Global Coordinator and Offering Broker. The date of this Prospectus is 18 June BMWARDOCS232112v37

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1 Joint Stock Company Eco Baltia a joint stock company, having its registered office at Darza iela 2, Riga, Latvia and registered with the Commercial Register of the Republic of Latvia under number Offering of up to 12,558,000 Shares, with a nominal value of LVL 1.00 each, and admission to trading on the Warsaw Stock Exchange and the Riga Stock Exchange of up to 28,704,000 Shares of Joint Stock Company Eco Baltia This document (the Prospectus ) has been prepared for the purpose of (i) the offering (the Offering ) of up to 12,558,000 bearer shares in the share capital, with a nominal value of LVL 1.00 each, in Joint Stock Company Eco Baltia (the Issuer or the Company ), and (ii) the admission of up to 28,704,000 bearer shares of the Issuer (the Shares ) to trading on the Warsaw Stock Exchange (Giełda Papierów Wartościowych w Warszawie S.A., the WSE ) and the Riga Stock Exchange (NASDAQ OMX Riga, the RSE ). The Issuer will be offering for subscription up to 6,279,000 newly issued Shares (the New Shares ). Otrais Eko Fonds (the Selling Shareholder ), the Issuer s minority shareholder, will be offering up to 6,279,000 existing Shares (the Sale Shares ). The New Shares to be issued by the Issuer and the Sale Shares offered by the Selling Shareholder are referred to, where the context permits, as the offer shares (the Offer Shares ). The Issuer will only receive the net proceeds from the sale of the New Shares, whereas the Selling Shareholder will receive the net proceeds from the sale of its respective Sale Shares. The Offer Shares offered in this Offering constitute a minority interest in the Issuer. Prior to the completion of the Offering, the Selling Shareholder holds 28% of the issued share capital of the Issuer. The Offering consists of: (i) public offering to retail investors in Poland (the Retail Investors ), (ii) public offering to institutional investors in Poland (the Polish Institutional Investors ) and (iii) private placement to institutional investors in certain jurisdictions outside the United States and Poland in reliance on Regulation S under the U.S. Securities Act (the International Investors, and together with the Polish Institutional Investors, the Institutional Investors ), in each case in accordance with applicable securities laws. The Offer Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the US Securities Act ), or under any securities laws of any state or other jurisdiction of the United States. The Offer Shares are being offered and sold only outside the United States in offshore transactions in reliance on Regulation S under the US Securities Act ( Regulation S ) and may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act (see "Selling Restrictions"). The Offer Shares are being offered, as specified in this Prospectus, subject to cancellation or modification of the Offering and subject to certain other conditions. This Prospectus constitutes a prospectus for the purposes of Article 3 of European Union (EU) Directive 2003/71/EC (the Prospectus Directive ) and has been prepared in accordance with the Financial Instrument Market Law of the Republic of Latvia, dated 20 November 2003 (the Latvian Financial Instrument Market Law ). The Latvian Financial and Capital Market Commission (Finanšu un kapitāla tirgus komisija, the FKTK ) in its capacity as the competent authority in Latvia under the Latvian Financial Instrument Market Law, has approved this document as a prospectus. The Issuer has requested that the FKTK provide the competent authority in Poland, Polish Financial Supervision Authority (Komisja Nadzoru Finansowego, the PFSA ) with a certificate of approval attesting that this Prospectus has been drawn up in accordance with the Prospectus Directive. The Issuer will be authorised to carry out the Offering to the public in Poland, once the FKTK has provided the PFSA with a certificate of approval of this Prospectus and after the Prospectus has been made available to the public together with a translation of the summary into the Polish language. See "Risk Factors" for a discussion of certain considerations to be taken into account when deciding whether to invest in the Offer Shares. Prior to the Offering, there was no public market for the Shares. Based on this Prospectus, the Issuer intends to apply for up to 28,704,000 Shares, including the Offer Shares, to be admitted to listing and trading on the main market of the WSE and the main market (list) of the RSE (the Admission ). The Issuer expects that trading in the Shares on the WSE and the RSE will commence in on or about 16 July 2012 (the Listing Date ). Settlement of the Offering is expected to occur on or about 12 July 2012 (the Settlement Date ). Prospective Retail and Institutional Investors may subscribe for or purchase the Offer Shares during a period which is expected to commence on or about 29 June 2012 and is expected to end on or about 4 July 2012 (the Subscription Period ). The final offer price per one Offer Share denominated in PLN (the "Offer Price"), the final number of the Offer Shares, and the final number of Offer Shares allocated to each tranche will be determined by the Issuer and the Selling Shareholder, acting jointly, upon recommendation of the Offering Broker after completion of bookbuilding process for Institutional Investors and prior to commencement of the subscription period in the retail and institutional tranche no later than on or about 29 June 2012 (by 9:00 am CET) and will, in accordance with Art and 21.4 of the Latvian Financial Instrument Market Law and Art. 54 of the Polish Public Offerings Act, be filed with the FKTK and PFSA and published on the websites of the Issuer ( and the Offering Broker ( otherwise in accordance with applicable Latvian and Polish regulations. The Shares of the Company are bearer shares and are registered with the Latvian Central Depository (Latvijas Centrālais Depozitārijs, the LCD ) under ISIN code LV The delivery of the Offer Shares will be made through the book-entry facilities by transferring them from the LCD to the Polish clearing and settlement institution the National Depository for Securities (Krajowy Depozyt Papierów Wartościowych S.A., the NDS ). Shareholders in the Issuer may hold the Shares through the NDS and/or LCD participants, such as investment firms and custodian banks operating in Poland and/or Latvia. Offer Price: To be determined in PLN and announced no later than on or about 29 June 2012 BIC Securities SIA is the financial advisor (the Financial Advisor ) and Bank Zachodni WBK S.A. is the capital advisor (the Capital Advisor ) of the Issuer. AS SEB Enskilda is the sales agent (the Sales Agent ). Dom Maklerski BZ WBK S.A. is the global co-ordinator and sole bookrunner (the Global Coordinator ), and the offering broker in Poland for the purposes of the Offering and Admission of the Shares on the WSE ( Offering Broker ). Financial Advisor Capital Advisor Global Coordinator and Offering Broker Sales Agent The date of this Prospectus is 18 June 2012

2 TABLE OF CONTENTS SUMMARY 3 PERSONS RESPONSIBLE 11 RISK FACTORS 12 EXCHANGE RATES 32 USE OF PROCEEDS 33 DIVIDENDS AND DIVIDEND POLICY 34 CAPITALISATION AND INDEBTEDNESS 35 SELECTED HISTORICAL FINANCIAL INFORMATION 37 OPERATING AND FINANCIAL REVIEW 41 PRO FORMA FINANCIAL INFORMATION 77 INDUSTRY OVERVIEW 82 REGULATORY INFORMATION 96 GENERAL INFORMATION ON THE ISSUER 101 GROUP STRUCTURE 103 BUSINESS OVERVIEW 109 MATERIAL CONTRACTS 131 RELATED PARTY TRANSACTIONS 138 MANAGEMENT AND CORPORATE GOVERNANCE 141 SHAREHOLDERS 152 DESCRIPTION OF THE SHARES AND CORPORATE RIGHTS AND OBLIGATIONS 155 CERTAIN LATVIAN AND POLISH SECURITIES MARKET REGULATIONS AND PROCEDURES, THE WARSAW STOCK EXCHANGE AND THE RIGA STOCK EXCHANGE 163 THE OFFERING AND PLAN OF DISTRIBUTION 168 PLACING 178 SELLING RESTRICTIONS 180 TAXATION 184 INDEPENDENT AUDITORS 189 ADDITIONAL INFORMATION 190 FINANCIAL INFORMATION F-1 ANNEX I DEFINED TERMS A-1 2

3 SUMMARY The following constitutes the summary of the essential characteristics and risks associated with the Issuer, the Group and the Offer Shares. This summary is not exhaustive, does not contain all information of importance to prospective investors, is not a substitute for reading the entre Prospectus and must be read as an introduction to this Prospectus. Prospective investors should read this Prospectus thoroughly and completely, including the "Risk Factors", any supplements to this Prospectus required under applicable laws and the Consolidated Financial Statements, the Condensed Consolidated Interim Financial Statements, the Pro Forma Financial Information and other financial information and related notes, before making any decision with respect to investing in the Offer Shares. No civil liability will attach to the Issuer and other companies of the Group in respect of this summary (including the Summary Financial and Operating Information) or any translation thereof, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus. Where a claim relating to the information contained in this Prospectus is brought before a court in a Member State, the plaintiff may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of translating this Prospectus before the legal proceedings are initiated. Summary of the Business The Group is the largest vertically integrated multi-service waste management group in the Baltics in terms of turnover, consisting of companies that operate in four different waste management segments, providing wide variety of services, starting from (i) organisation of waste recovery, (ii) waste collection, (iii) recyclables sorting and trading, and finally (iv) recycling. The Group is market leader in Latvia in organisation of waste recovery segment in terms of market share and turnover and the Group is one of the largest waste collectors in Latvia in terms of turnover and the leader in terms of geographical coverage. The Group collects waste in cities and surrounding regions of Riga, Liepaja, Talsi, Tukums, Jurmala and Sigulda. The Group also holds large market share in terms of volume in recyclables sorting and trading segment in the Baltics. Moreover, the Group has an unrivalled position in polyethylene terephthalate ( PET ) bottle and polyethylene ( PE ) recycling segments in the Baltics in terms of amount of recycled material and turnover. The Group has a long lasting cooperation with all key customers and municipalities. In the three months period ended 31 March 2012 the Group had consolidated revenue of LVL 6,969,000 and net profit of LVL 1,052,000. In the three months period ended 31 March % of revenue was generated by waste recycling segment, 22.7% by waste collection segment, 14.6% by organisation of waste recovery segment and 7.2% by recyclables sorting and trading segment. In 2011 the Group recorded consolidated revenue of LVL 26,595,000 and net profit of LVL 3,378,000. In % of revenue was generated by waste recycling segment, 21.9% by waste collection segment, 15.9% by organisation of waste recovery segment and 7.7% by recyclables sorting and trading segment. For the avoidance of doubt it should be noted that the above mentioned financial results were derived from the Consolidated Financial Statements and the Condensed Consolidated Interim Financial Statements and are financial results of Eko Baltija Group and not of the Group as it is at the date of the Prospectus. Competitive Strengths and Advantages The Group believes that the competitive strengths and advantages of its business are as follows: Highly competitive vertically integrated business model. Successful experience in accelerated growth. Diversified business model. Modern equipment and unique technologies. Market leadership. Highly competent growth oriented local management. Solid and consistent financial performance. 3

4 Excellent ongoing collaboration with local authorities. Diversified client and supplier base. Positive public image. Business Strategy Being the leading waste management group in the Baltics by revenues, the Group believes that it can capitalise on significant market growth potential and the market s fragmented structure, by identifying attractive consolidation opportunities and continuing its organic growth. The Group s strategy rests on the following key pillars: Investing into sorting of municipal solid waste by construction of the mechanical biological treatment plant. Introduction of new products in the recycling business line. Geographical expansion. Securing raw material base. Launching new cross-sector business projects. Introduction of one-stop-shop concept. Applying global trends, technologies and processes to local conditions. Actively seeking for the opportunities of financing from the EU. Use of Proceeds The net proceeds the Issuer receives from the issuance of the New Shares will be used primarily for fulfilling of the Group s business plan which envisages the following capital investments: Construction of the first mechanical-biological treatment (MBT) plant in Latvia. Launch of food grade PET pellet production at PET Baltija production site with capacity of around 11,500 tonnes of new products that are used in the food industry (material used in production of food packaging). Capacity expansion at Nordic Plast by installation of a second production line for production of polypropylene ( PP ) pellets with capacity of around 3,700 tonnes, thus doubling the current capacity. Summary of Risk Factors Risks Relating to the Group s Business and Industry The Group operates in a highly regulated industry what limits its ability to adapt to changing economic conditions and any breaches of regulations may put at risk continuity of its operations. Changes in the regulatory environment may have an adverse effect on the Group s operations. Amount of generated waste may fluctuate. The Group depends on licenses and permits that could be revoked, the Group may not be able to prolong them or the Group may not be able to obtain required licenses and permits. The Group is subject to regulations and liability under environmental laws. The Group s operations are regulated by the municipalities. 4

5 Agreements on providing the waste management services with municipalities may be terminated. Latvijas Zalais punkts may not be able to organise waste recovery system in the future. Increased competition could reduce the Group's revenue and profits and constrain the Group's growth. The Group s revenues may decrease if the Group fails to win tenders for waste collection organised by the municipalities. Latvijas Zalais punkts may lose the right to use the Green Dot trademark. The tariffs for household waste management are subject to regulation by the authorities. Increase in operating costs and/or inability to pass on any increases in costs on Group s customers could adversely affect the Group s profits. The Group doesn t conclude long-term agreements with its major customer. Disruptions in the Group s production facilities may have a material adverse impact on the Group. Prices for the Group s products are subject to fluctuations. Demand for certain services and products of the Group is subject to fluctuations. The Group has grown through acquisitions. Further expansion through acquisitions entails certain risks, which could have adverse consequences for the Group's business. The lease agreements concluded by the Group may be terminated or the Group may not be able to prolong them. A number of lease agreements have not been registered with the Land Register and in case of transfer of ownership to properties these leases may cease to be valid. Failure to register transfer of title to real properties as a result of merger of Tukuma Ainava into Kurzemes Ainava with the public registers and failure to register respective amendments to Nordea Financing Agreements and security agreements in the public registers may lead to event of default under Nordea Financing Agreements. Certain Group Companies are and in the future may be recognized as having dominant position on the market. The Group may be subject to claims for unpaid remuneration for fulfilment of duties of members of corporate bodies of certain Group Companies. Current and future assets of the Group Companies, certain amount of the Shares in the Issuer, as well as all the shares of the Group Companies are pledged. Certain of the Group s credit facilities are subject to certain covenants and restrictions. The Group may not be able to obtain financing from the EU funds or the financing may be revoked. The Group s ability to obtain debt financing may depend on the performance of its business and market conditions. The Group is exposed to currency exchange risk and interest rate risk. The Group is exposed to the credit risks of its customers and suppliers. The Group may not be able to grow or effectively manage its growth. The Group is dependent on its key personnel. The Group s insurance coverage may be insufficient for any incurred losses. The Group may infringe third party IP rights. The tax office may determine that agreements executed by the Group Companies with each other and the related parties are not on arm-length basis and impose fines on the Group Companies. 5

6 Historical financial statements of the Group may not be representative of its historic or future results and may not be comparable across periods, which may make it difficult to evaluate the Group s results and future prospects. Risks Relating to Latvia Political and economic changes could negatively impact the Group. Pegged currency may have adverse impact on Latvian economy and therefore materially adversely influence the Group. Inflation risk may have material adverse impact on the Group. Unfavourable changes in taxes may have material adverse influence on the Group. Latvian judicial system is undergoing development. Risk Relating to the Issuer The Issuer is a holding company with no assets other than shares of its subsidiary. The rights of Latvian company shareholders differ from the rights of the shareholders of Polish listed companies. Judgments of Polish courts against the Company and the Group may be more difficult to enforce than if the company and its management were located in Poland. The Issuer has been, and will continue to be, influenced by three principal shareholders. The Issuer may have limited ability to attract financing through secondary offerings of Shares. Risks Relating to Shares, Listing and Trading on the WSE and the RSE The Offering may be delayed, suspended or cancelled. There has been no prior public trading market for the Shares. The price of the Shares may fluctuate significantly. Turmoil in emerging markets could cause the value of the Shares to suffer. The market value of the Shares may be adversely affected by future sales or issues of substantial amounts of Shares. Holders of the Offer Shares may not be able to exercise pre-emptive rights, and as a result may experience substantial dilution upon future issuances of Shares. The Issuer is established and organised under laws of Latvia while the Shares will be listed on a regulated market in Poland. There is no guarantee that the Issuer will pay dividends in the future. The Issuer may be unable to list the Shares on the WSE and/or the RSE, or the Issuer may be delisted from the WSE and/or the RSE. Trading in the Shares on the WSE and/or the RSE may be suspended. The Issuer may have a limited free float, which may have a negative effect on the liquidity, marketability or value of its Shares. The marketability of the Issuer s Shares may decline and the market price of the Issuer s Shares may fluctuate disproportionately in response to adverse developments that are unrelated to the Group s operating performance and decline below the Offer Price. Dual listing of the Shares will result in differences in liquidity, settlement and clearing systems, trading currencies and transaction costs between the WSE and the RSE, which may hinder the transferability of the Shares between the WSE and the RSE. Tax treatment for non-latvian investors in a Latvian company may vary. The Issuer has no experience in complying with requirements for publicly-listed companies. 6

7 Summary of the Offering Issuer... Joint Stock Company Eco Baltia, a joint stock company, incorporated under the laws of Latvia, having its registered office at Darza iela 2, Riga, LV-1007, Latvia, and registered under the corporate code Selling Shareholder... Limited partnership Otrais Eko Fonds, corporate code: , with registered office at Darza iela 2, Riga, LV- 1007, Latvia. Principal Shareholders...Ṃrs. Undine Bude, Mr. Viesturs Tamuzs and Mr. Maris Simanovics. Offering... The Offering consists of: (i) public offering to retail investors in Poland (the "Retail Investors"), (ii) public offering to institutional investors in Poland (the Polish Institutional Investors ), and (iii) private placement to institutional investors in certain jurisdictions outside the United States and Poland in reliance on Regulation S under the U.S. Securities Act (the International Investors, and together with the Polish Institutional Investors, the Institutional Investors ), in each case in accordance with applicable securities laws. Offer Shares...Ụp to 12,558,000 bearer shares in the share capital of the Issuer. Consist of up to 6,279,000 bearer shares with a nominal value of LVL 1.00 each to be issued by the Issuer and up to 6,279,000 existing bearer shares offered by the Selling Shareholder. New Shares...Ụp to 6,279,000 bearer shares with a nominal value of LVL 1.00 each to be issued by the Issuer. Sale Shares...Ụp to 6,279,000 existing bearer shares offered by the Selling Shareholder. Book-building... Before the commencement of subscription period, the bookbuilding process will be conducted, during which selected Institutional Investors, who have been invited by the Issuer and the Selling Shareholder through the Offering Broker will be able to make, in a manner agreed between them and the Offering Broker, declarations as to the total number of the Offer Shares they are willing to acquire and the price they are willing to pay for one Offer Share. Subscription Period... The subscriptions by the Retail Investors and Institutional Investors will be accepted between on or about 29 June 2012 and on or about 4 July 2012 (inclusive). Maximum Price... The maximum price at which the Offer Price will be set, which will be announced no later than on or about 27 June Offer Price... The Offer Price at which the Offer Shares are being offered, the final number of the Offer Shares and the final number of Offer Shares allocated to each tranche will be determined by the Issuer and the Selling Shareholder, acting jointly, upon recommendation of the Offering Broker after completion of the book-building process and after taking into account other conditions. In particular, the following considerations will be taken into account: (i) the size and price sensitivity of demand indicated in the book-building process, (ii) the current and anticipated sentiment in the capital market in Poland, the European Union and globally and (iii) assessment by investors of Company s business prospects, risk factors and other 7

8 information contained in this Prospectus or available elsewhere. The Offer Price will not be higher than Maximum Price, will be identical for both New Shares and Sale Shares and for both Institutional and Retail Investors and will be set in PLN. The Issuer will announce the Offer Price prior to commencement of the Subscription Period. A pricing statement setting forth the Offer Price, the number of Offer Shares and the final number of Offer Shares allocated to each tranche will be filled with the FKTK and the PFSA and published no later than on or about 29 June 2012 (09.00 a.m. CET) on the websites of the Issuer ( and the Offering Broker ( Allotment...Ạllotment will take place on or about 5 July 2012, after closing of the Subscription Period. Settlement and Delivery of the Offer Shares... The settlement of the Offering is expected to be made on or about 12 July 2012, after which delivery of the Offer Shares will follow. Delivery of the Offer Shares will be made in accordance with settlement instructions placed by the Investors upon subscription, through the facilities of the NDS, by registration of the Offer Shares on the Investors securities accounts indicated by such Investors. Delivery of the Offer Shares is expected to take place no longer than 14 days after the Settlement Date, barring unforeseen circumstances, by appropriate entry on the Investors securities accounts held through members of the NDS. The exact delivery dates will depend on timing of: (i) registration of capital increase of the Company with the Commercial Register, (ii) registration of the Shares of the Issuer (including the Offer Shares) with the LCD and (iii) registration of the Shares of the Issuer (including the Offer Shares) in the facilities of the NDS. Listing and Trading... The Issuer intends to apply for admission to listing and trading on the main market of the WSE and the main market (list) of the RSE of all the Issuer s Shares, including the Offer Shares, immediately after the Settlement Date. The Issuer believes that trading on the WSE and the RSE will commence on or about 16 July 2012, or as soon as possible thereafter, barring unforeseen circumstances. Form of Offer Shares and Deliver of the The Shares of the Company are bearer shares and are registered Offer Shares... with the LCD. The delivery of the Offer Shares will be made through the book-entry facilities by transferring them from the LCD to the NDS. After the successful closing of the Offering, the Offer Shares will be held in book entry form in the NDS and/or the LCD. Shareholders in the Issuer may hold the Shares through the NDS and/or LCD participants, such as investment firms and custodian banks operating in Poland and/or Latvia. Shares outstanding before and after the The Issuer s issued and outstanding share capital as of the date completion of the Offering... of this Prospectus is LVL 22,425,000, divided into 22,425,000 Shares, each with a nominal value of LVL The Issuer expects that up to 6,279,000 Shares will be issued and outstanding which Shares will comprise the Issuer s share capital in the amount of LVL 6,279,000, assuming that all Offer Shares are subscribed for, allotted and issued. The Selling Shareholder is offering up to 6,279,000 Shares. Upon completion of the Offering no more than 28,704,000 Shares will be issued and outstanding, which Shares will comprise the Issuer s share 8

9 Securities code... ISIN code LV capital in the amount not exceeding LVL 28,704,000 (assuming that all of the Offer Shares have been issued). In case all the Offer Shares are subscribed or purchased and allotted, the Offer Shares will constitute up to 43.75% of the share capital of the Issuer and up to 43.75% of total votes at the General Meeting. Shares issued and outstanding as of the date of this Prospectus will be in bearer form. Dividends...Ạll Shares carry full dividend rights if and when the distribution of profit is declared. Voting Rights... Each Share entitles its holder to one vote at the General Meeting. Lock-up... Subject to certain exceptions, the Issuer, the Principal Shareholders the Selling Shareholder and ESOMTAX INVEST LIMITED (Cyprus) agreed that for a period of 12 months from the Settlement Date, they will not, without the prior written consent of the Offering Broker, propose or otherwise support an offering of any of the Company s shares, announce any intention to offer new shares and/or to issue any securities convertible into Company s shares or securities that in any other manner represent the right to acquire the Company s shares, or conclude any transaction (including any transaction involving derivatives) of which the economic effect would be similar to the effect of selling the Company s Shares. Financial Advisor... BIC Securities SIA Capital Advisor... Bank Zachodni WBK S.A. Global Coordinator and Offering Broker...Ḍom Maklerski BZ WBK S.A. Sales Agent...ẠS SEB Enskilda Managers... The Financial Advisor, the Capital Advisor, the Offering Broker and the Sales Agent. Selling Restrictions... The Offer Shares may not be offered outside Poland in any manner that would constitute public offering or would otherwise require authorization under applicable local regulations. The Offer Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state or any jurisdiction in the United States and subject to certain exceptions, may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in the Regulation S) except in certain transactions exempt from the registration requirements of the US Securities Act. For information on further selling restrictions please see: "Selling Restrictions". 9

10 Summary financial and operating information The following tables set forth summary consolidated financial data on the level of Eko Baltija Group for the periods indicated, which have been extracted without material adjustments from the Consolidated Financial Statements and the Condensed Consolidated Interim Financial Statements. The information below should be read in conjunction with the Consolidated Financial Statements and the Condensed Consolidated Interim Financial Statements, including the notes thereto and included elsewhere in this Prospectus and with the information included in Operating and Financial Review section of the Prospectus. Comprehensive Income Information For three months ended 31 March For the year ended 31 December (LVL in thousands) Net sales 6,969 6,315 26,595 21,088 13,851 Cost of sales (4,979) (4,320) (19,354) (15,079) (10,174) Gross profit 1,990 1,995 7,241 6,009 3,677 Operating profit/(loss) 1,206 1,200 3,981 2,325 (144) Profit before corporate income tax 1,154 1,142 3,722 2,039 (352) Income taxes (102) (63) (344) (245) (163) Current year profit/ (loss) and comprehensive 1,052 1,079 3,378 1,794 (515) income Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements Financial Position Information ASSETS As of 31 March As of 31 December (LVL in thousands) Total non-current assets 10,960 10,900 11,586 12,934 Total current assets 8,016 7,566 5,781 4,665 Total assets 18,976 18,466 17,367 17,599 EQUITY AND LIABILITIES Total equity 7,171 6,119 7,989 6,198 Total liabilities 11,805 12,347 9,378 11,401 Total equity and liabilities 18,976 18,466 17,367 17,599 Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements Cash Flows Information For three months ended 31 March For the year ended 31 December (LVL in thousands) Net cash from operating activities 1,541 1,678 4,989 2, Net cash used in investing activities (910) (563) (7,764) (918) (42) Net cash used in financing activities (810) (1,011) 2,885 (1,730) (100) Profit or loss from currency fluctuations - - (3) - (3) Net increase in cash and cash equivalents (179) Source: Consolidated Financial Statements and Condensed Consolidated Interim Financial Statements 10

11 PERSONS RESPONSIBLE The Issuer and the Selling Shareholder (in case of the Selling Shareholder, only with respect to information relating to the Selling Shareholder and the Sale Shares offered by the Selling Shareholder) accept responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Issuer and the Selling Shareholder (with respect to the above indicated information), which have taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is in accordance with the facts and contains no omission likely to affect its import. Neither the delivery of this Prospectus nor any sale made hereby at any time after the date hereof should, under any circumstances, create any implication that there has been no change in the affairs of the Issuer or any of its subsidiaries or the Issuer and its subsidiaries taken as a whole (the Eco Baltia Group, the Group ) since the date hereof or that the information contained herein is correct as of any date subsequent to the earlier of the date hereof or any date specified with respect to such information. Neither the Managers nor the legal advisers to the Issuer accept any responsibility whatsoever for the contents of this Prospectus, or for its transaction, or for any other statement made or purported to be made by any of them or on their behalf in connection with the Issuer or the Offering. The Managers and the legal advisers to the Issuer accordingly disclaim all and any liability whether arising in tort or contract which they might otherwise have in respect of this Prospectus or any such statement. No representation or warranty, express or implied, is made by the Managers as to the accuracy or completeness of the information set forth herein and nothing contained in this Prospectus is, or should be relied upon as a promise or representation, whether as to the past or the future. 11

12 RISK FACTORS Prospective investors in the Offer Shares should carefully consider the following risks and uncertainties, as well as other information contained in this Prospectus before deciding to invest in any of the Offer Shares. The Issuer s business, financial condition and results of operations have been, and could be, materially adversely affected by the following risks. If any of the following risks actually occurs, the value and trading price of the Shares could decline and investors could lose all or part of their investment. Described below are the risks and uncertainties the Issuer believes are material, but these risks and uncertainties may not be the only ones faced by the Issuer or the Group Companies. Additional risks and uncertainties, including those that the Issuer is not currently aware of or deems immaterial, may also result in decreased revenues, increased expenses or other events that could result in a decline in the value of the Shares. Risks Relating to the Group s Business and Industry The Group operates in a highly regulated industry what limits its ability to adapt to changing economic conditions and any breaches of regulations may put at risk continuity of its operations. The Group s main area of business operations is waste management (including: organisation of waste recovery, waste collection, recyclables sorting and trading, and recycling) in Latvia. In Latvia, as in many other countries, companies operating in waste management industry are subject to various regulations. Each of the segments of the business has different regulations. The Group is subject to constant supervision by the state authorities and continuous reporting obligations. The Group s business depends on the continuing validity of a number of licenses granted to the Group Companies and the Group Companies compliance with the terms of such licenses, permits etc. Breaches of regulations by the Group, negative publicity concerning the Group or the waste management sector and/or fines or criminal prosecutions resulting from violation of regulations may result in imposition of fines or withdraw of licenses necessary to carry on the operations, what may have material adverse impact on the Group s operations, prospects and financial results. See: Regulatory Information for more information on regulations relating to waste management industry. Changes in the regulatory environment may have an adverse effect on the Group s operations. The Group operates in the waste management industry, which is regulated and therefore there are substantial uncertainties embedded in operations in this industry. The legal framework in Latvia could change in unpredictable way. Furthermore, some steps may be undertaken on the European Union level or may result from judgments of the European Court of Justice. New laws may be unfavourable to the operations of the Group or may require necessary adjustments to the operations. The Group Companies may be unable to implement new regulations in the prescribed period or to do it at all. Consequently, the Group s operations may have to be changed, causing inability to use common solutions or implement the Group s strategy. Moreover, the collaboration with the state and municipal authorities are very important to the business of the Group. All of factors mentioned above, especially adverse changes in the laws or their interpretation and/or deterioration of collaboration with the state and municipal authorities may have a material adverse effect on the business of the Group or create obstacles to further expansion. Amount of generated waste may fluctuate. Amount of generated waste is subject to fluctuations that cannot be predicted. The level of generated waste depends on, among others, stage of economic growth, macroeconomic situation, disposable income of the population and the structure of the population. Latvian population is decreasing as a result of migrations and low birth rate. Moreover, generation of different types of waste depends on many specific factors, e.g. generation of construction waste depends on, inter alia, availability of crediting and market conditions for construction business, and amount of disposed PET bottles depends on, among others, the weather conditions and consumption of beverages. As a consequence the generation of waste in general or different types of waste may be volatile in the next years. Adverse fluctuations in the amount of generated waste may have material adverse impact on the Group s operations, prospects and financial results. 12

13 The Group depends on licenses and permits that could be revoked, the Group may not be able to prolong them or the Group may not be able to obtain required licenses and permits. The business operations and activities undertaken by the Group Companies are subject to regulatory requirements imposed by law, including requirements to obtain certain licenses and permits. Such licenses and permits may be revoked due to, inter alia, incompliance to its terms. Usually, licenses and permits are granted on the defined period of time and after expiry of their term they should be prolonged. The Group may not be able to prolong its licenses and permits. Moreover, as the Group s business and operations are expanding, the Group may require obtaining additional licenses and permits. The Group cannot assure that it will be able to obtain such additional licenses and permits. As of the date of the Prospectus, the Group has all required licenses and permits, although it cannot assure that in the future any of the events described above would not appear. If any of those factors appear, it may have material adverse impact on the Group s operations, prospects and financial results. The Group is subject to regulations and liability under environmental laws. While operating in waste management business in Latvia the Group is subject to certain regulation and liability under environmental laws. Certain Group Companies, including Eko Riga, Eko Kurzeme, Jurmalas ATU, Jumis, Kurzemes Ainava, Eko Reverss, PET Baltija and Nordic Plast, are subject to the so-called strict liability, i.e. in case of environmental damage or imminent threat of damage to environment would emerge, they could be liable for environmental damage or imminent threat of damage irrespective of their fault. Any such environmental damage or imminent threat of damage could lead to penalties and fines imposed by the authorities, as well as claims raised by third parties. Although, the Group holds a third party liability insurance, which covers sudden and unforeseen damages to the environment, it cannot assure that the insurance coverage is sufficient for any incurred damages, penalties, fines and claims from third parties (see risk factor: The Group s insurance coverage may be insufficient for any incurred losses ). If any of those factors appear, it may have material adverse impact on the Group s operations, prospects and financial results. The Group s operations are regulated by the municipalities. The Group s operations in the field of waste collection are subject to municipal regulation and supervision (for more information please see: Regulatory Information - Environmental and other Licenses and Permits ). Adverse legislative changes in any of the municipalities where the Group operates may have adverse effect on the business of the Group or create obstacles to further growth. Any possible amendments to the enforced legislation, the frequency of adoption of such amendments, resolutions passed by municipalities, which provide additional obligations for service providers, and the results of controls carried out by various inspectorates and municipal authorities are additional risk factors in the field of waste collection. All of factors mentioned above, especially unfavourable changes in the municipal regulations may have a material adverse effect on the business of the Group or create obstacles to further expansion of the Group. Agreements on providing the waste management services with municipalities may be terminated. The Group Companies operating in the waste collection segment has concluded number of agreements with the municipalities on providing the waste management services (e.g. collection, transportation and disposal of household waste). Following the conclusion of number of these contracts, the applicable Latvian law changed the system of granting of rights to collect and transport household waste in the territories of municipalities. Currently, municipalities are entitled to grant such rights to contractors only by undergoing a public procurement procedure. According to the transitional provisions of the Waste Management Law, the contracts concluded for a definite period of time prior to 26 July 2005 without undergoing public procurement procedure, will be terminated on the date determined in the contract, and similar contracts concluded indefinitely and contracts entered into or extended after 26 July 2005 without applying public procurement procedure will be terminated no later than on 1 July The aforementioned transitional provisions authorising the municipalities to continue the validity of the contracts concluded for definite period of time by the end date determined in the contract is currently being examined in the Constitutional Court. Certain Group Companies, including Eko Kurzeme, Jumis, Jurmalas ATU and Kurzemes Ainava, prior to 26 July 2005 concluded contracts with municipalities on granting rights to provide waste management services without determining their validity or entered into or extended such contracts after 26 July 2005 without applying 13

14 the public procurement procedure. In accordance with applicable regulations such contracts have to be terminated no later than by 1 July 2013 and the municipality should select a municipal waste manager in accordance with the procedures specified in the regulatory enactments regulating public procurement or publicprivate partnership. When the waste manager has been selected, municipal authorities should conclude waste management contracts with the selected entity and should terminate the former waste management contracts no later than one month after the new contract of the municipality with the selected waste manager comes into force. For more information please see: Material Contracts Waste Management Agreements. The Group Companies, including Eko Riga and Eko Kurzeme, prior to 26 July 2005 concluded long-term agreements with municipalities for a definite period of time without undergoing public procurement procedure (for more information please see: Material Contracts Waste Management Agreements ). In accordance with transitional provisions those agreements should end on the date determined therein. However, there could be no assurance that the transitional provisions would not be change (e.g. due to the ruling of the Constitutional Court) and the agreements would not be terminated prior to their term. Termination of the agreements concluded by the Group Companies with municipalities prior to their term may have material adverse impact on the Group s operations, prospects and financial results. Latvijas Zalais punkts may not be able to organise waste recovery system in the future. Latvijas Zalais punkts ( LZP ) has right to establish and implement waste recovery system of: (i) waste harmful to the environment, (ii) waste electric and electronic equipment, and (iii) packaging waste and disposable tableware and accessories, based on orders No 430, 431 and 428 issued on 29 December 2010 by the Ministry of Environment Protection and Regional Development of Latvia. The orders were issued on the grounds of the plans for implementation of waste recovery systems for above mentioned types of waste for period prepared by LZP and accepted by the Ministry of Environment Protection and Regional Development of Latvia. The orders grant rights to NRT payers, who have signed the agreement with LZP on participation in the waste recovery system to apply exemption from NRT for a period indicated in the orders, i.e. until 31 December Granted rights are conditional on validity of an agreement entered into between LZP and Latvian Environmental Protection Fund Administration. On 30 December 2010 LZP concluded three agreements with the Latvian Environmental Protection Fund Administration regarding implementation of waste recovery system of: (i) waste harmful to the environment, (ii) waste electric and electronic equipment, and (iii) packaging waste and disposable tableware and accessories. Each agreement is concluded for defined period starting from 1 January 2011 till 31 December Prior to expiration of the term of validity of plans for implementation of waste recovery systems for above mentioned types of waste, a new waste recovery plans may be coordinated with competent authorities and the term may be extended for additional 3 years (the number of such extensions is currently not limited). Although, there could be no assurance that such new waste recovery plans for next periods would be coordinated with competent authorities, that the Ministry of Environment Protection and Regional Development of Latvia would issue required orders allowing LZP to establish and implement waste recovery systems of certain types of waste, and that LZP would conclude agreements with the Latvian Environmental Protection Fund Administration regarding implementation of waste recovery systems of certain types of waste. If LZP failed to extend the terms of validity of its waste recovery systems, it would not be allowed to organise waste recovery system. As a consequence, LZP would not be able to undertake its core business activities, which may have material adverse impact on the Group s business model, strategy, operations, prospects and financial results. Increased competition could reduce the Group's revenue and profits and constrain the Group's growth. The Group faces competition from other waste management companies in Latvia and in the Baltics. Due to the specificity of its business model and carried operations the Group has to compete with both local and international waste management companies, which are present in different segments of waste management industry. There can be no assurance that the Group will be able to compete effectively against current and future competitors, in particular those with greater financial or operational resources than the Group. Although the Group believes that there are certain barriers to entry in its key markets, any new entrants to or other changes in the competitive environment may result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Group s profit margins. Current and potential competitors may increase their advertising expenditures and promotional activities and/or engage in irrational or predatory pricing 14

15 behaviour in an effort to gain market share. There can be no assurance that current or potential competitors will not provide services or products comparable or superior to those provided by the Group, adapt more quickly to the evolving industry trends, changing market requirements and legal framework, or price at level below those of the Group s competing services and products, any of which could result in the Group losing its market share. There can be no assurance that competition from new or existing competitors who operates in the waste management industry in Latvia and in the Baltics will not have a material adverse effect on the Group s operating results. In addition, there can be no assurance that any future development or investment by the Group will not be matched or surpassed by its competitors. The inability of the Group to compete effectively could have a material adverse effect on the Group s business, prospects, results of operations, financial condition or the price of the Shares. The Group s revenues may decrease if the Group fails to win tenders for waste collection organised by the municipalities. As of the date of the Prospectus municipalities in Latvia are entitled to grant rights to provide the household waste management services within the territory of municipality only by undergoing a public procurement procedure. Therefore, after expiry or termination of currently valid agreements between the Group Companies and municipalities, the only way to conclude such agreement will be participation in the public procurement procedure, e.g. in the public tenders. Due to competition in the waste management sector, the Group Companies may not be able to win tenders organised by the municipalities which in turn may have material adverse impact on the Group s operations, prospects and financial results. Latvijas Zalais punkts may lose the right to use the Green Dot trademark. Latvijas Zalais punkts is a shareholder of Packaging Recovery Organization Europe (PRO Europe), which unifies Green Dot systems from 33 European and North American countries. Recently, amendments to the statutes of PRO Europe were proposed to impose the obligation to meet certain conditions to become a shareholder of PRO Europe and to keep the shares of the Packaging Recovery Organization Europe. One of discussed criteria was that a shareholder should not be controlled by the government or any waste management companies or recyclers. Should one or more criteria not be met, the shareholders should have one year to make the necessary adjustments in order to meet the criteria. After expiry of that term without making those necessary adjustments, the status of the shareholder should be reassessed by the general assembly of PRO Europe which will have the power to decide on expulsion of the shareholder from PRO Europe. Ultimately with the expulsion from PRO Europe, the former shareholder will lose the right to use Green Dot trademark. Amended statutes of Packaging Recovery Organization Europe were not adopted at the shareholders meeting of PRO Europe held on 20 April However, it is possible that PRO Europe and its shareholders will return to discussing issue in the future and such amendments in the statutes of PRO Europe will be accepted. Due to the fact that LZP is part of the Group, which also indirectly owns companies engaged in a waste management, LZP may be forced to dispose shares of PRO Europe and ultimately LZP may lose the sub-license to use the Green Dot trademark. Consequences of such event may have material adverse effect on the Group s business operations. LZP may be forced to undertake rebranding and may not offer its customers the legal right to use Green Dot trademark as part of the Group s services, what may have negative influence on the Group s market position. Furthermore, LZP has registered national trademark LZP ( Latvia s Green Dot ) and uses it as a corporate logo, disregarding the prohibition included in Article 2 of the Principal Licensing Agreement of 27 August 2003, concluded with the Packaging Recovery Organisation Europe, which forbids registration of the trademarks identical or similar to Green Dot trademark and using Green Dot trademark for business activities other than indication for financial participation in system of collection and recycling of packaging and packaging waste in Latvia. The registration of national trademark LZP or use of Green Dot trademark other than in relation to participation in packaging and packaging waste recovery system in Latvia may trigger termination of the Principal Licensing Agreement and loss of rights of LZP to use and sub-license of this trademark in relation to activities related to packaging and packaging waste in Latvia. Consequences of termination of the Principal Licensing Agreement may have material adverse effect on the Group s business operations. Furthermore, LZP may lose the rights to use and sub-license its trademark in relation to activities related to packaging and packaging waste in Latvia. 15

16 All these factors may have material adverse impact on the Group s operations, prospects and financial results. The tariffs for household waste management are subject to regulation by the authorities. The tariffs of household waste management are subject to regulation by the authorities. Pursuant to the Waste Management Law, during the transition period (i.e. until municipalities have entered into a contracts on household waste management with waste management companies selected in accordance with the public procurement procedures), the fees for household waste management should comply with the last tariff approved by the Latvian Public Utilities Commission (the LPUC ) for household waste management which has been determined prior to 18 November Municipalities are entitled to adjust the tariff for household waste management due to the changes in the tariff for the municipal waste disposal in landfill sites and waste dumps approved by the LPUC or in the Natural Resources Tax (the NRT ) for disposal of waste in the amount specified in the regulatory enactments. For more information on price controls in waste management industry please see: Regulatory Information Price Controls. Certain Group Companies, including Eko Riga, Eko Kurzeme, Jumis, Jurmalas ATU and Kurzemes Ainava, concluded agreements with the municipalities on household waste management without undergoing the public procurement procedures, and therefore fees paid to the Group Companies for household waste management should comply with the tariffs approved by the authorities. There could be no assurance that the tariffs for household waste management would be in line with costs of household waste management borne by the Group Companies. As a consequence, this may result in decrease of profit margins and adversely affect the financial results of the Group. Increase in operating costs and/or inability to pass on any increases in costs on Group s customers could adversely affect the Group s profits. Operating costs the Group Companies doing business in the waste collection segment include, but are not limited to, fuel charges and costs of disposing of waste that cannot be recycled. The above mentioned costs depend on a variety of factors, many of which are beyond the Group s control. The market price of fuel has historically fluctuated and fluctuations could continue. If the costs of fuel increase this could lead to increase in operating costs of the Group Companies. Waste collected by the Group Companies is disposed predominantly on the landfills and the Group Companies pay disposal charges. Disposal charges are set by the LPUC and depend on, inter alia, the level of the Natural Resource Tax imposed on the landfilled waste. If the disposal charges for landfilling of waste increase, this could increase the operating costs of Group Companies. Increase in operating costs due to, inter alia, factors mentioned above could not always be passed on customers by increasing the prices of services provided and therefore may have material adverse impact on the Group s operations, prospects and financial results. The Group doesn t conclude long-term agreements with its major customer. Certain Group Companies, including PET Baltija and Nordic Plast, cooperate with some major clients on the basis of separate orders without signing any long-term sales agreements. Therefore, there could be no assurance that the Group will continue to cooperate with its major clients on the current basis or at all. In the event the Group is not able to further cooperate with its major customers, it may have material adverse impact on the Group s operations, prospects and financial results. Disruptions in the Group s production facilities may have a material adverse impact on the Group. Certain Group Companies, namely PET Baltija and Nordic Plast, are engaged in recycling packaging waste into PET flakes and PE pellets. The recycling processes are sophisticated and therefore performed by specially equipped production facilities. The Group s production facilities may be subject to disruptions, including breakdowns, accidents and/or other force majeure situations. Depending on how serious is the disruption, the production facilities may be partially or fully non-operational for certain period of time. In the event the Group s production facilities are subject to disruptions, it may have material adverse impact on the Group s operations, prospects and financial results. Please also see risk factor: The Group s insurance coverage may be insufficient for any incurred losses. 16

17 Prices for the Group s products are subject to fluctuations. Certain Group Companies, namely Nordic Plast and PET Baltija, recycle secondary raw materials into products, which prices are subject to market volatility. Nordic Plast produces PE pellets, which prices are linked with, among other, the price of primary PE and, to some extent, with crude oil prices. PET Baltija produces PET flakes, which prices are variable depending on, inter alia, crude oil and cotton prices and virgin PET prices. There can be no assurance that future fluctuations in prices of products manufactured by the Group will not have an adverse effect on the Group s results of operations. As of the date of the Prospectus, the Group does not have any specific hedging arrangements, including long-term sales agreements, in place to cover risk of product prices fluctuations and there can be no assurance that the Group will enter into such arrangements in the future. If the Group does enter into hedging arrangements, it cannot assure that hedging arrangements will not result in additional losses. The above mentioned factors could not be controlled by the Group and may have material adverse impact on the Group s operations, prospects and financial results. Demand for certain services and products of the Group is subject to fluctuations. Demand for certain services and products provided by the Group may fluctuate. For example, in the summer time there is more packaging generated and placed on the market, households generate more waste, but the demand for street cleaning decreases. In the winter time the demand for street cleaning increases due to snowfall. Moreover, due to the market specificity, the Group does not sell PET flakes produced by PET Baltija in the second half of December. The above mentioned factors could not be controlled by the Group and may have material adverse impact on the Group s operations, prospects and financial results. The Group has grown through acquisitions. The Group has developed its business and fuelled its growth through number of acquisitions and reorganisations (including mergers) of companies operating in waste management sector in Latvia. In accordance with Latvian law, the acquiring and/or merging company is liable for all historical obligations and liabilities, including tax liabilities, of the target entity. Therefore, there is a potential risk that the Group would be liable for any obligations and/or liabilities that could be material for Group s business and/or financial position. As a consequence, the above mentioned factors may have material adverse impact on the Group s operations, prospects and financial results. Further expansion through acquisitions entails certain risks, which could have adverse consequences for the Group's business. The Group may consider further growing through acquisitions in the near future. In particular, the Group may want to enter into or strengthen its presence in certain markets through the acquisition of other waste management businesses. If the Group made an acquisition it would need to integrate new operations, products, services and personnel into the Group s business. The Group s ability to realise the expected benefits from future acquisitions will depend, in large part, on its ability to integrate new operations with existing operations in a timely and effective manner and to manage a greater number of portfolio assets. In addition, the Group s potential acquisition plans involve numerous risks, including the following: the Group's acquisitions may not be profitable or generate anticipated cash flows, the Group may fail to expand its corporate infrastructure to facilitate the integration of its operations with those of acquired assets, the Group may face difficulties entering into markets and geographic areas where it has limited or no experience, the Group may have potential difficulties in integrating its operations and systems with those of acquired companies, the Group may face possible anti-monopoly review by relevant competition authorities that could result in such authorities seeking to prohibit or unwind its acquisition of new businesses, and the possibility that the failure of the Group's acquisition strategy could hamper its continued growth and profitability. As a consequence, the above mentioned factors may have material adverse impact on the Group s operations, prospects and financial results. 17

18 The lease agreements concluded by the Group may be terminated or the Group may not be able to prolong them. The Group leases number of real estates, including warehouse and industrial premises, which have material importance for the Group s business and operations (for more information on leased real estate please see: Business Overview - Real Estate ). Although, most of the lease agreements are long-term, there could be no assurance that they would not be terminated before expiry of their term or the Group would be able to prolong them on reasonable conditions or at all. Termination of the lease agreements concluded by the Group or inability to prolong them may have material adverse impact on the Group s operations, prospects and financial results. A number of lease agreements have not been registered with the Land Register and in case of transfer of ownership to properties these leases may cease to be valid. Under Latvian law lease agreements may be registered with the Land Register. In case of change of the owner of the real property, the new owner will not be bound by the lease agreement and will be entitled to terminate lease agreement prior to its term if the lease agreement is not registered in the Land Register. Certain lease agreements concluded by the Group Companies have not been registered with the Land Register. Consequently, in case the change of ownership of leased premises, new owners would not be obliged to perform the obligations of the lessor under such agreements and the Group Companies might have an obligation to abandon the leased premises. Such events may have material adverse impact on the Group s operations, prospects and financial results. Failure to register transfer of title to real properties as a result of merger of Tukuma Ainava into Kurzemes Ainava with the public registers and failure to register respective amendments to Nordea Financing Agreements and security agreements in the public registers may lead to event of default under Nordea Financing Agreements. On 19 April 2012 merger of Tukuma Ainava into its subsidiary Kurzemes Ainava has been registered with the Commercial Register. According to the Latvian Commercial Law on the indicated date Eko Baltija acquired all shares of Kurzemes Ainava owned by Tukuma Ainava, Kurzemes Ainava acquired all assets, rights and obligations of Tukuma Ainava and Tukuma Ainava ceased to exist. Transfer of title to the real properties from Tukuma Ainava to Kurzemes Ainava as a result of merger of Tukuma Ainava into Kurzemes Ainava has not been registered with the Land Register. Consequently, currently Kurzemes Ainava is not considered as the owner of real properties in its relations with third parties and may not execute ownership rights until such registration. Moreover, Nordea Financing Agreements foresee several mortgages over real properties formerly owned by Tukuma Ainava. Mortgage agreements have been amended respectively providing that Kurzemes Ainava pledges real properties previously owned by Tukuma Ainava. However, these amendments were not and may not be registered with Land Register until registration of transfer of title to the real properties. Lack of registration of transfer of title to real properties and lack of registration of the amendments (novations) with the Land Register may lead that it will become impossible for Nordea Bank to enforce these securities which would constitute the event of default under Nordea Financing Agreements. Such default would entitle Nordea Bank to require full repayment of outstanding loans from Group Companies and satisfying its outstanding claims by: (i) enforcement of financial collaterals; (ii) taking over the receivables of the Group Companies; (iii) enforcement of guarantees; (iv) sale of pledged assets (including pledged Shares) without court proceedings or auction at a freely determined price; and/or (v) sale of the mortgaged assets at auction at the terms and conditions approved by court or on the basis of court decision on recovering of the debt secured by mortgage. The occurrence of any of the indicated events may have material adverse impact on the Group s operations, prospects and financial results. Certain Group Companies are and in the future may be recognized as having dominant position on the market. On 18 August 2010 the Latvian Competition Council took a decision to terminate the case on potential abuse of dominant position by Eko Kurzeme and Eko Riga by violation of law provisions prohibiting abuse of a dominant position and restricting application of unfair purchase or selling prices. Although, in this decision the Latvian Competition Council established that Eko Kurzeme holds a dominant position in the market for collection, transportation, loading and storage of waste in the territory of Liepaja city, due to having a market share of over 18

19 70% with a tendency to increase during the past 3 years and administrative barriers preventing potential competitors from entry to this market. Eko Kurzeme, as entity recognized as having dominant position, has a special responsibility not to abuse its dominant position that includes, inter alia, refraining from: (i) refusal to enter into transactions or to amend the provisions of a transaction without an objectively justifiable reason; (ii) limiting production, markets or technical development to the prejudice of consumers; (iii) imposing unfair purchase or selling prices or other unfair trading conditions. If operations of Eko Kurzeme are recognised as abusing its dominant position, Eko Kurzeme may be subject to an administrative fine of up to 10% of the net turnover for the preceding financial year, as well as compensation of third party claims for damages. On 27 August 2009 the Latvian Competition Council indicated that it had no grounds to conclude that LZP did not possess a dominant position in the market for organisation of systems/alternative solutions to fulfil the environmental obligations in Latvia and therefore drew attention of LZP to a special responsibility of a dominant market participant in the relevant market. LZP as being potentially in a dominant position in the market of the organisation of systems/alternative solutions to fulfil the environmental obligations in Latvia should apply fair prices and other trading provisions. If any of the Group Companies will be recognized as abusing its dominant position and will be subject to fines and obligation to compensate damages of third parties, it may have material adverse impact on the Group s operations, prospects and financial results. The Group may be subject to claims for unpaid remuneration for fulfilment of duties of members of corporate bodies of certain Group Companies. Certain Group Companies, namely, Eko Riga, Eko Kurzeme, Jurmalas ATU, Nordic Plast, Kurzemes Ainava, Vaania, Eko Reverss, PET Baltija and MRTL, didn t conclude agreements with current and former members of their corporate bodies (management boards) and didn t pay remuneration for the performance of their duties. According to the Latvian Commercial Law, members of the management board are entitled to remuneration, which is commensurate with their duties and the financial condition of the company. Therefore, current and former members of the management boards of above mentioned Group Companies, as well as former members of the management boards of Eko Baltija and Tukuma Ainava, may request remuneration, which is commensurate with their duties and the financial condition of the Group Company, for the performance of the duties for the entire period in the office. The term of limitation for bringing claims for unpaid remuneration is 3 years. If compensation of any such unpaid remuneration will be claimed and the Group Companies will be obliged to compensate such claims, it may have material adverse impact on the Group s operations, prospects and financial results. Current and future assets of the Group Companies, certain amount of the Shares in the Issuer, as well as all the shares of the Group Companies are pledged. All current and future assets of Eko SPV, Eko Baltija, Eko Riga, Eko Reverss, Eko Kurzeme, Kurzemes Ainava, Jurmalas ATU, PET Baltija, Vaania, Nordic Plast and LZP are pledged in favour of Nordea Bank as security under the Nordea Financing Agreements. Moreover, the obligations under the Nordea Financing Agreements are secured by mortgages on certain real properties owned by the Group Companies. For more information please see: Business Encumbrances and Material Contracts - Financing Agreements - Agreements with Nordea Bank ). Additionally, the obligations under the Nordea Financing Agreements are secured by commercial pledge over 100% of shares in Eko Baltija, 100% of shares in Eko SPV, 100% of shares in Jurmalas ATU, 100% of shares in Eko Kurzeme, 100% of shares in Eko Riga, 100% of shares in Nordic Plast, 75.13% of shares in LZP, 91.03% of shares in PET Baltija, 90% of shares in Vaania, 100% of shares in Kurzemes Ainava and 100% of shares in Eko Reverss. Pledged shares may not be transferred or otherwise disposed of without the consent of Nordea Bank. Moreover, the Nordea Financing Agreements and related security agreements provide that consent of Nordea Bank is required to undertake certain corporate actions by the Group Companies, among others, to pay out dividends (for more information please see: Material Contracts - Financing Agreements - Agreements with Nordea Bank ). 19

20 In case of failure to fulfil the Nordea Financing Agreements by any of the borrowers or security providers Nordea Bank would have a right to satisfy its outstanding claims by, inter alia, sale of the pledged and mortgaged assets (including pledged shares) without court proceedings or auction at a freely determined price and/or sale of the mortgaged assets at auction at the terms and conditions approved by court or on the basis of court decision on recovering of the debt secured with mortgage. The occurrence of such events may have material adverse impact on the Group s operations, prospects and financial results. On 11 June 2012, the Principal Shareholders, ESOMTAX INVEST LIMITED (Cyprus), certain Group Companies and Nordea Bank concluded an agreement, whereby the parties agreed that the commercial pledge over the pledged shares of the Group Companies in favour of Nordea Bank will be cancelled after setting in of the following conditions: (i) a subscription of at least 5,000,000 (five million) New Shares of the Issuer during the Offering with the nominal value of LVL 1.00; (ii) at least 50% + 1 of the Issuer s Shares are jointly or individually owned by Viesturs Tamuzs, Maris Simanovics, Undine Bude, ESOMTAX INVEST LIMITED (Cyprus) and those shares have been pledged as a financial pledge in favour of Nordea Bank; (iii) amendments to the Nordea Financing Agreements of Group Companies have been signed indicating that the shares of Group Companies may not be encumbered in favour of other persons without prior consent of Nordea Bank until Group Companies have performed all their obligations towards Nordea Bank. Certain of the Group s credit facilities are subject to certain covenants and restrictions. The operating and financial restrictions and covenants in existing and any future financing agreements could adversely affect the Group s ability to finance future operations or capital needs or to pursue and expand its business activities. For example, some of the loan agreements require maintaining certain level of cash flow on the bank accounts, opened with the respective bank, to provide the bank with regular financial statements, information on the borrower s business activity, to fulfil certain financial covenants, to notify the bank on the changes in statutory documents, as well as any changes of management. The Group s ability to comply with covenants and restrictions contained in debt instruments may be affected by events beyond its control, including prevailing economic, financial and industry conditions. If market or other economic conditions deteriorate, the Group may fail to comply with these covenants. Failure to comply with the above mentioned requirements and failure to pay any principal, interest, fees, expenses or other amounts when due, as well as deterioration of the borrower s financial condition, entitles the bank to suspend granting of the loan facilities or to accelerate respective loans, and grants other rights to the bank, determined by the agreements and applicable laws. Though the Group believes that it complies with the conditions of the credit facilities in all material respects, there can be no guarantee that the Group will not be required to repay such facilities in the future with limited advance notice and when not provided for in the Group s budget. See: Material Agreements Financing Arrangements for more information about the Group s existing credit facilities. A default under financing agreements could also result in foreclosure on any of the Group s assets securing related loans, as well as could result in execution by Nordea Bank of the financial pledge over the Shares subject to lock-up arrangements (see risk factor: Current and future assets of the Group Companies, certain amount of the Shares in the Issuer, as well as all the shares of the Group Companies are pledged and section Shareholders Lock-up agreement ). The occurrence of any of these events may have material adverse impact on the Group s operations, prospects and financial results. The Group may not be able to obtain financing from the EU funds or the financing may be revoked. The business strategy of the Group includes active search for opportunities of obtaining financing from the EU funds (for more information please see: Business Overview Business Strategy ). Such financing may be invested in various projects, which could fuel the Group s growth. Although, there could be no assurance that such financing would be obtained at all or in the amount, and on conditions, allowing the Group to undertake planned investments. Moreover, usually projects co-financed by the EU are subject to strict terms and conditions, breach of which may lead to revoking of the financing and could force the Group to abandon its investment plans and projects, and return obtained financing. Additionally, the Group may also be obliged to return the obtained financing, if the Group is in breach of terms and conditions of EU financing in certain period after the successful execution of project. Each of these factors may have material adverse impact on the Group s business strategy, operations, prospects and financial results. 20