THE CONCLUSION OF THE INVESTMENTS AGREEMENT

Polish Energy Partners S.A. („Company”) hereby informs that on 18 July 2014 it executed the Investment Agreement (“Agreement”) with Capedia Holdings Limited with its seat in Nicosia, Cyprus (“Investor”). Furthermore at the same day the Company executed the Guarantee Agreement (“Guarantee Agreement”) with China Central and Eastern Europe Investment Co-Operation Fund SCS SICAV-SIF with its seat in Luxembourg, Luxembourg (“Fund”).

Subject to fulfillment of the conditions precedent listed below, the Investor has undertaken in the Agreement to subscribe for a 7,266,122 newly issued shares in the share capital of the Company (“Investor’s Shares”) for an issue price amounting to PLN 33.03 per each share in exchange for a cash contribution equal of PLN 240,000,009.66

The closing shall take place subject to the fulfillment of the following conditions precedent:

1) the General Meeting of the Company adopts the following resolutions:
a) Investor’s Share Capital Increase;
b) Company’s Share Capital Increase by issuing 16,863,458 of shares for an issue price amounting to PLN 33.03 per each share to be acquired in exchange for the in-kind contribution as described below (“Contribution Shares”); and
c) amending of the Company’s Statute as described below;
d) issue of no more than 12,685,429 new shares of the Company (“Offered Shares”) for an issue price of not less than PLN 33.03 per each share;
2)  No material adverse change has occurred from execution of the Agreement until the subscription of the Investor’s Shares, which is defined as a material adverse effect on the financial condition or results of operations of the Company, PEP Group Companies or Neutron Group Companies (as described below), taken as a whole, value of which is higher than PLN 60,000,000.

Furthermore, the Investor has undertaken that for a period of 18 (eighteen) months from the date of the registration of the Company’s Share Capital Increase it will not sell any of the Investor’s Shares (lock-up);

In-kind contribution made in exchange for Contribution Shares (“Contribution”) constitutes 100% of shares in Neutron Sp. z o.o. with its seat in Warsaw, Poland (“Neutron”) which value is estimated for PLN 557,000,017.74. Neutron is a holding company having shares in the following companies:

1)    100% shares in Elektrociepłownia Nowa Sarzyna Sp. z o.o. – a gas fired CHP of 116MWe/70MWt capacity;
2)    100% shares in Polenergia Kogeneracja Sp. z o.o. – company involved in the distribution and sales of gas, as well as historically co-generation;
3)    100% shares in Elektrownia Północ Sp. z o.o. – company involved in the development of a coal fired power plant in northern Poland, with total maximum capacity of 1,600MW (2x800MW);
4)    100% shares in Polenergia Dystrybucja Sp. z o.o. – company active in sales and distribution of electricity;
5)    100% shares in Polenergia Obrót S.A. – company active in the trading of electricity, gas and certificates;
6)    100% shares in Natural Power Association Sp. z o.o., which is the sole owner of: Bałtyk Północny S.A., Bałtyk Środkowy II Sp. z o.o., Bałtyk Środkowy III Sp. z o.o., companies active in the development of 1,200MW of On Shore Wind Farms, 600MW of which is planned to be operational by 2022;
7)  100% shares in PPG Pipeline Projektgesselschaft GmbH and 100 shares in PPG Polska Sp. z o.o. – companies involved in development of gas transmission pipeline between Germany and Poland with the capacity of up to 5 billion m3
8)    20% shares in GEO Kletnia Sp. z o.o. – company developing a 40MW On Shore Wind Farm.

The proposed amendments to the Statute refers to the following additions:

1)    increase of the maximum number of the Supervisory Board members to 9 (nine);
2)    the Fund’s right to appoint and dismiss one member of the Company’s Supervisory Board;
3)    the membership of the Company Supervisory Board’s Member appointed by the Fund in the audit committee of the Supervisory Board;
4)    necessity of obtaining an approval of at least 50% of the Independent Supervisory Board Members for commencing the Company’s activity outside the energy or fuel sector, where the independent members shall be independent in particular from Kulczyk Investments S.A.

–  which provisions of the Statute presented above will be in force as long as the Investor holds (directly or via its wholly owned subsidiaries) the shares representing at least 12.5% of the voting rights in the Company.

Information regarding the Contribution and its evaluation as well as draft resolutions of the General Meeting of the Company including amendments to the Statute, will be included in the Current Report no. 9/2014 that regards convening the General Meeting.

Under the Agreement the Company has undertaken towards the Investor that:
1)    it shall convey the General Meeting of the Company with the agenda including passing all resolutions mentioned above;
2)   no activities shall be made apart from the ordinary course of business within the period from execution of the Agreement and until its fulfilment, i.e. among the others subscription and payment for the Investor’s Shares by the Investor. This undertaking does not cover particular actions referred to in the Agreement (such as regarding debt financing);
3)    admission of the Investor’s Shares and Contribution Shares to trading on the WSE (for such purpose a.e. preparation of the Issue Prospectus);
4)   apart from the exceptions mentioned in the Agreement, the Company shall not issue the Offered Shares nor any further issue of share for the price lower than PLN 33.03 per share and within the period of 18 months from the fulfilment of the Agreement (as described in section 2 above) nor any sell of assets for the purchase price lower than valuation agreed with the Investor;
5)    Management Board of the Company shall recommend at the Ordinary General Meeting a dividend equal to at least 20% (twenty percent) of net income from the Ordinary General Meeting approving the financial statement for 2017;
6)    It shall allow the Fund to submit its offer in case the Company is looking for the external financing.
7)    It shall give support in case of Investor’s sale of the Company’s shares after the lock-up period;
8)    It will reimburse transaction cost incurred by the Fund, up to the amount of PLN 1,800,000.

In the Agreement the Company represented towards the Investor of the current Company’s PEP Group and the Contribution’s status. Representations refer to acting in a proper manner and consistently with law. The Company’s liability in case of misrepresentation is limited to PLN 60,000,000, except the liability for representations regarding the valid existence of the Company and its shares, which is limited to PLN 240,000,000.

The Company recognized the Agreement and the Guarantee Agreement as significant because each of these agreements’ value exceeds 10% of the Company’s equity.

Strategy of the enlarged group

Through the cash contribution to be conducted by the Investor, as well as the In-kind Contribution of the assets described above, the Company is executing the long term strategy first outlined in the Current Report 3/2014 released on 13 February 2014. This long term strategy is based on the creation of an integrated utility across the electricity value chain with strategic focus on renewable generation and energy/gas infrastructure, with healthy, regulated and predictable cash flows and returns.

The current portfolio of assets, as well as those to be acquired as part of the In-kind Contribution, and those which will be developed in the future, focus on long term off-take contracts and stable regulation in order to limit market volatility.

Further, significant shareholder value growth is supported by increased renewable energy and co-generation regulatory stability (yellow and green certificates). Value creation will be built up in two stages:

1. Stage 1 – 2014-2016:
–  additional 380MW of on shore wind farms to be put into operation, of which 67MW is already under construction, 37MW will commence construction in July 2014, and 147MW has commenced the financing process; and
–  securing of Grid Connection Agreement (August 2014) as well as the Environmental Decision for 1,200MW of offshore wind farms and full development of the gas transmission pipeline between Germany and Poland for up to 5bcm/annum.

2. Stage 2 – 2017-2022:
–  further 500MW of on shore wind farms to be put into operations;
–  construction of 600MW of off shore wind farms as well as development until a ready-to-build stage of a further 600MW;
–  construction of the gas transmission pipeline between Poland and Germany for up to 5bcm/annum

It is envisaged that the equity acquired from the Investor will be utilized primarily for the equity capital necessary to construct on-shore wind farms by 2016.
Remaining capital necessary for the realization of the strategy for 2014-2016 is targeted to be raised from a public offering of new shares (not via a rights issue) by year end 2014 or early 2015.