RB 64/2007 Memorandum of Understanding regarding Kroshka-Kartoshka

The Management Board of AmRest Holdings N.V. (“AmRest”) informs about signing of the binding Memorandum of Understanding (“MOU”) between AmRest (”Buyer”) and Andrei Kononchuck and Vitaly Naumenko (jointly: “Sellers”) regarding the transaction of Buyer’s purchase of 30% equity interest in a new holding company (“HoldCo”)   incorporated in Cyprus. By the time of finalization of the transaction HoldCo will be the owner of Kroshka-Kartoshka quick service restaurants operating in Russia and Ukraine. It is anticipated that the Final Purchase Agreement will be signed on December 1, 2007 (“Purchase Agreement Date”).  
AmRest is the strategic investor in this transaction with the goal to facilitate substantial further expansion of the business of Kroshka-Kartoshka restaurants, quick service restaurant chain in Russia, Ukraine, and other geographical markets. The intention of both parties is to create such ownership and management structure, which would provide for growth of Kroshka-Kartoshka chain business and exit from it through a trade sale or IPO in 3-5 years.
Kroshka-Kartoshka has been present in the quick service restaurant market since 1998, when its first unit was opened in Moscow. Pursuant to AmRest best knowledge currently the Kroshka-Kartoshka chain consist of about 180 units. The restaurants offer a wide selection of meals made from potatoes baked in foil and filled with a variety of toppings. Currently, the Kroshka-Kartoshka is one of the most publicly recognized and leading Russian quick service restaurant chains and comprises a wide chain of company-owned and franchise outlets.
The terms of the MOU are as follow:
The Sellers own directly or indirectly, 100% ownership interest in HoldCo and other related business entities (jointly: “Russian Entities”), which jointly operate quick service restaurants in Russia under “Kroshka Kartoshka” brand (“Kroshka Kartoshka Chain”) and hold all assets related to this business.
The Sellers also own 51% ownership interest in business entities that operate quick service restaurants in Ukraine, identical to that of Kroshka Kartoshka Chain, under ‘Pechena Kartoplya’ brand (“Ukrainian Entities”).
By the time of finalization of the transaction HoldCo will have 100% ownership interest in the Russian Entities and 51% ownership interest in the Ukrainian Entities (HoldCo, the Russian Entities and the Ukrainian Entities referred herein as the “Kroshka-Kartoshka Group”). AmRest will pay USD 36.2 million for its 30% stake in HoldCo.
Where any of the shareholders desires to transfer all or a portion of its shares in HoldCo, it shall first offer such shares to the other shareholders on same conditions to those, at which such shares are proposed to be sold to a third party. The remaining shareholders shall have a 60 days option to purchase such shares.
The Kroshka-Kartoshka Group shall be managed by the Board of Directors and the Management Board. The Management Board shall consist of two co-CEOs, Executive Director, CFO and Strategic Development Director. Certain corporate matters shall require prior approval of the simple majority of the Board of Directors (3 director votes), the supermajority of the Board of Directors (at least 4 director votes), or the General Shareholders’ Meeting. AmRest will have the right to propose candidates for positions of CFO and Strategic Development Director.
The Board of Directors (the “Board”) shall consist of 5 directors; 3 directors shall be appointed by Sellers (the "Majority Shareholders") and 2 directors shall be appointed by AmRest (the "Minority Shareholder").
The MOU includes certain AmRest minority rights inclusive of:
1)      approval of quarterly and annual Kroshka-Kartoshka Group budgets and business plans;
2)      establishing, liquidation, merger or closing down of any Russian Entity or Ukrainian Entity; change of existing lines of business or adding new lines of business;
3)      selection and appointment of an auditor/auditors for the Kroshka-Kartoshka Group entities;
4)      the Kroshka-Kartoshka Group declaring or paying any dividend or distribution;
AmRest will perform a due diligence review of the Russian Entities and Ukrainian Entities. In case that there are outstanding issues essential for the finalization of the transaction outlined by the due diligence report, the Sellers shall provide AmRest with sufficient representations and warranties, included into the transaction documentation, which are customary for such transaction on Purchase Agreement Date latest.
The MOU includes the fee for either AmRest or Sellers refusing to finalize the transaction   (excluding some certain circumstances) amounting to USD 1.0 million if AmRest refuses and USD 0.3 million if Sellers refuse.
It is expected that the total 2007 Kroshka-Kartoshka Group revenues will amount to approximately USD 70 million and EBITDA for the same period will amount to over USD 13 million pursuant to management accounting.  
Legal act:
§ 56 (1) of the Offering Act dated July 29th 2005

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