Current report no. 17/2016

Subject: Signing of the Investment Agreement concerning the financial investment in Polska Grupa Górnicza Sp. z o.o.

Legal basis: Article 56 section 5 of the Act on Offerings – information update

In reference to current report no. 16/2016 of 26 April 2016 the Management Board of ENERGA SA (“ENERGA”) reports that on 28 April 2016 ENERGA Kogeneracja Sp. z o.o. („ENERGA Kogeneracja”), an indirect subsidiary of ENERGA SA, signed an Investment Agreement specifying the terms and conditions of the financial investment in Polska Grupa Górnicza Sp. z o.o. (“PGG”) (“Investment”) (“Agreement”).

The parties to this Agreement are ENERGA Kogeneracja, PGE Górnictwo i Energetyka Konwencjonalna S.A., PGNiG TERMIKA S.A., Węglokoks S.A. („Węglokoks”), Towarzystwo Finansowe „Silesia” Sp. z o.o., Fundusz Inwestycji Polskich Przedsiębiorstw FIZAN [Polish Corporates Mutual Fund] (hereinafter jointly referred to as „Investors”) and PGG. PGG will conduct its operations on the basis of selected mining assets which it will acquire from Kompania Węglowa S.A. (“KW”) (11 mines, 4 establishments and all the support, management and oversight functions in the KW Head Office will be transferred along with them). PGG’s acquisition of the foregoing assets is slated to transpire on 29 April 2016.

The Agreement is to regulate how the investment will be conducted and how to join PGG, the rules for the operation of PGG and its corporate bodies as well as the rules for the parties to divest their investment in PGG. This Agreement calls for recapitalization of PGG in 3 stages by all the Investors with a total amount of PLN 2 billion 417 million.

Within the framework of recapitalizing PGG ENERGA Kogeneracja has undertaken to do the following:

1. To pay PLN 361.1 million for the newly issued shares in PGG during the first stage (payable within 4 business days after signing the Agreement). The first stage of recapitalization will enable ENERGA Kogeneracja to subscribe for 15.7% of PGG’s share capital.
2. To pay PLN 83.3 million for the newly issued shares in PGG during the second stage (by 3 November 2016), which (considering recapitalization by the other investors) will translate into a total stake of 16.6% in PGG’s share capital.
3. To pay PLN 55.6 million for the newly issued shares in PGG during the third stage (by 1 November 2017), which (considering recapitalization by the other investors) will translate into a total stake of 17.1% in PGG’s share capital.

The parties assume that upon satisfying the targets included in the business plan forming an appendix to the Agreement PGG may start to generate positive cash flow for its investors starting in 2017. According to the Company’s estimates, the generated cash flow should make it possible to achieve a rate of return exceeding the cost of capital employed. The Agreement posits the usage of multiple ratios to monitor execution of the business plan. In particular, they pertain to profitability, liquidity, the debt level and PGG’s operating efficiency. The Agreement contains clauses pertaining to providing regular information to the Investors’ representatives on the levels of the various ratios prescribed by the Agreement.

The Agreement specifies the rules for appointing Supervisory Board members according to which each shareholder will be entitled to appoint one member in the Supervisory Board with a maximum size of eight persons.

Subject to the exceptions contemplated by the Agreement, for 10 years after the date of the first recapitalization of PGG, while if the Company is transformed into a joint stock company, for 5 years after the date of registering the transformation, no shares whatsoever may be transferred without the consent of the other shareholders.