MOU for real estate

MEMORANDUM OF UNDERSTANDING

 

This Memorandum of Understanding (“MOU”) is made and entered into as of _______, 2005 by and between ***** Co., Ltd., a corporation duly organized and existing under the laws of the Republic of Korea, with its registered office at __________, Seoul, Korea (“Developer”) and ***** Co., Ltd., a corporation duly established and existing under the laws of *****, having its registered head office at ___________  (“Investor”). 

 

This MOU contains statements of the preliminary understanding between Developer and Investor with regard to their participation in a development project known as “Sejongro 2-Jigu Redevelopment Project” (“Project”).  The parties intend to use reasonable efforts and exercise good faith to negotiate and execute a definitive share sale and purchase agreement (“Agreement”) substantially consistent with the intentions set forth in this MOU, along with standard terms and conditions similar to those that are typically included in a share sale and purchase agreement involving international parties.  The parties recognize, however, that significant material terms of the Agreement remain to be negotiated and that the parties’ investigations into various material matters have not been completed.

 

1.          Description of Project: Real Estate Properties and Involved Parties

            

1.1         Project shall consist of the following:                  

 

(a)                     Land:  A total of *** parcels of land (*****㎡) located at ********** (“Site”) as more fully described in Exhibit 1 of this MOU which will be acquired by Developer pursuant to Section 3.1(a). 

           

(b)          Building: An office building to be constructed and developed at the Site in accordance with the building specification guidelines in Exhibit 2 of this MOU which will be developed by Developer and/or the PFV.  

            

       - Area:                ***** pyung

       - Total Area:       ***** pyung

       - FAR:                *****%

       - BCR:               *****%

       - Size:                 ** above ground floors and ** underground floors

       - Usage:                           Office and other retail facilities

 

The parties agree that the figures set in “Total Area” and “FAR” above  and specifications set forth in Exhibit 2 are the minimum requirements for the Building (and meeting such requirements will be a condition for Investor (or its designee) to acquire such the Sale Shares pursuant to the Agreement.

 

1.2        Among others, following parties will be involved in the Project:

 

(a)          Developer:  A project financing vehicle established by Developer pursuant to Article 51-2(1) of the Corporate Tax Act and Enforcement Decree thereunder with capital of 5 billion Won (“PFV”).  95% of the shares of the PFV will be owned by Developer (“Sale Shares”) and 5% of the shares of the PFV will be owned by Shinhan Bank or another financial institution agreed by the parties (“FI”)

 

(b)          Contractor: ***** Co., Ltd. (“Ssangyong”) or another construction company as agreed by the parties (“Contractor”)

 

(c)          Lender:  FI or another lending institution agreed by the parties (“Lender”) 

 

1.3         Based on the foregoing assumptions, all of the cost associated with the Project, including, without limitation, cost associated with land acquisition, construction of the Building, advisors fees, bank fees, capitalized interest, shall not exceed ***** Won (“Total Cost”).  For clarification purpose, Developer shall be responsible for any increase in the cost of acquiring the Site and building the Building in meeting the minimum “Total Area” and “FAR” set forth above and specifications set forth in Exhibit 2. 

 

In the event that the “Total Area” is increased (“New Total Area”) and as a result, the Total Cost is also increased due to the construction related cost (“New Total Cost”), but per pyung development cost for the Project is decreased, then Developer shall be entitled to additional fee equal to:

 

                          (A-B) * C * 50%

 

Where “A” is Total Cost / Total Area

Where “B” is New Total Cost /  New Total Area

Where “C” is New Total Area  

 

2.          Agreement to Purchase and Sell and Assignment

 

2.1                   Subject to the terms and conditions of the Agreement, Developer shall sell all of the Sale Shares owned by Developer to Investor or its designee and Investor (or its designee) shall purchase from Developer the Sale Shares.

 

2.2                   Investor may, after the execution of this MOU, assign any and all rights and obligations under this MOU and the Agreement to its affiliate, and Developer (or shall cause the PFV, if applicable) shall consent to, and not object to, such assignment by Investor.

 

3.         Obligations of the Parties

 

3.1         Developer undertakes to carry out the following activities within four (4) months from the execution of this MOU (“Milestone 1”).  In the event that Developer fails to complete the following activities in time, Investor (or its designee) may, at its option, either (i) terminate this MOU or (ii) extend the deadline at the sole discretion of Investor:

 

(a)          To execute real estate sale and purchase agreements (“Owners Agreements”) with (i) the owners of at least 67% of the total area of the Site and any improvements within the Site and (ii) 80% of the total number of owners who own the Site (for the purpose of counting 80% of the total number of owners of the Site, the building owners who do not own the land at the Site will be excluded, but nonetheless such buildings must be acquired by Developer and/or the PFV), free and clear of any encumbrances at closing, on the terms and conditions (including the purchase price, etc.) approved by Investor in order for Developer and/or the PFV to redevelop the Site under the Act on the Maintenance and Improvement of Urban Areas and Dwelling Conditions for Residents (and also obtain use permit (sayongseungnakseo) from each of the owners that have executed the Owners Agreement);

 

(b)          To pay earnest money deposit to the owners of the Site who have executed the Owners Agreements and have all of the executed the Owners Agreements continue to be valid and effective until the assignment of all of the executed Owners Agreements to the PFV under Section 3.2(b);

 

(c)          To appoint an architectural firm for conceptual and schematic design and specifications for the Project who will also be responsible for obtaining necessary permits and approvals for the Project which has been designated by Investor;

 

(d)         To appoint the Contractor with the consent of Investor (for clarification, the appointed Contractor must guarantee (i) the purchase of 100% of the Site; (ii) the eviction of the owners and occupiers of the Site in order to commence construction in a timely manner; and (c) the securing of all approvals and permits necessary to complete the Project (collectively, “Contractor’s Guarantee”);

 

(e)          To appoint a construction management company (“CM”) which has been designated by Investor; and

 

(f)          To execute the Agreement with Investor (or its designee).

 

3.2         Once the Milestone 1 has been completed within the timeframe set forth in Section 3.1, Developer shall then undertake the following activities:

 

(a)          Developer shall establish the PFV with a paid-in capital of 5 billion Won pursuant to this MOU, whereby 95% of the shares of the PFV shall be subscribed by Developer and Developer shall cause FI to subscribe 5% of the shares of the PFV; and

 

(b)          once the PFV is established, Developer (i) shall cause the PFV to borrow an adequate amount from the Lender in order for the PFV to meet its obligations under the Owners Agreements and this MOU and the Agreement with the consent of Investor; and (ii) shall assign all of the then-executed Owners Agreements and other agreements with various service providers set forth in Section 3.1 to the PFV with the consent of Investor.

 

3.3         Upon Developer and/or the PFV’s completion of the activities set forth in Section 3.2, Investor shall (a) execute the Agreement with Developer; (b) deposit 10% of the Total Cost into a non-resident foreign exchange account opened with the Lender and (c) allow the Lender to place pledge on such account as security for the performance of its obligations under the Agreement.

 

3.4                   Developer shall cause the PFV to carry out the following activities by 18 months from the date of this MOU.  In the event that Developer fails to cause the PFV to complete the following activities in time, Investor may, at its option, either (i) (1) terminate the Agreement; (2) receive penalty paid by the Contractor for failing to meet the Contractor’s Guarantee; and (3) withdraw 10% of the Total Cost (and any interest accrued thereon) which is deposited in Investor’s non-resident foreign exchange account opened with the Lender; or (ii) have Developer transfer all of its shares in the PFV and shareholder’s loan to the PFV to a person designated by Investor, without incurring any liabilities to Investor (other than paying out-of-pocket cost Developer has expended for the Project):

 

(a)          To cause the PFV to complete the purchase of 100% of the total area and any improvements of the Site, free and clear of any encumbrances, on the terms and conditions (including the purchase price, etc.) approved by Investor;

 

(b)          To borrow an adequate amount from the Lender in order for the PFV to meet its obligations under the Owners Agreements and to complete the Project with the consent of Investor;

 

(c)          To obtain construction permit based on the basic architectural design drawings (“Basic Drawings”) which has been to be prepared by the architectural firm designated by Investor for obtaining construction permit which has also been agreed by and between the CM designated by Investor after construction costs appraisal;

 

(d)         To appoint the construction supervisor (gamri) which has been designated by Investor;

 

(e)          To report and pay any and all taxes, charges and expenses then due directly or indirectly incurred with respect to the Project (including, without limitation, registration fees, registry fees, commissions, national and local taxes, fees, penalty, fines, investment advisory fees and management fees); and

 

(f)          To commence the construction work for the Project.

 

3.5         Upon Developer and/or PFV’s completion of the activities set forth in Section 3.4, Investor shall provide a loan to the PFV or invest in the equity of the PFV in the amount of 15% of the Total Cost set forth in the Agreement (for clarification, of the 15% of the Total Cost, the 10% of the Total Cost will be from the amount in the non-resident foreign exchange account opened with the Lender). 

 

3.6                    Developer shall cause the PFV to carry out the following activities by 48 months from the date of this MOU (“Milestone 2”).  In the event that Developer fails to cause the PFV to complete the following activities in time, Investor may, at its option, either(i) (1) terminate the Agreement; (2) receive penalty paid by the Contractor to the PFV; or (3) recover 15% of the Total Cost which has been provided to the PFV in the form of loan or equity; provided, however, that commencing from the start of 46^th month from the date of this MOU until the completion of the events in Milestone 2, Developer shall cause the PFV to receive the penalty from the Contractor and forward the same to Investor:

 

(a)          To cause the PFV and the Contractor to complete the construction of the Building in strict compliance with the Basic Drawings and specifications set forth in Exhibit 2 hereof;

 

(b)          To apply for the use approval and register the same under the name of the PFV; and

 

(c)          To carry out any and all activities necessary for implementation and completion of the Project.

 

3.7         Upon the PFV’s completion of the activities set forth in Section 3.6 and subject to the terms and conditions set forth in the Agreement, Developer shall sell, Investor (or its designee) shall purchase, the Sale Shares at the purchase price set forth in the Agreement.

 

3.8         Developer shall advise Investor promptly of any litigation, arbitration, or administrative hearing before any governmental agency concerning or affecting the Project which is instituted or threatened after the date hereof.

 

3.9         If there is any material change, Developer shall notify Investor of such change as soon as it becomes aware of such change.

 

4.          Exclusivity

 

Subject to the terms and conditions of this MOU, each party agrees that for a period of 365 days from the date of this MOU or until the Agreement is executed between the parties hereto, whichever is earlier, each party will not initiate or engage in with any other company or person any negotiation of any transaction which is the subject matter of this MOU.  Provided, however, with written consent of the Lender, either party may terminate the above exclusivity period after 6 months of the exclusivity period.  A party breaching this exclusivity provision shall pay the other party as liquidated damages an amount of 5 billion Won.

 

5.          Confidentiality

 

Without prior written consent of the other party, each party shall, and shall cause its agents, representatives, officers, directors and employees to keep the existence of this MOU, the proposed transactions contemplated hereby and all non-public information concerning the parties disclosed or obtained in connection with the proposed transactions confidential, except as may be required by each party’s advisor to review the Project, by law or as may be required in discussion with Korean and/or other regulatory bodies.

 

6.          Governing Law and Jurisdiction

 

6.1         This MOU shall be construed in accordance with the laws of the Republic of Korea without application of its conflicts of law provisions.

 

6.2         It is agreed that if any controversy or claim arises out of or in relation to this MOU, the Agreement, or any other related agreements, the parties shall seek to solve the matter amicably through mutual consultation.  If, and only if, the parties fail to resolve such controversy or claim by amicable arrangement, such controversy or claim shall be resolved at a Seoul Central District Court having jurisdiction thereof.

 

7.          Costs

 

The parties agree that they shall pay their own legal and other costs incurred in the course of negotiating, documenting and executing this MOU, the Agreement, and any other related agreements.

 

8.         Warranties of the Parties

 

Each party hereby represents and warrants to the other party, that it has full power and authority to enter into this MOU, and that their respective signatories are duly and lawfully authorized to execute this MOU. 

 

9.          Entire Understanding

 

This MOU supersedes any prior written or oral communications between the parties relating to the subject matter hereof, and may not be amended except in writing signed by the parties.  This MOU contains the entire understanding of the parties as to the terms and conditions of the Project.  Notwithstanding the foregoing, to the extent that any law, statute, treaty or regulation by its terms as determined by a court, tribunal or other governmental authority of competent jurisdiction, is in conflict with the terms of this MOU, the conflicting terms of this MOU shall be superseded only to the extent necessary by the terms required by such law, statute, treaty or regulation. 

 

10.        Binding Effect

 

Except for Sections 4, 5, 6, 7, 9 and 10 which shall be binding between the parties, the rest of the provisions of this MOU are intended to be non-binding. 

 

 

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties have caused this MOU to be executed by their duly authorized representatives as of the date first above written.

 

 

For and on behalf of                                 For and on behalf of

***** Co., Ltd.                                                    ***** Co., Ltd.

 

 

_________________________                _________________________

Name:                                                        Name:

Title:                                                          Title:

 

 

Exhibit 1.          Description of Site

Exhibit 2.          Building Specifications