Exhibit 10.1
DATED
OCTOBER 14, 2005
(1) BALTIC PETROLEUM
(E&P) LIMITED
and
(2) SIBERIAN ENERGY
GROUP INC.
and
(3) ZAURALNEFTEGAZ
LIMITED
JOINT VENTURE SHAREHOLDERS' AGREEMENT
COVINGTON & BURLING
REGISTERED FOREIGN LAWYERS AND SOLICITORS - LONDON
265 STRAND
LONDON WC2R 1BH
<PAGE>
TABLE OF CONTENTS
CLAUSE
PAGE
1. INTERPRETATION
1
2. CONDITIONS
AND COMPLETION
5
3.
ESTABLISHMENT OF THE COMPANY
6
4. CONDUCT
PRIOR TO COMPLETION
8
5. WARRANTIES
AND INDEMNITIES
9
6. THE
BUSINESS OF THE COMPANY
12
7. DIRECTORS
AND MANAGEMENT
13
8. RESERVED
MATTERS
15
9. BUDGETS
AND FINANCIAL INFORMATION
17
10. DISTRIBUTION
POLICY AND MANAGEMENT FEES
17
11. FINANCE FOR THE
COMPANY
18
12. TRANSFERS OF
SHARES
19
13. DEADLOCK
22
14. DEFAULT
25
15. DETERMINATION OF
FAIR VALUE
28
16. TERMS AND
CONSEQUENCES OF TRANSFERS OF SHARES
29
17. ENFORCEMENT OF
RIGHTS
32
18. COMPETITION WITH
THE BUSINESS
32
19. PUBLIC
ANNOUNCEMENTS
35
20. INFORMATION,
INSURANCE, RECORDS, LICENCES
35
21. CONSORTIUM TAX
RELIEF
36
22. DURATION AND
TERMINATION
36
23. CONFIDENTIALITY
37
24. NOTICES
38
25. WHOLE AGREEMENT
AND REMEDIES
39
<PAGE>
26. GENERAL
39
27. CONTRACTS
(RIGHTS OF THIRD PARTIES) ACT 1999
42
28. GOVERNING LAW
AND SUBMISSION TO JURISDICTION
42
29. AUTHORITY TO
DELIVER
42
SCHEDULE 1
44
AGREED TERMS DOCUMENTS
44
SCHEDULE 2
45
DEED OF ADHERENCE
45
SCHEDULE 3
46
WARRANTIES
46
SCHEDULE 4
57
DISCLOSURE SCHEDULE
57
SCHEDULE 5
58
PARTIES' DETAILS
58
SCHEDULE 6
59
NEW LICENCES
59
<PAGE>
THIS AGREEMENT is made on 14th October 2005
BETWEEN:
(1) BALTIC
PETROLEUM (E&P)
LIMITED, a company incorporated in England under
company number 05303991 and whose registered office is at c/o Gilchrist
Solicitors, 18b Charles Street, London W1J 5DU, United Kingdom ("BP");
(2) SIBERIAN ENERGY
GROUP INC., a corporation incorporated under the laws of
the State of Nevada, United States and whose
principal place of business is at
275 Madison Avenue, 6th Floor, New York, NY 10016,
United States ("SEG"); and
(3) ZAURALNEFTEGAZ
LIMITED, a company registered in England
under company
number 05525360 whose registered office is at c/o Gilchrist Solicitors,
18b
Charles Street, London W1J 5DU, United Kingdom (the "COMPANY").
RECITALS:
(A) Pursuant to the terms of an option agreement between Baltic
Petroleum
Limited
("BALTIC")
and SEG dated 28 April 2005, as amended
(the "OPTION
AGREEMENT"),
Baltic and SEG agreed, inter alia, to establish the Company as
a joint venture company to carry on the Business and to
enter into this
Agreement for
the purposes of regulating their relationship with each other
and the
Company;
(B) The Company was incorporated in England on 2 August 2005 with company
number
05525360 As at the date of this Agreement, it has an
authorised
share
capital of 100 divided
into 100 ordinary shares of 1 each ("ORDINARY
SHARES"
and each an "ORDINARY SHARE"). 2
Ordinary Shares have been issued
at a subscription price of 1 per share.
BP holds 1 Ordinary Share and SEG
holds 1 Ordinary
Share.
(C) SEG is the holder of all of the participatory interests in OOO
Zauralneftegaz,
a Russian limited liability company ("ZNG"). SEG has agreed
to contribute all of such participatory interests in ZNG (the "ZNG
INTERESTS")
to the Company as consideration for the subscription for
further
Ordinary Shares on the terms and conditions
of this Agreement. BP
has agreed to procure the provision of
certain loans to the Company and to
subscribe
for further Ordinary Shares in
consideration for the payment of
$75,000, in each
case on the terms and conditions of this Agreement.
IT IS AGREED as follows:
1. INTERPRETATION
In this
Agreement (including the Recitals):
1.1 DEFINITIONS
"ACT" means the
Companies Act 1985 as amended;
"A DIRECTOR" means a director appointed by the A Shareholder in
accordance
with the Articles and "A DIRECTORS" shall be construed
accordingly;
<PAGE>
"AGREED TERMS" means those documents in the
terms agreed between the parties and
signed for identification by or on behalf
of the parties, a list of which is set
out in Schedule 1;
"AREA" means the Western Siberian region of the Russian Federation and
the
Former Soviet Union;
"ARTICLES" means the proposed new articles of
association of the Company in the
agreed terms;
"A SHAREHOLDER" means the registered holder(s) of the A Shares;
"A SHARES" means the Ordinary Shares designated as
A Shares in the capital of
the Company;
"ASSOCIATE" shall be as defined in Section 52 of the Companies Act 1989;
"ASSOCIATED COMPANY" means, in relation to a Shareholder (that is a body
corporate), any holding company of which the Shareholder
is a subsidiary or a
subsidiary of the Shareholder or of any
holding company of which the Shareholder
is a subsidiary;
"AUDITED ACCOUNTS" means the report and audited
accounts of the Company and of
each Group Company and the audited consolidated
accounts of the Group for the
financial period ending on the relevant balance sheet date;
"AUDITORS" means such firm of Chartered
Accountants appointed as auditors of the
Company pursuant to the terms of this Agreement from time to time;
"B DIRECTOR" means a director
appointed by the B Shareholder in accordance with
the Articles and "B DIRECTORS" shall be construed accordingly;
"B SHAREHOLDER" means the registered holder(s) of the B Shares;
"B SHARES" means the Ordinary Shares designated as
B Shares in the capital of
the Company;
"LEND CO" means Caspian Finance Limited, a
wholly-owned subsidiary of BP,
incorporated in England under company
number 05530897;
"BOARD" means the board of directors of the Company;
"BUDGET" means the budget for the Group in the agreed terms,
as updated from
time to time in accordance with Clause 9.2;
"BUSINESS" means the business of exploration for, and
development, production
and sale of, oil and gas assets in the Area, together with
associated and
ancillary activities;
"BUSINESS DAY" means a day which is not a
Saturday or Sunday or a bank or public
holiday in England and Wales or New York, New York, United States;
<PAGE>
"BUSINESS PLAN" means the business plan for the Group in
the agreed terms, as
amended by agreement between the parties, prepared
annually in respect of the
forthcoming one year period setting out details of the Group's strategic
planning in respect of, inter alia,
exploration, development and production of
oil and gas, customers, capital expenditure, financing,
tax, competitors and
contingency planning;
"CEO" means the chief executive officer of the Company from time to time;
"CHAIRMAN" means the chairman of the Board from time to time;
"COMPLETION" means the performance by the
parties of the obligations assumed by
them respectively pursuant to Clause 3;
"COMPLETION DATE" means the date on which Completion takes
place pursuant to
Clause 2.5;
"CONTROL" means, in relation to a
Shareholder, where a person (or persons acting
in concert) acquires or agrees to acquire
or has options over direct or indirect
control (1) of the affairs of that Shareholder, or
(2) over more than 50 per
cent. of the total voting rights conferred by all the issued shares
in the
capital of that Shareholder which are
ordinarily exercisable in general meeting
or (3) of the composition of the main
board of directors of a Shareholder. For
these purposes "PERSONS ACTING IN CONCERT", in relation to
a Shareholder, are
persons which actively co-operate through the
acquisition by them of shares in
that Shareholder, pursuant to an agreement or
understanding (whether formal or
informal) with a view to obtaining or
consolidating Control of that Shareholder;
"DEED OF ADHERENCE" means a deed in the form set out in Schedule 2;
"DIRECTORS" means the A Directors and the B
Directors, and "DIRECTOR" means any
one of them;
"ENCUMBRANCE" means and includes any interest or equity of any person
(including, without limitation, any right to acquire, option, right of
pre-emption or right of conversion) or any mortgage, charge, pledge,
lien,
assignment or any other encumbrance, priority or security interest or
arrangement of whatever nature over or in the relevant property;
"EXISTING SECURITY" means the security interest over
the ZNG Interests granted
by SEG in favour over Baltic pursuant to
the pledge and security agreement dated
28 April 2005;
"FAIR VALUE" means the value of the
Shares calculated in accordance with Clause
15;
"GROUP" means the Company and its
subsidiaries and "GROUP COMPANY" means any one
of them;
"GUARANTEE" means the guarantee to be given by the
Company in respect of ZNG's
obligations under the Loans in the agreed terms;
"LOAN AGREEMENT" means the agreement to
be entered into between Lend Co and ZNG
pursuant to which Lend Co shall make the Loans to ZNG;
<PAGE>
"LOAN PERIOD" means the period commencing
on the date hereof and ending when all
amounts under the Loan Agreement and under the loans to be made
pursuant to
Clause 11.1.2 (including interest and costs) have been repaid in full;
"LOANS" means the loans to be made by Lend Co to
ZNG under the Loan Agreement;
"OPTION AGREEMENT" shall be as defined in the Recitals;
"ORDINARY SHARES" shall be as defined in the Recitals;
"PERMITTED CONDITION" means a bona fide consent, clearance, approval or
permission necessary to enable the relevant person to be able to
complete a
transfer of Shares under (1) its constitutional documents (2) the
rules or
regulations of any stock exchange on which
it or its parent company is quoted or
(3) any governmental, statutory or
regulatory body in those jurisdictions where
that person carries on business;
"SECURITY DOCUMENTS" means the debenture and the pledge
over the ZNG Interests
to be granted by the Company in the agreed terms;
"SHAREHOLDERS" means the A Shareholder and the B Shareholder;
"SHARES" means the A Shares and the B Shares and (1) any shares issued
in
exchange for those shares or by way of conversion or
reclassification and (2)
any shares representing or deriving from
those shares as a result of an increase
in, reorganisation or variation of the capital of the Company;
"US$" means United States Dollars;
"WARRANTIES" means the warranties,
representations and undertakings to be given
by SEG and BP under Clause 5, and "WARRANTY"
shall be construed accordingly;
"ZNG" shall be as defined in the Recitals;
"ZNG INTERESTS" shall be as defined in the Recitals; and
"ZNG WARRANTIES" means the Warranties given
by SEG in relation to ZNG as set out
in Section A of Part I of Schedule 3.
1.2 The Interpretation Act 1978 shall apply to this Agreement in the same
way as it
applies to an enactment.
1.3 References to a statutory provision include any subordinate
legislation made
from time to time under that provision.
1.4 References to a statute or statutory provision include that
statute or
provision
as from time to time modified or re-enacted or
consolidated
whether
before or after the date of this Agreement so far as such
modification
or re-enactment or consolidation applies or is capable of
applying to any
transactions entered into in accordance with this Agreement
and (so far as liability thereunder may
exist or can arise) shall include
also
any past statutory provision (as from time to time modified or
re-enacted or
consolidated) which such provision has directly or indirectly
replaced.
<PAGE>
1.5 The expressions "holding company" and "subsidiary" shall have the
same
meanings in this
Agreement as their respective definitions in the Act.
1.6 References to this Agreement include any Recitals and Schedules to it
and this Agreement as from time to time
amended and references to Clauses
and Schedules
are to Clauses of and Schedules to this Agreement.
1.7 Headings shall be ignored in
construing this Agreement.
1.8 Any provision of this Agreement which is expressed to bind more than
one person shall, save where inconsistent with the context, bind them
jointly and each
of them severally.
1.9 References to time of day are to London, United Kingdom time unless
otherwise
stated.
1.10 References to the winding-up of a person include the amalgamation,
reconstruction,
reorganisation,
administration,
dissolution, liquidation,
merger
or consolidation of such person and any equivalent or
analogous
procedure
under the law of any jurisdiction in which that person is
incorporated,
domiciled or resident or carries on business or has assets.
1.11 Any reference to books, records or other information means books,
records
or other information in any form including
paper, electronically
stored data, magnetic media, film
and microfilm.
1.12 Any reference to any English legal term or concept (including for
any
action,
remedy, method of judicial proceeding, document, legal
status,
statute,
court, official governmental authority or agency) shall, in
respect
of any jurisdiction
other than England, be interpreted to mean the
nearest
and most appropriate analogous term to the English term in
the
legal
language in that jurisdiction as the
context reasonably requires so
as to produce as nearly as possible the same effect
in relation to that
jurisdiction as
would be the case in relation to England.
2. CONDITIONS AND COMPLETION
2.1 CONDITIONS PRECEDENT
Completion
of this Agreement is conditional on satisfaction or waiver
by BP of the
following conditions:
2.1.1 completion
of the transfer by SEG to the Company of the ZNG
Interests in
accordance
with the terms of the sale and purchase
agreement relating to the ZNG Interests between SEG and the Company
of
even date herewith, as evidenced by filing an original notification
of
such transfer
with ZNG and delivery of a notarised copy of such
notification to
BP;
2.1.2 adoption
by ZNG of the amended Charter in the agreed terms and
registration of
the same with the appropriate Russian corporate
authorities to the full satisfaction of BP and its legal counsel;
and
<PAGE>
2.1.3 SEG
shall have demonstrated to BP to its absolute satisfaction,
which shall
include providing appropriate documentary
evidence, its
full and unfettered title to the ZNG Interests.
2.2 RESPONSIBILITY OF THE PARTIES
SEG undertakes to procure that the conditions in Clause 2.1 are
satisfied
by 31 October 2005. SEG shall procure
that the Company acquires
good
title to the ZNG Interests, free from any
Encumbrance (save for the
Existing
Security which shall
be released at Completion in accordance with
Clause 3.2.8
below).
2.3 NON-SATISFACTION
SEG shall promptly give notice to BP of the satisfaction of the
conditions above
within two Business Days of becoming aware of the same. If
any of the conditions in Clause 2.1 are
not satisfied or waived by BP (in
its absolute discretion) on or before
30 November 2005 (or such later date
as BP may
determine) this Agreement shall lapse and no party shall have
any
claim
against any other in
respect of this Agreement, except for any prior
breach
of the terms of this Agreement and except for Clauses 2.4
(Liquidated
Damages) 5.11 (Indemnification), 24 (Notices) and 28 (Governing
Law and Submission to Jurisdiction), which
shall remain in full force and
effect.
2.4 LIQUIDATED DAMAGES
In the event the Agreement terminates in accordance with
Clause 2.3 or
is rescinded
pursuant to Clause 3.3.3 in circumstances where SEG has failed
to satisfy its obligations under Clause 3.2, SEG shall pay to BP the
following
sums:
2.4.1
US$500,000 on 31
December 2005; and
2.4.2
US$500,000 on 30
April 2006.
SEG acknowledges that the above sums consist of liquidated damages
that
represent a genuine pre-estimate of the loss
(including its costs,
expenses
and loss of profit) that would be suffered by
BP if Completion
does not occur
due to SEG's failure to satisfy the conditions in Clause 2.1
or its obligations under Clause 3.2
and are fair and reasonable in all the
circumstances.
SEG waives any right which it may have to challenge
the
validity at law
of any obligation to pay the liquidated damages.
2.5 COMPLETION
Completion
shall take place at the registered office of BP two
Business
Days following fulfilment or waiver of
the conditions set out in
Clause
2.1, or at such other place or on such
other date as may be agreed
between the BP
and SEG.
3. ESTABLISHMENT OF THE COMPANY
3.1 WRITTEN RESOLUTIONS OF THE COMPANY
On the Completion Date, BP and SEG shall sign the written
resolutions
of the Company
in the agreed terms for the purposes of:
<PAGE>
3.1.1 adopting
the Articles in substitution for the existing articles
of association of the Company;
3.1.2
re-designating the
issued Ordinary Share in the capital of the
Company registered in
the name of BP as an A Share and re-designating
the issued Ordinary
Share in the capital of the Company registered in
the name of SEG as a B Share;
3.1.3
re-designating the
98 unissued Ordinary Shares in the capital of
the Company as 49 A Shares and 49 B Shares; and
3.1.4
authorising the
Directors to issue and allot 49 A Shares and 49
B Shares to the Shareholders in accordance with this Agreement.
3.2 COMPLETION OBLIGATIONS
Once the
resolutions in Clause 3.1 have been passed:
3.2.1 BP and SEG
shall subscribe for new Ordinary Shares as follows:
(a) BP shall subscribe in cash the sum of $75,000 for 49 A
Shares; and
(b) SEG shall, in consideration for the transfer to the Company
of the ZNG Interests, subscribe for 49 B Shares;
3.2.2 BP
and SEG shall procure that a Board meeting of the Company
is
convened and resolutions in the agreed terms are passed:
(a) approving
the Shareholders' applications for the numbers of
A Shares and B Shares set out above and allotting those Shares;
(b) adopting
31 December as the Company's accounting reference
date;
(c) adopting the
Business Plan and the Budget; and
(d) appointing Coutts
& Co. as its bankers;
3.2.3 the
Company shall allot and issue 49 A Shares to BP and 49 B
Shares to SEG, in each case credited as fully paid, and the
Shareholders shall procure that the names of BP and SEG are entered
in
the Company's
register of members as the respective
holders of such
shares;
3.2.4 BP
shall appoint its first A Directors pursuant to the
Articles
and this Agreement;
3.2.5 SEG
shall appoint its first B Directors pursuant to the
Articles
and this Agreement;
3.2.6 Baltic,
ZNG and Lend Co shall enter into a deed of novation in
the agreed terms in relation to the loan agreement dated 28 April
2005
and immediately
thereafter BP shall
procure that Lend Co shall enter
into the Loan Agreement in accordance with Clause 11.1;
<PAGE>
3.2.7 the
Company shall enter into the Guarantee and Security
Documents in accordance with Clause 11.2;
3.2.8 BP
shall procure that Baltic releases SEG from its obligations
under the guarantee
given by SEG to Baltic dated 28 April 2005 and in
respect of
the Existing Security by executing the releases in
the
agreed terms;
3.2.9 SEG
shall confirm that it has no claims against ZNG by
executing
the letter of acknowledgement in the agreed terms;
3.2.10 SEG
shall provide to the Company the waiver letters in the
agreed terms signed by the shareholders and creditors of SEG;
3.2.11 BP
shall pay to the Company the sum of $75,000 as the
proceeds
for the subscription for Shares referred to at Clause 3.2.1(a);
3.2.12 the
Company shall pay to SEG the sum of $75,000 as
consideration for the transfer to it of the ZNG Interests;
3.2.13 SEG
shall procure that the employment agreements for all staff
of ZNG and those between SEG and Messrs Eret,
Potapov and Zhuravlev
are terminated and provide to BP written evidence of the same;
and
3.2.14 SEG
shall provide to the Company and BP written confirmations
from its 9 largest shareholders in the agreed terms agreeing to
observe the restrictions in Clause 18.1.1.
<PAGE>
3.3 FAILURE TO PERFORM OBLIGATIONS
If any of the requirements under this Clause 3 are not complied with
on the date fixed for Completion the Shareholder not in default may
(without
prejudice to its other
rights and remedies including the right to
claim damages
for the breach):
3.3.1 defer
Completion
to a date not more than 30 days after such
date
(and so that the provisions of this Clause
3 (apart from this Clause
3.3) shall apply to Completion as so deferred);
3.3.2 proceed
to Completion so far as practicable (without prejudice
to its rights under this Agreement);
3.3.3 rescind
this Agreement without liability to the other
Shareholder (otherwise than pursuant to Clause 2.4); or
3.3.4 waive all
or any of the obligations in question of the Shareholder in
default.
4. CONDUCT PRIOR TO COMPLETION
4.1 BP and SEG each undertake to procure that until Completion
the Company
remains a
non-trading dormant company and neither of them shall transfer
or
otherwise
dispose of any interest in or create an
Encumbrance over their
respective
Ordinary Shares.
<PAGE>
4.2 SEG undertakes to regularly consult with BP about the conduct of
ZNG's
business
between the date of this Agreement and Completion and shall
procure
that such business is carried out in
the usual course of business
consistent
with past practice so as to maintain the same as an
on-going
concern
and that no transaction outside the usual
course of business is
carried out
without the prior written consent of the BP. In particular, SEG
shall
procure that until Completion unless with
the prior written consent
of BP:
4.2.1 no
further participatory interests in ZNG will be created or
issued and,
other than as required by Clause 2.1.1, SEG
shall not
transfer or
otherwise dispose of any interest in, or create any
Encumbrance over, the participatory interests in ZNG;
4.2.2 other
than as referred to in Clause 2.1.2, no alteration or
amendment shall
be made to the Charter or the operating,
organisational or constitutional documents of ZNG;
4.2.3 ZNG
shall not make any change in the nature or scope of its
business as
carried on at the date of this Agreement, nor
shall it
deal in any way with
its existing oil and gas exploration licenses or
the proposed new oil and gas exploration licences detailed in
Schedule
6 (including
(without limitation) any amendment to the terms of,
nature or scope of such licenses or the work
programmes attached to
them);
4.2.4 ZNG
shall not enter into any transaction, contract or
arrangement that
is not in the normal or ordinary course of its
business as
carried on at the date hereof nor enter into any
transaction which
is not on arm's length terms nor effect any
acquisitions or disposals of any material assets;
4.2.5 ZNG
shall not borrow any money or incur any material
indebtedness;
4.2.6 ZNG
shall not appoint or terminate, or alter the terms of
employment of, any employees or personnel in a managerial
capacity;
4.2.7 ZNG shall
not create any Encumbrance over any of its assets;
4.2.8 ZNG
shall not institute or settle any legal proceedings nor
take
any steps to wind
itself up or commence any insolvency proceedings in
relation to itself; and
4.2.9 ZNG
shall not declare or pay any dividend, or otherwise
make any
other form of distribution to its members.
5. WARRANTIES AND INDEMNITIES
5.1 SEG WARRANTIES
SEG warrants and represents to, and undertakes with, BP and JV Co in
the terms of
Part I of Schedule 3.
5.2 BP WARRANTIES
<PAGE>
BP warrants and represents to, and undertakes with, SEG in the terms
of Part II of
Schedule 3.
5.3 REPETITION OF WARRANTIES
SEG shall be deemed to warrant, represent and undertake to BP and
the
Company
in the terms of the ZNG Warranties at all
times up to Completion
with
reference to the facts
and circumstances then subsisting (save that a
reference to any
fact, matter, event or circumstance existing, occurring or
having
occurred at or before the date of this Agreement shall also
be
construed
as a reference to its existing,
occurring or having occurred at
or before such time. SEG undertakes (except only as may
be necessary to
give
effect to this Agreement or except with
the prior written consent of
BP) that it will not and will procure that ZNG will not do,
allow or
procure
any act or omission before Completion which would
constitute a
breach
of or would be inconsistent with any
of the Warranties if given at
any time prior
to Completion.
5.4 TERMINATION
SEG shall immediately disclose to BP in writing any of the following
which
may become known to it after the date of this
Agreement and before
Completion:
5.4.1 any
material breach of any of the ZNG Warranties;
5.4.2 anything
occurring which has, or would be likely to have after
Completion, a
material adverse effect on the business of ZNG (as
presently carried on) including, without limitation, any litigation
or
arbitration
proceedings being
instituted or threatened by or against
ZNG.
If any such disclosure shall be made, or if BP otherwise
becomes aware
of any such matter or thing, BP may at any time before
Completion, by
written notice
to SEG, rescind this Agreement. A breach or claim or adverse
effect
shall, for the purposes of this Clause,
be treated as material if,
in the
reasonable opinion of BP, when taken together with any other
breach,
claim
or adverse effect of the nature described in this Clause, such
breach,
claim or adverse
effect causes or is reasonably likely to cause or
would
have caused or would be reasonably likely to have
caused BP, the
Company or ZNG
damage or loss in aggregate in excess of US$20,000.
5.5 DISCLOSURE
The ZNG Warranties are given subject to the matters disclosed in
Schedule
4 (the "DISCLOSURE SCHEDULE"). Save to the extent it
is fully,
fairly and
accurately disclosed in such Schedule, no fact, matter, event
or
circumstance of
which a person seeking to make a claim under the Warranties
(actual,
imputed or constructive) shall prejudice any
such claim made by
such person or
operate to reduce any amount recoverable.
5.6 SEG'S KNOWLEDGE
Where
any statement in the Warranties is qualified by the expression
"to the best of
the knowledge, information and belief of SEG" or "so far as
SEG is aware" or any similar expression, SEG shall be deemed to have
knowledge of anything of
which ZNG has knowledge or anything of which it or
<PAGE>
ZNG would have had knowledge had either of them made due and careful
enquiry
of their respective officers and employees immediately before
giving the
Warranties.
5.7 RELIANCE
The parties acknowledge that each of them is entering into this
Agreement in
reliance on those Warranties which are being given to them.
5.8 EFFECT OF COMPLETION
Subject
to any other terms of this Agreement, the Warranties shall
continue in full
force and effect notwithstanding Completion.
5.9 CONSTRUCTION
Each
of the Warranties shall be construed separately and none of the
Warranties shall
limit or govern the extent, application or construction of
any other of the
Warranties.
5.10 NOTIFICATION
Each
party giving the Warranties agrees to notify in writing the
party/parties
to whom they are being given, as soon as reasonably
practicable
after it becomes aware
of the same, all details of which it is
aware
of any fact or circumstance which
renders or might render untrue or
misleading any
of the Warranties it has given.
5.11 INDEMNIFICATION
Each
of the parties (the "INDEMNIFYING PARTY") undertakes to
indemnify,
and to keep indemnified, each of the other parties (each
an
"INDEMNIFIED
PARTY" and together the "INDEMNIFIED PARTIES") against
all
losses
or liabilities (including, without limitation, any direct or
indirect
consequential losses, loss of profit, loss of reputation,
damages,
claims,
demands, proceedings,
costs, legal and other professional fees and
costs,
penalties and
expenses) which may be suffered or incurred by any of
the Indemnified Parties and which arise directly or indirectly in
connection
with (1) a breach of any of the Warranties given by the
Indemnifying
Party to any of the Indemnified Parties and (2) a
default
under or breach
of any of the terms of this Agreement.
5.12 LIMITATIONS
Except
in the case of case of fraud, dishonesty or wilful
misconduct
or concealment, SEG shall not be
liable for any claim under ZNG Warranties
unless
written notice of such claim giving
reasonable details thereof has
been
given to it by or on
behalf of BP or the Company, as the case may be,
in respect of a claim under paragraph 13 of the ZNG Warranties (Tax
Matters),
on or before the tenth
anniversary of the date of this Agreement
and in respect of any other claim, on
or before the date which is eighteen
months from the
date of this Agreement.
5.13 GROSS-UP
If a payment due from an Indemnifying Party to an Indemnified Party
under Clause
5.11 is subject to tax (whether by way of direct assessment or
withholding
at its source), the Indemnified Party shall be
entitled to
receive
from the Indemnifying Party such amounts as
will ensure that the
<PAGE>
net receipt, after tax, to the
Indemnified Party in respect of the payment
is the same as
it would have been were the payment not subject to tax.
6. THE BUSINESS OF THE COMPANY
6.1 CONDUCT OF THE BUSINESS
The Shareholders agree that their respective rights in the Company
shall be
regulated by this Agreement and the Articles. The Shareholders
and
the Company agree to be bound by and comply with the
provisions of this
Agreement
which relate to them and all provisions
of the Articles will be
enforceable
by the parties between themselves in whatever
capacity. The
Shareholders
shall:
6.1.1 promote
the best interests of the Company;
6.1.2 (so
far as they lawfully can) ensure that the Company performs
and complies with all
of its obligations under this Agreement and the
Articles; and
6.1.3 ensure
that the Business is conducted in accordance with sound
and good business
practice and the highest ethical standards.
6.2 PROMOTION OF THE BUSINESS
6.2.1 Subject
to Clause 8.2.1, the business of the Company shall be
confined to the Business.
6.2.2 The
Shareholders
shall procure that the Company and any Group
Company shall
have complete independence in
operations and that any
expansion, development
or evolution of the Business (whether to be
conducted as part of or in connection with the Company's main
business
or ancillary
to it) will only be effected through the
Company or a
wholly-owned subsidiary. If such consent is obtained, all
Shareholders
shall be entitled to participate in any firm or company formed for
the
purpose of such
expansion, development or evolution pro rata to their
holdings of Shares unless all the Shareholders shall otherwise
agree.
6.2.3 The
Company and any Group Company shall use all reasonable and
proper means
to maintain, improve and extend the Business in
accordance with the Business Plan.
6.3 HEAD OFFICE
The head office of the Company shall be situated in the London,
England.
6.4 OPERATING AGREEMENT
The parties shall procure that prior to production and drilling
of any
oil and gas reserves by ZNG, ZNG shall enter
into an operating agreement
with
BP on terms to be agreed by the Board of the
Company (on behalf of
ZNG) and BP
pursuant to which BP shall be engaged to provide production and
drilling and
related services to ZNG.
<PAGE>
7. DIRECTORS AND MANAGEMENT
7.1 A DIRECTORS
7.1.1 The A
Shareholder may appoint three A Directors.
7.1.2 Simon
Escott and James Pockney are the first A Directors.
7.1.3 Any
A Director may be removed by the A Shareholder in
accordance
with the Articles and in such event the Shareholders
shall procure
that the Company promptly removes the A Director
from his position.
The A Shareholder can appoint another A Director in his place.
7.2 B DIRECTORS
7.2.1 The B
Shareholder may appoint three persons as B Directors.
7.2.2 David
Zaikin and Victor Repin are the first B Directors.
7.2.3 Any
B Director may be removed by the B Shareholder in
accordance
with the Articles and in such event the Shareholders
shall procure
that the Company promptly removes the B Director
from his position.
The B Shareholder can appoint another B Director in his place.
7.2.4 The
B Shareholder shall consult with the A Shareholder prior to
appointing any person
as a B Director for the purposes of determining
whether
such person is a suitable candidate to be a
director of the
Company and
shall take into account the A Shareholder's
reasonable
representations in relation thereto.
7.3 CHAIRMAN AND CEO
7.3.1 The
Chairman of the Board shall be appointed by the Board and
shall initially be David Zaikin. If the Chairman is not present at
any
Board meeting,
the Directors present may appoint any one of their
number to act as Chairman for the purpose of the meeting.
7.3.2 The
CEO shall be appointed by BP. The first CEO shall be Simon
Escott.
7.4 SECRETARY
The Board shall appoint the secretary of the Company. The first
secretary shall
be Mark Gilchrist.
7.5 BOARD MEETINGS
7.5.1 Board
meetings shall be held at least four times a year and at
not more than three monthly intervals. At least ten clear days'
written notice
shall be given to each of the Directors
of all Board
meetings (except
if there are exceptional circumstances or the
majority of both the A
Directors and the B Directors agree to shorter
notice).
7.5.2 Each
notice of meeting shall:
<PAGE>
(a) specify a reasonably detailed
agenda;
(b) be accompanied by
any relevant papers; and
(c) be sent by courier, facsimile transmission or email if sent
to an address outside the United Kingdom.
7.5.3 The
quorum at a Board meeting shall be one A Director and one
B
Director present at the time when the relevant business is
transacted.
If a quorum is not present within half
an hour of the time appointed
for the meeting or ceases to be present, the Director(s) present
shall
adjourn the meeting to
a specified place and time three Business Days
after the original date. Notice of the adjourned meeting shall
be
given by the secretary of the Company.
7.5.4 Board
meetings shall be chaired by the Chairman. If the
Chairman
is absent from any Board meeting, the Directors
present may appoint
any one of their number to act as Chairman for the meeting.
7.5.5 At
any Board meeting every A Director and every B Director
shall
have one vote. If the
number of A Directors or B Directors present is
not equal,
the number of votes exercisable by the A
Directors or B
Directors shall be
increased so that each class of Directors can cast
the same number of votes.
7.5.6 All
business arising at any Board meeting shall be determined
by
resolution passed
by a majority of Directors present. The
Chairman
shall not be entitled to a second or casting vote. The A
Directors
shall at all times together have an additional casting vote.
7.5.7 Any
Director may vote on a matter and be taken into account
for
the purposes of a quorum even if he is interested in that
matter.
7.5.8 The
Shareholders
shall use their reasonable endeavours to
ensure
that at least one Director appointed by them attends Board
meetings.
7.6 SENIOR MANAGEMENT
7.6.1 The
A Shareholder shall at all times be entitled to appoint
persons to the
following positions or roles within the Company or any
Group Company:
(a) subject to Clause
7.6.2, the Finance Controller;
(b) the Reservoir
Engineer;
(c) the Drilling
Supervisor; and
(d) the Logistic and
Procurement Supervisor.
7.6.2 The
A Shareholder shall consult with the B Shareholder prior to
appointing any
person to the position of Finance Controller as
referred to in Clause 7.6.1(a) above.
<PAGE>
8. RESERVED MATTERS
8.1 MATTERS RESERVED TO THE BOARD
The Board shall be responsible for the following matters in so far
as
they relate to
any Group Company:
8.1.1 the
appointment and removal of the Auditors;
8.1.2 any
change to the accounting reference date or accounting
policies;
8.1.3 the
entry into of any joint venture, partnership, consortium
or
other similar arrangement;
8.1.4 the
appointment,
removal and conditions of employment of any
director or
senior executive,
including the General Director of ZNG,
(other than the
appointment or removal of Directors and/or members of
senior management pursuant to Clause 7.6);
8.1.5 the
appointment,
discharge,
remuneration
and conditions of
employment of employees;
8.1.6 without
prejudice to Clause 8.2.10, the adoption of any bonus or
profit-sharing scheme,
any share option or
share incentive scheme or
employee share
trust or share ownership plan or retirement
benefit
scheme for employees;
8.1.7 the
cessation of any business operation;
8.1.8 the
entry into of any
contract or commitment not provided for in the
Budget;
8.1.9 any
material transaction with a Shareholder or any of its
Associated Companies
not in the ordinary course of business or not on
arms' length commercial terms;
8.1.10 the
acquisition
of any assets or property (other than in the
ordinary course of business);
8.1.11 the sale
or disposition of any fixed assets;
8.1.12 making
borrowings
or creating indebtedness in the nature of
borrowings, or
the creation of any
charge or other security over any
assets or property;
8.1.13 subject
to Clause 10, the payment or declaration of any
dividend or other distribution on account of shares in its
capital;
8.1.14 the
commencement
or settlement of any litigation, arbitration
or other proceedings;
8.1.15 the
incorporation
of new subsidiary undertakings or the
acquisition of
any share capital or other securities of any body
corporate;
<PAGE>
8.1.16 the
giving of any guarantee or indemnity other than in the
normal course of its business; and
8.1.17 the
making of any loan or advance to any person, firm, body
corporate or other business.
8.2 SHAREHOLDER RESERVED MATTERS - LIMITATIONS ON THE BOARD
The Shareholders shall procure that no action is taken or resolution
passed
by the Company or any Group Company in respect of
the following
matters
or their nearest equivalent in the case of a Group Company
("SHAREHOLDER
RESERVED MATTERS"),
without the prior written consent of all
of the
Shareholders:
8.2.1 any
material change to the nature of the Business or
geographical area
in which the Business
operates, or carrying on any
business other than the Business;
8.2.2 any change
to its memorandum and Articles;
8.2.3 any change
of name;
8.2.4 the
sale of any Group Company or any consolidation or
amalgamation with any other company;
8.2.5 the
disposal of or dilution of the Company's interests,
directly
or indirectly, in any Group Company;
8.2.6 the
adoption of the Audited Accounts;
8.2.7 any
increase in the Company's authorised or issued share
capital
(except as provided for in Clause 3);
8.2.8 any
reduction in the Company's share capital;
8.2.9 any
reclassification of the Company's share capital;
8.2.10 the
grant of any option or other interest (in the form of
convertible securities
or in any other form) over or in the Company's
share capital;
8.2.11 the
redemption
or purchase of any of the Company's own shares
or any other reorganisation of its share capital; and
8.2.12 any
resolution
for the winding of the Company or presentation
of any petition for its administration (unless it has become
insolvent).
<PAGE>
8.3 RELATED TRANSACTIONS
A series of related transactions shall be construed as a single
transaction,
and any amounts
involved in the related transactions shall be
aggregated, to
determine whether a matter is a Shareholder Reserved Matter.
9. BUDGETS AND FINANCIAL INFORMATION
9.1 INFORMATION TO BE PREPARED
The Company shall prepare and submit to the Board and the
Shareholders
the following information as soon as possible and no later than the
dates/times set
out below:
9.1.1 the
unaudited results of the Company and each Group Company for
the previous financial year within 25 Business Days of the end of
each
financial year;
9.1.2 Audited
Accounts for the previous financial year within three
months of the end of each financial year;
9.1.3 a
draft Business Plan for the Group for the following one year
period two months before the end of each financial year;
9.1.4 a
detailed draft Budget for the Group for the following
financial year
two months before the end of each financial year
(including estimated
major items of revenue and capital expenditure).
The Budget
shall be broken down on a monthly basis,
shall contain a
cash flow forecast and
a balance sheet showing the projected position
of the Group as at the end of the following financial year;
9.1.5 monthly
unaudited management accounts for each Group Company
including (1)
a detailed profit and loss account,
balance sheet and
cash flow statement and cash flow forecast
for the next three months
and (2) a review of the Budget including a
reconciliation of results
with revenue and capital budgets within 20 Business Days after the
end
of each month; and
9.1.6 such
further information as any Shareholder may reasonably
require relating to the Business or financial condition of the
Company
or of any Group Company.
9.2 APPROVAL OF BUDGETS AND BUSINESS PLANS
The Shareholders shall approve the draft Budget and Business Plan
within
30 Business Days of receiving them, subject to
such amendments as
they
agree are appropriate. The Shareholders
shall procure that the Board
shall
review the Budget regularly and may propose changes to the
Shareholders.
The Shareholders shall reply to such proposals within 30
Business Days of
receiving them.
10. DISTRIBUTION POLICY AND MANAGEMENT FEES
10.1 RESTRICTION ON DISTRIBUTION OF NET PROFIT
The Company shall not make any distributions during the Loan Period
and BP and SEG shall ensure that all revenues of the Company
shall be
applied
towards discharging the Loans or any loans
made to the Company by
Lend Co pursuant
to clause 11.1.2.
<PAGE>
10.2 DISTRIBUTION OF NET PROFIT
10.2.1 Subject
to Clause 10.1, the Company shall distribute to the
Shareholders such
percentage as the Board determines of the Company's
profits lawfully
available for distribution in each financial
year,
and the Board shall determine the amount of available
profits that
each Group
Company shall distribute to its shareholders in each
financial year.
All distributions shall be apportioned and paid
proportionately on the Shares.
10.2.2 The
annual general meeting of the Company at which Audited
Accounts are laid
before the Shareholders must be held not later than
three months after the end of the relevant financial year.
10.2.3 The
Auditors shall be instructed to report (at the expense of
the Company)
the amount of the
profits available for distribution by
the Company at the
same time as they sign their report on the Audited
Accounts.
10.3 MANAGEMENT FEES
The Company shall pay to the A Shareholder and the B Shareholder
the
following
monthly fees
(exclusive of VAT, if any) in consideration for the
provision
of the services of the A Directors and the B Directors
respectively:
10.3.1 $35,000
to the A Shareholder; and
10.3.2 $25,000
to the B Shareholder.
The parties shall as soon as reasonably practicable following
Completion agree in good faith such arrangements as are necessary to
minimise
the amount of tax and
VAT to be paid by the parties in respect of
such
fees. In particular, BP and SEG shall
each enter into agreements for
management
services with the Company on terms to be
agreed by the parties
and the parties shall procure that the Company shall enter into an
agreement
for consultancy services with ZNG and
shall register for United
Kingdom VAT.
11. FINANCE FOR THE COMPANY
11.1 THE LOANS
11.1.1 BP
shall procure that Lend Co shall enter into the Loan
Agreement at Completion for the purposes of making the Loans to
ZNG.
11.1.2 BP
shall procure that Lend Co shall provide loans to the
Company, on terms to
be agreed between Lend Co and the Company (which
shall be on terms similar to the terms on
which the Loans are to be
made to ZNG under the Loan Agreement) to enable it to pay the
management fees
referred to in Clause
10.3 above (including any VAT)
until such
time that the Company has sufficient revenue from
distributions made by ZNG to fund such fees.
<PAGE>
11.2 SECURITY
The Company shall on Completion enter into the Guarantee for the
purposes
of guaranteeing and providing security in respect of the
obligations
of ZNG to Lend Co in respect of the Loans and the
Security
Documents for
the purposes of securing its obligations to Lend Co under the
Guarantee, the
loans to be made under Clause 11.1.2 and otherwise.
11.3 DRAW DOWNS
The Board's prior approval shall be required for any draw downs to
be
made by ZNG
under the Loans.
11.4 FURTHER FUNDING
Other
than the Loans and the loans to be made under Clause 11.1.2,
neither
Shareholder
shall be obliged to contribute further funds or
participate
in any guarantee or similar undertaking for the Group's
benefit.
Notwithstanding the foregoing, on completion of the Work
Programme
(as such term in
defined in the Loan Agreement) to the satisfaction of Lend
Co, the parties shall consult with each other whether further
amounts
should
be advanced to ZNG under the Loan
Agreement, provided that neither
BP nor Lend Co shall be under any obligation to provide such
further
funding.
12. TRANSFERS OF SHARES
12.1 GENERAL PROHIBITION AGAINST SHARE TRANSFERS
No Shareholder can do, or agree to do, any of the following without
the prior written consent of the other
Shareholder unless it is permitted
by this Clause
or Clause 13:
12.1.1 create
any Encumbrance over any of its Shares;
12.1.2 sell,
transfer or otherwise dispose of, or grant any option
over, any of its Shares or any interest in its Shares; or
12.1.3 enter
into any agreement in respect of the votes attached to
any of its Shares.
12.2 TRANSFERS TO ASSOCIATED COMPANIES
12.2.1 Any
Shareholder
may transfer all of its Shares to an Associated
Company on
giving prior written notice to the other
Shareholder. An
Associated Company
must be under an obligation to re-transfer
its
Shares to the Shareholder or another Associated Company of that
Shareholder immediately if it ceases to be an Associated
Company.
12.2.2 Following
a transfer of Shares to an Associated Company, the
original transferring
Shareholder (but not a subsequent transferor in
a series of transfers to Associated
Companies) shall remain party to
this Agreement
and shall be jointly and severally liable with
the
transferee under
this Agreement as a Shareholder in respect of
the
transferred Shares.
<PAGE>
12.3 RESTRICTIONS DURING LOAN PERIOD
12.3.1 Shares
may not during the Loan Period be transferred by the B
Shareholder to any third party other than an Associated
Company.
12.3.2 The
A Shareholder shall not be prevented from creating an
Encumbrance over the A Shares during the Loan Period.
12.4 THIRD PARTY OFFERS
Subject
to Clause 12.3, a Shareholder may transfer its Shares to a
third party only
if it receives an offer (the "OFFER"):
12.4.1 which is
a bona fide Offer in writing;
12.4.2 from
a third party which has its own financial resources to
meet its obligations under the Offer or has an unconditional and
legally binding commitment from a lender(s) for that finance;
12.4.3 which
is irrevocable and unconditional (except for any
Permitted
Condition);
12.4.4 which is
governed by English law;
12.4.5 which
is for cash consideration in US$ only and which is for
all of the Shares of the selling Shareholder; and
12.4.6 which
contains all material terms and conditions (including the
price and the intended completion date of the Offer).
12.5 NOTICE OF OFFERS
If a Shareholder receives an Offer which it wishes to accept, it
must
immediately
give written notice (the "TRANSFER NOTICE") to the other
Shareholder
(the "REMAINING SHAREHOLDER") offering to sell those Shares
which
are the subject of the Offer to the other
Shareholder at the same
cash
price as set out in the Offer or for a
price per Share equal to its
Fair
Value, whichever is the lower, and on terms which are no less
favourable than
those contained in the Offer. The Transfer Notice must also
state:
12.5.1 the
period within which the offer to sell the Shares to the
Remaining Shareholder
shall remain open to be accepted. This
period
must be at least 24 Business Days from the date of the Transfer
Notice
(the "ACCEPTANCE PERIOD"); and
12.5.2 full
details of all other terms and conditions of the Offer.
12.6 OPTIONS OF REMAINING SHAREHOLDER
Once
the Remaining Shareholder has received a Transfer Notice it may
either:
12.6.1 send
a written notice to the selling Shareholder (an
"ACCEPTANCE NOTICE")
within the Acceptance Period accepting the offer
set out in the Transfer Notice;
<PAGE>
12.6.2 send
a written notice to the selling Shareholder within the
Acceptance Period
declining the offer set out in the Transfer Notice;
or
12.6.3 neither
send an Acceptance Notice nor reply to the Transfer
Notice within
the Acceptance Period. In this case, the Remaining
Shareholder shall be
deemed not to have accepted the offer set out in
the Transfer Notice.
12.7 CONSEQUENCES OF TRANSFER NOTICE
12.7.1 If
the offer set out in the Transfer Notice is accepted, the
selling Shareholder must sell its Shares to the Remaining
Shareholder.
12.7.2 If
the offer set out in the Transfer Notice is not
accepted or
not deemed
to have been accepted,
the selling Shareholder may accept
the Offer and sell its Shares to the third
party making the Offer on
the terms and conditions of the Offer.
12.8 COMPLETION OF TRANSFER
The sale of the Shares in accordance with this Clause
shall be made on
the following
terms:
12.8.1 if
any of the Permitted Conditions to the Acceptance Notice or
the Offer is not satisfied or waived 60 Business Days (or, in the
case
of a regulatory approval, 120 Business Days) after service of
the
Acceptance Notice or acceptance of the Offer, then that Notice or
that
Offer, as appropriate, shall lapse. Otherwise, completion of the
transfer of
the Shares shall be completed seven
Business Days after
the date of expiry of the Acceptance Period or the date of
satisfaction or
waiver of all
Permitted Conditions (whichever is the
later) (the "TRANSFER
DATE") and at such reasonable time and place as
the Shareholders agree
or, failing which, at the registered office of
the Company;
12.8.2 the
selling Shareholder must deliver to the buyer in respect of
the Shares which it is selling on or before the Transfer Date:
(a) duly executed
share transfer forms;
(b) the relevant share
certificates; and
(c) a power of attorney in such form and in favour of such
person as the buyer
may nominate to enable the buyer to exercise
all rights
of ownership in respect of the Shares to be sold
including voting rights;
12.8.3 the
buyer must pay the total consideration due for the Shares
to the selling Shareholder by telegraphic transfer to the bank
account
of the selling Shareholder notified to it for the purpose on the
Transfer Date;
12.8.4
completion of
the sale of the Shares of all selling
Shareholders must take place simultaneously; and
12.8.5 in
accordance with Clause 16.
<PAGE>
12.9 FAILURE TO COMPLETE SALE
12.9.1 If
the selling Shareholder fails or refuses to comply with its
obligations in
this Clause, the Company may authorise a person
to
execute and deliver
the necessary transfer on its behalf. The Company
may receive
the purchase money in trust for the
selling Shareholder
and cause the buyer to be registered as the holder of the Shares
being
sold. The receipt of the Company for the purchase money
shall be a
good discharge
to the buyer (who shall not be bound to see to
the
application of
those moneys). After
the buyer has been registered as
holder of the Shares
being sold in purported exercise of these powers
the validity of the proceedings shall not be questioned by any
person.
12.9.2 If
any selling Shareholder fails or refuses to transfer any
Shares in accordance with this Clause the buyer, or where the buyer
is
not a party, the Company on its behalf and acting on its
instructions,
may serve a default
notice. Within five Business Days of service of a
default notice
(unless such non-compliance has previously been
remedied to the
reasonable satisfaction of the buyer), the defaulting
selling Shareholder
shall not exercise any of its powers or rights in
relation to
management
of, and participation
in the profits of, the
Company under this Agreement, the Articles or otherwise. The
Directors
appointed by the defaulting seller (or its predecessor in title)
shall
not:
(a) be entitled to
vote at any Board meeting;
(b) be required to attend any meeting of Directors in order to
constitute a quorum; or
(c) be entitled to receive or request any information from the
Company.
12.9.3 If
the third party making the Offer fails to purchase the
Shares in accordance
with the Offer, the Shareholders shall endeavour
to find another third party to purchase their Shares.
12.10 GENERAL
12.10.1 The
Shareholders
shall keep the Company informed, at all
times, of the issue and contents of any notice served pursuant to
this
Clause and any election or acceptance relating to those
notices.
12.10.2 The
Shareholders
waive their pre-emption rights to the
transfer o
