Exhibit 10.3
THIS LOAN AGREEMENT is made on 28 April 2005.
PARTIES:
OOOZAURALNEFTEGAZ, a limited liability company incorporated under the laws of
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the Russian Federation under the main state registration number (ORGN)
1024500513950, located at 00 Xxxxx Xxxxxx, Xxxxxx, 000000, Xxxxxx Oblast,
Russian Federation ("ZNG"); and
BALTIC PETROLEUM LIMITED, a company incorporated in England and Wales under
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company number 05303991 and whose registered office is at 00x Xxxxxxx Xxxxxx,
Xxxxxx X0X 0XX ("BP").
WHEREAS:
BP is willing to make available to ZNG a loan facility of US$1,267,860 upon and
subject to the terms and conditions set out in this Agreement.
IT IS THEREFORE AGREED AS FOLLOWS:
1. DEFINITIONS
For the purposes of this Agreement the following definitions will apply:
"ADVANCE" means any amount advanced or to be advanced by BP under the Loan;
"AGREEMENT" means this agreement;
"AVAILABLE FACILITY" means the Commitment from time to time less the
aggregate of each Advance then drawn down and outstanding;
"COMMITMENT" means the amount of US$1,267,860;
"DRAWDOWN NOTICE" means a notice complying with clause 5 (Drawdown Notices)
below;
"EVENT OF DEFAULT" has the meaning given in clause 10 (Events of Default)
below;
"LOAN" means the loan made available to ZNG under clause 2 (The Loan);
"OPTION AGREEMENT" means the option agreement between Siberian Energy Group
Inc. ("SEG") and BP of even date herewith; and
"OUTSTANDING ADVANCES" means amounts drawn down under the Loan but not
repaid.
2. THE LOAN
BP hereby agrees to lend to ZNG, upon and subject to the terms of this
Agreement, a loan in principal amount equal to the Commitment.
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3. DRAWDOWN
3.1 Subject to clauses 4 (Term) and 10 (Conditions Precedent) below, BP shall
make an Advance to ZNG subject to:
(a) a Drawdown Notice in respect of such Advance having been received by
BP;
(b) the amount of the Advance does not exceed the Available Facility;
(c) the representations and warranties referred to in clause 12
(Representations and Warranties) below would be true if repeated on
the intended Drawdown Date; and
(d) no Event of Default has occurred and is continuing.
3.2 Each Advance shall be paid by BP direct to the following US$ denominated
account:
Corresponding bank: The Bank of New York, New York SWIFT XXXXXXX
Receiving bank: Commercial Bank Rosbank 000-0000-000 SWIFT XXXXX
Payee: Moscow Branch of Rosbank XXXXXXXXXXXXX
Account Name: Zauralneftegaz
Account Number: XXXXXXXXXXXXXX
ZNG may only distribute the Advances to those persons and (where
applicable) to those accounts set out in Schedule 2 to this Agreement. ZNG
shall give payment instructions to the bank to act in accordance with the
instructions set out in Schedule 2 to this Agreement.
3.3 ZNG shall be responsible for satisfying all requirements of Russian
Federation law and regulation in respect of the Loan, each Advance and any
matter contemplated by this Agreement and shall indemnify BP for any loss
or damage (including legal fees) it may suffer as a result of the Loan, any
Advance or this Agreement being in contravention of such law or regulation.
ZNG shall provide to BP such information or documentation that it may from
time to time request in writing to demonstrate that all requirements of
Russian Federation law and regulation in respect of the Loan, each Advance
and any other matter contemplated by this Agreement have been satisfied and
that ZNG is in compliance with its obligations under this Agreement.
3.4 ZNG shall procure that in respect of each Advance a sum of 2% (or such
other amount as may from time to time be stipulated by applicable Russian
banking and currency control regulations) in respect thereof is placed in a
special deposit account to satisfy Russian banking and currency control
regulations (the "RETENTION REQUIREMENT").
4. TERM
4.1 Subject to clauses 4.2 and 11, the Loan shall be available until 31 July
2005, following which all Outstanding Advances shall, together with accrued
interest, be repaid by 31 October 2005.
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4.2 The Loan shall cease to be available and all Outstanding Advances shall,
together with accrued interest, be repaid immediately following Completion
(as such term is defined in the Option Agreement).
5. DRAWDOWN NOTICES
5.1 Each Drawdown Notice must be in the form set out in Schedule 1 to this
Agreement or in such other form as may be acceptable to BP and shall relate to
only one of the purposes set forth in clause 8.1 for which the Advance will be
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utilized. The Drawdown Notice shall specify the date upon which such Advance is
to be made (the "DRAWDOWN DATE") and the amount of the Advance (which shall be
the amount stated in the relevant sub-clause of clause 8.1 which sets out the
purpose for which the Advance will be utilized and an amount in respect of the
matters referred to in clause 8.2).
5.2 Unless otherwise agreed by BP, a Drawdown Notice must be received by BP not
less than 10 days prior to the proposed Drawdown Date.
5.3 The Drawdown Date in respect of the amounts referred to at clause 8.1(d)
shall be no earlier than the fifth from last day of the month to which the
amounts relate.
6. INTEREST AND DEFAULT INTEREST
6.1 Interest will be charged on the Outstanding Advances at a rate per annum
equivalent to 12% per annum. Interest will be calculated and accrue on a
daily basis (calculated on a year of 365 days and the actual number of days
elapsed) and will be payable on repayment of the Outstanding Advances.
6.2 In the event that any monies from time to time payable to BP hereunder are
not paid on the due date, interest shall be payable on the amount due, from
the date payment was due to the date payment is made, at a rate equivalent
to 6%. Any such interest will be calculated and accrue on a daily basis.
7. SECURITY
The Loan shall initially be unsecured by ZNG, but BP reserves the right (at
its sole discretion) to request security (in the form of fixed or floating
charges (or the equivalent under the law of any applicable jurisdiction)
over all or some of the assets and/or undertaking of ZNG, subject to such
assets and undertaking being capable of being charged) at any time prior to
any drawdown or whilst any monies remain outstanding under the Loan. BP
agrees and acknowledges that any such security will or may rank after any
security interests existing at such time and that the ability of ZNG to
give such security may be subject to appropriate inter-creditor agreements
or priority agreements being entered into with other lenders and/creditors
of ZNG. If security is required by BP, ZNG shall grant the same as soon as
shall reasonably be practicable thereafter. ZNG will pay BP's reasonable
costs of putting such security in place, including the cost of negotiating
and documenting such security.
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8. PURPOSE
The Loan shall be used by ZNG as follows:
(a) US$375,000 towards the outstanding invoices due by ZNG to
Basneftegeofizika in the total sum of US$588,856;
(b) up to US$178,524 to discharge all sums outstanding due by ZNG to
Bazhenov Expedition;
(c) US$250,000 to be used by ZNG to account to OOO Business Standard, a
Russian limited liability company, in respect of its services for
coordinating the gathering of data and information on the various new
exploration licences in the Kurgan region being considered by ZNG
(there are initially proposed to be 3 licences in number in respect of
areas which shall be designated by BP);
(d) a payment on account of the salaries for each of the months of April,
May, June and July 2005 for those employees identified to BP in the
sum of US$42,000 per month (to include all applicable tax);
(e) subject to clause 10.2, a further amount of US$250,000 shall be
advanced to allow the payment to OOO Business Standard, a Russian
limited liability company, of an additional payment equal to
US$250,000;
(f) US$15,148 to pay amounts owing to OOO Geo Data Consulting for
supervisory control over gravimetric and seismic surveys performed by
Bashneftegeofizika and Bazhenov Expedition; and
(g) US$4,313 to discharge all sums outstanding to JSC Central Geophysical
Expedition for preparation of costs estimate and technical plan for
seismic works.
8.2 In addition to the purposes set out in clause 8.1, the following amounts
shall be available under the Loan:
(a) US$24,860 to be used to satisfy the Retention Requirement in respect
of the Advances to be made hereunder; and
(b) US$2,015 to allow for foreign exchange rate fluctuation and to cover
for applicable bank charges in respect of the Advances to be made
hereunder.
9. REPAYMENT
ZNG may repay in US$ all or any part (provided, in the case of part only,
it is of an amount of not less than US$50,000) of the Outstanding Advances,
together with accrued interest thereon, at any time upon giving not less
than 10 days written notice to the BP. Any amounts repaid may not be
reborrowed.
10. CONDITIONS PRECEDENT
10.1 No drawdown may be made until each of the following conditions shall
have been satisfied (or waived by BP) or, if a drawdown shall previously have
been made, no further drawdown may be made until (if applicable) the conditions
in sub-clauses (f), (g) and (h) below shall have been satisfied (or waived by
BP):
(a) BP has received a copy, duly certified as being a true copy by the
General Director of ZNG, of a resolution of the authorised body of ZNG
(in terms satisfactory to BP) authorising ZNG to enter into and
perform its obligations under this Agreement and authorising a person
to execute this Agreement;
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(b) there shall have been received by BP this Agreement duly executed by a
duly authorised person for and on behalf of ZNG;
(c) a copy, notarised as being a true copy of the current Charter, as
amended, of ZNG together with a copy, notarised as aforesaid, of the
Certificate of Registration (OGRN Certificate) of ZNG; and
(d) SEG shall have entered into the guarantee and the pledge and security
agreement with BP in the form annexed hereto (together the "SECURITY
DOCUMENTS" and each a "SECURITY DOCUMENT");
(e) there shall have been received by BP a copy, duly notarised as being a
true copy of a resolution of the board of SEG (in terms satisfactory
to BP) authorizing SEG to enter into and perform its obligations under
the Security Documents, and authorizing a person to execute the
Security Documents;
(f) BP shall have received written evidence in a form satisfactory to it
that any previous Advance or Advances has or have been applied by ZNG
strictly in accordance with clause 8;
(g) if security shall have been requested under clause 7 (Security) above,
such security shall have been granted to the satisfaction of BP; and
(h) an Event of Default has not occurred and is not continuing.
10.2 In addition to satisfaction of the conditions contained in clause 10.1, the
amount referred to clause 8.1(e) may not be drawn down unless there shall
have been received by BP a notarised copy of a letter to ZNG from the
relevant licence authority(ies) of the Ministry of Natural Resources of the
Russian Federation confirming that the licences detailed in clause 8.1(c)
above have been awarded to ZNG in a form acceptable to BP.
11. EVENTS OF DEFAULT
11.1 Each of the events set out in clause 11.2 below is an Event of Default. On
or at any time after the occurrence of an Event of Default, BP may by
notice to ZNG (i) cancel the Loan (in which case a Drawdown Notice may not
be issued) and/or (ii) declare that all or part of the Outstanding
Advances, together with accrued interest and all other amounts accrued, be
immediately due and payable (whereupon they shall become due and payable
within 5 days or, in the case of an Event of Default under clause 11.2(j),
they shall become due and payable within three months of such notice) or
declare that all or part of the Outstanding Advances be payable on demand
(whereupon they shall become payable within 5 days of demand or, in the
case of an Event of Default under clause 11.2(j), they shall become payable
within three months of demand).
11.2 The events referred to in clause 11.1 above are:
(a) any liquidator, trustee in bankruptcy, judicial custodian, compulsory
manager, receiver, administrative receiver, administrator or the like
is appointed in respect of ZNG or SEG or any part of their respective
assets;
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(b) an order is made or an effective resolution passed for the winding up
of ZNG or SEG;
(c) either ZNG or SEG stops payment of all or any class of its debts or
announces an intention to do so, or a moratorium is declared in
respect of any of its indebtedness or ceases to carry on its business
or substantially the whole of its business or threatens to cease to
carry on the same or substantially changes the nature of its business;
(d) an encumbrancer takes possession or a receiver or administrator (or an
equivalent person in any jurisdiction) is appointed in respect of any
property of ZNG or SEG;
(e) ZNG makes default in the payment on the due date of any money which
may have become due hereunder;
(f) any distress, execution, sequestration or other processes are levied
or enforced upon or sued out against the property of ZNG or SEG and is
not discharged within seven days of being levied;
(g) either ZNG or SEG becomes insolvent or is unable to pay its debts (in
the case of ZNG, within the meaning ascribed to it by the Federal
Russian Law on Insolvency (Bankruptcy) or any statutory modification
or re-enactment thereof for the time being in force), or either ZNG or
SEG certifies that it is unable to pay its debts as and when they fall
due;
(h) ZNG fails to comply with any of the covenants, conditions,
undertakings or provisions contained in this Agreement or any
agreements or documents supplemental hereto in each case which ZNG has
failed to remedy within 7 days of receipt of written notice from BP
requiring it to do the same, or if any representation or warranty
given herein by ZNG to BP proves to be materially untrue;
(i) ZNG applies any Advance (or part thereof) other than for the
applicable purpose set out in clause 8 or a distribution of any
Advance (or part thereof) is made otherwise than in accordance with
Schedule 2 to this Agreement;
(j) any event or series of events occurs which, in the opinion of BP
acting reasonably, might have a material and adverse effect on the
financial condition of ZNG or the ability of ZNG to comply with its
obligations under this Agreement;
(k) if the Option Agreement terminates (for whatever reason);
(l) if at any time it is or becomes unlawful for SEG to perform or comply
with any or all of its obligations under any Security Document or any
obligation under a Security Document ceases to be legal, valid,
binding and enforceable or any Security Document or any obligation
thereof is required by applicable law or regulation to be waived,
amended, modified or abandoned; and
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(m) any Security Document does not create the security interest it
purports to create, is not effective or is challenged by SEG or ZNG.
12. REPRESENTATIONS AND WARRANTIES
12.1 As a condition of the Loan being available, ZNG hereby undertakes with and
represent and warrants to BP as follows:
(a) ZNG is a limited liability company duly 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 and to enter into this Agreement
and any other documents contemplated hereby and to borrow money and
perform its obligations hereunder and has ZNG taken all necessary
action to authorise the execution, delivery and performance of this
Agreement and each such other document;
(b) this Agreement and each other document contemplated hereby (including
any documents which may be required in connection with any security
requested under clause 7 above) constitutes or will, when executed,
constitute a legally binding obligation of ZNG and is or will be, when
executed, enforceable in accordance with its terms;
(c) the execution, delivery and performance by ZNG of this Agreement does
not and will not exceed any power granted to ZNG by or violate any
provision of:
(i) any law or regulation or any order or decree of any governmental
authority, agency or court, to which ZNG is subject; and/or
(ii) the Charter of ZNG, as amended;
(d) other than the matters referred to in sub-clauses 8.1(a), (b), (f) and
(g) in respect of which the Loan shall be applied, ZNG is not in
default in respect of any material obligation under any agreement to
which it is a party or by which it may be bound and no litigation,
arbitration or administrative proceedings are pending or threatened
which are material in the context of the Loan and the Advances made or
to be made hereunder;
(e) there is no provision of any instrument or agreement and no other
obligation by which ZNG or any of its assets is bound and no judgment,
injunction or other order or award of any judicial, administrative,
governmental or other authority or of any arbitrator which is
contravened by the execution and delivery of this Agreement or which
would be contravened by the performance or observance of any of the
obligations of ZNG in or pursuant to this Agreement;
(f) ZNG has not taken any corporate action nor have any other steps been
taken or legal proceedings started or (to the best of ZNG's belief)
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;
(g) no Events of Default exist or might result from the making of any
Advance;
(h) there does not exist any event or circumstance which has, or could
have, a material adverse effect on the business of ZNG or on its
ability to perform its obligations under this Agreement;
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(i) repayment of the Loan and payment of other amounts due hereunder by
ZNG to BP will be an unconditional obligation of ZNG which shall rank
at least pari passu with all of the other liabilities of ZNG; and
(j) all information as provided by ZNG to BP in connection with this
Agreement is true, complete and accurate in all respects and ZNG has
not concealed any facts which, if disclosed, may adversely affect BP's
decision regarding the provision of the Loan to ZNG.
12.2 ZNG shall cause all the above representations and warranties to remain
valid throughout the term of this Agreement. ZNG shall promptly notify BP
of facts which would change any of its representations and warranties or
render any of them inaccurate, untrue or misleading.
12.3 The representation and warranties set out above shall survive the execution
of this Agreement and the making of Advance hereunder and shall be deemed
to be repeated by ZNG on each day so long as any amount is or may be
outstanding hereunder with reference to the facts and circumstances then
subsisting, as if made at each such time.
13. NOTIFICATION OF EVENTS OF DEFAULT
Immediately upon becoming aware of the same, ZNG undertakes to notify BP by
fax (and by notice in writing sent by first class post) of the occurrence
of any event or matter which constitutes or might constitute an Event of
Default pursuant to clause 11 (Events of Default) and ZNG shall at the same
time inform BP of any action taken or proposed to be taken in connection
therewith.
14. COSTS AND CHARGES
14.1 ZNG will reimburse BP on repayment of the Loan hereunder for all costs or
expenses (including but not limited to legal fees and subject to a maximum
of $50,000) incurred by BP in the preparation of this Agreement and the
Security Documents.
14.2 ZNG will also reimburse BP on demand for all costs or expenses (including
but not limited to legal fees) incurred by BP in the enforcement (or in
seeking to enforce) of this Agreement and the Security Documents or in
protecting or preserving (or attempting to protect or preserve) any of its
rights hereunder.
15. GROSS UP
ZNG shall not withhold Russian profits tax from any amount payable by ZNG
under this Agreement provided that BP has, prior to the date of payment of
such amount, provided to ZNG a document confirming that BP is a resident of
the United Kingdom for the purposes of the income tax treaty between the
United Kingdom and the Russian Federation and that is certified by the tax
authority of the United Kingdom (the "NON-RESIDENT CERTIFICATE"). BP shall
use its reasonable endeavours to obtain the Non Resident Certificate from
the tax authority of the United Kingdom following the date hereof and shall
as soon as reasonably practicable following receipt thereof from the tax
authority in the United Kingdom forward the same to ZNG; PROVIDED THAT if
BP should fail to obtain the Non-Resident Certificate for any reason and
therefore provide it to ZNG, ZNG shall make such withholding or deduction
on account of any taxes it is required to make in respect of any payment
made hereunder and the amount payable by ZNG shall be increased to such
extent that the net amount received by BP after such withholding or
deduction shall equal the gross amount received to be paid under this
Agreement. ZNG shall account to the appropriate authority for any taxes
withheld or deducted and shall provide BP with such evidence that it has
done so if required by BP.
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16. SET OFF
BP may set off any indebtedness of ZNG hereunder against any indebtedness
of BP to ZNG. ZNG shall not withhold, set-off, deduct or counterclaim any
payments due to BP hereunder against any amounts owed to it by BP.
17. WAIVER
No failure to exercise nor any delay in exercising on the part of BP any
right or remedy under this Agreement shall operate as a waiver thereof nor
shall any single or partial exercise of any right or remedy of BP prevent
any further or other exercise thereof or the exercise of any other right or
remedy. The rights and remedies of BP hereunder are cumulative and are not
exhaustive of any rights or remedies provided by law.
18. NOTICES
Any notice to be given pursuant to the terms of this Agreement shall be
given in writing to the party due to receive such notice at the address
stated below or such other address as may have been notified to the other
parties in accordance with this clause. Notice shall be delivered
personally or sent by first class pre-paid recorded delivery or registered
post (air mail if overseas) or by facsimile transmission to the numbers and
parties detailed below and shall be deemed to be given in the case of
delivery personally on delivery and in the case of posting (in the absence
of evidence of earlier receipt) 48 hours after posting (six days if sent by
air mail) and in the case of facsimile transmission on completion of the
transmission provided that the sender shall have received printed
confirmation of transmission.
ZNG Attn: Fax:
c/o Siberian Energy Group Inc. Xxxxx Xxxxxx +1 (905) 771-9198
000 Xxxxxxx Xxxxxx
0xx xxxxx
Xxx Xxxx, XX 00000
XXX
BP Attn: Fax:
00x Xxxxxxx Xxxxxx Xxxxx Xxxxxx x00 00 0000 0000
Xxxxxx X0X 0XX
Xxxxxx Xxxxxxx
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19. ASSIGNMENT
ZNG may not assign or transfer all or any part of its rights or obligations
hereunder, save with the prior written consent of BP. BP may at any time
assign or otherwise transfer all or any part of its rights and obligations
hereunder.
20. LAW AND DISPUTES
This Agreement shall be governed by and construed in accordance with the
laws of England. Any dispute arising out of or in connection with this
Agreement, including any question regarding its existence, validity or
termination, or the legal relationships established by this Agreement,
shall be referred to and finally resolved by arbitration under the Rules of
the London Court of International Arbitration, which Rules are deemed to be
incorporated by reference into this clause. All arbitration proceedings
shall be conducted in English before a single arbitrator in London.
Judgment on any resulting award may be entered in any court having
jurisdiction over the affected party, and may be executed against the
assets of the affected party in any jurisdiction. The arbitrator shall have
jurisdiction to award, and shall award, the prevailing party its reasonable
attorneys fees, costs and expenses.
21. THIRD PARTIES
No term of this Agreement shall be enforceable under the Contracts (Rights
of Third Parties) Xxx 0000 by a third party.
22. LANGUAGE
This Agreement will be executed in English and in Russian. In case of any
conflict between the English and Russian versions, the terms of the English
version should prevail.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
OOO ZAURALNEFTEGAZ
Signed: /s/ Xxxx Xxxxxxxxx
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Name (print): Xxxx Xxxxxxxxx
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Position: President and General Director
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BALTIC PETROLEUM LIMITED
Signed: /s/ Xxxxx X. Xxxxxx
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Name (print): Xxxxx X. Xxxxxx
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Position: Chief Executive
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