Amendment to the Commercial A

RNS Number : 9049U

Trans Balkan Investments Ltd

22 October 2010

 



22 October 2010

TRANS BALKAN INVESTMENTS LIMITED

("TBIL" or the "Company")

Amendment to the Commercial Agreement dated 13 July 2009 between the Company, the State General Reserve Fund of the Sultanate of Oman ("SGRF") (a shareholder in the Company) and Bulco Acquisition AD

TBIL announces that it has entered into an amendment agreement with SGRF (1) and Bulco Acquisition AD (2) (the "Amendment Agreement") which amends and supplements the terms of the Commercial Agreement, details of which were announced on 16 July 2009.  Under the Amendment Agreement, in exchange for the payment of certain fees and other sums, SGRF has agreed to defer for 12 months from the date of the Amendment Agreement, the exercise of its right to acquire the Company's interests in TechnomarketDomo NV ("TMD"), which right SGRF has asserted it is entitled to exercise immediately pursuant to the terms of the Commercial Agreement.

Background

TBIL, through its wholly owned subsidiary Axis Retail N.V. ("Axis Retail"), owns 61.83% of the shares of TMD.  The remaining shares are owned by: Lyra Investment Holding NV (25.17%); Dominuse Management Ltd (12.74%) and Alexandru Mnohoghitnei (0.26%).

As announced by the Company on 16 July 2009, as part of the restructuring of loan agreements (the "RZB Loan") between Axis Retail, TMD and its operating subsidiaries, K & K Electronics EOOD and Domo Retail SA and Raiffeisen Zentralbank Österreich AG ("RZB"), Axis Retail was required to repay RZB an amount of €20 million by 31 December 2009.  To secure this repayment, a bank guarantee for €20 million (the "Guarantee") was issued by Citibank, N.A. ("Citibank") in favour of RZB. Pursuant to the terms of the Commercial Agreement, SGRF provided credit support to TBIL (the "SGRF Facility") to facilitate the issue of the Guarantee.  As part of the SGRF Facility, (i) SGRF made available to Citibank collateral for any drawdown by RZB under the Guarantee, (ii) TBIL indemnified SGRF for any loss it may incur in the event Citibank made a drawdown on the Guarantee, and TBIL granted security to SGRF over substantially all of TBIL's assets to secure its indemnity obligation, and (iii) SGRF had the right, subject to the satisfaction of certain conditions, to exchange any unpaid indebtedness or liability of TBIL to SGRF for TBIL's indirect interest in TMD, the value of 100% of TMD's shares being fixed for this purpose at €20 million (the "TMD Right").

The Guarantee was called by RZB on 11 January 2010 in the amount of €17 million, and Citibank advanced that sum to RZB.  Citibank then took steps to enforce its rights against the collateral provided by SGRF.  As a result, under the SGRF Facility, TBIL was indebted to SGRF in the amount of €17 million. 

As announced on 9 February 2010, SGRF has asserted that the terms of the SGRF Facility have been breached.  SGRF has also asserted that the pre-conditions to the exercisability of the TMD Right have been satisfied and that it is entitled to exercise the TMD Right.

The board of TBIL, as announced on 4 August 2010, has engaged financial advisers to assist in respect to indicative offers received from minority shareholders of TMD to purchase TBIL's equity shareholding of 61.83% in TMD as well as to review other realistic options, including the sale of TBIL's interest in TMD in whole or in part to a third party.

The Amendment Agreement to the Commercial Agreement

Having taken advice from its legal advisers, the Board of the Company determined that it would be prudent to enter into discussions with SGRF to seek an amendment to the Commercial Agreement whereby any exercise of the TMD Right would be deferred for a period. Following negotiations between the Board and SGRF, the Amendment Agreement has now been entered into, the principal terms of which are as follows:

·      SGRF has agreed to defer exercising the TMD Right until the date falling 12 months after the date of the Amendment Agreement (the "End Date") and in consideration for that deferral TBIL has agreed to pay the following amounts:

o  pay SGRF a fee of €8.5 million as soon as it has available funds and no later than upon receipt of the proceeds of the sale of its indirect interest in TMD or a sufficient part of them (the "Completion Date") or the End Date (whichever is first to occur);

o  pay SGRF 15% of the net proceeds of the sale of its indirect interest in TMD on the Completion Date;

o  pay SGRF 30% of any part of the net proceeds of the sale of its indirect interest in TMD payable as deferred consideration after the Completion Date as and when received, but only in respect of proceeds of the sale of its indirect interest in TMD in excess of €45 million; and

o  repay the loan of €7.2 million plus accrued interest to Rila Samokov (the "Rila Loan") on or before the Completion Date or 31 December 2011 (whichever is first to occur).

·      If the net proceeds of sale of TBIL's indirect interest in TMD are insufficient to satisfy the foregoing amounts and other amounts arising under the SGRF Facility by the End Date, SGRF may exercise the TMD Right and will continue to be entitled to the fee of €8.5 million set out above.

·      TBIL shall extend the existing security granted in favour of SGRF to secure the timely payment of all amounts under the Amendment Agreement, as well as timely repayment of the Rila Loan.  The existing security takes the form of a pledge over TBIL's indirect interest in TMD and Harwood Holding BV (whether over shares and shareholder loans in Axis Retail NV, Axis S - Retail NV and/or over shares and shareholder loans in TMD at SGRF's option) (ranking only after RZB's security interests and SGRF's second ranking security) and a pledge over TBIL's bank accounts.

·      TBIL shall afford SGRF the opportunity, upon receipt of an informal, indicative or formal offer (containing prescribed details of such an offer) from a third party for its indirect equity interest in TMD, within 10 days after that offer (and before TBIL enters exclusivity with that third party), to submit a competing offer in writing, whether informal, indicative or formal as SGRF sees fit, and if SGRF chooses to submit an offer, TBIL shall consider that offer and if it thinks fit pursue that offer instead of pursuing the third party offer.  TBIL shall pursue such offer submitted by SGRF instead of a third party offer, if the consideration offered by SGRF is, taken as a whole and in TBIL's reasonable judgement, higher than the consideration in any reasonably credible competing offer with due account being taken of the risk inherent in offers involving third party finance or deferred consideration (but this shall not preclude TBIL from pursuing a subsequent third party offer from an existing bidder or a new source, received before formal acceptance of SGRF's formal offer, if the third party offer is higher in TBIL's reasonable judgement taking into account those factors).

·      TBIL shall co-operate with the appointment by SGRF of specialist advisers initially being Alvarez & Marsal or another professional with relevant experience to advise in relation to TMD.  If and to the extent SGRF so requires, and provided it is not contrary to the best interests of TBIL and TMD to do so, TBIL shall exercise its powers as indirect holder of 61.83% of the shares of TMD to cause (i) one or two officers of that specialist adviser to be appointed to the board of TMD (provided that such candidate is suitable and if found not to be suitable SGRF may propose a replacement or replacements until a suitable candidate is found) and (ii) TMD to join in the appointment of that specialist adviser and (iii) TMD to implement the recommendations of that specialist adviser.  The reasonable fees and costs of such specialist advisers may be allocated to TBIL (or if TMD joins in the appointment of the specialist adviser to TMD) by SGRF and TBIL shall bear or, if TMD joins in the appointment of the specialist adviser, exercise its powers as indirect holder of 61.83% of the shares of TMD to seek to cause TMD to bear those fees and costs.

·      Until the End Date (and subject to no Event of Default or breach of the Amendment Agreement occurring) SGRF will take no enforcement action in respect of Events of Default under the Commercial Agreement (as amended) occurring before the date of the Amendment Agreement of which it is aware.

·      TBIL shall seek, subject to shareholder approval, to delist its shares from AIM, at its next Annual General Meeting or as soon as practicable thereafter.

Related-party transaction

SGRF currently holds 32.27% of TBIL's issued share capital and as such is a "substantial shareholder" and therefore a "related party" under the AIM Rules.

As a result, the entering into the Amendment Agreement will constitute a "related party transaction" under AIM Rule 13 because it will exceed 5% in at least one of the class tests (as defined in the AIM Rules) (the "Related Party Transaction").

With the exception of Warith Al-Kharusi and Faisal Al-Riyami who are each executives of SGRF, the directors of TBIL (the "Independent Directors") consider, having consulted with Collins Stewart Europe Limited, its nominated adviser, that the terms of the Related Party Transaction are fair and reasonable insofar as TBIL's shareholders are concerned.  As part of the consultation, the Independent Directors' commercial assessments of the Related Party Transaction have been taken into account and in particular that, by entering into the Amendment Agreement, the Independent Directors believe that TBIL will be able to operate as a going concern and that the waiver SGRF has granted secures additional time for the Company to sell its indirect interest in TMD and use the proceeds to repay the SGRF Facility and all other amounts due under the Amendment Agreement (with the remainder being available for use by TBIL).  In reaching their conclusion, the Independent Directors have consulted with a number of the Company's shareholders.  The Independent Directors are of the view that, without the Amendment Agreement, it was considered likely that SGRF would seek to exercise the TMD Right to acquire TBIL's indirect interest in TMD for approximately €12.36 million which, in the opinion of the Directors would (i) significantly undervalue this asset and (ii) leave TBIL in an extremely difficult financial position, as it would have no other realistic means of generating sufficient cash to meet its ongoing obligations (including to SGRF under the SGRF Facility and the Rila Loan).

Enquiries:

Trans Balkan Investments Limited	Ian Schmiegelow (Chairman) Natalie Weedon	Tel: + 44 20 7630 3350
Financial Dynamics	Ed Gascoigne-Pees Nick Henderson	Tel: + 44 20 7269 7132
Collins Stewart Europe Limited (Nomad)	Stewart Wallace	Tel: [phone]
KBC Peel Hunt Limited (Broker)	Capel Irwin	Tel: + 44 20 7418 8900

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