The Notes will be convertible in whole or in part into CanArgo common stock at a price of $1.37 per share, subject to certain anti-dilution adjustments, and will mature on September 01, 2009. Subject to the consent of the Senior Noteholders, CanArgo may call the Notes from March 01, 2007 at an initial price of 105% of par, declining 1% every six months. Interest will be payable in cash at 3% per annum until December 31, 2006, 10% per annum thereafter. The Notes will be subordinated to CanArgo's existing issue of Senior Secured Notes and guaranteed on a subordinated basis by CanArgo's material subsidiaries.
The Warrants will be exercisable in whole or in part for CanArgo common stock at an exercise price of $1.37 per share, subject to adjustment. The expiration date of the Warrants may be accelerated at CanArgo's option in the event that the Manavi M12 appraisal well in the Republic of Georgia (which is currently being drilled) indicates, by way of an independent engineering report, sustainable production potential, if developed, in excess of 7,500 barrels of oil per day.
CanArgo intends to file a registration statement with the SEC to register the shares underlying the Warrants and the Notes for public resale.
The proceeds are to be used to fund the development of the Kyzyloi Gas Field in the Republic of Kazakhstan and on the commitment exploration programs in Kazakhstan through Tethys Petroleum Investments Limited ("Tethys"), the wholly owned subsidiary of CanArgo which holds CanArgo's Kazakhstan assets.
The Noteholders will have the right (as an alternative) for a period of one year from closing (or until the consent of the Senior Noteholders is obtained), to convert the Notes into up to a 25% equity interest in Tethys. At the time of any Tethys conversion any further advances (in excess of the $13 million) from CanArgo to Tethys may be, at CanArgo's discretion, either repaid, or converted into Tethys equity based on a valuation of $52 million, with the Noteholders having the ability to maintain their equity position by providing further funding on a pro-rata basis.
CanArgo is an independent oil and gas exploration and production company with its oil and gas operations currently located in the Republic of Georgia and in Kazakhstan.
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