LOAN AGREEMENT
Agreement entered into as of the 10th day of September, 1998 between
Challenger Oil Service, PLC, ("Challenger") a corporation organized under the
laws of England, and Chaparral Resources, Inc. ("CRI"), a Colorado corporation.
WHEREAS, Challenger has entered into a drilling contract dated April 7,
1998 as amended by Amendment No. 1 dated as of September 10, 1998 ("Drilling
Contract") with Karakuduk Munai, Inc. ("KKM") a joint stock company organized
under the laws of the Republic of Kazakhstan whereby Challenger will drill
certain wells for KKM in the Karakuduk Oil Field in Kazakhstan ("Karakuduk
Field"); and
WHEREAS, CRI has a fifty percent ( 50%) interest in KKM through its wholly
owned subsidiary Central Asian Petroleum (Guernsey) Limited, ("CAP-G"); and
WHEREAS, CRI has loaned Challenger three hundred thousand United States
Dollars (US$300,000) on April 20, 1998 pursuant to a Promissory Note (the "April
Note") on which there is accrued interest as of the date hereof of seven
thousand six hundred and ninety five United States dollars (US$7,695), and one
hundred thousand United States dollars (US$100,000) on July 15, 1998 pursuant to
a Promissory Note (the "July Note") on which there is accrued interest as of the
date hereof of one thousand and seventy three United States dollars (US$1,073)
(the April Note and the July Note are hereinafter collectively referred to as
the "Existing Loans" and
WHEREAS, Challenger has requested that CRI loan Challenger an additional
six hundred thousand United States dollars (US$600,000.00) ("New Loan") which
will be consolidated and extended with the Existing Loans into a new loan in the
amount of one million eight thousand seven hundred and sixty eight United States
dollars (US$1,008,768.00) ("Loan Amount") to be evidenced by a Promissory Note
for the combined Loan Amount to be dated as of the date hereof in the form of
Exhibit A; and
WHEREAS, CRI is willing to advance the Loan Amount on the terms and
conditions set forth herein.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Loan Amount
CRI will loan Challenger the Loan Amount of one million eight thousand
seven hundred and sixty eight United States dollars (US$1,008,768.00) for a
term not to exceed twelve (12) months from the Repayment Commencement Date
(the "Loan Term") at an annual interest rate equal to the three (3) month
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London Interbank Offered Rate ("LIBOR") in effect from time to time during
the term of this Loan as published in the Wall Street Journal plus one
percentage point ("Interest Rate").
2. Use of Proceeds
2.1 Challenger has used the proceeds of the Existing Loans to ready the
Challenger No. 23 as that term is used in the Drilling Contract dated April
7, 1998 for service in Kazakstan, and agrees to use the proceeds of the New
Loan to ready the Drilling Unit as that term is defined in Amendment No.1
to the Drilling Contract dated September 10,1998, including without
limitation, purchasing equipment and procuring necessary personnel and
services.
2.2 As a condition precedent to CRI advancing the New Loan amount hereunder,
Challenger agrees to provide CRI with either a signed copy of the agreement
(with the economic terms redacted) between Challenger and Oil and Gas
Exploration Company Cracow, Ltd. whereby Challenger has obtained the right
to the use of the Drilling Unit, or alternatively, a letter from Oil and
Gas Exploration Company Cracow, Ltd., in form and substance satisfactory to
CRI and its counsel, acknowledging that the Drilling Unit is being leased
to Challenger and will be taken to Kazakhstan for use by KKM pursuant to
the Drilling Contract.
3. Repayment Terms
3.1 The Parties agree that until the first payments are made by KKM for the
Drilling Unit pursuant to the Drilling Contract, or sixty (60) days after
the date that the Drilling Unit arrives on location at the Karakuduk Field,
whichever shall first occur ("Repayment Commencement Date"), interest on
the Loan shall accrue at the Interest Rate.
3.2 Beginning with the Repayment Commencement Date, and on the next eleven
consecutive (11) monthly anniversaries thereof, Maker will pay to Payee,
the amount of eighty four thousand and two United States dollars and
seventy five cents (US$84,002.75) plus interest at the Interest Rate on the
unpaid principal of the Loan Amount. Such interest payments shall be due
and payable on or before the last day of each calendar quarter following
the Repayment Commencement Date; provided, however that the last interest
payment shall be made at the same time as the last principal payment of the
Loan Amount.
3.3 Challenger agrees that effective as of the Repayment Commencement Date, and
continuing until the Loan is repaid in full, it shall assign to an
independent third party financial institution selected by CRI ("Fiscal
Agent"), the right to receive all payments made or to be made by KKM under
the Drilling Contract. CRI shall notify Challenger of the name of the
Fiscal Agent by October 31, 1998, or the date on which the Drilling Unit is
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rigged up and ready to spud the first well in Kazakstan, whichever is
later. Upon receipt of such payments from KKM, the Fiscal Agent shall be
instructed to immediately pay to CRI $84,002.75, plus the quarterly
interest payment when due and any late fees, defaults or other charges
permitted to be collected by CRI hereunder (which amount shall be provided
to the Fiscal Agent by CRI not later than ten (10) days prior to the end of
each calendar quarter. The Fiscal Agent shall also be instructed that any
amounts received by the Fiscal Agent from KKM which are in excess of the
foregoing, will be promptly paid to Challenger within three (3) days after
their receipt by the Fiscal Agent.
4. Default
4.1 The occurrence of any one or more of the following events with respect to
Challenger shall constitute an event of default hereunder ("Event of
Default"):
(a) If Challenger shall fail to pay any amount when due hereunder, and such
failure continues for five (5) days after either CRI or the Fiscal Agent
gives written notice thereof to Challenger; provided, however, that KKM has
made the payments that are otherwise due under the Drilling Contract.
(b) If, pursuant to or within the meaning of the United States Bankruptcy
Code or any other federal or state law relating to insolvency or relief of
debtors (a "Bankruptcy Law"), Challenger shall (i) commence a voluntary
case or proceeding; (ii) consent to the entry of an order for relief
against it in an involuntary case; (iii) consent to the appointment of a
trustee, receiver, assignee, liquidator or similar official; (iv) make an
assignment for the benefit of its creditors; or (v) admit in writing its
inability to pay its debts as they become due.
(c) If a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (i) is for relief against Challenger in an
involuntary case, (ii) appoints a trustee, receiver, assignee, liquidator
or similar official for Challenger or substantially all of Challenger's
properties, or (iii) orders the liquidation of Challenger, and in each case
the order or decree is not dismissed within sixty (60) days.
4.2 Challenger shall notify CRI in writing within three (3) days after the
occurrence of any Event of Default of which Challenger acquires knowledge.
4.3 Upon the occurrence of an Event of Default hereunder (unless all Events of
Default have been cured or waived by CRI), CRI may, at its option, (i) by
written notice to Challenger, declare the entire unpaid principal balance
of the Promissory Note, together with all accrued interest thereon,
immediately due and payable regardless of any prior forbearance, (ii)
exercise any and all rights and remedies available to it under applicable
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law, including, without limitation, the right to collect from Challenger
all sums due under this Note, and (iii) impose a rate of interest that is
equal to the highest rate of interest permissible under applicable law upon
any unpaid principal balance of the Promissory Note from the date of the
occurrence of an Event of Default until such unpaid principal balance
together with any accrued interest and other fees, costs and expenses are
paid in full. Challenger shall pay all reasonable costs and expenses
incurred by or on behalf of CRI in connection with CRI's exercise of any or
all of its rights and remedies under this Note, including, without
limitation, reasonable attorneys' fees.
5. Representations and Warranties of Challenger
5.1 Challenger is a corporation that is duly organized, validly existing, and
in good standing under the laws of England and has all necessary power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby.
5.2 Challenger has duly authorized and approved by all requisite action on its
part the execution and delivery hereof, and the performance of its
obligations hereunder.
5.3 Challenger has duly executed and delivered this Agreement and, assuming CRI
has duly authorized, executed, and delivered this Agreement, this Agreement
constitutes a legal, valid, and binding obligation of Challenger,
enforceable against Challenger in accordance with its terms;
5.4 Challenger's execution, delivery, and performance of this Agreement do not
and will not: (A) violate, conflict with, or result in the breach of any
provision of Challenger's charter, by-laws, or similar organizational
documents; or (B) violate or conflict with any law or governmental order,
rule or regulation applicable to Challenger.
5.5 Challenger's execution, delivery, and performance of this Agreement do not
and will not require any consent, approval, authorization, or other order
of, action by, filing with, or notification to, any governmental authority
or any other person or entity, except for such consents, approvals,
authorizations, and other orders of, actions by, filings with, and
notifications to, any governmental authority or any other person: or entity
(A) which have been duly obtained, taken, or made, and which are in full
force and effect as of the date hereof; (B) the failure to obtain which
would not prevent Challenger from performing its obligations hereunder; and
(C) which may be necessary as a result of any facts or circumstances
relating solely to CRI.
5.6 No action is pending or, to the best knowledge of Challenger after due
inquiry, threatened, which could reasonably be expected to affect the
legality, validity, or enforceability of this Agreement, or materially and
adversely affect Challenger's ability to pay, perform, or observe its
obligations hereunder.
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6. Representations and Warranties of CRI
6.1 CRI is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware, and has all necessary power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby;
6.2 CRI has duly authorized and approved by all requisite action on its part
the execution and delivery hereof, the performance of its obligations
hereunder, and the consummation of the transactions contemplated hereby;
and
6.3 CRI has duly executed and delivered this Agreement and, assuming Purchaser
has duly authorized, executed, and delivered this Agreement, this Agreement
constitutes a legal, valid, and binding obligation of CRI, enforceable
against CRI in accordance with its terms.
7. Assignment
This Agreement may not be assigned by Challenger without the express written
consent of CRI (which consent may be granted or withheld in CRI's sole
discretion), and shall be binding upon the respective successors and
assigns of each of the parties hereto.
8. Notices
All notices authorized or required between the parties hereto shall be
addressed and effective when delivered to such persons as designated below.
Each party shall have the right to change its address at any time and/or
designate that copies of all such Notices be directed to another person at
another address, by giving notice thereof to all other parties.
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If to Challenger:
Challenger Oil Service, PLC
c/o Ogden & Maler
3100 S. Gessner, Suite 600
Houston, TX 77063
Attention: George Tatanaki
Telephone: 713-974-4466
Fax: 713-974-3355
With a copy to:
Ogden & Maler
3100 S. Gessner, Suite 600
Houston, TX 77063
Attention: Harold L. Ogden
Telephone: 713-974-4466
Fax: 713-974-3355
If to Chaparral
Chaparral Resources, Inc.
2211 Norfolk, Suite 1150
Houston, TX 77098
Attention: Howard Karren
Telephone: (713) 807-7100
Fax: (713) 807-7561
With a copy to:
Alan D. Berlin, Esq.
Aitken Irvin Lewin Berlin Vrooman & Cohn, LLP
2 Gannett Drive
White Plains, NY 10604
Telephone: 914-694-5717
Fax: 914-694-1647
9. Applicable Law and Dispute Resolution
9.1 This Agreement shall be governed by, construed, interpreted and enforced in
accordance with the substantive laws of the State of Texas, to the
exclusion of any conflicts of law rules which would refer the matter to the
laws of another jurisdiction.
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9.2 Each party hereto hereby unconditionally and irrevocably:
(A) submits, for itself and its property, to the exclusive jurisdiction of
the courts of the State of Texas and any federal court of the United States
of America, in either case, sitting in Harris County, Texas, and any
appellate court therefrom, in any action based upon, resulting from,
arising out of, or relating to this Loan Agreement, or in connection with
the authorization, preparation, negotiation, execution, delivery,
administration, performance, or enforcement hereof, or for the recognition
or enforcement of any judgment resulting from any such action;
(B) agrees that it will not commence any action except in any such court of
the State of Texas;
(C) waives, and agrees that it will not plead or make, any objection to the
venue of any state or federal court of the State of Texas and agrees that
it will not plead or make, any claim that any such action in any such state
or federal court of the State of Texas has been brought in an improper or
otherwise inconvenient forum;
(D) agrees that it will not seek any punitive damages in any such action,
and waives all rights to seek punitive damages; and
(E) agrees that the summons and complaint or any other process in any such
action may be served by mailing to any of the addresses set forth herein or
by hand delivery to a person of suitable age and discretion at any such
address, and that any such service shall be deemed to be complete on the
date such process is so mailed or delivered and to have the same force and
effect as personal service within the State of Texas.
10. Miscellaneous
10.1 This Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed an original Loan Agreement for all purposes;
provided no party shall be bound by the terms of this Agreement unless and
until all parties have executed a counterpart.
10.2 This Loan Agreement is the entire agreement of the parties and supersedes
all prior understandings and negotiations of the parties.
10.3 Except as otherwise provided herein or agreed in writing, each party shall
pay its own costs and expenses in connection with this Loan Agreement and
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the services provided hereunder.
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IN WITNESS WHEREOF, The Parties hereto have executed this Loan Agreement as of
the date first above written.
Challenger Oil Service, PLC
By:
(Print name and title)
Chaparral Resources, Inc.
By:
(Print name and title)
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