Echo Investment : Current report no. 5/2017

Current report no. 5/2017

Publication of delayed confidential information on the conclusion of a preliminary contract concerning the sale of 100% shares in subsidiaries of Echo Investment S.A. which indirectly hold the ownership title to a property in Wrocław, where an office building under the name of 'West Link' is to be built, and the conclusion of an investment contract concerning the Beethovena and Browary Warszawskie projects in Warsaw.

Pursuant to art. 17 sections 1 and 4 of the Regulation of the European Parliament and Council (EU) no. 596/2014 of April 16th, 2014 on the market abuse (a regulation on the market abuse), which overrules the directive 2003/6/WE of the European Parliament and Council and the directives of the Commission no. 2003/124/WE, 2003/125/WE and 2004/72/WE ('MAR'), the Management of Echo Investment S.A. ('the Company') hereby publishes confidential information, the publication of which was delayed by the Company on March 9th, 2017 pursuant to art. 17 section 4 of MAR.

According to the Company's assessment, the delay in the publication of the above confidential information was justified due to the fact that its publication at that time could have had a negative influence on the correct assessment of the information by the public opinion and the acquisition of the consent of the Company's Supervisory Board for the conclusion of the contracts and execution of the transaction.

Contents of the delayed confidential information:

The Management Board of the Company hereby reports that on March 9th, 2017 the Company and its subsidiaries i.e. 'Grupa Echo' Sp. z o.o. ('Grupa Echo') and the FORUM 60 Closed Investment Fund (the Fund) as the sellers (jointly 'the Sellers') and the IB 14 Closed Investment Fund of Non-Public Assets as the buyer ('the Buyer'), which is controlled by Griffin Premium RE.. B.V. with its seat in Holland ('Griffin Premium'), concluded a preliminary agreement concerning the sale of 100% shares (the 'Preliminary Share Sale Contract'), which was subsequently amended on March 14th, 2017, in the companies companies: Projekt Echo - 114 Sp. z o.o. ('Projekt Echo') and Elissea Investments Sp. z o.o. ('Elissea' or together with Projekt Echo - 'Companies'), being respectively the general partner and the limited partner of the company under the name of West Gate II - Projekt Echo - 114 Spółka z ograniczoną odpowiedzialnością sp.k. ('SPV company'). The SPV company is the owner of a property in Wrocław (Gądów Mały), which is entered in the Land and Mortgage Register under the no. WR1K/00344201/2 ('the Property'), where the office and service building under the name of 'West Link' (the Building) is being developed (jointly 'the West Link Transaction').

Furthermore, the Management of the Company hereby reports that on the same day, the Company, Griffin Premium and GPRE Management Sp. z o.o. ('the Bond Holder'), which is a subsidiary of Griffin Premium, concluded an investment contract concerning the right of the first offer ('the ROFO contract'), which was subsequently amended on March 14th, 2017, based on which Griffin Premium will indirectly invest 25% of the necessary capital (excluding, however, external funding provided by banks) via the Bond Holder for the completion of the construction process and finalization of commercial projects carried out in Warsaw i.e. the Beethovena project (stages 1 and 2) and the Browary Warszawskie project (stage J) ('the Projects' or individually 'the Project') through respective companies: 'Projekt Beethovena - Projekt Echo - 122 spółka z ograniczona odpowiedzialnością' spółka komandytowo-akcyjna oraz Dellia Investments - Projekt Echo - 115 spółka z ograniczoną odpowiedzialnością spółka komandytowa (jointly referred to as 'Project Companies' and individually referred to as 'the Project Company'), which are Company's subsidiaries. The Bond Holder will make the capital available through the acquisition of bonds issued by the limited partner of 'Dellia Investments - Projekt Echo - 115 spółka z ograniczoną odpowiedzialnością spółka komandytowa' and shareholder of 'Projekt Beethovena - Projekt Echo - 122 spółka z ograniczona odpowiedzialnością' spółka komandytowo-akcyjna' or other entities from the Company's group indicated by the Company ('the Issuers'). In accordance with the ROFO contract Griffin Premium will also acquire the right of the first offer with regard to the purchase of Project (this time it will be referred to as the 'ROFO Transaction').

1. The West Link Transaction

1.1. Under the Preliminary Share Sale Contract the Sellers undertook to sell the following to the Buyer:

(i) 100% shares in Projekt Echo i.e. 599 shares owned by the Company and 1 share owned by the Echo group; and

(ii) 100% shares in Elissea i.e. 100 shares owned by the Fund,

jointly referred to as 'Shares'.

1.2 The condition of the Preliminary Share Sale Contract becoming legally binding is the consent of the Company's Supervisory board to the West Link Transaction, with the consent being granted on March 14th, 2017.

1.3 The Preliminary Share Sale Contract includes the following conditions precedent with regard to the final share sale contract (the 'Final Share Sale Contract'):

(i) the receipt of the final, unconditional occupancy permit for the Building by the SPV Company,

(ii) the SPV Company and tenants of the Building will conclude leases concerning minimum 60% of the retail, office, warehouse and parking area in the Building,

(iii) the Company as the guarantor and the SPV Company as the beneficiary will concluded a rental guarantee agreement concerning the Building for the period of five years, based on which the Company will guarantee the coverage of rent and service charges for vacant premises as well as rent abatements,

(iv) the first public offer of shares of Griffin Premium on Warsaw Stock Exchange will generate a net income of minimum EUR 28 mln for Griffin Premium until June 30th, 2017 (the Public Offer Condition),

(v) the Buyer acquires the anti-trust consent concerning the concentration with regard to the West Link Transaction if it is required by law; and

(vi) the Supervisory Board of the Company approves the West Link Transaction, with the approval being granted on March 14th, 2017.

1.4 The Preliminary Share Sale Contract will automatically expire if:

(i) conditions precedent described in items 1.3 (i) - (iii) and 1.3 (vi) above are not fulfilled or are renounced (by Griffin Premium) with regard to conditions in items 1.3 (i)-(iii)(vi) or by the Company with regard to the condition in item 1.4(vi) until December 31st, 2018; or

(ii) the Public Offer Condition is not fulfilled or is renounced (by Griffin Premium) until June 30th, 2017.

1.5 In accordance with the Preliminary Share Sale Contract the Buyer is entitled to carry out due diligence concerning the Companies, the SPV Company and the Property until June 30th, 2017 and in the case of dissatisfying results of the study for the Buyer, the Buyer can terminate the Preliminary Share Sale Contract until June 30th, 2017.

1.6 The sales price of the Shares was established as follows: (i) the quotient of NOI (i.e. the difference between the operating income and undeductable operating costs) of the Building and 6.873%, which amounted to EUR 36,060,000 on the day of conclusion of the Preliminary Share Sale Contract, (ii) plus the estimated working capital and cash amount and (iii) decreased by the debt amount of Companies and the SPV Company. The price will allocated proportionally to Shares held and it will be subject to standard transactions in this kind of deals after the closure of the West Link Transaction.

2. The ROFO Transaction

2.1 In accordance with the ROFO contract, after the legal due diligence to be carried out by Griffin Premium and involving a study of Projects (the 'Due Diligence Study') as well as the conclusion that its result was satisfying for Griffin Premium, the Bond Holder will invest 25% of the capital which has already been invested and the future capital necessary to finish the construction process and finalize the Projects through the acquisition of bonds issued by Issuer on the conditions stipulated in the documentation concerning the bond issue as well as an additional agreement related to the bond issue with regard to settlements of the parties ('the Bonds'). The total estimated value of the Bonds is EUR 9,900,000.

2.2 In connection with the investment in the Bonds an entity controlled by Griffin Premium will be entitled to a 25% share in the profits from the Projects on the conditions stipulated in the ROFO Contract.

2.3 The ROFO Contract will enter into force on the following conditions:

(i) the Company's Supervisory Board consents to the ROFO Transaction (the consent was granted on March 14th, 2017) and

(ii) the Public Offer Condition is fulfilled.

Unless the above conditions are fulfilled until June 30th, 2017 the ROFO Contract will automatically expire.

2.4 As part of the ROFO Transaction Griffin Premium will also gain the right of the first offer with regard to the purchase of Project, which will apply in the circumstances stipulated by the ROFO Contract. In each such situation Griffin Premium will obtain a notification of the presence of such circumstances and Griffin Premium will be entitled to present its offer regarding the purchase of one Project on the conditions stipulated in the ROFO Contract. The right of the first offer regarding the purchase of a given Project will take place particularly when:

2.4.1 the following conditions are jointly fulfilled:

(i) the final occupancy permit is issued for a given Project;

(ii) minimum 60% of the useable area in a building developed as part of a given Project is leased;

(iii) the Company will sign a rental guarantee agreement as a guarantor with a given Project company as a beneficiary concerning the coverage of rent charges for vacant premises in a given Project;

(iv) the Public Offer Condition is fulfilled;

(v) Griffin Premium obtains anti-trust consent concerning the founding of a joint venture, if it is required by law;

(vi) a suitable tax interpretation with regard to VAT on the contract related to the Bond issue is acquired; and

(vii) the Company's Supervisory Board consents to the conclusion of the ROFO Contract (the consent was granted on March 14th, 2017); or

2.4.2 a Project Company or its partners intends to sell the Project or shares in the Project Company.

2.5 The ROFO Contract will automatically expire with regard to a given Project if:

(i) conditions precedent described in items 2.4 (i) - (iii) and 2.4 (v) - (vi) above are not fulfilled or are renounced (by Griffin Premium) with regard to conditions in items 2.4 (i)-(iii) until March 31st, 2020; or

(ii) the Public Offer Condition and the condition precedent in item 2.4 (vii) above are not fulfilled or are renounced (by Griffin Premium) until June 30th, 2017.

Legal basis: Art 17 section 1 MAR - confidential information.