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EXHIBIT 10(21)
AGREEMENT IN PRINCIPLE
CONCERNING PARTICIPATION BY
CANARGO
IN THE
GEORGIAN AMERICAN OIL REFINERY
This Agreement in Principle ("AIP") is by and between CanArgo Petroleum Products
Limited ("CanArgo") a legal entity registered in Guernsey, British Isles, the
Georgian American Oil Refinery ("GAOR"), a legal entity registered in the
Republic of Georgia, State Company Georgian Oil ("Georgian Oil") a legal entity
registered in the Republic of Georgia, Georgian British Oil Service Company
("GBOSC") a legal entity registered in the Republic of Georgia, and Argonaut Oil
& Gas Ltd ("Argonaut") a legal entity registered in Cyprus (CanArgo, GAOR,
Georgian Oil, GBOSC and Argonaut are hereinafter referred to as the "Parties" or
"Party") concerns participation by CanArgo in GAOR, and in the refinery in
Sartichala, Georgia.
WHEREAS,
X. XXXX was created and founded by Georgian Oil (34% ownership) GBOSC (33%
ownership) and Argonaut (33% ownership) in September 1997, with a current
Charter Capital of $30,000 and,
X. XXXX is the owner of an oil refinery located in Sartichala, Republic of
Georgia (the "Refinery"), and,
C. CanArgo sister companies are involved in exploration & production of oil
and gas in the Republic of Georgia through Ninotsminda Oil Company and
CanArgo (Nazvrevi) Ltd, and,
D. CanArgo and GAOR wish to conclude an agreement through which CanArgo
becomes a shareholder of GAOR and participates in the Refinery and the
current shareholders of GAOR, namely Georgian Oil, GBOSC and Argonaut Oil
wish to invite CanArgo to become a shareholder in GAOR to develop the
operation of the Refinery, according to priorities given below:
The First Phase of GAOR operation The Refinery is located in Sartichala,
Georgia. Capacity of the Refinery is 2,000 barrels per day.
The Refinery is designed to process locally produced crude oil and imported oil.
Phase I represents the market entry position for GAOR.
Products produced are:
1. Naphtha (for gasoline blending)
2. Diesel (For vehicles)
3. Mazut
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The local market in Georgia will consume all the products produced in GAOR Phase
I. After a three to six month market entry posture, the GAOR is projected to
make an annual profit of $2,624,000. After Profit Tax and taking into
consideration depreciation fund annual cash flow of GAOR, which will be split
between share holders, is estimated to generate annually $2,496,000.
The Second Phase of GAOR operation includes expansion, the doubling in size of
the crude oil fractionation process to 4,000 barrels per day.
Phase II products produced by GAOR upon completion will be:
1. Naphtha
2. Jet Fuel
3. Diesel
4. Mazut
After completion of Phase II GAOR is projected to make annual balance profit of
$6,194,000. After Profit Tax and considering depreciation fund GAOR annual cash
flow, which will be split between the share holders are estimated to make
$5,611,000. This Phase is scheduled for commencement no later than end of the
second quarter of 1999. Future expansion plans will be formulated based on the
market conditions in Georgia, income generated by GAOR and amount of crude oil.
Long term plans for GAOR are as follows:
1. Increase of its market share
2. Installation of a catalytic reformer or cracker to produce high octane
gasoline
3. Increase of Refinery capacity and optimization of its profitability
4. Establishment of brand recognition
5. Distributor base development
6. Determination of retail outlets
7. Development of export markets
At August 31, 1998 GAOR has no debts other than $2,470,653 to Argonaut and
GBOSC.
WHEREAS CanArgo has been familiarised with the main priorities of the Refinery
development, agrees with them and is willing to become one of the owners and
investors of the Refinery,
NOW HEREBY THE PARTIES AGREE AS FOLLOWS:
1) It is agreed that Argonaut and GBOSC (the "Primary Financiers")
have provided finance to the sum of $2,342,653 to GAOR
($1,661,653 from Argonaut and $681,000 from GBOSC), and that this
funding is to be recovered from 50% of the after tax net profit
of GAOR as detailed in Article 6.1 of the GAOR Foundation
Agreement. This financing is on an
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interest free basis. Although the Primary Financiers will begin
obtaining repayment of this finance from the profits made in the
First Phase it is unlikely that all of this finance will have
been recovered by the time the Second Phase becomes operational.
In this event there would be "Primary Financier Unrecovered
Investments".
2) The approximate cost of second 2,000 barrel per day capacity
equipment purchase, transportation, installation of additional
tanks and creation of infrastructure connected with it ("Second
Equipment) is $1,860,000. The mentioned investment shall be made
by CanArgo in order to become 24% owner of the Refinery.
3) CanArgo will commence recovering the investments from the moment
that the Second Equipment becomes operational, or at the latest
30th June 1999, according to the following principle: 50% of
GAOR's after tax net profit will go to recovering the investments
in proportion to the unrecovered investment provided by each
financier. For example: if the total unrecovered investment is
$3,500,000 (i.e. Primary Financier Unrecovered Investments plus
CanArgo unrecovered investments) and CanArgo's unrecoverable
investments are $1,860,000 then CanArgo's share from total
recoverable amount will be 1,860,000/3,500,000 = 53.1%, this
being 53.1% of 50% of GAOR's after tax net profit.
4) The remaining 50% of after tax net profits of GAOR will be
dividended out to the shareholders in proportion to their
ownership in GAOR at that time. This principle will apply to
CanArgo will from the moment that the Second Equipment becomes
operational, or at the latest 30th June 1999.
5) CanArgo shall gain it's ownership in the following manner:
a) On or before 12th September 1998 CanArgo shall make its
First Contribution and transfer $500,000 as investment to
GAOR's account, and the Charter Capital of GAOR shall be
increased by $2,069 to $32,069 with CanArgo paying $2,069
into the Charter Capital. For this contribution CanArgo
shall gain a 6.4516% interest and ownership in GAOR and
GAOR's Charter Capital at the moment the First Contribution
is received in GAOR's account. GAOR, GBOSC, Georgian Oil and
Argonaut undertake to register CanArgo's interest in GAOR
within two weeks of receiving the Contribution, and the GAOR
Foundation Agreements will be modified to incorporate
CanArgo and the principles of this AIP.
b) On or before 19th October 1998 CanArgo shall make its Second
Contribution and transfer a further $500,000 as investment
to GAOR's account, and the Charter Capital of GAOR shall be
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increased by $2,376 to $34,444 with CanArgo paying $2,376
into the Charter Capital. For this contribution CanArgo
shall gain a further 6.4516% interest (total interest
12.9032%) and ownership in GAOR and GAOR's Charter Capital
at the moment the Second Contribution is received in GAOR's
account. GAOR, GBOSC, Georgian Oil and Argonaut undertake to
register CanArgo's increased interest in GAOR within two
weeks of receiving the Contribution.
c) On or before 31st December 1998 CanArgo shall make its Third
Contribution and transfer a third sum of $500,000 as
investment to GAOR's account, and the Charter Capital of
GAOR shall be increased by $2,756 to $37,200 with CanArgo
paying $2,756 into the Charter Capital. For this
contribution CanArgo shall gain a further 6.4516% interest
(total interest 19.3548%) interest and ownership in GAOR and
GAOR's Charter Capital at the moment the Third Contribution
is received in GAOR's account. GAOR, GBOSC, Georgian Oil and
Argonaut undertake to register CanArgo's increased interest
in GAOR within two weeks of receiving the Contribution.
d) On or before 31st January 1999 CanArgo shall make its Fourth
and final Contribution and transfer the sum of $360,000 as
investment to GAOR's account, and the Charter Capital of
GAOR shall be increased by $2,273 to $39,474 with CanArgo
paying $2,273 into the Charter Capital. For this
contribution CanArgo shall gain a further 4.6451% interest
(total interest 24%) interest and ownership in GAOR and
GAOR's Charter Capital at the moment the Fourth Contribution
is received in GAOR's account, and the Charter Capital shall
be $39,474. GAOR, GBOSC, Georgian Oil and Argonaut undertake
to register CanArgo's increased interest in GAOR within two
weeks of receiving the Contribution.
6) Each owner of GAOR shall transfer 8% for CanArgo benefit, i.e.
total CanArgo interest in GAOR will be 24%. The final ownership
will than be Georgian Oil - 26%, GBOSC - 25%, CanArgo - 24% and
Argonaut - 25%.
7) Georgian Oil, GBOSC, Argonaut and GAOR agree not to change the
Charter Capital of GAOR without the written consent of CanArgo.
8) According to the Foundation Agreement the Board of Directors (the
"Board") of GAOR currently consists of nine members. After
CanArgo has made its First Contribution the Board of Directors of
GAOR (the "Board") will be increased to ten members with the
addition of one member from CanArgo, after CanArgo has made it's
Second Contribution
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the Board shall be increased to eleven members with the addition
of a further member from CanArgo (and in addition all decisions
of the Board will require the concurring vote of at least nine
members) and after CanArgo has made it's Fourth Contribution the
Board shall be increased to twelve members with the addition of a
further member from CanArgo, and after CanArgo has made it's
Fourth Contribution the board shall be increased to twelve
members with the addition of a further member from CanArgo. By
mutual consent the number of board members may be reduced, but
with the intention being that Georgian Oil, GBOSC, Argonaut and
CanArgo are equally represented.
9) In the event that CanArgo does not meet a Contribution on or
before the due date, CanArgo shall loose its rights to gain
further interest in GAOR, but will retain the interest that it
has already paid for.
10) The investment from CanArgo will be used exclusively for the
purchase and installation of the Second Equipment, in the event
that the purchase and installation and successful commissioning
of the Second Equipment is achieved for a price less than
$1,860,000 ("Total Contribution") then any remainder will be used
for the development of the Refinery or with the unanimous
agreement Georgian Oil, GBOSC and Argonaut the excess may be
split between Georgian Oil, GBOSC and Argonaut in proportion to
their shares in GAOR as of the date of this AIP.
11) In the event that the cost of the purchase and installation of
the Second Equipment exceeds $1,860,000 then any additional
finance requirement will be met by bank loans or sale of equity
or by the shareholders in proportion to their equity ownership of
GAOR at that time.
12) CanArgo accepts that it may be in the interests of GAOR for
CanArgo's sister oil producing companies in Georgia to sell oil
to GAOR. Within any restrictions or requirements imposed by other
stakeholders in its sister companies, CanArgo will make efforts
to do this, with the price being based on the market price and
according to mutually acceptable formula accepted for price
calculation.
13) In the event of any dispute arising out of this AIP, the Parties
shall use their best endeavours to settle such disputes, but in
the event that such disputes cannot be resolved in this manner,
then the issue shall be referred to arbitration, this to be held
in English under UNCITRAL rules, and take place in Stockholm,
Sweden.
14) This AIP is subject to CanArgo being satisfied with its legal
opinions on the GAOR foundation documents, licences and any
shareholder agreements, loan agreements or similar.
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15) GAOR will provide a monthly financial statement to the
shareholders showing a balance sheet, income statement and a
sources and application of funds statement.
16) Any shareholder or his agent will be given access to all books
and records of GAOR upon request.
17) GAOR will have an annual audit.
18) CanArgo's obligations under this AIP are subject to CanArgo being
satisfied with and its legal opinions on the GAOR foundation
documents, licences and any shareholder agreements, loan
agreements or similar and the August 31, 1998 financial
statement. The provision of the first advance does not signify
that CanArgo is or is not satisfied with these opinions. CanArgo
will perform its due diligence by __October 31, 1998__ .
Signed, this the 26th day of August 1998
For Argonaut Oil & Gas For Georgian Oil
/s/Xxxxxx Xxxxxxxxx /s/Xxxxx Xxxxxxxx
President Chairman
For GBOSC For GAOR
/s/Xxxxxx Xxxxxxxxx /s/Givi Assatiani
General Director General Director
For CanArgo Petroleum Products
/s/Xxxxxxx Xxxxxxx
Director
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[LETTERHEAD OF GAOR]
FAX
To: Mr Xxxxx Xxxxxx Chairman & CEO CanArgo From: Mr Givi Asatiani GAOR
Fax: 00 0000000000 Pages: 2
Phone: 00 0000000000 Date: 10 February, 1998
Re: Extension of Payment. CC: Xx X. Xxxxxxx
- Comments:
Dear Xx Xxxxxx,
Further to your letter of 14/12/98 regarding the extension of payment term to
GAOR, I would like to inform you on the following.
Under the Agreement concerning the Participation by CanArgo in the Georgian
American Oil Refinery, CanArgo will gain 24% interest and ownership, if it makes
the payment of $1,860,000 according to the following fixed schedule:
12.09.98 $500,000
19.10.98 $500,000
31.12.98 $500,000
31.01.99 $360,000
As of today CanArgo's payment mounts to $1 M, accordingly CanArgo has gained
12,9032% interest and ownership.
Further to the GAOR founders' agreement, I would like to inform you that GAOR
gives its consent to extend the payment term until 30th April 1999. Therefore,
CanArgo keeps its right of 24% interest and ownership in GAOR during that
period.
We believe that the participation of CanArgo will be a step forward in the
successful development of GAOR project.
Best regards,
/s/Givi Asatiani
General Director
Georgian American Oil Refinery
Tel/fax: (99532) 920507
Gardabani, Sartitchala - Georgia
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