The following document ( an English translation of the original Russian version) was sent to me and in keeping with this blog’s politik on transparency and public interest in the chess community I have decided to publish it. Enjoy!

AGON

MEMORANDUM

Dear Kirsan Nikolaevich!

In accordance with your suggestion, we have prepared a model of our cooperation, for your consideration. We believe that this cooperation will be long-lasting and mutually beneficial, and will become a great success in the world of chess.

1. BUSINESS MODEL

Agon, in accordance with its contract with FIDE, (1) will become the seller of FIDE’s sponsor packages, and (2) will be responsible for marketing FIDE enterprises concerning the world championship, and (3) will organise the running of the world championship cycle events (the Grand Prix, candidates’ matches and world championship matches), including the payment of the prize fund and all expenses, in accordance with the contract with FIDE. Profits from these activities will be at the disposal of AGON and for distribution to its shareholders by way of dividends. The manager of the company will be Andrew Paulson.

Control of the board of shareholders (policy questions) – K N Illumzhinov

Control of the board of directors (the operational running of the company) – Andrew Paulson

2. FINANCIAL MODEL

For its first two years of operation, Agon will need up to 2 million dollars. This money should go to the organisation of the first cycle of events and the establishment of the chess brand. However, we consider that this initial investment sum will be reduced, to the extend that we are successful in attracting sponsors. We therefore suggest the following model:

Year one:

* KNI will advance credit to Agon in the sum of $2 million. The first payment ($500,000) will be made on 15 February 2012. The second payment ($1,500,000) will be made on 15 March 2012.

* The credit will be repayable, that is, before the payment of any dividends, the company is obliged to return the credit. Nobody may take any profits until all the credit has been returned to the investor. The investor is entitled to interest at a rate of LIBOR + 1%.

* The investor has full legal control over the majority of the shares.

* Immediately upon receipt in Agon’s account, $500,000 of the second payment will be transferred to the account of FIDE, as a guarantee of the prize money for the agreed events. The guarantee may be returned to Agon, if agreed by Interface.

Year two:

* In the case of necessity, as agreed by the board of directors, K I Illumzhinov will advance to Agon a second tranche of credit, in the sum of $1 million, on the same terms as the first.

* The payment ($1,000,000) will take place on 15 March 2013.

* In the event that K I Illumzhinov’s side do not pay the amounts specified above, in accordance with the terms of this Memorandum, then K I Illumzhinov’s share in Agon will auomatically be reduced to 20%. The grace period for making payments is 10 business days.

3. THE OWNERSHIP MODEL

VOTING SHARES (control of the company)

51% – K I Illumzhinov
49% – Andrew Paulson

In addition, the company will also have non-voting shares (carrying entitlement to dividends). These shares will be issued in accordance with decisions of the shareholders and may be issued to selected key employees of the company. Non-voting shares may be issued proportionately with the main shares in the ratio 50:50.

The head of the project Andrew Paulson is required to work full-time in the company for the term of the operative contract with FIDE (11 years).

Additional control mechanisms, mutual rights and obligations of shareholders (minority and majority) will be included in a Shareholders Agreement, which will be presented on 27 January 2012.

Non-voting shares:

10% – Ilya Merenzon
5% – Berik Balgabaev

4. PAYMENTS AND COORDINATION WITH OTHER COMPANIES WITHIN FIDE’S AUSPICES

a) Global Chess is to be the contractor for running Agon’s events (Geoffrey Borg has confirmed his willingness and interest). Global Chess will receive about $15,000 for each event, from Agon’s budget, in accordance with the contract with FIDE.

b) Makropoulos will be consultant to Agon, receiving Euro 75,000 in the first year, and Euro 150,000 in each subsequent year of the FIDE contract. This payment will increase by 5% in each year after the second.

c) Berik Balgabaev will be consultant to Agon, receiving Euro 36,000 in the first year, and Euro 60,000 in each subsequent year of the FIDE contract. This payment will increase by 5% in each year after the second.

d) Andrew Paulson will be President (director) of Agon and his pay will be Euro 240,000 per annum. This payment will increase by 5% in each year, after the second.

We trust you will find this scheme acceptable. We are extremely interested in working with FIDE and have done a great deal of work to conclude agreements with key contractors. We are willing to discuss other possible variants, including an initial model, in which all financial risk would lie on our side.

with respect

Andrew Paulson

(Co-signed by Kirsan at bottom of page)