EXHIBIT 10.6
CANARGO LIMITED
TETHYS PETROLEUM INVESTMENTS LIMITED
AND
XXXXXXX & XXXXXX LLC
AND
THE SECURED PARTIES
SECURITY INTEREST AGREEMENT
(SECURITIES)
ABX
CONTENTS
1 DEFINITIONS AND INTERPRETATION....................................................................1
2 GRANT OF SECURITY INTEREST........................................................................5
3 THE SECURED OBLIGATIONS...........................................................................6
4 DEBTOR'S REPRESENTATIONS AND WARRANTIES...........................................................6
5 DEBTOR'S COVENANTS................................................................................8
6 LIEN.............................................................................................10
7 EVENTS OF DEFAULT................................................................................10
8 ENFORCEMENT BY THE SECURED PARTIES...............................................................14
9 FURTHER ASSURANCE AND POWER OF ATTORNEY..........................................................15
10 SUSPENSE ACCOUNT.................................................................................16
11 SECURITY CONTINUING AND INDEPENDENT..............................................................16
12 FEES, COSTS AND EXPENSES.........................................................................17
13 REMEDIES AND WAIVER..............................................................................17
14 INDEMNITY AND LIABILITY..........................................................................18
15 RULING OFF.......................................................................................18
16 ILLEGALITY.......................................................................................19
17 CERTIFICATE OF SECURED PARTIES...................................................................19
18 AMALGAMATION AND CONSOLIDATION...................................................................19
19 CONVERSION OF CURRENCY...........................................................................19
20 AMENDMENT........................................................................................20
21 ASSIGNMENT.......................................................................................20
22 NOTICES..........................................................................................20
23 COUNTERPARTS.....................................................................................21
24 GOVERNING LAW AND JURISDICTION...................................................................21
SCHEDULE 1 .................................................................................................25
SCHEDULE 2 .................................................................................................25
SECURITY INTEREST AGREEMENT
THIS AGREEMENT is made on 2005
BETWEEN
(1) CANARGO LIMITED a company incorporated under the laws of Guernsey
having its registered office at XX Xxx 000, Xx Xxxxx Xxxx, Xxxxxxxx
(the "DEBTOR");
(2) TETHYS PETROLEUM INVESTMENTS LIMITED a company incorporated under the
laws of Guernsey having its registered office at XX Xxx 000, Xx Xxxxx
Xxxx, Xxxxxxxx (the "COMPANY");
(3) XXXXXXX & XXXXXX LLC a company formed under the laws of New York having
its office at 00 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx, XXX as agent for the
Secured Parties (the "SECURITY AGENT"); and
(4) XXXXXXX & XXXXXX VALUE PARTNERS L.P., XXXXXXXX X. XXXXXXXX, XXXXXX X.
XXXXXX, XXXXXX XXXXXX, XXXXXX X. XXXXXX XXX, XXXX XXXXXXX, XXXXXX
XXXXX, FLEDGLING ASSOCIATES LLC, XXXX XXXXXXX, XXXX XXXXXXX, XXXXXXX
XXXXX, XXXX XXXXXX, XXXXXX XXXXXXX all care of 00 Xxxxxxxx, Xxx Xxxx,
XX 00000, XXX as the purchasers (together the "SECURED PARTIES").
WHEREAS:
This Agreement is made between the parties hereto for the purposes of creating
security over the issued share capital of the Company held by the Debtor.
NOW IT IS HEREBY AGREED AS FOLLOWS:
1 DEFINITIONS AND INTERPRETATION
1.1 In this Agreement, the following words and expressions shall, except
where the context otherwise requires, have the following meanings:
"AFFILIATE" has the meaning ascribed to it in the Note Purchase
Agreement;
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"BUSINESS DAY" means any day on which commercial banks are open for
full banking business in Guernsey;
"
CANARGO ENERGY CORPORATION" means
CanArgo Energy Corporation, a
company incorporated under the laws of Delaware, having its registered
office at 0000, Xxxxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxxx,
00000 XXX;
"CANARGO GROUP MEMBER" has the meaning ascribed to it in the Note
Purchase Agreement;
"CODE" has the meaning ascribed to it in the Note Purchase Agreement;
"COLLATERAL" means the Securities, the Derivative Assets and the
Derivative Rights;
"DEFAULT" has the meaning ascribed to it in the Note Purchase
Agreement;
"DERIVATIVE ASSETS" means all rights, moneys (including without
limitation, distributions and dividends, interest and other property
whatsoever which may from time to time at any time be derived from,
accrue on or be offered in respect of, or incidental to or created or
issued in substitution for the Securities whether by way of redemption,
exchange, conversion, rights, bonus, capital reorganisation or
otherwise howsoever;
"DERIVATIVE RIGHTS" means all present and future right, title, benefit
and interest in and to the Derivative Assets including without
limitation all rights to subscribe for, convert other securities into
or otherwise acquire any other shares, stock, debentures, debenture
stock, loan stock, bonds or units of a unit trust scheme;
"ENCUMBRANCE" means any mortgage, charge, pledge, lien, assignment,
hypothecation, title retention, security interest, trust arrangement or
any other agreement or arrangement which has the effect of creating
security;
"ERISA" has the meaning ascribed to it in the Note Purchase Agreement;
"ERISA AFFILIATE" has the meaning ascribed to it in the Note Purchase
Agreement;
"EVENTS OF DEFAULT" means any of the events or circumstances specified
in Clause 7;
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"FOREIGN PENSION PLAN" has the meaning ascribed to it in the Note
Purchase Agreement;
"GUARANTEE" means the Guaranty Agreement of even date herewith from
Ninotsminda Oil Company Limited and others (including the Debtor) in
favour of the Secured Parties;
"KNOWLEDGE" has the meaning ascribed to it in the Note Purchase
Agreement;
"LAW" means the Security Interests (Guernsey) Law, 1993;
"LIEN" has the meaning ascribed to it in the Note Purchase Agreement;
"LOAN DOCUMENTS" has the meaning ascribed to it in the Note Purchase
Agreement;
"MATERIAL" has the meaning ascribed to it in the Note Purchase
Agreement;
"MATERIAL ADVERSE EFFECT" has the meaning ascribed to it in the Note
Purchase Agreement;
"MULTIEMPLOYER PLAN" has the meaning ascribed to it in the Note
Purchase Agreement;
"NOTE PURCHASE AGREEMENT" means the note purchase agreement dated as of
the date hereof between
CanArgo Energy Corporation and the Secured
Parties;
"NOTES" mean the senior secured notes issued to the Secured Parties
pursuant to the Note Purchase Agreement;
"OBLIGATIONS" has the meaning ascribed to it in the Note Purchase
Agreement;
"PERSON" has the meaning ascribed to it in the Note Purchase Agreement;
"PLAN" has the meaning ascribed to it in the Note Purchase Agreement;
"PROPERTIES" has the meaning ascribed to it in the Note Purchase
Agreement;
"REDEMPTION PRICE" has the meaning ascribed to it in the Note Purchase
Agreement;
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"REQUIRED HOLDERS" means, at any time, the holders of at least 51 per
cent. in principal amount of the Notes at the time outstanding
(exclusive of the Notes then owned by
CanArgo Energy Corporation, any
of its Subsidiaries or any of its Affiliates);
"RESPONSIBLE OFFICER" has the meaning ascribed to it in the Note
Purchase Agreement;
"SECURED OBLIGATIONS" shall have the meaning given to it in Clause 3;
"SECURITIES" means the shares specified in Schedule 1 and includes all
of the Debtor's present and future right, title, benefit and interest
in and to the Securities;
"SECURITY DOCUMENTS" has the meaning ascribed to it in the Note
Purchase Agreement;
"SECURITY PERIOD" means the period commencing on the date hereof and
terminating on the date upon which the Required Holders shall have
determined that all of the Secured Obligations have been irrevocably
and indefeasibly paid, performed and discharged in full; and
"SUBSIDIARY" has the meaning ascribed to it in the Note Purchase
Agreement.
1.2 The Secured Parties shall be the "SECURED PARTIES", the Debtor shall be
the "DEBTOR" and the Events of Default shall be the "EVENTS OF DEFAULT"
for the purposes of the Law.
1.3 References to the Secured Parties include their successors and assigns.
References to the Debtor or the Company include their successors and
permitted assigns, if any.
1.4 Words and expressions not otherwise defined in this Agreement shall be
construed in accordance with the Law.
1.5 Except where the context otherwise requires, words denoting the
singular include the plural and vice versa, words denoting a gender
include every gender and references to persons include bodies corporate
and unincorporate.
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1.6 References to Recitals, Clauses and Schedules are, unless the context
otherwise requires, references to recitals and clauses hereof and
schedules hereto and references to Sub-clauses are, unless otherwise
stated, references to the sub-clause of the clause in which the
reference appears.
1.7 The Recitals and Schedules form part of this Agreement and shall have
the same force and effect as if they were expressly set out in the body
of this Agreement and any reference to this Agreement shall include the
Recitals and Schedules.
1.8 Any reference to this Agreement or to any agreement or document
referred to in this Agreement shall be construed as a reference to such
agreement or document as amended, varied, modified, supplemented,
restated, novated or replaced from time to time.
1.9 Any reference to any statute or statutory provision shall, unless the
context otherwise requires, be construed as a reference to such statute
or statutory provision as the same may have been or may be amended,
modified, extended, consolidated, re-enacted or replaced from time to
time.
1.10 Clause headings and the index are inserted for convenience only and
shall not affect the construction of this Agreement.
2 GRANT OF SECURITY INTEREST
2.1 Without affecting, and in addition to, the Secured Parties' other
rights under or pursuant to this Agreement, for the purpose of granting
each Secured Party a first priority security interest in the Collateral
pursuant to the Law the Debtor hereby:
(a) assigns the Collateral to the Security Agent; and
(b) delivers and agrees that the Security Agent or its nominees
shall have possession of the certificates of title to the
Securities.
2.2 The Debtor hereby agrees that the security interests created by
Clause 2.1 may exist independently and concurrently.
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2.3 Pursuant to Section 1(8) of the Law, the Company hereby agrees that it
has received notice of and acknowledges the creation of a security
interest over the Securities pursuant to this Agreement.
2.4 Upon the expiry of the Security Period, the Security Agent shall, at
the request and expense of the Debtor, return to the Debtor the
certificates of title to the Securities and/or assign, transfer or make
over title to the Securities to the Debtor (as appropriate), without
recourse or warranty, executing such documents as may be required to
release the security created by this Agreement and shall thereby
discharge the security created hereunder.
3 THE SECURED OBLIGATIONS
The grants of security interest set out in Clause 2.1 shall secure as a
continuing security for the payment and/or discharge on demand of the
Guarantee and of all other present or future obligations, monies and
liabilities of the Debtor to the Secured Parties which shall for the
time being (and whether on or at any time after such demand) be or
become due, owing or incurred to any Secured Party by the Debtor
whether actually or contingently, solely or jointly with any other
person or as principal or surety and including interest (whether simple
or compound and as well after as before judgment) together with
discount, commission and all other lawful charges and expenses
(including, without limitation, legal fees and other professional fees
plus disbursements) of the Secured Parties under the Guarantee
(together the "SECURED OBLIGATIONS").
4 DEBTOR'S REPRESENTATIONS AND WARRANTIES
The Debtor hereby represents and warrants to each Secured Party on the
date hereof that:
(a) this Agreement constitutes the legal, valid and binding
obligations of the Debtor, and constitutes a valid first
priority security interest under the Law, enforceable against
the Debtor in accordance with its terms;
(b) no event has occurred or circumstance exists which constitutes
or with the giving of notice or lapse of time or both would
constitute an Event of Default;
6
(c) the Debtor and Xxxxx Xxxxxx are the sole legal and the Debtor
is the sole beneficial owner of and has good title to the
Collateral subject only to the rights granted in favour of the
Secured Parties by this Agreement;
(d) the Securities constitute the entire issued capital of the
Company and have been duly authorised and validly issued and
are fully paid;
(e) the Collateral is free from all Encumbrances and rights of
set-off other than those created by this Agreement in favour
of the Secured Parties;
(f) the Debtor has the necessary power to execute, deliver and
perform its obligations under this Agreement; and the
execution, delivery and performance by the Debtor of this
Agreement and the consummation of the transactions
contemplated hereby have been duly 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 party to enable the Debtor
to execute, deliver and perform this Agreement and the
perfection of the security interest created hereunder have
been obtained and are, in full force and effect;
(h) the execution, delivery and performance by the Debtor of this
Agreement and the consummation by the Debtor of the
transactions contemplated hereby do not:
(i) require any consent or approval of any Person that
has not been obtained and each such consent or
approval that has been obtained is in full force and
effect;
(ii) violate any provision of the memorandum and articles
of association of the Debtor;
(iii) violate any provision of any statute, regulation,
order, injunction or judgement applicable to each
Debtor which violation could reasonably be expected
to have a Material Adverse Effect; or
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(iv) violate, result in a breach of or constitute a
default under any mortgage, indenture or any other
material agreement to which the Debtor is a party or
by which it or its property may be bound which
violation or breach could reasonably be expected to
have a Material Adverse Effect.
(i) there are no actions, suits, litigation, administrative
proceedings or other proceedings at law or in equity or by or
before any governmental authority or arbitral tribunal now
pending, or to the Knowledge of the Debtor, threatened against
or affecting the Collateral which could reasonably be expected
to have a Material Adverse Effect.
5 DEBTOR'S COVENANTS
The Debtor covenants and undertakes to the Secured Parties that:
(a) contemporaneously with the execution and delivery of this
Agreement and otherwise from time to time and if and when the
Required Holders shall require, it shall deliver to the
Security Agent, or to its order for the rateable benefit of
the Secured Parties:
(i) certificates of title in respect of the Securities,
together with undated and signed duly completed stock
transfer forms with the consideration left blank and
all related declarations of nomineeship/trust in
favour of the Secured Parties (if any);
(ii) such other documents as the Required Holders shall
acting reasonably require to protect, maintain or
enforce their security interest or security interests
granted hereby; and
(iii) at any time following the occurrence of an Event of
Default do all other acts and things as the Required
Holders may acting reasonably require in order to
transfer title of the Collateral or any part of it
into the name of the Security Agent or the name of
its nominees;
(b) it will promptly pay all payments to be made or becoming due
and discharge any lien which may arise on any of the
Securities;
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(c) any of the Collateral not held by the Security Agent (or its
nominees) shall be held on trust for and to the Secured
Parties' order or otherwise as the Required Holders may
require from time to time;
(d) at any time after the occurrence of an Event of Default which
is thereafter continuing unremedied and unwaived, and if and
when the Required Holders shall require, distributions,
dividends, interest or other income declared or payable on any
of the Securities shall be paid or assigned to the Security
Agent for the rateable benefit of the Secured Parties which it
shall then be entitled to apply as though they were proceeds
of sale or application provided, however, until the occurrence
of an Event of Default which is continuing, Debtor shall be
entitled to receive and retain all distributions, dividends,
interest or other income declared or payable on any of the
Securities;
(e) at any time after the occurrence of an Event of Default which
is thereafter continuing unremedied and unwaived the Security
Agent will forthwith exercise all voting, consensual and other
powers and rights attaching to the Securities in such manner
as the Required Holders may direct from time to time and, in
the absence of such direction, only with the object of
preserving or enhancing the value of the Securities provided,
however, until the occurrence of an Event of Default which is
continuing, Debtor shall be entitled to exercise all voting,
consensual and other powers and rights attaching to the
Securities;
(f) immediately upon receipt of any report, accounts, circular,
offer or notice received by the Debtor (or, as the case may
be, its nominee) in respect of, or which may affect, the
Securities, it shall deliver a copy to the Security Agent with
notice that it relates to this Agreement;
(g) it will not unless authorised in writing by the Required
Holders:
(i) except as set out in this Agreement or the Note
Purchase Agreement to any extent sell, assign, grant
any option with respect to or otherwise dispose of or
create an Encumbrance over or agree to any extent to
sell, assign, grant any option with respect to,
dispose of or encumber the Collateral; or
9
(ii) negotiate, settle or waive any claim for loss, damage
or other compensation affecting the Collateral;
(h) it will do everything in its power to prevent any person from
becoming entitled to claim any right over the Collateral;
(i) it will do or cause to be done everything necessary to help
the Security Agent to:
(i) confirm or protect the interest of the Secured
Parties in the Collateral; and
(ii) exercise any of its or the Secured Parties ' rights
under this Agreement.
(j) it will charge in favour of the Secured Parties, immediately
upon its acquisition (directly or indirectly) thereof, any and
all additional shares of stock or other securities of the
Company not otherwise hereby charged.
6 LIEN
Without affecting, and in addition to, the grant of security interest
and other rights hereunder, the Debtor hereby agrees that the Secured
Parties shall, for so long as any amount remains outstanding under or
in respect of the Secured Obligations, have a lien over the Securities.
7 EVENTS OF DEFAULT
7.1 There shall be an Event of Default if there occurs or exists any event
described as or constituting an Event of Default under the Note
Purchase Agreement namely:
(a)
CanArgo Energy Corporation defaults in the payment of any
principal at the applicable Redemption Price (if any) on any
Note when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration
or otherwise; or
(b)
CanArgo Energy Corporation defaults in the payment of any
interest on any Note or in the payment of any expenses due
hereunder or under any Security
10
Document for more than five Business Days after the same
becomes due and payable; or
(c)
CanArgo Energy Corporation defaults in the performance of or
compliance with any term contained in sections 9.6, 10.11,
11.2, 11.3, 11.4, 11.6, 11.7, 11.8, 11.9, 11.10 or 11.11 of
the Note Purchase Agreement (an extract of such sections from
the Note Purchase Agreement are set out in Schedule 2 hereof);
or
(d)
CanArgo Energy Corporation defaults in the performance of or
compliance with any term contained in the Note Purchase
Agreement (other than those referred to in paragraphs (a), (b)
or (c) above) and such default is not remedied within 30 days
after the earlier of (i) a Responsible Officer obtaining
actual and not constructive knowledge of such default and (ii)
CanArgo Energy Corporation receiving written notice of such
default from any holder of a Note (any such written notice to
be identified as a "notice of default" and to refer
specifically to paragraph (d) of Section 12 of the Note
Purchase Agreement); or
(e) any representation or warranty made in writing by or on behalf
of
CanArgo Energy Corporation or any other CanArgo Group
Member or by any officer of CanArgo Energy Corporation or any
other CanArgo Group Member (including the Company) in the Note
Purchase Agreement, in any Security Document or in writing
furnished in connection with the transactions contemplated
hereby proves to have been false or incorrect in any Material
respect on the date as of which made; or
(f) CanArgo Energy Corporation or any other CanArgo Group Member
including the Company (i) is generally not paying, or admits
in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of
any jurisdiction, (iii) makes an assignment for the benefit of
its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or
11
other officer with similar powers with respect to it or with
respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes
corporate action for the purpose of any of the foregoing; or
(g) a court or governmental authority of competent jurisdiction
enters an order appointing a custodian, receiver, trustee or
other officer with similar powers with respect to it or with
respect to any substantial part of its property, or
constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy
or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the
dissolution, winding-up or liquidation of CanArgo Energy
Corporation or any other CanArgo Group Member including the
Company, or any such petition shall be filed against CanArgo
Energy Corporation or any other CanArgo Group Member including
the Company and such petition shall not be dismissed or stayed
pending appeal within 90 days, or are not discharged within 60
days after the expiration of such stay; or
(h) a final judgment or judgments for the payment of money
aggregating in excess of US$2,500,000 (to the extent not
covered by insurance) are rendered against CanArgo Energy
Corporation or any other CanArgo Group Member including the
Company and which judgments are not, within 90 days after
entry thereof, bonded, discharged, finally settled or stayed
pending appeal, or are not discharged within 60 days after the
expiration of such stay; or
(i) if (i) any Plan subject to ERISA shall fail to satisfy the
minimum funding standards of ERISA or the Code for any plan
year or part thereof or a waiver of such standards or
extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to
terminate any Plan subject to ERISA shall have been or is
reasonably expected to be filed with the Pension Benefit
Guaranty Corporation referred to and defined in ERISA or any
successor thereto ("PBGC") or the PBGC shall have instituted
proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any such Plan or the PBGC shall have
notified CanArgo Energy Corporation or any ERISA Affiliate or
other Affiliate that a Plan subject to
12
ERISA may become a subject of any such proceedings, (iii) the
aggregate "amount of unfunded benefit liabilities" (within the
meaning of section 4001(a)(18) of ERISA) under all Plans
subject to ERISA, determined in accordance with Title IV of
ERISA shall exceed US$500,000, (iv) CanArgo Energy Corporation
or any ERISA Affiliate or other Affiliate shall have incurred
or is reasonably expected to incur any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions
of the Code relating to employee benefit plans subject to
ERISA in excess of $500,000, (v) the present value of the
accrued benefit liabilities (whether or not vested) under each
Foreign Pension Plan maintained by CanArgo Energy Corporation
or an ERISA Affiliate, determined as of the end of its most
recently ended fiscal year on the basis of actuarial
assumptions, each of which is reasonable, exceeds the current
value of the assets of such Foreign Pension Plan allocable to
such benefit liabilities by US$500,000 or more, (vi) either
CanArgo Energy Corporation or any other CanArgo Group Member
(including the Company) incurs a Material liability pursuant
to any Foreign Pension Plan which could reasonably be expected
to have a Material Adverse Effect, (vii) CanArgo Energy
Corporation or any ERISA Affiliate or other Affiliate
withdraws from any Multiemployer Plan, or (viii) CanArgo
Energy Corporation or any other CanArgo Group Member
establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that
would increase the liability of CanArgo Energy Corporation or
any other CanArgo Group Member including the Company
thereunder in any Material respect; and any such event or
events described in clauses (i) through (viii) above, either
individually or together with any other such event or events,
has a Material Adverse Effect;
(j) (i) the Note Purchase Agreement, the Notes, any Security
Document, or any other Loan Document ceases to be in full
force and effect (except in accordance with its terms) or is
declared null and void or the validity or enforceability is
contested or challenged by CanArgo Energy Corporation, any
Affiliate of CanArgo Energy Corporation (including the Debtor
and the Company) or any of their respective partners or
shareholders; (ii) CanArgo Energy Corporation denies that it
has any further liability or obligation under
13
any of the Loan Documents prior to the indefeasible
satisfaction in full of all Obligations under the Loan
Documents; or (iii) any of the Liens and security interest
granted to the Secured Parties under the Security Documents
cease to be valid or perfected or cease to have the priority
required hereby or under the Security Documents prior to the
indefeasible satisfaction in full of all Obligations under the
Loan Documents, other than as a result of the action or
omission by any of the Secured Parties or holder; or
(k) CanArgo Energy Corporation or any other CanArgo Group Member
(including the Company) modifies or amends any of its
constitutional documents in any Material manner without the
Required Holders' prior written consent, unless any such
amendment will not result in a Default or Event of Default
(without regard to this paragraph) and will not adversely
affect the rights of the holders under the Loan Documents; or
(l) a change occurs in the consolidated financial condition of
CanArgo Energy Corporation or in the physical, operational or
financial status of the Properties, which change is not
otherwise described in this section and has a Material Adverse
Effect and which has not been remedied pursuant to paragraph
(d) above.
7.2 Any failure on the part of the Debtor to discharge any of its
obligations and liabilities and/or to pay any monies to any of the
Secured Parties when due under the Guarantee.
8 ENFORCEMENT BY THE SECURED PARTIES
8.1 At any time following the occurrence of an Event of Default, which is
thereafter continuing unremedied and unwaived and provided that the
Security Agent has served on the Debtor a notice specifying the
particular Event of Default complained of:
(a) the power of sale or application under the Law shall become
exercisable over the Collateral without any order of the Royal
Court of Guernsey;
(b) the power of sale or application may be exercised in such
manner and for such consideration (whether payable
immediately, by instalments or otherwise deferred) as the
Required Holders shall in their absolute discretion determine;
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(c) for the purposes of this Agreement, references to the exercise
of the "POWER OF SALE OR APPLICATION" shall include any method
or process by which value is given, allowed or credited by the
Required Holders for the Collateral against the Secured
Obligations;
(d) the Security Agent acting at the written instruction of the
Required Holders, may exercise and be entitled to any and all
rights of an owner of the Collateral subject hereto; and
(e) the Security Agent may, at the written instruction of the
Required Holders, collect, receive or compromise and give a
good discharge for any and all monies and claims for monies
due and to become due for the time being comprised in the
Collateral subject hereto.
8.2 Neither the Security Agent nor the Required Holders shall be under any
liability to the Debtor for any failure to apply and distribute the
proceeds of sale or application of the Collateral in accordance with
the Law if the Required Holders apply or direct the Security Agent to
apply and distribute such proceeds in good faith without further
enquiry and in accordance with the information expressly known to them
at the time of the application and distribution.
8.3 The exercise by the Secured Parties of any right or power of sale or
application under this Clause 8 shall not constitute a waiver or
release of nor the exercise of any other right or power of sale or
application held by any Secured Party unless expressly stated in
writing.
8.4 For the purposes of this Clause 8, time shall be of the essence with
regard to the performance by the Debtor of the Secured Obligations.
9 FURTHER ASSURANCE AND POWER OF ATTORNEY
9.1 The Debtor agrees that it shall from time to time upon the written
request of the Required Holders promptly do all such things and execute
and deliver all such instruments and documents (including, without
limitation, any replacement or supplemental security) as the Required
Holders may consider necessary or desirable
15
for creating the security contemplated hereby, giving full effect to
this Agreement or for securing or protecting the rights of the Secured
Parties hereunder.
9.2 In accordance with the Powers of Attorney and Affidavits (Bailiwick of
Guernsey) Law, 1995 (the "POWERS OF ATTORNEY LAW"), for the purpose of
facilitating the exercise of the powers of the Secured Parties under
the Law and the powers given pursuant to this Agreement, the Debtor
hereby irrevocably appoints the Security Agent, acting upon the written
instructions of the Required Holders, as the Debtor's true and lawful
attorney (with full power of substitution and delegation) with
authority in the name of and on behalf of the Debtor upon the
occurrence of an Event of Default which is continuing to sign, execute,
seal, deliver, complete, acknowledge, file, register and perfect any
and all assurances, documents, transfers, instruments, agreements,
certificates and consents whatsoever and to do any and all such acts
and things in relation to any matters dealt with in this Agreement and
which the Required Holders may deem necessary or advisable in order to
give full effect to this Agreement (including, without limitation,
anything referred to in Clause 8 (Enforcement by the Secured Parties))
and anything to perfect its security over the Collateral. The Debtor
further covenants with the Secured Parties to ratify and confirm any
lawful exercise or purported exercise of this power of attorney.
10 SUSPENSE ACCOUNT
All monies received, recovered or realised by the Security Agent under
this Agreement may, at the discretion of the Required Holders, be
credited to a separate or suspense account for so long as the Required
Holders may think fit without any intermediate obligation on the part
of the Security Agent or the Secured Parties to apply the same in or
towards payment and discharge of the Secured Obligations.
11 SECURITY CONTINUING AND INDEPENDENT
The security constituted by this Agreement:
(a) shall not be discharged by any partial or intermediate payment
or performance of the Secured Obligations;
16
(b) shall take effect as a security for the whole and every part
of the payment or performance of the Secured Obligations and
shall be independent of and in addition to, and it shall not
be prejudiced or be affected by and shall not affect or
prejudice, any other security now or hereafter held by any
Secured Party in respect of the payment or performance of all
or any part of the Secured Obligations; and
(c) shall not be in any way discharged, impaired or otherwise
affected by reason of any of the Secured Obligations becoming
illegal, void, voidable, invalid or unenforceable or by reason
of any other act, circumstance or omission which might but for
provisions of this Clause 11 constitute a discharge of such
security.
12 FEES, COSTS AND EXPENSES
12.1 Subject to the provisions of Section 10.9 of the Note Purchase
Agreement, the Debtor agrees to reimburse the Security Agent on demand
for all fees (including legal fees), costs and expenses incurred by the
Security Agent in connection with or relating to the negotiation,
preparation and/or execution of this Agreement, the creation,
preservation and/or enforcement of any of the Secured Party's rights
under this Agreement or the exercise or purported exercise of any of
the powers arising pursuant to this Agreement.
12.2 All such fees, costs and expenses shall be reimbursed by the Debtor on
a full indemnity basis.
13 REMEDIES AND WAIVER
Time shall be of the essence of this Agreement but no failure by the
Security Agent or any Secured Party to exercise, nor any delay by the
Security Agent or any Secured Party in exercising, any right or remedy
hereunder shall operate as a waiver hereof nor shall any single or
partial exercise prevent any further or other exercise thereof or the
exercise of any other right or remedy. The rights and remedies provided
herein are cumulative and not exclusive of any rights or remedies
provided by law, which may be exercised at the Required Holders'
discretion.
17
14 INDEMNITY AND LIABILITY
14.1 The Debtor will indemnify and keep indemnified the Secured Parties and
the Security Agent and/or its nominees (if any) on demand against each
and every loss, action, claim, expense (including legal expenses), cost
and liability which the Secured Parties or the Security Agent and/or
its nominees may incur as holder of the Collateral or which may be
properly incurred in or in connection with the preservation and/or
enforcement of any of the Secured Parties' rights under this Agreement
or flowing from the exercise or purported exercise of any of the powers
arising under any of the provisions of this Agreement save where such
loss, action, claim, expense, cost or liability arises as the result of
the gross negligence or wilful misconduct of either of the Security
Agent or any of the Secured Parties.
14.2 Without prejudice to any other provision hereof:
14.2.1 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;
14.2.2 the provisions of the Trusts (Guernsey) Law, 1989 shall not apply to
the Security Agent in respect of its duties under this Agreement;
and
14.2.3 the obligations of the Security Agent to the Secured Parties and to
the Debtor shall be limited to (a) its obligations as expressed in
this Agreement and (b) in accordance with the written authorisation
of the Required Holders, where such authorisation is required.
14.3 Notwithstanding any other provision of this Agreement, hereof neither
the Security Agent nor its nominees nor any of the Secured Parties
shall be liable by reason of (a) taking any action permitted by this
Agreement, (b) any neglect or default in connection with the Collateral
or (c) the taking possession or realisation of all or any part of the
Collateral, except in the case of gross negligence or wilful default
upon their part.
15 RULING OFF
In the event of the affairs of the Debtor being declared en etat de
desastre or the commencement of any form of bankruptcy or insolvency
proceeding affecting the
18
Debtor or of all or any part of this Agreement ceasing for any reason
to be binding on the Debtor or if the Security Agent receives notice
(actual or otherwise) of any other or subsequent Encumbrance affecting
the Collateral, the Required Holders may at any time rule off the
Debtor's obligations. No monies paid thereafter by the Debtor to the
Security Agent for the rateable benefit of the Secured Parties shall
thereby discharge or reduce the amount recoverable pursuant to this
Agreement. If the Required Holders in any of the above cases do not
rule off the obligations of the Debtor it shall nevertheless be treated
as if they had done so at the time when the Security Agent first had
notice (actual or otherwise) of the event in question and all payments
made by or on behalf of the Debtor to the Security Agent for the
rateable benefit of the Secured Parties shall not operate to reduce the
amount recoverable pursuant to this Agreement.
16 ILLEGALITY
If at any time one or more of the provisions of this Agreement becomes
invalid, illegal or unenforceable in any respect, that provision shall
be severed from the remainder and the validity, legality and
enforceability of the remaining provisions of this Agreement shall not
be affected or impaired in any way.
17 CERTIFICATE OF SECURED PARTIES
Any certificate submitted by the Security Agent to the Debtor as to the
amount of the Debtor's obligations or any part of them shall (in the
absence of manifest error) be conclusive and binding on the Debtor at
the relevant time.
18 AMALGAMATION AND CONSOLIDATION
The rights and benefits of each Secured Party under this Agreement
shall remain valid and binding for all purposes notwithstanding any
change, amalgamation, consolidation, migration or otherwise which may
be made in the constitution of such Secured Party and shall be
available to such entity as shall carry on the business of that Secured
Party for the time being.
19 CONVERSION OF CURRENCY
All monies received or held by the Security Agent subject to this
Agreement may at any time, after the occurrence of an Event of Default,
be converted into such other
19
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 XX Xxxxxx Xxxxx Bank (as
conclusively determined by the Required Holders) for purchasing that
other currency with the original currency.
20 AMENDMENT
No variation or amendment of this Agreement shall be valid unless in
writing and signed by or on behalf of Debtor, the Company and the
Security Agent, acting upon written instructions of the Required
Holders.
21 ASSIGNMENT
21.1 Any Secured Party at any time may grant a participation in or make an
assignment or transfer or otherwise dispose of, the whole or any part
of its rights and benefits under this Agreement. Subject to the
provisions of Section 21 of the Note Purchase Agreement, for the
purpose of any such participation, assignment, transfer or disposal,
the Security Agent may disclose information about the Debtor and the
financial condition of the Debtor as may have been made available to
the Security Agent by the Debtor or which is otherwise publicly
available.
21.2 Except with the written consent of the Required Holders, neither the
Debtor nor the Company shall assign or transfer all or any part of
their respective rights, benefits and/or obligations under this
Agreement.
22 NOTICES
All notices with respect to this Agreement shall be delivered by hand
or sent by first class post to the address of the addressee as set out
in this Agreement with respect to the Security Agent or Section 19 in
the Note Purchase Agreement or to such other address as the addressee
may from time to time have notified for the purpose of this Clause 22
or to any other "PROPER ADDRESS" as defined in the Law, or sent by
facsimile transmission ("FAX") and shall be deemed to have been
received:
(a) if sent by first class prepaid post, five Business Days after
posting;
(b) if delivered by hand, on the day of delivery; and
20
(c) if sent by fax, at the time of transmission provided that the
sender shall receive a successful transmission report.
If the Debtor is a body corporate registered outside the Island of
Guernsey, it shall appoint a process agent in the Island of Guernsey to
accept service of notices pursuant to this Agreement on its behalf,
such appointment to take effect from the date of this Agreement, and it
shall promptly notify the Security Agent in writing of the identity and
address of such process agent from time to time.
23 COUNTERPARTS
This Agreement may be executed in any number of counterparts each of
which shall be an original but which shall together constitute one and
the same instrument.
24 GOVERNING LAW AND JURISDICTION
24.1 This Agreement shall be governed by and construed in accordance with
the laws of the Island of Guernsey and the parties hereby irrevocably
agree for the exclusive benefit of the Secured Parties that the courts
of the Island of Guernsey are to have jurisdiction to settle any
disputes which arise out of or in connection with this Agreement and
that accordingly any suit, action or proceeding arising out of or in
connection with this Agreement (in this Clause referred to as
"PROCEEDINGS") may be brought in such court.
24.2 Nothing contained in this Clause shall limit the right of any Secured
Party to take Proceedings against the Debtor or the Company in any
other court of competent jurisdiction nor shall the taking of
proceedings in one or more jurisdiction preclude the taking of
Proceedings in any other jurisdiction, whether concurrently or not.
24.3 The Debtor and the Company each irrevocably waive (and irrevocably
agrees not to raise) any objection which either may have now or
hereafter to laying of the venue of any Proceedings in any such court
as referred to in this Clause and any claim that any such Proceedings
have been brought in an inconvenient forum and further irrevocably
agree that a judgment in any Proceedings brought in any such court as
is referred to in this Clause shall be conclusive and binding upon the
Debtor and/or the Company (as the case may be) and may be enforced in
the court of any other jurisdiction.
21
AS WITNESS WHEREOF have caused this Agreement to be duly executed the day and
year first above written.
22
SIGNED for and on behalf of
CANARGO LIMITED
by:
Name: ------------------------------------------
Title:
SIGNED for and on behalf of
TETHYS PETROLEUM INVESTMENTS LIMITED
by:
Name: ------------------------------------------
Title:
SIGNED for and on behalf of
XXXXXXX & XXXXXX LLC
by:
Name: ------------------------------------------
Title:
SIGNED for and on behalf of
XXXXXXX & XXXXXX VALUE
PARTNERS L.P.
by:
Name: ------------------------------------------
Title:
SIGNED by
XXXXXXXX X XXXXXXXX ------------------------------------------
SIGNED by
XXXXXX X XXXXXX ------------------------------------------
23
SIGNED by
XXXXXX XXXXXX ------------------------------------------
SIGNED by
XXXXXX X XXXXXX XXX ------------------------------------------
SIGNED by
XXXX XXXXXXX ------------------------------------------
SIGNED by
XXXXXX XXXXX ------------------------------------------
SIGNED for and on behalf of
FLEDGLING ASSOCIATES LLC
by:
Name: ------------------------------------------
Title:
SIGNED by
XXXX XXXXXXX ------------------------------------------
SIGNED by
XXXX XXXXXXX ------------------------------------------
SIGNED by
XXXXXXX XXXXX ------------------------------------------
SIGNED by
XXXX XXXXXX ------------------------------------------
SIGNED by
XXXXXX XXXXXXX ------------------------------------------
24
SCHEDULE 1
99,990 ordinary shares of Pound Sterling0.10 each in the Company registered in
the name of the Debtor
10 ordinary shares of Pound Sterling0.10 each in the Company registered in the
name of Xxxxx Xxxxxx.
25
SCHEDULE 2
EXTRACTS FROM THE NOTE PURCHASE AGREEMENT
SECTION 9.6 CHANGE IN CONTROL
(a) NOTICE OF CHANGE IN CONTROL OR CONTROL EVENT. CanArgo Energy
Corporation will, within five Business Days after any
Responsible Officer has actual and not constructive knowledge
of the occurrence of any Change in Control or Control Event,
give written notice of such Change in Control or Control Event
to each holder of Notes unless notice in respect of such
Change in Control (or the Change in Control contemplated by
such Control Event) shall have been given pursuant to
subparagraph (b) of this Section 9.6. If a Change in Control
has occurred, such notice shall contain and constitute an
offer to prepay Notes as described in Section 9.6(c) and shall
be accompanied by the certificate described in Section 9.6(f).
(b) CONDITION TO COMPANY ACTION. CanArgo Energy Corporation will
not take any action that consummates or finalises a Change in
Control unless: (i) at least 15 Business Days prior to such
action it shall have given to each holder of Notes written
notice containing and constituting an offer to prepay Notes as
described in Section 9.6(c) accompanied by the certificate
described in Section 9.6(f), and (ii) contemporaneously with
the action taken to consummate or finalise any such Change in
Control, it prepays all Notes required to be prepaid in
accordance with this Section 9.6.
(c) OFFER TO PREPAY NOTES. The offer to prepay Notes contemplated
by subparagraphs (a) and (b) of this Section 9.6 shall be an
offer to prepay, in accordance with and subject to this
Section 9.6 all, but not less than all, the Notes held by each
holder (in this case only, "holder" in respect of any Note
registered in the name of a nominee for a disclosed beneficial
owner shall mean such beneficial owner) on a date specified in
such offer (the "Proposed Prepayment Date"). If such Proposed
Prepayment Date is in connection with an offer contemplated by
subparagraph (a) of this Section 9.6, such date shall be not
less than 30 days and not more than 90 days after the date of
such offer (if the Proposed Prepayment Date shall not be
specified in such offer, the Proposed Prepayment Date shall be
the 30th day after the date of such offer).
(d) ACCEPTANCE. A Purchaser may accept the offer to prepay made
pursuant to this Section 9.6 by causing notice of such
acceptance to be delivered to CanArgo Energy Corporation at
least 15 days prior to the Proposed Payment Date. A failure by
a Purchaser to respond to an offer to prepay made pursuant to
this Section 9.6 shall be deemed to constitute an acceptance
of such offer by such Purchaser.
(e) PREPAYMENT. Prepayment of the Notes to be prepaid pursuant to
this Section 9.6 shall be the Redemption Price of such Notes,
together with interest on such
26
Notes accrued to the date of prepayment. The prepayment shall
be made on the Proposed Prepayment Date.
(f) OFFICER'S CERTIFICATE. Each offer to prepay the Notes pursuant
to this Section 9.6 shall be accompanied by a certificate,
executed by a Senior Financial Officer of CanArgo Energy
Corporation and dated the date of such offer, specifying: (i)
the Proposed Prepayment Date; (ii) that such offer is made
pursuant to this Section 9.6; (iii) the principal amount of
each Note offered to be prepaid; (iv) the interest that would
be due on each Note offered to be prepaid, accrued to the
Proposed Prepayment Date; (v) that the conditions of this
Section 9.6 have been fulfilled; and (vi) in reasonable
detail, the nature and date or proposed date of the Change of
Control.
(g) EFFECT ON REQUIRED PAYMENTS. The amount of each payment of the
principal of the Notes made pursuant to this Section 9.6 shall
be applied against and reduce each of the then remaining
principal payments due pursuant to Section 9.6 by a percentage
equal to the aggregate principal amount of the Notes so paid
divided by the aggregate principal amount of the Notes
outstanding immediately prior to such payment.
(h) "CHANGE IN CONTROL" DEFINED. "Change in Control" means (a)
CanArgo Energy Corporation shall at any time cease to be a
publicly held company or cease to have its capital stock
traded on an exchange; or (b) a transaction or series of
related transactions pursuant to which: (i) at least fifty-one
percent (51%) of the outstanding shares of Common Stock of
CanArgo Energy Corporation or, on a fully diluted basis, shall
subsequent to the date of the Note Purchase Agreement be owned
by any Person (as hereinafter defined) which is not related to
or Affiliated with CanArgo Energy Corporation; (ii) CanArgo
Energy Corporation merges into or with, consolidates with or
effects any plan of share exchange or other combination with
any Person which is not related to or Affiliated with CanArgo
Energy Corporation, or (iii) CanArgo Energy Corporation
disposes of all or substantially all of its assets other than
in the ordinary course of business.
(i) "CONTROL EVENT" DEFINED. "Control Event" means:
(i) the execution of any CanArgo Group Member of any
agreement or letter of intent with respect to any
proposed transaction or event or series of
transactions or events which, individually or in the
aggregate, may reasonably be expected to result in a
Change in Control, or
(ii) the execution of any written agreement which, when
fully performed by the parties thereto, would result
in a Change in Control.
SECTION 10.11 TERMINATION OF CORNELL FACILITIES.
Within ten Business days after the Closing, CanArgo Energy Corporation
shall deliver to Purchasers: (a) reasonably satisfactory evidence of
the payment of all CanArgo Energy Corporation's obligations under the
Cornell Facility and any other agreements relating to or arising out of
the Cornell Facility by the payment of the
27
Cornell Facility in full and in cash with the proceeds from the
issuance of the Notes; and (b) a copy of the notice of termination
delivered under the Cornell Facility.
SECTION 11.2 MERGER, CONSOLIDATION, ETC.
CanArgo Energy Corporation will not, and will not permit any other
CanArgo Group Member to, consolidate with or merge with any other
corporation or convey, transfer or lease substantially all of its
assets in a single transaction or series of transactions to any Person
(except that a Material Subsidiary of CanArgo Energy Corporation may:
(x) consolidate with or merge with, or convey, transfer or lease
substantially all of its assets in a single transaction or series of
transactions to, another Material Subsidiary or CanArgo Energy
Corporation; and (y) convey, transfer or lease all of its assets in
compliance with the provisions of Section 11.8 provided immediately
after giving effect to such transaction, no Default or Event of Default
shall have occurred and be continuing).
SECTION 11.3 LIENS.
CanArgo Energy Corporation will not, and will not permit any other
CanArgo Group Member to, directly or indirectly create, incur, assume
or permit to exist (upon the happening of a contingency or otherwise)
any Lien on or with respect to any property or asset (including,
without limitation, any document or instrument in respect of goods or
accounts receivable) of CanArgo Energy Corporation or any such other
CanArgo Group Member, whether now owned or held or hereafter acquired,
or any income or profits therefrom, or assign or otherwise convey any
right to receive income or profits, except:
(a) Liens for taxes, assessments or other governmental charges or
levies the payment of which is not at the time required by
Section 10.4;
(b) statutory Liens of landlords, Governmental Authorities and
Liens of carriers, operators, vendors, equipment lessors,
warehousemen, mechanics, repairmen, suppliers, workers,
construction materialmen and other similar Liens and other
like Liens incident of the exploration, development, operation
and maintenance of oil and gas properties, in each case,
incurred in the ordinary course of business for sums not yet
due or the payment of which is not at the time required by
Section 10.4;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business: (i) in
connection with workers' compensation, unemployment insurance
and other types of social security or retirement benefits, or
(ii) to secure (or to obtain letters of credit that secure)
the performance of tenders, statutory obligations, surety
bonds, appeal bonds, bids, trade contracts, leases (other than
Capital Leases), government contracts, performance bonds,
purchase construction or sales contracts, regulatory
obligations and other similar obligations, in each case not
incurred or made in connection with the borrowing of money,
the obtaining of advances or credit or the payment of the
deferred purchase price of the property;
(d) any attachment or judgment Lien, not giving rise to an Event
of Default;
28
(e) leases or subleases granted to others, easements,
reservations, servitudes, permits, conditions, covenants,
exceptions, rights-of-way, restrictions and other similar
charges or encumbrances, in each case incidental to, and not
interfering with, the ordinary conduct of the business of
CanArgo Energy Corporation or any of its Subsidiaries,
provided that such Liens do not, in the aggregate, materially
detract from value of such property;
(f) any Lien created to secure all or any part of the purchase
price, or to secure Indebtedness incurred or assumed to pay
all or any part of the purchase price or cost of construction,
of property (or any improvement thereon) acquired or
constructed by CanArgo Energy Corporation or any other CanArgo
Group Member after the date of the Closing, provided that:
(i) any such Lien shall extend solely to the item or
items of such property (or improvement thereon) so
acquired, leased or constructed and, if required by
the terms of the instrument originally creating such
Lien, other property (or improvement thereon) which
is an improvement to or is acquired for specific use
in connection with such acquired, leased or
constructed property (or improvement thereon) or
which is real property being improved by such
acquired, leased or constructed property (or
improvement thereon),
(ii) the principal amount of the Indebtedness secured by
any such Lien shall at no time exceed an amount equal
to 80% (but 100% in the case of property (or
improvement thereon) the acquisition of which is
financed through a Capital Lease Obligation) of the
lesser of: (A) the cost to CanArgo Energy Corporation
or such other CanArgo Group Member of the property
(or improvement thereon) so acquired or constructed;
and (B) the Fair Market Value (as determined in good
faith by the board of directors of CanArgo Energy
Corporation) of such property (or improvement
thereon) at the time of such acquisition or
construction,
(iii) any such Lien shall be created contemporaneously
with, or within 180 days after, the acquisition,
lease or construction of such property;
(g) Liens securing Indebtedness arising under the Loan Documents;
(h) contractual Liens which arise in the ordinary course of
business under and pursuant to the terms of the Basic
Documents or other concessions agreements, production sharing
agreements and contracts; joint venture, exploration, limited
or general partnership, dry hole, bottom hole, acreage
contribution, purchase and acquisition agreements;
exploration, production and development licenses; operating
agreements; drilling agreements; oil and gas leases; farm-out
and farm-in agreements; division orders; contracts for the
sale, transportation or exchange of oil and natural gas;
unitization and pooling declarations and agreements; area of
mutual interest agreements; overriding and net profits royalty
agreements; marketing agreements; processing agreements;
development agreements; gas balancing or deferred production
agreements; injection, repressuring and recycling agreements;
salt water or other disposal agreements; seismic or other
geophysical permits or
29
agreements, and other agreements which are usual and customary
in the oil and gas business and are for claims which are not
delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been
maintained in accordance with applicable GAAP, provided that
any such Lien referred to in this clause does not materially
impair the use of the property covered by such Lien for the
purposes for which such property is held by CanArgo Energy
Corporation or any other CanArgo Group Member or materially
impair the value of such property subject thereto;
(i) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or
similar rights and remedies and burdening only deposit
accounts or other funds maintained with a creditor depository
institution, provided that no such deposit account is a
dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of
those set forth by regulations promulgated by the Board of
Governors of the Federal Reserve System of the United States
of America (or any successor Governmental Authority) or other
Governmental Authority and no such deposit account is intended
by CanArgo Energy Corporation or any other CanArgo Group
Member to provide collateral to the depository institution,
except in each such case in connection with letter of credit
obligations issued pursuant to or in connection with any Basic
Documents or other agreements referred to in clause (h);
(j) Other Liens not described in clauses (a) to (i) of this
Section on the property of CanArgo Energy Corporation or any
Subsidiary in an aggregate amount at any time not exceeding
US$100,000; and
(k) Permitted Encumbrances
SECTION 11.4 PRIORITY
CanArgo Energy Corporation shall not, without the consent of the
Required Holders issue any Indebtedness with priority over, or pari
passu with, the Notes.
SECTION 11.6 RESTRICTED PAYMENTS.
CanArgo Energy Corporation will not make any Restricted Payments,
except: (a) CanArgo Energy Corporation may declare and pay (i)
dividends with respect to its Equity Interests payable solely in
additional shares of its Equity Interests or Indebtedness and (ii)
interest and principal on Indebtedness owed by CanArgo Energy
Corporation to another CanArgo Group Member in either case which does
not contravene the provisions of the Note Purchase Agreement, and (b)
CanArgo Energy Corporation may make distributions pursuant to and in
accordance with stock incentive plans or other Plans for management or
employees of CanArgo Energy Corporation and its Subsidiaries.
SECTION 11.7 SALE-AND-LEASEBACKS.
CanArgo Energy Corporation will not, and will not permit any of its
Subsidiaries to, enter into any Sale-and-Leaseback Transaction.
30
SECTION 11.8 SALE OF ASSETS, ETC.
(1) SALE OF ASSETS ETC. CanArgo Energy Corporation will not, and
will not permit any other CanArgo Group Members to, make any
Transfer, provided that the foregoing restriction does not
apply to a Transfer if:
(a) the property that is the subject of such Transfer
constitutes either: (i) inventory held for sale
(including the sale of Hydrocarbons in the ordinary
course of business, including, without limitation,
pursuant to advance sale contracts, forward contracts
and production payments), (ii) abandonments,
assignments, leases, subleases or farm-outs of oil
and gas properties or dispositions of properties
pursuant to operating agreements or other forms of
exploration and development agreements or option
agreements; or (iii) property, equipment, fixtures,
supplies or materials no longer required in the
operation of the business of CanArgo Energy
Corporation or such Subsidiary or that is redundant,
condemned, obsolete, and, in the case of any Transfer
described in clauses (i) through (iii), such Transfer
is in the ordinary course of business (an "Ordinary
Course Transfer"); or
(b) either:
(i) such Transfer is from a CanArgo Group Member
to CanArgo Energy Corporation; or
(ii) such Transfer is from CanArgo Energy
Corporation to a CanArgo Group Member or
from a CanArgo Group Member to another
CanArgo Group Member and in either case is
for Fair Market Value,
so long as immediately before and immediately after the
consummation of such transaction, and after giving effect
thereto, no Default or Event of Default exists or would exist
(each such Transfer, an "Intergroup Transfer"); or
(c) such Transfer involves oil and gas properties or
interests therein that are exchanged for other oil
and gas properties or interests therein in arms
length transactions or such Transfer is pursuant to a
Permitted Farmout Arrangement.
(2) DISPOSAL OF OWNERSHIP OF A CANARGO GROUP MEMBER. CanArgo
Energy Corporation will not, and will not permit any CanArgo
Group Members to, sell or otherwise dispose of any shares of
Subsidiary Stock, nor will CanArgo Energy Corporation permit
any such CanArgo Group Member to issue, sell or otherwise
dispose of any shares of its own Subsidiary Stock, provided
that the foregoing restrictions do not apply to:
(a) the issue of directors' qualifying shares by any such
Material Subsidiary;
(b) any such Transfer of Material Subsidiary Stock
constituting an Intergroup Transfer;
31
(c) any such Transfer of Material Subsidiary Stock by a
nominee holder as required pursuant to the terms of a
Pledge Agreement;
(d) any issuance of shares of Subsidiary Stock by a
Material Subsidiary that qualifies as a Permitted
Farmout Arrangement; and
(e) the disposition or dissolution of any Subsidiary that
is not a Material Subsidiary; provided that the
proceeds of such disposition or assets of the
Subsidiary are transferred to another CanArgo Group
Member and immediately before and immediately after
the consummation of such transaction, and after
giving effect thereto, no Default or Event of Default
exists or would exist.
SECTION 11.9 FUTURE INDEBTEDNESS.
Without the prior written consent of the Required Holders, which
consent shall not be unreasonably withheld, conditioned or delayed,
CanArgo Energy Corporation will not incur any Indebtedness after the
date of the Note Purchase Agreement other than: (a) Indebtedness
outstanding under the Notes; (b) any additional unsecured Indebtedness,
the aggregate amount outstanding thereunder at any time shall not
exceed US$1,250,000; (c) unsecured Indebtedness of CanArgo Energy
Corporation to another CanArgo Group Member or unsecured Indebtedness
of a CanArgo Group Member or direct or indirect Subsidiary of CanArgo
Energy Corporation to another CanArgo Group Member; and (d)
Indebtedness of a CanArgo Group Member to a direct or indirect
Subsidiary of CanArgo Energy Corporation that is not a Material
Subsidiary, provided that the aggregate amount outstanding thereunder
at any time shall not exceed US$1,000,000. In considering whether to
give its consent to any future Indebtedness, the Required Holders shall
be entitled to take into consideration, inter alia, the potential
effects of any such proposed Indebtedness upon the financial condition
and wherewithal of CanArgo Energy Corporation and/or upon their rights
under the Loan Documents, and any decision by the Required Holders to
withhold their consent to any such proposed future Indebtedness shall
be final and binding absent a showing of manifest bad faith.
SECTION 11.10 BASIC DOCUMENTS.
CanArgo Energy Corporation shall not and shall not permit any other
CanArgo Group Member, without the prior written consent of the Required
Holders to (i) cancel or terminate any Basic Agreement to which CanArgo
Energy Corporation or other CanArgo Group Members are a party or
consent to or accept any cancellation or termination thereof prior to
the scheduled expiration thereof; (ii) sell, assign (other than
pursuant to the Security Documents or a Permitted Farmout Arrangement)
or otherwise dispose of (by operation of law or otherwise) any part of
its interest in any Basic Agreements; (iii) waive any default under or
breach of any provision of any Basic Agreement to which CanArgo Energy
Corporation or any of its Subsidiaries are a party, or waive, fail to
enforce, forgive, compromise, settle, adjust or release any Material
right, interest or entitlement, howsoever arising, under, or in respect
thereof; or (iv) amend, supplement, modify or in any way vary in any
respect or agree to any variation of any provision of any Basic
Agreement to which CanArgo Energy Corporation or any other CanArgo
Group Members are a party, or of the performance of any Material
covenant or obligation by any other Person under any Basic
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Agreement except any amendment, supplement, modification or variation
of the Basic Agreements as a result of the transfer by (x) NOC
(Cyprus)'s interest in the Ninotsminda PSC (as defined in Schedule
6.19) to NOC (Jersey) and (y) CNL (Cyprus)'s interest in the Norio PSC
and Tbilisi PSC (both as defined in Schedule 6.19) to CNL (Jersey).
SECTION 11.11 ANTI-TAKEOVER DEFENSE.
(a) Except has hereinafter specifically provided, so long as any
Indebtedness under any of the Notes is outstanding, CanArgo
Energy Corporation shall not enter into or adopt any
anti-takeover defense, "poison pill", shareholder rights plan
or any other device designed to prevent a takeover, hostile or
otherwise, that could encumber, restrict or affect Xxxxxxx &
Xxxxxx LLC, Xxxxxx X Xxxxxx, Xxxxxx X Xxxxxxx, and/or Xxxxxxx
& Xxxxxx Value Partners L.P. to acquire any Equity Interests
of CanArgo Energy Corporation;
(b) Notwithstanding the provisions of Section 11.11(a) to the
contrary provided, CanArgo Energy Corporation may enter into
or adopt an anti-takeover defense, "poison pill", shareholder
rights plan or any other device designed to prevent Xxxxxxx &
Xxxxxx LLC, Xxxxxx X Xxxxxx, Xxxxxx X Xxxxxxx , and/or Xxxxxxx
& Xxxxxx Value Partners LP or other Note holders to acquire
such Equity Interests by means of or in connection with the
direct or indirect forbearance, cancellation or exchange of
all or any part of the Indebtedness evidenced by the Notes;
(c) Notwithstanding the provisions of Section 11.11(a) to the
contrary provided, Xxxxxxx & Xxxxxx 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),
Xxxxxxx & Xxxxxx 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 Xxxxxxx & Xxxxxx
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.
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