Legal opinion regarding issuance of NOC in favour of Company 1 for availing equity/bridge finance

Mr. Z

Address….

Dear Sir,

Re:      Legal opinion regarding issuance of NOC in favour of Company 1 for availing equity/bridge finance

We refer to your letter dated 30.10.2003 on the above subject.

Under the Facility Agreement dated 23.09.2003 (the ‘Facility Agreement’) between Company 1 (the ‘Borrower’) and Banks 1 (the ‘Lenders’), the Lenders have agreed to grant term loan facility of Tk. 32.00 crore (the ‘Term Loan Facility’) in favour of the Borrower for a term of 6 years. Under the terms of the Facility Agreement with reference to Schedule B under the head of ‘Means of Finance’ it has been indicated that EEF Equity would be investing total of Tk. 1050.00 million equivalents to 16.15% of the total equity of the Borrower.

We have been informed that the EEF has agreed to invest Tk. 800.00 million out of Tk. 1050.00 million and there is a shortfall of Tk. 250.00 million which will be made up by COMPANY 2 (COMPANY 2) by way of subscription of preference shares to be issued by the Borrower (COMPANY 2 Subscription) and a grant of bridge loan finance.

Pursuant to the above we have been referred the following queries the response of which is provided hereunder in seriatim:

a) Whether the bridge finance sanctioned by COMPANY 2 would be treated as equity as per terms and conditions.

The bridge finance of Tk. 15.00 million sanctioned by COMPANY 2 is a loan finance and hence cannot be treated as equity. It is a debt finance. Without prejudice to any other documents executed by the Borrower, Clause 10.1.12 of the Facility Agreement stipulates that the Borrower shall not incur any further debt obligation outside the syndicated facility under the Facility Agreement without prior written approval of the Lenders.

b) Whether allowing the customer to avail such equity/bridge finance will dilute the interest of the Agent and the other lenders.

With regard to the proposed subscription of preference shares equivalent to Tk. 15.00 million by COMPANY 2, this is an investment in terms of equity. We are not aware of the terms of equity participation by EEF in this transaction. If the subscription by EEF is for ordinary shares of the Borrower, EEF shall only be entitled to dividends out of the profit of the Borrower, which means that the debt repayable under the Facility Agreement will take precedence over the payment of dividends. However, under the provisions for subscription of preference shares by COMPANY 2 it is stipulated that the dividend and premium thereunder may be converted to common equity or be fully redeemed at maturity i.e. within 3 years or from the proceeds of the IPO, whichever is earlier, at the sole discretion of COMPANY 2. Hence the effect of the terms of the COMPANY 2 Subscription would be that full repayment under the Term Loan Facility will be subordinated to the redemption of the 3 – years redeemable preference shares i.e. payment to COMPANY 2 unless COMPANY 2 opts to convert the full subscription amount and premium into equity. This has to be agreed upon by the Lenders.

With regard to the bridge finance, it will be a debt outside the Term Loan Facility which requires prior written from the Lenders.

The Agent will be responsible to inform the Lenders of any change to the terms of the Facility Agreement upon receipt of such information from the Borrower.

c) If there is no restriction to provide NOC as per Facility Agreement, is there any necessity to obtain consent from other lenders and/or to inform the other lenders?

Part of this query has been addressed above. If schedule 3 of the Facility Agreement is required to be amended to reflect the change in equity participation then an Amendment Agreement will be required and all parties to the Facility Agreement will be signatories.

d)      A draft of the NOC to be issued by the Lead Arranger & Agent for allowing the customer to avail equity/bridge finance.

With the signing of the Facility Agreement, the responsibility of the Arranger has come to an end. NOC shall be issued, if agreed by the Lenders, in the capacity of the Agent.

A draft of the NOC to be issued by the Agent is provided hereunder.

“__________________

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Re: A/C. Company 1 – Notice under Section 16.3.1 of the Facility Agreement dated 23.09.2003 of change of equity participation under Schedule B of the Facility Agreement

Pursuant to Facility Agreement dated 23.09.2003, please be informed we have received intimation from Confidence Salt Limited (the Borrower) dated 26.10.2003 requesting for a “No Objection Certificate” for availing facilities in a form of equity and loan from Prime Finance and Investment Limited for an aggregate sum of Tk. 25.00 million to fill in the shortfall in consequence of EEF agreement to invest _________ out of ____________.

You are requested to evaluate the above request by the Borrower and revert to us within _____ days.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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