Private & Confidential
Memorandum of Understanding
The following outline terms have been agreed between (“the Developer”) and The Fund (“The Investor”).
1 – THE DEVELOPMENT PROJECTS
· Two residential projects will be developed in the village of
· The projects will be in two separate companies, one named 1, and the other named 2.
· Both projects will provide high end residential accommodation, with health spas and carparking facilities. 1 will also include a retail / restaurant component.
· The projects are anticipated to take months.
· 1 has agreed to acquire two sites known as “” and “”.
· The sites have a combined area of square metres which is expected to have a corresponding built up area of square metres.
· The purchase price of was €and was €, with acquisition costs of c. €, giving a total site cost of€
· 2 has agreed to acquire one site known as “”.
· The site has an area of square metres which is expected to have a corresponding built up area of square metres.
· The purchase price of the site was €, with acquisition costs of c. € , giving a total site cost of €
It is understood that the sites are currently free from any encumbrances and that there are no pending, legal or administrative proceedings or claims with respect to the sites which could affect the entire or any portion of the sites.
Budget / Year Project Forecast
Attached in the appendix to this document is the approved Year Project Forecast.
It is agreed that the Developer will use his best endeavours to operate within the forecast and to maximise profit.
Should the build areas or the composition of the project differ from those anticipated, the Developer will ensure that the projected profit margins are protected or enhanced.
· The Developer will be responsible for all aspects of development management and the eventual exit strategy by way of sale of the units.
· The Developer will be responsible for designing both projects and will use its best endeavours for obtaining the Build Permits as soon as possible.
· The Investor understands that the Build Permits for the projects will be granted .
· The Developer will use its best endeavours to start the construction of both projects by.
· Construction of both projects is estimated to take approximately === months and therefore completion is expected to take place in.
· The Developer will provide a copy of the specification for both projects to The Investor at their earliest convenience.
· It is understood that the specification of 1 will be to a mid-luxury standard and the specification of 2 will be to a luxury (5 star) standard.
Professional Reports & Other Agreements
The Developer will provide a copy of the following reports to The Investor at their earliest convenience:-
· Copies of visas, zoning, planning permission and build permit – immediately as and when they become available
· Copies of planning related correspondence
· Valuation, prepared by a reputable valuation firm
· Environmental report
· Engineering report
· Quantity surveyor report
· Utility reports – correspondence from utility providers providing evidence that utility services are available at the property in adequate supply for the use and operation of the property
· Copy of agreement with bank providing the senior debt facility
· It is intended by the Developer to construct the projects and to sell the units off-plan prior to their completion.
· Notwithstanding the above, the Developer reserves the right to agree with the Investor to sell the site at a profit, with the benefit of the build permit and development package
2 – STRUCTURING THE DEAL
The Investor, through its fully owned SPV subsidiary, will enter into a Joint Venture Agreement with both ------- and additionally will provide the loan to each company that will be structured as mezzanine finance.
Initially the Investor will enter into a Loan Agreement with ..... as an interim measure prior to the joint venture structure being implemented.
Once the joint venture structure has been implemented the Loan Agreement will be transferred to a Special Purpose Vehicle domiciled that will be wholly owned by the Investor.
Within a week period the Investor will assign the Loan Agreement to the SPV. This will happen simultaneously with entering into a Joint Venture Agreement between the Investor’s domiciled vehicle and ====.
3 – TERMS OF THE LOAN
· The Investor agrees to provide mezzanine finance to ====.
· The mezzanine finance will equate to % of the total equity requirement for the development.
· The mezzanine finance for 1 will be €and the mezzanine finance for 2 will be.
· 1 and 2 will paid up with the minimum permissible share capital
· The Investors proportion of the paid up share capital will be 0% of the requirement for which it will receive preferred shares giving it right to receive its liquidation quota first).
· In return for providing mezzanine finance the Investor will receive a priority repayment of their loan, together with a priority coupon charged at a rate of EURIBOR + % per annum (rolled up over the duration of the project) and a 0% profit share upon exit of the project
· The mezzanine finance will rank behind the senior debt but in front of the developers equity – thus the developer will take the “first loss” position.
· The mezzanine loan will be secured by way of a second ranking mortgage/pledge and the profit share is secured by the 0% equity stake in the form of preferred shares
· The liability of the Investor will be limited to the initial loan amount.
· The Investor and the Developer agree that funds required to complete the acquisition of the sites will be with -------by the following dates:-
Loan & Capital Repayment & Profit Distribution
The Investor’s Loan
A per annum compounded coupon of EURIBOR + % on the Investor’s capital
Profit distributed on a 50:50 basis between the Developer and the Investor in the form of dividends after the requirements of the Bulgarian Commercial Code, which have to be satisfied in order to distribute the profit, are met
The Investor’s capital contribution(s) paid for its preferred shares
The Developer’s capital contribution(s) paid for its ordinary shares
Term of the Loan
· The term of the loan will be for years.
· It is anticipated that 1 and 2 will be wound up at the end of the project with capitalisation monies distributed to the shareholders within days after the expiration of the month period prescribed by law
· In the event that the parties decide not to develop one or both of the projects and instead elect to sell the site/s at a profit, with the benefit of the build permit and development package then proceeds from the sale of the site/s shall be distributed in exactly the same way as outlined above.
Steps of the Transaction
· act for the Investor and conduct due diligence.
· -------will draw up a loan agreement between ------- Limited and 1 & 2.
· ------- Limited will have a mortgage charge over land as security for the above simultaneously with purchase of the sites by 1 and 2 respectively.
· Within six weeks ------- will facilitate the formation of a -------SPV which will be wholly owed by ------- Limited and will be managed by -------.
· ------- will arrange for the following agreements in relation to this transaction to be in place within weeks:-
o The Joint Venture and Finance Agreement (main agreement)
o Inter-Creditor Ranking Agreement / Subordination Agreement (with the Investor having a second ranking charge behind the bank providing senior debt)
o Memorandum & Articles of Association for the -------SPV
o Management Contract between the -------SPV and -------
o A loan agreement between ------- Limited to the -------SPV
· will arrange for the issue of preferred shares in favour of the -------SPV, amendments to respective Statutes for 1 and 2 in order to reflect the agreed in this MOU to be in place within weeks of signing it.
· Once all of the above agreements are in place, (within weeks), the Initial loan agreement will be transferred from ------- Limited to the -------SPV.
· -------will arrange that 1 and 2 report to the Bulgarian National Bank the respective loans they receive from ------- Limited and then the -------SPV within the timeframe required by law.
· The loan amounts that are transferred across will be calculated as follows:
· The mortgage register will be cancelled at this point and the Mezzanine Finance Agreement between (i) the -------SPV and 1 and (ii) the -------SPV and 2 will position the loans from the -------SPV as loans ranking behind the bank that is providing senior debt but in front of the developers equity.
Therefore 1/Two will establish mortgages on the respective land in favour of ------- Limited when the money are transferred to the sellers of the land. Then ------- Investment will delete such mortgages on the date when the bank wants to register its mortgage and register a second ranking mortgage on the same day after the bank has already registered its.
Paid up share capital
· It is our understanding that the minimum share capital required for the formation of such a company is €. This being the case, 1 and 2 will each be capitalised at BGNwith -------and the -------SPV putting in 0% each.
· The mezzanine loan amount and the coupon shall be secured by way of a second ranking security in form of a mortgage on the land owned by 1/?
· The profit share upon completion shall be secured by the 0% equity stake in the form of preferred shares giving right to preferential repayment of the equity contribution/s that the Investor has in 1 and 2.
Construction Time Over-Run
· Any associated costs resulting from time over-run is to come off the Developer’s share of the profit
· Adequate and reasonable insurance will be taken out by 1 and 2 with regards to the development.
4 – GOVERNANCE OF “1” and “2”
· The Developer shall operate in a way that is professional and in a way that shall maximise the profitability of the projects
- 1 and 2 will not employ any personnel.
Day to Day Management of the Companies
· The day to day management of 1 and 2 will be undertaken by -------(the Developer) – representative to be jointly appointed / approved by the Developer and the Investor as companies’ CEO
· Day to day management of the companies will include such items as signing contracts to facilitate development (up to a value of €); marketing and selling the apartments; filing returns etc
· This Representative shall ensure that both projects will be constructed within the Year Project Forecast (attached) and to the agreed specification and time frame etc
· The Representative will provide to the Mezzanine Investor detailed reports on a quarterly basis outlining the progress of each project.
Operating Accounts, Financial Statements and Budgets
· Operating Accounts, Financial Statements, Tax Returns and Budgets will be completed by the Developer and approved by the Investor, on an annual basis.
· The following decisions, amongst others, will require the joint decision of the Parties:-
o Finalisation / approval of the project design
o Any amendments to the project development budget and Year Project Forecast (attached)
o Selection of the General Contractor
o Any discounts granted to apartment purchasers above % of the Day One Market Price (as shown in the “Year Project Forecast”, attached).
o Approval of any non-budgeted costs above a value of €
o Any encumbrance and granting of any right on the sites
o Any encumbrance of the shares
o Disposing of the sites / property in a way other than the sale of the apartments
o Approval of the financial statements of 1 and 2
o The sale of shares to any third party or the obtaining of any additional loan
· In the event that the Developer and the Mezzanine Investor are unable to reach a decision on any of the above an arbitrator will be appointed.
Full detailed terms, including the points listed above, will be incorporated into the Memorandum of Articles and Association.
5 – GENERAL
The Developer and The Mezzanine Investor agree that the prices will be agreed and fixed in Euro (€).
The Mezzanine Finance Agreement and related agreements shall be governed by English Law.
Each party to bear its own costs
This Memorandum of Understanding is subject to the approval of the board of ------- Investments Ltd.
The Mezzanine Finance Agreement will be subject to full legal and technical due diligence.
Signed on behalf of the Developer
Signed on behalf of the Mezzanine Investor
(acting in their capacity as Advisor to The Mezzanine Investor)