JOINT VENTURE AGREEMENT
THIS
JOINT VENTURE AGREEMENT ("Agreement"), made and entered into as of this 16
day
of July, 2008 (the “Effective Date”), by and between TOT ENERGY, INC., a
Delaware company with its principal place of business at 000 X. Xxxxxxxx Xxxx.,
Xxxxx 0000, Xxxxx, XX 00000 ("TOT Energy"), and XXXXXX XXXXXXX
(“Xxxxxxx”).
RECITALS
WHEREAS,
the Parties desire to form a joint venture under the name TOT SIBBNS, LTD (“TOT
SIBBNS”) whereby TOT SIBBNS will continue and expand the business of SIBBNS
pursuant to the terms and conditions contained herein.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual covenants and premises contained
herein, and other valuable consideration, the sufficiency and receipt are hereby
acknowledged, the parties agree as follows:
ARTICLE
I
GENERAL
PROVISIONS
1.01 Business
Purpose. The business of the TOT SIBBNS shall be to own, lease, manage, and
develop its assets and personnel (as provided herein) for the purpose of
offering geological surveys and related services to oil and gas development
companies in the Russian Federation, the Republic of Georgia, and Kazakhstan.
1.02 Consideration.
As consideration for entering into this Agreement and transferring its assets
to
TOT SIBBNS, TOT Energy shall pay to Bogarad 5,000,000 shares of the common
stock
of TOT Energy, Inc. (the “Purchase Shares”) payable as follows:
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3,000,000
Purchase Shares payable upon Closing (following the organization
of TOT
SIBBNS (as provided in Section 3.01), audit of SIBBNS (as provided
in
Section 3.02), appraisal of the SIBBNS Assets, and transfer of the
SIBBNS
Assets (as provided in Section 3.04); and
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2,000,000
Purchase Shares upon TOT SIBBNS having US$10,000,000 of aggregate
gross
revenues (in accordance with U.S.
GAAP).
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1.03 Adjustment
to Consideration. If 36 months after the Closing, (i) SIBBNS and Bogarad have
complied with all of their obligations under this Agreement, (ii) EVVGENY has
appointed a director to the Board of TOT Energy who continues to serve, (iii)
TOT SIBBNS has generated revenue of at least US$10,000,000, and (iv) the market
value of a share of TOT Energy stock is less than $1.00, then TOT Energy will
make an additional payment to Bogarad in an amount equal to the difference
between US$1.00 and the weighted average of the trading value over the previous
10 trading days times the number of the Purchase Shares still held by Bogarad
(the “Contingent Payment”). If at 36 months after the Closing, the market price
of TOT Energy stock is greater than $1.00 per share, then the adjustment
provided in this Section 1.03 will become null and void. If TOT Energy opts
not
to make the Contingent Payment, then SIBBNS may opt to receive TOT Energy’s
interest in TOT SIBBNS (for a payment to TOT Energy in the amount of fair market
value of any assets acquired directly by TOT SIBBNS (other than the SIBBNS
Assets), and 75% of the retained earnings, accounts receivable and
cash).
1.04 Closing.
The Parties shall schedule a Closing to this Agreement upon completion of the
conditions precedent outlined in Section 1.02 above.
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(a)
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At
the Closing, Bogarad shall deliver to TOT
Energy:
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(i)
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Certificate
representing ownership interest of 75% of TOT
SIBBNS;
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(ii)
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Copies
of all licenses required to conduct the business of TOT SIBBNS and
a
certificate of SIBBNS that such licenses are all of the necessary
licenses
for the conduct of such business;
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(iii)
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Evidence
of the transfer of all SIBBNS Assets to TOT SIBBNS and a certificate
of
the Manager that all such SIBBNS Assets were reflected in the appraisal
of
such SIBBNS Assets and that such SIBBNS Assets remain the property
of TOT
SIBBNS;
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(iv)
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The
Budget; and
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(v)
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A
notice to TOT Energy naming a designee to the Board of Directors
of TOT
Energy (such designee must be approved by the Board of Directors
of TOT
Energy before assuming such post).
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(b)
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At
the Closing, TOT Energy shall deliver to
Bogarad:
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(i)
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A
certificate representing 3,000,000 shares of the common stock of
TOT
Energy.
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1.05 Term
of the Agreement. This TOT SIBBNS shall commence on the Effective Date and
shall
continue in existence until terminated, liquidated, or dissolved by law or
as
hereinafter provided.
ARTICLE
II
GENERAL
DEFINITIONS
The
following comprise the general definitions of terms utilized in this
Agreement:
2.01
Affiliate. An Affiliate of an entity
is a person that, directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control of such entity.
2.02
Capital Contribution(s). The capital
contribution to TOT SIBBNS shall be those actually made by the parties,
including property, cash and any additional capital contributions made.
2.03 Manager.
The Manager shall be Bogarad.
ARTICLE
III
OBLIGATIONS
OF THE PARTIES
The
Parties shall work together to ensure the following are completed and agreed
upon:
3.01 Formation.
The Manager will oversee the formation of TOT SIBBNS as a business entity in
the
Russian Federation.
3.02 Audit.
As a business entity registered with the Securities and Exchange Commission
in
the United States, TOT Energy must audit the assets and business of SIBBNS
that
will become the business and assets of TOT SIBBNS. TOT Energy will be
responsible for the payment for such audits.
3.03 License.
The Manager will use his best efforts to have the necessary licenses issued
by
the appropriate regulatory authorities for TOT SIBBNS to conduct the business
as
previously conducted by SIBBNS. All Parties will endeavor to have TOT SIBBNS
licensed to conduct its business in all territories outside of Russia where
TOT
SIBBNS intends to do business.
3.04 Assets.
The Manager shall ensure the SIBBNS Assets are appraised by an independent
appraisal firm approved by TOT Energy’s auditors at TOT Energy’s expense prior
to Closing. Once TOT SIBBNS has the proper licenses as contemplated in Section
3.03 above and the SIBBNS Assets have been appraised, Bogarad will acquire
all
of the assets of SIBBNS and will contribute those assets to TOT SIBBNS and
TOT
SIBBNS will offer all of SIBBNS’ employees’ equivalent positions with TOT
SIBBNS. To the extent SIBBNS needs access the assets or personnel for the
performance of its existing contracts, SIBBNS will have reasonable access to
such assets and personnel on a cost plus basis (to be negotiated between the
Parties).
3.05 Employees.
The Manager will offer employment to all (or substantially all in the Manager’s
discretion) of SIBBNS employees with employment to begin November 1,
2008.
3.06 Contracts.
The Manager and SIBBNS will have TOT SIBBNS bid on all future contracts related
to the prior business of SIBBNS and the future business of TOT SIBBNS. Moreover,
the Manager and SIBBNS will use their aggregate business contacts with its
former contracting partners to expand TOT SIBBNS business in territories outside
of Russia. TOT Energy will endeavor to identify opportunities outside of Russia
for additional business, and the Parties will work together to have TOT SIBBNS
bid on contracts related to such opportunities.
3.07 Budget.
The Manager will prepare, or oversee the preparation of, a preliminary budget
for the business of TOT SIBBNS which shall consist of a written itemized
accounting of the anticipated costs and expenses associated with growing the
business as contemplated herein, including without limitation, all material
costs, labor costs, contractor fees, and soft costs (the “Budget”). The costs
associated with the Budget shall be divided by the Parties as follows: (i)
TOT
Energy shall be responsible for the funding of all new hires related to the
growth of the business and compliance with SEC reporting or auditing
requirements effective immediately and (ii) Bogarad shall be responsible for
all
other costs through first quarter of 2009. Thereafter, assuming TOT SIBBNS
has
acquired operating contracts, the Parties will fund any necessary capital
requirements in proportion to their ownership interest in TOT SIBBNS. All
expenditures for TOT SIBBNS shall be within the Budget. Any expenditures not
included in the Budget shall be submitted to the Board of Directors of TOT
SIBBNS for approval prior to commitment on such expenditures.
3.08 Operating
Plan. The Manager will prepare an operating plan of TOT SIBBNS, including,
without limitation, a time schedule with milestones for the achievement of
the
financial and operational goals of TOT SIBBNS. The Operating Plan should work
in
conjunction with the Budget of TOT SIBBNS.
3.09 Management
Bonus Pool. TOT SIBBNS will reserve 10% of its net income for a bonus pool
that
will be paid to TOT SIBBNS’ management team, in the discretion of the Board of
TOT SIBBNS at the end of each year. The Board may make an adjustment to the
amount allocated for this bonus pool to reflect inter-company revenue generated
by the activities of TOT SIBBNS.
3.10
Compliance with Law. The Parties shall use their best efforts to cause TOT
SIBBNS at all times to perform and comply with the provisions of all applicable
laws, including without limitations, provisions of the laws of the United States
that apply to foreign owned subsidiaries and foreign corrupt
practices.
ARTICLE
IV
CAPITAL
ACCOUNTS
4.01
Dividends. At the discretion of the
Board of Directors (as to the amount), the net cash proceeds from the operations
of TOT SIBBNS, less the amount necessary to pay expenses, debt payments, capital
improvements, replacements and contingencies, including such general overhead
expenses as are permitted by the Budget, shall be distributed not later than
the
30th
day
after the end of each fiscal quarter in proportion to each Party’s ownership
interest. Until the amount of equity issued to any particular Party changes,
all
profits, losses and other allocations to TOT SIBBNS, shall be allocated as
follows at the conclusion of each fiscal year: TOT Energy 75% and Bogarad 25%.
ARTICLE
V
MANAGEMENT
5.01
Manager; Board of Directors. The
Manager shall have full, exclusive and complete authority and discretion in
the
day-to-day management and control of the business of TOT SIBBNS for the purposes
herein stated and shall make all decisions affecting the business of TOT SIBBNS.
Strategic management of TOT Energy will be the responsibility of the Board
of
Directors of TOT SIBBNS. TOT Energy will have the ability to appoint a majority
of the Board of Directors of TOT SIBBNS. The initial Board of Directors shall
have thee (3) directors, of which TOT Energy will have the right to appoint
two
(2) such directors.
5.02 Powers
of the Manager. Except as otherwise provided in this Agreement (including,
without limitation, the provisions of this Agreement relating to expenditures
within the Budget), the Manager shall have all of the following powers, which
may be exercised in its sole and absolute discretion, on behalf of TOT
SIBBNS:
(a) Expend
the capital and profits of TOT SIBBNS in furtherance of TOT SIBBNS business.
(b) Sell
any TOT SIBBNS Assets in the ordinary course of TOT SIBBNS’
business.
(c) Borrow
money and to issue evidences of indebtedness on behalf of TOT SIBBNS in TOT
SIBBNS’ ordinary course of business and provided such borrowings are in an
amount not in excess of US$500,000.
(d) Execute
and deliver such documents on behalf of TOT SIBBNS as may be deemed necessary
or
desirable for TOT SIBBNS’ business.
(e) Perform
or cause to be performed all of TOT SIBBNS’ obligations under any agreement to
which TOT SIBBNS is a party.
(f) Bring
and defend actions at law or in equity, and to pay, collect, compromise,
arbitrate or otherwise adjust any and all claims or demands of or against TOT
SIBBNS.
(g) Employ
agents, attorneys, architects, accountants, engineers, contractors, sales,
maintenance, administrative or secretarial personnel or other persons necessary
for the maintenance of any TOT SIBBNS’ property and the operation of the
business of TOT SIBBNS.
(h) Open
and maintain bank accounts for the deposit of TOT SIBBNS funds, with withdrawals
to be made on TOT SIBBNS’ behalf, upon such signature or signatures as Bogarad
may designate.
(i) Do
any act that is necessary and incidental to carry out the
foregoing.
5.03 Major
Decisions. Notwithstanding anything herein to the contrary, Bogarad shall not
undertake the following actions without the prior consent of the Board of
Directors:
(a) The
sale of the assets of TOT SIBBNS exceeding US$500,000 in value (except in the
ordinary course of the TOT SIBBNS’ business).
(b) The
expenditure of TOT SIBBNS’ capital, profits, and other funds in excess of
US$500,000 (unless otherwise provided for in the Budget).
(c) The
borrowing or incurrence of indebtedness, or the refinancings of existing
indebtedness of TOT SIBBNS, which borrowings are secured by assets of TOT
SIBBNS.
(d) The
borrowing of monies by TOT SIBBNS in excess of US$500,000.
ARTICLE
VI
RESTRICTIONS
ON TRANSFER OF INTERESTS
6.01 Restrictions
on Transfer. Notwithstanding any other provision of this Agreement, no Party
shall, directly or indirectly, transfer any ownership of such Party (including
the economic attributes associated therewith), unless such Transfer is in
accordance with the terms of this Article VI. The restrictions on Transfer
set
forth in this Article VI may be waived by the unanimous consent of the
Parties.
6.02 Right
of First Refusal. If a Party (“Offering Party”) desires to sell or otherwise
Transfer all, or any part, of such Party’s ownership interest (the “Offered
Interest”) then such Party may do so, only to a Bona Fide Purchaser, and in
accordance with the following procedure:
a) the
Offering Party shall first offer to sell the Offered Interest to the remaining
Party(s) (the “Non-Offering Parties”) by delivering to TOT SIBBNS and each of
the Non-Offering Parties a written notice of the proposed Transfer. Such notice
(a “Transfer Notice”) shall state the number of [shares] offered, together with
the proposed price and other material terms of the Bona Fide Purchaser’s offer.
The Non-Offering Parties shall have the right, within 30 days after receipt
of
the Transfer Notice (the “RFR Period”), to elect to purchase the Offered
Interest in such amounts as the Parties shall agree amongst themselves, or
failing agreement, pro rata, in accordance with their Percentage Interest in
the
TOT SIBBNS, at a price equal to the amount proposed to be paid by the Bona
Fide
Purchaser, pro-rated to the portion of such Offering Party’s Interest being
acquired by each purchasing Non-Offering Party (the “RFR Price”).
b) If
the Non-Offering Parties do not elect to, or fail to, purchase all of the
Offered Interest within the applicable period, then the Offering Party shall
be
free to Transfer all of the Offered Interest to a Bona Fide Purchaser (subject
to Sections 3 and 4 below) within 30 days following the earlier of: (i) the
expiration of the RFR Period, or (ii) the giving of written notice by all
of the Non-Offering Parties to the Offering Party that they elect to purchase
none or a specified portion of the Offered Interest. The Offering Party shall
notify the Company in writing of the consummation of the Transfer of the Offered
Interest.
c) If
the Offering Party does not Transfer all of the Offered Interest within the
30-day period specified in subsection (b) above, then no subsequent Transfer
may
be made without first re-offering the Offered Interest to the Non-Offering
Parties in accordance with this Section 2.
6.03 Tag-Along
Rights. In the event that any Offering Party intends to Transfer any of the
Interest held by him, her or it, then, within the RFR Period, any Non-Offering
Party may, by notification to the Offering Party and the Company, elect to
participate in such Transfer in lieu of exercising its right of first refusal.
Any Non-Offering Party that fails to notify the Offering Party within such
period shall be deemed to have waived its rights hereunder. If a Non-Offering
Party so notifies the Offering Party it shall have the right to sell, at the
same price and on the same terms and conditions as the Offering Party, an amount
of Interest equal to the Interest the Bona Fide Purchaser actually proposes
to
purchase (after giving effect to any Interest purchased by Non-Offering Parties
pursuant to Section 6.02 above) multiplied by a fraction, the numerator of
which
shall be the number of Interests issued and owned by any such Non-Offering Party
and the denominator of which shall be the aggregate number of Interest the
Bona
Fide Purchaser actually proposes to purchase (after giving effect to any
Interest purchased by Non-Offering Parties pursuant to Section 6.02 above),
plus
the aggregate number of Interest held by the Non-Offering Parties exercising
their tag-along rights pursuant to this Section.
a) If
at any time one or more Offering Parties propose to Transfer Interests to a
Bona
Fide Purchaser representing more than sixty percent (60%) of the Interest,
the
Offering Party may require all Parties holding Interests to participate in
such
Transfer in accordance with this Section 6.04. Each Member (including the
Transferring Member) shall then have the obligation to Transfer, at the same
price per share and upon identical terms and conditions as such proposed
Transfer, all Interest owned by such Member. The proposed Transfer may be for
cash or other consideration including securities, issued as part of a merger,
share exchange, consolidation, reorganization, recapitalization, combination
or
similar transaction.
b) Each
Offering Party electing to require other Members to participate in a Transfer
pursuant to this Section 6.04 shall deliver to the Company and each other Member
a notice containing the information required in a First Refusal Notice pursuant
to the Article.
c) Each
Party shall make representations as to good title and the absence of liens
with
respect to such Party’s Interest required to be transferred and as to the
ownership of such Party’s Interest and the authority for and the validity and
binding effect of any agreements entered into by such Party in connection with
such Transfer; provided
that no
Party shall be required to make representations or warranties which are more
extensive or accept obligations which are more onerous than those which are
made
or accepted by the Offering Party. No Party is required to effect a Transfer
pursuant to this Section which a Member is unable to effect. Should any
transaction for which a notice is given pursuant to this Section not be
completed within one hundred twenty (120) days from the effective date of the
notice, the Parties will have no further obligation to proceed with the
transaction for which the notice was given and the Interest which were the
subject mater of the transaction will remain subject to the terms and conditions
of the this Agreement, provided that Offering Parties representing more than
sixty percent (60%) of the Interest may, in good faith, extend this period
for
one time only for an additional period of thirty (30) days, if, in their
reasonable judgment, the contemplated transaction remains likely to be
consummated or the contemplated transaction has not been consummated because
a
Party has defaulted in his or her obligations hereunder.
ARTICLE
VII
INDEMNIFICATION
OF TOT SIBBNS
Except
as
expressly provided herein, the Parties to this Agreement shall have no liability
to the other for any loss suffered which arises out of any action or inaction
if, in good faith, it is determined that such course of conduct was in the
best
interests
of TOT
SIBBNS and such course of conduct did not constitute negligence or misconduct.
The Parties to this Agreement shall each be indemnified by the other against
losses, judgments, liabilities, expenses and amounts paid in settlement
of any
claims sustained by it in connection with TOT SIBBNS.
ARTICLE
VIII
ACCOUNTS
8.01 Books.
TOT SIBBNS will maintain complete and accurate books of TOT SIBBNS’s affairs at
TOT SIBBNS principal office. TOT Energy will have access thereto at all
reasonable times. TOT Energy shall establish such audit controls as it deems
necessary to comply with its obligations pursuant to the rules and regulations
of the SEC and other regulators. Such books and records shall be maintained
in
accordance with applicable Russian account rules and shall be translated into
GAAP as necessary.
8.02 Reports,
Returns and Audits. The Manager will furnish or will cause to be furnished
to
each Party:
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(a)
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Within
fifteen (15) days after the end of each calendar month a cash receipt
and
disbursement statement for TOT SIBBNS for the preceding month.
Additionally, such monthly statement shall include a statement from
the
Manager as to additional cash requirements of TOT
SIBBNS.
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(b)
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Within
thirty (30) days after the end of the Fiscal Year, audited financial
statements for TOT SIBBNS prepared by auditors as retained by TOT
Energy,
such financial statements to include a statement of income, balance
sheet,
change in capital and statement of changes in cash flow.
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(c)
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Within
thirty (30) days prior to the end of a Fiscal Year an annual budget
for
TOT SIBBNS for the next Fiscal Year of TOT SIBBNS. Such budget shall
reflect the Manager’s reasonable estimates of the anticipated revenue and
expenses of TOT SIBBNS on a monthly basis for TOT
SIBBNS.
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ARTICLE
IX
MISCELLANEOUS
PROVISIONS
9.01
Validity. In the event that any
provision of this Agreement shall beheld to be invalid, the same shall not
affect in any respect whatsoever the validity of the remainder of this
Agreement.
9.02 Disputes.
Any controversy arising under or relating to the interpretation or
implementation of this Agreement or the breach thereof shall be construed under
the laws of the State of Florida, USA and shall be settled by binding
arbitration in London, England, under the rules of the International Arbitration
Association. The prevailing party in arbitration and litigation shall be
entitled to payment for all costs and attorney’s fees (both trial and appellate)
incurred by it in regard to the proceedings.
9.03
Integrated Agreement. This Agreement
constitutes the entire understanding and agreement among the parties hereto
with
respect to the subject matter hereof, and there are no agreements,
understandings, restrictions or warranties among the parties other than those
set forth herein provided for.
9.04
Headings. The headings, titles and
subtitles used in this Agreement are for ease of reference only and shall not
control or affect the meaning or construction of any provision hereof.
9.05
Notices. Except as may be otherwise
specifically provided in this Agreement, all notices required or permitted
hereunder shall be in writing and shall be deemed to be delivered when deposited
with an international courier postage prepaid, certified or registered mail,
return receipt requested, addressed to the parties at their respective addresses
set forth in this Agreement or at such other addresses as may be subsequently
specified by written notice.
9.06
Severability. Every provision hereof
is intended to be severable, and if any term or provision hereof is illegal
or
invalid for any reason whatsoever or would affect TOT SIBBNS status for income
tax purposes, such provision shall be invalid, but such illegality or invalidity
shall not affect the validity of the remainder of the Agreement.
9.07
Other Instruments. The parties hereto
covenant and agree that they will execute each such other and further
instruments and documents as are or may become reasonably necessary or
convenient to effectuate and carry out the purposes of this Agreement.
9.08 Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed
to
be an original, and shall be binding upon the Party or Parties who executed
the
same, but all of such counterparts shall constitute one and the same
agreement.
9.09 Construction.
Every covenant, term, and provision of this Agreement shall be construed simply
according to its fair meaning and not strictly for or against any
Party.
9.10 Amendments/Modifications.
This Agreement may only be amended or modified by a written instrument executed
by all Parties hereto and/or bound hereby.
[Signatures
appear on following page]
IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
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TOT
ENERGY, INC.
By:
________________________
Name:
Xxxx Xxx
Title:
Chief Executive Officer
XXXXXX
XXXXXXX
____________________________
Xxxxxx
Xxxxxxx
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