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Central European Distribution (CEDC) Enters Revised Agreement with Russian Standard

December 28, 2012 9:20 AM EST Send to a Friend
Central European Distribution (NASDAQ: CEDC) has agreed to a revised transaction with Russian Standard (through its affiliate, Roust Trading Ltd. ("RTL")). This agreement represents a renewed commitment by Russian Standard to a strategic alliance with CEDC and is an important vote of confidence in the future success of CEDC's business. The agreement also addresses the ongoing management of CEDC, with directors nominated by Russian Standard taking responsibility for CEDC's operations through a newly-formed committee of the CEDC Board of Directors. A special committee led by CEDC directors unaffiliated with Russian Standard will retain control of any restructuring of CEDC's capital structure. This amended transaction is intended to stabilize CEDC's business and to pave the way for CEDC to address its balance sheet issues in an orderly fashion.

Under the revised terms, Russian Standard has:

* released restrictions on $50 million in cash previously invested in CEDC, making such funds available for working capital and general corporate purposes,
* agreed to provide a new $15 million revolving credit facility to CEDC, and
* agreed to provide up to $107 million in new capital to CEDC (reduced by the commitment under the new revolving credit facility) subject to and conditional upon an overall restructuring of CEDC's capital structure that is acceptable to CEDC and Russian Standard.

In turn, CEDC has:

* created an Operational Management Committee of the CEDC Board of Directors to be led by Mr. Tariko,
* created a Restructuring Committee of the CEDC Board of Directors to be led by non-Russian Standard directors,
* appointed Grant Winterton as Chief Executive Officer of CEDC, effective January 10, 2013. Mr. Winterton is the current General Manager of the Russian Alcohol Group - a CEDC subsidiary. Mr. Winterton has over 20 years of experience working in marketing, sales and general management positions for Campbells Soup (Australia), The Coca-Cola Company (Australia, Russia, Ukraine, China), Wimm Bill Dann (Russia) and Red Bull (Russia). Mr. Winterton has lived in Russia for over 10 years, working in the consumer goods industry, and has extensive working experience across the Russia, Ukraine, Belarus and CIS markets. He joined CEDC as General Manager of the Russian Alcohol Group in April 2012.
* agreed to call an annual shareholders' meeting as soon as practicable to vote on a slate of directors agreed between CEDC and Russian Standard and to decide if Russian Standard nominees will comprise a majority of the CEDC Board of Directors.

CEDC and Russian Standard are implementing these revised terms pursuant to a binding term sheet signed today, which modifies the Amended and Restated Securities Purchase Agreement and Amended and Restated Governance Agreement between CEDC and RTL. These two agreements will terminate with automatic effect on January 21, 2013, and, from today, CEDC will be permitted to have restructuring discussions and negotiations with the holders of CEDC's outstanding debt obligations. These revised terms also represent a settlement of the issues between CEDC and Russian Standard stemming from, among other things, the restatement of CEDC's financial statements for its 2010 and 2011 fiscal years in October of this year, with CEDC and RTL agreeing to mutually release all claims and causes of action and not to bring any legal action against the other under either agreement for matters arising prior to today.

CEDC and Russian Standard believe that these revised terms constitute a mutually beneficial way of addressing CEDC's near-term funding and operational issues while also committing CEDC and Russian Standard to work together to address CEDC's long-term capital requirements, including a restructuring of its current debt obligations. In that regard, CEDC and Russian Standard also believe that the changes to CEDC's corporate governance comprise an appropriate component of CEDC's strategy.

Effective immediately, RTL has released contractual restrictions on $50 million in cash previously invested in CEDC to allow CEDC to use this cash for working capital and general corporate purposes, and committed to make available a $15 million revolving credit facility to CEDC (drawable no earlier than February 1, 2013), subject to definitive documentation and the provision of reasonably satisfactory security by CEDC. Russian Standard has also committed to provide CEDC with up to $107 million of new capital (reduced by the amount of the commitment under the new revolving credit facility) subject to and conditional upon an overall restructuring of CEDC's capital structure that is acceptable to CEDC and Russian Standard.

In exchange, CEDC will provide guarantees and liens on assets of its subsidiaries in respect of the debt currently evidenced by $50 million of senior CEDC notes held by Russian Standard. In addition, CEDC has agreed to certain corporate governance changes, including:

* The creation of an Operational Management Committee to oversee all day-to-day business and operational management of CEDC with CEDC management to report directly to this committee. The Operational Management Committee will consist of Mr. Roustam Tariko, Mr. Scott Fine and another CEDC board member nominated by Russian Standard.
* The creation of a Restructuring Committee with full responsibility for all matters related to any restructuring of CEDC's capital. The Restructuring Committee will consist of three non-Russian Standard directors and Mr. Roustam Tariko.
* The appointment of Grant Winterton, the current Chief Executive Officer of the Russian Alcohol Group - a CEDC subsidiary, as Chief Executive Officer of CEDC effective January 10, 2013.

CEDC and Russian Standard have also reached agreement on the slate of directors to be proposed at the next annual general meeting of CEDC shareholders, which will be convened as soon as practicable. The slate of directors will consist of three directors nominated by Russian Standard and three directors nominated by non-Russian Standard directors. In addition, shareholders will be given the opportunity to elect a seventh director from among two candidates, one nominated by Russian Standard and one by the non-Russian Standard directors.

Finally, CEDC and Russian Standard have agreed that the Amended and Restated Securities Purchase Agreement and the Amended and Restated Governance Agreement by and between CEDC and RTL will automatically terminate on January 21, 2013 and to mutually release all claims and causes of action (and not to bring any legal action against the other) under either agreement for matters arising prior to today.




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