Appendix No 2
MATERIALS TO Item 2. Authorization of the Management Board to conclude a transaction within the meaning of Article 114 of the Law on Public Offering of Securities of the Agenda of a session of the GENERAL MEETING OF SHAREHOLDERS OF INDUSTRIAL HOLDING BULGARIA PLC TO BE HELD ON 7 MAY 2009 /22 MAY 2009/ IN SOFIA
DETAILED REPORT
ON AUTHORIZATION OF THE MANAGEMENT BOARD OF THE COMPANY TO CONCLUDE A TRANSACTION WITHIN THE MEANING OF ARTICLE 114 OF THE LAW ON PUBLIC OFFERING OF SECURITIES
І. GENERAL INFORMATION
1. Used abbreviations
The following abbreviations have been used in this Report:
1.1. BSI: Bulyard Shipbuilding Industry EAD, Varna;
1.2. Bulyard: Bulyard AD, Sofia;
1.3. IHB: Industrial Holding Bulgaria Plc, Sofia;
1.4. Bulbank: UniCredit Bulbank AD, Sofia;
1.5. Shipbuilding Agreement: Agreement on building ship with construction No 103 signed on 31 July 2007 by BSI and Diller Shipping and Trading Inc., Turkey.
2. Shipbuilding Agreement
Under the terms and conditions of the Shipbuilding Agreement, by 31 January 2011:
2.1. BSI shall build and deliver one 55427-DWT cargo ship to its client;
2.2. The client under this Agreement shall undertake to pay BSI the contractual price in advance – in portions based on ship completion stage;
2.3. In relation to the advance payments receipt, BSI shall undertake to provide guarantees to the client for the advance payments executed by the latter in the form of bank guarantees and real collaterals.
3. Agreement on Bank Credit under the condition of undertaking credit commitments in the form of bank guarantees and documentary letters of credit
3.1. With a view to the issue of bank guarantees securing the reimbursement of the third, fourth and fifth advance payments under the Shipbuilding Agreement, Agreement on Bank Credit under the condition of undertaking credit commitments in the form of bank guarantees and documentary letters of credit has been signed by BSI – Debtor, Bulbank – Creditor and Bulyard – Joint Debtor.
3.2. The credit under Item 3.1 hereof shall be granted under the following basic terms and conditions: a/ credit limit: USD 27589060, b/ purpose: undertaking of credit commitments in the form of three bank guarantees securing the reimbursement of advance payments under the Shipbuilding Agreement, c/ bank guarantees beneficiary: Diller Shipping and Trading Inc., Turkey, d/ deadline for bank guarantees issue: 3 October 2011, e/ commission for bank guarantee issue: 0.3% per quarter or a part thereof; f/ management fee: one-off fee of 0.3% charged on each amount paid under a guarantee, g/ commitment fee: none, h/ annual interest rate: the total of a variable basic interest rate based on the basic interest index of 1-month LIBOR and an addition of 4% and i/ deadline for credit utilization: 18 October 2011.
3.3. In consideration of the present economic environment and the banks’ policies on conclusion of such transactions, Bulbank requires the following collaterals under the Agreement on Bank Credit in addition to the real collaterals in the form of conventional real estates mortgage, and namely: conventional mortgage of a ship under construction, registered pledges of plant and equipment by BSI, a guarantee by Bulyard – Joint Debtor and a corporate guarantee by IHB in the form of warrant within the meaning of the Law on Obligations and Contracts and the agreements on all obligations of BSI under the Agreement on Bank Credit. .
4. Support to BSI by IHB in its capacity of holding company
4.1. As the construction of the ship – subject matter of the Shipbuilding Agreement represents an order of considerable value, BSI needs support as to the providing of some of the guarantees required. This form of collateral has become traditional to the banks in Bulgaria in financing of counter bank guarantees – for example: three corporate guarantees for Raiffeisenbank /Bulgaria/ EAD in relation to ships with construction No 457, No 515 and No 516 built by BSI.
4.2. In its capacity of holding company, IHB supports its subsidiaries in the achievement and implementation of their business objectives and investment programs. At present, IHB holds 61.5% of the authorized capital /voting shares/ of Bulyard, while Bulyard holds 100% of the authorized capital /voting shares/ of BSI. It should be also mentioned that financing of subsidiaries is not included in the scope of application of the Law on Public Offering of Securities.
ІІ. TRANSACTION OBJECT
The object of the transaction, as to which the General Meeting of Shareholders of IHB is proposed to authorize the Management Board of IHB, is as follows:
1. Consideration
IHB shall provide a corporate guarantee to Bulbank, which is the issuer of bank guarantees in favour of the client under the Shipbuilding Agreement, in the form of warrant of the debt of BSI to Bulbank related to the aforementioned bank credit, the purpose of which is the eventual reimbursement of the third, fourth and fifth advance payments made by the client to BSI under the Shipbuilding Agreement in case that BSI fails to perform its commitments thereunder and to reimburse the received advanced payments to its client and Bulbank pays amounts under the issued bank guarantees, and namely: a corporate guarantee in favour of Bulbank – warrant of a maximal amount of USD 27589060 plus all contractual interests and commissions as specified above due for the periods specified in the Agreement on Bank Credit.
2. Remuneration
BSI shall pay IHB a remuneration of 1% of the actual amount of the provided corporate guarantee on annual basis.
3. Collaterals
To secure the corporate guarantee provided by IHB, BSI shall provide in favour of IHB and IHB shall receive from BSI:
3.1. Acceptable real collaterals: conventional mortgages of real estates of a total minimal value of 120% /one hundred and twenty per cent/ of the value of the provided corporate guarantee;
3.2. Deadline for real collaterals providing: the moment of acceptance of the ship under the Shipbuilding Agreement by the client or termination of the Warrant Agreement to be signed by IHB and Bulbank;
3.3. Deadline for real collaterals providing: within 14 /fourteen/ days as of the date of corporate guarantee issue;
3.4. All charges and expenses on the real collaterals registration and deregistration shall be at the expense of BSI;
3.5. Promissory note, covering the principal and interest under each issued bank guarantee: upon issue of the particular bank guarantee.
ІІІ. REGULATORY REQUIREMENTS TO THE AUTHORIZATION OF THE MANAGEMENT BOARD OF IHB
In compliance with Article 114 of the Law on Public Offering of Securities, the conclusion of the aforementioned transaction is governed by the provisions of the Law on Public Offering of Securities, which explicitly require authorization of the Management Board of IHB by the General Meeting of Shareholders of IHB based on this Detailed Report on the transaction expedience and terms and conditions.
Whereas:
§ The assets total of IHB is BGN 136 948000 based on the last Unconsolidated Annual Financial Statements of IHB for 2008;
§ The amount of the corporate guarantee /warrant/ to be issued by IHB in favour of Bulbank, which is the issuer of the bank guarantees in favour of the client of BSI under the Shipbuilding Agreement, may exceed the thresholds provided for in the Law on Public Offering of Securities;
§ Mr. Dimitar Georgiev Zhelev is President of the Management Board of BSI and Member of the Supervisory Board of Bulbank,
The transaction described above is within the meaning of Article 114 of the Law on Public Offering of Securities.
ІV. PROPOSAL ON AUTHORIZATION BY THE GENERAL MEETING OF SHAREHOLDERS
On the grounds of the Detailed Report prepared by the Management Board in compliance with Article 114a of the Law on Public Offering of Securities, the General Meeting of Shareholders of IHB makes/does not make a decision on authorization of the Management Board to conclude the following transaction within the meaning of Article 114 of the Law on Public Offering of Securities: providing of a corporate guarantee in the form of warrant to Bulyard Shipbuilding Industry EAD, Varna, under Agreement on Bank Credit under the condition of undertaking credit commitments in the form of bank guarantees and documentary letters of credit signed by Bulyard Shipbuilding Industry EAD, Varna – Debtor, Bulyard AD, Sofia – Joint Debtor and UniCredit Bulbank AD, Sofia – Creditor under the following basic terms and conditions: a/ purpose: credit commitments in the form of three bank guarantees securing the reimbursement of advance payments due under the Agreement on building of ship with construction No 103 and all annexes thereto signed by Bulyard Shipbuilding Industry EAD, Varna and Diller Shipping and Trading Inc., Turkey, the latter being the beneficiary under the bank guarantees; b/ credit limit: USD 27589060, c/ deadline for bank guarantees issue: 3 October 2011. Bulyard Shipbuilding Industry EAD, Varna, shall pay Industrial Holding Bulgaria Plc a remuneration of 1% of the actual amount of the provided corporate guarantee on annual basis. To secure the corporate guarantee, Bulyard Shipbuilding Industry EAD, Sofia, shall provide in favour of Industrial Holding Bulgaria Plc acceptable real collaterals: conventional mortgages of real estates of a total minimal value of 120% /one hundred and twenty per cent/ of the value of the provided corporate guarantee. The Management Board shall have the right to agree all other transaction terms and conditions subject to the basic terms and conditions specified above.
A proposal on voting in favour of the authorization of the Management Board of IHB to conclude the aforementioned transaction is made to the General Meeting of Shareholders of IHB Plc in consideration of:
§ The continuance of the implementation of the policy of IHB on support of its group subsidiaries and respective generation of economic benefits for the particular subsidiaries and IHB;
§ The complexity of the shipbuilding market and the importance of this order for the IHB group;
§ The market nature of the corporate guarantees issued for remuneration comparable to the remuneration for bank guarantees issue;
§ The collaterals registered in favour of IHB for the issued corporate guarantee.
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