OREANDA-NEWS. December 20, 2010. Further to the announcements of 1 November 2010 and 23 November 2010, the Company wishes to announce that the Group entered into sale and purchase agreements and ancillary documentation (the “SPAs”) with Dorvell Investments Limited (“Dorvell”), an entity in receipt of debt financing from Renaissance Capital Group (“Renaissance”), to sell the Group’s interest in Elite Service LLC and Piaty Element LLC (together, the “Subsidiaries”) to Dorvell (the “Disposal”). The Group also entered into an agreement for the assignment to Dorvell of a USD 1.78 million loan granted by the Company to one of the Subsidiaries (the “Loan”).

The aggregate cash consideration for the Disposal and the Loan is USD 1.5 million (the “Consideration”), of which USD 900,000 is payable immediately following registration of the transfer of ownership of the shares in the Subsidiaries to Dorvell and, accordingly, is expected to be received during the course of this week. The payment of the balance becomes due upon the registration of the transfer of the Loan with the National Bank of Ukraine. The Consideration is being satisfied by cash held on the balance sheet of Dorvell, which has received debt finance to fund the purchase price of the Disposal, from Renaissance.

The Company entered into these arrangements with Dorvell in order to secure interim financing to support ongoing working capital requirements, pending the completion of a potential larger recapitalisation transaction with Renaissance (the “Financing”). Such arrangements have been entered into in good faith by the Company, on an arm’s length basis, and the board of XXI Century (the “Board”) believes the consideration paid pursuant to the Disposal, and the terms of the put and call option set out below, to be fair and reasonable in the context of current market conditions and particularly in view of the current debt and net asset position of the Subsidiaries.

Negotiations between the Board and Renaissance regarding the Financing remain ongoing and are subject to a short-term exclusivity period. Whilst negotiations with Renaissance on the Financing are nearing conclusion, it should be noted that there is no guarantee that these negotiations will be successfully concluded, nor that the conditions (including, inter alia, shareholder, warrantholder and bondholder approval and maintenance of the Company’s listing on AIM) to the Financing will be satisfied.   

The property assets of the Subsidiaries (the “Properties”) subject to the Disposal are the Posolsky Dvir land plot in Kyiv, a development site intended for a hotel and cultural complex with serviced apartments, and the land plot in Poltava, a development site intended for the construction of a shopping centre, residential complexes, offices and recreational facilities. As at 30 June 2009, the most recent independent valuation of Posolsky Dvir site and the Poltava site indicated net asset values of USD 16.43 million and USD 22.60 million respectively. The Board notes that, since that 30 June 2009 valuation, there has been a very significant deterioration in the Ukrainian property market and that, accordingly, these valuations do not, in the opinion of the Board, represent realistic current values for the properties, as they do not take into account the current depressed state of the property market in the Ukraine nor the outstanding liabilities of the Properties.

As at 30 September 2010, the Subsidiaries, Elite Service LLC and Piaty Element LLC, had, in the Company’s management accounts which have been reviewed by the Board, net liability and net asset values of USD 2.46 million (negative) and USD 1.63 million respectively. As development sites, the Properties are non profit generative and, accordingly, the Board believes that the Disposal will have an immaterial impact on the Company’s ongoing working capital position in the short to medium term.

As announced on 16 June 2010, the Company has not been able to produce audited financial statements for the year ended 31 December 2009 or interim financial statements for the six months ended 30 June 2010 (together, the “Financial Reports”), which is why the Company has used the 30 June 2009 property valuation and the 30 September 2010 management accounts. The Financial Reports are expected to be published, should the Financing complete, shortly after such completion.

Concurrently with execution of the SPAs and the Loan assignment, the Company and Dorvell have executed a put and call option deed (the “P&C”) which enables the Company to re-acquire the Subsidiaries and the Loan on or prior to 30 April 2011, in certain circumstances. In the event that the Financing completes, Dorvell is required to exercise the put option immediately.

The P&C options are exercisable at pricing levels which are at premia of 30 per cent. and 100 per cent. respectively (the “Premia”) (calculated on an annualised basis) to the Consideration plus certain transaction and other costs, including significant past due lease payments of Piaty Element LLC, incurred by Dorvell during the option period, which are expected to be c. USD 225,000. Accordingly, in monetary terms, the Premia represent maximum payments, in excess of the Consideration, by the Company to Dorvell of c. USD 198,000 in the event that the put option is exercised and c. USD 725,000 in the event that the call option is exercised, as the put and call option has a long stop date of 30 April 2011.

Negotiations between the Company and Renaissance regarding the Financing remain ongoing and further announcements will be made in due course with regard to both the Disposal and the Financing.

Lev Partzkhaladze (Chairman), commenting on the Disposal, said:

 “Given the current market conditions in Ukraine, this transaction initiates a significant milestone in the Company’s rehabilitation. The Board believes that the Disposal, combined with the P&C option, represents the best outcome for XXI Century as it should ensure the Company has sufficient funds to continue to operate until completion of the proposed Financing with Renaissance, publication of the Financial Reports and the resultant lifting of the Company’s current suspension from trading on AIM.”

Jaroslav Kinach (Board Director) further commented:

“This sale combined with the put and call option allows XXI Century to meet its pressing payment obligations, whilst retaining the Company’s ability to maintain the integrity of its asset portfolio in the event that a wider restructuring of the Company completes in the very near term.”