together constitute one and
the same instrument.
26 GOVERNING LAW AND JURISDICTION
26.1 This Agreement shall be governed by and construed in accordance with
the laws of the Island of Guernsey and the parties hereby irrevocably
agree for the exclusive benefit of the Secured Parties that the courts
of the Island of Guernsey are to have jurisdiction to settle any
disputes which arise out of or in connection with this Agreement and
that accordingly any suit, action or proceeding arising out of or in
connection with this Agreement (in this Clause referred to as
"PROCEEDINGS") may be brought in such court.
26.2 Nothing contained in this Clause shall limit the right of any Secured
Party to take Proceedings against the Debtor or the Company in any
other court of competent jurisdiction nor shall the taking of
proceedings in one or more jurisdiction preclude the taking of
Proceedings in any other jurisdiction, whether concurrently or not.
26.3 The Debtor irrevocably waives (and irrevocably agrees not to raise) any
objection which either may have now or hereafter to laying of the venue
of any Proceedings in any such court as referred to in this Clause and
any claim that any such Proceedings have been brought in an
inconvenient forum and further irrevocably agree that a judgment in any
Proceedings brought in any such court as is referred to in this Clause
shall be conclusive and binding upon the Debtor and may be enforced in
the court of any other jurisdiction.
AS WITNESS WHEREOF have caused this Agreement to be duly executed the day and
year first above written.
20
SIGNED for and on behalf of
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLC
by:
Name:
------------------------------
Title:
SIGNED for and on behalf of
CANARGO ENERGY CORPORATION
by:
Name:
------------------------------
Title:
SIGNED for and on behalf of
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ VALUE
PARTNERS L.P.
by:
Name:
------------------------------
Title:
SIGNED by
▇▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇
------------------------------
SIGNED by
▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇
------------------------------
SIGNED by
▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------------
SIGNED by
▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇ ▇▇▇
------------------------------
21
SIGNED by
▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
SIGNED by
▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------
SIGNED for and on behalf of
FLEDGLING ASSOCIATES LLC
by:
Name:
------------------------------
Title:
SIGNED by
▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
SIGNED by
▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
SIGNED by
▇▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------
SIGNED by
▇▇▇▇ ▇▇▇▇▇▇
------------------------------
SIGNED by
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
22
SCHEDULE 1
TO: HSBC BANK PLC, ▇▇ ▇▇▇ ▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ PORT, GUERNSEY
(the "ACCOUNT BANK")
FROM:
CANARGO ENERGY CORPORATION (the "DEBTOR");
AND FROM: ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLC (the "SECURITY AGENT")
1. We hereby give you notice that, pursuant to a
security interest
agreement dated July 2005 (the "
SECURITY INTEREST Agreement") made
between the Security Agent, the Secured Parties and the Debtor, the
Debtor has assigned to the Security Agent title to a bank account in
the Debtor's name with you, accounts numbered ▇▇▇-▇▇▇▇▇▇-▇▇▇ and
▇▇▇-▇▇▇▇▇▇-▇▇▇ and any sub-account or substituted account (the
"ACCOUNTS"), including all interest accrued or accruing in the future
thereon and any monies of the Debtor (however described, designated or
numbered) which derive in whole or part from the Accounts or from any
sum standing to the credit of the Accounts, and the beneficial interest
and all other rights of the Debtor therein.
2. We irrevocably and unconditionally authorise and instruct you
(notwithstanding any previous instructions of any kind which the Debtor
may have given to you):
(a) to disclose to the Security Agent such information relating to
the Accounts as it may from time to time require;
(b) with effect from the time the Security Agent gives written
notice to you that an Event of Default for the purpose of the
Security Agreement has occurred:
(i) to hold the Accounts and all monies comprised therein
to the order of the Security Agent; and
(ii) to release and deliver the monies held by you from
time to time in the Accounts to the Security Agent or
to the Security Agent's order and to comply with the
Security Agent's instructions generally without any
enquiry by you as to the justification or validity of
such instructions;
23
(iii) that until such time as you have received a notice
from the Security Agent referred to in this paragraph
(b), you shall be permitted and authorised to act in
accordance with all proper instructions pursuant to
the existing mandates held by you in respect of the
Accounts;
(c) the Security Agent shall, from time to time, provide you with
a list of authorised signatories and specimen signatures for
the purpose of the communication of instructions, notices or
directions by the Security Agent as set out above.
3. This notice may be executed in any number of counterparts and by each
party on a separate counterpart each of which counterparts when so
executed and delivered shall be an original but all such counterparts
shall together constitute one and the same instrument.
This notice shall be governed by the laws of the Island of Guernsey.
Date: [date]
For and on behalf of
CANARGO ENERGY CORPORATION
For and on behalf of
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLC
24
SCHEDULE 2
EXTRACTS FROM THE NOTE PURCHASE AGREEMENT
SECTION 9.6 CHANGE IN CONTROL
(a) NOTICE OF CHANGE IN CONTROL OR CONTROL EVENT.
CanArgo
Energy Corporation will, within five Business Days
after any Responsible Officer has actual and not
constructive knowledge of the occurrence of any
Change in Control or Control Event, give written
notice of such Change in Control or Control Event to
each holder of Notes unless notice in respect of such
Change in Control (or the Change in Control
contemplated by such Control Event) shall have been
given pursuant to subparagraph (b) of this Section
9.6. If a Change in Control has occurred, such notice
shall contain and constitute an offer to prepay Notes
as described in Section 9.6(c) and shall be
accompanied by the certificate described in Section
9.6(f).
(b) CONDITION TO COMPANY ACTION.
CanArgo Energy
Corporation will not take any action that consummates
or finalises a Change in Control unless: (i) at least
15 Business Days prior to such action it shall have
given to each holder of Notes written notice
containing and constituting an offer to prepay Notes
as described in Section 9.6(c) accompanied by the
certificate described in Section 9.6(f), and (ii)
contemporaneously with the action taken to consummate
or finalise any such Change in Control, it prepays
all Notes required to be prepaid in accordance with
this Section 9.6.
(c) OFFER TO PREPAY NOTES. The offer to prepay Notes
contemplated by subparagraphs (a) and (b) of this
Section 9.6 shall be an offer to prepay, in
accordance with and subject to this Section 9.6 all,
but not less than all, the Notes held by each holder
(in this case only, "holder" in respect of any Note
registered in the name of a nominee for a disclosed
beneficial owner shall mean such beneficial owner) on
a date specified in such offer (the "Proposed
Prepayment Date"). If such Proposed Prepayment Date
is in connection with an offer contemplated by
subparagraph (a) of this Section 9.6, such date shall
be not less than 30 days and not more than 90 days
after the date of such offer (if the Proposed
Prepayment Date shall not be specified in such offer,
the Proposed Prepayment Date shall be the 30th day
after the date of such offer).
(d) ACCEPTANCE. A Purchaser may accept the offer to
prepay made pursuant to this Section 9.6 by causing
notice of such acceptance to be delivered to
CanArgo
Energy Corporation at least 15 days prior to the
Proposed Payment Date. A failure by a Purchaser to
respond to an offer to prepay made pursuant to this
Section 9.6 shall be deemed to constitute an
acceptance of such offer by such Purchaser.
25
(e) PREPAYMENT. Prepayment of the Notes to be prepaid
pursuant to this Section 9.6 shall be the Redemption
Price of such Notes, together with interest on such
Notes accrued to the date of prepayment. The
prepayment shall be made on the Proposed Prepayment
Date.
(f) OFFICER'S CERTIFICATE. Each offer to prepay the Notes
pursuant to this Section 9.6 shall be accompanied by
a certificate, executed by a Senior Financial Officer
of
CanArgo Energy Corporation and dated the date of
such offer, specifying: (i) the Proposed Prepayment
Date; (ii) that such offer is made pursuant to this
Section 9.6; (iii) the principal amount of each Note
offered to be prepaid; (iv) the interest that would
be due on each Note offered to be prepaid, accrued to
the Proposed Prepayment Date; (v) that the conditions
of this Section 9.6 have been fulfilled; and (vi) in
reasonable detail, the nature and date or proposed
date of the Change of Control.
(g) EFFECT ON REQUIRED PAYMENTS. The amount of each
payment of the principal of the Notes made pursuant
to this Section 9.6 shall be applied against and
reduce each of the then remaining principal payments
due pursuant to Section 9.6 by a percentage equal to
the aggregate principal amount of the Notes so paid
divided by the aggregate principal amount of the
Notes outstanding immediately prior to such payment.
(h) "CHANGE IN CONTROL" DEFINED. "Change in Control"
means (a)
CanArgo Energy Corporation shall at any
time cease to be a publicly held company or cease to
have its capital stock traded on an exchange; or (b)
a transaction or series of related transactions
pursuant to which: (i) at least fifty-one percent
(51%) of the outstanding shares of Common Stock of
CanArgo Energy Corporation or, on a fully diluted
basis, shall subsequent to the date of the Note
Purchase Agreement be owned by any Person (as
hereinafter defined) which is not related to or
Affiliated with CanArgo Energy Corporation; (ii)
CanArgo Energy Corporation merges into or with,
consolidates with or effects any plan of share
exchange or other combination with any Person which
is not related to or Affiliated with CanArgo Energy
Corporation, or (iii) CanArgo Energy Corporation
disposes of all or substantially all of its assets
other than in the ordinary course of business.
(i) "CONTROL EVENT" DEFINED. "Control Event" means:
(i) the execution of any CanArgo Group Member of
any agreement or letter of intent with
respect to any proposed transaction or event
or series of transactions or events which,
individually or in the aggregate, may
reasonably be expected to result in a Change
in Control, or
(ii) the execution of any written agreement
which, when fully performed by the parties
thereto, would result in a Change in
Control.
26
SECTION 10.11 TERMINATION OF CORNELL FACILITIES.
Within ten Business days after the Closing, CanArgo Energy
Corporation shall deliver to Purchasers: (a) reasonably
satisfactory evidence of the payment of all CanArgo Energy
Corporation's obligations under the Cornell Facility and any
other agreements relating to or arising out of the Cornell
Facility by the payment of the Cornell Facility in full and in
cash with the proceeds from the issuance of the Notes; and (b)
a copy of the notice of termination delivered under the
Cornell Facility.
SECTION 11.2 MERGER, CONSOLIDATION, ETC.
CanArgo Energy Corporation will not, and will not permit any
other CanArgo Group Member to, consolidate with or merge with
any other corporation or convey, transfer or lease
substantially all of its assets in a single transaction or
series of transactions to any Person (except that a Material
Subsidiary of CanArgo Energy Corporation may: (x) consolidate
with or merge with, or convey, transfer or lease substantially
all of its assets in a single transaction or series of
transactions to, another Material Subsidiary or CanArgo Energy
Corporation; and (y) convey, transfer or lease all of its
assets in compliance with the provisions of Section 11.8
provided immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be
continuing).
SECTION 11.3 LIENS.
CanArgo Energy Corporation will not, and will not permit any
other CanArgo Group Member to, directly or indirectly create,
incur, assume or permit to exist (upon the happening of a
contingency or otherwise) any Lien on or with respect to any
property or asset (including, without limitation, any document
or instrument in respect of goods or accounts receivable) of
CanArgo Energy Corporation or any such other CanArgo Group
Member, whether now owned or held or hereafter acquired, or
any income or profits therefrom, or assign or otherwise convey
any right to receive income or profits, except:
(a) Liens for taxes, assessments or other governmental
charges or levies the payment of which is not at the
time required by Section 10.4;
(b) statutory Liens of landlords, Governmental
Authorities and Liens of carriers, operators,
vendors, equipment lessors, warehousemen, mechanics,
repairmen, suppliers, workers, construction
materialmen and other similar Liens and other like
Liens incident of the exploration, development,
operation and maintenance of oil and gas properties,
in each case, incurred in the ordinary course of
business for sums not yet due or the payment of which
is not at the time required by Section 10.4;
(c) Liens (other than any Lien imposed by ERISA) incurred
or deposits made in the ordinary course of business:
(i) in connection with workers' compensation,
unemployment insurance and other types of
27
social security or retirement benefits, or (ii) to
secure (or to obtain letters of credit that secure)
the performance of tenders, statutory obligations,
surety bonds, appeal bonds, bids, trade contracts,
leases (other than Capital Leases), government
contracts, performance bonds, purchase construction
or sales contracts, regulatory obligations and other
similar obligations, in each case not incurred or
made in connection with the borrowing of money, the
obtaining of advances or credit or the payment of the
deferred purchase price of the property;
(d) any attachment or judgment Lien, not giving rise to
an Event of Default;
(e) leases or subleases granted to others, easements,
reservations, servitudes, permits, conditions,
covenants, exceptions, rights-of-way, restrictions
and other similar charges or encumbrances, in each
case incidental to, and not interfering with, the
ordinary conduct of the business of CanArgo Energy
Corporation or any of its Subsidiaries, provided that
such Liens do not, in the aggregate, materially
detract from value of such property;
(f) any Lien created to secure all or any part of the
purchase price, or to secure Indebtedness incurred or
assumed to pay all or any part of the purchase price
or cost of construction, of property (or any
improvement thereon) acquired or constructed by
CanArgo Energy Corporation or any other CanArgo Group
Member after the date of the Closing, provided that:
(i) any such Lien shall extend solely to the
item or items of such property (or
improvement thereon) so acquired, leased or
constructed and, if required by the terms of
the instrument originally creating such
Lien, other property (or improvement
thereon) which is an improvement to or is
acquired for specific use in connection with
such acquired, leased or constructed
property (or improvement thereon) or which
is real property being improved by such
acquired, leased or constructed property (or
improvement thereon),
(ii) the principal amount of the Indebtedness
secured by any such Lien shall at no time
exceed an amount equal to 80% (but 100% in
the case of property (or improvement
thereon) the acquisition of which is
financed through a Capital Lease Obligation)
of the lesser of: (A) the cost to CanArgo
Energy Corporation or such other CanArgo
Group Member of the property (or improvement
thereon) so acquired or constructed; and (B)
the Fair Market Value (as determined in good
faith by the board of directors of CanArgo
Energy Corporation) of such property (or
improvement thereon) at the time of such
acquisition or construction,
28
(iii) any such Lien shall be created
contemporaneously with, or within 180 days
after, the acquisition, lease or
construction of such property;
(g) Liens securing Indebtedness arising under the Loan
Documents;
(h) contractual Liens which arise in the ordinary course
of business under and pursuant to the terms of the
Basic Documents or other concessions agreements,
production sharing agreements and contracts; joint
venture, exploration, limited or general partnership,
dry hole, bottom hole, acreage contribution, purchase
and acquisition agreements; exploration, production
and development licenses; operating agreements;
drilling agreements; oil and gas leases; farm-out and
farm-in agreements; division orders; contracts for
the sale, transportation or exchange of oil and
natural gas; unitization and pooling declarations and
agreements; area of mutual interest agreements;
overriding and net profits royalty agreements;
marketing agreements; processing agreements;
development agreements; gas balancing or deferred
production agreements; injection, repressuring and
recycling agreements; salt water or other disposal
agreements; seismic or other geophysical permits or
agreements, and other agreements which are usual and
customary in the oil and gas business and are for
claims which are not delinquent or which are being
contested in good faith by appropriate action and for
which adequate reserves have been maintained in
accordance with applicable GAAP, provided that any
such Lien referred to in this clause does not
materially impair the use of the property covered by
such Lien for the purposes for which such property is
held by CanArgo Energy Corporation or any other
CanArgo Group Member or materially impair the value
of such property subject thereto;
(i) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens,
rights of set-off or similar rights and remedies and
burdening only deposit accounts or other funds
maintained with a creditor depository institution,
provided that no such deposit account is a dedicated
cash collateral account or is subject to restrictions
against access by the depositor in excess of those
set forth by regulations promulgated by the Board of
Governors of the Federal Reserve System of the United
States of America (or any successor Governmental
Authority) or other Governmental Authority and no
such deposit account is intended by CanArgo Energy
Corporation or any other CanArgo Group Member to
provide collateral to the depository institution,
except in each such case in connection with letter of
credit obligations issued pursuant to or in
connection with any Basic Documents or other
agreements referred to in clause (h);
(j) Other Liens not described in clauses (a) to (i) of
this Section on the property of CanArgo Energy
Corporation or any Subsidiary in an aggregate amount
at any time not exceeding US$100,000; and
(k) Permitted Encumbrances
29
SECTION 11.4 PRIORITY
CanArgo Energy Corporation shall not, without the consent of
the Required Holders issue any Indebtedness with priority
over, or pari passu with, the Notes.
SECTION 11.6 RESTRICTED PAYMENTS.
CanArgo Energy Corporation will not make any Restricted
Payments, except: (a) CanArgo Energy Corporation may declare
and pay (i) dividends with respect to its Equity Interests
payable solely in additional shares of its Equity Interests or
Indebtedness and (ii) interest and principal on Indebtedness
owed by CanArgo Energy Corporation to another CanArgo Group
Member in either case which does not contravene the provisions
of the Note Purchase Agreement, and (b) CanArgo Energy
Corporation may make distributions pursuant to and in
accordance with stock incentive plans or other Plans for
management or employees of CanArgo Energy Corporation and its
Subsidiaries.
SECTION 11.7 SALE-AND-LEASEBACKS.
CanArgo Energy Corporation will not, and will not permit any
of its Subsidiaries to, enter into any Sale-and-Leaseback
Transaction.
SECTION 11.8 SALE OF ASSETS, ETC.
(1) SALE OF ASSETS ETC. CanArgo Energy Corporation will
not, and will not permit any other CanArgo Group
Members to, make any Transfer, provided that the
foregoing restriction does not apply to a Transfer
if:
(a) the property that is the subject of such
Transfer constitutes either: (i) inventory
held for sale (including the sale of
Hydrocarbons in the ordinary course of
business, including, without limitation,
pursuant to advance sale contracts, forward
contracts and production payments), (ii)
abandonments, assignments, leases, subleases
or farm-outs of oil and gas properties or
dispositions of properties pursuant to
operating agreements or other forms of
exploration and development agreements or
option agreements; or (iii) property,
equipment, fixtures, supplies or materials
no longer required in the operation of the
business of CanArgo Energy Corporation or
such Subsidiary or that is redundant,
condemned, obsolete, and, in the case of any
Transfer described in clauses (i) through
(iii), such Transfer is in the ordinary
course of business (an "Ordinary Course
Transfer"); or
30
(b) either:
(i) such Transfer is from a CanArgo
Group Member to CanArgo Energy
Corporation; or
(ii) such Transfer is from CanArgo
Energy Corporation to a CanArgo
Group Member or from a CanArgo
Group Member to another CanArgo
Group Member and in either case is
for Fair Market Value,
so long as immediately before and immediately after
the consummation of such transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist (each such Transfer, an
"Intergroup Transfer"); or
(c) such Transfer involves oil and gas properties or
interests therein that are exchanged for other oil
and gas properties or interests therein in arms
length transactions or such Transfer is pursuant to a
Permitted Farmout Arrangement.
(2) DISPOSAL OF OWNERSHIP OF A CANARGO GROUP MEMBER.
CanArgo Energy Corporation will not, and will not
permit any CanArgo Group Members to, sell or
otherwise dispose of any shares of Subsidiary Stock,
nor will CanArgo Energy Corporation permit any such
CanArgo Group Member to issue, sell or otherwise
dispose of any shares of its own Subsidiary Stock,
provided that the foregoing restrictions do not apply
to:
(a) the issue of directors' qualifying shares by
any such Material Subsidiary;
(b) any such Transfer of Material Subsidiary
Stock constituting an Intergroup Transfer;
(c) any such Transfer of Material Subsidiary
Stock by a nominee holder as required
pursuant to the terms of a Pledge Agreement;
(d) any issuance of shares of Subsidiary Stock
by a Material Subsidiary that qualifies as a
Permitted Farmout Arrangement; and
(e) the disposition or dissolution of any
Subsidiary that is not a Material
Subsidiary; provided that the proceeds of
such disposition or assets of the Subsidiary
are transferred to another CanArgo Group
Member and immediately before and
immediately after the consummation of such
transaction, and after giving effect
thereto, no Default or Event of Default
exists or would exist.
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SECTION 11.9 FUTURE INDEBTEDNESS.
Without the prior written consent of the Required Holders,
which consent shall not be unreasonably withheld, conditioned
or delayed, CanArgo Energy Corporation will not incur any
Indebtedness after the date of the Note Purchase Agreement
other than: (a) Indebtedness outstanding under the Notes; (b)
any additional unsecured Indebtedness, the aggregate amount
outstanding thereunder at any time shall not exceed
US$1,250,000; (c) unsecured Indebtedness of CanArgo Energy
Corporation to another CanArgo Group Member or unsecured
Indebtedness of a CanArgo Group Member or direct or indirect
Subsidiary of CanArgo Energy Corporation to another CanArgo
Group Member; and (d) Indebtedness of a CanArgo Group Member
to a direct or indirect Subsidiary of CanArgo Energy
Corporation that is not a Material Subsidiary, provided that
the aggregate amount outstanding thereunder at any time shall
not exceed US$1,000,000. In considering whether to give its
consent to any future Indebtedness, the Required Holders shall
be entitled to take into consideration, inter alia, the
potential effects of any such proposed Indebtedness upon the
financial condition and wherewithal of CanArgo Energy
Corporation and/or upon their rights under the Loan Documents,
and any decision by the Required Holders to withhold their
consent to any such proposed future Indebtedness shall be
final and binding absent a showing of manifest bad faith.
SECTION 11.10 BASIC DOCUMENTS.
CanArgo Energy Corporation shall not and shall not permit any
other CanArgo Group Member, without the prior written consent
of the Required Holders to (i) cancel or terminate any Basic
Agreement to which CanArgo Energy Corporation or other CanArgo
Group Members are a party or consent to or accept any
cancellation or termination thereof prior to the scheduled
expiration thereof; (ii) sell, assign (other than pursuant to
the Security Documents or a Permitted Farmout Arrangement) or
otherwise dispose of (by operation of law or otherwise) any
part of its interest in any Basic Agreements; (iii) waive any
default under or breach of any provision of any Basic
Agreement to which CanArgo Energy Corporation or any of its
Subsidiaries are a party, or waive, fail to enforce, forgive,
compromise, settle, adjust or release any Material right,
interest or entitlement, howsoever arising, under, or in
respect thereof; or (iv) amend, supplement, modify or in any
way vary in any respect or agree to any variation of any
provision of any Basic Agreement to which CanArgo Energy
Corporation or any other CanArgo Group Members are a party, or
of the performance of any Material covenant or obligation by
any other Person under any Basic Agreement, except any
amendment, supplement, modification or variation of the Basic
Agreements as a result of the transfer by (x) NOC (Cyprus)'s
interest in the Ninotsminda PSC (as defined in Schedule 6.19)
to NOC (Jersey) and (y) CNL (Cyprus)'s interest in the Norio
PSC and Tbilisi PSC (both as defined in Schedule 6.19) to CNL
(Jersey).
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SECTION 11.11 ANTI-TAKEOVER DEFENSE.
(a) Except has hereinafter specifically provided, so long as any
Indebtedness under any of the Notes is outstanding, CanArgo
Energy Corporation shall not enter into or adopt any
anti-takeover defense, "poison pill", shareholder rights plan
or any other device designed to prevent a takeover, hostile or
otherwise, that could encumber, restrict or affect ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇ LLC, ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇, and/or ▇▇▇▇▇▇▇
& ▇▇▇▇▇▇ Value Partners LP to acquire any Equity Interests of
CanArgo Energy Corporation;
(b) Notwithstanding the provisions of Section 11.11(a) to the
contrary provided, CanArgo Energy Corporation may enter into
or adopt an anti-takeover defense, "poison pill", shareholder
rights plan or any other device designed to prevent ▇▇▇▇▇▇▇ &
▇▇▇▇▇▇ LLC, ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇ , and/or ▇▇▇▇▇▇▇
& ▇▇▇▇▇▇ Value Partners L.P. or other Note holders to acquire
such Equity Interests by means of or in connection with the
direct or indirect forbearance, cancellation or exchange of
all or any part of the Indebtedness evidenced by the Notes;
(c) Notwithstanding the provisions of Section 11.11(a) to the
contrary provided, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ Value Partners L.P. hereby
agrees that so long as any Notes are outstanding and no Event
of Default exists and is continuing and until the expiration
of the second anniversary after the indefeasible satisfaction
of all Indebtedness under the Notes, whether by payment,
conversion, exchange or otherwise (other than in connection
with any proceeding under the United States Bankruptcy Code),
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ Value Partners L.P. shall not, without the
express written consent or approval of the incumbent Board of
Directors of CanArgo Energy Corporation, solicit or otherwise
seek to effect or participate in a Change of Control of
CanArgo Energy Corporation or a change in the composition of
the incumbent Board of Directors by means of the purchase or
offer to purchase of any Equity Interests of CanArgo Energy
Corporation, the solicitation of proxies or written consents,
or by voting any Equity Interests acquired by ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Value Partners L.P. upon the conversion of Notes pursuant to
Section 10.7, in connection with any solicitation of proxies
or written consents or at any regular or special meeting of
shareholders or otherwise.
33