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
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
REGISTERED FOREIGN LAWYERS AND SOLICITORS - ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇
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
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
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, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("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, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ ("SEG"); and
(3) ZAURALNEFTEGAZ LIMITED, a company registered in England under company
number 05525360 whose registered office is at c/o Gilchrist Solicitors, ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (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 ▇▇▇ ▇▇▇▇ as amended;
"A DIRECTOR" means a director appointed by the A Shareholder in
accordance with the Articles and "A DIRECTORS" shall be construed
accordingly;
"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 ▇▇▇ ▇▇▇▇;
"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;
"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;
"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 ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇ 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.
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
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:
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 ▇▇▇▇▇▇ & 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;
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.
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.
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
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
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
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.
7. DIRECTORS AND MANAGEMENT
7.1 A DIRECTORS
7.1.1 The A Shareholder may appoint three A Directors.
7.1.2 ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇ 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 ▇▇▇▇▇ ▇▇▇▇▇▇. 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 ▇▇▇▇▇
▇▇▇▇▇▇.
7.4 SECRETARY
The Board shall appoint the secretary of the Company. The first
secretary shall be ▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
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:
(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.
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;
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).
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.
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.
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.
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;
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.
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 of Shares contained in this Agreement and the Articles to the
extent necessary to give effect to this Clause.
12.10.3 For the purposes of Article 27(c) of the Articles the
Shareholders hereby consent to the transfer of any Shares made
pursuant to and in accordance with this Clause 12, which shall
therefore be a "PERMITTED TRANSFER" as such term is used in the
Articles.
13. DEADLOCK
13.1 ESCALATION PROCEDURE
13.1.1 If the Board cannot reach agreement on any resolution before it
within 14 Business Days of such resolution first being tabled at the
Board meeting or two or more consecutive Board meetings have been
dissolved because a quorum is not present, the subject of any such
resolution before them shall be referred immediately to the
Shareholders.
13.1.2 If the Shareholders cannot reach agreement on any matter
referred to them under Clause 13.1.1 within 14 Business Days of that
matter being referred to them (a "DEADLOCK MATTER"), the Shareholders
shall refer the Deadlock Matter to their respective chairmen for
resolution. Either chairman of a Shareholder may nominate an
independent third party acceptable to the other chairman to act as
mediator to assist them to resolve the Deadlock Matter.
13.2 "RUSSIAN ROULETTE"
If the Deadlock Matter cannot be resolved by the chairmen within 30
Business Days of the matter being referred to them and any Shareholder
considers that the Deadlock Matter may materially adversely effect their
interests or the interests of the Company, then any Shareholder (the
"INITIATOR") may serve a notice (a "DEADLOCK NOTICE") on the other
Shareholder (the "RESPONDER"):
13.2.1 offering to sell all of the Shares that it holds (the
"INITIATOR'S SHARES"); and
13.2.2 failing that, offering to buy all of the Shares that the
Responder holds (the "RESPONDER'S SHARES").
If each Shareholder receives a properly delivered Deadlock Notice, the
first notice to be properly delivered shall prevail. If Deadlock Notices
have been deemed to have been served simultaneously, the Deadlock Notice
which states the higher Deadlock Price (as defined below) shall prevail.
13.3 DEADLOCK NOTICE
The Deadlock Notice shall:
13.3.1 set out a simple cash price per Share at which the Initiator is
prepared to sell the Initiator's Shares or buy the Responder's Shares
(the "DEADLOCK PRICE") but must not contain any other condition other
than a Permitted Condition;
13.3.2 be irrevocable without the written consent of all the
Shareholders;
13.3.3 constitute an offer by the Initiator to sell all of the
Initiator's Shares to the Responder at the Deadlock Price. This offer
is open for acceptance by the Responder for 28 Business Days from the
date of service of the Deadlock Notice (the "OFFER PERIOD"); and
13.3.4 if the Responder does not elect to buy the Initiator's Shares
before the end of the Offer Period, constitute an alternative offer by
the Initiator to buy all of the Responder's Shares at the Deadlock
Price.
13.4 CONSEQUENCES OF DEADLOCK NOTICE
13.4.1 At any time before the expiry of the Offer Period the Responder
may give written notice to the Initiator that it shall buy all of the
Initiator's Shares at the Deadlock Price and otherwise on the terms
set out in this Clause (a "RESPONSE NOTICE"). The Response Notice is
irrevocable and must not contain any condition other than a Permitted
Condition. Upon service of a Response Notice, the Initiator must sell
(upon payment of the Deadlock Price), and the Responder must buy, all
the Initiator's Shares at the Deadlock Price.
13.4.2 If a Response Notice is not served before the expiry of the
Offer Period, the Responder shall be deemed to have declined the offer
by the Initiator in the Deadlock Notice to sell the Initiator's Shares
and the Responder must sell (upon payment of the Deadlock Price), and
the Initiator must buy (at the Deadlock Price), all of the Responder's
Shares.
13.5 COMPLETION OF TRANSFER
The sale of the Shares in accordance with this Clause shall be made on
the following terms:
13.5.1 if any of the Permitted Conditions to the Deadlock Notice or
Response Notice is not satisfied or waived 60 Business Days (or, in
the case of a regulatory approval, 120 Business Days) after service of
that Notice then that Notice shall lapse. Otherwise, completion of the
transfer of the Shares shall be completed seven Business Days after
the end of the Offer 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;
13.5.2 the selling Shareholder shall deliver to the buyer in respect
of the Shares 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;
13.5.3 the buyer shall pay the Deadlock Price 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; and
13.5.4 in accordance with Clause 16.
13.6 FAILURE TO TRANSFER
13.6.1 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
the holder of the shares being sold in purported exercise of these
powers the validity of the proceedings shall not be questioned by any
person.
13.6.2 If any selling Shareholder fails or refuses to transfer any
Shares in accordance with this Clause the buyer 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.
13.7 GENERAL
13.7.1 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.
13.7.2 The Shareholders waive their pre-emption rights to the transfer
of Shares contained in this Agreement and the Articles to the extent
necessary to give effect to this Clause.
13.7.3 For the purposes of Article 27(c) of the Articles the
Shareholders hereby consent to the transfer of any Shares made
pursuant to and in accordance with this Clause 13, which shall
therefore be a "PERMITTED TRANSFER" as such term is used in the
Articles.
14. DEFAULT
14.1 EVENTS OF DEFAULT
A Shareholder (the "DEFAULTING SHAREHOLDER") suffers an Event of
Default where:
14.1.1 it commits a material breach of this Agreement and either (1)
the breach is not capable of being remedied or (2) the Defaulting
Shareholder does not remedy that breach within 20 Business Days of the
other Shareholder sending it written notice requiring it to remedy
that breach;
14.1.2 it is unable or admits inability to pay its debts as they fall
due, suspends making payments on any of its debts or, by reason of
actual or anticipated financial difficulties, commences negotiations
with one or more of its creditors with a view to rescheduling any of
its indebtedness;
14.1.3 the value of its assets is less than its liabilities (taking
into account contingent and prospective liabilities);
14.1.4 a moratorium is declared in respect of any of its indebtedness;
14.1.5 any corporate action, legal proceedings or other procedure or
step is taken (or any analogous procedure or step is taken in any
jurisdiction) in relation to:
(a) the suspension of payments, a moratorium of any
indebtedness, winding-up, dissolution, administration or
reorganisation (by way of voluntary arrangement, scheme of
arrangement or otherwise) other than a solvent liquidation or
reorganisation of any of its Associated Companies;
(b) a composition, assignment or arrangement with any creditor;
(c) the appointment of a liquidator (other than in respect of a
solvent liquidation of any of its Associated Companies),
receiver, administrator, administrative receiver, compulsory
manager or other similar officer in respect of any of its assets;
or
(d) enforcement of any security over any of its assets.
14.1.6 it is subject to any change of Control (provided that, for the
avoidance of doubt, there shall not be a change of Control with
respect to BP if any of the shareholders of Baltic, its parent
company, as at the date hereof should acquire Control of Baltic); or
14.1.7 any of the events above occurs in relation to its holding
company.
14.2 DEFAULT UNDER THE LOANS
The B Shareholder shall be deemed to have suffered an Event of Default
for the purposes of Clause 14.1 where an event of default occurs under the
terms of the Loan Agreement.
14.3 NOTICE OF DEFAULT
If an Event of Default occurs, the Defaulting Shareholder shall notify
the other Shareholder in writing as soon as reasonably practicable.
14.4 DEFAULT NOTICE
Following an Event of Default, the non-defaulting Shareholder may give
written notice (a "DEFAULT NOTICE") to the Defaulting Shareholder within 60
Business Days of receiving notification of the Event of Default from the
Defaulting Shareholder or of it becoming aware of the Event of Default,
whichever is the earlier, requiring the Defaulting Shareholder either:
14.4.1 to sell all of the Shares held by the Defaulting Shareholder
(the "SALE SHARES") to the non-defaulting Shareholder at a price per
Share equal to 80 per cent of the Fair Value of the Sale Shares; or
14.4.2 to purchase all of the Shares held by the non-defaulting
Shareholder (also "SALE SHARES") at a price equal to the Fair Value of
the Sale Shares.
14.5 COMPLETION OF TRANSFER
The sale and purchase of the Sale Shares in accordance with this
Clause shall be made on the following terms:
14.5.1 if any of the Permitted Conditions to the Default Notice is not
satisfied or waived 60 Business Days (or, in the case of a regulatory
approval, 120 Business Days) after service of that Default Notice then
that Default Notice shall lapse. Otherwise, completion of the transfer
of the Sale Shares shall be completed seven Business Days after
written notice of the determination of the Fair Value of the Sale
Shares or the date of satisfaction or waiver of all Permitted
Conditions (whichever is the later) (the "TRANSFER DATE") at such
reasonable time and place that the Shareholders agree or, failing
which, at the registered office of the Company;
14.5.2 the selling Shareholder shall deliver to the buyer in respect
of the Sale Shares 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 Sale Shares including,
without limitation, the voting rights;
14.5.3 the buyer shall pay the consideration for the Sale 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 PROVIDED THAT the buyer may set off the amount of any liability
of the selling Shareholder to it and/or the Company under Clause 5.11
against the amount of such consideration; and
14.5.4 in accordance with Clause 16.
14.6 FAILURE TO TRANSFER
14.6.1 If the Defaulting Shareholder does not 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. The
receipt by the Company of 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
Sale Shares in purported exercise of these powers the validity of the
proceedings shall not be questioned by any person.
14.6.2 If the selling Shareholder fails or refuses to transfer any
Shares in accordance with this Clause the buyer 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 seller 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.
14.7 GENERAL
14.7.1 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.
14.7.2 The Shareholders waive their pre-emption rights on the transfer
of Shares contained in this Agreement and the Articles to the extent
necessary to give effect to this Clause.
14.7.3 For the purposes of Article 27(c) of the Articles the
Shareholders hereby consent to the transfer of any Shares made
pursuant to and in accordance with this Clause 14, which shall
therefore be a "PERMITTED TRANSFER" as such term is used in the
Articles.
14.7.4 The Shareholders shall do all things within their power to
ensure that the Business is continued to be run as a going concern
during the period between the service of the Default Notice and the
completion of the transfer of the Sale Shares.
15. DETERMINATION OF FAIR VALUE
15.1 APPOINTMENT OF EXPERT
The "FAIR VALUE" of the Shares for the purposes of this Agreement and
the Articles shall be determined by the Auditors within 30 Business Days of
the date of the Transfer Notice or Default Notice, as the case may be. Any
determination of Fair Value pursuant to this Clause shall be treated as a
price agreed between all the members for the purposes of the definition of
"Prescribed Price" in Article 26 of the Articles.
15.2 METHOD AND ADJUSTMENTS
15.2.1 The Auditors shall determine the Fair Value of the Shares to be
sold as at the date of the relevant Transfer Notice or Default Notice,
as appropriate, and on the following valuations and bases:
(a) valuing the Shares to be sold as on an arm's length sale
between a willing seller and a willing buyer;
(b) if any Group Company is then carrying on business as a going
concern, on the assumption that it will continue to do so;
(c) that the Shares to be sold are capable of being transferred
without restriction;
(d) valuing the Shares to be sold as a rateable proportion of
the total value of all the issued shares of the Company without
any premium or discount being attributable to the class of the
Shares to be sold or the percentage of the issued share capital
of the Company which they represent; and
(e) by valuing the proven and probable oil and gas (if any)
reserves of the Group at the relevant time at a value of ▇▇▇▇▇
Light Crude price averaged over the previous six months (using
the definitions of such terms as employed by the Society of
Petroleum Engineers) and after deducting all actual and
contingent liabilities, debts and obligations of the Company.5
15.2.2 The Auditors shall determine the Fair Value to reflect any
other factors which the Auditors reasonably believe should be taken
into account.
15.2.3 If any difficulty arises in applying any of these assumptions
or bases then the Auditors shall resolve that difficulty in such
manner as they shall in their absolute discretion think fit.
15.3 DETERMINATION, ETC
15.3.1 The Auditors must determine the Fair Value within 45 Business
Days of their appointment and shall notify the Shareholders of their
determination. The fees of the Auditors shall be borne as follows:
(a) in the case of a determination pursuant to the issue of a
Transfer Notice, by the selling Shareholder; and
(b) in the case of a determination pursuant to the issue of a
Default Notice, by the Defaulting Shareholder.
15.3.2 The Auditors shall act as experts and not as arbitrators and
their determination shall be final and binding on the parties (in the
absence of fraud or manifest error).
15.3.3 The Auditors may have access to all accounting records or other
relevant documents of the Company, subject to any confidentiality
provisions.
16. TERMS AND CONSEQUENCES OF TRANSFERS OF SHARES
16.1 TRANSFER TERMS
Any sale and/or transfer of Shares pursuant to this Agreement shall be
on terms that those Shares:
16.1.1 are transferred free from all Encumbrances; and
16.1.2 are transferred with the benefit of all rights attaching to
them as at the date of the relevant Deadlock Notice, Transfer Notice
or Default Notice as appropriate.
16.2 REGISTRATION
The parties shall procure that a transfer of Shares is not approved
for registration unless this Agreement and Articles have been complied
with. The Company shall procure that each share certificate issued by it
shall carry the following statement:
"Any disposition, transfer, charge of or dealing in any other manner
in the Shares represented by this certificate is restricted by a
Shareholders' Agreement dated [ ] 2005 and made between Baltic Petroleum
(E&P) Limited, Siberian Energy Group Inc. and Zauralneftegaz Limited".
16.3 FURTHER ASSURANCE
Each party shall do all things and carry out all acts which are
reasonably necessary to effect the transfer of the shares in accordance
with the terms of this Agreement in a timely fashion.
16.4 RETURN OF DOCUMENTS, ETC.
On ceasing to be a Shareholder, a Shareholder must hand over to the
Company material correspondence, Budgets, Business Plans, schedules,
documents and records relating to the Business held by it or an Associated
Company or any third party which has acquired such matter through that
Shareholder and shall not keep any copies.
16.5 LOANS, BORROWINGS, GUARANTEES AND INDEMNITIES
16.5.1 Upon a transfer of all the Shares held by a Shareholder:
(a) the continuing Shareholder shall procure that all loans,
borrowings and indebtedness in the nature of borrowings
outstanding owed by any Group Company to a transferring
Shareholder or to an Associated Company of a transferring
Shareholder (together with any accrued interest) are either
assigned to the continuing Shareholder for such value as may be
agreed in writing between the transferring Shareholder and the
continuing Shareholder, or failing agreement with the continuing
Shareholder, are repaid by the relevant Group Company;
(b) all loans, borrowings and indebtedness in the nature of
borrowings outstanding owed by that transferring Shareholder to
any Group Company shall be repaid; and
(c) the continuing Shareholder shall use all reasonable
endeavours (but without involving any financial obligation on its
part) to procure the release of any guarantees, indemnities,
security or other comfort given by the transferring Shareholder
to or in respect of the Company or its Business and, pending such
release, shall indemnify the transferring Shareholder in respect
of them.
16.5.2 Any assumption of the obligations of a transferring Shareholder
by the continuing Shareholder is without prejudice to the right of the
continuing Shareholder and/or the Company to claim from the
transferring Shareholder in respect of liabilities arising prior to
the completion date of the transfer of Shares.
16.6 ASSUMPTION OF OBLIGATIONS
The parties shall procure that no person other than an existing
Shareholder acquires any Shares unless it enters into a Deed of Adherence
in a form reasonably acceptable to the other Shareholder agreeing to be
bound by this Agreement as a Shareholder and any other agreements in
connection with the Business as a Shareholder.
16.7 REMOVAL OF APPOINTEES
16.7.1 If a Shareholder ceases to be a Shareholder it shall
immediately upon transfer of its Shares procure the resignation of all
its appointees to the Board as Director, Chairman and CEO, as the case
may be, and to the Board of directors of each Group Company. If the
continuing Shareholders request, it shall do all such things and sign
all such documents as may otherwise be necessary to procure the
resignation or dismissal of such persons from such appointments in a
timely manner.
16.7.2 Those resignations shall take effect without any liabilities on
the Company for compensation for loss of office or otherwise except to
the extent that the liability arises in relation to a service contract
with a Director who was acting in an executive capacity. Any
Shareholder removing a Director appointed by it shall fully indemnify
and hold harmless the other Shareholder and the Company from and
against any claim for unfair or wrongful dismissal arising out of such
removal.
16.8 POWER OF ATTORNEY
16.8.1 Each of the Shareholders irrevocably appoints the other
Shareholder by way of security for the performance of their respective
obligations under Clauses 12, 13 and 14, its attorney to execute,
deliver and/or issue any necessary document, agreement, certificate
and instrument required to be executed by it under the provisions of
Clauses 12, 13 and 14 including any transfer of shares or other
documents which may be necessary to transfer title to the Shares
required by Clauses 12, 13 and 14.
16.8.2 The purchase monies shall, to the extent that they are not
delivered to the selling party on or before the appropriate completion
date, bear interest against the purchasing party at the rate of 2 per
cent over the base lending rate from time to time of Barclays Bank plc
calculated on a daily basis from such date until the selling party is
reimbursed by the other party.
16.9 CHANGE OF NAME
If a Shareholder ceases to be a Shareholder and the corporate name of
the Company or any Group Company contains any word the same or similar to
the corporate name or any distinctive part of the corporate name of that
Shareholder, the remaining parties shall procure that the corporate name of
the Company or any Group Company shall be changed to exclude that word to a
name that bears no relation to the corporate name of that Shareholder
within 30 days of the Shareholder ceasing to be a Shareholder.
17. ENFORCEMENT OF RIGHTS
17.1 RIGHTS OF THE COMPANY
If at any time the Company (1) wishes to enforce or exercise any right
under or (2) has any claim against or is the subject of a claim by any
Shareholder or any member of a Shareholder's group in respect of:
17.1.1 this Agreement;
17.1.2 any other agreement or deed to which that Shareholder or a
member of that Shareholder's group is also a party; or
17.1.3 any obligation owed to the Company or another Group Company by
any Shareholder or a member of that Shareholder's group,
that matter shall be dealt with on behalf of the Company by a
committee of the Directors appointed by the other Shareholder not involved
in the claim. The provisions of this Clause do not prejudice to the right
of any party to dispute any claim to which it relates.
17.2 AUTHORITY OF COMMITTEE
The committee of Directors appointed under this Clause has full authority to
exercise rights on behalf of the Company.
17.3 RIGHTS OF SHAREHOLDERS
Shareholders or Directors which have not participated in the
deliberations of the committee may not see the minutes of meetings of the
committee or require the provision of any information relating to those
deliberations of the committee.
18. COMPETITION WITH THE BUSINESS
18.1 RESTRICTIONS
18.1.1 Unless it has obtained the prior written consent of the A
Shareholder, the B Shareholder must not (and shall procure that its 9
largest shareholders as of the date of this Agreement (including legal
and beneficial owners of shares in the B Shareholder), officers,
employees, agents and consultants, and all or any Associated Company
of the B Shareholder and the shareholders, officers, employees, agents
and consultants thereof must not), either alone or jointly, with,
through or on behalf of any person, directly or indirectly:
(a) carry on or be engaged or concerned or interested in any
activities which are in direct competition with the Business in
the Kurgan and Tyumen regions of the Russian Federation
(including but not limited to development of the four oil and gas
exploration licences owned by ZNG as at the date hereof, bidding
for and/or development of further oil and gas exploration
licences and oil and gas production licences in such regions
(including but not limited to the licences detailed in Schedule
6));
(b) carry on or be engaged or concerned or interested in any
activities in the Khanty-Mansisk region of the Russian Federation
which are in direct competition to the Business unless the
Company has first been offered a right of first refusal in
respect of such activities. For the purposes of offering a right
of refusal under this paragraph (b), SEG shall give to the
Company (or procure is given to the Company) written notice of
such opportunity together with sufficient supporting
documentation in respect of the proposal in order to enable the
Company to evaluate the same. The Company shall have 10 Business
Days from receipt of such notice to indicate to SEG by giving
written notice to it that it is interested in principal in
pursuing the opportunity and, if it confirms such interest, it
shall have a further 20 Business Days to determine whether it
wishes to proceed with such opportunity. SEG shall procure that
the Company is promptly afforded all access during the
aforementioned periods to such documentation, personnel, sites
and information as it may reasonably require to enable it to
investigate, conduct due diligence on, and evaluate the proposal
and shall provide assistance to and co-operate with the Company
for such purposes and shall promptly respond to all of its
enquiries and requests in respect thereof. If the Company decides
to proceed with the opportunity, SEG shall use its best
endeavours to ensure that the opportunity is awarded to the
Company. Where SEG indicates that the opportunity is time
critical, the Company undertakes to use its reasonable endeavours
to diligently consider and respond to any opportunity offered to
it under this paragraph (b) as soon as reasonably practicable; or
(c) solicit or contact with a view to the engagement or
employment by any person, any employee, officer or manager of any
Group Company or any person who has been an employee, officer or
manager of any Group Company within the previous two-year period,
except for an employee who has been seconded to a Group Company
by such Shareholder.
18.1.2 Unless it has obtained the prior written consent of the B
Shareholder, the A Shareholder must not, either alone or jointly,
with, through or on behalf of any person, directly or indirectly,
carry on or be engaged or concerned or interested in any activities
which are in direct competition with the Business in the Kurgan region
of the Russian Federation.
18.1.3 Each Shareholder agrees to procure that each of their
Associated Companies shall comply with the provisions of this Clause
as though it applied directly to them.
18.2 INVALIDITY
18.2.1 Each of these restrictions is an entirely separate and
independent restriction on each Shareholder and the validity of one
restriction shall not be affected by the validity or unenforceability
of another.
18.2.2 Each Shareholder considers the restrictions in this Clause to
be reasonable and necessary for the protection of the interests of the
Company. If any such restriction shall be held to be void but would be
valid if deleted in part or reduced in application, such restriction
shall apply with such deletion or modification as may be necessary to
make it valid and enforceable.
18.3 DURATION
The covenants set out in this Clause shall continue to apply to a
Shareholder for a period of 12 months from the date on which that
Shareholder ceases to be a Shareholder. The covenants shall be construed
during this period by reference to the Business, customers, employees,
officers or managers or contracting parties of the Company during the
two-year period prior to the date on which the Shareholder ceased to be a
Shareholder.
18.4 EXCLUSIONS
Nothing contained in this Clause precludes or restricts any
Shareholder or any of its Associated Companies:
18.4.1 holding not more than five per cent of the issued voting share
capital of any company whose shares are listed on a stock exchange;
18.4.2 acquiring any business or company, as an integral part of a
larger transaction or acquisition of a business, company or group of
companies, not predominantly engaged in a competing business PROVIDED
THAT:
(a) it uses all reasonable endeavours to dispose of such
business or company which competes with the Business within six
months of the date of completion of the original transaction (or
as soon as possible thereafter);
(b) in making any such disposal, it must grant the Company a
right of first refusal to acquire the business or company on bona
fide arms length terms; and
(c) if the Company does not purchase the business or company
within a reasonable period it may dispose of the business or
company to a third party;
18.4.3 carrying on any activity carried on by it in the 12 months
before the Completion Date; or
18.4.4 from carrying on and/or developing, whether organically or by
acquisition, any of its existing activities which at the Completion
Date are similar to the Business.
19. PUBLIC ANNOUNCEMENTS
19.1 SHAREHOLDER APPROVAL
A Shareholder must not make any public announcement or issue any
circular relating to the Group or this Agreement without the prior written
approval of the other Shareholder. This does not affect any announcement or
circular required by law or any regulatory body or the rules of any
recognised stock exchange (including for the avoidance of doubt, as may be
required for the purposes of marketing an initial public offering of Baltic
or an Associated Company of Baltic), but the party with an obligation to
make an announcement or issue a circular shall consult with the other
party/parties so far as is reasonably practicable before complying with
such obligation.
19.2 ORAL STATEMENTS
The Shareholders intend that any oral statements made or replies to
questions given by either Shareholder relating to the Group shall be
consistent with any such public announcements or circulars.
20. INFORMATION, INSURANCE, RECORDS, LICENCES
20.1 RIGHTS TO INFORMATION
A Shareholder may at all reasonable times and at its own expense:
20.1.1 discuss the affairs, finances and accounts of the Company and
the Group with its officers, principal executives and principal
shareholders; and
20.1.2 inspect and make copies of all books, records, accounts,
documents and vouchers relating to the Business and the affairs of the
Company and the Group.
20.2 INSURANCE, RECORDS AND LICENCES
The Shareholders undertake that they shall use their reasonable
endeavours to procure that:
20.2.1 the Group maintains with a well established and reputable
insurer prudent insurance in accordance with current industry practice
from time to time against all risks usually insured against by
companies carrying on the same or similar business to the Business
which shall include product liability insurance, insurance against
loss of profits and consequential loss and insurance for the full
replacement or reinstatement value of all its assets of all insurable
nature;
20.2.2 the Group keeps proper books of account and makes true and
complete entries of all its dealings and transactions of and in
relation to the Business; and
20.2.3 the Group shall use its best endeavours to obtain and maintain
in full force and effect all approvals, consents or licences necessary
for the conduct of the Business.
21. CONSORTIUM TAX RELIEF
Each Shareholder which is a member of the consortium which owns the
Company for the purpose of Section 413(6) of the Income and Corporation
Taxes Act 1988 ("ICTA 1988") shall be entitled by the submission of a
written notice to the Company and the other Shareholder to require the
Company to surrender to it (or any of its associated companies) a
proportionate share of any consortium relief which may be available to it
and which arises from the trading activities of the Company, for
consideration (payable on 1 January following the accounting period ending
31 March to which the losses relate), in the case of each recipient, equal
to the amount of the losses and/or other amounts surrendered to it by way
of consortium relief multiplied by the rate of corporation tax on income
profits for the account period of the company to which the losses or other
amounts relate. A Shareholder may only request the surrender of consortium
relief under this Clause 21 to the extent it is permitted under applicable
United Kingdom legislation. The Shareholders undertake to give such written
consents that may be required in order to give effect to the surrender of
consortium relief in accordance with the terms of this Clause. No
Shareholder shall knowingly enter into arrangements (for the purposes of
Section 410 of ICTA 1988) which shall affect the right of any Shareholder
to obtain consortium relief at any time when the Company has losses or
other amounts available for surrender by way of consortium relief, provided
that, subject to Clause 12 and the Articles, this shall not prevent any
Shareholder from transferring Shares in accordance with the provisions
relating thereto set out in this Agreement and the Articles. In the event
that payments are made for consortium relief which is subsequently found
not to be available or not required, the Company shall repay the amount
overpaid within 14 Business Days of the issue of a written claim by the
payer.
22. DURATION AND TERMINATION
22.1 DURATION
Subject to the other provisions of this Agreement, this Agreement
shall continue in full force and effect without limit in point of time
until the earlier of:
22.1.1 the Shareholders agree in writing to terminate this Agreement;
and
22.1.2 an effective resolution is passed or a binding order is made
for the winding-up of the Company other than to effect a scheme of
reconstruction or amalgamation;
provided that, subject to Clause 12.2.2, this Agreement shall cease to
have effect as regards any Shareholder who ceases to hold any Shares save
for any of its provisions which are expressed to continue in force after
termination.
22.2 TERMINATION
Termination of this Agreement shall be without prejudice to any
liability or obligation in respect of any matters, undertakings or
conditions which shall not have been observed or performed by the relevant
Shareholder prior to such termination.
23. CONFIDENTIALITY
23.1 CONFIDENTIAL INFORMATION
The parties shall use all reasonable endeavours to keep confidential
and to ensure that their respective Associated Companies and their
respective officers, employees, agents and professional and other advisers
keep confidential any information (the "CONFIDENTIAL INFORMATION"):
23.1.1 relating to the customers, business, assets or affairs of any
Group Company which they may have or acquire through ownership of an
interest in the Company; or
23.1.2 relating to the customers, business, assets or affairs of the
other parties or any member of their group which they may have or
acquire through being a Shareholder or making appointments to the
Board or through the exercise of its rights or performance of its
obligations under this Agreement.
23.2 RESTRICTIONS
23.2.1 No party may use for its own business purposes or disclose to
any third party any Confidential Information without the consent of
the other parties.
23.2.2 This Clause does not apply to:
(a) information which is or becomes publicly available
(otherwise than as a result of a breach of this Clause);
(b) information which is independently developed by the relevant
party or acquired from a third party, to the extent that it is
acquired with the right to disclose it;
(c) information which was lawfully in the possession of the
relevant party free of any restriction on disclosure;
(d) information which following disclosure under this Clause,
becomes available to the relevant party from a source which is
not bound by any obligation of confidentiality in relation to
such information;
(e) the disclosure by a party of Confidential Information to its
principal shareholders or its directors or employees or to those
of its Associated Companies who need to know that confidential
information in its reasonable opinion for purposes relating to
this Agreement but those principal shareholders, directors and
employees shall not use that Confidential Information for any
other purpose;
(f) the disclosure of information to the extent required to be
disclosed by law or any court of competent jurisdiction, any
governmental official or regulatory authority (including the
London Stock Exchange, the Financial Services Authority, the
Panel on Takeovers and Mergers and the United States Securities
and Exchange Commission) or any binding judgment, order or
requirement of any other competent authority;
(g) the disclosure of information to any tax authority to the
extent reasonably required for the purposes of the tax affairs of
the party concerned or any member of its group;
(h) the disclosure to a party's professional advisers of
information reasonably required to be disclosed for purposes
relating to this Agreement; or
(i) any announcement, or circular made, or information provided
in accordance with the terms of Clause 19.
23.2.3 Each party shall inform any shareholder, officer, employee or
agent or any professional or other adviser advising it in relation to
matters relating to this Agreement, or to whom it provides
Confidential Information, that such information is confidential and
shall instruct them:
(a) to keep it confidential; and
(b) not to disclose it to any third party (other than those
persons to whom it has already been or may be disclosed in
accordance with the terms of this Clause).
23.3 DAMAGES NOT AN ADEQUATE REMEDY
Without prejudice to any other rights or remedies which a party may
have, the parties acknowledge and agree that damages would not be an
adequate remedy for any breach of this Clause 23 and the remedies of
injunction, specific performance and other equitable relief are appropriate
for any threatened or actual breach of any such provision and no proof of
special damages shall be necessary for the enforcement of the rights under
this Clause 23.
23.4 SURVIVAL
23.4.1 The disclosing party shall remain responsible for any breach of
this Clause by the person to whom that confidential information is
disclosed.
23.4.2 The provisions of this Clause 23 shall survive the termination
of this Agreement for whatever cause for a period of 2 years.
24. NOTICES
24.1 ADDRESSES
Any notice, claim or demand in connection with this Agreement shall be
in writing in English (each a "NOTICE") shall be sufficiently given if
delivered or sent to the recipient at its fax number, telex number or
address set out in Schedule 5 or any other fax number, telex number or
address notified to the sender by the recipient for the purposes of this
Agreement.
24.2 FORM
Any Notice shall be in writing in English and may be sent by
messenger, telegram, telex, fax or prepaid first class post (first class in
the case of service in the United Kingdom and airmail in the case of
international service). Any Notice shall be deemed to have been received on
the next working day in the place to which it is sent, if sent by telegram,
telex or fax, or 60 hours from the time of posting, if sent by post.
25. WHOLE AGREEMENT AND REMEDIES
25.1 WHOLE AGREEMENT
This Agreement contains the whole agreement between the parties
relating to the subject matter of this Agreement at the date hereof to the
exclusion of any terms implied by law which may be excluded by contract and
supersedes any previous written or oral agreement between the parties in
relation to the matters dealt with in this Agreement. In this Clause "this
Agreement' includes all documents entered into pursuant to this Agreement.
25.2 TERMINATION OF OPTION AGREEMENT
The Option Agreement shall terminate and cease to have any further
force and effect on execution of this Agreement and BP shall procure that
Baltic shall provide to SEG a written statement to this effect.
25.3 NO INDUCEMENT
Each of the Shareholders acknowledges that it has not been induced to
enter into this Agreement by any representation, warranty or undertaking
not expressly incorporated into it.
25.4 REMEDIES
So far as permitted by law and except in the case of fraud, each party
agrees and acknowledges that its only right and remedy in relation to any
representation, warranty or undertaking made or given in connection with
this Agreement shall be for breach of the terms of this Agreement to the
exclusion of all other rights and remedies (including those in tort or
arising under statute).
25.5 LEGAL ADVICE
Each party to this Agreement confirms it has received independent
legal advice relating to all the matters provided for in this Agreement,
including the provisions of this Clause, and agrees, having considered the
terms of this Clause and the Agreement as a whole, that the provisions of
this Clause are fair and reasonable.
26. GENERAL
26.1 SURVIVAL OF RIGHTS, DUTIES AND OBLIGATIONS
Termination of this Agreement for any cause shall not release a party
from any liability which at the time of termination has already accrued to
another party or which thereafter may accrue in respect of any act or
omission prior to such termination.
26.2 CONFLICT WITH THE ARTICLES
In the event of any ambiguity or discrepancy between the provisions of
this Agreement and the Articles, it is intended that the provisions of this
Agreement shall prevail and accordingly the Shareholders shall exercise all
voting and other rights and powers available to them so as to give effect
to the provisions of this Agreement and shall further if necessary procure
any required amendment to the Articles. The Company is not bound by this
Clause.
26.3 NO PARTNERSHIP
Nothing in this Agreement shall be deemed to constitute a partnership
between the parties nor constitute any party the agent of any other party
for any purpose.
26.4 RELEASE ETC.
Any liability to any party under this Agreement may in whole or in
part be released, compounded or compromised or time or indulgence given by
that party in its absolute discretion as regards any party under such
liability without in any way prejudicing or affecting its rights against
any other party under the same or a like liability, whether joint and
several or otherwise.
26.5 WAIVER
No failure of any party to exercise, and no delay by it in exercising,
any right, power or remedy in connection with this Agreement (each a
"RIGHT") shall operate as a waiver of that Right, nor shall any single or
partial exercise of any Right preclude any other or further exercise of
that Right or the exercise of any other Right. The Rights provided in this
Agreement are cumulative and not exclusive of any other Rights (whether
provided by law or otherwise). Any express waiver of any breach of this
Agreement shall not be deemed to be a waiver of any subsequent breach.
26.6 PAYMENTS
All payments due under this Agreement shall be paid in full without
any deduction or withholding other than as required by law or under this
Agreement and the paying party shall not be entitled to assert any credit
set off or counterclaim against any other party in order to justify
withholding payment of any such amount in whole or in part.
26.7 VARIATION
No variation of this Agreement shall be effective unless in writing
and signed by or on behalf of each of the parties.
26.8 ASSIGNMENT
26.8.1 This Agreement shall be binding on and inure to the benefit of
the parties and their successors and permitted assigns. The parties
may not assign or transfer all or any part of their rights or
obligations under this Agreement nor any benefit arising under or out
of this Agreement without the prior written consent of the other
parties nor shall any party be entitled to make any claim against
another party in respect of any loss which it does not suffer in its
own capacity as beneficial owner of the Shares except as contemplated
by Clause 26.8.2.
26.8.2 Except as otherwise expressly provided in this Agreement, the
benefit of the provisions of this Agreement may be assigned to any
Associated Company provided that such assignment shall not be absolute
but shall be expressed to have effect only for so long as the assignee
remains an Associated Company.
26.9 TIME OF THE ESSENCE
Time shall be of the essence of this Agreement, both as regards any
dates, times and periods mentioned and as regards any dates, times and
periods which may be substituted for them by agreement in writing between
the parties.
26.10 FURTHER ASSURANCE
At any time after the date of this Agreement the parties shall, and shall use
all reasonable endeavours to procure that any necessary third party shall, at
the cost of the relevant party execute such documents and do such acts and
things as that party may reasonably require for the purpose of giving to that
party the full benefit of all the provisions of this Agreement.
26.11 ILLEGALITY
If any provision in this Agreement shall be held to be illegal,
invalid or unenforceable, in whole or in part, under the law of any
jurisdiction, the legality, validity or enforceability of such provision or
part under the law of any other jurisdiction and the legality, validity and
enforceability of the remainder of this Agreement shall not be affected.
26.12 COUNTERPARTS
This Agreement may be entered into in any number of counterparts, all
of which taken together shall constitute one and the same instrument. Any
party may enter into this Agreement by executing any such counterpart.
26.13 COSTS
Each party shall bear all costs incurred by it in connection with the
preparation, negotiation and entry into this Agreement and the documents to
be entered into pursuant to it. The parties shall procure that the costs
incurred by BP in dealing with the conditions precedent detailed in clause
2.1.1and 2.1.3 be borne by ZNG up to an aggregate sum of US$75,000.
27. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999
A person who is not a party to this Agreement has no right under the
Contracts (Rights of Third Parties) ▇▇▇ ▇▇▇▇ to enforce any term of this
Agreement.
28. GOVERNING LAW AND SUBMISSION TO JURISDICTION
28.1 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
English law.
28.2 JURISDICTION
All the parties irrevocably agree that the courts of England are to
have exclusive jurisdiction to settle any dispute which may arise out of or
in connection with this Agreement.
28.3 SUBMISSION AND WAIVER
All the parties irrevocably submit to the jurisdiction of such courts
and waive any objection to proceedings in any such court on the ground of
venue or on the ground that the proceedings have been brought in an
inconvenient forum.
28.4 APPOINTMENT OF PROCESS AGENT
SEG (the "PRINCIPAL") irrevocably appoints ▇▇▇ ▇▇▇▇▇ of ▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ (the "AGENT") as its agent to accept service of process in
England in any legal action or proceedings arising out of or in connection
with this Agreement provided that:
28.4.1 service upon the Agent shall be deemed valid service upon the
Principal whether or not the process is forwarded to or received by
the Principal;
28.4.2 the Principal shall inform all other parties to this Agreement,
in writing, of any change in the address of the Agent within 28 days
of such change;
28.4.3 if the Agent ceases to be able to act as a process agent or to
have an address in England, the Principal irrevocably agrees to
appoint a new process agent in England acceptable to the other parties
and to deliver to the other parties within 14 Business Days a copy of
a written acceptance of appointment by the new process agent; and
28.4.4 nothing in this Agreement shall affect the right to serve
process in any other manner permitted by law.
29. AUTHORITY TO DELIVER
The signature or sealing of this Agreement by or on behalf of a party
shall constitute an authority to the solicitors, or an agent or employee of
the solicitors, acting for that party in connection with this Agreement to
deliver it as a deed on behalf of that party.
IN WITNESS WHEREOF this Agreement has been duly executed as a deed by
BP and SEG and executed by the Company on the date written above.
SCHEDULE 2
DEED OF ADHERENCE
THIS DEED OF ADHERENCE is made on [DATE] by [ ] of [ ] (the
"COVENANTOR")
SUPPLEMENTAL to a Shareholders' Agreement dated [ ] 2005 and made
between Baltic Petroleum (E&P) Limited, Siberian Energy Group Inc. and the
Company (the "AGREEMENT').
The Covenantor covenants as follows:
1 The Covenantor confirms that it has been supplied with and has read a
copy of the Agreement and covenants with each of the persons named in the
Schedule to this Deed to observe perform and be bound by all the terms of
the Agreement which are capable of applying to the Covenantor and which
have not been performed at the date of this Deed to the intent and effect
that the Covenantor shall be deemed with effect from the date on which the
Covenantor is registered as a member of [the Company] to be a party to the
Agreement (as if named as a party to that Agreement).
2 This Deed shall be governed by and construed in accordance with
English law and the Covenantor hereby submits irrevocably to the
non-exclusive jurisdiction of the English Courts (but accepts that this
Deed may be enforced in any court of competent jurisdiction) and hereby
appoints [a person resident in England and reasonably acceptable to the
Board of Directors of the continuing Shareholder] as its agent for service
of all process in any proceedings in respect of the Agreement.
EXECUTED as a deed on the date written above.]
SCHEDULE
[PARTIES TO AGREEMENT INCLUDING THOSE WHO HAVE EXECUTED EARLIER DEEDS OF
ADHERENCE]
SCHEDULE 3
WARRANTIES
PART I - SEG WARRANTIES
A. WARRANTIES IN RELATION TO ZNG
1. INFORMATION
1.1 All information, including, but not limited to, the information
contained in the Disclosure Schedule and relating to ZNG provided by SEG,
ZNG and/or any of their respective professional advisers, officers or
employees to BP or any of its professional advisers in the course of the
negotiations leading to this Agreement (the "DUE DILIGENCE INFORMATION")
was when given, is now, and will at Completion be true, complete and
accurate and not misleading in any respect. The information contained in
the Disclosure Schedule is true, complete and accurate in all material
respects and there are no other facts or matters which would render any
such information misleading.
1.2 There has been provided to BP and JV Co such information as is
necessary to enable each of them to make an informed assessment of the
assets, liabilities, financial position, profits, losses and prospects of
ZNG and of the rights attaching to the ZNG Interests and any other
information which might otherwise reasonably affect the willingness to into
this Agreement and perform their respective obligations hereunder.
2. CAPACITY
ZNG is a limited liability company duly organised and incorporated and
validly existing under the laws of the Russian Federation and has the power
and authority to own its properties and assets and to carry on its business
as it is now being conducted.
3. CAPITAL AND CONSTITUTION
3.1 ZNG's charter capital meets the minimum capital requirements
established by Russian law and has been fully paid up in cash.
3.2 Apart from this Agreement, there is no Encumbrance on, over or
affecting the ZNG Interests or loan capital of ZNG and there is no
agreement or commitment to give or create any such Encumbrance and no claim
has been made by any person to be entitled to any such Encumbrance.
3.3 All necessary state registrations in respect of ZNG have been made and
all registers, books and records of ZNG required to be kept by Russian law
have been properly kept in all material respects and contain an accurate
and complete record of the matters with which they should deal.
3.4 All returns, particulars, resolutions and documents required by
Russian legislation to be filed in respect of ZNG have been duly and timely
filed and are correct in all respects.
4. SEG'S TITLE TO ZNG INTERESTS
4.1 SEG is a sole participant in ZNG and has obtained clear and unfettered
legal title to the ZNG Interests.
4.2 SEG has duly acquired its title to the ZNG Interests in full
compliance with the then applicable law, including, but not limited to
Russian anti-monopoly law and the constituent documents of ZNG.
4.3 All consents and approvals required for SEG to transfer the ZNG
Interests to the Company as contemplated by this Agreement, including, but
not limited to, approvals of the Central Bank of Russia, have been duly and
timely obtained.
5. ACCOUNTS
5.1 The audited consolidated accounts of SEG for the year ended 31
December 2004 (the "2004 ACCOUNTS"):
5.1.1 give a true and fair view of the assets, liabilities (whether
present or future, actual or contingent, unquantified or disputed
liabilities), solvency and state of affairs and financial position of
ZNG as at 31 December 2004 and its profits or losses for the financial
period ended on that date; and
5.1.2 have been prepared in accordance with United States generally
accepted accounting principles ("US GAAP") consistently applied and
comply with the requirements of applicable legislation and have been
audited in accordance with the standards of the United States Public
Company Accounting Oversight Board;
5.1.3 adopt the same bases and policies of accounting adopted for the
preparation of ZNG's audited accounts for the last two preceding
accounting periods.
5.2 The management accounts of ZNG dated 31 March 2005 and 30 June
2005(the "MANAGEMENT ACCOUNTS"), a copy of which has been provided to BP:
(a) give a true and fair view of the assets, liabilities (whether
present or future, actual or contingent, unquantified or disputed
liabilities) and state of affairs and financial position of ZNG at the
date thereof and its profits or losses for the financial period ended
on that date;
(b) have been prepared with due care and attention and in accordance
with policies and principles consistently applied throughout the
period to which they relate; and
(c) have been prepared adopting the same policies and principles
adopted in the preparation of the 2004 Accounts.
6. FINANCIAL MATTERS
6.1 Since 31 December 2004, ZNG has carried on its business in the ordinary
course and there has been no material adverse change in the financial or trading
position or prospects of ZNG, no material changes have occurred in ZNG's assets
or liabilities as shown in the 2004 Accounts and ZNG has not, except as
disclosed in the Management Accounts, assumed or incurred any liabilities
(including contingent liabilities).
6.2 ZNG is not insolvent and is able to pay its debts as they fall due. ZNG
has not taken any corporate action nor have any other steps been taken or legal
proceedings started or threatened against ZNG for its winding up, dissolution or
reorganisation or for the appointment of a receiver, trustee or similar officer
of it or of any of its assets or revenues.
6.3 Proper provision for all liabilities and obligations (actual, contingent
or disputed) and capital commitments of ZNG have been made in the 2004 Accounts
or in the Management Accounts or are otherwise disclosed in the Due Diligence
Information.
7. INTERESTS OF SEG, DIRECTORS AND EMPLOYEES
7.1 None of the following is outstanding:
(a) loans made by ZNG to SEG and/or any of the directors or officers
of ZNG or SEG and/or any Associate of any of them;
(b) debts owing to ZNG by SEG and/or any of the directors or officers
of ZNG or SEG and/or any Associate of any of them; and
(c) securities for any such loans or debts as mentioned above.
7.2 There are no existing contracts, engagements, guarantees or
indemnities to which ZNG is a party and in which SEG and/or any of the
directors or officers of ZNG or SEG and/or Associate of any of them is
directly or indirectly interested and ZNG does not depend upon or derive
any benefit from any assets, facilities or services owned or supplied by
SEG or any of its Associates or any contract to which SEG or any of its
Associates is a party.
8. TITLE, ENCUMBRANCES, ASSETS AND COMPLIANCE WITH LAW
8.1 ZNG has possession and control of and good title to all the assets
used in or in connection with its business and no circumstances exist under
which any person may claim entitlement to possession of any of such assets
in competition with or in priority to ZNG.
8.2 ZNG has properly made all mandatory registrations with Russian tax,
medical, insurance, pensions, social, insurance and statistics authorities.
All licences, consents, examinations, clearances, filings, registrations
and authorisations which are or may be necessary to enable ZNG to own its
assets and carry on its business are in full force and effect including but
not limited to geological survey licences, permits or consents in the
Kurgan Oblast of Western Siberia, Russia and elsewhere.
8.3 No Encumbrance (or agreement or commitment to grant any Encumbrance)
is outstanding against any part of the undertaking of ZNG or against any of
the assets used in or in connection with its business including but not
limited to geological survey licences, permits or consents in the Kurgan
Oblast of Western Siberia, Russia and elsewhere and no claim has been made
by any person to be entitled to any such Encumbrance.
8.4 No asset including but not limited to geological survey licences,
permits or consents in the Kurgan Oblast of Western Siberia, Russia and
elsewhere of ZNG is shared with any other person.
8.5 ZNG has conducted and is conducting its business in all respects in
accordance with all applicable laws and regulations.
9. LICENCES AND GRANTS
9.1 Details of all subsoil geological survey licences held by ZNG in the
Kurgan Oblast of Western Siberia, Russia and elsewhere are set out in the
Disclosure Schedule. All such licences have been duly issued and registered
with the relevant authorities and lawfully held by ZNG with no exclusions,
restrictions, notice of revocation or prohibitions as to use.
9.2 Neither ZNG nor (in so far as relates to ZNG's business) its
contractors has carried out any of its activities, including, but not
limited to, exploratory, geophysical, subsoil surveying, drilling of ▇▇▇▇▇,
geodesic works, cartography, storage and use of explosives or operation of
explosive and fire hazardous facilities without all applicable licences,
permits and consents including but not limited to any operational or
geological survey licences, permits or consents issued by any government or
regulatory body and neither ZNG nor (in so far as relates to ZNG's
business) any of its contractors is or has been in breach of any term of
any licence, including operational licences, permits and consents.
9.3 ZNG has not been and is not subject to any arrangement for receipt or
repayment of any grant, subsidy or financial assistance from any government
department or other body.
10. CONTRACTS AND OTHER OBLIGATIONS
10.1 Details of all contracts to which ZNG is a party have been supplied in
the Due Diligence Information. ZNG is not a party to any contract entered
into otherwise than in the ordinary and usual course of ZNG's business. No
bid, tender, proposal, or offer given or made by ZNG on or before the date
hereof is capable of giving rise to a contract merely by unilateral act of
another person.
10.2 Each contract to which ZNG is a party is in full force and effect and
binding on the parties to it. ZNG has not defaulted under or breached such
contract and, so far as SEG is aware, no other party to such contract has
defaulted under or breached such a contract and no such default or breach
by ZNG or any other party is likely or has been threatened.
10.3 No power of attorney given by ZNG is in force. No authorities (express
or implied) by which any person may enter into any contract or commitment
to do anything on behalf of ZNG are subsisting.
11. INTELLECTUAL PROPERTY; CONFIDENTIAL INFORMATION
11.1 ZNG does not own, use, require to use or infringe any Intellectual
Property. So far as SEG is aware, no person is infringing any Intellectual
Property in which ZNG has a beneficial interest. For the purposes of this
paragraph, "INTELLECTUAL PROPERTY" means patents, rights to inventions,
utility models, copyright, trade marks, service marks, trade, business and
domain names, rights in trade dress or get-up, rights in goodwill or to ▇▇▇
for passing off, unfair competition rights, rights in designs, rights in
computer software, database rights, topography rights, rights to
information contained in any survey report including geophysical surveys
and exploratory feasibility surveys, moral rights, rights in confidential
information (including know-how and trade secrets) and any other similar or
equivalent rights, in each case whether registered or unregistered and
including all applications for and renewals or extensions of such rights in
any part of the world.
11.2 ZNG has not at any time disclosed to any person (other than BP or SEG)
any information relating to any of its know-how, trade secrets, exploration
licences, mineral licences, surveys, production licences, geological or
geophysical research findings, estimates in relation to proved, probable
and possible gas, oil, condensate reserves or any derivative thereof,
confidential information, price lists or lists of customers or suppliers
relating to its business except in the ordinary course of its business and
upon it having secured the confidential nature of such disclosure.
12. DISPUTES AND LITIGATION
12.1 ZNG is not engaged in any litigation or arbitration proceedings and
there are no proceedings pending or threatened, either by or against ZNG
and, so far as SEG is aware, there are no circumstances which are likely to
give rise to such proceedings.
12.2 There is no dispute with any revenue, or other official department in
the Russian Federation or elsewhere, in relation to the affairs of ZNG,
and, so far as SEG is aware, there are no facts which may give rise to a
dispute.
13. TAXATION
13.1 ZNG complies with any and all Russian statutory tax reporting and tax
payment procedures.
13.2 ZNG is not in tax arrears, was not engaged in any tax disputes with
the tax authorities, and no tax disputes or claims are pending or
threatened against ZNG.
14. INSURANCE
14.1 ZNG employees are and at all material times have been, adequately
covered by the mandatory medical insurance under Russian law.
14.2 ZNG does not carry out any activities that are subject to the
mandatory insurance under applicable law.
15. EMPLOYMENT MATTERS
15.1 Details of all the officers and employees of ZNG, including all
emoluments and other principle terms of employment, have been provided in
the Due Diligence Information. All such information is complete, accurate
and up to date and since such information was provided no change has been
made in the emoluments or other terms of employment of any of such persons.
15.2 ZNG is not under any liability or obligation, or party to any
ex-gratia payment or promise, to pay, or accustomed to paying, pensions,
gratuities, superannuation allowances or the like, or otherwise to provide
benefits, to or for any of it past or present officers or employees or
their dependents; and there are no retirement benefit, or pension or death
benefit, or similar schemes or arrangements in relation to, or binding upon
ZNG or to which ZNG contributes, except as provided by applicable law.
16. ANTI-MONOPOLY
16.1 ZNG has complied in all respects with all anti-monopoly legislation in
the Russian Federation and elsewhere in the world and has not entered into
any transactions or taken any actions whatsoever which would require the
consent of or filing with any Russian anti-monopoly authorities.
16.2 Full compliance with and entry into this Agreement will not require
the consent of or filing with any anti-monopoly authorities in the Russian
Federation.
17. EFFECT OF AGREEMENT
17.1 The execution, delivery and performance of this Agreement:
(a) will not violate any provision of any law or regulation or any
order or decree of any governmental authority, agency or court, to
which ZNG is subject, and/or the Charter of ZNG;
(b) does not require filing with, or the consent, waiver, approval,
authorisation or agreement of any person or any governmental authority
who is not a party to this Agreement; and
(c) will not cause ZNG to lose any interest in or the benefit of any
asset, right, licence or privilege it presently owns or enjoys and
will not result in the creation or imposition of any Encumbrance on or
over any of the assets of ZNG or the ZNG Interests, other than in the
form of SEG's obligation to contribute the ZNG Interests to the
Company on the terms provided herein.
17.2 There are no agreements or arrangements concerning ZNG which can be
terminated or are terminable or the terms of which can be varied or are in
any way variable as a result of any change in the control of ZNG or change
in the composition of the board of directors of ZNG.
18. SUBSIDIARIES
ZNG does not have, and has never had, any subsidiary undertakings and
does not own any stocks, shares, debentures, loan stock or other form of
securities or investments.
19. ENVIRONMENTAL
19.1 None of the soil, subterranean and ground waters, air, or flora or
fauna of Orlovo-Pashkovskiy, Mokrousovskiy, Privolniy or West-Suerskiy
subsoil plots is polluted, contaminated, or diseased in excess of
applicable environmental norms.
19.2 There is no reason to expect that the State Environmental Expert
Panels' consents with respect to ZNG's operations in the territories
covered by the geological survey licenses will not be granted, or the
issuance thereof will be substantially delayed.
B. WARRANTIES IN RELATION TO SEG
1. CORPORATE ORGANISATION
SEG is a corporation duly organised, validly existing and in good
standing under the laws of the State of Nevada, United States and has all
requisite corporate power and authority and all necessary governmental
licences, authorisations, permits, consents and approvals to own its
properties and assets and to conduct its business as now conducted and as
currently proposed to be conducted.
2. VALIDITY OF AGREEMENTS
2.1 SEG has all requisite corporate authority and power to execute and
deliver this Agreement and the documents and instruments contemplated
hereby and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the documents and
instruments contemplated hereby and the performance of SEG's obligations
hereunder have been duly authorised by the board of directors of SEG, as
applicable, no other corporate proceedings on the part of SEG are necessary
to authorize the execution, delivery and performance of the Agreement and
the documents and instruments contemplated hereby or to consummate the
transactions contemplated hereby and thereby.
2.2 This Agreement has been and, at Completion, each of the documents and
instruments required to be entered into by SEG pursuant hereto will be,
duly and validly executed and delivered by SEG and, assuming this Agreement
has been, and, at Completion, each of the documents and instruments
contemplated hereby will be, duly authorised, executed and delivered by the
parties hereto, this Agreement constitutes and, at Closing, each of the
documents and instruments required to be entered into by SEG pursuant
hereto will constitute, a valid and binding agreement of SEG, enforceable
against SEG in accordance with its terms.
3. NO CONFLICT OR VIOLATION
The execution, delivery and performance by SEG of this Agreement does
not and will not violate or conflict with any provision of the Articles of
Incorporation or by-laws of SEG or violate any provision of law, statute,
judgment, order, writ, injunction, decree, award, rule or regulation of any
court, arbitrator or other governmental or regulatory authority applicable
to SEG's business or properties.
4. CONSENTS AND APPROVALS
All consents, waivers, authorizations or approvals of any governmental
or regulatory authority, domestic or foreign, or any other person, firm or
corporation, and each declaration to or filing or registration with any
such governmental or regulatory authority, that is required of or to be
made by SEG in connection with the execution and delivery of this Agreement
by it or the performance by it of its obligations hereunder, except for
each consent, waiver, authorization, approval, declaration, filing or
registration arising out of any applicable securities laws has been made.
5. INFORMATION
5.1 All information, including, but not limited to, the information
contained in the Disclosure Schedule, relating to SEG provided by SEG or
its professional advisers, officers or employees to BP or any of its
professional advisers in the course of the negotiations leading to this
Agreement was when given, is now, and will at Completion be true, complete
and accurate and not misleading in any respect.
5.2 All information relating to SEG, its subsidiaries and their respective
businesses contained in any filings and registrations made by SEG with the
United States Securities and Exchange Commission was at the time such
filings or registrations were made true, complete and accurate in all
material respects.
6. FINANCIAL STATEMENTS
SEG's consolidated financial statements for the year ended 31 December
2004 give a true and fair view of the assets, liabilities (whether present
or future, actual or contingent, unquantified or disputed liabilities),
solvency and state of affairs and financial position of SEG and its
subsidiaries at such date and its profits or losses for the financial
period ended on that date, and have been prepared and audited in accordance
with US GAAP consistently applied and comply with the requirements of all
applicable law.
7. LITIGATION
7.1 There are no claims, actions, suits, proceedings, labour disputes or
investigations pending or, to the knowledge of SEG, threatened in relation
to SEG before any federal, state or local court or governmental,
administrative or regulatory authority, domestic or foreign, or before any
arbitrator of any nature, brought by or against SEG or its officers,
directors, employees, agents or any of its Associated Companies.
7.2 Neither SEG nor any of SEG's assets or properties is subject to, nor
to the knowledge of SEG does any basis exist for, any order, writ,
judgment, award, injunction or decree of any federal, state or local court
or governmental or regulatory authority or arbitrator, that affects SEG,
SEG's shares or SEG's assets, properties, operations, net income or
financial condition or which would interfere with the transactions
contemplated by this Agreement.
8. COMPLIANCE WITH LAW
The operations of SEG have been conducted in accordance with all
applicable laws, regulations, orders and other requirements of all courts
and other governmental or regulatory authorities having jurisdiction over
SEG and its assets, properties and operations. SEG has not received written
notice of any violation of any such law, regulation, order or other legal
requirement, nor is it in default with respect to any order, writ,
judgment, award, injunction or decree of any federal, state or local court
or governmental or regulatory authority or arbitrator, domestic or foreign,
applicable to SEG or any of its assets, properties or operations. The
business is not being and has not been conducted in violation of any
applicable order, writ, judgment, injunction, decree, statute, ordinance,
rule or regulation of any governmental entity.
9. UNDISCLOSED LIABILITIES
SEG has no indebtedness or liability, absolute or contingent, direct
or indirect, which is not shown or provided for on the balance sheets
included in SEG's consolidated financial statements for the year ended 31
December 2004 other than liabilities incurred or accrued in the ordinary
course of business (including liens for current taxes and assessments not
in default) since 31 December 2004 and there is no existing condition,
situation or set of circumstances which could reasonably be expected to
result in such a liability.
10. DECLARATION OF SOLVENCY
SEG is not insolvent and is able to pay its debts as they fall due.
SEG has not taken any corporate action nor have any other steps been taken
or legal proceedings started or threatened against SEG for its winding up,
dissolution or reorganisation or for the appointment of a receiver, trustee
or similar officer of it or of any of its assets or revenues.
11. DISCLOSURE OF CONFIDENTIAL INFORMATION
SEG has not at any time disclosed to any person (other than BP) any of
ZNG's know-how, trade secrets, exploration licences, mineral licences,
surveys, production licences, geological or geophysical research findings,
estimates in relation to proved, probable and possible gas, oil, condensate
reserves or any derivative thereof, confidential information, price lists
or lists of customers or suppliers relating to its business.
12. TAX MATTERS
SEG has duly filed all tax and information returns required to have
been filed on or before the date hereof by it with the United States, any
state, county and local government authority and any foreign jurisdiction
(including Canada) and each such return completely and accurately reflects
the income, franchise, property, sales, use, value-added, withholding,
exercise, capital or other tax liabilities and all other information
required to be reported thereon. All taxes shown as due and payable on each
return have been timely paid, or withheld and remitted, to the appropriate
taxing authority. SEG is not delinquent in the payment of any tax and has
not requested any extension with which to file any return. There is no
claim, audit, action, suit, proceeding or investigation now pending or
threatened against SEG in respect of any tax.
PART II - BP WARRANTIES
1. CORPORATE ORGANISATION
BP is a private limited company duly organised and validly existing
under the laws of England and has all requisite corporate power and
authority and all necessary governmental licences, authorisations, permits,
consents and approvals to own its properties and assets and to conduct its
business as now conducted and as currently proposed to be conducted.
2. VALIDITY OF AGREEMENTS
2.1 BP has all requisite corporate authority and power to execute and
deliver this Agreement and the documents and instruments contemplated
hereby and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the documents and
instruments contemplated hereby, and the performance of BP's obligations
hereunder, have been duly authorised by the board of directors of BP and no
other corporate proceedings on the part of BP are necessary to authorize
the execution, delivery and performance of the Agreement and the documents
and instruments contemplated hereby or to consummate the transactions
contemplated hereby and thereby.
2.2 This Agreement has been and, at Completion, each of the documents and
instruments to be entered into by BP pursuant hereto will be, duly and
validly executed and delivered by BP and, assuming this Agreement has been,
and, at Completion, each of the documents and instruments contemplated
hereby will be, duly authorised, executed and delivered by the parties
hereto, this Agreement constitutes and, at Closing, each of the documents
and instruments to be entered into by BP pursuant hereto will constitute, a
valid and binding agreement of BP, enforceable against BP in accordance
with its terms.
3. NO CONFLICT OR VIOLATION
The execution, delivery and performance by BP of this Agreement does
not and will not violate or conflict with any provision of the Memorandum
or Articles of Association of BP or violate any provision of law, statute,
judgment, order, writ, injunction, decree, award, rule, or regulation of
any court, arbitrator, or other governmental or regulatory authority
applicable to BP's business or properties.
SCHEDULE 4
DISCLOSURE SCHEDULE
Part I, Section A, Paragraph 6.3:
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Without the funding to be provided pursuant to the terms of Loan Agreement, ZNG
would be insolvent.
EXECUTED as a DEED by )
BALTIC PETROLEUM (E&P) LIMITED )
acting by a Director and )
a Director/Secretary )
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Director
/s/▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Secretary
EXECUTED as a DEED by )
SIBERIAN ENERGY GROUP INC. )
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Authorised signatory
▇▇▇▇▇ ▇▇▇▇▇▇, CEO
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Name
EXECUTED as a DEED by )
ZAURALNEFTEGAZ LIMITED )
acting by a Director )
and a Director/Secretary )
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Director
/s/▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Secretary