AGREEMENT
CNPC United Lube Oil Corporation (Side A) and XCL, Ltd.
(Side B), according to the Law of Joint Ventures of the People's
Republic of China, on the basis of equality and mutual benefit,
have extended further discussions on the basis of the Letter of
Intent between them; dated July 25, 1994, and through friendly
consultation, have agreed to set up a joint venture between them
as follows:
1. The Joint Venture will be for the manufacture and
sale of lubricating oil and correlative products and research and
development of new products. Emphasis will be on high quality
products, and state of the art technology and management,
including the implementation of ISO 9000 standards.
2. The Joint Venture shall (a) have its Headquarters
registered in the Tianjin Economic Zone that provides the
greatest benefits to the Joint Venture and the factory site to be
located in the Nanjiang Petro Chemical Harbor, Tianjin Harbor,
People's Republic of China; (b) design, construct and operate a
lube oil plant that shall have a total capacity of 100,000 MT/yr.
with the design capacity of 40,000 MT/yr; (c) develop a market
and sell lube oil and correlative products; and (d) agree to
expand cooperation in the People's Republic of China as may be
mutually beneficial.
3. The Joint Venture will be a limited liability
company. The parties will share the profit, loss, and risk based
on the investment percentage in the registered capital. The
parties will be paid their share of profits annually.
4. Side A has provided a preliminary feasibility study
for the lube oil plant. The parties shall mutually work to
develop a final feasibility study. To that end, Side A has
engaged CNPC Planning and Designing Institution to finish that
study. Without the consent of Side B the total cost of the
feasibility study shall not exceed 200,000 yuan RMB. After the
Joint Venture is formed this expense shall be borne by the
parties in accordance with their original percentage of
investment, or, if the Joint Venture is not formed, this expense
shall be borne by Side A. Side B will have the right to audit
the feasibility study and will immediately engage an engineering
firm to advise the Joint Venture on the plans and engineering for
the lube oil plant; this expense at any event shall not be
charged to the joint account of the Joint Venture. The parties
may amend the feasibility study to perfect the final
version of the report.
5. Both sides will start immediately to market
naphthenic based products on overseas markets, after the
agreement has been signed. Side A will provide guarantees of the
quantity and quality of the naphthenic based products and
reasonable international market price for the naphthenic based
products. Side B will provide the specifications for the
products being exported with a goal to gradually reach exports of
20,000 to 25,000 MT/YR.
6. The Joint Venture will use its own brand name to
begin to market its products. The Joint Venture will engage
internationally recognized firms to test and certify the quality
of the products manufactured and marketed by the Joint Venture.
If the parties mutually agree that it would be proper to obtain a
reputable company to provide supervision of the products
manufactured by the Joint Venture in the future, Side B shall
engage a company to do so on terms that are mutually agreeable to
the parties.
7. The Joint Venture will be an legal entity organized
under the laws of China. All agreements will be negotiated and
drafted in both Chinese and English, and both versions shall
govern. The total investment of the Joint Venture will be
approximately $12,000,000 U.S. The registered capital shall be
40% of the total investment. Side A shall contribute 51% of the
registered capital (which may be made in yuan RMB at the exchange
rate announced by the China Currency Management Bureau at the day
of payment); Side B shall contribute 49% at the registered
capital. The remaining capital (60% of the total investment)
will be borrowed by the Joint Venture. Side B shall locate the
necessary borrowed capital for the Joint Venture. Both sides
agree to sign the loan agreement and to jointly meet the
requirements of the financing terms.
8. The parties agree that in the event Side A has
difficulty raising its share of the funds for this project as
described in paragraph 7 in a timely fashion, upon the written
request of Side A, Side B will use its best efforts to obtain a
loan to Side A for the needed capital. The parties will use
their best efforts to meet the terms of the financing.
9 The Joint Venture shall be governed by a Board of
Directors, with an equal number of directors appointed by each
side. The director of the board will be designated by Side A,
the deputy director will be designated by Side B.
10. Under the supervision of the Board of Directors, a
person who shall be President of the Joint Venture shall be
recommended by Side A; a person who shall be Vice President shall
be recommended by Side B.
11. The parties will cooperate in the purchase of all
raw materials and equipment for the construction of the plant,
which shall in all cases conform to international standards.
Side A shall be responsible for obtaining the necessary approvals
and procedure for the project, including contact with SAEC to
obtain the preferential treatment which is available for the
Joint Venture, in order to facilitate the investment to the Joint
Venture by parties, and the arrangements of foreign currency due
to Side B under this agreement. Specifically, access to foreign
exchange markets must be available to allow foreign loans to be
repaid in foreign currency and Side B's share of profits to be
paid in foreign currency.
12. Prior to the formation of the Joint Venture, Side A
shall assist in obtaining at least a 30 year land using right on
the plant site for the Joint Venture. If the parties think it is
necessary to extend the period of the land using right then the
Joint Venture can give the request to the land administration
office. Side B agrees to loan $600,000 US to Side A to be used
to make partial payments necessary for Side A to retain the
rights to the site for the lube oil plant. This loan will be
made on the written request of Side A after this agreement is
signed by the parties hereto. The parties will sign a loan
agreement with interest free attached, and the repayment of the
loan to Side B shall be guaranteed by the China National
Petroleum Trading Corp. by a separate guarantee agreement. This
loan will be repaid to Side B if the parties fail to enter into
the Joint Venture agreement. Side A agrees that it will not
negotiate with any other party concerning the establishment of a
lube oil Joint Venture unless it has refunded the $600,000 US to
Side B. If the parties reach the Joint Venture agreement, Side A
will repay the loan to Side B as part of Side B's registered
capital. In the meantime, the investment incurred by Side A to
obtain the land using right, shall be borne by the Joint Venture.
If Side A notifies Side B that additional funds are needed to pay
for land costs on the plant site for the Joint Venture prior to
the formation of the Joint Venture, Side B will use its best
efforts to obtain such funds and the parties will negotiate
appropriate agreements on these funds.
13. The parties agree Side B will invest approximately
$1,000,000 US to conduct the technical retexture work of the
current blending plant facility which belong to Side A in
LangFang Hebei Provience. Prior to the investment from Side B,
the parties shall jointly conduct the asset reevaluation of the
plant belonging to Side A. The share distribution after the
investment from Side B will be based on the result of the asset
reevaluation of the LangFang plant of Side A and to be finally
determined by the parties. The parties will utilize the facility
after the retexture work to conduct the production and operation
of the presale activity, to further assure the early realization
of profit for the capital investment to the Tianjin Joint Venture
plant. The construction time table of the Tianjin plant will be
determined by the result of the presale activity and to be
finally decided by the parties.
14. The parties agree to enter into a formal Joint
Venture contract that incorporates the provisions of this
agreement, as well as such other terms and conditions that the
parties mutually agree are not inconsistent with this agreement.
The final Joint Venture Contract should be prepared and executed
by the parties no later than 90 days after the feasibility study
has been accepted by the parties.
15. After this agreement has been approved by the
necessary authorities for Side A and the Board of Directors of
Side B, the parties shall establish an implementation committee
to ensure completion of the final feasibility study, discuss the
Joint Venture agreement and the charter to organize the sales and
marketing activity for the lubricating oil for the domestic and
International market, and obtain final approval of the Joint
Venture agreement.
16. Those expenses incurred during the approval
procedure, such as the industry and commerce registration
recording fee, the capital inspection fee, and other related
expenses which were agreed upon by the Joint Venture, shall be
borne by the Joint Venture. All other expenses incurred for
the purpose of implementation of Item 15 of this agreement by
the implementation committee shall be borne by the party that
incurred the expense; at any event, these expenses shall not
charge to the joint account in the Joint Venture. If the Joint
Venture is not formed, the expenses designated as expenses to be
borne by the Joint Venture shall be borne by the parties in
accordance to their original percentage of investment.
17. Both sides shall have the rights to assign their
respective interest(s) and(or) obligation(s) under this agreement
to their subsidiary corporation(s) which will be formed for the
purpose of this Joint Venture.
18. The operation term of the Joint Venture shall be
tentatively set for 30 years. It can be extended to further
periods as mutually agreeable to the parties.
19. The validity, interpretation, and implementation of
the agreement shall be governed by the laws of the People's
Republic of China.
20. The parties shall make their best efforts to settle
amicably through consultation any dispute arising in connection
with the performance or interpretation of any provision hereof.
Any dispute that has not been settled through such consultation,
shall be referred to arbitration conducted by the China
International Economic and Trade Arbitration Commission (CIETAC)
in accordance with the provisional arbitration proceeding
rules thereof. Any award of arbitration shall be final and
binding upon the parties.
This agreement is signed by the representative of Side A
Mr. Ge Tinggen in Beijing and of Side B Mr. Marsden W. Miller,
Jr. in Beijing.
CNPC United Lube Oil Corporation XCL LTD
/s/ Ge Tinggen /s/ Marsden W. Miller, Jr.
BY:________________________ BY:__________________________
GE TINGGEN MARSDEN W. MILLER, JR.
Date: January 14, 1995 Date: January 14, 1995