1
EXHIBIT 10(18)
CONFORMED COPY
INVESTMENT NUMBER 8138
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CONVERTIBLE LOAN AGREEMENT
BETWEEN
NINOTSMINDA OIL COMPANY
AND
INTERNATIONAL FINANCE CORPORATION
DATED DECEMBER 17, 1998
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TABLE OF CONTENTS
Article or
Section Item Page No.
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ARTICLE I...................................................................................1
DEFINITIONS AND INTERPRETATION..............................................................1
Section 1.01. General Definitions......................................................1
Section 1.02. Financial Definitions...................................................15
Section 1.03. Interpretation..........................................................19
Section 1.04. Business Day Adjustment.................................................19
ARTICLE II.................................................................................19
THE PROJECT, PROJECT COST AND FINANCIAL PLAN...............................................19
Section 2.01. The Project.............................................................19
Section 2.02. Project Cost and Financial Plan.........................................20
ARTICLE III................................................................................20
THE LOAN...................................................................................20
Section 3.01. The Loan................................................................20
Section 3.02. Disbursement Procedure..................................................20
Section 3.03. A Loan Interest.........................................................21
Section 3.04. Additional Interest.....................................................22
Section 3.05. Repayment...............................................................22
Section 3.06. Prepayment..............................................................23
Section 3.07. Conversion.............................................................23
Section 3.08. Fees....................................................................23
Section 3.09. Currency and Place of Payments..........................................23
Section 3.10. Allocation of Partial Payments..........................................24
Section 3.11. Maintenance Amount......................................................24
Section 3.12. Funding Costs...........................................................24
Section 3.13. Suspension or Cancellation of Disbursements by IFC......................25
Section 3.14. Taxes..................................................................25
ARTICLE IV.................................................................................27
CONVERSION OPTION..........................................................................27
Section 4.01. The Conversion Option...................................................27
Section 4.02. Exercise of the Conversion Option......................................27
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Article or
Section Item Page No.
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Section 4.03. Actions to be Taken by the Company.....................................27
Section 4.04. Settlement.............................................................28
Section 4.05. Rights Carried by the Conversion Shares................................29
Section 4.06. Reporting Obligation...................................................29
ARTICLE V..................................................................................29
REPRESENTATIONS AND WARRANTIES.............................................................29
Section 5.01. Representations and Warranties..........................................29
Section 5.02. IFC Reliance............................................................31
Section 5.03. Rights and Remedies not Limited.........................................32
ARTICLE VI.................................................................................32
CONDITIONS OF DISBURSEMENT.................................................................32
Section 6.01. Initial Conditions......................................................32
Section 6.02. Conditions of all Disbursements.........................................36
Section 6.03. Company Certification...................................................37
Section 6.04. Conditions for IFC Benefit..............................................37
Section 6.05. Saving of Rights........................................................37
ARTICLE VII................................................................................37
PARTICULAR COVENANTS.......................................................................37
Section 7.01. Affirmative Covenants...................................................37
Section 7.02. Negative Covenants......................................................44
Section 7.03. Insurance...............................................................47
Section 7.04. Application of Insurance Proceeds.......................................49
Section 7.05. Document Taxes..........................................................49
ARTICLE VIII...............................................................................49
EVENTS OF DEFAULT..........................................................................49
Section 8.01. Acceleration after Default..............................................49
Section 8.02. Events of Default.......................................................50
Section 8.03. Bankruptcy..............................................................52
Section 8.04. Notice of Events........................................................53
SECTION 8.05. DISCLOSURE OF INFORMATION....................................................53
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Article or
Section Item Page No.
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ARTICLE IX.................................................................................53
MISCELLANEOUS..............................................................................53
Section 9.01. Notices.................................................................53
Section 9.02. English Language........................................................54
Section 9.03. Expenses................................................................55
Section 9.04. Financial Calculations..................................................55
Section 9.05. Termination of Agreement................................................56
Section 9.06. Applicable Law and Jurisdiction.........................................56
Section 9.07. Successors and Assigns..................................................58
Section 9.08. Amendment...............................................................58
Section 9.09. Counterparts............................................................58
Section 9.10. Remedies and Waivers....................................................58
SCHEDULE 1.................................................................................60
FORM OF REQUEST FOR DISBURSEMENT [(LOAN)]..................................................60
SCHEDULE 2.................................................................................63
FORM OF LOAN DISBURSEMENT RECEIPT..........................................................63
SCHEDULE 3.................................................................................64
FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY............................................64
SCHEDULE 4.................................................................................67
FORM OF LETTER TO COMPANY'S AUDITORS.......................................................67
SCHEDULE 5.................................................................................69
INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF OPERATIONS..................................69
SCHEDULE 6.................................................................................70
INSURANCE REQUIREMENTS.....................................................................70
SCHEDULE 7.................................................................................71
TERMS OF SUBORDINATED LOANS................................................................71
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Article or
Section Item Page No.
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SCHEDULE 8.................................................................................73
REQUIREMENTS FOR SPONSOR LOAN..............................................................73
SCHEDULE 9.................................................................................74
FIELD DEVELOPMENT PLAN.....................................................................74
SCHEDULE 10................................................................................75
MINIMUM WORK PROGRAM.......................................................................75
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AGREEMENT, dated December 17, 1998 between NINOTSMINDA OIL COMPANY, a
company organized and existing under the laws of Cyprus (the "Company"), and
INTERNATIONAL FINANCE CORPORATION, an international organization established by
Articles of Agreement among its member countries ("IFC").
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DEFINITIONS AND INTERPRETATION
Section 1.01. General Definitions. Wherever used in this Agreement,
unless the context otherwise requires, the following terms have the meanings
opposite them:
"Affiliate"
any entity of which the Company is a
Subsidiary; or any entity in whose share
capital the Company, any entity of which the
Company is a Subsidiary, or any of their
respective Subsidiaries has a direct or
indirect interest exceeding ten percent
(10%);
"Agreement on Pledge
of Interest and
Deed of Pledge" the Agreement on Pledge of Interest and Deed
of Pledge dated as of even date herewith
between IFC and the Company and witnessed by
Georgian Oil, the state oil company of
Georgia;
"Assignment of Contractual
Rights, Security
Agreement and Financing
Statement" the Assignment of Contractual Rights,
Security Agreement and Financing Statement
dated as of even date herewith between IFC
and the Company and witnessed by Georgian Oil
and GBOC;
"Auditors" PriceWaterhouseCoopers or such other firm of
independent public accountants as the
Company, with IFC's consent, from time to
time appoints as its auditors;
"Authority" any government or governmental,
administrative, fiscal, judicial, or
government-owned, body, department,
commission, authority, tribunal, agency or
entity;
"Authorization" any consent, registration, filing, agreement,
notarization, certificate, license, approval,
permit, authority or exemption from, by or
with any Authority, whether given by express
action or deemed given by failure to act
within any specified time period and all
corporate, creditors' and stockholders'
approvals or consents;
"Bank" United States Trust Company, a New York bank,
with which the Debt Service Reserve Account
and Revenue Account required under this
Agreement have been established and are held;
"Business Day" a day when banks are open for business in New
York, New York and, for the purpose of
determining the Loan Interest Rate, London,
England as well;
"Conversion Option" the right of IFC to convert the Loan into
shares as described in Article IV;
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"Conversion Period" the period beginning on the date of the first
Disbursement and ending on the third monthly
anniversary of the Physical Completion Date;
"Conversion Price" subject to any adjustment made in accordance
with the provisions of Article IV, the price
payable by IFC for the Conversion Shares
under the Conversion Option which will be an
amount determined on a pro-rata basis,
assuming that if IFC determined to convert
the entire Loan, it would obtain 20% of the
Shares on a fully diluted basis; using for
purposes of such calculation, the number of
issued and outstanding Shares reflected on
the Company's latest audited financial
statements;
"Conversion Settlement
Date" the date on which the Conversion Option shall
be effected and the Conversion Shares shall
be issued, sold and delivered to IFC, which
date shall be a Business Day that is not less
than twenty nor more than thirty (30) days
after the date of the Notice of Exercise;
"Conversion Shares" the Shares to be acquired by IFC pursuant to
the terms of the Notice of Exercise;
"Debt Service
Reserve Account" the account established with the Bank and
designated by such name pursuant to the
Security Agreement (Debt Service Reserve
Account);
"Debt Service Reserve
Account Requirement" an amount equal to the aggregate of all
scheduled amounts of principal, interest and
fees payable in respect of the Loan during
the next six months required to be maintained
in the Debt Service Reserve Account;
"Deed of Adherence" the Deed of Adherence dated as of even date
herewith by and among IFC, the Sponsors and
the Immediate Shareholders;
"Disbursement" any disbursement of the Loan;
"Dollars" and
the sign "US$" or "$" the lawful currency of the United States of
America;
"Dow Xxxxx Screen
Page " the display of interest settlement rates
(commonly known as LIBOR) for Dollar deposits
in London designated as page 3750 on the Dow
Xxxxx Markets Service (or any other page that
replaces page 3750 and displays London
interbank settlement rates for Dollar
deposits);
"Event of Default" any one of the events specified in Section
7.02;
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"Field Development Plan" the Field Development Plan substantially in
the form attached as Schedule 9 hereto or as
otherwise acceptable to IFC , prepared by the
Company and covering the full development
plans for the Ninotsminda, Xxxxxx and West
Rustavi License area in form and substance
reasonably acceptable to IFC;
"Financial Plan" the proposed sources of financing for the
Project set out in Section 2.02(b);
"Financial Completion
Date" the date (following the Physical Completion
Date) on which IFC advises the Company in
writing that the Company's Financial
Completion Notice is acceptable (which
acceptance is in IFC's sole reasonable
discretion), such notice to be delivered
within 10 days of IFC's receipt of the
Company's Financial Completion Notice;
"Financial Completion
Notice" a written notice from the Company, signed by
an authorized representative of the Company,
together with relevant supporting
information, as applicable, stating and
providing evidence to the effect that:
(a) the Debt Service Reserve Account is at
least equal to the Debt Service Reserve
Account Requirement, as certified by the
Bank;
(b) the following ratios are met, as
certified by the Auditors and/or the
Independent Reserves Engineer, as
applicable and if so requested by IFC:
(i) the Current Ratio is at least 1.3;
(ii) the Debt Service Coverage Ratio is
at least 1.6;
(iii) no single Life of Loan Cover
Ratio, calculated for each year
from the date of calculation until
maturity of the Loan, is less than
1.6; and
(iv) the Debt to Equity Ratio does not
exceed 50:50;
(c) all of the unspent portion of the funds
received by the Company under the
Financial Plan are deposited in the
Revenue Account;
(d) no Event of Default or Potential Event
of Default has occurred or is
continuing;
(e) no legal or administrative action in any
court or tribunal is pending or, to the
Company's knowledge, threatened which
would materially and adversely affect
the Project;
"Fiscal Year" the accounting year of the Company commencing
each year on January 1 and ending on the
following December 31, or such other period
(of at least 52 consecutive
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weeks) as the Company, with IFC's consent,
from time to time designates as its
accounting year;
"Gas Sale Agreement" the gas sales agreements between the Company
and purchasers named therein, in form and
substance reasonably satisfactory to IFC;
"Government Consent" the consent of the Georgian Government to the
IFC financing as contemplated under this
Agreement and acknowledgement of the security
arrangements provided by the Company to IFC
in connection therewith;
"Guaranty" the several guaranty (pursuant to separate
Guaranty Agreements) from each Sponsor (based
on and up to its pro-rata ownership interest
in the Company plus an assumed pro-rata share
of the ownership interest in the Company held
by any person other than the Sponsors) of the
Loan and all other amounts payable under this
Agreement, in effect until the Financial
Completion Date;
"Hedging Facility" any agreement between the Company and a
counterpart, setting forth a framework for,
or terms and conditions of, one or more
Hedging Transactions between the Company and
such counterpart or any of its Affiliates,
which is approved in writing by IFC;
"Hedging Transaction" any option agreement, swap agreement, cap
agreement, collar agreement, futures
contract, spot contract, forward contract or
similar arrangement or combination of any of
the foregoing with respect to interest rates,
currencies, oil, natural gas or other
commodities;
"IFC Security" the security created by or pursuant to the
Security Documents to secure all amounts
owing by the Company to IFC under this
Agreement;
"Immediate Shareholders" each of the CanArgo Limited and JKX
Nederlands B.V.;
"Independent Engineer" the petroleum engineering or other consulting
entity appointed by IFC following
consultation with the Company, for the
purpose of advising IFC on Project petroleum
reserves and for such other reviews and
certifications as required under the terms of
this Agreement;
"Interest Determination
Date" the second Business Day before the beginning
of each Interest Period;
"Interest Payment Date" any day which is June 15 or December 15 in
any year, provided that, if any such day is
not a Business Day, the Interest Payment Date
which would otherwise fall on that day shall
fall on the immediately succeeding Business
Day;
"Interest Period" each six (6) month period beginning on an
Interest Payment Date and ending on the day
immediately before the next following
Interest Payment Date; except in the case
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of the first period applicable to each
Disbursement when it shall mean the period
beginning on the date on which that
Disbursement is made and ending on the day
immediately before the next following
Interest Payment Date;
"Lien" any mortgage, pledge, charge, assignment,
hypothecation, security interest, title
retention, preferential right, trust
arrangement, right of set-off, counterclaim
or bankers lien, privilege or priority of any
kind having the effect of security, any
designation of loss payees or beneficiaries
or any similar arrangement under or in
respect of any insurance policy or any
preference of one creditor over another
arising by operation of law;
"Loan" the loan specified in Section 3.01(a) or, as
the context requires, its principal amount
outstanding from time to time;
"Loan Interest
Rate" or any Interest Period, the rate at which
interest is payable on the Loan during that
Interest Period, determined in accordance
with Section 3.03;
"Maintenance Amount" the amount certified in the Maintenance
Amount Certification to be the net
incremental costs of or reduction in return
of IFC in connection with the making or
maintaining of the Loan which result from:
(i) any change in any applicable law or
regulation or directive (whether or
not having force of law) or in its
interpretation or application by any
Authority charged with its
administration; or
(ii) compliance with any request from, or
requirement of, any central bank or
other monetary or other Authority;
which in any case, after the date of
this Agreement:
(A) imposes, modifies or makes
applicable any reserve, special
deposit or similar requirements
against assets held by, or
deposits with or for the account
of, or loans by IFC;
(B) imposes a cost on IFC as a
result of IFC having made the
Loan or reduces the rate of
return on the overall capital of
IFC which it would have
achieved, had IFC not made the
Loan, as the case may be;
(C) changes the basis of taxation on
payments received by IFC in
respect of the Loan (otherwise
than by a change in taxation of
the overall net income of IFC
imposed by the jurisdiction of
its incorporation or in any
political subdivision of any
such jurisdiction); or
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(D) imposes on IFC any other
condition regarding the making
or maintaining of the Loan;
"Maintenance Amount
Certification" a certification furnished from time to time
by IFC certifying:
(i) the circumstances giving rise to the
Maintenance Amount;
(ii) that the costs of IFC, have increased
or the rate of return of IFC has been
reduced;
(iii) that, in the opinion of IFC it has
exercised reasonable efforts to
minimize or eliminate such increase
or reduction as the case may be; and
(iv) the Maintenance Amount;
"Makoil License Transfer
Agreement" the agreement between the Company and Makoil
Inc. dated November 10, 1995;
"Minimum Work Program" the Company's work program, substantially in
the form of Schedule 10 attached hereto or
otherwise as reasonably satisfactory to IFC,
which will include: (a) drilling, completion
and testing of at least five development
xxxxx on the Ninotsminda field, (b) workovers
on the Ninotsminda and West Rustavi fields,
(c) equipment and facilities required for the
increase of oil and gas production on the
Ninotsminda and West Rustavi fields, and (d)
seismic acquisition and interpretation
required specifically for the Ninotsminda
field and for the planning of workovers on
the West Rustavi field. The Minimum Work
Program shall exclude any activities relating
to: (x) the assessment and exploration of the
Xxxxxx prospect, (y) drilling and exploration
work in the West Rustavi area other than the
workovers and related activities described
(b) above, and (z) any activities funded by
the Company which are carried out for any
other parties on a reimbursable basis. The
Minimum Work Program shall also exclude any
activities carried out prior to January 1,
1998, and any activities subsequent to the
successful completion and testing of five
development xxxxx on the Ninotsminda field
(all of which will have been drilled after
January 1, 1998). For the purposes of
assessing the cost of the Minimum Work
Program, expenditures which were committed to
by the Company prior to January 1, 1998 shall
be excluded.
"NOC Administration
Overhead Charges" all payments made by the Company for services
related to the regular operating expenses of
the Project that are not specifically
allowable and recoverable under Section II of
Annex C of the PSC, except for payments to
GBOC for regular operating expenses of the
Project, payments directly required (i.e.
excluding payments permitted) by the other
Transaction Documents, and payments directly
required under the Makoil License Transfer
Agreement;
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"NOC Direct Overhead
Charges" all payments made by the Company for services
related to the regular operating expenses of
the Project that are specifically allowable
and recoverable under Section II of Annex C
of the Production Sharing Contract between
the Company and Georgian Oil ("PSC"), except
for payments to GBOC for regular operating
expenses of the Project, payments directly
required (i.e. excluding payments permitted)
by the other Transaction Documents, and
payments directly required under the Makoil
License Transfer Agreement;
"Notice of Exercise" the notice issued by IFC pursuant to Section
4.02;
"Operator or GBOC" Georgia British Oil Company (GBOC);
"Permitted Investments" any of the following:
(i) investments in direct obligations of
the United States of America or
obligations of any instrumentality or
agency thereof, the payment of the
principal and interest of which is
unconditionally and timely guaranteed
by the United States, in each case
having a maturity not in excess of 12
months from the date of its
acquisition;
(ii) investments in certificates of
deposit or time deposits maturing not
more than 12 months from the date of
acquisition issued by any bank or
trust company having a combined
capital, surplus and undivided
profits of not less than
US$100,000,000 and having a minimum
long term credit rating by an
internationally recognized
independent rating service of at
least A (in the case of Standard &
Poor's Rating Services or Xxxxx'x
Investors Service) or its equivalent;
"Physical Completion
Date" the day on which IFC advises the Company in
writing that the Company's Physical
Completion Notice is acceptable, (which
acceptance is in IFC's sole reasonable
discretion) such notice to be delivered
within 10 days of IFC's receipt of the
Company's Physical Completion Notice ;
"Physical Completion
Notice" a written notice from the Company, signed by
an authorized representative of the Company
together with relevant supporting
information, as applicable, stating and
providing evidence, concurred with in writing
by the Independent Reserves Engineer if so
required by IFC, to the effect that:
(i) the Project facilities have been
constructed, installed, re-entered,
recompleted, tested and commissioned
in accordance with the Minimum Work
Program;
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(ii) the Project facilities and all other
facilities in the Ninotsminda and
West Rustavi fields have been
constructed and are operating in
accordance with good international
oil industry practices and IFC's
environmental, health and safety
guidelines and policies as well as
those of the applicable Georgia
Authorities;
(iii) production from the Ninotsminda,
Xxxxxx and West Rustavi License area
shall have averaged 4,500 barrels of
crude oil per day, of which at least
4,200 barrels of crude oil per day
shall have come from the Ninotsminda
field, over a period of at least 90
days within the six months prior to
the Physical Completion Date, or the
Minimum Work Program is complete;
(iv) the Company shall have supplied to
IFC an updated calculation, based on
the latest available information and
performed less than four months
previously, of the present value
(discounted at the Discount Rate) of
all future volumes and Net Cash Flows
from the proven and proven and
probable, oil reserves of the
Ninotsminda oil field, including the
assumptions and other relevant
information underlying such
calculation;
"Potential Event
of Default" any event or circumstance which would, with
notice, lapse of time, the making of a
determination or any combination thereof,
become an Event of Default;
"Project" the project described in Section 2.01;
"Put Option Agreement" the Put Option Agreement dated as of even
date herewith between IFC and the Sponsors;
"Relevant Portion of the
Loan" the portion (up to 100%, at IFC's election)
of the Loan which IFC opts to convert and
apply as payment for the Conversion Price
upon exercise of its Conversion Option;
"Revenue Account" the account established with the Bank and
designated by such name pursuant to the
Security Agreement (Revenue Account);
"Rig Service Contract" the Rig Service Contract between the Company
and CanArgo Energy Corporation in form and
substance acceptable to IFC;
"Security
Documents" the following agreements:
(i) the Security Agreement (Accounts
Receivable);
(ii) the Security Agreement (Debt Service
Reserve Account)
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(iii) the Security Agreement (Revenue
Account)
(iv) the Guaranty Agreements;
(v) the Share Pledge Agreement;
(vi) the Agreement on Pledge of Interest
and Deed of Pledge;
(vii) the Assignment of Contractual Rights,
Security Agreement and Financing
Statement;
(viii) the Government Consent;
"Settlement Place" the place or places designated in the Notice
of Exercise as being the place or places
where the actions specified in Section 4.04
as taking place on the Settlement Date are to
be performed;
"Shareholder Loans" the loans from the Sponsors or their
Affiliates to the Company (other than the
Sponsor Loan) in the aggregate outstanding
principal amount of $2,765,380 as of December
31, 1997;
"Share Pledge Agreement" the Share Pledge Agreement dated as of even
date herewith by and among IFC, the Company
and the Immediate Shareholders;
"Share Retention
Agreement" the Share Retention Agreement dated as of
even date herewith by and among IFC, the
Company, the Immediate Shareholders and the
Sponsors;
"Sponsors" each of CanArgo Energy Corporation and JKX
Oil & Gas plc.;
"Sponsor Loan" the subordinated loan in the amount of two
million Dollars (US$2,000,000) granted by the
Sponsors to the Company pursuant to the
Sponsor Loan Agreement on substantially the
terms and conditions set forth in Schedule 8;
"Sponsor Loan Agreement" the Sponsor Loan Agreement dated as of even
date herewith between the Sponsors and the
Company;
"Subsidiary" in respect of any person, any entity:
(i) over 50% of whose capital is owned,
directly or indirectly, by that
person;
(ii) for which that person may nominate or
appoint a majority of the members of
the board of directors or other
governing body or persons performing
similar functions; or
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(iii) which is otherwise effectively
controlled by that person;
"Transaction
Documents" the following Agreements and other documents;
(i) this Agreement;
(ii) the Security Documents;
(iii) the Share Retention Agreement;
(iv) the Put Option Agreement;
(v) the Deed of Adherence;
(vi) the Sponsor Loan Agreement;
(vii) the Minimum Work Program;
(viii) the Field Development Plan;
(ix) the Gas Sales Agreement and the Rig
Service Contract;
(x) the Production Sharing Contract
between the Company and Georgian Oil
dated February 15, 1996;
(xi) the Complex License granted by the
Republic of Georgia to Georgia Makoil
Joint Venture dated December 1994;
(xii) the Mineral Use License granted by
the Republic of Georgia to GBOC;
(xiii) the re-registration of the GBOC
license in the name of
GBOC-Ninotsminda dated [July 1998];
(xiv) charter documents of GBOC -
Ninotsminda.
Section 1.02. Financial Definitions. Wherever used in this Agreement,
unless the context otherwise requires, the following terms have the meanings
opposite them:
"Current Assets" the aggregate of the Company's cash,
marketable securities, trade and other
receivables realizable within one year,
prepaid expenses which are to be charged to
income within one year and inventories;
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"Current
Liabilities" the aggregate of all liabilities of the
Company falling due on demand or within one
year (including the portion of Long-term Debt
falling due within one year);
"Current Ratio" the result obtained by dividing Current
Assets by Current Liabilities;
"Debt" the aggregate of all obligations (whether
actual or contingent) of the Company to pay
or repay money including, without limitation:
(i) all Indebtedness for Money Borrowed;
(ii) the aggregate amount then outstanding
of all liabilities of any party to
the extent the Company guarantees
them or otherwise obligates itself to
pay them to the relevant creditor;
(iii) all liabilities of the Company
(actual or contingent) under any
conditional sale or a transfer with
recourse or obligation to repurchase,
including, without limitation, by way
of discount or factoring of book
debts or receivables;
"Debt to Equity Ratio" the ratio of Long-term Debt (excluding the
portion of Long-term Debt falling due within
one year) to Shareholders' Equity;
"Debt Service Coverage
Ratio" as of the relevant date of calculation, the
ratio obtained by dividing (i) Net Cash Flow
for the immediately preceding four quarters
by (ii) all scheduled payments (whether or
not actually paid) on account of principal
and interest and charges on all Long-term
Debt for the immediately succeeding four
quarters;
"Discount Rate" the higher of 10% per annum or the Loan
Interest Rate;
"Indebtedness for
Money Borrowed" all obligations of the Company to repay money
including, without limitation, in respect of:
(i) borrowed money;
(ii) the outstanding principal amount of
any bonds, notes, loan stock,
commercial paper, acceptance credits,
debentures and bills or promissory
notes drawn, accepted, endorsed or
issued by the Company;
(iii) any credit to the Company from a
supplier of goods or under any
installment purchase or other similar
arrangement in respect of goods or
services (except trade accounts
payable within ninety (90) days in
the ordinary course of business);
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(iv) non-contingent obligations of the
Company to reimburse any other person
in respect of amounts paid by such
person under a letter of credit or
similar instrument (excluding any
such letter of credit or similar
instrument issued for the benefit of
the Company in respect of trade
accounts payable within ninety (90)
days in the ordinary course of
business);
(v) amounts raised under any other
transaction having the financial
effect of a borrowing and which would
be classified as a borrowing (and not
as an off-balance sheet financing)
under internationally generally
accepted accounting principles
consistently applied including,
without limitation, under leases or
similar arrangements entered into
primarily as a means of financing the
acquisition of the asset leased; and
(vi) any premium payable on a redemption
or replacement of any of the
foregoing obligations;
"Life of Loan Cover
Ratio" as of the relevant date of calculation, the
ratio obtained by dividing (i) the present
value, discounted at the Discount Rate, of
future Net Cash Flows from the proven oil
reserves of the Ninotsminda oil field from
the date of calculation to the date of final
maturity of the Loan, by (ii) the amount of
principal outstanding of all Long-term Debt.
The projections for this calculation shall be
based upon the latest reserves valuation
submitted to a recognized securities exchange
or to IFC, or an equivalent independent
valuation to be obtained at IFC's option, and
on the most recently published World Bank oil
price and inflation forecasts;
"Net Asset Value" the net present value, discounted at the
Discount Rate, of future Net Cash Flows of
all probable reserves (risked at 50%) and all
proven reserves, plus Current Assets, plus
non-exploration and production fixed assets,
less liabilities excluding related party
debt; the calculation of Net Cash Flows being
based on the latest valuation submitted to a
recognized securities exchange, or an
equivalent independent valuation to be
obtained at IFC's option.
"Net Cash Flow" for any period, Operating Cash Flow less the
Company's proportionate share of Project
capital development expenses.
"Operating Cash Flow" for any period, the sum of all proceeds from
the sale of the Company's share of oil and
natural gas, less the Company's proportionate
share of operating costs, operating
overheads, royalties, transportation costs
and taxes.
"Long-term Debt" that part of the Debt the final maturity of
which, by its terms or the terms of any
agreement relating to it, falls due more than
one year after the date of its incurrence;
"Shareholders'
Equity" the amount paid up on the share capital of
the Company (including, without limitation,
any share premium account and capital
redemption reserve funds); after
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deducting from such amount any impairment of
the issued share capital of the Company,
amounts set aside for dividends or taxation
(including deferred taxation) or attributable
to goodwill or other intangible assets;
"Short-term Debt" all Debt other than Long-term Debt; and
"Working Capital" the amount by which Current Assets exceed
Current Liabilities.
Section 1.03. Interpretation. In this Agreement, unless the context
otherwise requires:
(a) headings are for convenience only and do not affect the
interpretation of this Agreement;
(b) words importing the singular include the plural and vice versa;
(c) a reference to a natural person includes any company, partnership,
trust, joint venture, association, corporation or other body corporate and any
governmental authority or agency;
(d) a reference to a Section, Article, party, Exhibit, Annex or
Schedule is a reference to that Section or Article of, or that party, Exhibit,
Annex or Schedule to, this Agreement;
(e) a reference to a document includes an amendment or supplement to,
or replacement or novation of, that document but disregarding any amendment,
supplement, replacement or novation made in breach of this Agreement; and
(f) a reference to a party to any document includes that party's
successors and permitted assigns.
Section 1.04. Business Day Adjustment. Where the day on or by which a
payment is due to be made is not a Business Day, that payment shall be made on
or by the next succeeding Business Day. Interest, fees and charges (if any)
shall continue to accrue for the period from the due date which is not a
Business Day to that next succeeding Business Day.
ARTICLE II
THE PROJECT, PROJECT COST AND FINANCIAL PLAN
Section 2.01. The Project. The project to be financed consists of the
further development of the Ninotsminda field, through the drilling of five
development xxxxx over an eighteen month period, the installation of processing
and handling facilities, and the carrying out of related work on oil and natural
gas within the Ninotsminda, Xxxxxx and West Rustavi License area.
Section 2.02. Project Cost and Financial Plan. (a) The estimated cost
of the Project is as follows:
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Project Cost US$ Million
------------ -----------
Development xxxxx 13.0
Workovers 2.0
Facilities 1.4
Working Capital 1.1
Interest During Construction 0.5
Contingencies 0.9
TOTAL 18.9
(b) The proposed sources of financing for the Project are as follows:
Financing Plan US$ Million
-------------- -----------
IFC Loan 6.0
Sponsors' Equity (escrowed) 8.0
Sponsor Loan (escrowed) 2.0
Cash Generation (or additional 2.9
equity)
TOTAL 18.9
ARTICLE III
THE LOAN
Section 3.01. The Loan. On the terms and subject to the conditions of
this Agreement, IFC agrees to lend to the Company a convertible loan in the
amount of up to six million Dollars (US$6,000,000).
Section 3.02. Disbursement Procedure. (a) The Company may request
disbursements of the Loan by delivering to IFC, at least fifteen (15) Business
Days prior to the proposed date of disbursement, a disbursement request
substantially in the form of Schedule 1 and a receipt substantially in the form
of Schedule 2.
(b) IFC shall make Disbursements to the credit of Northern Trust
International Banking Corporation (Chips ID 142255) in New York for further
credit to the Revenue Account.
(c) Each Disbursement shall be made in an amount (except with respect
to the last Disbursement) of not less than one and one-half million Dollars
(US$1,500,000).
Section 3.03. Loan Interest. Subject to Section 3.04, the Company shall
pay interest on the Loan in accordance with this Section 3.03.
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(a) During each Interest Period, the Loan (or, in respect of the first
Interest Period of each Disbursement, the amount of that Disbursement) shall
bear interest at the rate as determined under subsection (c) or (d) below for
that Interest Period.
(b) Interest on the Loan shall accrue from day to day, be prorated on
the basis of a 360-day year for the actual number of days in the relevant
Interest Period and be payable in arrears on the Interest Payment Date
immediately following the end of that Interest Period.
(c) The interest payable on the Loan for any Interest Period shall be
three percent (3%) per annum above the rate which appears on the Dow Xxxxx
Markets, Inc. Page in the column headed "USD" as of 11:00 a.m., London time, on
the Interest Determination Date for that Interest Period for six months (or, in
the case of the first Interest Period for any Disbursement, for one month, two
months, three months or six months, whichever period is closest to the duration
of the relevant Interest Period (or, if two periods are equally close, the
longer one)) rounded upward to the nearest three decimal places.
(d) If, for any reason, IFC cannot determine the Interest Rate for any
Interest Period from the Dow Xxxxx Markets, Inc. Page (whether as a result of
the discontinuation of Dow Xxxxx Markets, Inc. Page or otherwise), IFC shall
notify the Company and instead determine that Interest Rate using the
arithmetical average (rounded upward to the nearest three decimal places) of the
offered rates advised to IFC by any three major banks active in the eurodollar
interbank market in London selected by IFC after consultation with the Company
and otherwise in accordance with subsection (c) above.
(e) On each Interest Determination Date for any Interest Period, IFC
shall, in accordance with the relevant subsection above, determine the Loan
Interest Rate applicable to that Interest Period and promptly notify the Company
of such rate.
(f) The determination by IFC, from time to time, of the Interest Rates
shall be final and conclusive and shall bind the Company (unless the Company
shows to IFC's satisfaction that the determination involves clerical error).
Section 3.04. Additional Interest. Without limiting the remedies
available to IFC under this Agreement or otherwise, if the Company fails to make
any payment of principal or interest (including interest payable pursuant to
this Section) on or before its due date as specified in this Agreement (whether
scheduled, upon voluntary prepayment, mandatory prepayment, at stated maturity
or upon prematuring by acceleration or otherwise) or, if not so specified, as
notified by IFC to the Company, the Company shall pay in respect of the amount
of such payment due and unpaid, interest at the rate of two percent (2%) per
annum plus the Loan Interest Rate in effect from time to time from the date any
such payment became due until the date of actual payment (as well after as
before judgment). Such interest shall be payable on demand, or if not demanded,
on each Interest Payment Date after such failure.
Section 3.05. Repayment. (a) The Company shall repay the Loan on the
following dates and in the following amounts:
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Date Payment Due Principal Amount Due
---------------- --------------------
December 15, 2001 $1,200,000
June 15, 2002 1,200,000
December 15, 2002 1,200,000
June 15, 2003 1,200,000
December 15, 2003 1,200,000
(b) Upon each Disbursement, the amount disbursed shall be allocated for
repayment on each of the respective dates for repayment of principal set out in
the tables in the above subsections in amounts which are pro rata to the amounts
of the respective installments shown opposite those dates in those tables (with
IFC adjusting those allocations as necessary so as to achieve whole numbers in
each case).
Section 3.06. Prepayment. The Loan is not subject to prepayment and may
not be voluntarily prepaid by the Company.
Section 3.07. Conversion. The Loan may be converted at IFC's option
into shares of the Company in accordance with the provisions of Article IV.
Section 3.08. Fees. (a) The Company shall pay to IFC a commitment fee
at the rate of one-half of one percent (1/2%) per annum on that part of the
Loan which from time to time has not been disbursed or canceled. The commitment
fee shall begin to accrue on the date of this Agreement, be pro rated on the
basis of a 360-day year for the actual number of days elapsed, and be payable
semi-annually, in arrears, on the Interest Payment Dates in each year, with the
first such payment to be due on the immediately succeeding Interest Payment Date
following the date hereof.
(b) The Company shall also pay to IFC a front-end fee of one percent
(1%) of the aggregate amount of the Loan, to be paid within thirty (30) days
after the date of this Agreement, but in any event prior to the date of the
first Disbursement;
Section 3.09. Currency and Place of Payments. (a) The Company shall
make all payments of principal, interest, fees, and any other amount due to IFC
under this Agreement in Dollars, in same day funds, at such bank or banks in New
York as IFC from time to time designates.
(b) The tender or payment of any amount payable under this Agreement
(whether or not by recovery under a judgment) in any currency other than Dollars
shall not novate, discharge or satisfy the obligation of the Company to pay in
Dollars all amounts payable under this Agreement except to the extent that (and
as of the date when) IFC actually receives Dollars in its account in New York.
(c) If a currency other than Dollars is tendered or paid (or recovered
under any judgment) and the amount IFC receives at its designated account in New
York falls short of the full amount of Dollars owed to IFC, then the Company
shall continue to owe IFC, as a separate obligation, the amount of the shortfall
(regardless of any judgment for any other amounts due under this Agreement).
(d) Notwithstanding subsections (a) through (c) above, IFC may require
the Company to pay (or reimburse IFC) in any currency other than Dollars for:
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(i) any taxes and other amounts payable under Section 6.05; and
(ii) any fees, costs and expenses payable under Section 9.03;
to the extent those taxes, amounts, fees, costs, and expenses are payable in
that other currency.
Section 3.10. Allocation of Partial Payments. If IFC shall at any time
receive less than the full amount then due and payable to it under this
Agreement, IFC may allocate and apply such payment in any way or manner and for
such purpose or purposes under this Agreement as IFC in its sole discretion
determines, notwithstanding any instruction that the Company may give to the
contrary.
Section 3.11. Maintenance Amount. On each Interest Payment Date, the
Company shall pay, in addition to interest, the amount which IFC from time to
time notifies to the Company in a Maintenance Amount Certification as being the
aggregate Maintenance Amount of IFC accrued and unpaid prior to that Interest
Payment Date.
Section 3.12. Funding Costs. (a) If the Company fails to pay any amount
due under this Agreement on its due date, or fails to borrow in accordance with
a request for disbursement made pursuant to Section 3.02 and as a result IFC
incurs any cost, expense or loss, then the Company shall immediately pay to IFC
the amount which IFC from time to time notifies to the Company as being the
amount of such costs, expenses and losses incurred.
(b) For the purposes of this Section, "costs, expenses or losses"
include any interest paid or payable to carry any unpaid amount and any premium,
penalty or expense incurred to liquidate or obtain third party deposits or
borrowings in order to make, maintain or fund all or any part of the Loan (but
in the case of a late payment, after taking into account any additional interest
received under Section 3.04).
Section 3.13. Suspension or Cancellation of Disbursements by IFC. (a)
IFC may, by notice to the Company, suspend or cancel the right of the Company to
Disbursements:
(i) if the first Disbursement has not been made by June 30,
1999, or such other date as the parties agree;
(ii) if any Event of Default has occurred and is continuing or
if the Event of Default specified in Section 7.02 (d) is,
in the reasonable opinion of IFC, imminent;
(iii) if at any time in the reasonable opinion of IFC, there
exists any situation which indicates that performance by
the Company, the Immediate Shareholders, or the Sponsors of
any of their respective obligations under the Transaction
Documents cannot be expected; or
(iv) on or after June 30, 2000.
(b) Upon the giving of any such notice, the right of the Company to any
further Disbursement shall be suspended or canceled as the case may be. The
exercise by IFC of its right of suspension shall not preclude IFC from
exercising its right of cancellation, either for the same or any other reason
specified in subsection (a) above. Upon such cancellation the Company shall pay
to IFC all fees and other amounts accrued (whether or not then due
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and payable) under this Agreement up to the date of such cancellation. A
suspension shall not limit any other provision of this Agreement.
Section 3.14. Taxes. (a) The Company shall pay or cause to be paid all
present and future taxes, duties, fees and other charges of whatsoever nature,
if any, now or in the future levied or imposed by Georgia or by any Authority of
Georgia or any jurisdiction through or out of which a payment is made on or in
connection with the payment of any and all amounts due under this Agreement.
(b) All payments of principal, interest and other amounts due under
this Agreement shall be made without deduction for or on account of any such
taxes, duties, fees or other charges.
(c) If the Company is prevented by operation of law or otherwise from
making or causing to be made such payments without deduction, the principal or
(as the case may be) interest or other amounts due under this Agreement shall be
increased to such amount as may be necessary so that IFC receives the full
amount it would have received (taking into account any such taxes, duties, fees
or other charges payable on amounts payable by the Company under this
subsection) had such payments been made without such deduction.
(d) If subsection (c) above applies and IFC so requires, the Company
shall deliver to IFC official tax receipts evidencing payment (or certified
copies of them) within thirty (30) days of the date of payment.
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ARTICLE IV
CONVERSION OPTION
Section 4.01. The Conversion Option. On the terms and subject to the
conditions of this Agreement, the Company hereby grants to IFC an option, which
may be exercised once only, to convert, at any time during the Conversion Period
and at the Conversion Price, all or any part of the principal amount then
outstanding of the Loan into issued, outstanding and fully paid Shares.
Section 4.02. Exercise of the Conversion Option. The Conversion Option
may be exercised by IFC delivering a Notice of Exercise specifying:
(i) the amount of the Loan to be converted into Shares;
(ii) the Settlement Date;
(iii) the Settlement Place;
(iv) the name or names in which the certificate of title
evidencing ownership of the Conversion Shares are to be
registered;
(v) the Conversion Price;
(vi) the number of Conversion Shares that IFC is entitled to
upon the conversion; and
(vii) the amount of accrued but unpaid interest, and any other
amount accrued but unpaid, in respect of the amount of the
Loan to be converted, which shall become due and payable to
IFC on the Settlement Date.
Section 4.03. Actions to be Taken by the Company. Immediately upon
receipt of the Notice of Exercise, the Company shall take all necessary
corporate and other action required to issue, sell and deliver the Conversion
Shares to IFC on the Settlement Date; and shall apply for all the necessary
consents and approvals of the requisite governmental authorities in Cyprus and
Georgia, as applicable, in connection with the conversion of the Loan to equity.
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Section 4.04. Settlement. On the Settlement Date:
(a) IFC shall, against, and subject to, delivery of the documents
specified in Subsection (b) below and payment of the amounts specified in
Subsection (c) below, pay to the Company the Conversion Price by delivering its
release of the Relevant Portion of the Loan;
(b) the Company shall, against delivery of IFC's release referred to in
Subsection (a) above, issue to IFC the Conversion Shares and shall also deliver
to IFC (or as IFC may direct):
(i) the share certificate (or certificates) issued by the
Company, evidencing that the Conversion Shares are validly
issued and properly registered in the name of IFC or its
designee and that such registration grants valid title to
the Conversion Shares;
(ii) evidence satisfactory to IFC that:
(A) the Conversion Shares are free and clear of liens,
charges and encumbrances, and are voting shares
ranking pari passu with all existing voting shares
in the Company with all of the rights specified in
the Memorandum and Articles of Association of the
Company; and
(B) all necessary corporate formalities in connection
with IFC's title to the Conversion Shares and the
delivery of the Conversion Shares have been complied
with (such evidence to be confirmed by a legal
opinion of counsel in Cyprus (and such other
relevant jurisdiction) acceptable to IFC, at the
Company's expense); and
(iii) deliver to IFC certified copies of the necessary consents
and approvals referred to in Section 4.03.
(c) the Company shall pay to IFC the amount specified in the Notice of
Exercise as payable on account of interest on, and all other amounts payable in
accordance with the provisions of the Convertible Loan Agreement in respect of,
the Loan being converted into the Conversion Shares;
(d) Upon receipt of all documents and evidence referred to in Section
4.04(b) and of payment of the amounts referred to in Section 4.04(c), the
Relevant Portion of the Loan shall be deemed to be satisfied in full and the
Company shall be released from its obligations in respect thereto.
Section 4.05. Rights Carried by the Conversion Shares. The Conversion
Shares shall carry the right to all profits and/or dividends payable on Shares
generally to shareholders of record.
Section 4.06. Reporting Obligation. Should any change be proposed in
the share capital of the Company or any other action be proposed which could
result in an adjustment to the Conversion Price under this Agreement during the
Conversion Period, the Company shall provide IFC with a report setting forth the
relevant information related to such change(s), including a statement of:
26
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(a) the consideration expected to be received or receivable by the
Company for any additional stock issued or issuable;
(b) the capital immediately before and after such change(s); and
(c) any other information or event relevant to IFC's exercise of the
Conversion Option.
Each such report shall be delivered to IFC as promptly as possible but
in any event within thirty (30) days from the date the relevant change is
proposed, provided that, in any case, such report shall be delivered prior to
such change.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.01. Representations and Warranties. The Company represents
and warrants that:
(a) it is a company duly organized, validly existing and in good
standing under the laws of Cyprus; it is registered and in good standing in
Georgia and in any other jurisdiction in which it carries on its business and it
has the corporate power to own its assets, conduct its business as presently
conducted and to enter into, observe and perform its obligations under, the
Transaction Documents to which it is a party or will, in the case of any
Transaction Document not executed as at the date of this Agreement, when that
Transaction Document is executed, have the corporate power to enter into,
observe and perform its obligations under that Transaction Document;
(b) each Transaction Document to which it is a party has been, or will
be, duly authorized and executed by the Company and constitutes, or will, when
executed constitute, a valid and legally binding obligation of the Company,
enforceable in accordance with its terms;
(c) neither the making of any Transaction Document to which it is a
party nor (when all the consents referred to in Section 6.01(h) have been
obtained) the compliance with its terms will conflict with or result in a breach
of any of the terms, conditions or provisions of, or constitute a default or
require any consent under, any indenture, mortgage, agreement or other
instrument or arrangement to which the Company is a party or by which it is
bound, or violate any of the terms or provisions of the Company's Memorandum and
Articles of Association or any judgment, decree or order or any statute, rule or
regulation applicable to the Company;
(d) neither the Company nor any of its property enjoys any right of
immunity from set-off, suit or execution in respect of its assets or its
obligations under any Transaction Document to which it is a party;
(e) since December 31, 1997, the Company:
(i) has not suffered any material adverse change in its
business prospects or financial condition or incurred any
substantial or unusual loss or liability;
27
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(ii) has not undertaken or agreed to undertake any substantial
or unusual obligation;
(f) the financial statements of the Company for the period ending on
December 31, 1997:
(i) have been prepared in accordance with International
Accounting Standards consistently applied, and give a true
and fair view of the financial condition of the Company as
of the date as of which they were prepared and the results
of the Company's operations during the period then ended;
(ii) disclose all liabilities (contingent or other wise) of the
Company, and the reserves, if any, for such liabilities and
all unrealized or anticipated losses arising from
commitments entered into by the Company (whether or not
such commitments have been disclosed in such financial
statements);
(g) except for the Transaction Documents to which it is party, the
Company is not a party to or committed to enter into, any material contract;
(h) the Company has no outstanding Lien on any of its assets, and no
contracts or arrangements, conditional or unconditional, exist for the creation
by the Company of any Lien, except for the IFC Security;
(i) all tax returns and reports of the Company required by law to be
filed have been duly filed and all tax assessments, fees and other governmental
charges upon the Company, or its properties, or its income or assets, which are
due and payable, have been paid, other than those presently payable without
penalty or interest;
(j) except as previously disclosed in writing to IFC, the Company is
not engaged in nor, to the best of its knowledge, threatened by, any litigation,
arbitration or administrative proceedings, the outcome of which might materially
and adversely affect its business prospects or financial condition or make it
improbable that the Company will be able to observe or perform its obligations
under any Transaction document to which it is a party; and
(k) to the best of its knowledge and belief, the Company is not in
violation of any statute or regulation of any Authority and no judgment or order
has been issued which has or is likely to have any materially adverse effect on
the Company's business prospects or financial condition or make it improbable
that the Company will be able to observe or perform its obligations under any
Transaction Document to which it is a party
Section 5.02. IFC Reliance. (a) The Company acknowledges that it makes
the representations and warranties in Section 5.01 with the intention of
inducing IFC to enter into this Agreement and that IFC enters into this
Agreement on the basis of, and in full reliance on, each of such representations
and warranties.
(b) The Company warrants to IFC that each of such representations is
true and correct in all material respects as of the date of this Agreement and
that none of them omits any matter the omission of which makes any of such
representations misleading.
Section 5.03. Rights and Remedies not Limited. IFC's rights and
remedies in relation to any misrepresentation or breach of warranty on the part
of the Company are not prejudiced:
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(a) by any investigation by or on behalf of IFC into the affairs of the
Company;
(b) by the execution or the performance of this Agreement or any other
Transaction Document; or
(c) by any other act or thing which may be done by or on behalf of IFC
in connection with this Agreement and which might, apart from this Section,
prejudice such rights or remedies.
ARTICLE VI
CONDITIONS OF DISBURSEMENT
Section 6.01. Initial Conditions. The obligation of IFC to make the
first Disbursement is subject to the fulfillment, in a manner satisfactory to
IFC, prior to or concurrently with the making of such first Disbursement, of the
following conditions:
(a) Each of the Company, the Sponsors and the Immediate Shareholders
has performed all of its respective obligations due to be performed under the
Transaction Documents prior to the first Disbursement;
(b) arrangements satisfactory to IFC have been made with respect to the
installation and operation of an accounting and cost control system, a
management information system, and the appointment of the Auditors;
(c) the Company has insured its properties and business in accordance
with Section 7.03 and has provided to IFC copies of all insurance policies
required to be in force as at the date of the first Disbursement together with a
certificate of the insurer, insurance broker or agent confirming that such
policies are in effect;
(d) the Transaction Documents, each in form and substance satisfactory
to IFC, have been entered into by all parties to them and have become (or, as
the case may be, remain) unconditional and fully effective in accordance with
their respective terms (except for this Agreement having become unconditional
and fully effective, if that is a condition of any of such agreements) and, if
IFC requires, IFC has received a copy of each Transaction Document to which it
is not a party, certified as a true and complete copy by the Company;
(e) the Memorandum and Articles of Association of the Company is in
form and substance satisfactory to IFC;
(f) the IFC Security has been duly created and perfected/registered as
first priority security interests in all assets subject to the Security
Documents;
(g) the Debt Service Reserve Account and the Revenue Account shall have
been established with the Bank;
(h) the Company has obtained, or made arrangements satisfactory to IFC
for obtaining, all Authorizations for:
29
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(i) the Loan;
(ii) the carrying on of the business of the Company as it is
presently carried on and is contemplated to be carried on;
(iii) the carrying out of the Project and the implementation of
the Financial Plan;
(iv) the due execution, delivery, validity and enforceability
of, and performance under, each Transaction Document, and
any other documents necessary or desirable to the
implementation of any of those Agreements or Documents; and
(v) the remittance to IFC in Dollars of all monies payable in
respect of the Transaction Documents;
and has provided IFC with copies of those Authorizations, certified as true and
complete copies by the Company, if IFC so requires;
(i) IFC has received a legal opinion or opinions, in form and substance
satisfactory to it, from counsel in Georgia, Cyprus and New York, with respect
to:
(i) the organization, existence and operations of the Company
and its authorized and subscribed share capital;
(ii) the matters referred to in subsections (d), (e), (f), and
(h), above;
(iii) the title of the Company to, or other interest of the
Company in, the assets which are the subject of the IFC
Security;
(iv) the authorization, execution, validity and enforceability
of the Transaction Documents and any other documents
necessary or desirable to the implementation of any of
them;
(v) the compliance with all obligations referred to in Sections
3.14 and 7.05;
(vi) the priorities or privileges, if any, that creditors of the
Company, other than IFC, may have by reason of law; and
(vii) such other matters relating to the transactions
contemplated by this Agreement as IFC reasonably requests;
(j) IFC has received:
(i) (if IFC so requires) the reimbursement of fees and expenses
of IFC's counsel as provided in Section 8.03; and
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(ii) the fees specified in Section 3.08 required to be paid on
or before the date of the first Disbursement;
(k) arrangements satisfactory to IFC have been made for appointment of
an agent for service of process pursuant to Section 9.06;
(l) IFC has received a copy of the authorization to the Auditors
referred to in Section 6.01 (h) and has received from the Auditors a letter or
copy of a management letter from the auditor to the Company commenting on the
adequacy of the Company's accounting and cost control system, and management
information system;
(m) IFC has received evidence, in the form of Schedule 3, of the
authority of the person or persons who will, on behalf of the Company, sign the
requests and certifications provided for in this Agreement, or take any other
action or execute any other document required or permitted to be taken or
executed by the Company under this Agreement, and the authenticated specimen
signature of each such person;
(n) IFC has received evidence that all Shareholders Loans have been
capitalized into Shareholders Equity;
(o) IFC has approved the Gas Sales Agreements and the Company's
arrangements for sale of crude oil;
(p) IFC has received evidence of: (i) the amount of new equity
contributed by the Sponsors to the company in Fiscal Year 1998 and already spent
on the Minimum Work Program; (ii) the amount of new equity contributed by the
Sponsors to the Company which has been transferred as a cash balance to the
Revenue Account; and (iii) the payment by the Sponsors of the proceeds of the
Sponsor Loan into the Revenue Account; and the sum of the foregoing amounts
shall be at least ten million Dollars (US$10,000,000); provided, however, that
the requirement under subclause (iii) above shall not be applicable and
accordingly, the sum of the foregoing amounts referred to above shall be reduced
by the amount of the Sponsor Loan and therefore be equal only to at least eight
million Dollars (US$8,000,000), if an irrevocable letter of credit, in form and
substance satisfactory to IFC (including, in this respect, the satisfactory
identity of the financial institution issuing such letter of credit), is
obtained and is in full force and effect prior to the date of the first
Disbursement, to support the future ability of the Sponsors to disburse the
Sponsor Loan following a disbursement request by the Company;
(q) [intentionally omitted];
(r) IFC has received a copy of the Company's audited financial
statements for the previous Fiscal Year, as well as copies of the Company's
unaudited quarterly financial statements for the period between the date of the
audited financial statements and the date of Disbursement;
(s) the Company has appointed a full-time project manager, acceptable
to IFC (which acceptance shall not be unreasonably withheld), who will be based
mostly in Georgia, and has provided IFC with a copy of such project manager's
employment contract;
(t) the Company has supplied IFC with a list of all beneficiaries of
past payments from the Company and/or its predecessor (JKX (Ninotsminda)), which
IFC agrees to keep strictly confidential;
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Section 6.02. Conditions of all Disbursements. The obligation of IFC to
make any Disbursement is also subject to the conditions that:
(a) the Debt to Equity Ratio does not exceed 50:50;
(b) the Life of Loan Cover Ratio exceeds 1.6;
(c) no Event of Default and no Potential Event of Default has occurred
and is continuing;
(d) the proceeds of such Disbursement are not in reimbursement of, or
to be used for, expenditures in the territories of any country which is not a
member of IFC or the World Bank or for goods produced in or services supplied
from any such country; but are, at the date of the relevant request, needed by
the Company for the purpose of the Project, or will be needed for that purpose
within three (3) months of such date and shall be spent only in countries which
are members of the World Bank;
(e) since the date of this Agreement nothing has occurred which can
reasonably be expected to materially and adversely affect the carrying out of
the Project or the Company's business prospects or financial condition or make
it improbable that the Company will be able to observe or perform any of its
obligations under this Agreement;
(f) since the date of this Agreement the Company has not incurred any
material loss or liability (except such liabilities as may be incurred in
accordance with Section 6.02); and
(g) the representations and warranties made in Article V are true on
and as of the date of that Disbursement with the same effect as if such
representations and warranties had been made on and as of the date of that
Disbursement (but in the case of Section 5.01 (c), without the words in
parenthesis).
(h) all fees due and payable under Section 3.08 shall have been paid in
full.
Section 6.03. Company Certification. The Company shall deliver to IFC:
(a) as part of each request for Disbursement a certification,
substantially in the form of Schedule 1, with respect to the conditions
specified in Sections 6.01 and 6.02, expressed to be effective as of the date of
the relevant Disbursement and in the case of Section 6.02 (e), certified by the
Auditors if IFC so requires;
(b) such evidence as IFC reasonably requests of the proposed
utilization of the proceeds of the relevant Disbursement or the utilization of
the proceeds of any prior Disbursement; and
(c) if IFC requests, a legal opinion or opinions in form and substance
satisfactory to IFC, of counsel acceptable to IFC, and concurred in by counsel
for the Company, with respect to any matters relating to the relevant
Disbursement.
Section 6.04. Conditions for IFC Benefit. The conditions in Sections
6.01 through 6.05 are for the benefit of IFC and may be waived only by IFC at
its sole discretion.
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Section 6.05. Saving of Rights. Unless IFC otherwise notifies the
Company and without limiting the generality of Section 9.10, the right of IFC to
require compliance with any condition under this Agreement which IFC waives in
respect of any Disbursement shall be preserved for the purposes of any
subsequent Disbursement.
ARTICLE VII
PARTICULAR COVENANTS
Section 7.01. Affirmative Covenants. Unless IFC otherwise agrees, the
Company shall:
(a) carry out the Project in accordance with the Field Development
Plan, subject to such substantial modifications which have been previously
approved in writing by IFC, and otherwise conduct its business with due
diligence and efficiency and in accordance with sound engineering, financial and
business practices;
(b) cause the financing specified in the Financial Plan to be applied
exclusively to the Project and use its best efforts to cause the Physical
Completion Date to occur before December 31, 1999;
(c) promptly install and/or maintain the accounting and cost control
system and management information system referred to in Section 6.01 (b),
maintain books of account and other records adequate to reflect truly and fairly
the financial condition of the Company and the results of its operations
(including the progress of the Project) in conformity with International
Accounting Standards, consistently applied;
(d) Maintain a system for marketing and sales of oil produced from the
Project satisfactory to IFC and endeavor to find economic markets for all
natural gas produced by the Project in excess of requirements for field
operations and to sell such natural gas pursuant to a Gas Sales Agreement;
(e) during implementation of the Project, within 20 days of the end of
each calendar month commencing with the calendar month following the date of the
first Disbursement, deliver to IFC a monthly report, providing project
implementation and operations information, including, without limitation,
information on production of oil and natural gas from the License Area by field,
production and disposal of formation water by field, principal investments and
works carried out within the License Area, material works or services contracts
entered into, significant events relating to the environment, occupational
health and safety matters, and such other information as IFC may reasonably
request to be provided on such monthly basis.
(f) as soon as available but in any event within forty-five (45) days
after the end of each of the first three quarters of each Fiscal Year, deliver
to IFC:
(i) two (2) copies of the Company's complete financial
statements for such quarter prepared in accordance with
International Accounting Standards consistently applied,
certified by the chief financial officer of the Company;
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(ii) a calculation of the Debt Service Coverage Ratio as of the
first day of such quarter, certified by the chief financial
officer of the Company;
(iii) two (2) copies of a quarterly report, providing operations
information, including, without limitation, production of
oil and natural gas by well, production of formation water
by well, all investments and works carried out within the
License Area, contracts for works and services entered
into, a complete record of health, safety and environmental
incidents, details of all contracts in effect relating to
the sale and/or transportation of oil and natural gas from
the Project, a record of individual sales including
customer, quantities and price of both crude oil or natural
gas sold, as well as a report on any factors materially
affecting or which might materially affect the Company's
business and operations or its financial condition and
ability to meet its obligations under any Transaction
Document, and such other information as IFC may reasonably
request to be provided on such quarterly basis;
(iv) a statement of all financial transactions between the
Company and its directors, each Immediate Shareholder, any
other shareholder, each Sponsor, and any other of its
Affiliates and a certification by the chief financial
officer of the Company that those transactions were on the
basis of arms'-length arrangements and competitive bidding
in compliance with the requirements of this Agreement;
(v) a statement of the Company's Indebtedness for Borrowed
Money in respect of Hedging Transactions as of the last day
of such quarter;
(g) as soon as available but in any event within one hundred and twenty
(120) days after the end of each Fiscal Year, deliver to IFC:
(i) two (2) copies of its complete and audited financial
statements for such Fiscal Year (which are in agreement
with its books of account and prepared in accordance with
International Accounting Standards consistently applied),
together with the Auditors' audit report on them, all in
form satisfactory to IFC;
(ii) a copy of any management letter or other communication from
the Auditors to the Company or to its management
commenting, with respect to such Fiscal Year, on, among
other things, the adequacy of the Company's financial
control procedures, accounting systems and management
information system;
(iii) (following the Financial Completion Date) a calculation of
the Debt Service Coverage Ratio and Debt to Equity Ratio,
certified by the chief financial officer of the Company;
(iv) a report by the Auditors to the effect that, on the basis
of its audited financial statements, the Company was in
compliance with the financial covenants contained in
Section 7.01 (y) as of the end of the relevant Fiscal Year
or, as the case may be, detailing any non-compliance;
(v) a review by the Company of the operations of the Company
during such Fiscal Year, in a form satisfactory to IFC,
containing the information listed in Schedule 5;
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(vi) a copy of the latest estimates and evaluation of the
Company's proven and probable reserves, as submitted by
CanArgo Energy Corporation to the United States Securities
and Exchange Commission, or a recognized securities
exchange or other securities regulatory authority together
with supporting information;
(vii) a statement by the Company of all financial transactions
between the Company and its directors, each Immediate
Shareholder, any other shareholder, each Sponsor, and any
other of its Affiliates during such Fiscal Year and a
certification by the chief financial officer of the Company
that those transactions were on the basis of arms'-length
arrangements and competitive bidding in compliance with the
provisions of this Agreement;
(viii) a statement of the Company's Indebtedness for Borrowed
Money in respect of Hedging Transactions as of the last day
of such Fiscal Year;
(h) deliver to IFC, no later than December 1 of each year, a copy of
the Project budget for the next Fiscal Year which has been approved by the
Company's board of directors;
(i) deliver to IFC, promptly following receipt, a copy of any
management letter or other communication sent by the Auditors (or any other
accountants retained by the Company) to the Company or its management in
relation to the Company's and/or the Project's financial, accounting and other
systems, management or accounts if not provided pursuant to subsection (g) (ii)
above;
(j) authorize, in the form of Schedule 4, the Auditors (whose fees and
expenses shall be for the account of the Company) to communicate directly with
IFC at any time regarding the Company's accounts and operations and furnish to
IFC a copy of such authorization;
(k) endeavor to notify IFC not less than fifteen (15) days before any
meeting of its shareholders, including the agenda of the meeting and permit a
representative of IFC, at IFC's discretion, to attend such meeting as an
observer;
(l) promptly deliver to IFC two (2) copies of all notices, reports and
other communications of the Company to its shareholders and endeavor to promptly
deliver to IFC the minutes of all shareholders' meetings;
(m) promptly provide to IFC such information as IFC from time to time
reasonably requests about the Company, its assets and the Project;
(n) permit representatives of IFC and the Independent Engineer to visit
any of the premises where the business of the Company is conducted and to have
access to its books of account and records;
(o) promptly notify IFC of any proposed change in the nature or scope
of the Project, the Field Development Plan, the Minimum Work Program, or the
business or operations of the Company, and of any event or condition which might
materially and adversely affect the carrying out of the Project or the carrying
on of the Company's business or operations including, without limitation any
Event of Default or Potential Event of Default under any Transaction Document;
35
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(p) promptly notify IFC as soon as it becomes aware of any litigation
or administrative proceedings before any Authority or arbitral body which does
or may materially and adversely affect the Company, its assets or the Project or
the ability of the Company to perform and observe its obligations under any
Transaction Document;
(q) take all actions necessary to comply, and cause the Operator to
comply, with (A) the "ecological passport", issued by the Georgian Ministry of
Environmental Protection and all other applicable environmental and occupational
health and safety requirements of Georgia and any local authorities, (B)
applicable World Bank environmental policies, occupational health and safety
guidelines, (C) the environmental and social actions specified in the
Environmental Review Summary, and (D) the Supplemental Archaeological Policy and
Procedures;
(r) [intentionally omitted];
(s) within one hundred and twenty (120) days after the end of each
Fiscal Year, deliver to IFC an annual monitoring report, confirming compliance
by the Company and by the Operator with the requirements of Section 7.01(r)
above or, as the case may be, detailing any non-compliance together with the
action being taken to ensure compliance;
(t) maintain a full-time project manager acceptable to IFC, who shall
be based mostly in Georgia, and provide to IFC a copy of such project manager's
employment contract to the extent materially changed from the prior one
submitted to IFC;
(u) if PriceWaterhouseCoopers cease to be the auditors of the Company
for any reason, appoint and maintain as the auditors of the Company a firm of
independent public accountants satisfactory to IFC and, within thirty (30) days
after such appointment, deliver to IFC a copy of an authorization to such firm
in the form of Schedule 4;
(v) obtain and maintain in force (or where appropriate, promptly renew)
all Authorizations necessary for carrying out the Project and the Company's
business and operations generally and the performance of the Company's
obligations under the Transaction Documents;
(w) perform and observe all the conditions and restrictions contained
in, or imposed on the Company by, any of the Authorizations referred to in
7.01(v);
(x) grant and assign the IFC Security to IFC and from time to time,
execute, acknowledge and deliver, or cause to be executed, acknowledged and
delivered, such further instruments as may reasonably be requested by IFC for
perfecting or maintaining in full force and effect the perfection of the IFC
Security or for re-registering the IFC Security or otherwise to comply with the
Company's obligations under the Transaction Documents;
(y) maintain at all times, commencing with the Financial Completion
Date:
(i) a Debt Service Coverage Ratio of at least 1.6;
(ii) a Current Ratio of at least 1.3; and
(iii) a Debt to Equity Ratio of less than 50:50;
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(z) maintain the credit balance in the Debt Service Reserve Account at
all times equal to the Debt Service Reserve Account Requirement and replenish,
if necessary, the balance in such Account within five Business Days of the date
on which IFC notifies the Company of the Loan Interest Rate applicable to any
Interest Period, provided that, if the balance of the Debt Service Reserve
Account is at any time greater that the Debt Service Reserve Account
Requirement, the Company may, in a written notice to IFC stating the amount by
which the Debt Service Reserve Account is overfunded, request IFC to direct the
Bank to transfer the amount of such excess to the Revenue Account, and IFC
agrees to give such direction within five Business Days of such request or such
later date as shall be specified therein;
(aa) require purchasers of its share of the oil produced from the
Project and purchasers of natural gas under any Gas Sales Agreement to make all
payments in Dollars on purchases of such oil or natural gas, within 45 days of
lifting, to the Revenue Account and if, notwithstanding the Company's
directions, a purchaser makes any such payment to any other account of the
Company (or of any of the Sponsors or Immediate Shareholders), deposit or cause
to be deposited into the Revenue Account an amount equal to that payment;
(bb) use funds available in the Revenue Account only for the following
purposes and in the following order of priority, and otherwise subject to the
terms and conditions of this Agreement:
(i) first, to replenish the Debt Service Reserve Account, if
required, so that the balance on deposit therein is at all
times equal to the Debt Service Reserve Account
Requirement;
(ii) second, regular operating expenses of the Project,
including NOC Direct Overhead Charges and NOC
Administration Overhead Charges as permitted by Section
7.02(x) and (y);
(iii) third, to make principal and interest payments on the Loan
as and when they come due, and to pay any fees in
connection with the Loan as and when they come due;
(iv) fourth, to meet Project capital expenditure commitments in
accordance with the Minimum Work Program;
(v) fifth, to meet capital expenditure commitments in
accordance with the Field Development Plan as modified by
the Annual Budgets approved by the Company's Board of
Directors;
(vi) sixth, to any other payment permitted under this Agreement.
Section 7.02. Negative Covenants. Unless IFC otherwise agrees in
writing, the Company shall not:
(a) directly or indirectly, declare or pay any dividend or make any
distribution on its share capital, or purchase, redeem or otherwise acquire any
shares of the Company or any option over them (each such action, a "Restricted
Payment"), if an Event of Default or Potential Event of Default has occurred and
is continuing;
(b) make any Restricted Payment unless:
(i) the Financial Completion Date has occurred;
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(ii) after taking into account and giving effect to each such
Restricted Payment, the balance in the Debt Service Reserve
Account is at least equal to the Debt Service Reserve
Account Requirement;
(iii) after taking into account and giving effect to each such
Restricted Payment, the Debt Service Coverage Ratio, Debt
to Equity Ratio and Current Ratio are at the respective
levels required under Section 7.01(x);
(c) in any Fiscal Year, make any payment, whether by way of repayment
of the Sponsor Loan or otherwise, to any Immediate Shareholder, Sponsor, or any
other Affiliate, except to the extent of funds available therefor in the Revenue
Account in accordance with Section 7.01(bb) and to the extent permitted under
Subsection (b) above, and otherwise in accordance with the provisions of the
Transaction Documents;
(d) in any Fiscal Year, incur expenditures or commitments for
expenditures for fixed or other non-current assets, other than those required
for carrying out the Project or necessary for repairs or replacements essential
to the Company's business or operations, in excess of an aggregate amount
equivalent to $500,000;
(e) incur, assume or permit to exist any indebtedness except:
(i) the Loan;
(ii) other Indebtedness for Money Borrowed contemplated by the
Financial Plan;
(iii) Short Term Debt incurred in the ordinary course of business
in an amount not to exceed $2,000,000;
(iv) subordinated shareholder loans on terms and conditions
substantially in the form of Schedule 7;
(f) except as permitted under a Hedging Facility, enter into any
Hedging Transaction or assume the obligations of any party to any Hedging
Transaction;
(g) enter into any agreement or arrangement to guarantee or, in any way
or under any condition, to become obligated for all or any part of any financial
or other obligation of another person;
(h) create or permit to exist any Lien on any property, revenues or
other assets, present or future, of the Company, other than the IFC Security;
(i) enter into any transaction except in the ordinary course of
business on the basis of arm's-length arrangements (including, without
limitation, transactions whereby the Company might pay more than the ordinary
commercial price for any purchase or might receive less than the full ex-works
commercial price (subject to normal trade discounts) for its products) and, in
the case of transactions with Affiliates, on the basis of competitive bidding;
(j) establish any sole and exclusive purchasing or sales agency;
38
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(k) enter into any partnership, profit-sharing or royalty agreement or
other similar arrangement whereby the Company's income or profits are, or might
be, shared with any other person;
(l) enter into any management contract or similar arrangement, whereby
its business or operations are managed by any other person;
(m) form or have any Subsidiary;
(n) make or permit to exist loans, advances or investments to or in any
person or enterprise, or make or permit to exist deposits with any person or
enterprise other than commercial bank deposits in the ordinary course of
business which may be invested only in short term investment grade marketable
securities acquired solely to give temporary employment to its idle funds, and
provided, further, that funds in the Debt Service Revenue Account shall only be
invested in Permitted Investments;
(o) change its Memorandum and Articles of Association in any manner
which would be inconsistent with the provisions of any Transaction Document;
(p) change its Fiscal Year;
(q) change the nature or scope of the Project or change the nature of
its business or operations;
(r) sell, transfer, lease or otherwise dispose of all or a substantial
part of its assets (whether in a single transaction or in a series of
transactions, related or otherwise) unless such assets are replaced by assets
("Replacement Assets") of the same or higher value and useful economic life and
unless, as a condition precedent to any such sale, transfer, lease, or
disposition, the Company takes all necessary steps to ensure, and delivers an
opinion of counsel acceptable to IFC (if IFC so requires) to the effect that,
any Replacement Assets will become part of the IFC Security;
(s) sell, farm-out or otherwise assign to any party its interest under
the Production Sharing Contract and/or the Production and Exploration License or
any agreement relating thereto;
(t) undertake or permit any merger, consolidation or reorganization;
(u) terminate, amend or grant any waiver in respect of any provision of
any Transaction Document;
(v) prepay (whether voluntarily or involuntarily) or repurchase any
Long- term Debt (other than the Loan) pursuant to any provision of any agreement
or note in respect of that Long-term Debt, unless:
(i) that Long-term Debt is refinanced using new Long-term Debt
on equivalent terms or terms (as to interest rate and
tenor) more favorable to the Company; or
(ii) if IFC so requires, the Company contemporaneously prepays a
proportionate amount of the Loan;
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(v) enter into any agreement or arrangement to acquire by lease the use
of any property or equipment of any kind, except leases in respect of property
or equipment with respect to which the total annual lease payments does not
exceed the equivalent of $1,000,000; or
(w) use the proceeds of any Disbursement in the territories of any
country which is not a member of IFC or the World Bank or for reimbursements of
expenditures in those territories or for goods produced in or services supplied
from those territories.
(x) make any payment of NOC Direct Overhead Charges in any Fiscal Year
unless the aggregate of all such payments does not exceed, in Fiscal Year 1998,
US$1.2 million, and in any Fiscal Year thereafter, US$1.2 million, escalated at
2% annually. Upon request by IFC, the Company shall provide documentation and
justification for any payments made in compliance with this Section 7.02(x).
(y) make any payment of NOC Administration Overhead Charges in any
Fiscal Year unless the aggregate of all such payments does not exceed, in Fiscal
Year 1998, US$0.5 million, and in any Fiscal Year thereafter, US$0.5 million,
escalated at 2% annually. Upon request by IFC, the Company shall provide
documentation and justification for any payments made in compliance with this
Section 7.02(y).
Section 7.03. Insurance. Unless IFC otherwise agrees, the Company
shall:
(a) insure and keep insured with financially sound and reputable
insurer or insurers all its assets and business which can be insured, against
all insurable losses, on a reinstatement basis utilizing current full
replacement values, including, without limitation, the insurance specified in
Schedule 6 and any other insurance required by law; all such insurance policies
shall be in the English language and governed by New York law;
(b) punctually pay any premium, commission and any other amounts
necessary for effecting and maintaining in force each insurance policy;
(c) ensure that every insurance and reinsurance policy on its assets
and for business interruption or delayed start-up cannot be terminated by the
insurer for any reason (including failure to pay the premium or any other
amount) unless both IFC and the Company receive at least forty-five (45) days
notice;
(d) ensure that every insurance policy on its assets which are the
subject of the IFC Security and for business interruption or delayed start-up
names IFC as sole loss payee for any claim in excess of five hundred thousand
Dollars (US$500,000);
(e) ensure that IFC and all contractors working at the Project site
(but only with respect to construction work) are named as additional named
insured, on all public liability policies;
(f) not do or omit to do, or permit to be done or not done, anything
which might prejudice the Company's, right to claim or recover under any
insurance policy;
(g) deliver to IFC:
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(i) within thirty (30) days after any insurance policy is
issued to the Company, a copy of that policy incorporating
any loss payee provisions required under subsection (d)
above (unless that policy has already been provided to IFC
pursuant to Section 6.01(c));
(ii) not less than ten (10) days prior to the expiry date of any
insurance policy (or, for insurance with multiple renewal
dates, not less than ten (10) days prior to the expiry date
of the policy on the principal asset), a certificate of
renewal from the insurer, insurance broker or agent
confirming the renewal of that policy and the renewal
period, the premium, the amounts insured for each asset or
item and any changes in terms or conditions from the
policy's issue date or last renewal and confirmation from
the insurer that provisions naming IFC as loss payee remain
in effect; and
(iii) any other information or documents on each insurance policy
IFC requests from time to time;
(h) notify IFC as soon as possible of any event entitling the Company
to claim for an aggregate amount exceeding the equivalent of five hundred
thousand Dollars ($500,000) under any one or more insurance policies;
(i) promptly notify the relevant insurer of any claim by the Company
under any policy written by that insurer and diligently pursue that claim; and
(j) not vary, rescind, cancel, terminate or cause a material change to
any insurance policy, nor do or omit to do, or permit to be done or not done,
anything which might prejudice the Company's right to claim or recover under any
insurance policy.
Section 7.04. Application of Insurance Proceeds. (a) At its discretion,
IFC may remit the proceeds of any insurance paid to it to the Company to repair
or replace the relevant damaged assets or may apply such proceeds to prepay all
or any part of the Loan (or any other amounts owing to IFC).
(b) The Company shall use any insurance proceeds it receives (whether
from IFC or directly from the insurers) for loss of or damage to any asset
solely to replace or repair that asset.
Section 7.05. Document Taxes. (a) The Company shall pay all taxes
(including stamp taxes), duties, fees or other charges payable on or in
connection with the execution, issue, delivery, registration or notarization of
the Transaction Documents, and any other documents related to this Agreement.
(b) The Company shall, upon notice from IFC, reimburse IFC or its
assigns for any such taxes, duties, fees or other charges paid by IFC or its
assigns.
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ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Acceleration after Default. If any Event of Default
occurs and is continuing (whether it is voluntary or involuntary, or results
from operation of law or otherwise), IFC may, by notice to the Company, require
the Company to repay the Loan or such part of the Loan as is specified in that
notice. On receipt of any such notice, the Company shall immediately repay the
Loan (or that part of the Loan specified in that notice) and all interest
accrued on it and any other amounts then payable under this Agreement. The
Company waives any right it might have to further notice, presentment, demand or
protest in respect of that demand for immediate payment.
Section 8.02. Events of Default. It shall be an Event of Default if:
(a) the Company fails to pay when due any part of the principal of the
Loan or any interest on the Loan and such failure continues for a period of five
(5) days;
(b) the Company fails to observe or perform any of its obligations
under this Agreement (other than for the payment of the principal of, or
interest on, the Loan), any other Transaction Document or any other agreement
between the Company and IFC, or any other party fails to observe or perform any
of its obligations under any Transaction Document, and any such failure
continues for a period of fifteen (15) days or, in the case of such a failure
with respect to Section 7.01(y) only, thirty (30) days, after IFC notifies the
Company of that failure;
(c) any representation or warranty made in Article V, in connection
with the execution and delivery of this Agreement, or in connection with any
request for Disbursement under this Agreement, or in any other Transaction
Document, is found to be incorrect in any material respect;
(d) any Authority condemns, nationalizes, seizes, or otherwise
expropriates all or any substantial part of the property or other assets of the
Company or of its share capital, or assumes custody or control of such property
or other assets or of the business or operations of the Company or of its share
capital, or takes any action for the dissolution or disestablishment of the
Company or any action that would prevent the Company or its officers from
carrying on all or a substantial part of its business or operations;
(e) a decree or order by a court is entered against the Company:
(i) adjudging the Company bankrupt or insolvent;
(ii) approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of,
or in respect of, the Company under any applicable law;
(iii) appointing a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or
of any substantial part of its property or other assets; or
(iv) ordering the winding up or liquidation of its affairs;
or any petition is filed seeking any of the above and is not
dismissed within thirty (30) days;
(f) the Company:
(i) requests a moratorium or suspension of payment of debts
from any court;
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(ii) institutes proceedings or takes any form of corporate
action to be liquidated, adjudicated bankrupt or insolvent;
(iii) consents to the institution of bankruptcy or insolvency
proceedings against it;
(iv) files a petition or answer or consent seeking
reorganization or relief under any applicable law, consents
to the filing of any such petition or to the appointment of
a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or of any
substantial part of its property;
(v) makes a general assignment for the benefit of creditors; or
(vi) admits in writing its inability to pay its debts generally
as they become due or otherwise becomes insolvent;
(g) an attachment or analogous process is levied or enforced upon or
issued against any of the assets of the Company for an amount in excess of the
equivalent of five hundred thousand Dollars ($500,000) and is not discharged
within thirty (30) days;
(h) any other event occurs which under any applicable law would have an
effect analogous to any of those events listed in subsections (e), (f) and (g)
above;
(i) any of the events specified in subsections (e), (f), (g) and (h)
above occur with respect to any Sponsor so long as the Guaranty is in effect;
(j) the Company fails to pay any of its Debt (other than the Loan)
which is outstanding under, or to perform any of its obligations under, any
agreement pursuant to which there is outstanding any Debt of the Company in an
amount exceeding five hundred thousand Dollars ($500,000), and such failure
continues for more than any applicable period of grace;
(k) any Authorization necessary for the Company to perform and observe
its obligations under any Transaction Document is not obtained when required or
is rescinded, terminated, lapses or otherwise ceases to be in full force and
effect, including in respect of the remittance to IFC or its assigns in Dollars
of any amounts payable under any Transaction Document and is not restored or
reinstated within thirty (30) days of notice by IFC to the Company requiring
that restoration or reinstatement;
(l) any provision of any Security Document is revoked, terminated or
ceases to be in full force and effect or ceases to provide the security
intended, without, in each case, the prior consent of IFC, or performance of the
obligations under any such document becomes unlawful or any such document is
declared to be void or is repudiated or its validity or enforceability at any
time is challenged by any person unless, in the case only of a repudiation or
challenge, such repudiation or challenge is withdrawn within thirty (30) days of
IFC's notice to the Company requiring that withdrawal and pending such
withdrawal such repudiation or challenge has no effect;
43
- 38 -
(m) any provision of any Transaction Document (other than a Security
Document) is materially modified, revoked, terminated or ceases to be in full
force and effect without, in each case, the prior consent of IFC, or performance
of the obligations under any such document becomes unlawful or any such document
is declared to be void or is repudiated or its validity or enforceability at any
time is challenged by any person and such provision is not restored or replaced
by a provision acceptable to IFC, or such repudiation or challenge is not
withdrawn within thirty (30) days of IFC's notice to the Company requiring that
restoration, replacement or withdrawal and pending such withdrawal such
repudiation or challenge has no effect;
(n) if, after the Financial Completion Date, the balance in the Debt
Service Reserve Account is lower than the Debt Service Reserve Account
Requirement and is not made up to such amount within any time period agreed
pursuant to the Retention Account Agreement;
Section 8.03. Bankruptcy. If the Company is liquidated or declared
bankrupt, the Loan, all interest accrued on it and any other amounts payable
under this Agreement will become immediately due and payable without any
presentment, demand, protest or notice of any kind, all of which the Company
waives.
Section 8.04. Notice of Events. If any Event of Default or Potential
Event of Default occurs, the Company shall immediately notify IFC by facsimile
or telex specifying the nature of such Event of Default or Potential Event of
Default and any steps the Company is taking to remedy it.
Section 8.05. Disclosure of Information. (a) IFC may disclose to any
person for the purpose of exercising any power, remedy, right, authority, or
discretion under this Agreement or any other Transaction Document in connection
with an Event of Default, any documents or records of, or information about, any
Transaction Document, or the assets, business or affairs of the Company.
(b) The Company acknowledges and agrees that, notwithstanding the terms
of any other agreement between the Company and IFC, a disclosure of information
by IFC in the circumstances contemplated by this Section does not violate any
duty owed to the Company or any agreement between IFC and the Company.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Notices. Any notice, request or other communication to be
given or made under this Agreement shall be in writing. Subject to Sections
6.01(m) and 7.05, the notice, request or other communication may be delivered by
hand, airmail, facsimile, established courier service or telex to the party's
address specified below or at such other address as such party notifies to the
other party from time to time and will be effective upon receipt or, in the case
of delivery by hand or by established courier service, upon refusal to accept
delivery.
For the Company:
44
- 39 -
Ninotsminda Oil Company
X.X. Xxx 000
Commerce House, Les Banques
Xx. Xxxxx Xxxx, Xxxxxxxx, XX0 0XX
British Isles
Attention: Chairman
Facsimile: 44-1481-729-982
With a copy sent to:
Ninotsminda Oil Company
Xxxxx 0000, 000 - 0xx Xxxxxx X.X.
Xxxxxxx, Xxxxxxx, Xxxxxx
X0X 0X0
Attention: Finance Director
Facsimile: (000) 000-0000
For IFC:
International Finance Corporation
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Xxxxxx Xxxxxx of America
Attention: Director, Oil, Gas and Mining Department
Facsimile: (000) 000-0000
With a copy (in the case of notices relating to payments) sent to the
attention of the Manager, Accounting Division, at:
Facsimile: (000) 000-0000
Section 9.02. English Language. All documents to be furnished or
communications to be given or made under this Agreement shall be in the English
language or, if in another language, shall, if IFC so requests, be accompanied
by a translation into English satisfactory to IFC certified by a representative
of the Company, which translation shall be the governing version between the
Company and IFC.
Section 9.03. Expenses. The Company shall pay to IFC or as IFC may
direct:
45
- 40 -
(a) the fees and expenses of IFC's external counsel in Georgia and New
York incurred in connection with:
(i) the preparation of the investment by IFC provided for under
this Agreement;
(ii) the preparation and/or review, execution and, where
appropriate, registration of the Transaction Documents and
any other documents related to them;
(iii) the giving of any legal opinions required by IFC under any
Transaction Document;
(iv) the administration by IFC of the investment provided for in
this Agreement or otherwise in connection with any
amendment, supplement or modification to, or waiver under,
any of the Transaction Documents;
(v) the registration (where appropriate) and the delivery of
the evidences of indebtedness relating to the Loan and its
disbursement;
(vi) the occurrence of any Event of Default or Potential Event
of Default; and
(b) the costs and expenses incurred by IFC in relation to the
enforcement or protection or attempted enforcement or protection of its rights
under any Transaction Document, or the exercise of its rights or powers
consequent upon or arising out of the occurrence of any Event of Default or
Potential Event of Default, including legal and other professional consultants'
fees on a full indemnity basis.
Section 9.04. Financial Calculations. (a) All financial calculations to
be made under, or for the purposes of, this Agreement shall be determined in
accordance with accounting principles applied on a consistent basis and, except
as otherwise required to conform to the definitions contained in Article I or
any other provisions of this Agreement, shall be calculated from the then most
recently issued quarterly financial statements which the Company is obligated to
furnish to IFC under Section 7.01 (f).
(b) If the relevant quarterly financial statements are in respect of
the last quarter of a Fiscal Year then, at IFC's option, such calculations may
instead be made from the audited financial statements for the relevant Fiscal
Year.
(c) If any material adverse change in the financial condition of the
Company after the end of the period covered by the relevant financial statements
has occurred, such material adverse change shall also be taken into account in
calculating the relevant figures.
Section 9.05. Termination of Agreement. This Agreement shall continue
in force until all monies payable under it have been fully paid in accordance
with its provisions.
Section 9.06. Applicable Law and Jurisdiction (a) This Agreement is
governed by, and shall be construed in accordance with, the laws of the State of
New York, United States of America.
46
- 41 -
(b) The Company irrevocably agrees that any legal action, suit or
proceeding arising out of or relating to this Agreement or any other Transaction
Document to which it is party may be brought by IFC in the courts of the State
of New York or of the United States of America located in the Southern District
of New York. Final judgment against the Company in any such action, suit or
proceeding shall be conclusive and may be enforced in any other jurisdiction, by
suit on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the judgment, or in any other manner provided by law.
(c) By the execution and delivery of this Agreement, the Company
irrevocably submits to the non-exclusive jurisdiction of any such court in any
such action, suit or proceeding and designates, appoints and empowers
Corporation Services Company, Xxx Xxxxx Xxxxx Xxxxxx, Xxx Xxxx, XX as its
authorized agent to receive for and on its behalf service of any summons,
complaint or other legal process in any such action, suit or proceeding in the
State of New York.
(d) Nothing in this Agreement shall affect the right of IFC to commence
legal proceedings or otherwise xxx the Company in any other jurisdiction, or
concurrently in more than one jurisdiction, or to serve process, pleadings and
other legal papers upon the Company in any manner authorized by the laws of any
such jurisdiction.
(e) As long as this Agreement remains in force, the Company shall
maintain a duly appointed agent for the service of summons, complaint and other
legal process in New York, New York, United States of America, for purposes of
any legal action, suit or proceeding IFC may bring in respect of this Agreement
or any other Transaction Document to which it is a party. The Company shall keep
IFC advised of the identity and location of their respective agent.
(f) The Company also irrevocably consents, if for any reason its
authorized agent for service of process of summons, complaint and other legal
process in any such action, suit or proceeding is not present in New York, New
York, to service of such papers being made out of those courts by mailing copies
of the papers by registered United States air mail, postage prepaid, to the
Company's address specified in Section 9.01. In such a case, IFC shall also send
by telex or facsimile, or have sent by telex or facsimile, a copy of the papers
to the Company.
(g) Service in the manner provided in subsection (f) above in any such
action, suit or proceeding will be deemed personal service, will be accepted by
the Company as such and will be valid and binding upon the Company for all
purposes of any such action, suit or proceeding.
(h) The Company irrevocably waives to the fullest extent permitted by
applicable law:
(i) any objection which it may have now or in the future to the
laying of the venue of any such action, suit or proceeding
in any court referred to in this Section;
(ii) any claim that any such action, suit or proceeding has been
brought in an inconvenient forum; and
(iii) its right of removal of any matter commenced by IFC in the
courts of the State of New York to any court of the United
States of America.
(i) To the extent that the Company may be entitled in any jurisdiction
to claim for itself or its assets immunity in respect of its obligations under
this Agreement or any other Transaction Document to which it is party
47
- 42 -
from any suit, execution, attachment (whether provisional or final, in aid of
execution, before judgment or otherwise) or other legal process or to the extent
that in any jurisdiction such immunity (whether or not claimed) may be
attributed to it or its assets, the Company irrevocably agrees not to claim and
irrevocably waive such immunity to the fullest extent permitted by the laws of
such jurisdiction.
(j) The Company hereby acknowledges that IFC shall be entitled under
applicable law, including the provisions of the International Organizations
Immunities Act, to immunity from a trial by jury in any action, suit or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby or any other Transaction Document to which it is a party,
brought against IFC in any court of the United States of America. The Company
hereby waives any and all rights to demand a trial by jury in any action, suit
or proceeding arising out of or relating to this Agreement or any other
Transaction Document to which it is a party or the transactions contemplated by
this Agreement or such Transaction Documents, brought against IFC in any forum
in which IFC is not entitled to immunity from a trial by jury.
(k) To the extent that the Company may, in any suit, action or
proceeding brought in any of the courts referred to in paragraph (b) above or
elsewhere arising out of or in connection with this Agreement or any other
Transaction Document to which it is party, be entitled to the benefit of any
provision of law requiring IFC in such suit, action or proceeding to post
security for the costs of the Company (cautio judicatum solvi), or to post a
bond or to take similar action, the Company hereby irrevocably waives such
benefit, in each case to the fullest extent now or in the future permitted under
the laws of the jurisdiction in which such court is located.
Section 9.07. Successors and Assigns. This Agreement binds and benefits
the respective successors and assigns of its parties. However the Company may
not assign or delegate any of its rights or obligations under this Agreement
without IFC's consent.
Section 9.08. Amendment. Any amendment of any provision of this
Agreement shall be in writing and signed by the parties.
Section 9.09. Counterparts. This Agreement may be executed in several
counterparts, each of which is an original, but all of which together constitute
one and the same agreement.
Section 9.10. Remedies and Waivers. No failure or delay by IFC in
exercising any power, remedy, discretion, authority or other rights under this
Agreement shall waive or impair that or any other right of IFC. No single or
partial exercise of such a right shall preclude its additional or future
exercise. No such waiver shall waive any other right under this Agreement. All
waivers or consents given under this Agreement shall be in writing.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
in their respective names as of the date first above written.
NINOTSMINDA OIL COMPANY
By: /s/ XXXXXXX XXXXXXX
--------------------------------
Authorized Representative
INTERNATIONAL FINANCE CORPORATION
By: /s/ XXXXX XX XXXXX XXXXXXXXX
--------------------------------
Authorized Representative
48
- 43 -
SCHEDULE 1
Page 1 of 3
FORM OF REQUEST FOR DISBURSEMENT [(LOAN)]
(See Sections 3.02 and [6.06)]
[COMPANY LETTERHEAD]
[Date]
International Finance Corporation
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Xxxxxx Xxxxxx of America
Attention: Director, Oil, Gas and Mining Department
Ladies and Gentlemen:
Investment No. 8138
Request for Loan Disbursement No. [ ]*
1. Please refer to the Convertible Loan Agreement (the "Convertible Loan
Agreement") dated December 17, 1998 between Ninotsminda Oil Company (the
"Company") and International Finance Corporation ("IFC"). Terms defined in the
Convertible Loan Agreement have their defined meanings whenever used in this
request.
2. The Company irrevocably requests the disbursement on ____________, 1998
(or as soon as practicable thereafter) of the amount of ____________
(____________) under the Loan (the "Disbursement") in accordance with the
provisions of Section 3.02 of the Convertible Loan Agreement. You are requested
to pay such amount to the account in [New York] of [Name of Company], Account
No. ____________ at [Name and Address of Bank].
-------------------------
* To correspond with number of the Disbursement Request. SEC Schedule 1.
49
- 44 -
SCHEDULE 1
Page 2 of 3
3. There is enclosed a signed[, stamped,] but undated receipt for the
amount of the Disbursement. The Company authorizes IFC to date such receipt with
the date of actual disbursement by IFC.
4. For the purpose of Sections [6.02 and 6.03] of the Convertible Loan
Agreement, the Company further certifies as follows:
(a) no Event of Default and no Potential Event of Default has occurred
and is continuing;
(b) the proceeds of the Disbursement are at the date of this request
needed by the Company for the purpose of the Project, or will be needed for such
purpose within three (3) months of such date;
(c) since the date of the Convertible Loan Agreement nothing has
occurred which might materially and adversely affect the carrying out of the
Project or the Company's business prospects or financial condition, or make it
improbable that the Company will be able to fulfill any of its obligations under
the Convertible Loan Agreement;
(d) since [insert date] [the date of the Convertible Loan Agreement]
the Company has not incurred any material loss or liability (except such
liabilities as may be incurred by the Company in accordance with Section 7.02 of
the Convertible Loan Agreement);
(e) the representations and warranties made in Article VI of the
Convertible Loan Agreement are true on the date of this request and will be true
on the date of Disbursement with the same effect as if such representations and
warranties had been made on and as of each such date;
(f) the proceeds of that Disbursement are not in reimbursement of, or
to be used for, expenditures in the territories of any country which is not a
member of IFC or the World Bank or for goods produced in or services supplied
from any such country;
(g) after giving effect to the Disbursement, the Company will not be in
violation of:
50
- 45 -
SCHEDULE 1
Page 3 of 3
(i) its [Memorandum and Articles of Association]/[Charter];
(ii) any provision contained in any document to which the
Company is a party (including the Convertible Loan
Agreement) or by which the Company is bound; or
(iii) any law, rule or regulation, directly or indirectly,
limiting or otherwise restricting the Company's borrowing
power or authority or its ability to borrow; and
The above certifications are effective as of the date of this Request
for Disbursement and shall continue to be effective as of the date of the
Disbursement. If any of these certifications is no longer valid as of or prior
to the date of the requested Disbursement, the Company undertakes to immediately
notify IFC.
Yours truly,
NINOTSMINDA OIL COMPANY
By ______________________________
Authorized Representative
Copy to: Manager, Accounting Division
International Finance Corporation
51
- 46 -
SCHEDULE 2
Page 1 of 1
FORM OF LOAN DISBURSEMENT RECEIPT
(See Section 3.02 of the Convertible Loan Agreement)
[COMPANY LETTERHEAD]
International Finance Corporation
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Xxxxxx Xxxxxx of America
Attention: Manager, Accounting Division
Ladies and Gentlemen:
Investment No. 8138
Disbursement Receipt No. [ ]* (Loan)
We, Ninotsminda Oil Company, hereby acknowledge receipt on the date hereof, of
the sum of $________ disbursed to us by International Finance Corporation
("IFC") under the Loan of $________ provided for in the Convertible Loan
Agreement dated December 17, 1998 between our company and International Finance
Corporation.
Yours truly,
NINOTSMINDA OIL COMPANY
By _________________________________
Authorized Representative**
--------------------
** To correspond with number of the Disbursement request. See Schedule
1.
*** As named in the Company's Certificate of Incumbency and Authority
(see Schedule [4]).
52
- 47 -
SCHEDULE 3
Page 1 of 2
FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY
(See Section [5.01(n))
[COMPANY LETTERHEAD]
[Date]
International Finance Corporation
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Xxxxxx Xxxxxx of America
Attention: Director, Oil, Gas and Mining Department
Ladies and Gentlemen:
Certificate of Incumbency and Authority
With reference to the Convertible Loan Agreement between us, dated
December 17, 1998 (the "Convertible Loan Agreement"), I, the undersigned
[Chairman/Director] of Ninotsminda Oil Company, (the "Company"), duly authorized
to do so, hereby certify that the following are the names, offices and true
specimen signatures of the persons each of whom are, and will continue to be,
authorized:
(a) to sign on behalf of the Company the requests for the disbursement
of funds provided for in Section [3.02] of the Convertible Loan Agreement;
(b) to sign the certifications provided for in Section 6.03 of the
Convertible Loan Agreement; and
(c) to take any other action required or permitted to be taken, done,
signed or executed under the Convertible Loan Agreement or any other agreement
to which IFC and the Company may be parties.
53
- 48 -
SCHEDULE 3
Page 2 of 2
* Name Office Specimen Signature
______ __________ __________________
______ __________ __________________
______ __________ __________________
You may assume that any such person continues to be so authorized until
you receive authorized written notice from the Company that they, or any of
them, is no longer so authorized.
Yours truly,
NINOTSMINDA OIL COMPANY
By ________________________
[Chairman/Director]
-------------------------
** Designations may be changed by the Company at any time by issuing a
new certificate of Incumbency and Authority authorized by the Board of
Directors of the Company.
54
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SCHEDULE 4
Page 1 of 2
FORM OF LETTER TO COMPANY'S AUDITORS
[COMPANY LETTERHEAD]
(See Sections [5.01(m)] and [6.01(h)] of
the Convertible Loan Agreement)
[DATE]
[NAME OF AUDITORS]
[ADDRESS]
Ladies and Gentlemen:
We hereby authorize and request you to give to International Finance
Corporation of 0000 Xxxxxxxxxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, Xxxxxx
Xxxxxx of America ("IFC"), all such information as IFC may reasonably request
with regard to the financial statements of the undersigned Company, both audited
and unaudited. We have agreed to supply that information and those statements
under the terms of an Convertible Loan Agreement between the undersigned Company
and IFC dated December 17, 1998 (the "Convertible Loan Agreement"). For your
information we enclose a copy of the Convertible Loan Agreement.
We authorize and request you to send two copies of the audited accounts
of the undersigned Company to IFC to enable us to satisfy our obligation to IFC
under Section [6.01 (e)(i)] of the Convertible Loan Agreement. When submitting
the same to IFC, please also send, at the same time, a copy of your full report
on such accounts in a form reasonably acceptable to IFC.
Please note that under Section [6.01 (e) (ii) and (iii)] of the
Convertible Loan Agreement, we are obliged to provide IFC with:
55
- 50 -
SCHEDULE 4
Page 2 of 2
(a) a copy of any management letter or other communication from you to
the Company or its management commenting on, among other things, the adequacy of
the Company's financial control procedures and accounting and management
information systems; and
(b) a report by you certifying that, based upon its audited financial
statements, the Company was in compliance with the financial covenants contained
in Section [6.02] of the Convertible Loan Agreement as at the end of the
relevant Fiscal Year or, as the case may be, detailing any non-compliance.
Please also submit each such communication and report to IFC with the
audited accounts.
For our records, please ensure that you send to us a copy of every
letter which you receive from IFC immediately upon receipt and a copy of each
reply made by you immediately upon the issue of that reply.
Yours truly,
NINOTSMINDA OIL COMPANY
By ______________________________
Authorized Representative
Enclosure
cc: Director
[Name of Department]
International Finance Corporation
0000 Xxxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Xxxxxx Xxxxxx of America
56
- 51 -
SCHEDULE 5
Page 1 of 1
INFORMATION TO BE INCLUDED IN ANNUAL REVIEW OF
OPERATIONS
(See Section 7.01(f)(v) of the Convertible Loan Agreement)
[1) Sponsors and Shareholdings. Information on significant changes in share
ownership of Company, the reasons for such changes, and the identity of
major new shareholders.
2) Country Conditions and Government Policy. Report on any material changes
in local conditions, including government policy changes, that directly
affect the Company (e.g. changes in government economic strategy,
taxation, foreign exchange availability, price controls, and other areas
of regulations.)
3) Management and Technology. Information on significant changes in (i) the
Company's senior management or organizational structure, and (ii)
technology used by the Company, including technical assistance
arrangements.
4) Corporate Strategy. Description of any changes to the Company's
corporate or operational strategy, including changes in products, degree
of integration, and business emphasis.
5) Markets. Brief analysis of changes in Company's market conditions (both
domestic and export), with emphasis on changes in market share and
degree of competition.
6) Operating Performance. Discussion of major factors affecting the year's
financial results (sales by value and volume, operating and financial
costs, profit margins, capacity utilization, capital expenditure, etc.).
7) Financial Condition. Key financial ratios for previous year, compared
with ratios covenanted in the Convertible Loan Agreement.]
57
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[SCHEDULE 6]
Page 1 of 1
INSURANCE REQUIREMENTS
The company shall effect and maintain the following insurance covers at all
times during the period of the Financing Agreements, under forms of policies and
with insurers and reinsurers acceptable to IFC:
1. Property insurance covering all assets at full replacement value during
operations and construction (as applicable).
2. Business Interruption cover with minimum 12 months indemnity period.
3. Liability cover, including products liability and seepage and pollution
for not less than US$ 10 million.
4. Operator's Extra Expenses, including Control of Well, Redrilling, etc.
for not less than US$ 10 million.
5. Transport insurance for import of equipment, oil in transit, etc.
6. All other insurances required by local legislation or by contract.
58
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[SCHEDULE 7]
Page 1 of 2
TERMS OF SUBORDINATED LOANS
Any subordinated loan provided to the Company, (except for the Sponsor
Loan), shall have the following minimum terms:
(a) unsecured;
(b) repayment in approximately equal semi-annual installments over a
period of not less than five (5) years commencing twelve (12) months after the
full disbursement of the relevant Subordinated Loan;
(c) rate of interest not to exceed that of the IFC Loan;
(d) no payment of interest or repayment of principal in respect of the
Subordinated Loan shall be made in any Fiscal Year unless all amounts due and
payable by the Company to IFC in that Fiscal Year have been fully paid;
(e) no payment of interest or repayment of principal in respect of the
Subordinated Loan shall be made if the Company is in arrears in the payment of
interest on, or repayment of principal of, the IFC Loan or any other
indebtedness;
(f) payment of principal and interest shall take place at least fifteen
(15) days after the Interest Payment Dates of the IFC Loan;
(g) upon any distribution of assets in connection with any dissolution,
winding up, liquidation, bankruptcy, reorganization or upon an assignment for
the benefit of creditors of the Company:
(i) no payment in respect of principal, interest or any other
amount in respect of such Subordinated Loans may be made
unless full payment in respect of interest on, and
principal of, the IFC Loan has been made;
59
- 54 -
SCHEDULE 7
Page 2 of 2
(ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities,
to which the lender of the Subordinated Loan would be
entitled in respect of the Subordinated Loan except for
these provisions, must instead be paid by the liquidator or
agent or other person making such payment or distribution,
whether a trustee in bankruptcy, a receiver or liquidating
trustee or other trustee or agent, directly to IFC; and
(h) until all amounts payable in respect of the IFC Loan, or otherwise
under the Convertible Loan Agreement, are paid in full the lenders of the
Subordinated Loan shall not:
(i) exercise or attempt to exercise any right of subrogation
with respect to payments not paid to such lenders as a
result of the operation of the provisions set forth in this
Schedule 1;
(ii) claim or receive the benefit of any document or agreement
of which IFC has the benefit, any monies held by IFC or any
right, power or authority of IFC;
(i) if for any reason whatsoever the lender of such Subordinated Loan
receives any payment or distribution in respect of the Subordinated Loan
contrary to the provisions set out above, that lender shall hold the same in
trust for IFC, promptly notify IFC of the receipt of such payment or
distribution and promptly pay the amount of such payment or distribution to IFC
or, if IFC so elects, to any bank specified by IFC, to hold such amounts for
IFC's account.
60
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SCHEDULE 8
Page 1 of 1
REQUIREMENTS FOR SPONSOR LOAN
The Sponsor Loan will be provided, or caused to be provided, by the Sponsors to
the Company prior to Loan Disbursement. The Sponsor Loan will be in the amount
of US$2 million, and shall be unsecured and subordinated to the Loan. The
Sponsor Loan will be disbursed into the Revenue Account. It will accrue interest
at the Loan Interest Rate until the Physical Completion Date, after which time
no further interest shall accrue. No payments of interest or repayments of
principal shall be made until after the Physical Completion Date, after which
time principal of the Sponsor Loan and accrued interest may be repaid providing
that (i) after giving effect to such repayment the Debt Service Reserve Account
is funded at the Debt Service Reserve Account Requirement and (ii) no Event of
Default or Potential Event of Default has occurred or is continuing.
61
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SCHEDULE 9
Field Development Plan
62
NINOTSMINDA OIL COMPANY LIMITED
0000, 000 - XXXXXXX XXXXXX X.X.,
XXXXXXX, XXXXXXX X0X 0X0
TELEPHONE : (000) 000-0000
FACSIMILE : (000) 000-0000
Updated Field Development Plan
for the Ninotsminda Oil Field
Proposed Plans for 1998 and 1999
&
A General Full Field Development Plan
Prepared By
Irakli Tavdumadze
Xxxxxx Xxxxxxxxx
Xxxx XxXxxxx
Tbilisi, Georgia
October 1998
63
Ninotsminda Oil Company Wednesday, February 10, 1999
Updated Field Development Plan
Table of Contents
1 SUMMARY.............................................................................................4
2 SEISMIC PROGRAM.....................................................................................5
2.1 OLD SEISMIC DATA...............................................................................5
2.2 NEW SEISMIC LINES..............................................................................6
2.3 SUMMARY OF SEISMIC ACTIVITIES..................................................................6
3 DRILLING PROGRAM....................................................................................6
3.1 GENERAL........................................................................................6
3.2 WELL N98.......................................................................................7
3.2.1 N98 FUTURE OPERATIONS:....................................................................7
3.3 WELL N97.......................................................................................8
3.4 WELL N99.......................................................................................8
3.5 WELL N100......................................................................................8
3.6 WELL N105......................................................................................8
3.7 DRILLING SUMMARY...............................................................................9
4 WORKOVER PROGRAM....................................................................................9
5 OTHER REQUIREMENTS.................................................................................11
5.1 BASE EXPANSION:...............................................................................11
5.2 PURCHASE OF ADDITIONAL PRESSURE TRANSIENT EQUIPMENT...........................................11
5.3 PVT TESTING...................................................................................11
5.4 TWO WATER SUPPLY XXXXX........................................................................11
5.5 PRODUCTION FACILITY UPGRADES..................................................................11
5.6 ACCOMMODATION.................................................................................11
5.7 TRANSPORTATION................................................................................12
5.8 COMMUNICATION / COMPUTERS.....................................................................12
5.9 EDUCATION.....................................................................................12
6 PAST AND PLANNED EXPENDITURES......................................................................12
7 FULL FIELD DEVELOPMENT; INTO THE NEW MILLENIUM.....................................................12
7.1 RESERVES......................................................................................12
7.2 DRAINAGE AREAS................................................................................12
7.3 DRILLING......................................................................................13
7.4 WORKOVERS.....................................................................................14
7.5 FACILITIES....................................................................................14
7.6 PRODUCTION....................................................................................14
7.7 FULL FIELD DEVELOPMENT SUMMARY................................................................14
8 BRIEFLY ON EXPLORATION POTENTIAL...................................................................15
8.1 XXXXXX........................................................................................15
8.2 WEST RUSTAVI AND NINOTSMINDA..................................................................15
9 APPENDIX 1 DETAILED WORKOVER PLAN.................................................................16
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9.1 N9............................................................................................16
9.2 N21...........................................................................................16
9.3 N22...........................................................................................17
9.4 N30...........................................................................................17
9.5 N32...........................................................................................17
9.6 N49...........................................................................................18
9.7 N53...........................................................................................18
9.8 N59...........................................................................................18
9.9 N96...........................................................................................18
9.10 R16...........................................................................................19
9.11 R51...........................................................................................19
9.12 WORKOVER SUMMARY..............................................................................20
10 APPENDIX 2 PAST AND PLANNED EXPENDITURES 1998 TO 1999...........................................21
List of Tables
TABLE 1 OLD SEISMIC DATA RECOMMENDED FOR REPROCESSING...............................................5
TABLE 2 OLD NON-PROCESSED SEISMIC RECOMMENDED FOR PURCHASE AND PROCESSING...........................5
TABLE 3 SUMMARY OF COST OF SEISMIC ACQUISITION, PROCESSING AND INTERPRETATION.......................6
TABLE 4 NEW XXXXX: ESTIMATED RESERVOIR PROPERTIES AND RISKS.........................................7
TABLE 5 DRILLING SUMMARY............................................................................9
TABLE 6 WORKOVER PROPOSAL SUMMARY...................................................................9
TABLE 7 CONSERVATIVE ESTIMATE OF DEC 1999 PRODUCTION VOLUMES.......................................10
TABLE 8 PAST AND PLANNED EXPENDITURES SUMMARY 1998 & 1999..........................................12
TABLE 9 FULL FIELD DEVELOPMENT SUMMARY.............................................................15
TABLE 1-1 WORKOVER SUMMARY...........................................................................20
List Of Figures
FIGURE 1 LOCATION MAP
FIGURE 2 TOP STRUCTURE MAP SHOWING WELL LOCATIONS
FIGURE 3 XXXX DIAGRAM SHOWING THE PLANNED ACTIONS FOR 1998 AND 1999
FIGURE 4 FUTURE DEVELOPMENT
FIGURE 5 WELL BUILD UP SCHEDULE
FIGURE 6 DAILY OIL PRODUCTION TO 2016
FIGURE 7 ANNUAL OIL PRODUCTION TO 2016
FIGURE 8 OIL FIELDS AND PROSPECTS IN THE NINOTSMINDA AREA
FIGURE 9 WEST RUSTAVI, UPPER CRETACEOUS TOP STRUCTURE MAP
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1 SUMMARY
This document is an addendum to the report: "Field Development plan for the
development of the Ninotsminda Oilfield, Republic of Georgia." sent to IFC in
the spring of 1998. The purpose of this document is twofold; first, to present a
summary of Ninotsminda Oil Company's (NOC) 1998 operations to September, 1998
and second, to detail a "Minimum Work Program" for the next 15 months until the
end of 1999.
The work to be performed in Ninotsminda can either be regarded as appraisal,
development or maintenance. All tasks are interrelated when it comes to sharing
of resources, equipment and personnel and all three parts will be covered in
this document without distinctions between them.
The IFC Loan requirements include a "Minimum Work Program" which is estimated to
cost $US 18.9 M. With respect to this requirement, NOC has set a production goal
of 4,500 bopd by December 1999. As per the IFC loan, 1998 sunk costs directly
related to the project will be reviewed and included as part of NOC's capital
cost requirement. Past production, seismic, drilling and workovers will be
presented. Future seismic, drilling, workovers and facility upgrade will be
performed. Generally, future works will include four measures for an estimated
$US 15.4 M. These include:
- Drilling 5 xxxxx
- Performing 5 major workovers
- Doing production maintenance and upgrading facilities
- Shooting 30 km of new seismic, purchasing old lines, reprocessing all
lines and interpreting all data
Five new xxxxx will be drilled, with the first being a vertical and the second
being horizontal and the remaining three horizontals drilled on a contingent
basis subject to technical and commercial results of the first two. If all five
are drilled, NOC expects an initial production increase of 4,050 bopd for an
estimated cost of $US 12.9 million.
The major workovers include gas and water isolation, reperforating new pay, and
selective treatment of new pay. The 5 major workovers are expected to cost $US
373,000 and result in a production increase of 1,075 bopd.
Workovers, routine de-waxing and oil squeezes were done and will continue to be
performed. Pipelines were replaced, new lines installed, drill pipe and rig
equipment was purchased. Upgrading of facilities and equipment will be
continued. The cost for routine well, facility and equipment maintenance is
estimated to be $US 2.2 mm.
NOC's plan calls for the purchase of 20 km of old seismic lines, reprocessing of
137 km and the shooting of 30 km of new lines for $US 277,000. PVT and Pressure
Transient
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equipment and analysis will complete the reservoir analysis work for $US 50,000.
Better definition of reservoir parameters will be obtained.
An extension to the Minimum Work Program is Future Field Development. Together
the two plans result in 9 more xxxxx to be drilled; one vertical, 4 horizontal
and 15 laterals from the last four xxxxx. The expected cost is $US 35 mm and
will result in a peak production of 17,000 bopd in 2001 and recover 50 mmbo by
the year 2016.
2 SEISMIC PROGRAM
2.1 OLD SEISMIC DATA
There are 73 km of old seismic lines crossing the NOC license that are
recommended for reprocessing. In addition, approximately 20 km of lines was shot
over NOC license area in the late 80s that were never processed. It is
recommended that this data be acquired and added to the database.
Tables 1 & 2 below show the lines recommended for purchase and reprocessing by
XXX.
XXXX XXXX # XXXXXX xx.
Xxxxxxxxxxx 000000 13
Ninotsminda 029304 14
Ninotsminda 029605 8
Xxxxxx 068528 3
Xxxxxx 068527 3
Xxxxxx 068412 3
West Rustavi 118701 11
West Rustavi 118703 18
TOTAL
TABLE 1 OLD SEISMIC DATA RECOMMENDED FOR REPROCESSING
AREA LINE # LENGTH km.
West Rustavi 018901 14
West Rustavi 018906 8
West Rustavi 018908 13
West Rustavi 018903 15
West Rustavi 018803 14
TOTAL * 64
TABLE 2 OLD NON-PROCESSED SEISMIC RECOMMENDED FOR PURCHASE AND PROCESSING
* NOC share is 21 km
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2.2 NEW SEISMIC LINES
10 km of new seismic will cross the Ninotsminda Oil Field. The lines will all
run north to south along the dip of the structure. Another 20 km of seismic will
be shot in the West Rustavi area. It is planned to shoot these lines with a
vibroseis unit.
The cost of the operation allocated to NOC is presented below in Table 3.
2.3 SUMMARY OF SEISMIC ACTIVITIES
The table below shows the activity and cost.
SEISMIC WORKS LENGTH COST TO NOC $US
(NOC LICENSE ONLY) km
------------------ --
MOBILIZATION/DEMOB. 37,400
SEISMIC ACQUISITION @ $US 4942/km 30 148,260
PROCESSING @ $US 600/DAY 10 6,000
PURCHASE OF NON-PROCESSED OLD SEISMIC 21* 10,000
PROCESSING OF NON-PROCESSED OLD DATA @ $US 200/km 21 4,200
REPROCESSING OF EXISTING DATA @ $US 200/km 73 14,600
CREW SUPERVISION, SUPERVISION OF PROCESSING AND REPROCESSING AND 11 6,600
INTERPRETATION @ $US 600/DAY
TOTAL 227,060
CONTINGENCY 49,940
TOTAL 277,000
TABLE 3 SUMMARY OF COST OF SEISMIC ACQUISITION, PROCESSING AND INTERPRETATION
(* NOC share only (1/3 of total))
3 DRILLING PROGRAM
3.1 GENERAL
Drilling of two xxxxx, N97 and N98 are planned for 1998. Three more contingent
xxxxx N99, N100 and N105 are planned in 1999. Two refurbished Ural Mash 3E rigs
will drill the xxxxx. The schedule for the drilling program is illustrated in
Figure 3.
There are several purposes for these xxxxx:
- To increase oil production
- To delineate the reservoir unit to the east,
- To prove horizontal and lateral well applicability,
- To increase the proven reserves,
- To determine reservoir characteristics,
- To determine production characteristics,
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- To determine drainage characteristics and
- To compare results of vertical and horizontal xxxxx.
The expected oil rate for vertical xxxxx is 650 bopd and 850 bopd for horizontal
xxxxx. An upside potential is 750 and 1400 bopd respectively. It is expected
that the xxxxx will produce fairly constantly for 18 months to 2 years and then
decline at 15% per year. Horizontal xxxxx will decline at a lower rate because
the drainage is from a larger area and at less drawdown pressures. Other well
details are given on Table 4, below:
WELL # FRACTURE POSSIBILITY OF RISK FACTOR OF THICKNESS OF EXPECTED UPSIDE CONSTANT RATE
FREQUENCY LAUMONITE PRODUCTION OIL LEG m RATE bopd bopd MONTHS
--------- --------- --------- ---------- --------- --------- ---- ------
97 High High low 300 850 1400 18
98 High High low 380 650 750 18
99 High Average medium 300 850 1300 18
100 High Average medium 170 850 1300 18
105 High High low 380 850 1400 18
TOTAL 4,050 6,150
TABLE 4 NEW XXXXX: ESTIMATED RESERVOIR PROPERTIES AND RISKS
3.2 WELL X00
X00 is currently being drilled in the vicinity of xxxxx N22, N49 and N52 in the
east and central part of the field. (Figure 2) N98 was spudded in August 12,
1998, and by Oct 1st had reached 2650m. Planned TD is 3,100m, just below the
prognosed OWC in the Middle Eocene volcanoclastic deposits. The expected initial
production is 650 bopd. The drilling time is estimated to be 85 days and the
cost to 2.5 million $US.
The well has penetrated the following stratigraphic units:
0-280m - Pliocene
280-930m - Upper Sarmatian
930-2335m - Middle Sarmatian
2335-2650m - Upper Eocene
A 339mm conductor was run to 317m. The 317-2650m interval was drilled with 215mm
bit. This is the first time that the Sarmatian and the Upper Eocene were drilled
and cased together in Ninotsminda. This eliminated the need for the 9 5/8"
intermediate string over the Sarmatian interval. This is estimated to have saved
about 0.4 MM $US in drilling costs. Currently the well is cased with 7" casing
near the Middle Eocene top.
3.2.1 N98 FUTURE OPERATIONS:
The Middle Eocene will be drilled with a 151mm bit and cased with a 127mm liner.
Initial production of 650 bopd is expected in November.
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3.3 WELL N97
Rigging up of well #97 is 95% complete. The well is planned to be spudded in
November 1998, south east of N21 (Figure 2). The well will be allowed to drift
naturally to the south while drilling to the top of the Middle Eocene. A 400 m
horizontal section, 40 meters below the GOC in the south west direction is
planned. The well will be completed with a slotted liner, and put on production
in March. Initial production is expected to be 850 bopd.
3.4 WELL X00
X00 is planned to be drilled 1550m east of N52 after the drilling of well N97 is
complete. The well will penetrate the Middle Eocene as a horizontal well. A 300
m oil column is expected and the OWC is expected to be 2000 mss. Expected spud
date is second quarter of 1999. Expected initial production is 850 bopd.
This well is to be drilled as a horizontal well, with the flexibility in the
casing design to allow for lateral extensions.
3.5 WELL N100
N100 is planned to be drilled 2500m east of N52 as a horizontal well to the
Middle Eocene. This well is in the east of the reservoir. A 170 m oil column is
expected and the OWC is expected to be at 2020 mss. This well will be spudded
based on the results of N105 and N99. Expected spud date is the third quarter of
1999, and expected initial production is 850 bopd.
Like N99, this well is to be drilled as a horizontal well, with the flexibility
in the casing design to allow for lateral extensions.
3.6 WELL N105
N105 will be drilled after N98 and from the same location. NOC plans to skid the
drilling unit over 20 m. This will save mobilization time and will utilize
existing infrastructure. The well will be directionally drilled to the north
east from N98 (surface location) and penetrate the top of the Middle Eocene
approximately 300-500 m east of N98 (Middle Eocene top). The horizontal section
will be 500-800 meters long on a 55 degree azimuth. A 400 m oil column is
expected with an OWC estimated to be at 1980 mss. Expected initial production is
850 bopd.
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3.7 DRILLING SUMMARY
WELL NO. SPUD DATE COMPLETION DATE COST $US INITIAL RATE UPSIDE RATE CONSTANT RATE
bopd bopd bopd
N97 Xxx-00 Xxx-00 3.0 850 1,400 2
N98 Aug-98 Nov 98 2.5 650 750 2
N99 May-99 Sept-99 2.5 850 1,300 2
N100 Sep-99 Dec-99 2.5 850 1,300 2
N105 Jan-99 May-99 2.5 850 1,400 2
TOTAL 13.0 4,050 6,150
TABLE 5 DRILLING SUMMARY
4 WORKOVER PROGRAM
There are currently 6 producing xxxxx in Ninotsminda field. For 1998 and 1999, 5
major workover operations as a minimum have been planned which will increase the
number of producing xxxxx from 6 to 11. A major workover is defined to be a
stimulation technique with a minimum AFE amount of $US 50,000 and/or a
recompletion.
WELL NO. TASK 1 TASK 2 EST. COST M CURRENT PROD EST. POST WO RIG bbl/$
$US bopd bopd
N30 Isolate Gas Perf, Acid & Oil 56 75 350 FTN 4.91
Squeeze *
N96 Isolate Water Add Perfs 60 200 400 A50 3.33
N22 Selective Acid Oil Squeeze 80 150 375 FTN 2.81
N32 Fish Clean out 105 0 225 FTN 2.14
N59 Clean Out 72 0 150 FTN 2.08
TOTAL 373 425 1,500
TABLE 6 WORKOVER PROPOSAL SUMMARY
*This second operation will be performed if required.
NOC investigated all possible WO's (11) that could be done in Ninotsminda and
Rustavi fields. These workovers ranged from fishing and cleanouts, to isolating
water, perforating, isolating gas, drilling cement, and hydraulic fracturing.
The workovers are all summarized in Appendix One.
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These workovers were then prioritized for operations based on the highest barrel
received for workover $ spent. NOC's aim was to determine which xxxxx should be
worked over to ensure that by the end of 1999, there would be 4,500 bopd of
production. The production from the field and newly drilled xxxxx was estimated
to be 3,600 bopd in Dec 1999. This implies that NOC requires 900 bopd for the
end of 1999 from workover operations.
Table 6 shows the five xxxxx chosen for workovers based on the greatest
barrel/$. The incremental increase in production from these workovers is
estimated to be 1,075 bopd. Taking into account decline and providing a little
insurance resulted in 5 xxxxx chosen for a minimal workover program. The
following Table 7 shows the conservative production estimated for Dec 1999.
NEW XXXXX INITIAL BOPD DECLINE % DECLINE bopd bopd DEC 1999
--------- ------------ --------- ------------ -------------
Current Prod 1,500 25 375 1,125
N98 650 15 98 553
N97 850 10 85 765
N105 850 10 85 765
N99 850 0 850
N100 First oil Jan 2000
SUB TOTAL 4,700 4,058
NEW WORKOVERS
N30 275 30 83 193
N96 200 25 50 150
N22 225 20 45 180
N59 150 20 30 120
N32 225 10 23 203
SUB TOTAL 1,075 845
All Xxxxx
Old and New 4,400 4,058
Workovers 1,075 845
TOTAL DEC 1999 4,903
TABLE 7 CONSERVATIVE ESTIMATE OF DEC 1999 PRODUCTION VOLUMES
It should be noted that the fishing, drilling of cement, and fracturing would
require a more powerful workover rig than the A50 rig, which is currently being
used. A small portable Fountain drilling rig will be utilized to perform the
heavier operations that require greater pulling and drilling capabilities than
the A50 has. This "Fountain" rig is expected to be in Georgia by the end of
November, be tested in December and operational in January.
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Figure 3 is a Xxxx diagram detailing the time line for the workovers. Appendix
One contains the details for each proposed workover.
5 OTHER REQUIREMENTS
Due to the expansion of drilling and production activities, the following
additional operations and equipment are required for the Ninotsminda field:
5.1 BASE EXPANSION:
Require facilities to shelter the chemical and mud purchases and store the
casing and tubing. Unloading facilities such as pipe racks are envisioned. NOC
currently does not have enough sheltered facilities to store the chemicals for
one well. The estimated cost for these facilities is $US 50,000.
5.2 PURCHASE OF ADDITIONAL PRESSURE TRANSIENT EQUIPMENT.
Currently NOC hangs the pressure gauges on wireline during the pressure testing.
For the buildup portion of the test the flowlines are shut-in. This results in
wellbore storage effects that mask the data. Attempts at type curve matching the
resulting transient curves have proven less accurate than desired. It is
recommended that 2 "R" nipples and a perforated pup are run in each well, and
that the proper wireline tools to land the pressure gauges and plugs are
purchased. This will allow NOC to land the gauges in the lower "R" nipple for
the flow tests and then set a plug in the upper "R" nipple for the build up
portion of the test. The resulting data will have less storage effects and
therefore more usable data. The cost is estimated to be $US 20,000.
5.3 PVT TESTING
A PVT analysis is required to determine important reservoir fluid properties
used in predicting field performance and to determine if the gas cap is a
primary or secondary gas cap. Cost for this analysis is estimated to be $US
30,000.
5.4 TWO WATER SUPPLY XXXXX
Two water supply xxxxx are required to supply the drilling rigs with water
during drilling. GBOC currently pays $US 5,000 per month to deliver water to the
drilling rigs. It is expected that each water supply well will cost $US 5,000
and provide 100 m3/d water to the rigs and save the company $US 50,000.
5.5 PRODUCTION FACILITY UPGRADES
An oil pumping unit is required to pump the production from well N100 to the
Ninotsminda facilities. Storage and flaring facilities will be required in case
of electrical supply failures. Estimated costs are $US 25,000.
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5.6 ACCOMMODATION
Additional facilities for board and lodging are required. Today's capacity is
for one drilling crew, but with the second rig, GBOC will require a second
crew's quarters. Delivery and purchase cost is estimated to be $US 50,000.
5.7 TRANSPORTATION
3 Chevy vehicles coming with the Fountain rigs will be purchased. These are
estimated to cost $US 75,000 and will replace old vehicles.
5.8 COMMUNICATION / COMPUTERS
Additional communications equipment is required. This includes 5 additional
computers, 2 printers, 1 plotter and improved Internet connection (either cable
or wireless). Estimated costs are $US 20,000.
5.9 EDUCATION
Education is required to train accountants in the corporate accounting policy
and engineers in technical courses such as multi lateral and horizontal
drilling. Estimated costs are $US 32,000.
6 PAST AND PLANNED EXPENDITURES
The following Table 8 summarises the expenditures for 1998 and 1999.
ITEM 1998 $US M 1999 $US M TOTAL $US M
---- ---------- ---------- -----------
Seismic 247 30 277
Major Workovers 257 373 630
Development Xxxxx 5,198 7,700 12,898
Facilities 1,307 312 1,619
SUB-TOTAL 7,009 8,415 15,424
Working Capital and Interest Costs 1,100 500 1,600
Georgian Oil Asset Purchase 348 176 524
IFC Financing Costs 500 500
Contingencies 900 900
TOTAL 8,957 9,991 18,948
TABLE 8 PAST AND PLANNED EXPENDITURES SUMMARY 1998 & 1999
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7 FULL FIELD DEVELOPMENT; INTO THE NEW MILLENIUM
7.1 RESERVES
According to estimates from AMH, proven plus probable reserves in Ninotsminda
are 52 mmbo. NOC has 52 mmbo as the basis for the following Full Field
Development plan.
7.2 DRAINAGE AREAS
To evaluate a future development plan required an estimate of the drainage areas
and shapes to expect with this project. Drainage shapes will be dependent upon
the macrofracturing experienced in this reservoir. The macrofracturing observed
appears to be in both, a north south and in an east west trend. Production
trends and pressure analysis results indicate that the faults are intersecting.
This implies that the drainage will be in a square shape for a vertical well.
For a horizontal or lateral well, the toe of the wellbore will not have as wide
a width as the heel of the wellbore due to the pressure drop along the wellbore.
A volumetric calculation was done that compared the volume produced to an
equivalent drainage area for each well in the Samgori and Patardzeuli Fields. It
was assumed that these reservoirs were essentially drained. It appears that the
xxxxx were draining squares areas of 600-800 m length in the early stages and
the later infill xxxxx drained areas of around 200 m lengths. Some infill xxxxx
even though drilled on the crest did not produce more that 30,000 m3 because
they were too close to a neighbouring good well. N96 appears to be affected by
the neighbouring xxxxx and the spacing there is 450 m or so. This implies that
we can expect blocks on the order of 500 meters or so.
See Figure 4 for an estimate of the drainage areas for vertical, horizontal and
lateral xxxxx.
7.3 DRILLING
Full field development assumes that horizontal and laterals will be used to
drain the reservoir. Once N97, N105, N99 and N100 are completed, there should be
enough technology and experience to complete the development of the field using
horizontal and lateral well technology. In total, 31 drainage points are needed.
These drainage points will include both old and new xxxxx.
To complete the development of the Ninotsminda Reservoir, 15 additional drainage
points are required. This can be achieved with the drilling of laterals from 4
xxxxx. Figure 5 illustrates the down hole drainage areas. The horizontals will
provide an extended drainage area as compared to the vertical well. A single
lateral is the equivalent of a horizontal. If two or more laterals are drilled
from a single wellbore, then each lateral will drain a smaller area as compared
to a horizontal because of overlap at the heal of the lateral. However for the
purposes of this analysis, it was assumed that the lateral would drain the same
area as the horizontal and have equivalent production rates. Estimated
production rates are 850 bopd.
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Four additional xxxxx over the "Minimum Work Program" will be required. Two of
these xxxxx will be horizontal, and two will be lateral. The plan will utilise
N99 and N100 for lateral xxxxx. Two other locations will also be drilled for
lateral well development, N106 and N107. Together, these four xxxxx will drain a
total of 11 horizontal well equivalents.
Two additional xxxxx, N108 and N109, will be drilled horizontally to drain the
areas east and west of N21.
"Base xxxxx" (the initial wellbore of a multilateral well) are estimated to cost
$US 2.5 mm to drill to the top of the Middle Eocene and then $US 0.3 mm for each
lateral. Since the mobilisation cost is reduced, NOC expects that several
laterals per well will be cheaper than one horizontal extension. The horizontal
extension is expected to cost $US 0.5 mm and the cost for a lateral is $US 0.3
mm. Thus the cost for a three well lateral is estimated to be $US 3.4 mm, for a
four well lateral, $US 3.7 mm and for a horizontal $US 3.0 mm. The drilling is
expected to be done continuously into the year 2001.
7.4 WORKOVERS
As described earlier, there is the potential for a total of 12 workover in the
Ninotsminda operations. These workovers are described in Appendix One. In
addition to the "Minimum Work Program" workovers, there are hydraulic fracture
stimulations (N21 and N53), deepening operations (N9), recompletions (N30 and
N22) and testing in the West Rustavi field (R16 and R51).
The workovers will increase production, and essentially, will maintain field
productivity. These workovers on average will cost $US 120,000 each. See
Appendix One for further workover details.
7.5 FACILITIES
The current facilities in Ninotsminda are capable of handling 17,000 bopd
expected in 2001 and therefore no further facilities are required. Field
headers, additional pumps, test units and storage at satellites are envisioned
and estimated to cost $300,000.
7.6 PRODUCTION
Given the above development scenario, the field will produce at a peak rate of
about 17,000 bopd in 2001 and produce 50 mmbo over the 19 year project life.
Figures 5,6 and 7 illustrate the well build up, daily production and annual
production schedules to the year 2016.
7.7 FULL FIELD DEVELOPMENT SUMMARY
The following table shows the Full Field Development and the Minimum Work
Program costs. Note that the total cost for the Full Field Development includes
the costs associated with the Minimum Work Program.
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MINIMUM WORK PROGRAM CAP See Above for 17.4
COSTS details
----- -------
FULL FIELD DEV. CAPITAL
COSTS
Seismic 30 km 0.28
Xxxxx
Vertical 1 @ $US 2.5 mm 2.50
Horizontal 4 @ $US 3.0 mm 12.00
Base Xxxxx 4 @ $US 2.5 mm 10.00
Laterals 15 @ $US 0.3 mm 4.50
Workovers 12 1.40
Facilities/Equipment 2.09
Studies/training 0.50
Miscellaneous 1.73
TOTAL $US mm * 35.00
TABLE 9 FULL FIELD DEVELOPMENT SUMMARY
*Full field development will cost $US 35 mm plus working capital.
8 BRIEFLY ON EXPLORATION POTENTIAL
8.1 XXXXXX
This Middle Eocene structure (Figure 9) is located on trend with and east of the
Ninotsminda structure. Seismic and geological interpretation indicates 2 domes
in the Middle Eocene. The length of the structure is 13.5 km, the width is 3.3
km and the height is 300m. The depth of the structure is 3,700 to 4,000 m. No
xxxxx have penetrated the structure. Structures on trend have successfully
produced oil from this interval.
Other potential reservoirs include the Upper-Cretaceous Paleocene, Lower Eocene
and Upper Eocene. Gas has been tested in Teleti and Varketili at rates up to
7-10 mmcfd in the Upper-Cretaceous Paleocene interval. The Lower Eocene has
produced gas at 1-3 mmcfd in Samgori and the Upper Eocene has produced oil at
rates of up 160 m3/d in Ninotsminda and Patardzeuli.
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Middle Eocene recoverable reserves have been estimated to be 68-83 mmbo. Upper
Cretaceous Paleocene recoverable gas reserves have been estimated to be 667 BCF.
8.2 WEST RUSTAVI AND NINOTSMINDA
As with Xxxxxx, there is the potential for Upper-Cretaceous Paleocene and Lower
Eocene production (Figure 9).
The Upper Cretaceous Paleocene gas potential is 440 BCF.
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9 APPENDIX 1 DETAILED WORKOVER PLAN
9.1 N9
A cement plug is set at 2564m (1668 mss). The perforated interval is 2564-2536m
(1640-1668 mss). Significant gas flow was obtained from the well. Presumably the
gas was channeling behind the 114mm-liner annulus.
Based on well data (N16) and from log analysis, it appears that the gas cap on
the Ninotsminda field is at 1550-1578 mss. For our calculations we used the
figure 1600 mss. The interval 2693-2640m (1703-1650mss) is perforated in N4, and
the interval 2614-2578m (1681-1647mss) is perforated in N46. Both of these xxxxx
are currently producing pure oil with minor gas.
Since N9 is perforated at the same subsea depth as N4 and N46, it appears then
that N9 is perforated well below the GOC and that the gas seen was channeling
behind a poorly cemented liner.
It should be noted, that N9 upon initial completion produced pure gas from
2754-2800m (1858-1904mss) interval. This is another indication that the annulus
was not cemented properly. After successful isolation of gas zone the well
produced 897,000 bbl of oil.
Workover operations are aimed at isolation of the gas zone and perforation of
new interval. Since the operation will require drilling out of the cement within
the liner, the use of the Fountain rig is required. The costs are estimated to
be $US 130,000. Expected rate is 250 bopd.
9.2 N21
The Middle Eocene is penetrated at 2,740-2,961 mss. The GOC is at 2,732 m.
Cumulative oil production during 1984 to 1998 was 11,000 bbl. The reasons for
low production rate are as follows:
1. The main fractured reservoir unit was damaged by cement and heavy mud
while drilling
2. Technical conditions of the well: the top of the Middle Eocene has two
casings 127mm and 89mm casings.
3. 89mm casing is damaged at 2838m depth and tools can not be run below
that depth
4. An attempted acid treatment was complicated by high treatment pressures
and the large treatment interval. As a result the treatments proved
unsuccessful.
To obtain production, the 73mm and 60mm tubing will be changed to 89mm tubing, a
sand plug will be set over the lower perforations, the remaining perfs are to be
reperforated and then a 7 tonne hydraulic frac stimulation will be performed.
The expected rate is 150 bopd. Estimated costs are $US 260,000.
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9.3 N22
The following 3 intervals are perforated in the well: 3085-3080m, 2935-2840m and
2840-2798m. According to production tests the majority of the oil is produced
from the old perforated intervals (2925-2920m and 2868-2886m). It appears that
the acid and oil squeeze treatments treated the highly permeable, drained
macro-fractured intervals. In order to operate all perforated intervals, a
selective treatment of the formation is required.
Expected rate is 375 bopd. The estimated cost is $US 80,000.
9.4 N30
A cement plug is set at 2582m (1662mss). The perforated interval is at
2570-2582m (1662-1650mss). In the past, 750 to 1000 bopd and a significant
amount of gas were produced. The well is perforated the same highly productive
intervals and at similar depths when compared to N46 and N4, both of which
produce oil without gas. It appears that the gas is channeling behind the
114mm-liner head.
The isolation of the gas channel by a cement plug or packer is required. It is
proposed to try setting a packer first with the A50 rig. If unsuccessful a
cementing operation and drilling out of the cement with the Fountain rig will be
required. New perforations, from 2582 to 2570 m will be shot, followed by acid
and oil squeezing. The expected cost is $US 56,000 if the Fountain Rig is used.
The expected rate is 350 bopd.
9.5 N32
A cement plug is set at 2724m, and the interval 2724-2658m (1703-1637mss) is
perforated. The well initially produced 65 bopd. Two acid jobs and 4 oil
squeezes without sand were tried to improve well productivity. Production was 35
bopd when one oil squeeze with sand was tried. Sand or formation fines fell on
top of the packer and stuck the packer in the hole. This prevented cleaning the
25m of sand that is over the perfs.
It is required to fish the tubing and packer. This can be done in several
different ways, either by utilizing left hand drill pipe to back off the tubing,
right hand drill pipe with a tool to reverse downhole rotation again to back off
the tubing, back off utilizing strip charges or mechanical cutters. Once the
tubing is removed, the fill can be removed and the packer released. Once the
packer is removed, the fill can be washed out and the oil squeeze with sand can
be evaluated.
An alternative is being considered whereby the sand will be washed out by
utilizing a coiled tubing unit. This means though that the stuck tubing and
packer will still be in the hole.
Once the sand plug is removed, the expected rate is 225 bopd. The estimated cost
to remove the stuck tubing by utilizing the left-hand drill pipe and backoff is
$US 105,000.
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9.6 N49
In May 1996, a cement plug was set at 2895m. The well was perforated over the
2870 to 2774m (1749-1653 mss) interval. The well has produced 436 mbbl of oil
since May 1996. Recently, the water cut has increased to 25%, which could be
caused either by deterioration of the cement plug or by water coning.
It is required to check for the cement plug, identify the source of the water
and then isolate the water zone. Once done, the potential exists to add 24 m of
additional pay in this well. Adding additional pay is expected to increase the
current production by 25% from 350 to 450 bopd. The estimated cost to do this is
$US 51,000.
9.7 N53
A cement plug is set at 3013m and the perforations are at 2944-2712m. In spite
of multiple attempts including gas lift, NOC has not achieved a constant oil
flow from the well.
Selective treatment of the oil interval 2850-2910m is required. If the
operations on N21 prove successful a hydraulic fracture stimulation will be
attempted. The expected production is 150 bopd.
The estimated cost is $US 160,000. This cost is less than that of N21 because
the purchase of tubing and reperforating will not be required.
9.8 N59
The well has produced 163,000 bbl oil over the 2691-2675m interval at the
following rates:
5mm choke - 55m(3)/day
6mm choke - 96m(3)/day
10mm choke - 140m(3)/day
The well was put into production in 1986, but a sand plug was formed after one
year and blocked production. The sand plug is estimated to be at 2540m depth.
The tubing is stuck and appears to be damaged at about 1000m.
It is required to clean out the sand plug, pull and replace the damaged tubing
and add new perforations over the intervals 2675-2665m and 2615-2623m. The
expected rate of production is 150 bopd. The estimated cost for this workover is
$72,000.
Potential exists for hydraulic fracture stimulating this interval as well. To
evaluate this potential, a production and build up test will be performed on N2
to determine the extent of damage and the potential for further evaluation.
9.9 X00
X00 was TD'ed in August 1997, at 2731m (1731mss). The following casing is in the
hole:
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508mm conductor - 209m
340mm tech. casing - 1820m
245mm tech. casing - 1408m
178mm liner - 2307-2647m
Open hole - 2647-2731m
There is a fish (a Geophysica production tool) at 2715m. In December 1997,
during the last attempt at cleaning out the well, the tubing could not be
lowered below 2675m. Hole sloughing was observed then at the 2675-2715m interval
as evidenced by the course rocks that were recovered when attempting to
circulate the well clean.
Cumulative oil production is 156,800 bbl. Production was initially 750 bopd but
has since dropped to 200 bopd with a corresponding increase in water cut from
10% to 40%.
It is required to identify and then isolate the source of the water production.
Water could be coming up through the fill in the wellbore or up through the
natural fracture. A cement plug over the bottom of the wellbore may be required
to isolate the water production.
There is the potential to add 51 meters of additional pay over the interval
2647-2698m. If done the expected rate is 400 bopd. The expected cost to log the
well, set a plug and add perforations is $60,000.
An alternative to using the A50 is being evaluated. The coiled tubing unit could
set the cement more accurately than the aggregates and reduce the risk of the
cement being displaced into the natural fracture.
9.10 R16
In December 1997, a cement plug was set at 2184m. Perforations were shot over
the interval 2181-2114m. Oil and water flow from the well is 100 bpd. The
current water cut is 75%.
The source of the water must be determined and then isolated by a cement plug.
As with N96 logs thermodebitometer and temperature logs will need to be run to
identify the water zone. A cement plug will then be set to isolate the water
production. The expected oil rate is 80 bopd and is expected to cost $US 30,000.
9.11 R51
178mm production casing is run to 2055m and the well is perforated over the
interval 2047-2018m. The well produces oil periodically in the past but is now
shut in. This well is updip of well R16 and will be required to increase our
understanding of the West Rustavi field for future development.
The well will be perforated over the interval 2018-1970m. 75 bopd is expected
from this operation. The estimated cost is $US 70,000.
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9.12 WORKOVER SUMMARY
WELL NO. TASK 1 TASK 2 EST. COST m CURRENT PROD EST. POST WO RIG bbl/$
$US bopd bopd
N9 Isolate Gas New Perfs 130 0 250 FTN 1.92
N21 Hydraulic Frac 260 0 150 A50 0.58
N22 Selective Acid Oil Squeeze 80 150 375 FTN 2.81
N30 Isolate Gas Perf, Acid & Oil 56 75 350 FTN 4.91
Squeeze *
N32 Fish Clean out 105 0 225 FTN 2.14
N49 Isolate Water 51 350 450 A50 1.96
N53 Hydraulic Frac 160 1 150 A50 0.94
N59 Clean Out 72 0 150 FTN 2.08
N96 Isolate Water Add Perfs 60 200 400 A50 3.33
R16 Clean Out Add Perfs 30 25 80 A50 1.83
R51 Clean Out Add Perfs 70 0 75 A50 1.07
TOTAL 1,074 801 3,055
TABLE 1-1 WORKOVER SUMMARY
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10 APPENDIX 2 PAST AND PLANNED EXPENDITURES 1998 TO 1999
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- 57 -
SCHEDULE 10
Minimum Work Program
85
NINOTSMINDA OIL COMPANY LIMITED
0000, 000 - XXXXXXX XXXXXX X.X.,
XXXXXXX, XXXXXXX X0X 0X0
TELEPHONE : (000) 000-0000
FACSIMILE : (403) 777-1578
October, 1998
MINIMUM WORK PROGRAM
The Minimum Work Program is a program of work commencing on January 1, 1998. The
Minimum Work Program will consist of and will be satisfied upon completion of
the milestones defined below. The performance of the Minimum Work Program will
be guided in principle by good oilfield, engineering practices and the Updated
Field Development Plan submitted separately to the IFC. The Updated Field
Development Plan includes the proposed plans for 1998/1999 and will serve as the
template to meet the IFC requirements. The Updated Field Development Plan will
be revised from time to time based on results and good engineering practices.
1) Drill and test five xxxxx, in the Ninotsminda field, for hydrocarbon
potential.
2) Perform a minimum of eight major workovers on existing xxxxx in the
Ninotsminda/West Rustavi fields. A major workover is defined to be a
stimulation technique with a minimum AFE amount of $50,000 and/or
recompletion.
3) On a continuous basis, perform minor workovers and other field maintenance
activities designed to maintain field production levels as required by good
oilfield practice.
4) Acquire and process approximately 30 km of seismic in the Ninotsminda and
West Rustavi fields. Re-process such additional readily available seismic
data that is considered useful on the Ninotsminda and West Rustavi fields.
Perform interpretation of available data with the objective of refining and
improving the proposed plans of the Updated Field Development Plan.
5) Purchase, upgrade and maintain field facilities and equipment as required
to support the development, production and sale of oil from the Ninotsminda
and West Rustavi fields under the Minimum Work Program. Equipment and
facilities will be upgraded and maintained with the objective of meeting
safe operating conditions and the company's environmental policy.
