REGISTRATION RIGHTS AGREEMENT
Execution Copy
This REGISTRATION RIGHTS AGREEMENT (“Agreement”), dated as of June 28, 2006, is made
and entered into by and between CanArgo Energy Corporation, a Delaware corporation
(“Company”) and the Purchaser listed on Schedule A attached hereto (collectively, the
“Purchaser”).
RECITALS
A. Purchaser has acquired and Company has issued (i) US$10,000,000.00 in aggregate principal
amount of its 12% Subordinated Convertible Guaranteed Notes due June 28, 2010 (“Company
Notes”), (ii) warrants to purchase up to 12.5 million shares of the Company’s common stock, par
value $.10 per share (“Common Stock”) expiring on the second anniversary of the date hereof
(“NPA Warrants”) pursuant to the Note and Warrant Purchase Agreement (“Purchase
Agreement”) of even date herewith; and (iii) warrants to purchase up to 5 million shares of
Common Stock (the “Conversion Warrants” and together with the NPA Warrants, the “Warrants”)
pursuant to that certain Conversion Agreement by and among the Company, the Purchaser and the
other parties thereto.
B. Pursuant to the terms of the Purchase Agreement, the Purchaser acquired rights to convert
the Company Notes into shares of Common Stock in accordance with the terms of the Purchase
Agreement and the Company Notes (a “Conversion”) and pursuant to the terms of the Warrants,
the Purchaser acquired the right to purchase shares of Common Stock upon exercise thereof in
accordance with the terms of the Warrants (an “Exercise”);
C. Upon the closing of a Conversion or an Exercise, the Company shall authorize and issue to
such Purchaser electing so to convert its Company Notes or to exercise its Warrants, respectively,
one or more certificates representing the applicable number of shares of Common Stock issuable upon
such Conversion of the Company Notes (“Conversion Stock”) or such Exercise of the Warrants
(“Warrant Shares”);
D. The Company has agreed to provide Purchaser with certain rights with respect to all shares
of Conversion Stock issuable upon Conversion and all Warrant Shares issuable upon Exercise to
register such shares under the Securities Act (as hereinafter defined) for resale. All shares of
Conversion Stock and Warrant Shares issued as of the date of this Agreement or issued or issuable
at any time by the Company to Purchaser upon Conversion of the Company Notes or Exercise of the
Warrants , other than shares which cease to be Restricted Securities (as hereinafter defined),
shall be referred to for the purposes of this Agreement as the “Registrable Securities” ;
and
E. For the avoidance of doubt, nothing in this Agreement or in the Purchase Agreement or in
the Conversion Agreement or the Company Notes or Warrants shall obligate the Company to register
any securities of Tethys Petroleum Investments Limited under the Securities Act or any other
foreign or domestic securities laws.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged and confirmed, the parties, intending to
be legally bound, agree as follows:
ARTICLE 1
REGISTRATION RIGHTS AND PROCEDURES
Section 1.1 Definitions.
(a) As used in this Agreement, the following terms shall have the meanings:
(i) “Affiliate” of any specified Person means any other Person who directly, or
indirectly through one or more intermediaries, is in control of, is controlled by, or is
under common control with, such specified Person. For purposes of this definition, control
of a Person means the power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract, securities, ownership or
otherwise; and the terms “controlling” and “controlled” have the respective meanings
correlative to the foregoing.
(ii) “Commission” means the United States Securities and Exchange Commission.
(iii) “Common Stock” has the meaning ascribed thereto in the Recitals.
(iv) “Conversion” has the meaning ascribed thereto in the Recitals.
(v) “Conversion Stock” has the meaning ascribed thereto in the Recitals.
(vi) “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder, or any similar successor statute.
(vii) “Exercise” has the meaning ascribed thereto in the Recitals.
(viii) “Holder” means the Purchaser so long as the Purchaser holds Registrable
Securities and each subsequent holder of Registrable Securities who agrees to become bound
by all of the terms and provisions of this Agreement in accordance with Section 4.2 hereof.
(ix) “Person” means any individual, partnership, corporation, limited liability
company, joint stock company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
(x) “Prospectus” means the prospectus (including, without limitation, any preliminary
prospectus and any final prospectus filed pursuant to Rule 424(b) under the Securities Act,
including any prospectus that discloses information previously omitted from a prospectus
filed as part of an effective registration statement in reliance on Rule 430A under the
Securities Act) included in the Registration Statement, as amended or supplemented by any
prospectus supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Registration Statement and by all other amendments and
supplements to such prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the Company under
the Exchange Act and incorporated by reference therein.
(xi) “Purchase Agreement” has the meaning ascribed thereto in the Recitals.
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(xii) “Registrable Securities” has the meaning ascribed thereto in the Recitals.
(xiii) “Registration Statement” means a registration statement of the Company filed on
Form S-1 or S-3 or such other appropriate form under the Securities Act providing for the
registration of, and the sale of Registrable Securities, including without limitation any
Registration Statement providing for the registration of, and sale on a continuous or
delayed basis by the holders of, the Registrable Securities pursuant to Rule 415 under the
Securities Act, including the Prospectus contained therein and forming a part thereof, any
amendments to such registration statement and supplements to such Prospectus, and all
exhibits and other material incorporated by reference in such registration statement and
Prospectus.
(xiv) “Restricted Security” means any share of Common Stock issued upon Conversion of
the Company Notes or Exercise of the Warrants or held by any Person, except for any such
share that (i) has been registered pursuant to an effective Registration Statement under the
Securities Act and sold in a manner contemplated by the Prospectus included in the
Registration Statement, (ii) has been freely transferred in compliance with the resale
provisions of Rule 144 under the Securities Act (or any successor provision thereto) or is
freely transferable, together with all other Restricted Securities in one transaction,
pursuant to paragraph (k) of Rule 144 under the Securities Act (or any successor provision
thereto), or (iii) otherwise has been transferred and a new share of Common Stock not
subject to any transfer restrictions under the Securities Act has been delivered by or on
behalf of the Company.
(xv) “Required Majority” means the Holders of a majority of the number of Registrable
Securities then outstanding (for purposes of calculation, Company Notes shall be treated as
if they have been converted into Registrable Securities).
(xvi) “Securities Act” means the Securities Act of 1933, as amended, and the rules and,
regulations of the Commission thereunder, or any similar successor statute.
(xvii) “Warrants” has the meaning ascribed thereto in the Recitals.
(xviii) “Warrant Shares” has the meaning ascribed thereto in the Recitals.
(b) All capitalized terms used and not defined herein have the respective meaning assigned to
them in the Purchase Agreement.
Section 1.2 Registration Rights.
(a) Initial Filing. The Company shall use all commercially reasonable efforts to file
a Registration Statement on Form S-3 with respect to all Registrable Securities by September 30,
2006 and have such Registration Statement declared effective pursuant to this Agreement. In the
event the Company is not eligible to file a Registration Statement on Form S-3, the Company shall
file a Registration Statement on Form S-1 no later than December 31, 2006.
(b) Piggyback Registration Rights. Subject to the terms and conditions of this
Agreement, if the Company intends to file or desires to file a Registration Statement providing for
the offering or resale of (i) Common Stock or (ii) any Registrable Securities (other than a
registration (A) on Form S-8 or S-4 or any successor or similar forms, (B) relating to Common Stock
or any other shares of capital stock of the Company issuable upon exercise of employee share
options or in connection with any employee benefit or similar plan of the Company or (C) in
connection with a direct or indirect acquisition
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by the Company of another Person or any transaction with respect to which Rule 145 (or any
successor provision) under the Securities Act applies), the Company will notify the Holders of the
proposed filing at least 30 days prior to the filing of the Registration Statement, and will afford
each Holder an opportunity to include in such Registration Statement all or any part of the
Registrable Securities then held by such Holder. If any Holder desires to include in any such
Registration Statement all or part of the Registrable Securities held by such Holder, such Holder
shall, within 15 days after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice, if the Holder has not already done so, shall inform the
Company that the Holder has elected to convert some or all of its Company Notes pursuant to
Section 11.7 of the Purchase Agreement, and of the number of Registrable Securities such
Holder wishes to include in such Registration Statement.
(c) Demand Registration Rights.
(i) Requests for Registration. Subject to Section 1.2(c)(ii), the Holders may
request registration on a Registration Statement under the Securities Act of all or part of their
Registrable Securities, as the case may be, at any time after December 31, 2006 (a “Demand
Registration”). Within ten days after receipt of any request pursuant to this Section
1.2(c)(i), the Company shall give written notice of such request to all other Holders and will
include in such registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within 21 days after the Company’s notice has been
given.
(ii) Limits on the Number of Demand Registrations. The Holders may request only five
(5) Demand Registrations and not more than one Demand Registration in any twelve month period. A
registration will not count as a Demand Registration hereunder (x) (i) until it has become
effective and (ii) unless the Holders of Registrable Securities requested to be included in such
Demand Registration are able to register and sell all of the Registrable Securities requested to be
included in such registration (provided, if such registration is made on Form S-1, such
Registration Statement need only be effective for a period of 90 consecutive days) or (y) if the
Company shall sell any Common Stock in the registration resulting from such Demand Registration (in
which case the request for a Demand Registration shall be deemed a request for a Piggyback
Registration pursuant to Section 1.2(a)). The Company will pay all registration expenses in
connection with (x) any Demand Registration requested hereunder and (y) any registration initiated
as a Demand Registration requested hereunder which subsequently becomes other than a Demand
Registration.
(d) Qualification for Form S-3. The Company represents and warrants that it currently
is eligible to use Form S-3 and meets all applicable requirements for its use. The Company shall
use its commercially reasonable efforts not take any willful and discretionary action that will
limit, impair or otherwise prevent it from being able to use Form S-3 or any successor thereto once
eligibility for such use has been established.
(e) Effectiveness of Registration Statement. The Company shall use all
commercially reasonable efforts to have any Registration Statement filed pursuant to this
Agreement (other than a Registration Statement on Form S-1 or any successor form) declared
effective by the Commission no later than 120 days after the filing thereof. All Registration
Statements filed pursuant to this Agreement, other than any Registration Statement on Form S-1 (or
any successor form thereto), shall be maintained in effect by the Company until the earlier of two
years or the date on which all Registrable Securities cease to be Restricted Securities. The
Company shall maintain the effectiveness of any registration statement on Form S-1 (or any
successor form thereto) for a period of 90 consecutive days.
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Section 1.3 Information and Copies.
(a) The Company shall furnish to each Holder electing to include its Common Stock in the
Registration Statement such number of copies of the Registration Statement, each amendment and
supplement thereto, the Prospectus, and such other documents as such Holder may reasonably request
in order to facilitate the disposition of the Registrable Securities owned by it.
(b) The Company shall promptly notify each Holder whose Registrable Securities are included in
the Registration Statement of the happening of any event as a result of which the Prospectus
contains an untrue statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in light of the
circumstances under which it is made and shall use commercially reasonable efforts to prepare and
file with the Commission, and promptly notify such Holders of the filing of, a supplement to such
Prospectus or an amendment to the Registration Statement so that, as thereafter delivered to the
purchasers of Registrable Securities, such Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which they were made and
in the case of an amendment to the Registration Statement, use reasonable best efforts to cause it
to become effective as soon as possible. Each Holder shall promptly notify the Company of the
happening of any event applicable to it, as a result of which the Prospectus contains an untrue
statement of a material fact or omits to state any material fact stated therein or necessary to
make the statements therein in relation to such Holder not misleading in light of the circumstances
under which it is made. Upon receipt of any notice from the Company, or provision of any notice to
the Company by any Holder, of the happening of any event of the kind described above, such Holder
will forthwith discontinue disposition of Registrable Securities pursuant to the Registration
Statement until such Holder’s receipt of the copies of the supplemented or amended Prospectus, or
until such Holder is advised in writing by the Company that the use of the Prospectus may be
resumed.
(c) The Company shall make available for inspection by each Holder, any underwriter
participating in any disposition pursuant to the Registration Statement, and any attorney,
accountant, or other agent retained by any Holder or any underwriter, all financial and other
records of the Company (reasonably requested), the Company’s applicable corporate documents and
contracts as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company’s officers, directors, employees, and independent accountants
to supply all information reasonably requested by any such Holder, as well as any underwriter,
attorney, accountant, or agent in connection with the Registration Statement; provided, however,
that each Holder agrees that information obtained by such Holder as a result of such inspections
which constitutes confidential information is subject to the confidentiality provisions of
Section 22 of the Purchase Agreement and is deemed confidential shall not be used by such
Holder as the basis for any market transaction in the Company’s securities unless and until such
information is made generally available to the public, and each Holder shall use its best efforts
to cause any attorney, accountant, or agent retained by such Holder to keep confidential any such
information.
(d) In the event of the issuance of any stop order suspending the effectiveness of the
Registration Statement, or of any order suspending or preventing the use of any related Prospectus
or suspending the qualification of any Common Stock included in the Registration Statement for sale
in any jurisdiction, the Company will promptly notify Holders of such and will use reasonable
efforts to obtain the withdrawal of such order.
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Section 1.4 Listing of Registrable Securities. The Company shall cause all Registrable
Securities to be listed on each securities exchange or other quotation service on which the Common
Stock is then listed.
Section 1.5 Underwritten Offering. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall include such
information in the notice given pursuant to Section 1.2. In such event, the right of each
Holder to registration pursuant to Section 1.2 shall be conditioned upon such Holder
agreeing to participate in such underwriting and upon the inclusion of the Registrable Securities
in the underwriting to the extent provided herein. Each Holder electing to include its Registrable
Securities in such registration shall (together with the Company and other participating
shareholders) enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by the Company. Notwithstanding any other provision of this Section
1.5, if the underwriter shall, in good faith, advise the Company in writing that the offering
contemplated thereby will be materially adversely affected by the inclusion of Registrable
Securities, then the Company shall so advise such Holder and the other participating shareholders,
and the number of shares of Registrable Securities and Common Stock (collectively,
“Underwritten Securities”) that may be included in the registration and underwriting shall
be allocated first to the Company, if it is participating in such registration and underwriting,
second, pro rata among such Holders and other parties having registration rights previously granted
by the Company, and, third, pro rata among the other participating shareholders, if any, in each
case in proportion, as nearly as practicable, to the respective amounts of Underwritten Securities
held by such Holder and participating shareholders at the time of filing the Registration
Statement. The Company may only exercise this right once within any twelve-month period without
the consent of the Required Majority.
If such Holder disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company and the underwriter. The Registrable Securities so
withdrawn shall also be withdrawn from registration.
Section 1.6 Market Stand Off Agreement. By electing to include Registrable Shares in any
registration pursuant to Section 1.2, each Holder so electing shall be deemed to have
agreed, provided such Registrable Securities are included in the Registration Statement, not to
effect any public sale or distribution of securities of the Company of the same or similar class or
classes of the securities included in the Registration Statement or any securities convertible into
or exchangeable or exercisable for such securities, including a sale pursuant to Rule 144 or Rule
144A under the Securities Act, following the filing of a Registration Statement by the Company with
the Commission in connection with a public offering of its securities and continuing until 90 days
following the date such registration Statement is declared effective by the Commission and in
connection therewith such Holder agrees to execute and deliver such documents or instruments as the
Company may reasonably request evidencing this agreement.
Section 1.7 Nature of Sale. Notwithstanding any other provision of this Agreement, Common
Stock shall only be treated as Registrable Securities if and so long as it remains a Restricted
Security.
Section 1.8 Reports under the Exchange Act. With a view to making available to the Holders
the benefits of Rule 144 promulgated under the Securities Act, or any other similar rule or
regulation of the Commission that may at any time permit the Holders to sell securities of the
Company to the public without registration (“Rule 144”), the Company agrees to use its
commercially reasonable efforts to:
(a) make and keep public information available, as those terms are understood and defined in
Rule 144;
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(b) file with the Commission in a timely manner all reports and other documents required of
the Company under the Securities Act and Exchange Act;
(c) furnish to each Holder, so long as such Holder owns Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has complied with the reporting
requirements of the Securities Act and the Exchange Act, and (ii) a copy of the most recent annual
or periodic report of the Company and such other reports and documents so filed by the Company,
unless such reports and documents are publicly available on XXXXX; and
(d) such other information as may be reasonably requested to permit such Holder to sell such
securities pursuant to Rule 144 without registration unless such information is publicly available
on XXXXX.
Section 1.9 Expenses of Registration. The Company agrees to pay any and all expenses of
preparing and filing all Registration Statements under this Agreement, and of having such
Registration Statements declared effective and of maintaining the effectiveness thereof. For the
avoidance of doubt, the Holders shall be responsible for payment of their own fees and expenses
incurred in connection with the preparation, filing, review, declaration of effectiveness and
maintenance of effectiveness of any Registration Statement filed pursuant to this Agreement,
including, without limitation, legal and accounting fees and expenses.
Section 1.10 Other Securities. Nothing in this Agreement shall prevent the Company from
registering securities other than Common Stock by filing a Registration Statement with the
Commission.
ARTICLE 2
PURCHASER’S RIGHTS AND UNDERTAKINGS
Section 2.1 Rights. Holders shall have the absolute right to exercise or refrain from
exercising any right or rights they may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation under this
Agreement, and Holders shall not incur any liability to any other holder of any of the Company’s
securities as a result of exercising or refraining from exercising any such right or rights.
Section 2.2 Suspension of Sales. If any Registrable Securities are included in a Registration
Statement pursuant to the terms of this Agreement, Holders will not (until further notice) effect
sales thereof after receipt of written notice from the Company of the occurrence of an event
specified in such notice in order to permit the Company to correct or update the Registration
Statement or Prospectus.
Section 2.3 Compliance. If any Registrable Securities are being registered in any
registration pursuant to this Agreement, Holders will comply with all anti-stabilization,
manipulation, and similar provisions of Section 10 of the Exchange Act, and any rules
promulgated thereunder by the Commission and, at the Company’s request, will execute and deliver to
the Company and to any underwriter participating in such offering an appropriate agreement to such
effect.
Section 2.4 Termination of Effectiveness. Following the end of the period during which the
Company is obligated to keep the Registration Statement current and effective as described herein,
to the extent Holders’ Registrable Securities are included in the Registration Statement, Holders
shall discontinue sales thereof pursuant to such Registration Statement, unless Holders have
received written
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notice from the Company of its intention to continue the effectiveness of such Registration
Statement with respect to any of such securities which remain unsold.
Section 2.5 Furnish Information. It shall be a condition precedent to the Company’s
obligations to take any action pursuant to this Agreement with respect to the Registrable
Securities that Holders shall furnish to the Company such information regarding Holders, the
Registrable Securities held by Holders, and the intended method of disposition of such securities
and such other information as shall be required to effect the registration of Holders’ Registrable
Securities or as the Company shall otherwise reasonably request. The obligations of the Company
under this Agreement with respect to any Holder shall be suspended unless and until such Holder
complies with this Section 2.5. In connection with Holders’ obligation to provide
information the Company may request and the Holders agree to complete, execute and deliver to the
Company a Stockholders Questionnaire providing the information required to register their
Registrable Securities under the Securities Act for resale.
Section 2.6 Underwritten Registration. Holders may not participate in any registration
hereunder which is underwritten unless Holders: (a) agree to sell their securities on the basis
provided in any customary underwriting arrangements approved by the Company; (b) complete and
execute all customary questionnaires, powers of attorney, indemnities, underwriting agreements, and
other documents reasonably required under the terms of such underwriting arrangements; and (c)
agree to pay their pro rata share of all underwriting discounts and commissions and their own
expenses (including, without limitation, counsel fees).
Section 2.7 Delay of Registration. Holders shall not have any right to obtain or seek an
injunction restraining or otherwise delaying the preparation of, or declaration of the
effectiveness of, any Registration Statement initiated in accordance with the terms of this
Agreement if such injunction is the result of any controversy that might arise with respect to the
interpretation or implementation of these provisions.
ARTICLE 3
INDEMNIFICATION
Section 3.1 Indemnification by the Company. The Company shall indemnify and hold harmless,
with respect to any Registration Statement filed by it pursuant to this Agreement, to the fullest
extent permitted by law, each Holder, as well as each Holder’s agents, representatives and
Affiliates (collectively, the “Holder Indemnified Parties”) against all losses, claims,
damages, liabilities, and expenses joint or several (including reasonable fees of counsel and any
amounts paid in settlement effected with the Company’s consent, which consent shall not be
unreasonably withheld) (collectively, “Losses”) to which any such Holder Indemnified Party
may become subject under the Securities Act, the Exchange Act, any other federal law, any state or
common law, any rule or regulation promulgated thereunder, or otherwise, insofar as such Losses (or
actions or proceedings, whether commenced or threatened, in respect thereof) are caused by (a) any
untrue statement or alleged untrue statement of a material fact contained in any Registration
Statement in which such Registrable Securities were included as contemplated hereby or the omission
or alleged omission to state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under which they were made,
not misleading, (b) any untrue statement or alleged untrue statement of a material fact contained
in any Prospectus, together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment thereof or
supplement thereto), or the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (c) any violation by the Company of
the Securities Act, the
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Exchange Act, any other federal law, any state or common law, or any rule or regulation
promulgated thereunder in connection with any such registration; provided, however,
that the Company shall not be liable to any such Holder Indemnified Party in any such case to the
extent that any such Loss (or action or proceeding, whether commenced or threatened, in respect
thereof) arises out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such Registration Statement or amendment thereof or supplement
thereto or in any such Prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such Holder Indemnified Party relating to such
Holder Indemnified Party for use in the preparation thereof; and provided further,
that the Company shall not be liable to any such Holder Indemnified Party with respect to any
Prospectus to the extent that any such Loss of such Holder Indemnified Party results from the fact
that such Holder Indemnified Party sold Registrable Securities to a person to whom there was not
sent or given, at or before the written confirmation of such sale, a copy of the Prospectus
(excluding documents incorporated by reference) or of the Prospectus as then amended or
supplemented (excluding documents incorporated by reference) if the Company previously furnished
copies thereof to such Holder Indemnified Party in compliance with this Agreement and the Loss of
such Holder Indemnified Party results from an untrue statement or omission of a material fact
contained in such Prospectus which was subsequently corrected in the Prospectus (or the Prospectus
as amended or supplemented). Such indemnity and reimbursement of expenses and obligations shall
remain in full force and effect regardless of any investigation made by or on behalf of the Holder
Indemnified Parties and shall survive the transfer of such securities by such Holder Indemnified
Parties.
Section 3.2 Indemnification by Holders. Each Holder shall indemnify and hold harmless, to the
fullest extent permitted by law, the Company, its directors, officers, employees, and agents, and
each person who controls the Company (within the meaning of the Securities Act) (collectively,
“Company Indemnified Parties”) against all Losses to which any Company Indemnified Party
may become subject under the Securities Act, the Exchange Act, any other federal law, any state or
common law, any rule or regulation promulgated thereunder, or otherwise, insofar as such Losses (or
actions or proceedings, whether commenced or threatened, in respect thereof) are caused by (a) any
untrue statement or alleged untrue statement of a material fact contained in any Registration
Statement in which such Registrable Securities were included as contemplated hereby or the omission
or alleged omission to state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under which they were made,
not misleading, (b) any untrue statement or alleged untrue statement of a material fact contained
in any Prospectus, together with the documents expressly incorporated by reference therein (as
amended or supplemented if the Company shall have filed with the Commission any amendment thereof
or supplement thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, and in the cases described in clauses
(a) and (b) of this Section 3.2, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information furnished in writing by or on behalf of such
Holder relating to such Holder for use in the preparation of the documents described in clauses (a)
and (b), (c) any violation by such Holder of the Securities Act, the Exchange Act, any other
federal law, any state or common law, or any rule or regulation promulgated thereunder applicable
to such Holder and relating to action of or inaction by such Holder in connection with any such
registration, and (d) with respect to any Prospectus, the fact that such Holder sold Registrable
Securities to a person to whom there was not sent or given, at or before the written confirmation
of such sale, a copy of any subsequent Prospectus (excluding the documents incorporated by
reference) or of the Prospectus as then amended or supplemented (excluding documents incorporated
by reference) if the Company has previously furnished copies thereof to such Holder in compliance
with this Agreement and the Loss of such Company Indemnified Party results from an untrue statement
or omission of a material fact relating to information provided by such Holder contained in such
Prospectus which was corrected in the Prospectus (or the Prospectus as amended or supplemented).
Such indemnity and reimbursement of expenses and obligations shall remain in full force
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and effect regardless of any investigation made by or on behalf of the Company Indemnified
Parties and shall survive the transfer of securities by such Holder Indemnified Parties.
Section 3.3 Conduct of Indemnification Proceedings. Promptly after receipt by an identified
party hereunder of written notice of the commencement of any action, suit, proceeding,
investigation, or threat thereof with respect to which a claim for indemnification may be made
pursuant hereto, such indemnified party shall, if a claim in respect thereto is to be made against
an indemnifying party, give written notice to the indemnifying party of the threat or commencement
thereof; provided, however, that the failure to so notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified party except to the
extent that the indemnifying party is actually prejudiced by such failure to give notice. If any
such claim or action referred to hereunder is brought against any indemnified party and it then
notifies the indemnifying party of the threat or commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it wishes, jointly with any other
indemnifying party similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party (which counsel shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party). The indemnifying party shall not be
liable to an indemnified party hereunder for any legal expenses of counsel or any other expenses
incurred by such indemnified party in connection with the defense thereof, unless the indemnifying
party has failed to assume the defense of such claim or action or to employ counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid by the indemnified
party, if representation of such indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such action. The indemnifying
party shall not be required to indemnify the indemnified party with respect to any amounts paid in
settlement of any action, proceeding, or investigation entered into without the written consent of
the indemnifying party, which consent shall not be unreasonably withheld. No indemnifying party
shall consent to the entry of any judgment or enter into any settlement without the consent of the
indemnified party unless (a) such judgment or settlement does not impose any obligation or
liability upon the indemnified party other than the execution, delivery, or approval thereof, and
(b) such judgment or settlement includes as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a full release and discharge from all liability
in respect of such claim and a full release of all persons that may be entitled to or obligated to
provide indemnification or contribution under this Article.
Section 3.4 Contribution. If the indemnification provided for herein is unavailable to or
insufficient to hold harmless an indemnified party hereunder, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result of the Losses (or
actions or proceedings in respect thereof) referred to herein in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and the indemnified party
on the other in connection with the statements, omissions, actions, or inactions which resulted in
such Losses. The relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party, any action or inaction by any such
party, and the parties’ relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement, omission, action, or inaction. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
Promptly after receipt by an indemnified party hereunder of written notice of the commencement of
any action, suit, proceeding, investigation, or threat thereof with respect to which a claim for
contribution may be made against an indemnifying party hereunder, such indemnified party shall, if
a claim for contribution in respect thereto is to be made against an indemnifying party, give
written notice to the indemnifying
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party of the commencement thereof (if the notice specified herein has not been given with
respect to such action); provided, however, that the failure to so notify the
indemnifying party shall not relieve it from any obligation to provide contribution which it may
have to any indemnified party hereunder, except to the extent that the indemnifying party is
actually prejudiced by the failure to give notice. The parties hereto agree that it would not be
just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any
other method of allocation which does not take account of equitable considerations referred to
herein.
If indemnification is available hereunder, the indemnifying parties shall indemnify each
indemnified party to the fullest extent provided herein, without regard to the relative fault of
said indemnifying party or indemnified party or any other equitable consideration provided for
herein. The provisions hereof shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract shall remain in full
force and effect regardless of any investigation made by or on behalf of any indemnified party, and
shall survive the transfer of securities by any such party.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Termination. The obligations under Article 1 shall terminate on the
earlier of the date on which all Registrable Securities have been sold pursuant to a Registration
Statement or all Conversion Stock or Warrant Shares are no longer Restricted Securities. Holders
whose shares of Common Stock are sold pursuant to a Registration Statement shall reasonably inform
the Company of sales of such shares and shall provide all such other information as the Company may
reasonably request in order to comply with the requirements of the Securities Act and the rules and
regulations promulgated thereunder, including, without limitation, Regulation S-K.
Section 4.2 Assignment; Successors and Assigns. Holders may assign their rights hereunder
with respect to any permitted assignee all or any portion of the Registrable Securities provided
that (a) the Company is furnished with written notice of the name and address of the assignee and
the securities with respect to which such rights are being assigned and all such other information
as may be reasonably requested by the Company in order for the Company to be able to comply with
applicable requirements of the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder, and (b) the Company shall have the right to require any holder of
Registrable Securities to execute a counterpart of this Agreement as a condition to such holder’s
right to claim any rights hereunder. This Agreement and all provisions thereof shall be binding
upon, inure to the benefit of, and are enforceable by the parties hereto and their respective
successors and permitted assigns.
Section 4.3 Notices. All notices, requests, and other communications hereunder shall be in
writing and will be deemed to have been duly given and received (a) when personally delivered, (b)
when sent by facsimile upon confirmation of receipt, (c) four business days after the day on which
the same has been delivered prepaid to a nationally recognized courier service, or (d) ten business
days after the deposit in the United States mail, registered or certified, return receipt
requested, postage prepaid, in each case addressed as follows:
(a) if to the Company: then at CanArgo Energy Corporation, X.X. Xxx 000, Xx. Xxxxx Xxxx,
Xxxxxxxx, Xxxxxxx Xxxxxxx, Attn: Corporate Secretary, facsimile number: x00 0000 000000 (with a
copy to McGrigors, Xxxxxxx Xxxxx, 00 Xxxxxxxxxx Xxxxxx, Xxxxxxx X0 0XX, XX, Attn: Xxxxxxx Xxxxxx,
Esq., facsimile number x00 000 000 0000); or
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(b) if addressed to a Holder, then at the address set forth on Schedule A attached hereto
opposite such Holder’s name.
Holders or the Company may agree to accept notices and other communications to it hereunder by
electronic communications pursuant to procedures reasonably approved by it; provided that approval
of such procedures may be limited to particular notices or communications. Any party hereto from
time to time may change its address, facsimile number, or other information for the purpose of
notices to that party by giving notice specifying such change to the other parties hereto.
Section 4.4 Public Announcements. Except as otherwise required by law, Holders shall not
issue any press release or make any other public announcement with respect to the transactions
contemplated hereby without the approval of the Company, which approval shall not be unreasonably
withheld or delayed.
Section 4.5 Governing Law; Jurisdiction. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of the State of New
York excluding choice of law principles of the law of such State that would require the application
of the laws of a jurisdiction other than such State. For the purposes of any action or proceeding
involving this Agreement or any other agreement or document referred to herein or therein, the
Company hereby, and shall cause its subsidiaries to, expressly submits to the nonexclusive
jurisdiction of all federal and state courts sitting in the Borough of Manhattan, City and State of
New York and consents that any order, process, notice of motion or other application to or by any
of said courts or a judge thereof may be served within or without such court’s jurisdiction by
registered mail or by personal service, provided that a reasonable time for appearance is
allowed. The Company hereby, and shall cause its subsidiaries to, irrevocably waives any objection
that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Agreement or any other agreement or document referred to herein or
therein brought in any federal or state court sitting in the City and State of New York, and hereby
further irrevocably waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 4.6 No Third Party Beneficiary. This Agreement shall not confer any rights or
remedies upon any person other than the parties hereto and their respective successors and
permitted assigns.
Section 4.7 Severability. In the event that any provision of this Agreement or the
application of any provision hereof is declared to be illegal, invalid, or otherwise unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not
invalidate or render unenforceable such provision in any other jurisdiction.
Section 4.8 Headings. The headings in this Agreement are for convenience of reference only
and shall not constitute a part of this Agreement, nor shall they affect its meaning, construction,
or effect.
Section 4.9 Counterparts. This Agreement may be executed in any number of counterparts, each
of which shall be an original but all of which together shall constitute one instrument. Each
counterpart may consist of a number of copies hereof, each signed by less than all, but together
signed by all, of the parties hereto.
Section 4.10 Entire Agreement. This Agreement embodies the entire understanding and agreement
between the parties hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to the subject matter hereof.
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Section 4.11 Amendment; Waiver. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, without the written consent of the Company
and a Required Majority of Holders.
Section 4.12 Further Assurances. Each party shall cooperate and take such action as may be
reasonably requested by another party in order to carry out the provisions and purposes of this
Agreement and the transactions contemplated hereby.
(Signature pages follow)
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by the undersigned,
thereto duly authorized, as of the date first set forth above.
| CanArgo Energy Corporation | ||||||||
| By: | ||||||||
| Its | ||||||||
| PURCHASER: | ||||||||
| Persistency | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
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SCHEDULE A
| NAME OF PURCHASER | ADDRESS | |
PERSISTENCY |
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